Posts Tagged ‘News from the Profession’

Tax Roundup, 4/1/16: No fooling. Taxpayer litigates $3.48. “At least!”

Friday, April 1st, 2016 by Joe Kristan

Accounting Today Visitors: Click here for the laundry appraisal discussion.

 

Worth litigating!

Worth litigating!

It’s the principle of the thing. Well, technically, it’s the interest. Texas is known for big things. A taxpayer from Texas made a big thing in Tax Court out of a very small thing in a decision released yesterday. Judge Goeke explains (my emphasis):

The parties have largely settled the disputed interest, but, as we interpret her position, petitioner continues to assert that she is entitled to interest on $87.08 for at least one year.

That’s not even “she is entitled to 87.08.” It’s “interest on $87.08 for at least one year.” Let’s do the math.

At the current IRS overpayment rate of 4%, the taxpayer insisted the Tax Court resolve a dispute over $3.48. At least.

It didn’t go well:

One might find a dispute of such a small amount trivial, but petitioner is very earnest. Nevertheless, for various reasons petitioner’s claim is not properly remedied by abatement of interest, as we will explain.

No word on whether an appeal is in the works.

The Moral? Sometimes a molehill is just a molehill. Even in Texas.

Cite: Kappos, T.C. Memo. 2016-59

 

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Russ Fox begins the Bozo Tax Tip countdown with Bozo Tax Tip #10: Email Your Social Security Number! “Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.”

Paul Nieffer, When to Take “Extra” Investment Interest? “I see many more farmers now with investment brokerage accounts.  Some of these farmers have borrowed against these accounts and the margin interest paid is considered investment interest and the tax deduction may be limited.”

William Perez, IRS Launches Contest to Design Futuristic Online Service. “‘The goal of this challenge,’ according to details found at the Tax Design Challenge page at Challenge.gov, ‘is to reimagine the taxpayer experience and design the taxpayer experience of the future.'”

Kristine Tidgren, What’s Been Happening at the Iowa Legislature? (AgDocket). Turtles are involved.

Annette Nellen,2015 Tax Legislation Changes – Lots of Them! “In 2015, over 15 federal laws were enacted, making over 150 changes to the federal tax laws!”

Keith Fogg, When is the Statutory Notice of Deficiency Issued by an Authorized Delegate of the Treasury Secretary (Procedurally Taxing). “What is somewhat remarkable about the remand is that it appears Mr. Muncy made tax protestor type arguments yet convinced the 8thCircuit to issue the remand.”

Jason Dinesen, Taxation of Incentives Received from a Bank. “You open a savings account at a bank and they give you a toaster or a cooler or a coffee cup as a gift. Is this taxable?”

TaxGrrrl, Man Found Guilty Of Selling Stolen Patient Info Used To File False Tax Returns.

No, that about covers it. Win Powerball Lottery, Get Sued, Go Bankrupt, Any Questions?  (Robert Wood)

 

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Kyle Pomerleau, How Would the Presidential Candidates’ Tax Plans Impact Capital Gains? (Tax Policy Blog):

For those taxpayers over $250,000, capital gains would be treated as ordinary income. Since ordinary income tax rate go up under the Sanders plan, the tax rate on capital gains for those earning over $250,000 would go up by a lot. The top marginal tax rate on capital gains would go up from 23.8 percent to 54.2 percent. This is a much higher rate than what we have seen in the United States on capital gains in the past and combined with state and local taxes on capital gains, would make our rate the highest in the developed world.

But think of all the oool free stuff!

 

Howard Gleckman, Note to Federal Tax Reformers: Don’t Forget the States (TaxVox). “Eliminating tax preferences would also wipe out the federal deduction for state and local taxes, a step that could increase voter pressure on states to lower their taxes.”

TaxProf, The IRS Scandal, Day 1058. More on Lois Lerner’s links with the Kafka-esque “John Doe” proceedings in Wisconsin.

 

Kay Bell, Letter from Trump lawyers confirms IRS audits. “Also provides GOP presidential front-runner a legal excuse for not releasing tax returns.” I think Kay misspelled “lame.”

A correspondent suggests that the taxpayer confidentiality rules be amended to allow anyone to access presidential candidate tax returns. I agree. I would further require that all candidates — and all elected federal officials — be required to prepare their returns in a live (and then archived) webcast, with a running comment bar to enable us all to “help.” Ideally, they would have to do it by hand, Robert D. Flach style.
News from the Profession. Texas Accountant Emerges as Early Contender for 2016’s Worst Person (Caleb Newquist, Going Concern). “Specifically, Harris allegedly instructed nurses to give hospice patients overdoses of medications like morphine to hasten their deaths.”

 

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Tax Roundup, 3/31/16: IRS says S corps can still reimbuse 2% owner health premiums. And: partner basis!

Thursday, March 31st, 2016 by Joe Kristan

S-SidewalkS corporation owner reimbursement still good. When the ugly alliance of government agencies overseeing Obamacare blew up small employer health reimbursement arrangements, they spared some S corporation plans.

Because 2% shareholders of S corporations have to deduct their health insurance on line 29 of the 1040s, rather than getting them as a tax-free fringe benefit, many S corporations reimburse their employee shareholders for their health insurance costs. While “The Departments” impose a $100 per employee, per day penalty for anybody else doing that, Notice 2015-17 said such arrangements for S corporation 2% shareholder-employees were OK until further notice.

Yesterday the IRS, in an information letter to Rep. Justin Amash, affirmed that there has been no further notice:

To date, the IRS has not issued any other guidance, so, as stated in Question and Answer 5, taxpayers may continue to rely on Notice 2008-1, 2008-2 IRB 1, for the tax treatment of the health coverage provided to a 2-percent shareholder-employee.

I thought that was still the case, but when you’re talking $100 per-day, per-employee, it’s always nice to get confirmation.

