Posts Tagged ‘opportunity costs’

Tax Roundup, 3/16/15: Corporation returns are due today! And: IRS plays a cruel joke on 2011 non-filers.

Monday, March 16th, 2015 by Joe Kristan

20130415-1It’s March 16. That means calendar-year corporation and S corporation returns are due today. Failure to file on time can be expensive. If you are filing or extending today, protect yourself by e-filing. If you must paper file, use Certified Mail, Return Receipt Requested, to document timely filing. If you can’t get to the post office before it closes, you can go to the FedEx or UPS stores, but make sure you use the right Authorized Private Delivery Service and send it to the proper service center street address, as private services can’t deliver to the service center post office box addresses.


Flickr image courtesy Sean MacEntee under Creative Commons license

Flickr image courtesy Sean MacEntee under Creative Commons license

Hah! Fooled you! The IRS last week issued a press release: IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2011 Federal Income Tax Return.

If you haven’t filed your 2011 return yet and you want to claim your refund, you’re in for a nasty surprise: you’re probably already too late.

Section 6511 of the Internal Revenue Code (NOT the “IRS Code.” Stop that!) says (my emphasis):

Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. 

That means for most nonfilers, it’s too late to get that 2011 refund, and it’s 2012 refunds that expire on April 15.

Don’t believe me? Then believe Robert Wood

If you pay estimated taxes or have tax withholding on your paycheck but fail to file a return, you generally have only two years (not three) to try to get it back.  Suppose you make tax payments (by withholding or estimated tax payments) but haven’t filed tax returns (shame on you!) for three or four years? When you file those long-past-due returns, overpayments in one year may not offset underpayments in another.

This is why it is an awful idea to fall behind on filing. If you have a refund coming, it dies in two years, but if you owe and don’t file, the statute of limitations never starts, and the IRS can come after you anytime. If you have refunds coming for some years, but owe on others, you don’t get to offset the expired refunds against the amounts you owe. Heads they win, tails you lose.

I wonder if they do high-fives at the IRS Service Centers when people file their 2011 returns looking to cash in on that $1 billion.

Related: Kay Bell, April 15, 2015, is deadline for unclaimed 2011 tax refunds


You mean that wasn’t a guitar mass at 2 a.m.? Tax Exempt Church Turns Out To Be A Night Club (Robert Wood).


W2TaxGrrrl, Understanding Your Forms: W-2, Wage & Tax Statement

Kristine Tidgren, Proving That Loan Was a Gift Requires Evidence (ISU-CALT). If it’s documented as a loan and the “lender” dies, it will be hard to convince the heirs that you weren’t supposed to pay it back.

Annette Nellen, Busy Season Updates – TPR and ACA. Some practical thoughts on this tax season’s biggest new challenges.

Jason Dinesen, Financing a Small Business, Part 4 of 5: Don’t Spend Money Just to Get Tax Deductions. A disappointing amount of this happens right at year-end.

Jim Maule, Who’s to Blame for Tax Fraud?  “As to the first point, that tax software is not the reason for tax fraud, I agree.”

Russ Fox, Foreign Earned Income Exclusion Gets a Vegas Preparer in Hot Water

Jack Townsend, Sentencing of Ex-Casino Owner, Nevada Businessman and Former NFL Player for Fraudulent Tax Scheme


I went to a hockey game yesterday, and a wedding broke out:


There was a pretty good fight, too. Not involving the couple, I’ll hasten to add.


William McBride, Critics of Rubio-Lee Tax Reform Are Way Off the Mark (Tax Policy Blog):

In sum, there are many reasons to think the Rubio-Lee tax plan, or something similar, would have tremendous growth effects. The Tax Foundation’s macroeconomic tax model finds that the plan is indeed extremely pro-growth, while raising the after-tax incomes of families up and down the scale.

While critics may challenge the magnitude of these findings, given the current state of the economy and middle-class wages, this is a serious plan that should spur an honest debate over how best to overhaul our dysfunctional federal tax code.

He addresses doubters like William Gale.


Jennifer DePaul, Michigan House Kills Film Tax Credit, Florida Lawmakers Look to Revamp Theirs (Tax Analysts, $link):

Bill sponsor Rep. Dan Lauwers (R) said the film industry has “sapped the state’s budget without creating promised full-time jobs.”

“For every dollar of taxpayer money we have invested into film subsidies, the state has gotten 10 cents in return from that venture,” Lauwers said in a statement. “There are so many more worthwhile uses we can put that money toward.”

