Posts Tagged ‘News from the Profession’

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

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

Photo courtesy Philmontscoutranch.org

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

 

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

 

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

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

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

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

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

Some people just are perfectionists.

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

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

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

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

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

Material participation hours tests can be found here.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

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

 

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

 

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

 

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

 

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

Jason Dinesen, Glossary of Tax Terms: Head of Household   

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

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

 

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

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

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

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

 

20140711-2

 

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

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

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

 

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Tax Roundup, 7/9/14: It’s an outrage! Oh, we did it? That’s fine. And: Economic development cyanide!

Wednesday, July 9th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

So the taxpayer wants a tax refund.  He calls an IRS agent, who says she will look into it and call back.  Impatient taxpayer calls the agent back five times and tells her she is being uncooperative, finally telling her to “put her money where her mouth is.”  Taxpayer several days later sends the agent a letter telling her that she could issue the tax refund, but chooses not to, and demands the IRS submit some documents.  The IRS schedules a meeting, and the taxpayer insists on the refund now.  The taxpayer attempts to put a lien on the agent’s property for the balance due.

Naturally the taxpayer finds this doesn’t work, and gets hit with all sorts of penalties for this, right?  No, the taxpayer gets off scot-free.  Can you believe it?

Oops, I misspoke.  I got the names backwards.  The IRS was doing this to the taxpayer, and the courts this week refused to impose penalties on the agency for hounding a 71-year-old lady for back taxes on a failed like-kind exchange.

Sauce for the goose really ought to be sauce for the gander.  The IRS has a lot more resources and a lot more ability to follow the law than the average taxpayer.  Yet while the IRS and the courts routinely slap penalties on inadvertent or naive violations of a complex tax law, the courts rarely hold the powerful IRS to the same standards, and it almost never penalizes the agents for misbehavior towards taxpayers.

Cite: Antioco v. United States; USDC CA-ND, No. 3:13-cv-00924

Stephen Olsen, IRS Not Liftin the Penalties — Fed Circuit Denies Taxpayer’s Reasonable Cause Argument (Procedurally Taxing) The courts stack the deck against the taxpayer a little more.

 

20120906-1Don Boudreaux“Damn! My Neighbor Swallowed Cyanide. I Guess I Gotta Swallow Cyanide, Too.”  He’s talking about the crony subsidy Export-Import Bank, but his apt argument applies just as well to state “economic development” tax credits:

Subsidies and other economic privileges weaken the domestic economy.  They do so because, in order to artificially bolster industries that excel at satisfying politicians, such privileges necessarily transfer resources away from industries that excel at satisfying consumers.  Because Mr Summers (like nearly all economists) apparently accepts this sound argument, he especially should see that subsidies are not the economic equivalent of armaments: an armaments build-up does indeed strengthen the country militarily; subsidies, in contrast, weaken the country economically.

So when foreign governments subsidize industries (for example, through export credits of the sort doled out by the Ex-Im Bank), they themselves weaken their own countries’ economies relative to economies whose governments dispense no subsidies or other special privileges.

Taxing your existing taxpayers to lure and fund their competitors is a bad idea, even if Illinois is doing it too.

 

IRAJason Dinesen, ROBS Transactions – Be Very Careful of Using Retirement Funds to Start a Business.  Jason discusses the unwisdom of having your IRA invest in your business.  It can be a catastrophically expensive source of capital.

William Perez, Wage and Salary Income.   How it’s taxed.

Kay Bell, Pot shop seeks Tax Court relief from cash tax payment penalty.  You have to remit your taxes electronically.  We won’t let you have a bank account to transmit it from.  Understand?

Jim Maule’s Tax Myth series continues with “The IRS Gave Me a Refund.”  ” I suppose that those who are concerned that the federal government or a state government might run out of money before the refund is paid are overjoyed when the refund arrives, but as a realistic, practical matter, simply getting one’s money back isn’t a joyous occasion.”

Peter Reilly, Should You Follow The Clintons And Do Your QPRT Sooner Rather Than Later?

Robert W. Wood, Five Stages Of Grief, IRS Version.  I see clients go through all five stages every April.

 

20140508-1Kyle Pomerleau, Bonus Depreciation is a Bonus, but Full Expensing is Ideal (Tax Policy Blog)  “An Ideal tax code would allow the full $100 cost of the oven to be deducted in the year in which it was purchased.”

Howard Gleckman, New TPC Analysis: What Dave Camp’s Tax Reform Plan Would Really Mean (TaxVox)

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Kansas Edition (Tax Justice Blog).  “This Kansas gubernatorial election is shaping up to be a referendum on Governor Sam Brownback’s tax cuts and supply-side economics generally.”

Jeremy Scott, Could EU Probe Signal the End of Sweetheart Tax Deals? (Tax Analysts Blog)  “U.S. tax rules are clearly complicit in multinationals’ ability to lower their tax burden, but the European Union is now examining whether its member states are inappropriately aiding some companies through so-called sweetheart transfer pricing arrangements.”

Accounting Today has your Tax Fraud Blotter.

TaxProf, The IRS Scandal, Day 426

News from the Profession:  Consultant Shares Secrets For Milking the Most Out of CPA Firm Staff (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 7/1/14: Where the IRS budget really goes. And: IRS ends automatic expiration of foreign tax ID numbers.

Tuesday, July 1st, 2014 by Joe Kristan

Dang.  “We do not hold, as the principal dissent alleges, that for-profit corporations and other commercial enterprises can ‘opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.’” — from the majority opinion in yesterday’s Hobby Lobby Supreme Court decision.

Had they allowed a religious exception to the tax law, all the world religions would quickly develop wildly-popular sects with a doctrinal allergy to tax, and, well,  lots of things.

 

Instapundit links to this chart where it looks like IRS spending is out of control

IRS total 20140701 cato

And I think it is — but not in the obvious way.  The Cato Institute, source of the first chart, also provides this:

IRS budget cato 20140701

It shows that almost all of the massive increase in IRS spending is from refundable credits, which are counted as part of IRS spending in the first chart.  But money given away through the Earned Income Tax Credit is not available for auditing taxpayers or buying additional backup tapes.

That, of course, doesn’t excuse the IRS malfeasance in the Tea Party scandal.  It does show that even as Congress has piled more responsibilities on the IRS — especially via Obamacare — it hasn’t provided additional resources.  Now that one party has seen that the IRS has been acting institutionally as its opposition, the agency is unlikely to get significant new resources as long as that party controls one house of Congress — even less so if the GOP takes the Senate, too.

Meanwhile, rather than trying to conciliate and reassure Congressional Republicans, Commissioner Koskinen has been defiant and tone-deaf in his response to the Tea Party and email erasure scandals.  The results for tax administration will not be good.

 

Jeremy Scott, IRS Strategic Plan Highlights Effects of Budget Cuts (Tax Anlaysts Blog):

A crippled tax collector means a damaged tax system. And a damaged tax system only hurts taxpayers and the federal government as a whole. Congress should focus more on punishing those responsible for the various missteps at the IRS and less on gutting the nation’s revenue collection and tax administration system as a whole.

That will require the IRS as a whole to stop acting like a partisan agency.

 

20130419-1IRS does something very sensible.  Credit where credit is due:  the IRS has decided to no longer make non-resident aliens renew their tax ID numbers every five years.   From IR-2014-76:

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

Very welcome, and long overdue.  Obtaining an ITIN is an inconvenient and burdensome process, involving either mailing passports or national ID cards to the IRS — and trusting them to return the documents — or making the often long trip to a U.S. consulate to apply in person.  For foreign residents with long-term U.S. financial interests, the requirement to renew ITINs every five years was a gratuitous and expensive burden.

(Hat tip: Kristy Maitre).

 

BitcoinRobert Wood, What IRS Calls ‘Willful’ May Surprise You–And Mean Penalties, Even Jail.  The lingering IRS threat to impose fines for “willful” FBAR noncompliance for small amounts is unwise; it seems that they are more concerned with missing a few lawbreakers than in bringing foot-fault violators into compliance.

Jack Townsend, Good Article on the Non-Willfulness Certification for Streamlined and Related Issues

TaxGrrrl, IRS Says Bitcoin Not Reportable On FBAR (For Now)   

 

Paul Neiffer, IRS Releases Final Regulations on ACA Small-Business Tax Credit

Robert D. Flach starts out July with a Buzz!

Kay Bell, Supreme Court finds contraceptive tax costs ‘substantially burdensome’ in its ruling for Hobby Lobby stores

 

 

Martin Sullivan, States Should Cede Some Taxing Power to the Feds (Tax Analysts Bl0g):

Given that states’ corporate taxes are here to stay, we should consider making them as painless and low-cost to businesses as possible. One way to do that is for Congress to exercise its authority under the commerce clause of the Constitution and require states to entirely piggyback their corporate taxes on the federal system.

Canada does this, and it does help, but getting rid of state corporate income taxes would help much more.

Liz Emmanuel, Millionaires’ Tax Clears New Jersey Legislature, Faces Likely Veto (Tax Policy Blog)

Renu Zaretsky,The Tax Man Cometh, But Sometimes Collects Less.  The TaxVox headline roundup covers the formal effective date of FATCA (today), Kansas budget woes, and a link to an interactive tool to track state budgets.

 

Russ Fox, IRS Didn’t Tell a Court About the Missing Lerner Emails

TaxProf, The IRS Scandal, Day 418

 

20140508-1I wouldn’t try asking one this question.  What Type of Fruit is a Polar Bear? Petaluma and Interpretive Choice (Andy Grewal, Procedurally Taxing)

Career Corner.  How to Create a CPA Exam Study Schedule That Guarantees Failure (Adrienne Gonzalez, Going Concern)

News from the Profession.  San Diego CPA convicted in elaborate tax evasion scheme:

A federal jury deliberated for 30 minutes before finding Lloyd Irving Taylor, 71, guilty of all 19 counts against him, including aggravated identity theft, making false statements to a financial institution, evading taxes, corruptly impeding the Internal Revenue Service and making false statements on U.S. passport applications.

According to evidence presented at trial, Taylor, who has been in custody since April 2013, stole the identities of deceased minors, used them as aliases and obtained fraudulent passports and other identification papers.

Oh, that’s illegal?

According to witnesses who testified, Taylor failed to report $5 million in income during the span of the fraud and owed the IRS about $1.6 million. During his 42 years of working, Taylor had filed a total of seven tax returns, according to trial testimony.

That’s one every six years.  It took awhile, but the IRS eventually notices something was amiss.

At a bond hearing last year, a judge ordered Taylor detained pending trial based on a number of factors, including his international travel on his false passports, the millions of dollars he controlled through dozens of bank accounts and his numerous false statements to banks.

I suppose the man felt invincible, given how long he apparently went without drawing IRS attention.  Eventually that comes around, though he had quite a 42-year run.  But he did get caught, possibly because of better computer matching and more comprehensive bank reporting.  Don’t count on stringing the IRS out for 42 years yourself.

 

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Tax Roundup, June 30, 2014: FBAR due date edition. And: links from all over.

Monday, June 30th, 2014 by Joe Kristan

20130426-1Remember, today is the deadline for electronically-filing Form 114, the “FBAR” disclosure of foreign financial accounts totalling over $10,000 at any time during 2013.  The penalties for failure to file are ferocious — up to 50% of the account balance.

 

Roger McEowen, Valuing Minority Interests in Closely-Held Businesses – The Business Judgment Rule, Fiduciary Duties and Reasonable Expections. ” Clearly, the decisions point out that a well-drafted buy-sell agreement can go far in protecting the rights of minority shareholders in closely-held corporations.”

Laura Saunders, The Hazards of Offshore-Account Disclosure: Here’s What Taxpayers Need to Consider Before They Confess (Via the TaxProf).