Related: IF IT’S NOT ON THE W-2, S CORP SHAREHOLDERS CAN’T DEDUCT HEALTH INSURANCE

 

How partnership basis is different. As with S corporation shareholders, partners don’t have a shot at deducting their partnership K-1 losses if they don’t have basis in their partnership interests. They still might not be able to deduct the losses because of the at-risk and passive loss rules, but without basis, they don’t have any chance at all.

It’s much easier for partners to get basis than it is for shareholders. While S corporation shareholders can only get basis based on their stock ownership and loans they make themselves to their S corporation, partners get basis from debt inside the partnership. 

Example. Joe and Bob set up a 50-50 partnership to buy a food truck. They each invest $5,000, and the partnership borrows $20,000 to buy the food truck.

Not only do Joe and Bob get basis for their $5,000 investment, they also get $10,000 in basis for their share of partnership debt.

The exact workings of the debt allocations can get unbelievably complex, and they have spawned most of the world’s tax shelters, but your partnership K-1 should tell you what your share of partnership debt is that you can use for your 1040. It’s right there in Part II, item K:

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In our upcoming “at-risk” installment, we will talk about what those three categories of liabilities mean.

Other than the use of partnership debt, partnership basis is pretty much determined the same as S corporation basis. You start with your investment, increase it for income and further investments, and reduce it for losses and distributions.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

 

Lower than Minnesota, much higher than Missouri. How High Are Cigarette Taxes in Your State? (Scott Drenkard, Tax Policy Blog):

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Robert Wood, IRS Allows Some Personal Items Deducted As ‘Business Expenses’ On Your Taxes. “Not everything must be 100% business to be tax deductible, but be careful what you claim and how you claim it.”

TaxGrrrl, Taxes From A To Z (2016): P Is For Paying Your Taxes In Pennies (and Dollars)

Kay Bell, Tax help in finding new work, or what to do differently from Jimmy McGill if you don’t like your job

Hank Stern, O’Care at 6: Fewer, Sicker, Costlier. (Insureblog). “That’s right, not only are the newly-insured sicker, there are even fewer less-sickly folks signing up at all.”

Peter Reilly, IRS Turns To Crowdsourcing To Improve Systems. That seems logical, considering that the hacking is crowdsourced.

Leslie Book, Series of Errors With Installment Agreement and Collection Actions Leads to Taxpayer Victory on Collection Statute of Limitation (Procedurally Taxing).

Paul Neiffer, Where’s Roger. ” Many of you know my now (since we have posted on it already) that Roger McEowen has joined CLA as a half-time tax director for our firm.”

Jim Maule, Tax Fears. Well, they tax everything else… Oh, that’s not what he’s talking about. “If a one in two hundred chance of being audited explains an audit fear rate of 11 percent, then why do 8.5 percent of Americans fear zombies?”

 

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David Brunori, Tampons, Viagra, and Other Important Tax Issues (Tax Analysts Blog) “Nothing should be exempt from sales tax. Good tax policy dictates a broad tax base — tax everything — and low rates.”

TaxProf, The IRS Scandal, Day 1057

 

News from the Profession. Survey: Accountants Far Less Deserving of a Knuckle Sandwich Than Donald Trump (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/29/16: How you figure S corporation stock basis. And: Cronyism!

Tuesday, March 29th, 2016 by Joe Kristan

capitol burning 10904Cronyism 95, Taxpayers 1. The bill to provide a refundable tax credit — that is, a subsidy run through tax returns — for “bio-renewable chemical production” flew through the Iowa House of Representatives yesterday. Only Bruce Hunter (D-Des Moines) voted against SF 2300 in the house. He joins three Senate Democrats (Bolkcom, Quirmbach and Dearden) as the only opposition in the General Assembly to a classic bit of central planning through the tax law.

Iowa already has 24 economic development credits, budgeted to cost taxpayers $277 million in the coming fiscal year. Apparently we needed one more.

Rep. Hunter and Sen. Quirmbach cast two of the three votes against the disastrous Film Tax Credit Program. With a $10 million cap, at least this mistake will cost less than the film fiasco.

Other coverage:

O. Kay Henderson, Biochemical tax credit gains legislative approval, headed to governor

Erin Murphy, Renewable chemical tax credit in Iowa advances closer to final approval

 

S-SidewalkBasis: the first hurdle for determining your deductible S corporation lossYesterday we outlined the unholy trinity of rules restricting losses from pass-through activities: Basis, the at-risk rules, and the passive loss rules. Today we’ll talk a little bit more about S corporation stock basis. Tomorrow will talk about how you can use loans to your S corporation to get basis for deductions, and Thursday we will talk about how the rules are a little different for partnerships.

S corporation basis changes every year.

–It starts with your initial investment in your S corporation stock.

-It is increased by your share of taxable income and deductible expenses, as reported in lines 1-12 of the 1120-S K-1.

-It is increased by tax-exempt income (like municipal bond income) and reduced bypermanently non-deductible expenses (like the 50% non-deductible portion of meals and entertainment expenses); these are reported on line 16 of the 1120S K-1.  If you have a business that generates depletion deductions, factor your “excess depletion” from 1120S K-1 line 15c.

– It is increased by capital contributions, which appear nowhere on the 1120S K-1.

– It is reduced by distributions, which are on line 16 of the 1120-S K-1.

If your losses exceed your basis, your losses are limited to your basis.   If you have multiple deduction items, you have to prorate them to fit your basis.

For example, Assume you started 2015 with $3,000 in basis in your S corporation shares.  You have a K-1 line 1 loss of 9,000, line 4 interest income of $2,000, and a charitable contribution passing through on line 12 (code A) of $1,000.

You have $5,000 in basis to deduct your $10,000 in in expenses – the opening $3,000 in basis plus the positive $2,000 interest income.  You pro-rate the $10,000 expenses — you can (potentially) deduct $4,500 of line 1 loss and $500 of charitable contributions.  The remaining deductions carry forward until you increase your basis via contributions, loans, or future income. I say “potentially” because you still have to clear the “at-risk” and “passive loss” hurdles.