It’s good to see a state legislator grasp the concept of opportunity costs. Florida lawmakers apparently didn’t get the memo.

Jared Walczak, Film Tax Credits on the Chopping Block in Massachusetts (Tax Policy Blog)




IJReview, New Tax Scam: That ‘IRS Agent’ Calling and Threatening You For Your Money Is a Fake.


TaxProf, The IRS Scandal, Day 676The IRS Scandal, Day 675The IRS Scandal, Day 674. This one, quoting Roger Wood, tells you why the IRS will never be trustworthy under its current commissioner:

After the targeting scandal had been underway for over a year, Mr. Koskinen testified that recovery efforts had been thorough, but the tapes and emails just couldn’t be found. As if to goad Republicans, he said that millions in taxpayer money was spent looking. Over 250 IRS employees spent 100,000 hours, costing taxpayers at least $14 million. However, the Treasury Inspector General has revealed that the IT people at the IRS say no one even asked them to recover the emails.

A new commissioner isn’t sufficient to make the IRS trustworthy, but it is necessary.


Caleb Newquist, PwC Gave Former Ways & Means Chairman Dave Camp a Job. (Going Concern) It may be tax season, but I suspect he’s not going to be looking at any 1040s.

Peter Reilly, Looks Like No Charitable Deduction For Gifts To Steak And You Know Day. No, not baked potatoes.



Tax Roundup, 9/24/2013: The tax fairy is no cheap date. And nice words about my big mouth.

Monday, September 23rd, 2013 by Joe Kristan

Tax Shelter STARS dims in Claims Court.  The high-priced marketed tax shelter craze that started in the late 1990s by the big national accounting firms and some law firms has produced terrible results in litigation.  The latest failure is the KPMG/Sidley Austin tax shleter “STARS,” which was shot down in the Court of Federal Claims last week.

tax fairyThe shelter was designed to generate foreign tax credits against BB&T Corporation’s U.S. taxes.  While the shelter was put together by some of the biggest names in the tax profession, the judge was unimpressed:

Applying these principles here, the STARS transaction must be seen for what it really is. By creating a trust arrangement with nothing but circular cash flows, and momentarily placing funds in the hands of a U.K. trustee before it is returned, Barclays and BB&T artificially caused a U.K. tax on U.S.-sourced revenue. There was no substantive economic activity occurring in the U.K. to warrant a U.K. tax. Yet, by subjecting the Trust funds to a U.K. tax, Barclays and BB&T were able to share the benefits of foreign tax credits, which resulted in a 51 percent rebate of a Bx payment to BB&T. The surprisingly low interest rate to BB&T on the $1.5 billion Loan, 300 basis points below LIBOR, was made possible solely because of the fruits of the Trust arrangement. In reality, the U.S. Treasury is funding the monetary benefits realized by BB&T, Barclays, and the U.K. Treasury. No aspect of the STARS transaction has any economic reality.

When taxpayers got involved in tax shelters set up by big-name firms, they often did so believing that reliance on well-known national firms will protect them from penalties.  Not here:

KPMG’s overarching advice was that BB&T should engage in an economically meaningless transaction to achieve foreign tax credits for taxes BB&T had not in substance paid. Thus, because KPMG’s advice was based on unreasonable and unsupported assumptions, the Court finds KPMG’s advice unreasonable.

Based on KPMG’s recommendation, BB&T also selected the law firm of Sidley Austin, and in particular, Raymond J. Ruble, to provide tax advice and a formal opinion on STARS… Because Sidley Austin’s tax opinion was premised on the unreasonable and unsupported assumption that technical compliance with U.S. tax law would allow the IRS to give its imprimatur to an economically meaningless transaction, the Court finds Sidley Austin’s advice unreasonable.

So the judge undid $660 million in claimed tax savings and added $112 million in penalties to the bill.

The Moral?  Some of the brightest minds in the tax business thought they had finally found the Tax Fairy, the magical sprite that can make your taxes go away with fancy tax footwork.  They sold their discovery to folks just as eager to believe in the Tax Fairy as they were.  But there is no Tax Fairy.

Cite: Salem Financial, Inc., Ct. Fed. Claims, No. 1:10-cv-00192

Related: Jack Townsend,  Yet Another B***t Tax Shelter Goes Down; BB&T’s Streak on B***t Tax Shelters Continues


Iowa: an alcohol-dependent nicotine fiend with a gambling problem. From the Sioux City Journal:

In fiscal 2012, Iowa reaped $710.6 million from so-called “sin taxes.” Although that was 4.8 percent of the state’s total revenues of $14.65 billion, it was far less than the $3.7 billion in individual income taxes and $2.1 billion in sales taxes Iowans paid in fiscal 2011.