TaxProf, The IRS Scandal, Day 417

Noah Rothman, ‘Phony scandals’ and an election year ‘demon’: Lois Lerner’s unconvincing defenders (Hot Air).

The Hill, IRS staredown not going away.

 

Elaine Maag, Misguided Expansion of the Child Tax Credit (TaxVox).  The Maag version, with phaseouts at higher incomes and their accompanying poverty-trap high marginal tax rates, would be worse.

Kay Bell, Congress wants to consolidate the many education tax breaks

Jack Townsend, Sentencing Tales Told in Spreadsheet. “I offer today three spreadsheets offered in two sentencing proceedings from prominent convictions of Beanie Babies founder, Ty Warner, and of lawyer/tax shelter promoter, Paul Daugerdas.”

20130530-2Cara Griffith, Live Free and Be Censored: What’s New Hampshire Hiding? ($link).  A disturbing case of the New Hampshire Department of Revenue Administration trying to control the content of a blog covering New Hampshire taxes.  From the article:

The New Hampshire DRA has crossed the line into tyranny by attempting to suppress information regarding how it administers the state’s tax system. The tax community shouldn’t stand by while the DRA shrouds itself in secrecy and threatens to punish those who exercise their First Amendment rights.

It looks like the Free State Project has some work to do.

 

Jordan Yohiro, Business Tax Incentives in Nebraska: Is There a Better Way? (Tax Policy Blog)  Hmm.  How about a low-rate, simple system that is easy for everyone to understand and inexpensive to obey?

 

20140411-1Robert D. Flach takes to the pixels of Accounting Today to explain why There Are So Many Things Wrong with the Annual Filing Season Program.  “The announcement of the “Annual Filing Season Program” is a clear indication that the IRS should not be the organization to offer and maintain a voluntary tax preparer designation.”

 

Well, that’s a relief.  Marion Barry Doesn’t Want To Tax Your Yogurt  (TaxGrrl)  ” The question posed to Barry was about a proposed tax on yoga.”

News from the Profession.  Retire From EY, Receive a Free Scrapbook of Career Highlights (Adrienne Gonzalez, Going Concern)

 

 

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Tax Roundup, 6/17/14: Hiring witnesses to your tax crimes. And: some folks just aren’t into Valentines Day.

Tuesday, June 17th, 2014 by Joe Kristan

Programming note:  The Tax Update will be on the road the rest of this week, so this is probably the last tax roundup this week.  Unless I change my mind.

 

Via Wikipedia

Via Wikipedia

Sure, the more witnesses to my crime the merrier.  What could go wrong?  Every time I see a case in which an employer gets in trouble for evading payroll taxes by paying employees in cash, I have to wonder how much they thought things through.  Every employee becomes a potential informant, and it’s hard to imaging not having either a disgruntled employee turn you in or a careless one reveal the secret in the wrong place.

The Department of Justice yesterday announced a guilty plea yesterday:

   Sonny Pilcher of Casper, Wyoming, pleaded guilty to tax fraud today in the U.S. District Court for the District of Wyoming, the Justice Department and Internal Revenue Service (IRS) announced.  The sentencing hearing was set for Oct. 28, 2014 before U.S District Judge Alan B. Johnson.

 According to the charging document, Pilcher attempted to obstruct and impede the IRS.  Pilcher did this by claiming a false bad debt expense of $258,000 on his 2008 Form 1040 tax return, and by paying his employees in cash to evade paying employment taxes.  Pilcher faces a statutory maximum sentence of 36 months in prison, a $250,000 fine and may be ordered to pay restitution to the IRS. 

The inclusion of the “bad debt” in the charge is interesting.  You frequently see cases where people claim a non-business bad debt — which is a capital loss — as an ordinary fully-deductible business bad debt.  While you might see a civil penalty in such a case, I have never seen that called a criminal matter.  This presumably was something more serious than an argument over what kind of bad debt it was.

 

20120801-2If you have a full-time job, you probably aren’t a “real estate professional” who can deduct rental losses.  And if that’s so, don’t embarrass yourself in front of a Tax Court judge.  A taxpayer from California made that mistake in a Tax Court case issued yesterday.

Real estate rental losses are normally passive, meaning that they only are deductible to the extent of passive income (there is a special allowance for taxpayers with adjusted gross income under $150,000).  If you are a “real estate professional,” the losses are not automatically passive, but you have to meet two difficult tests to be one:

- You have to work at least 750 hours in the year in a real estate trade or business which you own, and

- your real estate business has to consume more of your time than anything else you do.

If you have a full-time day job, it is nearly impossible to rise to that standard (unless you have a pretty undemanding day job).  That didn’t keep the intrepid Californian who had three rental properties — all single-family houses — from giving it a try, as the Tax Court judge explains (my emphasis):

Even if we assume that petitioner worked 1,760 hours and 1,752 hours in 2009 and 2010, respectively, for Northrop Grumman, we do not accept his activity log coupled with this testimony relating to the rental activities as reliable or credible. A review of the activity log and testimony relating to the rental activities leads us to the conclusion the petitioner did not spend more hours at the real estate activity than at his full-time employment at Northrop Grumman. According to petitioner’s logs he spent almost every spare hour in those years working on the rental properties, including 10 hours on July 4 of each year, 12 and 10 hours on February 14, 2009 and 2010, respectively, and 9 and 10 hours, respectively, on December 25 of each year.

Hey, not everybody is a romantic.  And I’ll keep Christmas in my own way, thank you very much!

Although he managed three rental properties in each year, throughout 2009 alone petitioner’s records reflect that he repaired or worked on the sprinkler systems on any of the given properties on 64 separate occasions, and throughout 2010 he worked on sprinkler systems on 20 separate occasions. In addition, on March 16 and 17, 2009, the records reflect eight hours to prepare and deliver an eviction notice to be filed in court. Coincidentally, on March 15 and 16 of the next year, petitioner’s records reflect that he performed the very same activity for the same exact amount of time. A review of petitioner’s activity logs leads to the conclusion that the logs are inaccurate and exaggerated.

Maybe he just wasn’t very good at sprinkler systems?  Whatever you might think of Tax Court judges, you can be sure that they didn’t get their jobs by being gullible.

Cite: Bogner, T.C. Summ. Op. 2014-53.

 

 

20130114-1Kristy Maitre, Treasury Issues Changes to Circular 230 (Treasury Decision 9668):

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing.  Often the disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.

Treasury said they anticipate that the removal of the requirement will eliminate the use of a Circular 230 disclaimer in e-mail and other writings because Section 10.37 rules on written opinions don’t include the disclosure provisions in the covered opinion rules.

Good news.  I always thought the routine disclaimers were futile and I never used them.  They seemed like the email equivalent of a rabbit’s foot — it might make you feel better, but it still was mere superstition.  Yet I bet that we’ll still be getting emails from our fellow practitioners with the Circular 230 disclaimer years from now.

Russ Fox, Soon: No More Circular 230 Notices

 

Jason Dinesen, Iowa Taxes: Filing Separately and Allocating Dependents.  “In general, a typical married couple can allocate the dependency exemptions in whatever manner they choose.”

William Perez, Child and Dependent Care Tax Credit

Peter Reilly, Paul Reddam’s KPMG Tax Shelter Stunk In More Ways Than One 

TaxGrrrl, World Cup Mania: Figuring Out FIFA, Soccer & Tax.  So there’s a soccer tournament, I hear.

Robert D. Flach starts Tuesday with a Buzz!

 

20140513-1Martin Sullivan, Big Deal by Low-Tax Medtronic Has Even Bigger Implications (Tax Analysts Blog).  “The main benefit to Medtronic after the inversion will be that the billions of profits it generates outside the United States each year can now be deployed to pay dividends and to buy other U.S. companies without paying U.S. tax.”   Sounds like good corporate stewardship to me.

William McBride, Medtronic Embarks on Self-help Tax Reform (Tax Policy Blog).  “The high U.S. corporate tax rate is causing serious economic distortions, chasing away businesses, investment and jobs. The only way to deal with it effectively is to bring the corporate tax rate down to competitive levels, which is the path chosen by virtually every other country.”

 

Renu Zaretsky,  Tax Freedom, Tax Avoidance.  The TaxVox headline roundup covers the Medtronic inversion and internet taxes.

TaxProf, The IRS Scandal, Day 404

Kay Bell, IRS says possible Tea Party emails lost in computer crash. “Conspiracy or clowns?”

 

News from the Profession.  Here’s Your Authoritative Guide for Likening Game of Thrones to Public Accounting (Going Concern)

 

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Tax Roundup, 6/9/14: The great Illinois privatized tax shakedown. And lots more!

Monday, June 9th, 2014 by Joe Kristan

The wedding was beautiful, and great fun.  Introducing the new married couple.

 

Illinois sealGreat moments in state taxation.  Tax Analysts has a disturbing story ($link) about how an Illinois law firm is using the “qui tam” recovery procedures of the state’s False Claims Act against out-of-state taxpayers.  In a “qui tam” proceeding, an outside party, known as a “relator,” can file a lawsuit alleging fraud against the state and then share in the recovery — up to 25%, according to the story.

And they actually may be hurting state tax collection efforts, according to the story:

“The cases have clearly interfered with the administration and enforcement of tax law and may have even ultimately cost the state money, though it’s impossible to quantify how much,” said Mark Dyckman, the Illinois Department of Revenue’s deputy general counsel for sales tax litigation.

The story says the firm involved “is responsible for 99 percent of the qui tam tax litigation in Illinois.”

The story says Illinois may encouraged the suits initially, apparently thinking it could get some easy money out of the deal.  In other states where the firm tried the same thing, state Attorneys General won dismissals of the initial suits, discouraging further efforts.  The firm is also incentivized by the ability of a relator to share in outsized false claim penalties:

Second, while the treble damages for back taxes under false claims acts naturally attract the most attention, [taxpayer attorney Jordan] Goodman said the civil penalty — generally $5,000 to $10,000 per false claim under the federal law and $5,500 to $11,000 per false claim under the Illinois statute — can be just as oppressive, depending on what counts as a false claim. If each monthly sales tax return is a false claim carrying a $10,000 penalty, and 12 returns are filed in one year, that’s a $120,000 penalty. If every failure to collect taxes on shipping and handling is a false claim, and the business averages 10 sales into the state per month for 120 false claims, that’s a $1.2 million penalty for the year, which can turn into $12 million for the 10-year period covered by the false claims act.

Wikipedia image of Tams

Wikipedia image of Tams

The story says that one tactic used by the Illinois law firm is to make out-of-state purchases over the internet, and then to file suits if no sales tax is collected.  As the law covering remote sales remains unclear, it’s difficult to consider these items “false claims.”  That’s especially true in suits in which the taxpayer either was following published guidance or an audit settlement with Illinois.

These cases have apparently been going on since 2002, and the legislature and the state have yet to stop what would appear to be a purely abusive and parasitic practice.  If there ever was a case for universal application of a “sauce for the gander” rule, in which a losing plaintiff had to pay the same amount of penalties asserted against the winning defendant, this would be it.

 

Alligator bait.  The New Orleans Advocate reports on a Film tax credit promoter sentenced to 70 months.  It’s remarkable what high quality entrepreneurs these state tax giveaways attract.

 

20130114-1The ISU Center for Agricultural Law and Education is setting up a “Tax Place” feature on its website.  They seek your input.

Paul Neiffer reminds us that FBAR Filing Deadline is Near

Peter Reilly, CPA Faces Prison For Letting Client Deduct Personal Expenses.  It makes you want to carefully consider the work you want to take on.

Russ Fox, Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts.  More incomprehensible foreign tax enforcement.