Many S corporation tax prep programs generate helpful basis and deductible loss schedules. Not all preparers do this, though, and even when they do, they are only as good as their starting information.  If the preparer doesn’t know what you paid for your stock, the schedules can’t be correct. Ultimately, it’s up to taxpayers to track their own S corporation stock basis.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

For more information on loss limitations from pass-throughs, check out Peter Reilly’s 2014 post Through The Hoops.

 

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TaxGrrrl, Walmart Gets Big Win Over Puerto Rico: No More ‘Walmart Tax’. Puerto Rico’s desperate revenue grabs are a preview of what states like California and Illinois will soon face.

Robert Wood, IRS Admits Audit Chance Is Small — And Dropping Like A Rock. They’re busy with other things.

Stuart Bassin, Sixth Circuit Requires IRS to Disclose Return Information of Non-Parties in Tea Party Exempt Organization Litigation (Procedurally Taxing). “The Government can continue fighting, but that seems to be an uphill battle and a battle which may produce further precedent that the Service will not like.”

Peter Reilly, Estate Denied Discounts For Marketable Security Family Limited Partnership. “This decision makes me nervous about getting discounts for any family limited partnership that consists solely of marketable securities.”

 

Jack TownsendGuest Blog: IRS FOIA Request Unveils Previously Undisclosed Estate Tax National Policy for Offshore Disclosures

Kay Bell, Which 2016 presidential candidate will cut your tax bill?

 

Scott Drenkard, A Very Short Primer on Tax Nexus, Apportionment, and Throwback Rule (Tax Policy Blog). “The best run down of these concepts can be found in our 2015 edition of Location Matters: The State Tax Costs of Doing Business.”

Stuart Gibson, Information Exchange: Bonanza for Tax Administrators, Temptation for Hackers (Tax Analysts Blog). “While many countries outside the U.S. first reacted negatively to this massive information grab, some soon began to realize the value of coordinated information exchange. They realized, as the old saying goes, ‘if you can’t beat ‘em, join ‘em.'”

Renu Zaretsky, Tax Day is around the corner, and the IRS can take your call! Today’s TaxVox headline roundup covers the eternal IRS complaints of underfunding, the DOA Obama budget tax proposals, and the subsidies Michigan paid for “Batman v. Superman,” because Michigan has solved all of its problems.

 

TaxProf, The IRS Scandal, Day 1055.

News from the Profession. AICPA and CIMA Putting This New Thing to Members for a Vote (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/25/16: Who is qualified to appraise your old laundry? And: Dept. of Revenue explains coupling.

Friday, March 25th, 2016 by Joe Kristan
Flickr image courtesy Jen Waller under Creative Commons license.

Flickr image courtesy Jen Waller under Creative Commons license.

Why you really don’t want a $10,000 deduction for that trip to Goodwill. Some taxpayers view the deduction for donations of stuff you can’t sell at a rummage sale as a standard deduction by other means. How likely is it that the IRS is going to look at the $250 deduction I’m claiming for dropping those bags at Salvation Army, anyway?

The poison is in the dose. Just yesterday we discussed the magic words you need to get from any charity for gifts of $250 or more. If your gift of property exceeds $500, you have to notify the IRS by filing Form 8283. And if your donation goes over $5,000, you have to get a “qualified appraisal.”

How does that affect your trip to the thrift store? One taxpayer who cleaned out his late mother’s possessions found out the hard way. The Tax Court describes the donations:

These items allegedly included seven sofas, four televisions, five bedroom sets, six mattresses, a kitchen set, a dining room set, a china cabinet, and three rugs. For charitable contribution purposes, petitioner placed a value of $11,730 on these items.

Petitioner testified that he also donated to AMVETS during 2009 numerous items of clothing belonging to him and his children. These items allegedly included 180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters, nine overcoats, and seven suits. For charitable contribution purposes, petitioner placed a value of $14,487 on these items.

You have to group “similar items” to see whether you exceed $5,000 and trigger the need for an appraisal. IRS Publication 561 describes what “similar items” means (my emphasis):

The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return.

So splitting up your donations between Goodwill and Salvation Army doesn’t help. But carefully identifying your donation and keeping each category (eg, books, china, silver) under $5,000 can work. Be sure to carefully document what you are donating; pictures are a good idea.

The taxpayer who went to Tax Court with his AMVETS donation ended up getting a zero deduction for his trouble. You don’t get a “partial” deduction when you claim a >$5,000 property charitable deduction and fail to get a proper appraisal. You get nothing.

Now if you can even find an appraiser for your old laundry, be sure you get one that counts. A qualified appraiser has to meet certain requirements for independence and expertise. For example, neither the donee nor the person who sold you the property qualifies.

You can’t wait for the IRS examination to find the appraiser. The appraisal also has to be timely, made not more than 60 days before the donation and not later than the extended due date of the return claiming the deduction. So if you don’t have that appraisal yet for your 2015 donation, it may not be too late — if you extend your return.

This is another of our irregular series of 2016 filing season tips. Collect them all!

 

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The Iowa Department of Revenue, Immediate income tax changes for Iowa taxpayers:

Effective with the enactment of House File 2433 on March 21, 2016, Iowa tax provisions are coupled with federal provisions retroactive to January 1, 2015 for tax year 2015 only.  The most common federal provisions with which Iowa is now coupled are listed below.

 NOTE: Iowa did not couple with the bonus depreciation provisions allowed for federal tax purposes for the 2015 tax year

 For Tax Year 2015 Only:

For Individual Income Tax Filers Only:

-Deduction of educator expenses
-Tuition and fees deduction for higher education
-Election to deduct state sales/use tax as an itemized deduction in lieu of state income tax
-Treatment of mortgage insurance premiums as qualified residence interest
-Tax free distribution from an IRA to certain charities for individuals 70½ and older

For Individual Income Tax Filers as well as Corporate Income Tax (including S Corporations), Partnership, Fiduciary and Franchise Tax:

-Section 179 limit for Iowa for the 2015 tax year is $500,000, which is the same as the federal section 179 limit. The phase-out threshold is $2 million.

