Posts Tagged ‘Paul Neiffer’
Friday, March 8th, 2013 by Joe Kristan
Illegal procedure. Former Chicago Bear Chris Zorich has been flagged. CBS Chicago reports:
Zorich, 43, was charged Thursday with four misdemeanor counts of failing to file federal income tax returns, for the years 2006 through 2009, according to the U.S. Attorney’s office. During that time, he allegedly had an income of more than $1 million.
Federal prosecutors said Zorich was cooperating with the investigation and has agreed to plead guilty.
His lawyer says that he owes no more than $70,000 after withholding on the non-filed years is applied.
I wonder why he was charged. While it’s a bad idea, it’s not extremely rare for people to just get behind on filing their returns. It doesn’t usually lead to criminal charges. Much of his income for the years at issue was W-2 income, so it wasn’t as though the IRS would miss him.
Perhaps he did something to annoy an examiner enough to call in the Criminal Division. Maybe it’s because he is an attorney [update: he apparently never passed the bar exam]. Or maybe he’s just unlucky to be famous-enough for the IRS to use his celebrity to frighten the rest of us into getting our returns done. (Via Reason 24/7)
Update: This Chicago Tribune report suggests that self-dealing with his charitable foundation may have been a factor.
In other tax crime news:
Jack Townsend: Article on Deterrence Through Criminal Enforcement and Defining Tax Shelters
Miami Vice: Two Miami Officers Accused Of Tax Refund Fraud (CBS Miami)
William Perez, Tips for Preparing Form 1040-EZ
Janet Novack, IRS Yanks Criminal Amnesty Deal From Taxpayers With Secret Bank Leumi Accounts. If the IRS turns on taxpayers who turned themselves in under an amnesty, not many folks will participate in another one.
Russ Fox, When the IRS Changes the Rules Midstream in a Legal Matter…
J.D. Tuccile, As Government Grasps For Taxes, Brace for an Unwinnable War Against You (Reason.com). It’s a long-form essay on the way getting all sorts of social services from the government doesn’t make people happy to pay their taxes. This is interesting:
Those who think tax increases alone can solve our ongoing fiscal disaster are just kidding themselves.
Paul Neiffer, What Are W2 Wages for DPAD? You have to have paid W-2 wages to use the Section 199 deduction. But they don’t all work:
These wages cannot include wages paid to your children under age 18 (if a sole proprietor farmer) and commodity wages. However, wages paid in cash to spouses and children over age 17 are allowed as part of these wages.
If you are a schedule F farmer with no employees, the W-2 requirement makes the Section 199 deduction worthless.
Jim Maule, Selecting a Tax Return Preparer. All sound advice, including this:
Seventh, ask the tax professional about data security. Where and how is paper data stored while in the hands of the preparer? Where is the digital data stored? What precautions are in place to minimize the chances of a third party breaking into the office or the digital servers and obtaining information? If the individual hands over paper records without keeping copies, which is an unwise move, what happens if the tax professional’s office burns down?
Something to think about.
Nanette Byrnes, State defections impact U.S. interstate tax compact (Tax Break)
TaxGrrrl, Taxes From A To Z (2013): D Is For Disaster Relief
William McBride, Latest IRS Data Shows Taxable Returns Remain Below 1997 Levels (Tax Policy Blog). The income tax burden falls on fewer and fewer returns.
Howard Gleckman, Build America Bonds, the Medicaid Expansion, and Trust Between the States and the Feds
Tony Nitti, Congress Looks To The Wealthy To Bail Out Social Security. But the rich guy isn’t buying.
If you ever wonder why California is the Titanic of state governments, you might want to read Kay Bell’s latest, Tax on email suggested as way to help fund U.S. Postal Service:
Berkeley City Councilman Gordon Wozniak has tossed out the idea of an email tax to help save snail mail.
The financial straits of the U.S. Postal Service became an issue for Berkeley lawmakers when the paper mail delivery system proposed closing that northern California city’s downtown post office and selling the building.
It won’t happen, but a state where somebody who thinks it could happen can be elected to public office is pretty much doomed.