 

Cara Griffith, Protecting Confidentiality When Information Is Exchanged Between Tax Authorities  (Tax Analysts Blog)

TaxGrrrl, As NBA Finals Continue, Tax Incentives Lure 76ers Into New Jersey   

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

Kyle Pomerleau, CTJ and U.S. PIRG Mislead with New Report on Corporate Taxes (Tax Policy Blog):  “USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.

Tax Justice Blog, Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors.  Never let the facts get in the way of what is “widely known.”

 

Howard Gleckman, Are Domestic Partnerships A Way For Heterosexual Couples To Avoid The Marriage Tax Penalty?   (TaxVox) This sort of thing makes makes me question the usefulness of “nudge” strategies to use the tax code to encourage behavior.  There are always perverse unintended consequences.

 

News from the Profession.  Public Accounting Firms, Ranked by CEO Hotness (Going Concern).  A tallest midget competition.

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Tax Roundup, 5/23/14: We’re sorry. Can we have our funding now?

Friday, May 23rd, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The IRS wants its budget back.  The agency has withdrawn the proposed regs that would institutionalize its mistreatment of Tea Party groups.  Accounting Today reports:

The announcement Thursday came in response to the unprecedented number of comments—over 150,000—the IRS received on the proposed rules, which were supposed to govern the types of political activity that would be permissible for groups to maintain tax-exempt status as “social welfare” organizations under Section 501(c)4 of the Tax Code (see Treasury and IRS Issue Guidance for 501(c)4 Tax-Exempt Social Welfare Organizations). The issue has roiled the IRS since last year, when the former director of the IRS’s Exempt Organizations unit, Lois Lerner, admitted that the IRS had used terms such as “Tea Party” and “Patriot” to screen applications from conservative groups applying for tax-exempt status. Those revelations led to the departures of Lerner and a number of other high-ranking officials at the IRS, along with a series of contentious hearings, subpoenas and contempt of Congress charges against Lerner.

The new commissioner, John Koskinen, indicated back in February that the proposed regulations are not likely to be finalized anytime soon and would be subject to heavy revision in response to the thousands of comments the agency received (see IRS Commissioner Koskinen Says Proposed Tax-Exempt Rules Won’t Be Finalized Soon). Republican lawmakers in Congress introduced legislation in February to block the proposed regulations (see Congress Considers Legislation to Block IRS’s Proposed 501(c)4 Regulations).

I suspect it will be a loooong time before they come out with a new set of proposed regulations — comparable to the wait for the final regulations on self-employment taxation of LLC members, which have been “proposed” now since 1997.  This is probably a necessary first step for the IRS to get its full funding restored, given how much it has done lately to demonstrate that it is institutionally opposed to the GOP.  Maybe it would help also to demonstrate some fiscal discipline by dropping its costly pursuit of preparer regulation by “voluntary” means.

 

Related: TaxProf, The IRS Scandal, Day 379

 

Jim Maule, No Deduction If Entitled to Reimbursement.  “It is a long-established principle of federal income tax law that a taxpayer is not permitted to deduct an otherwise deductible expense to the extent that the taxpayer is entitled to reimbursement from the taxpayer’s employer.”

Kay Bell, Summer travel time is prime tax time

Peter Reilly, American Atheists Denied Standing To Challenge Church Tax Breaks.

Robert D. Flach come’s through with the week’s third Buzz!

 

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Christopher Bergin, The Punishment of Credit Suisse Is Not Enough (Tax Analysts Blog). “People need to start going to jail for these types of abuses.”  No, our tax authorities prefer to shoot jaywalkers so we can gently chastise the international money-launderers.

Jack Townsend, Credit Suisse Update – The Aftermath for Credit Suisse #1.  The Federal Tax Crimes blog rounds up coverage of the Credit Suisse plea.

Stephen Olsen, Summary Opinions for 5/16/14 (Procedurally Taxing). The most interesting item to me in this roundup of tax procedure posts is “IRS is doing limited audits on Section 409A plans, and Winston and Straw has some coverage here.”  The horrible Section 409A rules haven’t triggered many audits.  That may be ending, and 20% penalties, plus income taxes, on funds never received will then be on the way as a result of foot-fault violations of the insanely-complex rules governing non-qualified deferred compensation plan distributions.

 

Joseph Henchman, IRS Considering Change in Tax Treatment of Travel Loyalty Points (Tax Policy Blog). What could go wrong?

Len Burman, Why Not Ditch the Medical Device Excise Tax and Boost Cigarette Taxes? You know, if we really wanted to promote public health, we should consider promoting e-cigarettes to get people off the real thing.  Instead, the government wants to tax and restrict them just like real coffin nails.

 

Adam Weinstein, Why Our Political System’s Screwed, in One Very Basic Chart:

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Via Nick Gillespie.

 

News from the Profession: Ex-KPMG Partner Who Gave Insider Tips to His Former Golf Buddy Is Going to Talk About Ethics Before He Goes to Prison (Going Concern)

 

Have a great Memorial Day Weekend!

 

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Tax Roundup, 5/19/14: The Roth dilemma. And: risks in enlisting the bookkeeper in your tax crimes.

Monday, May 19th, 2014 by Joe Kristan

IRAIs it better to get a tax benefit now and pay taxes later on retirement income, or vice-versa?  Bloomberg econobogger Megan McArdle ponders the question in To Roth, or Not to Roth:

In theory, the calculation is easy: Figure out whether your tax rate is likely to be higher now or in the future. If you’re young, the answer is likely to be “future”; if you’re in your peak earnings years, you’re probably looking at a lower tax rate when you’re retired.

But while the theory is simple, in practice, things are considerably more complicated. Personal finance is less about math than psychology . . . and tax policy, in this case. What will the tax rate on your income be when you retire — higher or lower than your current tax rate?

“Roth” IRAs and 401(k)s offer no current tax reduction, but if the account is left untapped long enough, there is never an income tax on the earnings.  It’s not always a tough choice.  Many young people face a marginal income tax rate of zero.  To the extent a low-earning young taxpayer benefits from a 401(k) plan or saves in an IRA, you might as well go with a Roth version, as there is little or no current benefit anyway.

As you climb the income ladder, it quickly becomes a more difficult decision.  When my company first had a Roth option, I opted in for a year.  Then it occurred to me that I was making a bet on much higher tax rates in the future at much lower income levels.  That seemed like a losing bet (but see this) and I switched back to the traditional 401(k) with current tax savings.

Megan also notes a real, if hard to quantify, problem with betting on future benefits (my emphasis):

We’re running some substantial deficits, and we’ve made some big promises to retirees. Those obligations will have to be paid for somehow, and by “somehow,” I mean “With higher taxes on someone.” What are the chances that you’ll be that someone? Pretty high, if you save a lot for retirement.

That makes a Roth sound like a pretty good bet. But unfortunately, the same logic that suggests higher income taxes in the future also suggests that a hungry-eyed Congress might settle on all those fat tax-free retirement accounts as a way to balance the books. What Congress giveth, Congress can taketh away. Can you really count on that income being tax-free when it’s finally time to collect it?

If you think no politician would be so brazen, just remember:  “If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.

 

20121120-2Good thing the ACA solved the problem of the uninsured.  Report: 230,000 Iowans still lack health care coverage (Des Moines Register).  Good thing we destroyed the health insurance industry and imposed a whole series of punitive and complicated taxes.

 

Russ Fox, Deadlines for Us, But Not for Them (Part 2), “Later this week it will be seven months since my reply was received. Another nine-week hold has been put on collection activities as the IRS admits that there is correspondence waiting to be reviewed. If we go nine more weeks it will be over nine months since I responded.”

Another reason for a sauce-for-the-gander rule, applying the same rules to the IRS that they apply to us.

Robert D. Flach has a similar state-level example from New Jersey in THE DFBs!

We are told (highlight is mine) -
“New Jersey wrongly notified about 2,000 taxpayers that they underpaid their 2013 taxes, but the state won’t notify them about the error unless the taxpayer asks, possibly causing taxpayers to send the state money that wasn’t owed.”

Tar and feathers.

 

20140507-1Peter Reilly, Real Estate Dealer Or Investor – Can’t Switch At Drop Of Hat.  ” One of the more challenging questions in income taxation of real estate transactions is whether a taxpayer is a dealer or an investor.”  Investors get capital gains, dealers don’t.

TaxGrrrl, Tax Extenders Bill Stalled In Senate.  The latest move in the dance to the inevitable last-minute re-extension of the perpetually-expiring tax breaks.

 

Jack Townsend, Booker Variances are More Common in Tax Crimes. Why? And Do They Disproportionately Benefit the Rich?   He discusses variations from federal sentencing guidelines, including the shockingly-light sentence given Beanie Babies tycoon Ty Warner.

TaxProf, The IRS Scandal, Day 375

William McBride, Top 10 things to Know about Investment and Tax Policy.  (Tax Policy Blog).

Number 2: “Investment in the U.S. has yet to fully recover from the recession and remains near a record low.”

Number 10: “Of the ways to change tax policy to improve investment, expensing generally provides the greatest “bang-for-the-buck” because it applies strictly to new investment.”

 

Renu Zaretsky, Tax Mistakes, Collections, and Breaks.  Today’s TaxVox headline roundup covers a proposal to revive the use of private collectors in federal tax collection and “Affordable Care Act subsidy mistakes now could mean huge tax confusion later.”

Annette Nellen asks What’s missing from Camp’s tax reform proposal?  She has suggestions.

 

20120517-1The new Cavalcade of Risk is up at Waterwayfinancialgroup.com.  The venerable roundup of insurance and risk-management posts includes Hank Stern on the possible perils of ride share. There is risk in letting other people use your car, as anyone who has seen Animal House knows, and those risks may not be covered under your car policy.

 

 

News from the Profession.  Another EY Associate Taking a Stab at Reality TV (Going Concern)

Honor among fraudsters.  Owners of a nostalgia-themed restaurant chain in Pennsylvania and New Jersey went up the river on tax charges last year.  Now comes word that the inside accountant who (allegedly) helped them cheat on taxes also (allegedly) helped himself.  From Philly.com:

An indictment unsealed today charges 58-year-old William J. Frio, of Springfield Township, with conspiracy, filing false returns, loan fraud, and aggravated structuring of financial transactions.

Prosecutors say Frio, who has been providing accounting services to Nifty Fifty’s since 1986, conspired with the popular chain’s owners in a scheme that used skimmed cash to help themselves and associates avoid paying taxes.

He also allegedly used his role as Nifty Fifty’s accountant to embezzle hundreds of thousands of dollars from the organization.

Aside from the obvious risk of going to jail, there are other complications that arise when businesses cheat on their taxes.  Unless your business is tiny, you need some help from your accounting staff.  When your bookkeeper is willing to defraud the government, don’t be shocked if he isn’t perfectly honest with you.

 

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Tax Roundup, 5/16/14: Iowa Alt Max Tax resurfaces. And: Alimony madness.

Friday, May 16th, 2014 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

The Iowa Alternative Maximum Tax Trial Balloon rises again.  From O. Kay Henderson, ‘Flat tax’ likely on GOP legislators’ agenda in 2015:

The top Republican in the Iowa House says if Republicans win statehouse majorities in the House and the Senate this November, one item on his wish list for 2015 is a “flat” state income tax. House Speaker Kraig Paulsen, a Republican from Hiawatha, spoke early this morning at a breakfast meeting of central Iowa Republicans.

Paulsen and his fellow House Republicans endorsed a “flat” tax proposal last year, but it was not considered in the Democratically-led Iowa Senate. The proposal would have allowed Iowans to continue filing their income taxes under the current system or choose the alternative of a 4.5 percent flat tax on their income, with no deductions.