The Department will update online forms, instructions, and web pages accordingly. Taxpayers impacted by these provisions who have already filed tax year 2015 returns should review information provided on the Department’s website at https://tax.iowa.gov about how to file an amended return.

These aren’t the only provisions coupled, of course.

 

TaxGrrrl, Worried You Might Run Out Of Time To File Your Taxes? Get An Extension. It’s always better to extend than to file late. It’s always better to extend than amend.

Annette Nellen, ACA Complexity Evident in IRS Incomplete Tax Tip. “For the past few weeks, the IRS has been publishing Health Care Tax Tips.  The one I received by email today was troubling because it includes an error or at least not enough detail to be entirely useful.”

Jack Townsend, TRAC Offerings on IRS and DOJ Criminal Tax Enforcement. “The data reported shows that referrals by the IRS to DOJ Tax peaked in the early 90s at 20 per million of population and are about 9 per million in fy 2015.”

Carl Smith, CDP Notice of Determination Sentence Causing Late Pro Se Petitions. “At the very least, it is time for the IRS to redraft the CDP notice of determination sentence so that it does not anymore trick pro se taxpayers into filing late.”

Kay Bell, Attention White House wannabes: the IRS audits presidential tax returns every single year.

 

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Joseph Thorndike, Face It: Americans Just Don’t Like the Estate Tax (Tax Analysts Blog) “At what point do liberals need to consider the possibility that something besides ignorance and stupidity is necessary to explain the popular distaste for the estate tax?”

TaxProf, The IRS Scandal, Day 1051

Howard Gleckman, The Gulf Between the Presidential Candidate Tax Plans Is Historic (TaxVox). “Calling it a gap hardly does it justice. It is an ocean of difference.”

News from the Profession. However the Presidential Election Goes, CPAs Probably Not Moving to Canada (Caleb Newquist, Going Concern)

 

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

Tuesday, March 22nd, 2016 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

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

Other coverage:

Gazette.com, Branstad signs tax-policy compromise

Des Moines Register, Branstad signs tax policy compromise

Maria Koklanaris, Iowa Governor Signs Exemption, Federal Conformity Bill

Paul Neiffer, Iowa Governor Branstad Finally Signs Coupling Bill.

 

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

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

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

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

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

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

 

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

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

TaxProf, The IRS Scandal, Day 1048

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

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

 

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

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Tax Roundup, 3/18/16: The income tax difference between gifts and compensation, illustrated. And: twins!

Friday, March 18th, 2016 by Joe Kristan

Twins! I’m delighted to report that Abby Croll, a Roth & Company Tax Manager, delivered twins yesterday, a boy and a girl. All are well.

 

20160215-1Too darn busy to file? There are many good reasons to stay current on your tax filings. One compelling reason is that failure to file can draw unwanted attention from the IRS. Returns that aren’t there can stand out.

That seems to be how it worked for an entrepreneur in Northwest Iowa, a Ms. Fairchild. An Eighth Circuit panel yesterday upheld her 33-month sentence on tax charges. The court takes us back to the beginning of the investigation (any emphasis is mine):

In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004.

With no returns with which to start, Agent Wright did a little digging:

Agent Wright obtained records from Fairchild’s two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier’s checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild’s accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.

That was enough to pique Agent Wright’s interest. Meanwhile, Ms. Fairchild wasn’t exactly ignoring her tax issues:

In July 2010, Fairchild and her husband filed joint income tax returns for 2005, 2006, 2007, and 2008, apparently unaware of the ongoing IRS investigation. Fairchild, a professional adult entertainer, reported income in each of the respective years as $122,345; $120,000; $120,000; and $151,325. The total income reported of $513,670 was far less than the $1,153,647.84 that Fairchild received from Karlen and Pietz during that same time span. Additionally, the returns did not identify any of Fairchild’s cash deposits during those years as income.

Perhaps a false move, considering that Agent Wright already knew about the deposits. Before long the IRS got copies of these returns to him, and he arranged a chat with Ms. Fairchild:

Agent Wright interviewed Fairchild about her tax returns on July 13, 2011. During that interview, Fairchild explained “that she actually thought all of the money, that every single cashier’s check she received from Mr. Karlen was a gift, but that she had reported some of it to take some of the tax burden off of him.

Very thoughtful.

To determine how much income to claim, Fairchild told Agent Wright that she “ballparked” the amount. In the same interview, Fairchild also claimed that the money from Pietz was a gift and that he had told her that he reported the gift on his income tax return. Even though $30,000 of the money from Pietz was included as income on her 2008 income tax return, Fairchild maintained that it was really a gift that her accountant had mistakenly included as income.

I suppose most people don’t know that gifts don’t show up on income tax returns. Still, one may doubt that gift tax returns were filed for any of these amounts under the circumstances.

In order for a payment to be considered a “gift,” and therefore exempt from income tax, it has to be paid out of “disinterested generosity.” It appears that the benefactors had, um, interests:

According to Karlen, he met Fairchild in 2003 or 2004 while she was dancing. He tipped her money when she danced on stage and paid for private dances inside the club in a private room. Fairchild gave her phone number to Karlen and would call him to tell him when and where she would be dancing. In 2005, Karlen went to watch Fairchild dance at a club; while there, Fairchild asked Karlen if he was interested in paying for sex with her outside of the club. Karlen testified concerning the first time that he met with Fairchild for a “private meeting outside the club.”

You can read the opinion if you care for more details, but they can be condensed into this:

When asked how he “treat[ed] the money that [he] gave to [Fairchild],” Karlen replied, “[f]or her service. . . . For sex.” When asked whether the 37 payments were all for sexual services, Karlen replied, “[e]very one of those.” He later confirmed that “[t]he whole $1.1 million was for sex” and that “[e]verything was for sex.”

Generous, maybe, but not disinterested. It appears that her other benefactor had similar interests.

