Posts Tagged ‘Paul Neiffer’

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

Wednesday, November 25th, 2015 by Joe Kristan

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

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

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

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

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




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

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

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


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

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

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

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

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

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




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


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

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

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


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



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

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

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

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

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

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

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

Map by the Tax Foundation

Map by the Tax Foundation


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

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

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

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

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

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

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

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

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




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

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


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


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

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

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


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



Tax Roundup, 11/12/15: W-2 trumps uncertain memory. And: more debate reaction.

Thursday, November 12th, 2015 by Joe Kristan

Day 4: Ottumwa! The big first week of The  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools concludes for the Day 1 teaching team of me, Kristy Maitre and Roger McEowen at Indian Hills Community College in Ottumwa, Iowa today. The Day 2 team of Paul Neiffer, Dave Repp and Patty Fulton will finish up in Red Oak this morning.

It’s been some driving this week:


If you missed us, there are still four two-day schools left. We hit Mason City next Monday; Maquoketa November 23; Denison December 7; and Ames December 14. The Ames session is available as a webinar. Register today!


Sure enough. Few of us (generally only tax preparers) double-check the income reported on our W-2s. We take the employer’s word for it. So does the IRS. That’s the lesson a Californian learned this week in Tax Court.

The taxpayer faced some extra hurdles in filing his 2010 tax returns, according to the Tax Court:

Petitioner was arrested the second week of January of 2011 and was incarcerated until June 2012. Petitioner’s motorhome and van were seized, and he lost all of his records after his arrest and incarceration.

Petitioner did not file a timely return for 2010. On April 1, 2013, the Internal Revenue Service (IRS) prepared a substitute for return for 2010 under section 6020(b). The IRS issued a notice of deficiency for 2010 dated July 8, 2013.

Considering the circumstances, you can understand the non-filing, even while realizing he still needed to. But he was nagged by doubts (my emphasis).

As indicated, petitioner conceded all of the income determined in the notice of deficiency with the exception of wage income of $3,767 from Audio Visual Projection Services, Inc., and $404 from Swank Audio Visuals, LLC. These employers issued petitioner 2010 Forms W-2 for the respective amounts. Petitioner explained that because all of his records were lost and his employers often paid him late or not at all, he does not know whether he was paid for all of the work that he performed in 2010.

It’s an interesting defense. He didn’t say he wasn’t paid; he just wasn’t sure. But the court was sure enough (citations omitted, my emphasis):

In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income.  If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. The Forms W-2 from Audio Visual Projection Services, Inc., and from Swank Audio Visuals, LLC, are sufficient evidence to shift the burden of proof to petitioner.

We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is “a reasonable dispute.” This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.

Adding insult to uncertain memory, the Tax Court upheld penalties for late filing; being in jail is apparently no excuse.

Cite: McDougall, T.C. Summ. Op. 2015-65.




TaxGrrrl bravely live-blogged the GOP debate this week. A handy place to check out what they had to say on taxes.

Kyle Pomerleau, Senator Ted Cruz’s Comment About His Border-Adjusted Tax, Explained (Tax Policy Blog).

Jenice Johnson, Candidates Tax Cuts Unequivocally Skew Toward the Wealthy (Tax Justice Blog). It’s just math. The wealthy pay pretty much all of the taxes, so they will “reap” any tax cuts.

Scott Greenberg, Carson Calls for Eliminating the Mortgage Interest and Charitable Deductions (Tax Policy Blog).


Paul Neiffer, When Will We Know Section 179 Amount?. My intrepid tax school colleague ponders the likelihood and timing of the “extender” bill for this year.

Tri-state sales tax webinar! The Iowa Department of Revenue will have a free webinar covering “Sales and Use Tax Basics” for Iowa, South Dakota and Nebraska. It’s easy to get nexus for sales tax. There are plenty of Iowa businesses that need to take care of sales taxes elsewhere.

Ying Sa, My IRS is little ( “Many immigrant-owned small businesses begin with a focus on just selling. The rest, such as an income statement, balance sheet and tax compliance, is sometimes unknown to them.”

Insureblog, Worse Insurance, Higher Cost. “The fact is, your insurance is going to get worse and you are going to pay more for it.”

Robert D. Flach, QUESTIONS ANSWERED. Robert answers a reader question on deducting state property taxes.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015, #8: Tax-Free Parsonage Allowance Gets A Second Life.

Russ Fox, The Real Winners of the World Series of Poker (2015 Edition). Hint: the winner’s first initial is “I.”

Janet Novack, Here’s How Congress Just Cut Social Security For Baby Boomer Couples. The end of “file and suspend.”


TaxProf, The IRS Scandal, Day 917,

Stuart Gibson, The European Predictability Paradox (Tax Analysts Blog). “Paradox will rule the European tax world, in which certainty will become uncertain and the predictability accorded by advance rulings will become entirely unpredictable.”

Renu Zaretsky, To make money you have to spend money…” Today’s TaxVox headline roundup covers the Dell-EMC merger, international tax reform hopes, and lots more.


News from the Profession. CPAs Admit That They’re Not Good Business People (Caleb Newquist, Going Concern).



Tax Roundup, 11/6/15: Time to invade rural Iowa! And: IRS backs off valuation discount limits.

Friday, November 6th, 2015 by Joe Kristan

Tax School Rampage! In the pre-dawn hours Monday I will rendezvous with Roger McEowen, Director of the Iowa State University Center for Agricultural Law and Taxation, for the drive to Waterloo and the first 2015 session of the Iowa Farm and Urban Tax Schools. We will rampage through four Iowa towns this week. The complete schedule:

Nov. 9-10 – Waterloo
Nov. 10-11 – Sheldon
Nov. 11-12 – Red Oak
Nov. 12-13 – Ottumwa
Nov. 16-17 – Mason City
Nov. 23-24 – Maquoketa
Dec. 7-8 – Denison
Dec. 14-15 – Ames

For those of you unfortunate enough to not be in Iowa, or who prefer to study from the comfort of your computer, the Ames session is also available in a live webinar.

I am on the Day 1 schedule for all eight sessions, along with Roger and Kristy Maitre, the former Iowa IRS stakeholder liaison. There are two Day 2 teams. Waterloo, Mason City, Maquoketa and Denison get Dave Bibler, Jim Goodman, and Daniel Fretheim. Sheldon, Red Oak, Ottumwa and Ames get Dave Repp and Paul Neiffer of FarmCPA Today blog fame.

We have lots to cover this year. Details of topics here, and registration information here. Say you heard about it at the Tax Update Blog and get free coffee at any session!



Valuation power grab inoperative. Tax Analysts reports that Treasury officials have disavowed any intention of using forthcoming regulations to crack down on valuation discounts in estate planning. From the Tax Analysts report ($link):

Coming regulations on estate valuation for interests held by family members will follow not the Obama administration’s prior budget proposals, but the statute, an IRS official said November 4, signaling a welcome about-face for practitioners from earlier comments made by Treasury officials.

“There seems to be some confusion as to exactly what the guidance will rely on,” Finlow said. “We are looking to the statute as it is now. . . . We are not looking at the green book,” she said, referring to Treasury’s green book explanation of the president’s proposal on valuation discounts in his fiscal 2013 budget plan.

How do such crazy rumors get started?