I call this an “alternative maximum tax” because taxpayers will compute the tax both ways and pay the smaller number.  That contrasts with the alternative minimum tax, where you compute taxes two ways and pay the higher amount.  It has the obvious drawback of adding a new layer of complexity to the current baroque Iowa income tax.

20120906-1The proposal is likely an attempt to enact a lower rate system in a way that doesn’t upset fans of Iowa’s deduction for federal income taxes — particularly the influential Iowans for Tax Relief.  Because the deduction would rarely provide a better result than the alt max tax, support for the old system would wither away, maybe.

I’m probably too much of a tax geek to read the politics correctly, but I’m not convinced adding a new computation to the Iowa 1040 will fire up the electorate.  I think something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be easier to run on.  Eliminate all the crony tax credits and well-intended but futile tax breaks.  Get rid of the job-killing, worst-in-the-nation Iowa corporation income tax.   Drastically lower rates, increase the standard deduction, and limit the role of the income tax to funding the government.   This would get my vote anyway, and it would at least be awkward to argue instead for the current system that sends millions to some of Iowa’s biggest corporations as subsidies on the backs of you, me and small businesses.

Related: The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

I always thought enforcing the tax rules for alimony would be about the easiest job the IRS could have.  When you pay alimony, you get an above-the-line deduction, but only if you list the name and social security number of the recipient ex-spouse.  Just match the deduction with the income and generate notices when they don’t match.

This information systems problem is apparently too much for the IRS.  Peter Reilly reports:

According to the TIGTA report there were 567,887 Forms 1040 for 2010 that had alimony deductions.  The total claimed was $10 Billion.  When they compared the corresponding returns that should have recorded the income, there were discrepancies on 266,190 returns including 122,870 returns that had no alimony income at all reported.  There were nearly 25,000 returns where the income recognized was greater than the deduction claimed which produced a bit of an offset ($75 million).  On net, deductions exceeded income by $2.3 billion.  In her piece “Alimony Tax Gap is $1.7 BillionAshlea Ebeling goes into more details on the report, so I’m going to get a little more into what I see as the big picture here.

While I’ve never been a huge fan of the IRS, over my career I had developed a grudging respect for the organization’s competence and professionalism.  That’s been mostly drawn down over the last few years.

 

taxanalystslogoChristopher Bergin, A Warning About the IRS That We Should Heed (Tax Analysts Blog):

As I wrote almost a year ago, the IRS is in trouble. Punishing it will do no more good than ignoring what has happened over the last year. The former seems to be the plan of House Republicans; the latter appears to be the White House plan. We need to fix it, and that is harder than either of the above two approaches.

This is correct.  Unfortunately, the IRS became a partisan organization in the Tea Party scandal, and it’s proposed 501(c)(4) regulations only make that official.  The impasse won’t be broken until the IRS does something to reassure Republican congresscritters.  Withdrawing the proposed rules is probably a necessary start.

 

Kay Bell, Johnny Football’s Texas residency can cut his NFL income tax.

Lyman Stone, The Facts on Interstate Migration: Part Five (Tax Policy Blog):

On the whole, these high-inward migration states tend to have lower tax burdens. North Carolina and Idaho have periodically had higher than average tax burdens, but most, like Tennessee and Nevada, have consistently low tax burdens. Again, this doesn’t conclusively prove that taxes drive migration, as no doubt other living costs are lower in these states too: but it does suggest that taxes cannot be discounted out of hand.

 

Jason Dinesen, Glossary of Tax Terms: Asset

TaxGrrrl, Tesla Continues To Roll Out Tax Strategies For Consumers .  An auto company with a marketing pitch built around tax credits seems like a bad thing to me.

Stop by Robert D. Flach’s Place for a solid Friday morning Buzz!

 

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Howard Gleckman, Are Multinationals Getting Tired of Waiting for Corporate Tax Reform? (TaxVox).  They seem to be taking a do-it-yourself approach more and more.

Tax Justice Blog, States Can Make Tax Systems Fairer By Expanding or Enacting EITC.  I think this is wrong, at least the way the earned income tax credit works now.  Arnold Kling has a much-more promising proposal that would replace the EITC and other means-tested welfare programs.

Kyle Pomerleau, Flawed Buffett Rule Reintroduced in Senate (Tax Justice Blog).  Of course, that’s the only kind.

 

Cara Griffith, In Search of a Little Guidance (Tax Analysts Blog). “If informal guidance is the only guidance available to practitioners and taxpayers, can they rely on it?”

TaxProf, The IRS Scandal, Day 372.  Guess what?  It wasn’t just a few rogues in Cincinnati.

 

News from the Profession.  Alleged “Touch It For a Buck” Creeper CPA Got His License Revoked For Felony Creepiness (Going Concern).

 

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Tax Roundup, 5/14/14: Earned income credits, still busted. And: extenders advance.

Wednesday, May 14th, 2014 by Joe Kristan
The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

Nope.  Still busted.  From WashingtonExaminer.com comes an update on what some call America’s most successful anti-poverty program:

The Treasury Department has released its latest report  on the fight against widespread fraud in the Earned Income Tax Credit program. The problem is, fraud is still winning. And there’s not even much of a fight.

“The Internal Revenue Service continues to make little progress in reducing improper payments of Earned Income Tax Credits,” a press release from Treasury’s inspector general for Tax Administration says. “The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.”

Wait.  Didn’t the President sign a bill in 2010 to fix all this?

The new report found that the IRS is simply ignoring the requirements of a law called the Improper Payments Elimination and Recovery Act, signed by President Obama in 2010, which requires the IRS to set fraud-control targets and keep improper payments below ten percent of all Earned Income Tax Credit payouts.

Whatever the EITC does to help the working poor, it is a boon to the Grifter-American community.  Fraudulent EITC claims are a staple of ID theft fraud and low-tech tax cheating in general.

It’s worth noting that the high rate of improper EITC payouts has not gone down in spite of the ever-increasing IRS requirements for preparers who issue returns claiming the credits.  This should give pause to folks who think IRS preparer regulations will stop fraud, though it won’t.

It’s also notable that Iowa recently increased its piggyback EITC to 15% of the federal credit — increasing the annual cost of the credit by an estimated $35 million.  Assuming Iowans are just as honest as other Americans, that means about $8 million of additional stimulus to the Iowa grifter economy.

Finally, the phase-out of the EITC functions as a hidden high marginal tax rate on the program’s intended beneficiaries, the working poor.  The effective marginal rate in Iowa exceeds 50% at some income levels.  Combined with other income-based phase-outs, the EITC becomes a poverty trap.

 

Related: Arnold Kling,  SNEP and the EITC. “My priors, which I think are supported by the research cited by Salam, is that trying to use a program like the EITC for social engineering is a mug’s game.”

 

 

Extenders advance in Senate.  Tax Analysts reports ($link)

Legislation that would extend for two years nearly all the tax provisions that expired at the end of 2013 cleared a procedural hurdle in the Senate May 13.

Senators voted 96 to 3 to invoke cloture on the motion to proceed to H.R. 3474, a bill to exempt from the Affordable Care Act’s employer mandate employees with healthcare coverage through the Veterans Benefits Administration or through the military healthcare program TRICARE.

The bill is the legislative vehicle for the tax extenders. It will be amended to include the text of the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014 (S. 2260) and likely that of the Tax Technical Corrections Act of 2014 (S. 2261), both of which the Senate Finance Committee passed April 3 via voice vote.

The bill that passes will probably look much like the Senate bill.  The House has advanced bills to make some of the perpetually-expiring provisions permanent, but the President, pretending that they won’t get passed every year anyway, says permanent extension is fiscally irresponsible.

Among the provisions to be extended yet again, mostly through 2015, are the research credit, new markets credits, wind and biofuel credits, bonus depreciation, and increased Sec. 179 deductions.  The five-year built-in gain tax recognition period is also extended through 2015.

Related: TaxGrrrl, Senate Moves Forward To Extend Tax Breaks For 2014

 

20120906-1O. Kay HendersonKnoxville Raceway ceremony for state tax break of up to $2 million:

Governor Terry Branstad went to Knoxville today to sign a bill into law that gives the Knoxville Raceway a state tax break to help finance improvements at the track.

“This is a great facility,” Branstad told Radio Iowa during a telephone interview right after the event. “Last year, in 2013, they attracted 211,000 visitors, so it’s a big tourism attraction and it’s a good investment and it’s great for the state to partner with the community for a project of this magnitude.”

Here’s how that partnership works: the racetrack will charge sales tax to its customers, and keep the money.  Only two other businesses are special enough to get this sweet deal.  Tough luck for the rest of us who don’t have the good connections and lobbyists.

 

Walnut st flowersJana Luttenegger, Updated E-Filing Requirements for Tax Preparers (Davis Brown Tax Law Blog).  “The handbook is not exactly clear.

Jason Dinesen, Things Tax Preparers Say: S-Corporation Compensation.  “But too many business owners — and their accountants — treat S-corps like a magic wand that can just make taxes disappear completely.”

Kay Bell, IRS fight to regulate tax preparers officially over…for now

Peter Reilly, Can Somebody Explain Tax Shelters To Thomas Piketty?  In the unlikely event that the Piketty recommendations are ever enacted, Peter notes that “there will be a renaissance of shelter activity.”  Peter provides a “Cliff Notes” summary of this year’s big forgettable book I’ll never read, which I appreciate.  Also: Peter uses the tax-law-as-Swiss Army Knife analogy that I am so fond of.

Robert D. Flach, STILL MORE CLIENTS SCREWED BY THE TAX CODE.  “The list of taxpayers screwed by our current Tax Code is not a short one.  Today I add taxpayers with gambling winnings.”

 

20130110-2Howard Gleckman, How “Dead Men” Fiscal Policy Is Paralyzing Government (TaxVox).  He reviews a new book, Dead Men Ruling, by Gene Steurle:

“We are left with a budget for a declining nation,” Gene writes, “that invests ever-less in our future…and a broken government that presides over archaic, inefficient, and inequitable spending and tax programs.”

All this has happened due to a confluence of two unhappy trends: The first is what the late conservative writer Jude Wanniski memorably described almost four decades ago as the “Two-Santa Theory.”

The Santas are the two parties, each of whom pick our pockets to fill our stockings.

 

Alan Cole, The Simple Case for Tax Neutrality (Tax Policy Blog).  “When states give preferential rates of sales tax to certain goods, the most visible result is the legal bonanza that follows from trying to re-categorize goods into the preferred groupings. ”

David Brunori, Repealing the Property Tax Is an Asinine Idea (Tax Analysts Blog). “Public finance experts are almost unanimous in their belief that the property tax is the ideal way to fund local government services… Most importantly, the property tax ensures local political control.”

William McBride, What is Investment and How Do We Get More of It? (Tax Policy Blog).  “Full expensing for all investment, according to our analysis, would increase the capital stock by 16 percent and grow GDP by more than 5 percent.”

 

TaxProf, The IRS Scandal, Day 370

News from the Profession.  AICPA Tackling the Important Issue of Male CPAs Wanting It All (Going Concern). 

 

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Tax Roundup, 5/9/14: Worst-ever edition. And: It’s Scandal Day 365!

Friday, May 9th, 2014 by Joe Kristan

I was grumpy yesterday when I noticed Tax Analysts correspondent @Meg_Shreve’s live-tweeting of a speech by Doug Shulman, the Worst IRS Commissioner Ever.  So I tweet-grumpted, adding “#worstcommissionerever (fixed)” to one of her posts — the “(fixed)” as a perhaps inadequate attempt to inform the Twitterverse that the tag was my addition, not hers (apologies to Meg Shreve).  That earned this response:

 

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Ah, where to begin?  How about with identity theft?  Doug Shulman took office with a reputation as an information systems maven.  He then presided over an historic IT debacle.  Tax refund fraud — fundamentally a systems failure —  has let two-bit grifters like Rashia Wilson steal tens of billions of dollars in fraudulent refunds over the years.