Ms. Fairchild had an explanation for her late filing:

Fairchild admitted that she did not file income tax returns for 2005 through 2008 until 2010, but she claimed that the delay was due to problems that she experienced during the construction of her new home.

Probably not “reasonable cause,” to IRS thinking. In fairness, it seems she was busy on other things.

20150813-1Now let’s move on to her visit with her tax preparer:

In May 2006, after filing requests with the IRS to file the income tax returns late, [preparer] Anderson met with Fairchild to determine her income. Because Fairchild had no other documentation of her income, she reviewed her bank statements with Anderson to determine which deposits were income. Anderson testified, “I went through and had Veronica [Fairchild] read off the deposits to me, and I ran a tape on my calculator of the number of deposits that she would tell me.

He ran a tape! There’s no school like the old school.

But old school or new, it was all income as far as the IRS was concerned, and it wasn’t reported. Indictment and conviction followed in due course, and yesterday the appeals court upheld a 33-month prison sentence for the underreporting. It perhaps didn’t help that while she didn’t report all of the deposits as income on her 1040, she did report it all to several banks when she applied for loans.

The moral? There are several lessons we can draw. First, file timely. She might have never attracted Agent Wright’s attentions had she filed, unless he was a strip club patron.

Next, beware the tendency to believe what you want to believe about taxable income. Just because the nice man gives you money doesn’t mean he’s doing it because he’s a nice man.

Finally, level with your preparer. The court seems to have held it against her that she didn’t.

Cite: Fairchild, CA-8, No. 14-3517

Prior coverage here.

 

KCRG.com, Iowa Businesses Spend Billions In Tax Coupling

Specifically, agriculture businesses and farms use it for high cost equipment. In 2012 through 2014, agriculture applied that tax law to around 38 percent of their investments. More than twice of any other industry.

In terms of dollars, across all small businesses in Iowa, that’s about $2.7 billion in 2012, $2.7 billion in 2013, and $2.2 billion in 2014. Of that, farm returns claimed between 54 and 66 percent over those three years.

Those numbers come from a white paper by Roger McEowen, a professor of Ag Law at Washburn University and the Midwest Tax Director of CliftonLarsonAllen in West Des Moines.

But what good is it if it never lets a politician issue an economic development press release?

 

The Critical Question: How High Are Beer Taxes in Your State? (Scott Drenkard, Tax Policy Blog). This high:

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Peter Reilly, IRS And Liquor By The Wink. Wherein a glorified bar isn’t a tax-exempt social club.

TaxGrrrl, You Can Thank Excise Taxes For Guinness Stout. That wouldn’t have occurred to me.

Jason Dinesen, Glossary: College Savings Iowa. “It’s a type of529 Plan, where money going into the plan is not tax deductible (for federal taxes) but money coming out not taxed as long as it’s used for qualifying expenses.” And it has an Iowa tax benefit.

Robert Wood, Confusing Personal With Business On Your Taxes Can Mean IRS Penalties Or Jail. Expecially when “confusing” means “pretending.”

Kay Bell, Alexander Hamilton will remain on redesigned $10 bill. Phew.

 

Picture by Dan Kristan

Picture by Dan Kristan

 

William Gale, Taxes on the Rich May Change a Lot in 2017 (TaxVox)

Alex Durante, The U.S. Tax and Transfer System is Very Progressive, New Paper Confirms (Tax Policy Blog). But it is also whimsical: “However, due to the complex system of phase outs of certain tax credits and government transfers, poor households may face marginal tax rates as high as some middle and upper-income households.

All points bulletin! Beware the Slayer of Tax Reform Fantasy (Robert Goulder, Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 1044

Stuart Gibson, Two Steps Forward, Three Steps Back for Europe? (Tax Analysts Blog) “Unfortunately, every time it looks like Europe will unify behind certain tax policies, the member states start circling the wagons and shooting inward.”

News from the Profession. Cyber Extortion: Leprechauns vs. Accountants (Megan Lewczyk, Going Concern)

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Tax Roundup, 3/11/16: Iowa Sec. 179 coupling advances in both chambers. And: the cost of not filing timely.

Friday, March 11th, 2016 by Joe Kristan

IMG_1291To the floor. Identical bills coupling Iowa’s tax law to federal changes enacted in December cleared the taxwriting committees in each house of the General Assembly yesterday, the day after the bills were introduced. The bills (SSB 3171 and HSB 642) will be eligible for floor vote next week.

The sudden breakthrough clears the way for thousands of Iowans to complete their tax returns with the full $500,000 maximum Section 179 deduction. Thousands more will get to take other benefits, including the $250 above-the-line deduction for educator expenses, deductions for student loan interest, and charitable distributions by IRAs for older taxpayers.

The Governor seems to be on board, reports O. Kay Henderson:

Republican Governor Terry Branstad is praising the breakthrough.

“It certainly is a significant step in the right direction,” Branstad told reporters this morning. “…I always reserve judgment until I see it in its final form, but it appears from what I’ve heard to be something that resolves some big differences of opinion between the two houses and hopefully will make it possible to move forward with our other priorities.”

The coupling process is unfolding as I predicted February 26, after Governor Branstad reversed his anti-coupling stand. It’s too bad we couldn’t have gotten this far much earlier, without disrupting filing season. Better late than never, though. Unfortunately, the coupling is for one year only, so we can look forward to a repeat show next year.

Other Coverage:

Jason Schultz, A Victory for Iowa Taxpayers (Caffeinated Thoughts)

Des Moines RegisterLegislators reach pact on key budget issues

TheGazette.com, Iowa tax coupling to benefit ‘tens of thousands’

Me, Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

Complete Tax Update coverage.

 

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File or extend that 1120-S on time! The returns for calendar-year S corporations are due on Tuesday. If you can’t file on time, be sure you extend, because the penalties have gone up. From the IRS online Form 1120-S instructions:

Late filing of return.   A penalty may be charged if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause…  For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. 