Tags: Anthony Nitti, Chris Zorich, Howard Gleckman, identity theft, J.D. Tuccile, Jack Townsend, Janet Novack, Kay Bell, maule, Nanette Byrnes, Paul Neiffer, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Tuesday, March 5th, 2013 by Joe Kristan
“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.
The Iowa income tax as Swiss Army Knife. The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week. The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.
SSB 1064 cleared the committee unanimously. After all, who would vote against the “Hire a Hero Tax Credit?” But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.
Nobody will hire an employee just to get a $1,500 tax credit. You hire somebody because you have work to do. Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500. It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.” Will the state really examine that? Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.
Still, why not make a nice gesture to show our voters how much we care? Because every feel-good tax break has a cost. It costs money to comply with and enforce. It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it. It makes a good tax system for everyone just a little bit harder.
The primary purpose of the tax law is to finance government operations. When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.
Swiss Bank corpse fined $58 million for tax cheating. The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes. Robert W. Wood has more.
Patrick Temple-West, Wegelin withers under U.S. tax scrutiny, and more (Tax Break)
While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards. While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:
In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”
What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.
Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.
Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.
William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog) “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”
Russ Fox, IRS Opens for All. We can e-file all the forms.
TaxGrrrl,IRS Now Accepting All Individual Returns
Paul Neiffer, IRS Announces They Are Processing All Remaining Tax Forms
Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s? (Tax.com). “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”
Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply
Linda Beale, Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work
Yes. Minnesota Tax Reform: Poorly Designed?? (Brian Strahle).
Kay Bell, Tax Carnival #114: March 2013 Tax Lions and Lambs
Good. Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern). If you want to do tax work for a living, why waste two years doing audit work that you hate?
I don’t condone the behavior, but I bet every bus driver dreams it. From WQAD.com:
Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.
According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.
The students were first graders from Iowa Falls. Nobody was hurt.
I might not make a very good bus driver. I’d probably always be racing…
Tags: Brad Birkenfeld, Brian Strahle, Going Concern, Grassley, iowa tax policy, Jack Tomwsend, Jeremy Scott, Kay Bell, Linda Beale, Patrick Temple-West, Paul Neiffer, Robert Wood, Russ Fox, Swiss Army Knife, TaxGrrrl, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, March 4th, 2013 by Joe Kristan
A federal judge Friday sentenced a key player in the once-lucrative Jenkens & Gilchrist tax shelter practice to eight years in prison. From the AP:
U.S. District Judge William H. Pauley III sentenced 52-year-old Donna Guerin, of Scottsdale, Ariz., after she pleaded guilty to conspiracy to defraud the United States and tax evasion. He ordered her to pay $190 million in restitution besides the $1.6 million she agreed to forfeit when she pleaded guilty in September.
Guerin, a former partner at Jenkens & Gilchrist, a Texas-based law firm with offices throughout the United States, had admitted that she helped market tax shelters from 1994 through 2004 to some of the world’s richest investors, including the late sports entrepreneur Lamar Hunt, trust fund recipients, investors, a grandson of the late industrialist Armand Hammer and one of the earliest investors in Microsoft Corp.
The biggest prosecution target at Jenkens, Paul Daugerdas, faces his second trial on the charges in September. His 2011 trial was voided because of juror misconduct.
Jenkens was one of the big players in the tax shelter industry that sprung up among big law and accounting firms in the 1990s. It shut down in 2007 after entering a non-prosecution agreement with the Justice Department.
Sort of related: Ernst & Young Admits That Some of Its Partners Were Running a Tax Shelter Factory (Going Concern); Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution (Janet Novack)
Robert Goulder, Questioning the Longevity of the Income Tax (Tax.com):
Dare we attempt to guess what the income tax might look like in another 100 years?
Personally I think it will still exist, but it will have company. The big question for policymakers is whether it should operate as a “mass” tax — as it strives to do today — or whether it will function as a “class” tax that applies only to the upper income strata. Given that roughly 47% of American households currently don’t pay the income tax (distinguished from payroll taxes, which almost everyone pays), one could argue it is already starting to resemble a class tax. Perhaps the future is already here.
I can state with some confidence that if there is an income tax in 2113, I won’t be preparing returns.
Jack Townsend, Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply. This is an ugly result caused by an in-house accountant who stole funds meant for payroll taxes. The Second Circuit overturned the Tax Court and held that the employee’s fraud meant that the employer’s statute of limitations never closed for tax assessment purposes.