This problem has been ramping up for years, and only now, with Shulman gone, is the IRS beginning to take effective action to prevent it.  My wife can’t go shopping in Chicago without me getting a call from the credit card company warning me of a suspicious transaction, but Doug Shulman’s IRS could send 655 refunds to the same apartment in Lithuania without batting an eye.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

While the theft of taxpayer billions is outrageous enough, the inept treatment of ID theft victims makes it even worse.  Only after Doug Shulman left did the IRS even begin to get this right.

The Worst Commissioner Ever was just too darned busy to stop ID theft.  He was busy trying to increase IRS power over preparers with a useless, expensive and unilateral preparer regulation regime.  He reversed the longstanding IRS position that the agency had no such regulatory power, only to be unceremoniously slapped down by the courts.   In the meantime, the prospect of the regulations drove thousands of preparers out of the business, increasing taxpayer costs and driving many taxpayers to self-prepare — and surely causing some to fall out of the system altogether.  The IRS wasted enormous resources on this futile power grab — resources that might have been better-devoted, to, oh, maybe the fight against identity theft.

 

He was also busy shooting jaywalkers.  International tax enforcement is considered Doug Shulman’s greatest success — but there was no reason the pursuit of wealthy international money-launderers had to also terrorize American expatriates whose offenses were to commit everyday personal finance.  Many folks have been hit with ridiculous penalties for not filing FBAR reports that they had no idea existed.  These folks are often people who married overseas or moved out of the U.S. as children, but were presumptively treated as international money-launderers when they tried to come into the system, and were hit with enormous penalties — often when little or no tax had been avoided.

It’s hard to imagine that an agency that can find ways to simply wave away the ACA employer mandate couldn’t find a way to allow expats and individuals without criminal intent to come into the international reporting system without risking financial disaster.  The states that allow non-resident non-filers to come in by paying five years of back taxes provide an obvious model.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

Then there is the scandal.  When Tea Party groups complained about absurd and abusive IRS information requests, sympathetic Congresscritters asked Doug Shulman if the IRS was targeting Tea Party groups.  The Worst Commissioner Ever testified before Congress that the IRS was doing nothing of the sort:

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman said.

That statement, of course, became inoperative when the Treasury Inspector General for Tax Administration reported that the IRS was, in fact, picking on the Tea Party groups.  Subsequent revelations have shown that it was exactly a partisan attempt to fight anti-administration groups.  So Doug Shulman either was too lazy and ineffective to know what his own agency was doing, or he knew, or he didn’t care.  He destroyed the credibility of the agency as a nonpartisan enclave of competent technicians.

Now the party controlling the House of Representatives is on notice that the agency wants to see it lose.  That agency can hardly expect generous appropriations as long as that perception remains (and the new Commissioner has done nothing reassuring on that score).   This will damage the agency’s effectiveness for years — all because The Worst Commissioner Ever was unwilling or unable to run a professional, non-partisan agency.

This is a record of administrative ineptitude and negligence that is unbeaten.  No IRS commissioner has so squandered agency resources and reputation.  If another Commissioner has even come close, I’d sure like to know who it was.

 

Meanwhile, the TaxProf has reached a milestone: The IRS Scandal, Day 365.  The biggest item in this edition is the report that the IRS had not destroyed Tea Party donor lists — after saying it had — and that the IRS has audited 10% of Tea Party donors.  This is a staggering audit rate, if true, and is a tremendous scandal in itself if the IRS doesn’t come up with a good explanation.

TaxGrrrl, House Finds Lerner, Central Figure In Tax Exempt Scandal, In Contempt Of Congress

 

20140509-2Jana Luttenegger, Deadline Approaching to Avoid Losing Tax Exempt Status (Davis Brown Tax Law Blog). Get those 990-series reports filed!

Trish McIntire, EFTPS – Inquiry PIN.  “The Inquiry PIN will allow taxpayers to check and make sure that their federal tax deposits have been made and catch a problem before it becomes a major issue.”  This should be used by all employers.

Peter Reilly, Former Tampa Bay Buccaneers Owner Scores Touchdown In Tax Court.  “It may seem odd to look at a case that ends up with a charitable deduction dis-allowance of nearly $4 million as a victory, but when you consider how taxpayers generally fare in easement cases it really is.”

Leslie Book, Tax Court Jurisdiction to Determine its Jurisdiction: Foreign Taxes and Credits (Procedurally Taxing)

Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)

 

Richard Borean, Tax Freedom Day Arrives in Final Two States: Connecticut and New Jersey (Tax Policy Blog)

Howard Gleckman, Taxing Employer-Sponsored Insurance Would Hike Social Security Benefits But Boost Federal Coffers (TaxVox)

 

Kay Bell, IRS employee arrested after inadvertently following Obama daughters’ motorcade onto White House grounds.  Oops.

Tax Justice Blog, Déjà vu: Oklahoma Enacts Tax Cut Voters Don’t Want.  I’m not sure about the “don’t want” part.

Robert D. Flach has your Friday morning Buzz!

 

News from the Profession.  Deloitte CEO Prefers Traditional Photo Op Over Selfie  (Going Concern)

 

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Tax Roundup, 5/8/14: No, Virginian, there is no travel expense Santa Claus. And more!

Thursday, May 8th, 2014 by Joe Kristan

20120801-2News Flash: Tax Court Judges didn’t just fall off the turnip truck.  That insight might have occurred to a Virginian after yesterday’s Tax Court decision denying $64,775 in 2010  “car and truck expenses” for a “mobile advertising business” that grossed $7,200 in revenue.

The Virginian worked full-time for Verizon while traveling up a storm — 129,550 miles in 2010, by his own account.  Special Trial Judge Dean questioned The Virginian’s work ethic (my emphasis):

The number of hours petitioner worked for Verizon and purportedly drove for his mobile advertising business simply strains credulity. Petitioner’s monthly mileage for 2010 ranged from 7,419 miles to 17,864 miles. Petitioner testified that he drove at approximately 60 miles per hour. If it is possible that he could average 60 miles per hour in the month that he drove 17,864 miles, he spent at least 300 hours on the road that month or almost 10 hours a day. All this while working full time for Verizon.

The judge also has doubts about the business model:

Furthermore, petitioner’s extensive driving does not appear to be ordinary and necessary to his mobile advertising business. Petitioner claims that he drove all over the United States to post fliers and to advertise his own mobile advertising business, even though most of his clients were local clients except one online refinancing company. All the while, petitioner had very little income in relation to the excessive costs he incurred driving to put up flyers. Furthermore, the advertising for his own business appeared to be fruitless, as he never made a profit in any of the six years he engaged in the business, despite incurring great costs traveling to advertise mobile advertising business.

20140508-2But ultimately none of that mattered, because The Virginian failed to cross the initial threshold for deducting any sort of travel expenses — Section 274:

Notwithstanding whether petitioner’s excessive driving was ordinary and necessary for his mobile advertising business, he simply did not satisfy the strict substantiation requirements of section 274(d) for claiming car and truck expenses… Petitioner had no backup receipts and no beginning and ending mileage for the automobile he allegedly used. 

Section 274(d) requires taxpayers to document travel expenses “by adequate records or sufficient evidence”

-the amount of expense,

-the time and place of the travel, and

-the business purpose of the trip.

For travel, that means receipts where possible (e.g., hotels), and contemporaneous calendars or logs documenting mileage.  Without that, your work ethic and business model doesn’t even come into play.

Cite: Abelitis, T.C. Summ. Op. 2014-44.

 

20130114-1Roger McEowen, IRS Says Agents Acting Under Power of Attorney Subject to FBAR Reporting.  “The agent (along with the principal) is subject to the FBAR filing requirements if the POA gives the agent signature authority over a foreign account that exceeds the dollar threshold.” 

 

TaxProf, The IRS Scandal, Day 364.  Big day tomorrow.

TaxGrrrl, UPDATED: Timeline Of IRS Tax Exempt Organization Scandal.  It started with a planted question to try to blunt the impact of the impending TIGTA report that pointed out the targeting.

Kay Bell,  Lois Lerner held in contempt of Congress, ramping up next phase of midterm election year political posturing.  Yes, posturing is occurring — that’s what politicians do.  But Sam Ervin’s posturing — and he did his share — didn’t make Watergate less a scandal.

 

Cara Griffith, Transparency Versus Disclosure of Taxpayer Information (Tax Analysts Blog)  “…the disclosure of documents that contain taxpayer information, whether required by state law or the result of litigation, does not encourage transparency in tax administration.”  I agree; unfortunately, the IRS hides behind dubious assertions of confidentiality to cover up its own questionable behavior.

 

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine.  No, don’t.  It’s still outrageous.

20140508-1Peter Reilly, Nonrecognition On Divorce Transfers Hurts Receiving Spouse .  It did in this case, when the recipient spouse had to pay tax.   Taxpayers receiving property in divorce receive the other spouse’s basis, and the other spouse doesn’t have a taxable sale.  But it’s still good policy.  Property settlements are contentious enough without hitting somebody giving up property with income tax on that dubious privilege.  Also, if the IRS got a cut, there would be less marital property to split in the first place.

Alan Cole, Failing by its Own Standard: What DC’s Insurance Tax Tells Us About its Obamacare Exchange (Tax Policy Blog)

Tax Justice Blog, What’s the Matter with Kansas (and Missouri, and …). “An anti-tax, Republican super majority in the Missouri Legislature claimed victory yesterday in a year-long battle with Gov. Jay Nixon over taxes by voting to override Nixon’s veto of a $620 million income tax cut.”

Do tell.  California Legislative Analyst’s Office Raises Concerns with Film Tax Credits (Lyman Stone, Tax Policy Blog).

Renu Zaretsky rounds up tax headlines for TaxVox with Contempt, Audits, Health Care, and Highways.

Janet Novack, Mansion Tax Kills Some Million Dollar Home Sales, Study Concludes.  Taxes always matter.

Jack Townsend, Another Foreign Account Sentencing.

 

Quotable:

The practice of regularly renewing the extenders package is unfortunate and should be stopped. It distorts the budget process, encourages legislative rent seeking, and invites highly particularistic legislative provisions that are better characterized as windfalls and wasteful government spending rather than well-targeted tax incentives.

Victor Fleischer,  Tax Legislation in the Contemporary U.S. Congress (Via the Taxprof)

News from the Profession: Grant Thornton Tries to Motivate With the Human Centipede, or Something (Going Concern)

 

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Tax Roundup, 5/6/14. Welcome back, loyal client. IRS says I have to verify that you aren’t a shape-shifting alien.

Tuesday, May 6th, 2014 by Joe Kristan


e-file logo
It’s not enough that you’ve done business with me forever.  I need some ID.  
The invaluable Russ Fox yesterday threw light on new requirements for electronic filing from the IRS.  These requirements, found in their new Publication 1345, were issued with no public comment period or consultation with practitioners, as far as I can tell, and they sure look that way.

Let’s start with clients who come into our office – a minority of my clients, by the way, as most of my clients either mail in tax information or send it electronically.  Words are from Publication 1345, but emphasis is mine:

The ERO must inspect a valid government picture identification; compare picture to applicant; and record the name, social security number, address and date of birth. Verify that the name, social security number, address, date of birth and other personal information on record are consistent with the information provided through record checks with the applicable agency or institution or through credit bureaus or similar databases.

So I have clients I have been working with since 1985.  When retired gentleman comes in, a little slower than last year, with his cane, but still as charming as ever, I have to say “hold it right there, partner.  You may look like the client I’ve been working with for 28 years, but you might be a clever shape-shifting alien scum looking to defraud our government.  I need to see some picture ID.  Then excuse me while I call the credit bureau.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Oh, but it isn’t that bad:

For in-person transactions, the record checks with the applicable agency or institution or through credit bureaus or similar databases are optional.