You can also get in trouble for filing, but not sending the K-1:

Failure to furnish information timely.   For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $260 penalty is increased to $520 or, if greater, 10% of the aggregate amount of items required to be reported.

Extending your return gives you until September 15 to get that information out. A 10-person S corporation incurs a $1,950 fine for being one day late, and it increases each month. The extension, filed on Form 7004, is automatic, and can be e-filed.

Rant: I despise the use of fines like this as a government funding method. Dinging a one-day timing violation is like the red-light cameras that ding you for not quite stopping before turning right at an empty intersection. No harm, no foul, but pay up, peasant.

 

Big companies get phished: Snapchat, Seagate among companies duped in tax-fraud scam:

The scam, which involved fake emails purportedly sent by top company officials, convinced the companies involved to send out W-2 tax forms that are ideal for identity theft. For instance, W-2 data can easily be used to file bogus tax returns and claim fraudulent refunds.

The embarrassing breakdowns have prompted employers to apologize and offer free credit monitoring to employees. Such measures, however, won’t necessarily shield unwitting victims from the headaches that typically follow identity theft.

Be careful out there, kids.

 

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William Perez, Tax Planning for Clergy

Kay Bell, Ways & Means chairman promises more Congressional scrutiny of IRS security procedures

Jack Townsend, DOJ Tax Promotes Employment Tax Criminal Prosecutions. Never “borrow” withheld taxes to pay other vendors. It can get very serious in a hurry, even in Iowa.

Keith Fogg, A Different “Angle” on Recovery of Costs and Attorney’s Fees. “As we have discussed before, allowing the government to wait until the time of trial or even after trial to concede a case and thereby avoid attorney’s fees frustrates the purpose of the qualified offer provisions.”

Robert Wood, Guilty Mo’ Money Tax Preparers Could Face 8 Years. Nothing says “professional” like “Mo’ Money.”

TaxGrrrl, Does The IRS Have Your Money? Nearly $1 Billion In Old Tax Refunds Outstanding

Jim Maule, Why Not Sell Losing Lottery Tickets? “The answer is simple. The person buying those tickets and representing that they lost the face value of those tickets would be committing tax fraud.”

Dang. Tax Court Holds That Family Vacations Are Not Deductible As Book-Writing Research (Tony Nitti).

 

Richard Auxier, Is your state’s tax system punching above or below its weight? (TaxVox).

TaxProf, The IRS Scandal, Day 1037

 

News from the Profession. CPA Accused of Jamming Cell Phones Just Wanted to Commute in Peace, YOU MONSTERS (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/9/16: A College Savings Iowa contribution today can reduce 2015 Iowa tax. And: Shoot more jaywalkers!

Wednesday, March 9th, 2016 by Joe Kristan

csi logoYou can still make a College Savings Iowa 2015 contribution. While Section 529 plans provide tax-free earnings for college for taxpayers in all states, Iowans can get an extra tax break for them. 2015 contributions to College Savings Iowa or Iowa Advisor Sec. 529 plans can generate a deduction on Iowa state 1040s up to $3,163 per donee.

For the first time, Iowans can make their 2015 contributions as late as the April 30, 2016 due date of their 2015 tax return. In prior years you had to make the contribution by December 31 to get the deduction.

The $3,163 limit is per donee, per donor. That means a couple with 2 children can get four full deductions for 2015 529 contributions totaling up to $12,652. For a couple at the 8.98% top Iowa rate, that’s a savings of $1,136 on their Iowa return.

This is another of our occasional series of 2016 filing season tips. Collect them all!

 

Jack Townsend, Report on Remarks of AAG Tax and Practitioner Regarding Nonwillfulness and Foreign Account Enablers:

Ciraolo and Bryan Skarlatos questioned whether foreign account holders can remain nonwillful about foreign account reporting obligations at this stage.  The article quotes from her prepared comments (linked above) as follows:

After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well-received. 

This is so wrong. Something that is a big deal in the IRS enforcement bureaucracy can be invisible to a person going about their business, maybe taking a temporary position overseas or getting a U.S. green card.

People get in IRS trouble for having an interest in a foreign account they aren’t even aware of. One practitioner I know had to deal with an immigrant from India who paid thousands of dollars in penalties for not reporting an interest in a foreign bank account that her parents back home put her name on as a joint owner without her knowledge, and without her receiving any income from it. Others find themselves in hot water after get an inheritance overseas that they don’t learn about until after the reporting deadline.

The IRS remains clueless about how many people go through their daily financial lives without pondering whether there is an obscure form lurking to ruin them for non-compliance. The system is broken, but the only answer the enforcers have is to continue the beatings until morale improves.

 

20120906-1David Brunori speaks wisely: If You Need Tax Credits, You Shouldn’t Be in Business (Tax Analysts Blog)

Here’s what got me thinking. Iowa — no paradise when it comes to good tax policy — gave 186 companies tax credits worth more than $42 million last year. Those credits were handed out as an incentive to conduct research and development. There are other credits available for businesses. Oh, and the credits are refundable because, like with poor families receiving the earned income tax credit, R&D credits provide a critical safety net. All right, I’m being facetious.

Iowa’s biggest welfare recipient was technology company Rockwell Collins Inc., which received $12 million. Rockwell is a great company, but it has $5 billion in revenue. Giving money to Rockwell isn’t quite the same as giving money to a shoestring nonprofit feeding the homeless in Des Moines.

In all, 20 companies claimed more than $500,000 in R&D credits, including DuPont Co., Deere & Co., and Monsanto Co. I ask them, where is your pride? Do you really want a government handout?

For a full-throated defense of tax credit corporate welfare, today’s IowaBiz.com blogger, Brent Willett, offers Job creation fuel: R&D policy move is important for Iowa. Not surprisingly, the cost of paying these subsidies in increased taxes on less fortunate and less influential Iowa businesses never comes up. The “job creation” part is also weakly defended.