In May Catherine Hughes, attorney-adviser, Treasury Office of Tax Legislative Counsel, said practitioners should look to that fiscal 2013 proposal for hints on what would be in store in the regs. The Obama administration asked Congress to amend section 2704(b) to disregard some provisions, such as some transfer and liquidation restrictions, in the valuation of intrafamily transfers of interests in family entities.

This would take the urgency out of some gift tax planning that is going on in anticipation of a crackdown on discounts for minority interests that seemed to be telegraphed by the Hughes comments.


buzz20150804Friday is a good day for so many reasons. Not least of which is that it’s the day Robert D. Flach posts his Friday Buzz roundup. Today his links included his year-end planning guide and bad news about the level of IRS service we can look forward to this coming filing season.


Robert Wood, Surgeon Hid Money In Divorce, Is Convicted Of Tax Evasion, Faces Up To 95 Years Prison:

He left the country without telling friends, family or his workplace, and secretly drove to Costa Rica He opened two bank accounts there, depositing more than $350,000 in cash. He also hid a thousand ounces of gold in a Costa Rican safe deposit box. Crossing into Panama, he opened another account there under the name of a sham corporation, Dakota Investments. By 2008, he had moved $4.6 million into that account.

He was hiding the money from an estranged wife and the IRS. With the benefit of hindsight he may wish he had instead invested in good divorce and tax counsel.


Roger Russell, Taxes in the Sharing Economy (Accounting Today). Includes a discussion of local lodging taxes for AirBNB renters.

William Perez explains Itemized Tax Deductions.

Kay Bell, New Ways and Means chairman Rep. Kevin Brady wants to move tax extenders ‘sooner rather than later’. “Like House Speaker Paul D. Ryan before him, Brady favors making the tax extenders permanent pieces of legislation.”

Paul Neiffer, Does 7 Equal 5? “For most farmers, Section 179 (at the $500,000 level) is much more important than a five-year life for equipment depreciation.”

Keith Fogg, How Does Indexing Federal Tax Lien Impact Its Effectiveness (Procedurally Taxing). “The purchasers in this case did not realize they were purchasing property encumbered by a federal tax lien because the title search did not turn up a lien against a prior owner.”

TaxGrrrl, IRS Announces Lower Fees For 2016 As PTIN Registration Opens




TaxProf, The IRS Scandal, Day 911. Today’s link discusses the scandal’s context in the larger effort of “campaign finance reform” advocates to silence their opposition by government power.

Richard Auxier, 2015 Ballot Measure Results: Tax cuts, yes; marijuana, sometimes (TaxVox).

Career Corner. CPA Exam Score Release Anxiety Is the Best Anxiety (Caleb Newquist, Going Concern).



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

Wednesday, October 21st, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cite: Poppe, T.C. Memo 2015-205

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




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

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

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

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


Russ Fox, The Wagering Excise Tax and DFS:

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

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


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

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

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

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




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

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


TaxProf, The IRS Scandal, Day 895



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

Arnold Kling



Tax Roundup, 10/15/2015: How to do that last-minute filing right. And: C.R. ID thief sentenced, Iowa sales tax rule delayed.

Thursday, October 15th, 2015 by Joe Kristan

certifiedFile! Today is the last, final, immutable deadline for filing an extended 2014 1040.* What are the stakes for getting that return in today?

  • If you owe federal taxes, it’s the difference between a late payment penalty of 3% (1/2% per month since April 15) and a late filing penalty of 25% (5% per month, capped at 25%).
  • It’s the last chance to make a free grouping election of your activities for the ne investment income tax and passive loss rules.
  • If you have an international reporting form on your return — a 5471, 8865, 3520, 8938, or 8891, for example — it’s the only way to avoid an automatic $10,000 late penalty on your filing. These forms may be due if you own an interest in a foreign corporation, partnership or trust; if you received a foreign gift or inheritance; if you have foreign financial assets, like a loan to an overseas person; or if you have an interest in a Canadian retirement plan.

So how to file? If you haven’t started yet (ugh), Russ Fox has some tips. If your return is done and you just need to file, e-file if at all possible. That gives you the assurance that your return has arrived on time and saves you the hassle of a trip to the post office or the UPS or FedEx store. And I feel safer if my return doesn’t have to be touched by an actual IRS employee.

OK, you ask, why can’t I just drop it in the mail or use the office postage meter? After all, the Mailbox Rule says “timely mailed, timely filed.”

Because then you have no proof that you filed on time. If the letter gets lost, or delayed, the IRS can call it “late” and you have no way to prove otherwise. If you have anything at stake with a timely-filing, it’s foolish to rely on the competence of the postal service and the goodwill of someone at the IRS service center.

If you aren’t e-filing, the best thing to do is to go to the post office, spring for Certified Mail, Return Receipt Requested, and get a hand-stamped postmark. Save it and keep it with the return receipt when that comes back. That will ward off late-filing vampires. Filling out the certified mail slip and running it through the office postage meter or using a postmark doesn’t work.

If you can’t make it to the post office before they close, then you can go to the FedEx Store or UPS store and use a “designated private delivery service.” This is trickier. You have to use one of the delivery methods specified by IRS Rev. Proc. . For example, “UPS Ground” doesn’t work, but “UPS 2nd Day Air” does work. Make sure the shipping paperwork shows today’s date. Be sure to use the proper IRS service center street address, because the private services can’t use the IRS post office box addresses.

*Unless you are a South Carolina flood victim, a war zone resident, or a non-resident alien.





Five years for Cedar Rapids ID reports an Iowa woman will go away for 61 months after pleading guilty to one count of ID theft. The Government’s sentencing memorandum says Gwendolyn Murray prepared “at least 136 false and fraudulent returns.” Ninety-four of them were processed, netting over $380,000 in refunds.

And that’s the real crime. The IRS has such poor controls that an amateur, probably using an off-the-shelf tax prep software package, could help herself to that much taxpayer money before getting caught. The chances of getting that back are about the same as my chances of a pro baseball career. And yet the IRS says the real problem is that honest preparers don’t have to take a compentency literacy test and submit a fee and paperwork.

Related: TIGTA: 1,300 IRS Computers, 50% Of IRS Servers Are Running Outdated Operating Systems, Putting Taxpayer Data At Risk (TaxProf)


Iowa Sales Tax Rule for Manufacturing Supplies to be delayed six months. It will now take effect July 1, 2016, reports AP.


Gretchen Tegeler, Ask questions about your property taxes (

You may not realize you are supporting not only your city, county and school district, but also Broadlawns Medical Center, Des Moines Area Regional Transit (DART) and the Des Moines Area Community College (DMACC).

For instance, 8.6 percent of the property taxes my husband and I pay on our home are going to Broadlawns. The single largest percentage increase in our property taxes (and this would be the case for most everyone in Polk County) is for DART, a whopping 10.4 percent!  

I’m sure it’s worth every penny…


Roger McEowen, Obamacare; Reimbursement of Health Insurance Premiums; and Limited (and Inconsistent) Transitional Relief (AgDocket). On the incomplete and confusing relief for “Section 105 plans” being clobbered by insane ACA regulations.