Oh, I only have to run credit checks on my long-time clients who don’t come into the office.  Gee, that’s mighty kind of you, IRS.

Examples of government picture identification (ID) include a driver’s license, employer ID, school ID, state ID, military ID, national ID, voter ID, visa or passport.

“National ID?”  I guess that must be next in the IRS off-plan business plan.

You’re thinking, “calm down, Joe.  Surely you are overreacting.  The IRS doesn’t really want you to card your longtime clients, right?”  Well, wrong:

If there is a multi-year business relationship, you should identify and authenticate the taxpayer.

You may think they are longtime clients, but you don’t know if you’ve been fooled by imposters all along!

Of course, this is all a reaction to the identity theft epidemic that the IRS has allowed to spread virtually unchecked for years.  The IRS, an agency too clueless to notice that 655 refunds are going to the same apartment in Lithuania, is now responding to the riot it incited by firing at the bystandersqea0hm77.  It is creating an enormous new and uncompensated burden on preparers and their clients that will do nothing to eliminate ID theft.

Rashia didn't use these bundles of cash at a CPA office.

Rashia didn’t use these bundles of cash to pay preparers.

Why won’t this work?  Most ID thieves work like Rashia Wilson, the self-proclaimed “Queen of IRS Tax Fraud.”  She used store-bought software to claim millions in tax refunds belonging to other people whose identities she had stolen.  ID thieves don’t walk into legitimate tax shops and pay to have fraudulent refunds claimed.  

 

Oddly, none of this applies to paper filings.  If the IRS is really serious about these rules, they can expect preparers  to sabotage the e-file process in self-defense by charging for the non-trivial new time and hassle of e-filing.  While preparers are required to e-file unless otherwise directed, taxpayers are allowed to choose paper.  Nothing says we can’t inform them of that right.  If even 10% of taxpayers respond by choosing to revert to paper, it will badly strain IRS facilities.  If 20% revert to paper, it will be a debacle for the agency.  And they’ll richly deserve it.

 

Other Coverage:

Russ Fox follows up with A Better Idea on Identity Theft. “The IRS should check each tax return’s address to verify it matches the address on file for the taxpayer.”  What a radical thought.

Robert D. Flach notes the Russ Fox post in today’s Buzz and adds, “Thankfully I am not an ERO – and after reading this I never will be!”

 

Flickr image by Christian under Creative Commons license.

Flickr image by Christian under Creative Commons license.

Kay Bell, 5 tax tips for Cinco de Mayo

Tony Nitti, Tax Geek Tuesday: Determining A Shareholder’s Basis In S Corporation Stock and Debt

TaxGrrrl, She’s Just Not That Into You: 11 Reasons Your Tax Pro Wants To Call It Off .  ” You need to tell your tax professional the truth. No matter how ugly it is.”

Keith Fogg, When One Spouse Files Bankruptcy How Should the Court Split the Refund Resulting from a Joint Return between the Estate of the Debtor Spouse and the non-Debtor Spouse (Procedurally Taxing)

Jason Dinesen, Tax Refunds and “Not Owing Tax”, Part 2 . “So if you get a refund, it’s possible that you “didn’t owe taxes,” but only if your “total tax” before refundable credits equaled zero.”

Margaret Van Houten, Anti Money Laundering Initiatives and Lawyers: What We Need to Know (Davis Brown Tax Law Blog).  “Unfortunately, however, not all well-intended actions are effective.”

 

20140506-1TaxProf, The IRS Scandal, Day 362.  What the IRS was busy with while the ID-theft fraud epidemic was getting rolling.

Howard Gleckman, Special Tax Penalties on Donald Sterling are a Personal Foul (TaxVox).  Not every foul has to be a tax issue.

Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)

I reject this false choice.  Investment, GDP Slow in First Quarter: Bad Weather or Bad Tax Policy? (Stephen J. Entin, Tax Policy Blog)

 

News from the Profession.  BREAKING: CPA Exam Candidate Passes AUD  (Going Concern)

 

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Tax Roundup: April 30, 2014: Force of nature edition. And: Extenders move in U.S. House.

Wednesday, April 30th, 2014 by Joe Kristan

Iowa 1040s are due today!  If you are 90% paid in, they extend automatically with no filing.  If you need more time and need to pay in something, use IA 1040-V.

 

20130113-3House votes to make permanent six “expiring” provisions.  The House Ways and Means Committee voted to permanently extend six of the perpetually-expiring tax breaks that Congress renews every year or two.  They include:

  • A simplified version of the research credit
  • The five-year built-in gain tax recognition period for S corporations
  • The $500,000 Section 179 deduction limit
  • A provision reducing the net basis reduction for S corporation donations of appreciated property to the basis of the property.

The committee also voted for two international extenders.

The votes were mostly along party lines, which means they are unlikely to be passed in this form by the Democratic-controlled Senate. The Senate Finance Committee has already approved its own temporary extender package, and my guess is the final extenders package will look like the Finance Committee bill.

Tax Analysts reports ($link) that the committee isn’t done with extenders, but it isn’t clear when it will look at Bonus Depreciation.

The “no” votes for the House package objected to the lack of offsets to the revenue “lost” by the package.   I’m less upset.  While I oppose the research credit on principle, these provisions are permanent anyway; the whole “extender” process is a sham, conducted only to pretend that the tax breaks aren’t permanent so they “cost” less under Congressional accounting rules.  It’s the sort of thing that would be a felony in the private sector, but just another day for our leaders.  At least the House bill drops the pretense that these things won’t get passed every time they expire.

 

Additional coverage available at Accounting Today.

Related:

Tax Justice Blog, Rep. Dave Camp’s Latest Tax Gambit Is “Fiscally Irresponsible and Fundamentally Hypocritical”

Clint Stretch, Dreams of Tax Reform (Tax Analysts Blog)

 

 

20130117-1No gas tax boost this year.  Sioux City Journal reports that a last-gasp attempt to boost Iowa gasoline taxes died last night as the General Assembly continues its pre-adjournment frenzy.

 

David Brunori, Sad Pragmatism and Tax Incentives (Tax Analysts Blog).  “If tax incentives are an unavoidable reality, we should make them as transparent and accountable as possible.”  True, but that doesn’t excuse the politicians who take your money and give it to their special friends.

 

The Iowa State University Center for Agricultural Law and Taxation has released its 2014 summer seminar schedule.  It includes a slate of webinars on topics from Ethics to ACA mandates.  There will also be two big out-of-town events, in West Baden Springs, Indiana, and West Yellowstone, Montana.  I’m not able to participate this year, but they are a hoot and a great learning experience.

 

TaxGrrl, Widow Loses House Over $6.30 Tax Bill.  “A Pennsylvania woman has lost her home for little more than the cost of a Starbucks Frappuccino.”  The law in all its majesty.

Kay Bell, File IRS Form 1040X to correct old tax mistakes

Peter Reilly, Graduation Contingency Kills Alimony Deduction.  It’s very easy to screw up an alimony deduction with bells and whistles, as Peter explains.

 

20120531-1Jason Dinesen, Preparer Regulation and Judging Preparers Based on Size of Refund.  “Anyone who’s worked in this business has experienced the irate client who thinks the preparer screwed up because their refund was less than their friend/co-worker/hair dresser, etc.”

 

TaxProf, The IRS Scandal, Day 356

Jack Townsend, U.S. Congressman Indicted for Tax Related Crime

Joseph Thorndike, Airlines Say Ticket Taxes Would Be More Visible if They Were Better Hidden (Tax Analysts Blog)

Alan Cole, What Gift Cards Can Teach Us About Tax Policy (Tax Policy Blog)

Renu Zaretsky, Funding Tax Breaks, the IRS, and Public Pensions, Safety, and Schools.  The TaxVox headline roundup.

 

News from the Profession.  EY Is Tackling the Important Issue of Dudes’ Need for Flexibility (Going Concern)

 

Clear error is a standard used by appellate courts to review some lower court decisions.  A Tax Court case decided by Judge Paris dealing with horse losses yesterday involved purported destruction of records by an old girlfriend.  Here’s where the clear error comes in:

The wrath of a former girlfriend may be a formidable force, but it is not analogous to a hurricane-like natural disaster, and it does not constitute a reasonable cause outside petitioner’s control.

I’ve met Judge Paris, and I strongly suspect she’s never dealt with a bitter former girlfriend. Anyone who has would never have written such a thing.  But as she pointed out that the petitioner provided no evidence that such destruction occurred, so you oughta know that the case probably still is on solid ground.

 

Cite: Roberts, T.C. Memo 2014-74.  Additional coverage from Paul Neiffer, Partial Taxpayer Victory on Horse Farm Case

 

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Tax Roundup, 4/23/14: The Tax Fairy isn’t named “VEBA.” And: frivolous IRS notices!

Wednesday, April 23rd, 2014 by Joe Kristan

tax fairyThe Tax Fairy, that fickle goddess of painless massive tax reduction, is often sought in the misty fens of the welfare benefit sections of the tax law.  A U.S. District Court in California has deprived the Tax Fairy’s believers of one guide for their hunt.

CPA Ramesh Sarva and Kenneth Elliot led Tax Fairy seekers to Section 419, which provides for VEBAs — “Voluntary Employee Beneficiary Association” plans.  Properly operated, VEBAs enable employers to make deductible contributions to a plan that buys insurance for employees.

A company associated with Mr. Sarva and Mr. Elliot, Sea Nine, told employers that they could use VEBAs to get around the tax law rules against deducting most life insurance premiums.  Their customers deducted contributions to VEBAs and used them to buy whole-life insurance policies with high cash value accumulation on the business owners’ lives.  The owners then borrowed the cash values.  The purported result was a deduction, followed by tax-free access to the deducted cash via borrowing cash values.

Tax Fairy guides can always find willing customers: “…small business owners with high net worth (often doctors with small but lucrative medical practices),” according to the IRS complaint. It has not gone well for the Tax Fairy adherents:

Sarva has successfully marketed at least 33 separate VEBAs plans to a variety of small business owners.  All of these participants have been or are currently being audited by the IRS.  13 of these participant audits have been completed and have resulted in total tax adjustments of $3,500,519.

In other words, it doesn’t work.  The IRS warned people off of such plans as early as 1995, and the scheme was firmly shot down by a U.S. Court of Appeals in 2002 in the Neonatology Assoc. P.A. case.  In fact, Neonatology  was a Sea Nine client.  Undaunted, Sea Nine kept selling the idea, selling the plans through “a network of affiliated third parties” including “independent certified publica accountants (“CPA”) and financial planners.”   At least they did until yesterday, when they consented to a permanent injunction yesterday against further Tax Fairy hunts.

Sea Nine had clients all over the place; the complaint lists clients in California, Florida, Alabama, and Hawaii, all with big IRS exam adjustments.

A side note: This is another example of why preparer regulation will be little use in keeping practitioners on the straight and narrow.  The defendant was a CPA and as such faced much stricter credentialing than anything contemplated by the IRS.  Yet he continued to sell these plans for years after it should have been obvious that they didn’t work.

The Moral?  There is no Tax Fairy, and just because somebody has gotten away with something for a long time doesn’t mean they’ve found her.  Also: you can make somebody take a test.  You can make them somebody take CPE.  But you can’t make a bumbler competent or a scammer honest.

 

20130419-1Russ FoxIRS Prematurely Asking for Money:

A few years ago, the IRS routinely sent notices to taxpayers who filed tax returns prior to April 15th but didn’t pay their taxes until April 15th. After complaints from taxpayers and tax professionals, the IRS supposedly stopped this practice. Unfortunately, they’ve started it up again.