Russ Fox has a helpful tip: A Sure-Fire Way to Get Indicted
There are many ways to get in trouble with tax law. As I have said in the past, if you want to get indicted it’s a bit harder. It helps to be a celebrity, have a very large tax debt, not report large amounts of funds in foreign financial accounts, or abscond with trust fund taxes. I need to add another item to that list: File liens against IRS employees who are investigating you.
For some reason, they respond badly to that.
William McBride, BEA: Personal Income Drops 3.6 Percent in January, the Most since the Clinton Tax Increase of 1993 (Tax Policy Blog). It wouldn’t be shocking if a lot of folks moved income up to 2012 to avoid the 2013 tax increases.
Kay Bell, Don’t forget about your traditional or Roth 401(k)
Paul Neiffer, When an UPREIT Might Make Sense
Trish McIntire, Catching Up On the News, a rundown of issues practitioners are running into during filing season.
TaxGrrrl, If You Qualify, File Your Taxes For Free
Tony Nitti, Competing Senate Bills Fail; Sequestration Is Here (For Now)
Howard Gleckman,Sequester, We Hardly Knew Ye (TaxVox)
Kaye Thomas, The Mindbending World of Wash Sale Calculations.
David Cay Johnston, Good News for Investors and Taxpayers (Tax.com)
Martin Sullivan, Red Hot REITs Fire-up Low Tech (Tax.com)
Peter Reilly, Time To Eliminate Joint Filing ? No, it’s not actually related to the next article.
News you can use. Leff: Medical Marijuana Providers Can Beat Oppressive Federal Taxes by Operating as Non-Profits. (TaxProf)
Tags: Anthony Nitti, David Cay Johnston, Ernst & Young, Going Concern, Howard Gleckman, Jack Townsend, Janet Novack, Jenkens & Gilchrist, Kay Bell, Kaye Thomas, Martin Sullivan, Paul Neiffer, Peter Reilly, Robert Goulder, Russ Fox, tax crime, tax shelters, TaxGrrrl, TaxProf, Trish McIntier, William McBride
Posted in Tax Roundup, Tax Shelter News | No Comments »
Friday, March 1st, 2013 by Joe Kristan
Post-sequester commuting.
So the sequester takes effect. That made my commute like “Mad Max,” where I threaded my car between craters on shattered, lawless roadways before picking up the office Friday bagels, ignoring les miserables begging for a bagel crumb outside the door.
Well, OK, it was like my usual Friday commute, but with snow. But we will keep our eyes open for the chaos we know is right around the corner!
Iowa Senate advances limited property tax bill. The Sioux City Journal reports:
Senate Study Bill 1136, which passed the Senate Ways and Means Committee on a 9-6 party-line vote, would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial property values above that threshold would be taxed at the current 100 percent rate.
$324,ooo isn’t really that much property for a business, even at Iowa property values. The Governor proposes to reduce the taxable value to 80% of the value for all commercial property over four years.
House GOP advances “flat tax” idea (Radio Iowa). The Iowa House Ways and Means Committee sent HF 3 t0 the House floor yesterday. The bill would enact an optional income tax of 4.5% of adjusted gross income; taxpayers could elect to file under the HF 3 system or Iowa’s current system.
I don’t see this as a serious effort to pass a bill, given the flaws in using AGI as a tax base that I have pointed out. It has next to no chance of approval in the Iowa Senate, controlled by Democrats. At best it’s an attempt to keep much-needed income tax reform alive at a time when the Governor seems only interested in property taxes. Maybe next time they’ll get serious and pursue The Tax Update Quick and Dirty Iowa Tax Reform Plan.
Russ Fox, Important Court Ruling for Entities Owned by Californians Located Outside of California. A California owner shouldn’t by itself make your corporation taxable there.
TaxProf, Dow Chemical Loses $1 Billion Tax Shelter Case
Brian Mahany, Dow Chemical Suffers Billion Dollar Tax Shelter Loss – Accounting Malpractice
Jack Townsend, Mr. Cummings’ Defense of Aggressive Tax Shelter Professionals
Kyle Pomerleau and William McBride, Another Misleading Analysis of Income Inequality (with Pictures!) (Tax Policy Blog). They call out David Cay Johnston.