Paul Neiffer, What about Partnerships?:

The ACA mandates an $100 per day per employee penalty for providing non-qualified health insurance to more than one employee.  Many of our farm operations operate as S corporations and partnerships.  There is specific IRS guidance that allows shareholders and partners to deduct these health insurance premiums for owners and since this guidance did not line up with the guidance on the imposition of the $100 per day penalty, the IRS issued a notice earlier this year that indicated S corporations could continue to file their returns the same way until the end of this year.

However, this notice appeared to be silent on the treatment for partnerships and partners. 

They had to pass it for us to find out what was in it.


Peter Reilly, Santorum 20/20 Flat Tax Might Be Hard On Many Small Businesses. “I don’t understand why there does not seem to be more excitement about the elimination of business interest deductions.” Maybe because it’s Rick Santorum.

Robert WoodU.S. Tax 35%, Ireland 12.5%, New Irish Tech Rate 6.25%, Any Questions?

Kay Bell, Be like Trump: Pay as little tax as possible




David Brunori, Getting Taxpayers to Rat on Each Other: Uncool (Tax Analysts Blog):

Private citizens should not be in the business of administering or enforcing the tax laws. The most obvious reason is that they do not have the expertise or the context to judge whether taxes are being evaded rather than, say, avoided. It is hard enough for trained tax professionals to ascertain the difference between tax fraud and very aggressive tax planning. That task should be left to the professionals.

Not to mention the free play it gives to bitter ex-lovers or spouses, shakedown artists, and parasites in general.


TaxProf, The IRS Scandal, Day 889


A big thank you to Gretchen Tegeler and the Taxpayers Association of Central Iowa for inviting me to be on a panel last night on small business tax and regulation last night. I wish I could have lingered to chat longer, and enjoy some of that delicious Lucca food, but it being October 14 and all, I couldn’t stick around. It was a good session with lots fo great discussion.



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

Monday, October 12th, 2015 by Joe Kristan

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

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


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

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

December 24, 2009

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

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

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

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

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

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

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

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

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

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


Pielsticker Criminal Information Document

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




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

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

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

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




Russ Fox, Gilbert Hyatt Goes to Washington…Again:

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

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

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

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

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

Jason Dinesen, Iowa Taxation of Retirement Income

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

Peter Reilly, Jindal Tax Plan Creates A Wonderland Of Dodging



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

This chart says a lot:

20151011 effective rate chart tax foundation


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


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



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

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



Tax Roundup, 10/2/15: What your Health Savings Account can do that your IRA can’t. And: They don’t stay bought.

Friday, October 2nd, 2015 by Joe Kristan

20150803-1Your IRA isn’t an HSA. Last week I was asked whether there was a penalty for taking money from an Individual Retirement Account to pay for surgery. I said there was no penalty, but that it was taxable income. The person who asked was surprised and confused, thinking that penalty and taxation are the same thing. They aren’t.

The Tax Court faced a similar question yesterday. A 47 year-old taxpayer took money from her IRA to pay medical expenses for her non-dependent son. The IRS noticed, presumably via a computer match, and assessed her a 10% early withdrawal penalty, as well as regular income tax. Judge Guy explains the issue:

Generally, if a taxpayer receives a distribution from a qualified retirement plan before attaining age 59-1/2, section 72(t) imposes an additional tax equal to 10% of the portion of the distribution which is includible in the taxpayer’s gross income. Sec. 72(t)(1) and (2). The additional tax is intended to discourage taxpayers from taking premature distributions from retirement plans — actions that frustrate public policy encouraging saving for retirement…

Section 72(t)(2)(B) provides an exception to the imposition of additional tax to the extent that retirement plan distributions “do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).” Section 213 in turn allows as a deduction “the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent…

The “dependent” part was bad news:

The record reflects that petitioner did not claim her son as a dependent for the year in issue and fails to demonstrate that her son met the definition of a dependent provided in section 152. Consequently, we conclude that petitioner is not eligible for the exception under section 72(t)(2)(B) — even assuming that she used the funds in question to pay her son’s medical expenses.

But even if she did qualify to avoid the 10% tax (she didn’t), the withdrawal would still have been subject to income tax.

Health Savings Accounts look a lot like IRAs — they allow tax-free build-up, and they can be tapped penalty free like IRAs for retirement income. But HSA funds withdrawn for medical expenses are tax-free — not just penalty free. As with the IRA, though, the medical expenses have to be the taxpayers, the spouse’s, or a dependent’s. This extra flexibility makes HSAs a better savings vehicle than an IRA for those who qualify.

Not everybody qualifies. You need a “high deductible” health insurance policy to qualify for an HSA. For 2015 a “high deductible plan” is one with an annual deductible of at least $1,300 for single coverage and $2,600 for family coverage.  Annual out-of-pocket costs can’t exceed $6,450 for single coverage and $12,900 for family coverage. The 2015 contribution limits are $3,350 for single coverage and $6,650 for family coverage.

Unlike employer “flex-plan” arrangments, there is no “use it or lose it” feature in HSAs. You can accumulate contributions and save them for a year with large medical expenses, or for retirement. You don’t have to withdraw the funds in the same year as the medical expenses, either; if you had medical expenses in year 1, you can wait until year 2 to withdraw the amount and still have it tax-free.

Cite: Ireland, T.C. Summary Opinion 2015-60

Related Links:

IRS publication 969.

Kiplinger, FAQs about Health Savings Accounts.




Maria Koklanaris, ConAgra Foods, Winner of Largest-Ever Nebraska Incentive Package, Moving to Illinois (Tax Analysts, subscriber link):

ConAgra Foods Inc., recipient of the largest tax incentive package ever awarded in Nebraska, announced October 1 that it would move its corporate headquarters from Omaha to Chicago, cutting at least 1,500 jobs in the process.

As I’ve said before, incentive tax credits are like taking your wife’s purse to the bar to buy drinks for the girls. It cheats the person who’s paying, the girls aren’t impressed, and if you leave with one, she’s not the type to be faithful.


It’s Friday! It’s Buzz Day for Robert D. Flach. Trumpmania figures prominently.

Jason Dinesen, How to Protect a Deceased Person’s Identity. “Thankfully, Congress has now limited access to the Death Master File, which was the cause of much of the identity theft relating to deceased people.”

Paul Neiffer, Form 1099-G Does Not Always Require Schedule F Reporting. “The key thing to remember is just because USDA or a cooperative issues a Form 1099 does not mean the income has to be fully reported on Schedule F and subject to full self-employment tax.”

Jim Maule, Taxation of Prizes, Question Three. “The question, however, also referred to the local or state sales tax. The awarding of a prize is not a sale, so the sales tax ought not apply.”

Kay Bell, Hurricane Joaquin intensifies, threatens East Coast…maybe. Maybe you should dust off your disaster recovery plan once in awhile.

Leslie Book, Restitution Based Assessment and Tax Return Preparers: An Uneasy Mix (Procedurally Taxing). On the problems the IRS has in getting restitution from crooked preparers.

Robert Wood, Marijuana Goes Native American And Tax Free




David Henderson, via Don Boudreaux:

Herbert Hoover, in the midst of the Great Depression, more than doubled the top [income-tax] rate to 63 percent and increased the bottom rate by more than nine times to 4 percent.  He did this in spite of the fact that raising income tax rates during a depression lengthens the depression.  Franklin Roosevelt carried on Hoover’s policy throughout the 1930s and increased tax rates further.  By 1940, he had raised the top tax rate to 81.1 percent on incomes over $5 million.