Another illustration of why we need a “sauce for the gander” rule that would require the IRS to pay a penalty to taxpayers when it takes such frivolous positions, same as a frivolous taxpayer would pay to IRS.

 

TaxProf, TIGTA: IRS Gave $1 Million in Cash Bonuses to 1,100 Employees Who Owe Back Taxes.  Trust me, they won’t do that for you.

Lyman Stone, More Film Tax Incentives Not a Solution for California (Tax Policy Bl0g).  No, not for California, but certainly for its filmmakers, fixers and middlemen.

Howard Gleckman, Should Congress Curb Donor Advised Funds?  They are a much more convenient and cost-effective than their alternative, private foundations, so Congress can be expected to put a stop to that.

 

Jim Maule, When It’s Too Late to Change One’s (Tax) Story

Kay Bell, Rough roads ahead as Highway Trust Fund runs out of money

TaxProf, The IRS Scandal, Day 349

Joseph Thorndike, It’s Good to Be the (Ex) President. But It Wasn’t Always. (Tax Analysts Blog).  “Until 1959, retiring chief executives got precisely nothing in the way of retirement benefits: no Secret Service protection, no administrative support, and certainly no money.”

News from the Profession.  McGladrey’s Latest PCAOB Inspection Reveals McGladrey Is Not Grant Thornton (Going Concern)

 

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Tax Roundup, 4/8/14: So what do I do with the K-1? And: they also serve who go away!

Tuesday, April 8th, 2014 by Joe Kristan

So the K-1 finally showed up from my partnership or S corporation investment.  Now what?

Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it.  Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go.  Sort of.  Before you get started plugging in your numbers, you should answer some questions for yourself.

- Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax.  If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.

- Did the thing lose money?  If it lost money, then you have to clear three hurdles to deduct the losses:

1. You have to have basis.  This starts with your investment in the thing.  If you loaned money directly to the thing, you will get basis for the loan.  If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1.  S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder.  Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions.  If you have no basis, you can’t take losses.

2. Your basis has to be “at-risk.”  This normally means that you are out-of-pocket for the investment.  If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.

If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1.  Your at-risk amount is computed on Form 6198,

3. You have to materially participate (see above), or have “passive” income from other activities.  If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.

 Got that?  Tomorrow we’ll look at what you have to do after you answer these questions.  Come back every day through April 15 for more !

 

Senator Hubert Houser

Senator Hubert Houser

Legislator of the Century.  Yes, the century is young, but it will be hard to beat the accomplishment of Iowa state senator Hubert Houser.  He went home.  From The Des Moines Register:

At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.

Houser was not present in the Senate chamber again on Monday.

Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.

The coverage implies that Sen. Houser is doing a bad thing.  Considering the dubious accomplishments of the ones that do show up, I can’t agree.  We’d be better off if they all went home.  The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.

 

Of course they do.  Iowa House panel OKs $2 million tax break for Knoxville Raceway.  (Des Moines Register)

 

RashiaQueen of IRS tax fraud needs a break.  Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:

Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031. 

Then she’ll really get after it, I’m sure.

 

Peter ReillyNo Money For April 15 1040 Balance Due? Don’t Panic!

Tony Nitti, Where Is Your Tax Home When You Work In A Foreign Land?   

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me.  “I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”

I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980.  I learned that I have a face for radio and a voice for print.

 

Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It

 

Locust Street, Des Moines

Locust Street, Des Moines

TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress.  She gives him more credit than I do.

Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)

Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters.  The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.

Kay Bell, Energy efficient home improvement tax break might be back

TaxProf, The IRS Scandal, Day 334

News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)

News from the Profession.  According to Research, You Are Fat Because Busy Season (Going Concern)

 

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Tax Roundup, 4/4/14: Your Honor, nobody follows that law! And: extenders advance.

Friday, April 4th, 2014 by Joe Kristan

20120801-2Maybe that wasn’t the best argument, under the circumstances.  Things went badly for a California man yesterday who tried to tell the Tax Court how things work in the real world.

The man had claimed $5,309 in vehicle expenses for his real estate sales business.  Vehicle and travel expenses are subject to the special rules of Section 274, which requires corroborating records of the amount, time, place and business purpose of travel expenses.  The judge found the taxpayer’s evidence wanting (my emphasis):

Petitioner provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009. Petitioner, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents. Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. (While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135″, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.) Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense. Because petitioners failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

The IRS asserted negligence penalties for claiming an undocumented deduction.  The taxpayer tried to tell the judge that nobody does that stuff:

Petitioner did not argue reasonable cause or good faith. Instead, petitioner argued at trial that no one keeps records in accordance with the “IRS code”.

Well, OK, then, screw Section 274!  Well, no:

That argument is unpersuasive, and the section 6662(a) penalty will be sustained.

The IRS is serious about documenting business miles.  If you have them, keep a log, a calendar, or use a smart-phone app to record the time, place, cost and business purposes of your travels as you go.  If “no one keeps records in accordance with the ‘IRS code,’” no one is going to be happy with the results when they get audited.

Cite: Chapin, T.C. Summ Op. 2014-31

 

20130113-3Tax Extenders Legislation Advances in Senate (Accounting today):

 The Senate Finance Committee voted to revive almost all of the 55 tax breaks that expired Dec. 31, providing benefits for wind energy, U.S.-based multinational corporations and motor sports track owners.

Motor sports track owners have lots of friends in high places.

It’s not just motor sports lobbyists who did will in the Finance Committee.  Almost all
“expired” provisions of this lobbyist right-to-work vehicle were renewed, including the renewable fuel credits.  The only expiring provisions that actually expire are the credit for energy-efficient appliances and a provison for oil refinery property, so there remains some lobbying to do.

But wait, there’s more!  Tax Analysts reports ($link) that this Christmas in April bill includes a provision to “expand the research credit to allow passthroughs with no income tax liability to apply the credit, up to $250,000, to their payroll tax liability.”  It also would renew the reduction of the S corporation built-in gain tax “recognition period” at five years through 2015.

While the House still hasn’t acted on any of this, the passage of all of this stuff on a bipartisan basis would seem to indicate that something like this is likely to pass.  Still, Kay Bell thinks the House tax leadership may be reluctant to follow the Senate’s lead.

The reason Congress pretends these provisions are “temporary” is that under their rules, Congress can pretend that they will only cost as much as they will cost before they are renewed again, regardless of the probability that they will be renewed forever.  It’s the kind of accounting that would get us thrown in jail if we tried it with the IRS or SEC, but it’s just another Thursday in Congress.

Link: “Summary of Modified Chairman’s Mark.”

 

20091010-2.JPGKristy Maitre, E-Filed Return Rejected at Deadline? Don’t Panic

Paul Neiffer, Patronage Dividend Notices Can Be Sent by Email or Posted to a Website

Jason Dinesen, Accounting for the Work Opportunity Credit on an Iowa Tax Return 

TaxGrrrl, Taxes From A To Z (2014): T Is For Tip Income   

Leslie Book, ACA and Victims of Domestic Abuse (Procedurally Taxing)

Russ Fox, Yes, Online Poker Players Must Pay Taxes

 

TaxProf, The IRS Scandal, Day 330

William Perez, State and Local Tax Burdens as a Percentage of Income for 2011

Lyman Stone, Missouri Senate Passes Problematic Income Tax Cut Plan (Tax Policy Blog).  “Missouri’s state Senate this week passed a $621 million tax cut including a 0.5 percentage point income tax reduction and a special carveout to deduct up to 25 percent of business income.”

Howard Gleckman, Two Ways to Fix the Corporate Income Tax: Internationalize it or Kill It. (TaxVox).  I vote “kill.”

 

There’s a new Cavalcade of Risk up!  At Insurance Writer. Don’t miss Insureblog’s contribution about how those making health care policy don’t know what they’re talking about.

 

20120906-1Corporate Welfare Watch:

Iowa city prepares to give mystery company millions. (Foxnews.com)  “West Des Moines city officials have cued up $36 million in local and state tax incentives for a company, but won’t tell its citizens who that company is.”

Iowa senator calls BS on attempt to limit tax credits for fertilizer plant (Watchdog.org)

Iowa View: From wind to solar, clean power is good for Iowa (Joe Bolkcom, Mike Breitbach).  Green corporate welfare is still corporate welfare.

 

News from the Profession: Deloitte Declares Weekends Are Not For Working, Unless You Are Working (Going Concern)

 

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Tax Roundup, 4/3/14: Iowa Tax Burden ranks 29th. And: Koskinen doesn’t seem to get it.

Thursday, April 3rd, 2014 by Joe Kristan

The Tax Foundation yesterday released its annual ranking of “State-Local Tax Burdens.”  Iowa came in at 29th highest.

20140403-1

The Tax Foundation explains:

For each state, we compute this measure of tax burden by totaling the amount of state and local taxes paid by state residents to both their own and other governments and then divide these totals by each state’s total income. We not only make this calculation for the most recent year, but also for earlier years due to the fact that income and tax revenue data are periodically revised by government agencies.

In this annual study, our goal is to move the focus from the tax collector (how much revenue is collected) to the taxpayer (how much income is foregone). 

This ranking differs from the Tax Foundation’s State Business Climate Index, where Iowa ranks a dismal 40th in business tax congeniality.  While the two sets of rankings have different purposes, together they tell us that Iowa’s tax system is very poorly designed.  It collects a middling amount of revenue with a system of very high rates, a boatload of preferences for the well-connected, and baroque complexity.  You could collect the same revenue with a much simpler system with lower rates, and without the inherent corruption of special breaks for special friends of the politicians.  That’s the approach of The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Corporate welfare watch:

Senator fumes at idea to cancel tax credit (Des Moines Register)

IOWA SPEEDWAY: Governor Signs NASCAR Tax Break Bill (WHOtv.com)

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Koskinen bemoans IRS funding, but doesn’t commit to taking the obvious step to restore it.  IRS Commissioner John Koskinen gave a little speech yesterday at the National Press Club.  He pointed out how the IRS is being given massive new responsibilities for running Obamacare and implementing FATCA, but faces funding cuts.  What he didn’t point out was that the GOP-controlled house isn’t likely to change that as long as it thinks the IRS is acting as an arm of the other party.  He defended the plodding IRS response to Congressional investigators in the Tea Party matter, and he offered what looks to me like a defense of the new Section 501(c)(4) rules proposed by the prior Commisioner:

While I was not involved in the issuance of this draft proposal, because it happened before I was confirmed as Commissioner, I believe it is extremely important to make this area of regulation as clear as possible. Not only does that help the IRS properly enforce the law, but clearer regulations will also give a better roadmap to applicants, and will help those that already have 501(c)(4) status properly administer their organizations without unnecessary fears of losing their tax-exempt status.

That’s too cute.  The provisions of the proposal mirror the rules overturned by the Supreme Court in Citizens United, including a rule preventing any political activity in the run-up to an election.  These items show that the current rules are an attempt to get around the Supreme Court to restrict political speech.   That’s why they are poison to the Tea Party set.

Either he doesn’t get it, or he pretends not to.  If the Commissioner wants to restore trust, the minimum he needs to do is to withdraw the proposed rules and start over, and to stop slow walking the investigation.  Until he does, it’s futile to expect the GOP-controlled House to give him more funding.  He’s quickly running out of time to do so.

Update: Washington Post gives Koskinen 3 Pinoccios: IRS chief: No ‘targeting’ of tea party groups, just ‘inappropriate criteria’     (Via Instapundit)

 

20140321-3TaxGrrrl, Taxes From A To Z (2014): S Is For Student Loans 

Kay Bell, 7 tax tasks to take care of by April 15

Annette Nellen, Filing season and rental activities

William Perez, Tax Reform Act of 2014, Part 3, Deductions

Stephen Olsen, Summary Opinions for 03/28/14, a roundup of tax procedure news, with a much-appreciated mention of the Tax Update post on the recent case on trusts and material participation.