 

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Russ Fox, Online Gambling Addresses Updated for 2016. Russ performs a valuable service in gathering street addresses of offshore online gaming websites. Online gaming accounts at these sites are “foreign financial accounts” for FBAR purposes, and you need a street address to fill out Form 114. They can be hard to find. Hat’s off to Russ.

TaxGrrrl, Tax Season Proving Confusing (Again) For Taxpayers Affected By Obamacare

Kay Bell, Have you received your Obamacare coverage forms yet? “Recipients of the B or C versions want to hang onto these forms as verification that they did have ACA required coverage, which they tell the Internal Revenue Service about by checking the appropriate box on their 1040EZ, 1040A or long form 1040.”

Michelle Drumbl, The Automated Substitute for Return Procedures (Procedurally Taxing) “The ASFR assessment process takes into account all income reported as earned by the taxpayer, but it ignores reported items that would reduce taxable income.”

Robert Wood, Erin Andrews Wins $55M Peephole Verdict But Faces Heavy IRS Tax Hit

Jim Maule, Buying and Selling Dependency Exemptions for Tax Purposes. “It’s too bad Congress cannot be indicted, convicted, and punished for making a mess of the tax system, continuing to make it worse, and refusing to clean it up.”

 

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Annette Nellen, AICPA Advocacy on IRS Funding. It’s hard to see how the IRS gets more funding when it does such an awful job with the funding it has.

TaxProf, The IRS Scandal, Day 1035. “The IRS doesn’t know if its data backups are deleted or not created, and doesn’t test to ensure backups can be used if information is lost, even after a “significant” December 2014 incident, according to a Treasury Inspector General for Tax Administration (TIGTA) report.”

Alan Cole, Tax Policy Must Be Proportionate to Spending Policy (Tax Policy Blog). “This gets to the heart of one of the principles of good tax policy: your tax policy should actually be able to fund the government you want. One way or another, Donald Trump will have to assent to this principle.”

Elaine Maag, Complicated Families: Complicated Tax Returns (TaxVox):

The law is built on the idea that a child lives in a traditional family – married parents with only biologically related siblings. The tax unit it is presumed to include the adults supporting the child.

But increasingly, children live in arrangements that belie that traditional family; children move between homes of divorced or never-married parents in formal and informal custody arrangements; children live with unmarried, cohabiting parents; children live in multigenerational households. In short, children are supported by adults in multiple tax units.

But only one tax unit gets to claim the earned income credit for each child.

 

News from the Profession. Apparently Accountants Are Terrible on the Phone (Caleb Newquist, Going Concern).

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Tax Roundup, 3/8/16: Getting robbed, and again. And: IRS allows retroactive WOTC certification for 2015.

Tuesday, March 8th, 2016 by Joe Kristan

walnutstreet20160308It’s not enough to get robbed; you have to time it right. A “pump-and-dump” securities fraud victim claimed a theft loss deduction. The IRS said “yep, you were robbed.” But they also said that they didn’t time their robbery deduction properly, and therefore were out of luck. And, it turns out, they were.

Court of Federal Claims Judge Sweeney explains (my emphasis, citations and footnotes omitted):

There is no dispute that plaintiffs discovered the theft loss in 2002.31 And, neither plaintiffs nor defendant disputes that in 2002, there existed “a claim for reimbursement with respect to which there [was] a reasonable prospect of recovery Plaintiffs filed their arbitration claim against Donald & Co., Mr. Stetson, Mr. Volman, and Mr. Ingrassia in February 2002, and by the end of that year, they had neither sought to adjourn the proceedings nor withdrawn their claim. Accordingly, in light of the ongoing arbitration proceedings, plaintiffs could not claim a theft loss deduction in 2002. Instead, they were required to delay their deduction until the “year in which it [could] be ascertained with reasonable certainty whether or not” they would receive reimbursement of their losses from their arbitration claim. Plaintiffs determined that the proper year to claim their theft loss was 2004, and filed amended federal income tax returns reflecting the deduction. The IRS disallowed plaintiffs’ refund claim, and takes the position in this litigation that 2004 was not the proper year for plaintiffs to claim their theft loss deduction.

The court said the victims didn’t prove that they were entitled to the deduction:

Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovering on their arbitration claim. However, under the factual circumstances presented in this case, the test is not whether plaintiffs had a reasonable prospect of recovering on their arbitration claim in 2004, but is instead whether, in 2004, plaintiffs could have ascertained with reasonable certainty that they would not recover on their arbitration claim. To satisfy their burden under the latter test, plaintiffs were required to produce objective evidence that they abandoned their arbitration claim in 2004. They failed to do so. In the absence of such evidence, plaintiffs are not entitled to a theft loss deduction for the 2004 tax year.

The opinion doesn’t say whether the victims filed protective refund claims for subsequent years to preserve their refund rights. It would be another robbery if they were unable to get their theft loss deduction because they got the year right. The statute in such cases should allow taxpayers to recover in the proper year if the IRS successfully second-guesses the timing of a theft loss.

The Moral? If you are a fraud or theft victim, the timing of the loss deduction is very important. If the IRS disputes the loss on examination, be sure to file protective refund claims for open years to protect your rights.

Cite: Adkins, Ct. Fed. Claims No. 10-851T.

 

Speaking of getting robbed twice: IRS shuts down ID-thief assistance portal. A week after The Tax Foundation pointed out that the IRS IP-PIN online portal made identity theft victims vulnerable to being victimized a second time, the IRS has temporarily shut it down:

As part of its ongoing security review, the Internal Revenue Service temporarily suspended the Identity Protection PIN tool on IRS.gov. The IRS is conducting a further review of the application that allows taxpayers to retrieve their IP PINs online and is looking at further strengthening the security features on the tool.

Nothing to see here, move along.

 

Work Opportunity Credit guidance updated for retroactive 2015 credits. Congress re-enacted the expired Work Opportunity Tax Credit retroactively for 2015. To claim the credit for hiring certain classes of hard to employ workers, employers have to get the employee eligibility verified within 28 days. As this was impossible for an expired credit, the IRS yesterday gave employers until June 29 of this year to get the certification for 2015 hires (Notice 2016-22)

 

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Russ Fox, What Part of “Permanent Injunction” Didn’t You Understand? “Mr. Herrera is being held at ClubFed until he closes his business and complies with the injunction.” That should do it.