Putting the “great” in the Great Depression.


Stephen Entin, Expensing: The Right Tax Treatment for All Investment Regardless of Financing Arrangements (Tax Policy Blog)

Howard Gleckman, How Investment Managers (And Maybe You) Would Benefit From Trump’s Tax Plan (TaxVox).

Cara Griffith, Idaho Legislators Shamed Into Good Behavior (Tax Analysts) Politicians, bureaucrats and cockroaches prefer darkness.

Carl Davis, Michigan Becomes the 26th State Where Online Retailers like Amazon Must Collect Sales Tax (Tax Justice Blog).


TaxProf, The IRS Scandal, Day 876. Lois Lerner and the Wisconsin witch hunt.


The Critical Question. Is Technology Making Accountants Dumb and Lazy? (Chris Hooper, Going Concern).



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

Wednesday, September 30th, 2015 by Joe Kristan

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

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

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

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

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

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

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




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

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

Russ Fox, How to Wynne Your Money Back in Maryland

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

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

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

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





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

Robert Wood, Hillary Backs Cadillac Tax Repeal


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

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

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

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

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




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

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

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

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

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

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


See you at Hoyt Sherman Place tonight!



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

Monday, September 28th, 2015 by Joe Kristan


Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

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

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

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

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

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


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

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

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

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

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

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

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


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

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



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

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


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

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

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

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

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

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


brazil chart 2


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


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

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




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

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

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

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

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

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

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


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



Tax Roundup, 9/22/15: A resounding call to document your mileage. And: preparer regulation, IRS service, lots more!

Tuesday, September 22nd, 2015 by Joe Kristan


No Walnut STYou know you’re having a bad day in Tax Court when:

After concessions, the remaining issue relating to deductions claimed on petitioner’s Schedule A is whether she is entitled to deduct an additional $1,616 of mileage expense that she claimed as part of her unreimbursed employee business expense deduction. The answer is a resounding no.

I’m pretty sure that the Tax Court judges never read their opinions out loud, so I don’t think it was literally resounding. Still, it’s fun to imagine Judge Marvel calling the court into session, calling out a booming “NO!” and then adjourning.

The “no” may hae been resounding because of a little error the Judge detected in the taxpayer’s evidence. The taxpayer claimed mileage deductions for going between work locations. Travel expenses have to meet the special substantiation requirements of Sec. 274(d), where the taxpayer maintains evidence, such as calendars or mileage logs, to prove the deduction. This taxpayer went through a lot of effort generating a log from her work history. However…

Petitioner testified at length regarding how she prepared the reconstructed log. She testified under oath that she had worked for both ATC and MSN throughout 2007 and carefully explained her work assignments for each employer, including her work assignments for ATC from January through September 2007. Unfortunately for petitioner, the document that ATC provided to her summarizing her work history with ATC shows that she did not start her employment at ATC until October 2007. That document demolished any credibility that petitioner’s reconstructed log and her sworn testimony might otherwise have had. [emphasis added]

The Moral? No matter how much effort goes into reconstructing your unreimbursed work mileage, it doesn’t help you if you didn’t actually have the job.

Cite: Spjute, T.C. Summ. Op. 2015-58




Bryan Camp has a long piece in Tax Notes today ($link) arguing that the IRS can and should “cut and paste” its way into a new preparer regulation regime. I won’t argue the legalisms, though I think if the IRS thought it plausible, it would have tried it already.

I will point out that in an article with 101 footnotes, there is no discussion of additional costs to the taxpayers, or whether the benefits exceed those costs. He discusses evidence that “unregulated” preparers make more errors, and he assumes that regulation will fix the problem. That’s not necessarily so. It’s hard to imagine the perfunctory examination and CPE requirements of the old RTRP program would improved preparation. You can make somebody take a test, but you can’t make them competent.

Mr. Camp also ignores the unintended but predictable effects of the inevitably-increased price of preparation on the quality of tax returns received by IRS. If prep price goes up, more taxpayers will do their own returns, almost certainly at a higher error rate than from paid-for preparation. Other taxpayers will drop out of the system rather than pay higher prep costs.

In short, regulation advocates assume regulation will solve the problems of inaccurate returns. That’s unproven but unlikely. It is likely, though, that it will increase taxpayer costs and push customers away from paid preparers, which creates a new set of problems.

Related: Leslie Book, AICPA Defends CPA Turf and Challenges IRS Efforts to Regulate Unenrolled Preparers (Procedurally Taxing)


buzz20140909Robert D. Flach has fresh Buzz today, with links ranging from silly tax proposals to silly home office deductions.

Paul Neiffer, What About Those AFRs? “Periodically I will get a question from a client asking me ‘How much interest they have to charge on a loan to their child or some other related party?’. ”

Kay Bell, Meet Obamacare deadlines or pay the higher tax price. “If you don’t file last year’s return, you won’t be able to claim an advance premium tax credit to help you pay for your 2016 Obamacare coverage.”

William Perez, What Tax Documents to Bring to Your Accountant?


Tony Nitti, Tax Geek Tuesday: Making Sense Of Partnership Book-Ups. A primer on adjusting capital accounts to reflect the price paid when partners enter or leave a partnership.

Russ Fox, We Don’t Need No Stinkin’ Phone Calls.

So let’s translate this into reality. In the 2013 fiscal year, 22,363,345 phone calls were attempted to various IRS toll-free lines; 15,609,615 were answered (69.8%). In the 2015 fiscal year, 22,013,468 phone calls were attempted to various IRS toll-free lines; 8,277,064 were answered (37.6%). As for the time on hold allegedly decreasing to 23.5 minutes, perhaps that’s after excluding all the time some of the 7 million people who called but whose calls were dropped or who hung up spent on the phone.

I think the IRS cuts in customer service are a sort of “Washington Monument Strategy” of cutting the most visible and useful aspects of taxpayer service to pressure Congress into providing more funds. I’ll believe the IRS is serious about its customer service issues when the IRS takes its 200 employees who spend all of their time doing Treasury Employee Union work and puts them on the phones.

Robert Wood, Let’s Tax Churches. I’m sure that won’t be controversial…

Peter Reilly, The Tax Code Explained & Why It Matters In This Presidential Race (No, It’s Not 70K Pages)

Jack Townsend, Wyly Brothers Seek Bankruptcy Relief from Disgorgement Order from Offshore Shenanigans




TaxProf, The IRS Scandal, Day 866

Martin Sullivan, Donald Buffett? (Tax Analysts Blog). Looking for tax wisdom in all the wrong places.

Renu Zaretsky, Inversions, Schools, and Supermarkets. Today’s TaxVox roundup covers the ground from tax increases in Chicago to tax favors for supermarkets in Baltimore.


Sebastian Johnson, Progressive Era Reform Can Be Anything But Progressive (Tax Justice Blog). “Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states.”

The point isn’t the well being of the state; it’s the well-being of the citizens.


News from the Profession. Accountant Hiding on the Appalachian Trail Has the Mugshot to Prove It (Caleb Newquist, Going Concern). “If you were an accountant accused of making off with about $9 million of your employer’s money, I can think of few places better to hide than the wilderness.”