Still, it greatly exceeds the net take of Iowa’s complex, high rate and futile corporation income tax, which netted $430.4 million of the state’s $7.42 billion in tax revenues in fiscal 2012.


William Perez, Using Tax Refunds to Pay Estimated Taxes.  Applying overpayments to the next year’s estimated taxes is a very useful part of any tax planner’s toolkit.

Phil Hodgen,  Rental Income and Branch Profits Tax. “

Branch profits tax is computed on the corporation’s taxable income. The branch profits tax does not care about your net operating loss.

This means that you can have years where the corporation pays no income tax (because it has a net operating loss from the prior year that eliminates the taxable profit generated in the current year). But the corporation will pay the branch profits tax.

If you deal with offshore corporations with U.S. activity, you should read this.

Russ Fox, The Affordable Care Act and Gamblers: A Bad Bet


Janet Novack,  In Reversal, IRS Gives Amnesty To Owners Of Secret Israeli Bank Accounts   

TaxProf,  WSJ: Offshore Accounts: No Place to Hide?.  I think offshore bank secrecy is pretty much done for.

Kay Bell,  7 Internet sales tax principles set for House consideration

Peter Reilly:  TIGTA Finally Stumbles On The Real IRS Scandal   Peter seems to think cronies with undue influence on letter rulings is worth than partisans using the power of the IRS to suppress uncongenial political organizations.

TaxGrrrl,  Government Shutdown 101: What Happens When The Lights Go Off?   

Oh Goody.  Payroll Taxes May Have to Go Up (Andrew Lundeen, Tax Policy Blog).

Elaine Maag,  Senator Lee’s New Reform Plan Focuses on Young Children (TaxVox)


A scene from the heydey of Iowa energy independence.

Great moments in energy independence.  Biofuels scam ‘the largest tax fraud scheme in Indiana history’  (Biofuels International)


That would do that.  Fraud verdict tarnishes Idaho businesswoman’s bio (



News from the profession: Five  Unwritten Rules for Making Partner in a Big 4 Firm (Going Concern).  Spoiler: landing great big audit clients helps a lot.


Aw, shucks.  Tax Analysts commenter David Brunori says nice things about me today in State Tax Notes ($link):

Many practitioners are gun-shy when it comes to voicing their opinions on tax policy. They have clients, after all, who might disagree with them. Joe Kristan of Roth CPA, a leading tax and accounting firm in Iowa, is an exception. Kristan, writing for the firm’s blog, routinely speaks truth to power. We here at Tax Analysts appreciate that. 

That’s the nicest way anybody has ever said that I don’t know when to shut up.

Mr. Brunori then discusses my observations of Iowa economic policy director Debi Durham and State Senator Joe Bolkcom:

Durham talks about the tax-incentive imperative, which only the gods of crony capitalism would recognize. But then one would expect a government official who spends her time doling out government welfare to corporations to defend the idea of doling out welfare to corporations. Citing the state’s blue ribbon commission, Kristan pointed out that there is little evidence that tax incentives work.

Kristan has criticized State Sen. Joe Bolkcom (D) for arguing for targeted tax incentives. Targeted incentives violate every notion of sound tax policy and, as Kristan wisely points out, assume the state can wisely allocate investment capital. We need more people who understand how everything works to weigh in on tax policy.

I would be surprised if you could fill a coffee table at the Capitol cafeteria with legislators who could explain the opportunity costs of targeted tax credits.



Tax Roundup, 9/13/2012: Winning = losing. Also: Factually-challenged fact-checkers and astute Minnesotans.

Thursday, September 13th, 2012 by Joe Kristan

Iowa’s winning the wrong race.  An opinion piece in today’s Des Moines Register by Beuna Vista College economics professor Jeremy Horpedahl:

This year, Iowa came in first place. Unfortunately, it wasn’t a bowl championship for the Hawkeyes but rather unmatched, high corporate tax rates — not an area in which anyone wants to beat out rivals.

The United States’ combined federal and state corporate income tax is the highest in the world at nearly 40 percent, and Iowa’s 12 percent corporate income tax rate is much higher than that of any other state. To make matters worse, Iowa’s corporate tax rate is significantly higher than those of its neighboring states. South Dakota doesn’t even have a corporate income tax.