Jim Maule, Tax Court and Eleventh Circuit Disagree on Interpretation of Section 36 Language.  I think the couple got a raw deal, but I’m sure glad the first-time homebuyer credit has gone away.

 

taxanalystslogoCara Griffith, Proceeding Cautiously With a Taxpayer Bill of Rights (Tax Analysts Blog):

The IRS is already struggling with administering our tax system. Perhaps issues of funding and employee training should be addressed before delving into a taxpayer bill of rights.

I disagree.  Rights come before enforcement.  We can start by a sauce-for-the-gander rule that requires the IRS to pay penalties it asserts to taxpayers if the taxpayers win on the contested issue.

 

Renu Zaretsky, Expirations, Compliance and Corporations.  The TaxVox headline roundup talks about Commissioner Koskinen’s speech and the status of the expiring provisions.

 

Russ Fox, Bozo Tax Tip #8: Nevada Corporations.  “Now, if you’re planning on moving to Nevada incorporating in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada corporation is, well, bozo.”

News from the Profession.  Sweatshop Saturdays: Rethinking Where We Work (Going Concern)

 

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Tax Roundup, 3/24/14: Iowa corporate tax, $409 million; Iowa tax credits, $337 million. And: Bozo no-nos!

Monday, March 24th, 2014 by Joe Kristan


20120906-1
How about a trade: Corporate Income Tax for Corporate Welfare.
  Interesting numbers from The Des Moines Register:

The state awarded $278.5 million in tax credits during the 2013 fiscal year, down 9.3 percent from the year before, according to a new revenue report.

The department estimates that Iowa will have to pay a maximum of $436.9 million for fiscal 2014, and $487.9 million in fiscal 2015. Those numbers are considered the state’s “contingent liabilities.” However, the department expects claims on the awards will be less.

The department expects the state will pay about $337.9 million in fiscal 2014, and $366.8 million for fiscal 2015.

The entire net revenue from Iowa’s corporation income tax for 2013 was $403.6 million, with an estimate for fiscal 2014 of about $409 million.  So the entire Iowa corporate tax system takes about $400 million from corporations and then hands over 75-85% of it to other businesses.   Let’s consider the difference to be a fee for administering this system of taking from the productive and giving to the well-connected.  It’s about a wash.

From the outside, the answer seems obvious: no tax credits, no corporation tax.  Iowa would go from having one of the very worst corporation income taxes — and the one with the highest stated rate — to one of the very best.  The downside is that it would displace a little industry of tax credit middlemen and fixers idle economic development officials.   If that’s a downside…

Related: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Chelsea Keenan, Are tax incentives an effective economic development tool? (Cedar Rapids Gazette). “But an October 2013 study published in the Journal of Regional Science that examined the possible benefits to states that offer manufacturers tax incentives receive, and determined there is no measurable gain.”

Lyman Stone, Illinois Speaker Madigan Proposes 3 Percent High-Earner Tax (Tax Policy Good).  Illinois is doing its best to make Iowa look good.

 

20121120-2Jonathan Adler, Was Delaying the Employer Mandate Legal? Did the IRS Even Check? (Volokh Conspiracyvia the TaxProf):

The legal justification for the employer mandate delay offered by the Treasury Department has been exceedingly weak.  Perhaps this is because the Treasury Department never considered whether it had legal authority to delay the employer mandate until after it made the decision to delay it.

More of the results-driven regulation we’ve been talking about.

 

roses in the snowPeter Reilly, Do Some Looking And Thinking Before Signing Form 1040 .  “I’d like to suggest that you take a deep breath and actually look at your return before you take that final step.”  Excellent advice.

Kay Bell, 4 tax breaks for older filers

William Perez: What to Do if You Get a Call from the IRS Asking for Money.  If they haven’t contacted you by mail, hang up.   It’s a scam.

Kristy Maitre, recently of IRS and now with the ISU Center for Agricultural Law and Taxation, tells how to go about Requesting the Transfer an of IRS Audit.  “Do not simply say that you want to transfer the audit. That will result, in nearly all cases, with a non-transfer.   You must state your case.”

TaxGrrrl, Taxes From A To Z (2014): L Is For Lost Property

Jack Townsend, Another UBS Depositor Indicted; the Russian Connection

Keith Fogg, What is the scope of a tax lien discharge versus the remaining tax lien (Procedurally Taxing)

 

haroldJoseph Henchman, Kevin Spacey at Annapolis Bar Tonight to Lobby Legislators for Subsidies (Tax Policy Blog):

Kevin Spacey is my favorite actor—I spent my entire recent vacation flight watching his movies—so it’s hard for me to say bad things about him. But he’s also a celebrity with an alleged net worth of $80 million lobbying for tax subsidies from Maryland taxpayers.

Sure, asking folks to subsidize Hollywood millionaires may seem odd, but as an Iowan said during the height of our starry-eyed film credit debacle:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

So pay up, peasants!  You might see a star!

 

Renu Zaretsky, Tax Talk in the District, the Midwest, and Abroad.  It’s the TaxVox news roundup.

Tax Justice Blog, Big News in Ohio: Governor’s Unfair Tax Cut Plan Unveiled.  

Annette Nellen,Book recommendation – Geezer Rap

TaxProf, The IRS Scandal, Day 319

News from the Profession.  PwC Competing Against Shaving, Toys and Delicious Food for Guinness World Record Award (Going Concern).

 

Sometimes bad examples are the best teachers.  Blogger  Russ Fox provides some with his “Bozo Tax Tips” series for this year, beginning with Bozo Tax Tip #10: Email Your Social Security Number.  Don’t do it!  “As I tell my clients, email is fast but it’s not secure.”

 

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Tax Roundup, 3/11/14: The Taxpayer Hotel Edition. And: private-sector Kristy!

Tuesday, March 11th, 2014 by Joe Kristan

Des Moines public officials think a fancy new convention center hotel is just what we need to hang with the cool kids, reports KCCI.com:

A plan to build a four-star hotel next to Hy-Vee Hall and Wells Fargo Arena won’t happen unless Des Moines city leaders can convince the state’s economic development authority to fork over millions in tax incentives for the project.

Des Moines Assistant City Manager Matthew Anderson said this week is a prime example that proves why a hotel is needed next to the Iowa Events Center.

Fans from across the state are coming to downtown Des Moines in droves to cheer on their favorite teams at the boy’s state basketball tournament.

Cindy Curran said there’s something missing. “Accommodations to stay overnight,” said Curran. “A nice hotel with restaurants in there, amenities to go with that.”

wells fargo arena

A casual reader could be forgiven for thinking that there are no hotels within a few blocks of Wells Fargo Arena.  They might think that the Des Moines Marriot Downtown, with its own nice restaurant and bar, had suddenly vanished.  They might think the historic Renaissance Savery Hotel, home of Bos Restaurant, had closed down.  They might think the new Hyatt Place in the Liberty Building had already failed.  And has the historic Hotel Fort Des Moines and its Django Restaurant disappeared after all these years?

Nope, they’re all going strong, and all still connected to Wells Fargo Arena by an enclosed all-weather skywalk system.  In fact, Downtown Des Moines has more restaurants and places to stay than ever.  They need a new competitor, apparently, but one that can’t happen  without $34 million in subsidies tax incentives.

If a business can’t happen without taxpayer subsidies, that’s a sure sign that it shouldn’t happen in the first place.  Convention centers have been a money pit for governments around the country, as the think tank Heartland Institute reports:

As convention planners seek to have large new hotels and related facilities built for their events, taxpayers are often stuck footing the bill for what could be a building that sits empty much of the year.

It’s always easier to support a new business when you invest somebody else’s money.

Related: The Convention Center Shell Game.

 

KristyMaitreIowa’s IRS stakeholder liaison privatizes herself.   From the Iowa State University Center for Agricultural Law and Taxation:

CALT is pleased to announce that Kristy Maitre, the former IRS Senior Stakeholder Liaison for the State of Iowa, has joined our staff. Kristy brings 27 years of IRS experience to her role as CALT’s new tax specialist.

Practitioners who have attended our seminars are already familiar with Kristy and her vast breadth of practical knowledge of tax and estate planning. Kristy has taught hundreds of continuing education classes to tax practitioners around the country. At CALT, she will continue to offer training through live seminars, but will expand her reach with frequent webinars and other educational offerings through the CALT website. Stay tuned as CALT will soon unveil more exciting changes enabling us to better serve the tax practitioner community.

Great news for Kristy and ISU-CALT, bad news for IRS service.

 

William Perez, Free Tax Software Available Through IRS Free File

Russ Fox, Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course)

potleafTaxGrrrl, It’s No Toke: Colorado Pulls In Millions In Marijuana Tax Revenue.  I think popular support for pot prohibition, with its attendant violence, prison crowding, and other social costs, will continue to decline.  At some point the lure of revenue will overcome the reflexive instinct of politicians to preserve control over things.

Jason DinesenWhat’s So Bad About More People Preparing Their Own Taxes?  “My goal is to have clients who actually need a professional preparer, or at the very least, people who could prepare their own taxes but who like the comfort provided by having a professional take care of it for them.”

One of these is not like the others  Filing season 2014: Death, taxes, root canals and refunds.  (Kay Bell)

 

Carlton Smith, Tax Court dodges CDP record rule ruling (Procedurally Taxing)

Jim Maule, Cracking the Tax Protest Movement.  “The unfortunate thing about the tax protest movement is that most of the people in it are vulnerable folks who fall for the siren song of the ringleaders, just as those who support special tax breaks, even without benefitting from them, have fallen for the siren songs of those who procure special tax breaks for themselves and their clients.”

 

Joseph Henchman,  Idaho Considering Complicated and Gimmicky Job Creation Tax Credit.  (Tax Policy Blog) The best tax incentive is a simple, low-rate tax system without gimmicky incentives.

taxanalystslogoMartin Sullivan, If the Camp Tax Reform Bill Won’t Pass, Why Is It So Important? (Tax Analysts Blog):

The Camp discussion draft has changed the tax policy landscape like no other single document in the last three decades, for two reasons. First, it has burst the bubble of all the feel-good tax reformers who have been wasting our time promoting unrealistic tax plans. The Camp plan is the ultimate reality check on tax reform. It is far more complicated and painful than marketers of tax reform have told the public to expect. It is unlikely that any realistic tax reform would be any shorter or sweeter than the Camp draft.

The second reason the Camp reform is monumentally important is the extensive and detailed workmanship that went into it.   

I’m not convinced — I think the initial draft of a tax reform plan should be a lot more idealistic.  The cynical, politically-necessary modifications will arrive soon enough on their own, and conceding so many of them up front only invites more.

 

Jeremy Scott, Camp Hits Popular Deductions Hard (Tax Analysts Blog).  “The elimination of the state and local tax deduction is one of the larger revenue raisers in Camp’s plan.”

TaxProf, The IRS Scandal, Day 306

 

Quotable:

When the law interferes with people’s pursuit of their own values, they will try to find a way around. They will evade the law, they will break the law, or they will leave the country. Few of us believe in a moral code that justifies forcing people to give up much of what they produce to finance payments to persons they do not know for purposes they may not approve of. When the law contradicts what most people regard as moral and proper, they will break the law–whether the law is enacted in the name of a noble ideal such as equality or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law.

Milton Friedman, via David Henderson.

 

News from the Profession: The Profession is Really Reaching For the “I Still Let My Mom Pick Out My Outfits” Demographic (Going Concern)

 

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