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

Tuesday, September 15th, 2015 by Joe Kristan

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

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

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

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


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

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

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

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

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


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


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

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

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


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

Jim Maule, A New Tax Specialty: Porn:

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

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

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

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


TaxProf, The IRS Scandal, Day 859

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




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

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

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

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



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

Thursday, September 10th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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




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

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

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

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

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


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

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

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

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

The IRS, protecting your identity since 1913.

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

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

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

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






TaxProf, The IRS Scandal, Day 854

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


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

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

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

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


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



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

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

Flickr image courtesy stu_spivack under Creative Commons license

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

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

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

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

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

They apparently made it easy:

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

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

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

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

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

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

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

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


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

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

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

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

Paul Neiffer, Midwest Cropland Values Continue to Drop

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

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

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

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

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




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

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

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


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

TaxProf, The IRS Scandal, Day 841


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



Tax Roundup, 8/25/15: Capital losses, your portfolio disaster silver lining. And: Introducing Toby Miles!

Tuesday, August 25th, 2015 by Joe Kristan
Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So how’s the market doing? Recent days have been unkind to many stock portfolios. Can you make tax lemonade out of the sour lemons in your portfolio?

Let’s make clear that I am in no way saying you should sell your losing stocks right now. If I were smart enough to call the market, you wouldn’t find me doing tax returns in Des Moines in January, as lovely as it is. But I can explain what stock losses do to your income taxes, and how to do it.

First, tax losses are generally useful only when they occur in a taxable account. If your IRA or 401(k) portfolio takes a hit, you are normally out of luck.

Second, you have to actually sell the losing stock to deduct a loss. Just as you don’t pay taxes on appreciated stocks you don’t sell, you don’t get to deduct losses on shares you don’t cash out.

Third, you can’t buy back the shares you sell at a loss for 30 days, under the “wash sale” rules. So if you think that loser is going to bounce back right away, you can’t just buy back other shares of the same stock you sold at a loss if you want the deduction. Nor can you buy the other shares of the same stock in the 30 days before you take the loss. The IRS says buying the offsetting shares in a nontaxable IRA account also triggers wash-sale disallowance.

Finally, individuals may only deduct their capital losses to the extent of capital gains (long-term or short-term), plus $3,000 ($1,500 for married-filing-separately taxpayers). That means you get no tax benefit from overdoing taking losses; the excess of losses of $3,000 carries forward to offset future taxable gains.

But if you have cashed out gains already in your taxable portfolio, it may make sense to sell enough losers to offset the gain, if you have them. Otherwise, you are in effect paying tax on the gains voluntarily — assuming you can live without the loser stock for 30 days.


TaxGrrrl, As Stocks Tumble, Understanding When A Loss Isn’t Really A Loss, Topic 409 – Capital Gains and Losses



Toby Miles, IRS.

Toby Miles, IRS.

TaxProf, The IRS Scandal, Day 838. Today’s installment links to revelations of another Lois Lerner personal account used to conduct official business:

“In addition to emails to or from an email account denominated ‘Lois G. Lerner‘ or ‘Lois Home,’ some emails responsive to Judicial Watch’s request may have been sent to or received from a personal email account denominated ‘Toby Miles,’” Mr. Klimas told Judge Emmet G. Sullivan, who is hearing the case.

It is unclear who Toby Miles is, but Mr. Klimas said the IRS has concluded that was “a personal email account used by Lerner.”

The linked Washington Times story also has this:

The use of secret or extra email accounts has bedeviled the Obama administration, which is has tried to fend off a slew of lawsuits involving former Secretary of State Hillary Rodham Clinton and her top aides, the White House’s top science adviser, top Environmental Protection Agency officials and the IRS.

That’s not quite right. It’s not the use of the email accounts that has “bedeviled” the administration. Enough have come to light to make clear that such use is standard operating procedure. It’s the getting caught that does the bedeviling.




Paul Neiffer, IRS Delays New Inherited Property Reporting Requirements Until February 2016. Statements showing the basis of inherited property will not have to be filed with the IRS before the end of February, 2016, at the earliest.

Russ Fox, How to Commit Tax Fraud 101. “Until the IRS makes it far more difficult for the fraudsters, this epidemic will continue. As I’ve said, why rob banks?”

Robert D. Flach, TRY TO REMEMBER . . . End of summer tips on home mortgage interest, alternative minimum tax, and more.

Robert Wood, 10 Ways Trump Is Right About Taxes. When you say random things without regard to other random things you’ve already said, you are likely to be right occasionally. Unlike Mr. Wood, I think the “hedge fund loophole” talk is foolish nonsense.

Kay Bell, Trump trashes tax breaks for ‘paper pushing’ money managers. Featuring the Trump Squirrel.

Peter Reilly, Sending IRS Against Phony Churches Is Bringing A Knife To A Gun Fight. “Fundamentally the IRS cannot base its enforcement actions on the content of an organization’s beliefs.”



Stephen Olsen, Summary Opinions for July (Procedurally Taxing). Coverage of recent happenings in tax procedure.

Jason Dinesen, Does a Sole Proprietorship Need a Balance Sheet? Technically, no, but it’s foolish not to keep one.

Career Corner. Former Ryan Principal Made a Helluva Career Limiting Move (Caleb Newquist, Going Concern).



Tax Roundup, 8/20/15: Can Iowa tax reform happen?

Thursday, August 20th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

Iowa Tax Reform – doable? I will spend much of today at the Iowa Association of Business and Industry Tax Committee meeting. The topic is Iowa tax reform. Regular readers know that I have strong feelings about the topic. Iowa’s income tax is a mess, and it doesn’t have to be.

Or does it?

There are always forces that push a tax system to complexity. I think any tax system will always have insiders trying to cut special deals for themselves. This leads to higher taxes on everyone else, but the insiders are good at protecting their special deals. Iowa’s dozens of incentive tax credits are classic examples.

Iowa has other factors that help stymie efforts to lower tax rates by eliminating deductions and special tax breaks. On the right side of the aisle, Iowans for Tax Relief has always opposed any tax reform that eliminates the deductibility of federal income taxes. This is almost unknown outside of Iowa, and its repeal is probably essential if we are going to significantly reduce Iowa’s very high 8.98% individual rate.

On the left side of the aisle, the politicians have an unhealthy focus on soaking the rich. With control of the state senate, Iowa Democrats have bottled up all efforts that would reduce Iowa’s high rates because they help “the rich” — better known as “employers.”

I think Iowa may overcome these obstacles. Elimination of corporate tax and much lower individual might persuade insiders to give up special deals, or at least make them not worth fighting for. I think Iowa business is tired of its perpetually poor business tax climate.  Iowans for Tax Relief may soften its stance on federal deductibilty, or legislators may find the arguments for reform more persuasive. And a broad-based tax simplification could have non-partisan appeal, especially if it has a large low-income exemption.

But I think it has to be ambitious. A small plan isn’t going to persuade anybody to give up their special deals, or to modify long-held views. That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan is a good place to start.


Scott Drenkard, State Sales Tax Holidays in 2015 (Tax Policy Blog):


“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.”


Kay Bell, Does your state have unusual, confusing tax laws? Probably.


Victor Fleisher, Stop Universities From Hoarding Money:

Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.

In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at four other endowments I researched: Harvard, the University of Texas, Stanford and Princeton.

For some reason, you hear less about inequality in college endowments than you do about income inequality.