It’s worse than that.  Iowa’s corporation income tax is very complicated and so full of special favors that it nets only a small portion of state revenues.  That makes it both destructive and useless.  There is a better way.


Flickr image courtesy Retrofresh! under Creative Commons license.

Economic illiteracy and fact checkers.  The Cedar Rapids Gazette has ventured into the shady “fact checker” business, with unfortunate results.  They attempt to say whether the claimed number of jobs “created” by wind energy tax credit subsidies are correct:

While the figures cited by the wind energy industry and politicians are inexact and fluid, they’re the best available information. The U.S. Bureau of Labor also relies primarily on the industry’s information. We found no evidence that these figures are misleading, but keep in mind these are estimates.

We rate the jobs claims mostly true.

There are two key words missing from the analysis: opportunity costs.  The money spent on wind subsidies wouldn’t just disappear if the tax credit went away.  It would be used to buy or invest in other things.  This is explained wonderfully in Bastiat’s broken window parable, which (slightly updated) goes something like this:

A vandal breaks a shop window, and the shopkeeper pays a glazier to replace it.  The glazier says that the vandal did good by creating a job for him.  The local fact-checker rates the claim “mostly true” because he considers the glazier “the best available information.”  But because the shopkeeper spent the money fixing the broken window, he loses the opportunity to hire an assistant to keep the store open longer, to develop a new line of merchandise, or to buy something from another business down the street.  But that “opportunity cost” is unseen by the fact-checker and ignored.

The Gazette’s “fact-check” ignores the jobs squandered by funneling resources to an economically inefficient technology, because they are “unseen,” especially by the industry that benefits from the subsidies.


Speaking of opportunity costs:  Compliance with ObamaCare Estimated at 80 Million Man-hours  (William McBride, Tax Policy Blog)


Former Corporate Raider Bilzerian rebuffed by Tax Court.  You can’t be a corporate raider without taking some risks, and sometimes those risks lead you to bankruptcy court, like they did for Paul Bilzerian.  He yesterday lost some more when the Tax Court ruled that he could not relitigate tax liabilities determined by a bankruptcy court.  Tax Court Judge Wells ruled against the former raider on the grounds that he had agreed to be bound by the bankruptcy ruling.


Getting what you pay for? TIGTA: Tax Returns Prepared Through IRS’s Volunteer Assistance Program had 51% Error Rate   (TaxProf)  To be fair to the volunteers, though, I doubt they do much worse than IRS phone helpers, and certainly paid preparers don’t always get our ridiculously complex taxes right.

They always can.  “Just when I think that our politicians can’t act any more irresponsibly, they up the ante”  (Christopher Bergin)

Anthony Nitti,  Tax Court Applies Garnett Decision to Liberalize Real Estate Professional Test

Would you jump off a cliff just because your friends all deducted it?  Never Do Something Just Because It’s Tax Deductable (Jason Dinesen)

Kay Bell,  Share and share alike: your taxes in a community property state

Paul Neiffer,  Express Saver Costs a Taxpayer Thousands

TaxGrrrl,  Amazon Sees Silver Lining With Sales Tax Collections.  She also interviews an obviously astute Minnesota tax pro, as his answer to her final question shows.


Tax credits and magic money

Wednesday, December 16th, 2009 by Joe Kristan

Defenders of tax credits always point to the jobs on credit-financed projects as proof the credits work. Their defense, like that given by the Dubuque mayor in the tax credit hearing held in Cedar Rapids yesterday, always skips over an important point: that money could have been spent somewhere else.
Money for tax credit projects doesn’t spring into existence out of nowhere when the tax credit investors file their tax returns. It comes from other taxpayers who have to pay extra taxes in place of the credits claimed on the tax credit project.
They also miss another point. When the government subsidizes a real estate project with tax credits, it pays the developer to take tenants from other landlords or landowners. A subsidized commercial rehab project takes tenants away from a developer who didn’t get subsidies. A subsidized low-income housing project punishes the landlords who don’t get handouts. When Jim Cownie gets a subsidy, the struggling do-it-yourselfer who buys a duplex to fix and lease out gets a powerful subsidized competitor.
Occasionally Iowa will land a corporate welfare-seeking company by throwing money at it. By increasing taxes to do so, it drives out the small entrepreneurs that do the heavy lifting of job creation. But they never invite politicians to ribbon cuttings, so as far as economic development officials are concerned, they don’t count.

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