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-B, Proceeds From Broker & Barter Exchange Transactions

William Perez, How to Mail Tax Returns to the Internal Revenue Service

Keith Fogg, Making Claims and Spending Refunds in Bankruptcy. “The 9th Circuit recently affirmed the district court opinion granting summary judgment to the IRS in a case brought by Mr. Stanley Burrell aka M C Hammer seeking to equitably estop the IRS from collecting on taxes for two years which it failed to include on the proof of claim in his bankruptcy case.”

Jack Townsend, Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals

 

Tony Nitti, Would Hillary Clinton’s Tax Plan Kill The Incentive Stock Option?. Actually, AMT has done that pretty well already.

Robert Wood, President Hillary Won’t Cut Tax Deductions To Charities Like Clinton Foundation. Of course not.

Peter Reilly, Chasm Of Class And Privilege – Clinton Tax Plan Hits Top 1% – Sanders Plan Hits Top 5%. “What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.”

Kay Bell, Trump is last holdout as Kasich releases tax returns

 

Jason Dinesen, 6 Things You Might Not Know About Enrolled Agents. “2. We Don’t Work for the IRS

 

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Renu Zaretsky, Budget Chaos, Tax Breaks, Loopholes, and Incentives. Today’s TaxVox headline roundup covers EU tax investigations of multinationals, IRS tax investigations of multinationals, and scoundrels “patriotic millionaires” against carried interests.

TaxProf, The IRS Scandal, Day 1034

Stuart Gibson, Competition Policy and Tax Policy in The Twilight Zone (Tax Analysts Blog). “From a tax perspective in the U.S. (and probably Europe), this is simply a garden-variety case of a taxpayer negotiating a good deal with a foreign tax authority. From a European competition perspective, the answer is a bit more complicated.”

 

News from the Profession. Why Accountants Suck at Marketing (Blake Oliver, Going Concern)

 

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Tax Roundup, 3/7/16: “Only” 25,000 Iowa filers hit by not coupling Sec. 179. And more late news!

Monday, March 7th, 2016 by Joe Kristan

Note: Our web server has been having a bad day, which is why this is “late” news.


coupling2016021325,000 to 8.
The Des Moines Register covered the Section 179 coupling controversy over the weekend, but missed a big part of the story:

The debate pits two conflicting priorities against each other.

On one hand is the legislature’s
desire to support small business owners and farmers who could use any extra money from the tax break to buy more equipment, make renovations or hire more employees.

On the other hand is the concern that Iowa needs to tighten its belt financially and focus on bolstering other priorities such as school funding, rather than giving away tax revenue.

What other priorities might there be for the $95 million or so “lost” to Section 179 besides school funding? How about this:

Iowa credits fy 2017

The Register article includes this item that attempts to show that Section 179 isn’t a big deal:

Only about 25,000 Iowa taxpayers in 2014 made a Section 179 claim of more than $25,000, according to numbers from the Iowa Department of Revenue. About 12,000 were farmers.

By comparison, the state Department of Revenue processed 1.58 million individual income tax returns for 2014.

“Only” 25,000? That works out to 252 businesses in every county that are seeing a tax increase to feed that $95 million to the Iowa treasury. Meanwhile, the state pays about $42 million in actual cash subsidies through the Iowa Research Activities Credit to a handful of businesses that each claim over $500,000 in credits. Of that, about $29.5 million goes to only eight taxpayers. 25,000 is a lot more than 8.

With its focus on spending, the Register story misses a huge point: the Iowa income tax favors well-connected insiders who know how to play the tax credit game, to the detriment of the 25,000 smaller businesses that would benefit from Section 179 coupling. Rather than remedying the inherently corrupt tax credit game, the state is giving out more special interest credits left and right.

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TaxGrrrl, Understanding Your Tax Forms 2016: SSA-1099, Social Security Benefits

Peter Reilly,How Much Personal Use Of Airplane Is Too Much For Tax Free Exchange? “One of the tricky things about 1031 is the ‘trade or business or held for investment requirement’ – let’s call it the ‘held for’ requirement for short.”

Kay BellIRS ‘Future State’ plans and service, security concerns “The IRS is working on what it calls its Future State plan, an outline of agency activities in five years and beyond. One of the plan’s central components is online taxpayer accounts.”

Jim Maule, What Gets Taxed If the Goal Is Health Improvement? Trick question. The goal is moral preening and revenue-raising, not public health.

TaxProf, The IRS Scandal, Day 1031, 1032, 1033. Day 1032 covers the bizarre award given to awful Commissioner Koskinen: “IRS Chief John Koskinen Honored With an Award For ‘Excellence in Public Service’. Yes, That Guy. Yes, Really.”

Russ Fox, Koskinen Wins Public Service Award; Chaffetz Gets It Right:

I have to ask the NAPA: What were you thinking? Yes, Mr. Koskinen has served for many years, and he may have generosity of spirit. But as Congressman Jason Chaffetz said, “If obstructing a congressional investigation and misleading Congress merits an award, then it seems like they have the right guy. I guess I define excellent public service differently.”

In fairness, I think he’s doing exactly what the man who appointed him wants him to do.

Scott Greenberg, Four Million Taxpayers are Subject to the AMT. Who Are They? (Tax Policy Blog). “As these statistics show, the AMT basically functions as a surtax on high-income taxpayers in high-tax states with children.”

Norton Francis, The Perils of Tax Incentives for Economic Development (TaxVox). “And if every state is offering subsidies, one wonders whether they are engaged in a form of economic mutually-assured destruction, where the subsidies are pure windfalls to firms that have little effect on their decisions to move.”

News from the Profession. Let’s Review: Performance Art, Productivity, Binge-Watching (Caleb Newquist, Going Concern).

 

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