Two Headlines from Tax Notes this morning (unfortunately links only work for subscribers):

Tax Community Questions Proposal to End IRS Union Representation

No Evidence of IRS Partisanship Has Been Found, NTEU Says

To me, the second headline pretty much confirms the error of the “tax community” cited in the first one. To read the Lerner emails and conclude that she was “non-partisan” indicates a reading comprehension problem. NTEU, the IRS employee union, gives 96% of of its donations to, er, non-Republicans. Sounds nonpartisan to me…





TaxGrrrl, LLCs, S Corps & PCs: Choosing A Business Entity:

Entity selection is more important than you think. Your choice of entity can affect the number and identity of shareholders and partners, equity structure, control and management, as well what kind of funding you might be eligible to receive.

If you can’t make up your mind, start with the most flexible one — an LLC not taxed as a corporation– so you can change your mind without too much pain and suffering

Peter Reilly, Does Ninth Circuit Mortgage Interest Decision Create Special Rights? Well, it creates an incentive for people with multi-million-dollar houses to get divorces.

Carl Smith, Tax Court Again Refuses to Apply One Part of Equitable Innocent Spouse Relief Rev. Proc. 2013-34 (Procedurally Taxing)

Paul Neiffer, Wo! Paul is seeing lots of 200-bushel corn in Southwest Iowa on his Midwest Crop Tour.

TaxProf, The IRS Scandal, Day 833



Tax Roundup, 8/19/15: Even if it faxes, it’s still a printer in Iowa. And: the rich guy still isn’t buying.

Wednesday, August 19th, 2015 by Joe Kristan

20150813-1All for one, one for all. Iowa has a sales tax exclusion for “Computers used in processing or storage of data or information by an insurance company, financial institution, or commercial enterprise.” But what is a computer anymore, now that everything has a computer in it?

Last week Iowa released a ruling (Document 15300028) holding that Principal Financial Group’s all-in-one devices count as computers and are exempt from sales tax. From the ruling:

The protest was filed due to the Department’s partial denial of a refund claim which involved, among other issues, several multi-function devices which provide copy, print, scan, and fax services.  Your position is that because the multi-function devices are connected to your company’s computers and used in the manner described that these devices qualify as exempt computer peripheral equipment under Iowa’s statutes and administrative code…

Rule IAC 701—18.58(1), which was written, in part, to implement that code section, defines computers as the following:

…stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. Nonexclusive examples of devices fastened by a signal cable or other communication medium are terminals, printers, display units, card readers, tape readers, document sorters, optical readers, and card or tape punchers.

The Department of Revenue had argued that copiers and fax machines don’t qualify, and these functions disqualified the multi-function devices. Principal brought its considerable in-house tax expertise to bear:

However, since the filing date of the protest, you have provided the auditor with the “click count” information for each individual multi-function device included in the refund claim.  This documentation verifies that each unit individually qualifies for exemption because the majority of the usage for each of the devices is for exempt printing and scanning. 

Attached to the protest as Exhibit B was a summary schedule in which you determined that 96.67% of the usage of the devices was for exempt purposes.  This percentage was utilized by Principal to determine the amount of tax under protest ($145,134.80).  However, because each device qualified for exemption, the purchase prices of these units are fully exempt from Iowa sales tax.  Therefore, the Department will refund 100% of the sales tax paid on the purchases of these devices. 

So after a struggle, the Department settles on the right legal answer. The policy answer is only half-right, though. All business inputs should be exempt from sales tax, regardless of whether they are hooked up to a computer.

I rarely fax or copy anything anymore, and I think that this is true nowadays for most businesses. It could say something about how they do things at the Iowa Department of Revenue that they assumed otherwise. In any case, this ruling tells us that fax and copy capability doesn’t make an otherwise exempt scanner/printer subject to sales tax for an Iowa business.




Megan McArdle discusses presidential candidate Scott Walker’s Obamacare replacement (my emphasis):

In this debate, you can see the shape of where our politics may go over the next 20 years. Many Republicans would like a much smaller entitlement state; some Democrats would like a much bigger one, with Sweden-style universal coverage of virtually everything, crib to grave. Neither one is going to get what they want, because Americans are not prepared to give up their Social Security checks, or 60 percent of their paychecks either — and no, there is not enough money to fund these ambitions, or even our existing entitlements, by simply taxing “the rich.”

The discussion is becoming more urgent, as Obamacare as it stands is not working well; the big premium increases and the struggles of the “cooperatives” us that. It could be harder to fix the health insurance market than it was to wreck it in the first place.




Robert D. Flach brings the Tuesday Buzz on Wednesday, covering the tax blog ground from property taxes to the Get Transcript data breach.

Tony Nitti, Tax Court Reminds Us That You Should Never Toy Around With Your Retirement Account:

Section 72 clearly mandates that annuity income is ordinary income, rather than capital gains. Thus, it is immaterial whether, as the taxpayer asserted, the annuity generated most of its income in the form of capital gains. Because once the annuity distributed the cash generated from those capital gains on to the taxpayer, the tax law required it to be treated as ordinary income.



Jason Dinesen, Why is Self-Employment Tax Based on 92.35% of Self-Employment Income?

William Perez, These 6 states will waive penalties if you pay off your back taxes.

Paul Neiffer, Highway Use Tax Return Due August 31, 2015

Jim Maule, More Tax Fraud in the People’s Court. “It was an attempt to change a non-deductible cost of a boat into a business deduction.”

Kay Bell, A-list performers would get tax credit for New Jersey shows.

Republican Sen. Tom Kean, Jr. this week renewed a push for his bill that would provide a tax break for so-called A-list performers in the Garden State.

Not every problem is a tax problem. Especially this one.

TaxProf, The IRS Scandal, Day 832.




David Brunori, Retroactive Tax Laws Are Just Wrong (Tax Analysts Blog):

There are two fundamental problems with changing the rules retroactively. First, it is patently unfair. People who follow the rules should not be penalized later. We would never stand for it in the criminal context. Why should we accept it for taxes? Second, retroactively changing the rules undermines confidence in the tax system. Most people try to do the right thing. Often they spend a lot of money paying lawyers and accountants to guide them to the right result. The good taxpayers might not be diligent in following the rules if those rules might change.

It’s harder to justify spending money on tax compliance when it doesn’t do any good.


Howard Gleckman, New Rules Will Require States to Be More Transparent About Tax Subsidies (TaxVox): “While local governments have complained that the new rules will be complicated and burdensome, it is frankly a scandal that governments have been able to keep these subsidies under wraps for so long.”


News from the Profession. Only 20% of Companies Using Creative Accounting to Its Full Potential (Caleb Newquist, Going Concern). “…it’s not technically fraud”



Tax Roundup, 8/18/15: Oh, THOSE 200,000 hacks — the Get Transcript debacle worsens. Also: Crips, blog tax, and more!

Tuesday, August 18th, 2015 by Joe Kristan
This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

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

The Get Transcript debacle, revised and extended. IRS Commissioner Koskinen’s perfect record of getting things wrong the first time rolls on. The man who famously assured us that there were no more Tea Party emails, and they weren’t backed up, only to be proven repeatedly wrong, now tells us that the hack of the “Get Transcript” hack was much worse than they had let on. Ars Technica reports:

More than three months after the Internal Revenue Service shut down its online tax transcript service because of a massive identity theft effort, the IRS is now acknowledging that the number of affected taxpayers is more than three times the agency’s initial estimate. And the number of affected taxpayers may continue to grow as the agency digs into logs of hundreds of thousands of connections to its Get Transcript application over the past year. 