Martin Sullivan, A Moral Obligation to Aggressively Lobby (Tax.com)
Signs of sequester apocalypse:
TaxProf, The Impact of Sequestration on the IRS
Kay Bell, Despite sequestration, IRS plans to continue filing season as planned, start accepting more updated forms next week
TaxGrrrl, IRS Won’t Delay Tax Season For Sequestration
Howard Gleckman, The Sequester is Not Too Big, It is Too Stupid
Patrick Temple-West, Obama sees leverage in tax fight, and more
Paul Neiffer, Farmers Should Be Able to File Tax Returns by Monday
The Saratogian, Rapper Ja Rule in New York City jail on tax evasion charges; scheduled for July release
Huffington Post: Matthew Bender, Detroit Tax Preparer, Charged with Fraud For Preparing False Returns. Really, since Lexis-Nexis pulled the plug, it’s been all downhill for him.
Going Concern, Let the sequester blamestorming begin!
Tags: Brian Mahany, Going Concern, Howard Gleckman, Ja Rule, Jack Townsend, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Russ Fox, sequestration, tax crime, TaxGrrrl, TaxProf, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Wednesday, February 27th, 2013 by Joe Kristan
Well, that commute was fun.
Seventh Avenue, Des Moines, this morning.
They said we wouldn’t get snow. It hasn’t really stopped since 7 am yesterday.
Kyle Pomerleau, Is Tax Migration a Myth? (Tax Foundation). Short answer: no. He comments on a much-noted article by James B. Stewart claiming otherwise:
Mr. Stewart is off the mark if he believes he has uncovered a myth. Besides the posturing of celebrities, no one claims that at the very moment someone whispers “tax increase” one thousand millionaires head to the border. What really happens is that these higher tax burdens cause wealth and income to flee to states and countries with lower burdens and higher economic growth over time. High-tax states such as Vermont, Michigan and Missouri have not been magnets for jobs over the long run. Look over at Europe, which is once again scaring investors. It is a continent with excellent climate, culture and an educated workforce, but its high taxes and spending have stalled population and economic growth for a decade or more. America will go that way if we continue down the same path, driving out investment, businesses, and jobs.
Over the years I have seen people move out of Iowa for tax reasons. Back in the 1980s, when Illinois was a low-tax state, I saw an S corporation owner pay for a fancy new house in East Dubuque in one year by the simple expedient of moving across the river from Dubuque. Tax isn’t always the decisive factor, but to say it’s not a factor at all ignores the most basic tenet of economics: incentives matter.
Their hopes are fulfilled. At least that second one. Wave the jazz hands and hope for the best-Politicians hope that voters are clueless about tax, writes Tim Harford
Richard Morrison, Happy Birthday to the Kennedy Tax Cuts (Tax Foundation)
Congress took up Johnson’s suggestion and passed what became the Revenue Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.
Clearly the old rates were on the far side of the Laffer Curve.
Jana Luttenegger, Unfortunate Reminder of the Need for Powers of Attorney (Davis Brown Tax Law Blog):
A recent news story in the Des Moines area covered a family looking for assistance to cover legal bills for a family member who is in a coma following a car accident. The family is unable to get access to bank accounts or insurance information, and unable to pay her bills (or even know what bills exist) as they come due. The only way for family members to get access to this information is to go through the court system and have the court appoint someone to take care of those matters.
This sort of planning isn’t just for rich people.
Paul Neiffer, How Step-Up In Basis Works. On the resetting of basis at date-of-death value when a farmer dies.
Jason Dinesen, A “Standard Deduction” for Sole Proprietors?
TaxGrrrl, 11 Changes You Must Know Before Filing Your Tax Return for 2012
Kay Bell, Tax reform is job 1. Well, HR 1, anyway.
Jim Maule, Special Low Tax Rates Hurt the Economy and Thus the Nation. He doesn’t like low capital gain and dividend rates. How about this, professor: lower the top rate to 20% for all income, allow a corporation dividends-paid deduction, and I’m good with getting rid of a capital gain break. Otherwise you are double-taxing earnings, and to the extent gains result from inflation, you are collecting a tax on treading water.