Commissioner Koskinen was billed as a “turnaround artist” for a struggling IRS. I guess I just don’t understand art. The IRS continues to send billions of dollars to identity thieves, most far less sophisticated than the (presumably Russian) outfit that hacked the transcript application. For example:

Fourteen reputed gangsters from Plainfield, Elizabeth and Newark have been indicted on charges ranging from tax fraud to murder following a seven-month investigation into alleged financial scams that helped sustain their criminal organization.

All 14 members and associates of the Elizabeth-based 111 Neighborhood Crips street gang were charged under the state’s Racketeer Influenced and Corrupt Organizations statute, or RICO.

If you can’t keep the 111 Neighborhood Crips from electronic tax theft, you don’t stand much chance against Russian organized crime.

The TaxProf has a roundup. More coverage:

Caleb Newquist, IRS Was Just Kidding When It Said Cyber Criminals Tried to Access Tax Return Information for 225,000 Households. “It was quite a few more than that, actually.”

Russ Fox, IRS Data Breach Impacted 334,000, Not 100,000 as IRS First Said. “Being a cynic, I wonder if the IRS’s announcement last week regarding free credit monitoring services has to do with today’s announcement.

TaxGrrrl, IRS Releases Additional Statement On Illegal Access To Taxpayer Accounts

Kay Bell, Uncle Sam, watch TV! You need these kind of tech-savvy staffers to fight growing tax & government website hacking. Actually, it appears the IRS already relies on fictional characters to protect its systems.




Annette Nellen, Highway Trust Fund and Tax Reform

Robert Wood, A $35 Million Wedding? Yes, Before Taxes:

But suppose you’re all about business? Is it possible to write off the cost if you’re inviting all your clients and customers?

Dream on.

Patrick Smith,D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 2). On the bankers’ challenge to FATCA.

Peter Reilly, Travel Blogger Finds Sex, Drugs Even Some Museums But No Tax Deductions. Sex, drugs, but no tax rock ‘n roll.

Paul Neiffer travelblogs the First Day of the Midwest Crop Tour, looking at good corn in South Dakota and Nebraska. No word on how his deductions are doing.


Honey princesses at the Iowa State Fair.

Honey princesses hold court at the Iowa State Fair.


Jeremy Scott, Lessig Is Probably Wrong About Extenders (Tax Analysts Blog):

Maybe some would argue that all this is part of a grand conspiracy. The president, left-leaning think tanks, and Republicans conspire to create a debate over extenders that lets the GOP and its allies (many Democrats do in fact support permanent credits for research, state and local sales taxes, depreciation, and other items) constantly churn money from donors. But that doesn’t seem very plausible.

Maybe not, but it sure does get the lobbyists to show up for the summer golf fund-raisers.


TaxProf, The IRS Scandal, Day 831

News from the Profession. CPA Thought He Was Out, Gets Pulled Back In (Caleb Newquist, Going Concern).

If you were a CPA who testified in the trial of two NYPD officers dubbed the “Mafia Cops,” no one would doubt you if you said, “I could never ever, I will never ever, be a CPA again.”

But he did. It doesn’t appear to be going well.


Tax Roundup, 8/17/15: New directions in Iowa tax policy. And lots more!

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

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

This week may see the start a discussion of the future of Iowa tax policy. The Iowa Association of Business and Industry Tax Committee meets Thursday to discuss proposals for the future of the Iowa income tax.

There’s a lot to talk about. The Tax Foundation puts Iowa among the bottom-ten states in its 2015 Business Tax Climate Index. Iowa has the second worst corporate tax ranking and the highest corporation tax rate of any state. We also have a subpar individual tax ranking. Along with the high rates — and made possible by them — the Iowa income tax is full of special favors for influential and sympathetic interests. This makes the taxes expensive and difficult to comply with and not so good at collecting revenue.

The state legislature has not seriously addressed income tax reform in recent years. There has been no movement against the awful corporation tax that I am aware of. The Republican caucus has pushed an individual “alternative maximum tax,” one with lower rates and a broader base — that would co-exist with the current system. That has an obvious flaw — everyone would compute their tax both ways and pay the lower tax. That makes the system more complex. But all tax reform has been bottled up by the Democrat-controlled Iowa Senate.

What are the ingredients for Iowa tax reform? A good tax reform discussion should consider:

Repeal of the Iowa corporation income tax. The Iowa corporation tax provided $438 million of the the state’s 2014 revenue, out of $7.545 billion. Corporation income taxes discourage in-state growth and are expensive to enforce. The state would be better off without it.

Repeal of all incentive tax credits. The state has many tax credits, some of which are refundable, including the R&D tax credit. Simply eliminating the tax credits would recoup some of the lost revenue from a corporation income tax repeal.

Move the individual income tax to an AGI-based system. Eliminate state itemized deductions and special state deductions and use the savings to lower the rates. Such as system would only retain a few itemized deductions to prevent abuse of taxpayers, principally the deduction for gambling losses.

Don’t be Kansas. That state enacted a poorly conceived tax reform effort a few years ago, and it has been a mess. Ambitions for tax reform have to be reconciled to revenue needs. While I think the state should spend less than it does, we can’t assume it will do so. Tax reformers need to present a plan that is revenue-neutral, or close to it.


Is Iowa’s business tax climate really that bad?

Baby steps towards fixing Iowa’s business tax climate

What an Iowa income tax might look like with a fresh start.

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan


Jared Walczak, How High Are Property Taxes in Your State? (Tax Policy Blog). With this map:




Iowa still has relatively high property taxes, even after the recent property tax reforms. But we have high income and sales taxes too.


Russ Fox, Two Sets of Returns Aren’t Better than One:

Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?

This is what Russ might call a Bozo tax offense. It’s not like this sort of thing will go very long without someone noticing.


Jason Dinesen, Glossary: Estimated Tax Payments

Annette Nellen, Innovation box tax reform proposal, A good explanation of a bad idea.

Kay Bell, IRS says free identity theft protection services are tax-free. “That’s very good news for me, since I was part of the huge OPM hack”

TaxGrrrl, IRS Offers Tax Guidance On Free Identity Theft Protection Services

Paul Neiffer is on the road on The ProFarmer Midwest Crop Tour.

Jim Maule, Rebutting Arguments Against Mileage-Based Road Fees. I think an expansion of tolling is more likely, but I don’t think that is very likely either.

Jack Townsend, Ninth Circuit Requires a Filing for Tax Perjury Charge. “Under the facts, Boitana had merely presented the false return to the agent, but that presentation was not a filing.”

Peter Reilly, Let Irwin Schiff Die With His Family Not In Prison:

You don’t have to agree with Irwin Schiff’s views on the federal income tax, to feel sympathy for Peter Schiff’s request that his father be released from prison. Irwin, now 87, has been diagnosed with lung cancer and it seems likely that he will not live to see his July 26, 2017 release date.

I think the government has made its point.


Patrick J. Smith, D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1) (Procedurally Taxing):

The weakness of the majority opinion in Florida Bankers, together with the strength of a dissenting opinion filed in the case, as well as the inconsistency of the majority opinion not only with the Supreme Court’s Direct Marketing decision but also with other D.C. Circuit opinions, all make the Florida Bankers case a strong candidate for en banc review. 

The suit challenges the FATCA rules on foreign reporting.


TaxProf, The IRS Scandal, Day 828Day 829Day 830

Matt Gardner, Latest Inversion Attempt Illustrates U.S. Can’t Compete with a 0 % Corporate Tax Rate (Tax Justice Blog). It could with a zer-percent rate of its own.

Renu Zaretsky, Tax plans and presidential candidates: The future [may or may not be] now. The TaxVox headline roundup talks about presidential candidate tax plans and the bleak outlook for the IRS budget under the current Commissioner.


If you think of government programs as technology, they are hopelessly behind. We regulate communications using the FCC, which is 1930s regulatory technology. We address health care for the elderly with Medicare, which is 50-year-old technology.

In the private sector, when an enterprise becomes technologically obsolete, it falls by the wayside. In government, it gets larger.

Arnold Kling


News from the Profession. Yep, Almost All Accounting Firm Partners Are Still White Guys (Caleb Newquist, Going Concern). Well, I still am, anyway, and I don’t see that changing.



Tax Roundup, 8/12/15: Bad news: blogging doesn’t make your vacation deductible. And more great stuff!

Wednesday, August 12th, 2015 by Joe Kristan


Accounting Today visitors: the due date post is here.

Road Trip! I had a great time on vacation last month, but it would have been sweeter if I could figure out a way to deduct it. Maybe if I mentioned it here at the Tax Update Blog? Alas, a Tax Court case this week thwarts my cunning scheme.

The Tax Court takes up the story:

In June 2008 petitioner’s adventure began. Over the next 5-1/2 months, petitioner made his way across the continents of Europe and Africa and even made a foray into the Middle East.

Throughout his journey petitioner updated his blog with anecdotes and pictures from his travels. While petitioner included details about some of the sites he saw, places he stayed, and food he ate, many of his explanations do not give enough details for a reader to find the specific site, lodgings, or restaurant described. For example in petitioner’s Paris blog entry he states: “[W]e hit up The [sic] BEST ice cream in Europe. * * * there are a couple of places that serve it and pricing is much higher at one (the ‘tourist’ one as Jeff put it) than at the other one. We walked past the tourist one, which had a huge crowd and walked down the street about half a block to the other one.” Petitioner does not give any more details about where in Paris the best ice cream in Europe can be found.

Petitioner did keep copies of all his receipts, flight confirmations, lodging confirmations, tour confirmations, rail passes, shuttle confirmations, bank statements, tour vouchers, credit card statements, and other miscellaneous receipts from the trip.

The problem wasn’t so much the recordkeeping, then, but the business plan:

Petitioner realized as he traveled, and even more so after he returned to the United States, that the market was already saturated with international backpacking blogs and that his plan for generating income through affiliate sales from his blog would not be profitable. Petitioner then shifted his focus to writing books about his travels and the insights he gained while traveling.

One way to ease the pain of a bad business plan is to deduct the losses:

Petitioner timely filed his 2008 Federal income tax return (return). He listed “world travel guide” as his principal business on the Schedule C, Profit or Loss From Business, attached to the return. On the Schedule C, petitioner did not report any business gross receipts or gross income. He claimed total expenses of and reported a net business loss of $39,138. As part of his net business loss, petitioner claimed deductions for travel expenses of $19,347, deductible meals and entertainment expenses of $6,314, and other expenses of $5,431.

The IRS threw a wrench in this part of the business plan by disallowing the loss under the Section 183 “hobby loss rules.” These rules disallow losses on business activities not really entered into for profit. The Tax Court reviewed nine factors that are used to distinguish a real business from a hobby, and found against the taxpayer (my emphasis::

Petitioner did not maintain any books or records for the activity. He had no written business plan and no estimate as to when his Web site would be operational, when his books would be published, or when he would begin to earn income from the activity. Although petitioner documented and retained receipts for his travel-related expenses, merely maintaining receipts is not enough to indicate a profit motive…

Furthermore, petitioner did not investigate the activity before embarking on his trip. Petitioner incurred over $39,000 in expenses before doing any research into the activity’s profitability. This is an indication that the activity was not engaged in for profit.

My favorite part of the opinion is this footnote, where the court tells us what a “blog” is:

“Blog” is a truncation of the expression “Web log”, which is a regularly updated Web site or Web page written in an informal or conversational style and typically run by an individual or small group.

So now we know.

The Moral? Travel may be broadening, and fun, but not necessarily deductible. Before spending $39,000 on it, you might want to figure out how to earn it back first.

Cite: Pingel, T.C. Summ. Op. 2015-48.




Tony Nitti, Teacher Fails To Qualify As Real Estate Professional: Who Can Pass The “More Than Half” Test?. Tony discusses the case we covered here yesterday.

Paul Neiffer, Don’t Use Your Product When Preparing a Tax Return. I think it depends a lot on the product, but Paul gets more specific in the text: “…it is apparent that you should not be using marijuana when preparing your income tax return.”

Jack Townsend, Two U.S. Return Preparer Enablers Sentenced for Offshore Account Conspiracy.

Russ Fox, There’s Innocent FBAR Violations, and There’s This. But jailing an occasional real tax violator doesn’t justify shooting jaywalkers.


Robert Nadler, Spousal Abuse Continues to Provide a Powerful Basis for Innocent Spouse Relief (Procedurally Taxing).

Robert Wood, Trump, Taxes, Tampons, And Snoop Dogg

TaxGrrrl, Defendants Sentenced For Stealing 9,000 Identities, Including Army Soldiers


David Brunori, Taxing Beer (Tax Analysts Blog):

The lowest excise tax rates are in Wyoming, Wisconsin, Pennsylvania, Missouri, and Oregon. To put it in context, Tennessee taxes beer at $1.29 a gallon. Wyoming’s tax is $0.02 a gallon. Buy your beer in Cheyenne.

I wonder if Jack Daniels has an effective lobby in the Tennessee statehouse.




Joseph Henchman, Ten Years of the North Carolina Lottery (and Why It’s In Part a Tax) (Tax Policy Blog):

The Lottery was set up ten years ago as a state enterprise to generate revenue for education programs. 50 percent of gross sales are paid out as prizes, 7 percent paid to retailers as a commission, 8 percent to pay for operations (including advertising, which cannot exceed 1 percent of total revenues), and 35 percent to the state for education funding. Additionally, winners pay income tax on their prizes. The odds are not great – table games in casinos have much better odds – but the Lottery has no real competition as it is state-sanctioned.

Think of it as a tax on people who are bad at math.


Howard Gleckman, Clinton Would Tinker With, Not Rewrite, the Tax Code. (TaxVox). And what the tax law really needs is more tinkering, right?

Kay Bell, Is Obamacare headed back to the Supreme Court yet again? I think Justice Roberts has made it clear that he will find a way to protect the mess from all challenges.

TaxProf, The IRS Scandal, Day 825. Today the Prof links to Peter Reilly’s concession that just maybe Lois Lerner ran a biased shop.


News from the Profession. New Study Validates Old Accountant Joke (Caleb Newquist, Going Concern).