Andrew Lundeen, Buffet Rule Still Not a Good Solution. (Tax Policy Blog) Never will be:
The low rates we sometimes see from wealthy individuals is because they derive much of their income from investments, which is double taxed anyway. A capital gain or dividend is first taxed at the corporate level, as a corporate profit, then at the shareholder level. The result is a combined average tax rate of 56.7 percent in the United States – higher than every developed country in the world except, France, Denmark, and Italy. This creates a huge disincentive to invest, ultimately slowing economic growth.
David Brunori, Capital Gains from Copenhagen to Bakersfield (Tax.com)
Patrick Temple-West, EU financial transactions tax to go global, and more. Bad idea, as this New York Times piece explains.
Howard Gleckman, What if the Outrage over Excessive Welfare Extended to the Tax Code? (TaxVox).
Me from earlier: Hoarders, wreckers and the Accumulated Earnings Tax. Will the administration use this tax law relic to force corporations to put their cash to work?
From yesterday: IRS issues 2013 vehicle depreciation limits
Mo’ Money might lead to Mo’ time in prison. Mo’ Money Taxes employee pleads guilty to fraud
In case you were wondering. 10 Ways To Become A Victim Of Tax Identity Theft (Janet Novack)
News you can use. Jewish law permits informing on tax evaders. And secular law can make it lucrative.
Tags: Andrew Lundeen, Buffett rule, David Brunori, Howard Gleckman, James B. Stewart, Jana Luttenegger, Janet Novack, Jason Dinesen, Kay Bell, Kyle Poerleau, maule, Patrick Temple-West, Paul Neiffer, Richard Morrison, tax crime, TaxGrrrl, Tim Harford
Posted in Tax Roundup | No Comments »
Tuesday, February 26th, 2013 by Joe Kristan
Close enough to zero. Monday Map: Corporate Income Tax Revenue as a Percentage of All State/Local Tax Revenue (Nick Kasprak, Tax Policy Blog):
IRS Field Attorney Advice: Bank must capitalize indirect costs of holding ”OREO” property under inventory capitalizetion rules. From FAA 20123201F (my emphasis)
Section 263A applies to property that is acquired for resale. If § 263A applies, the taxpayer must capitalize both the direct costs of acquiring the property and the property’s allocable share of indirect costs.
…
In this case, X clearly acquires OREO in foreclosure (or in lieu of foreclosure) with an intent to resell the property. Bank regulators restrict the holding period for OREO and expect banks to exercise good faith efforts to sell the property. As required by applicable state and federal policies and regulations, it is our understanding that X advertises its OREO properties for sale, including those properties which it rents out. X’s Year6 Annual Report confirms that assets acquired through (or in lieu of) foreclosure are held for sale. In addition, OREO is acquired and held in the ordinary course of X’s trade or business. X’s Year6 Annual Report acknowledges as much when it states that X may foreclose on and take title to properties securing loans “during the ordinary course of business.” X engages in OREO transactions with frequency, regularity, and according to an “OREO disposition strategy.” (Year6 Annual Report, p.17). Thus, the OREO held by X constitutes property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business.
“OREO” is “other real estate owned,” for you non-bankers. Bankers don’t care to hold much of that.
Joseph Henchman, Nebraska Governor Withdraws Tax Reform Proposal; Legislature Look to Commission to Develop Alternatives (Tax Policy Blog). But they aren’t giving up on tax reform. So should Iowa. The Quick and Dirty Iowa Tax Reform Plan is tanned, rested and ready!
Paul Neiffer, Must Have W2 Wages to Deduct DPAD. A hidden tax trap for the Schedule F farmer.
Great minds think alike:
TaxGrrrl, How Will Your State Be Impacted By Sequestration?
Kay Bell, How would your state fare under sequestration?
TaxProf, 3d Circuit Denies CARDS Tax Shelter. Another turn-of-the-century tax shelter fails.
Elaine Maag, Education Tax Credits Rival Pell Grant Program in Size: Reforms Proposed (TaxVox). The more you subsidize it, the more it costs.
Jeremy Scott, Taxing the Rich, Thenardier-Style (Tax.com):
But the influence of Les Miserables doesn’t just extend to the silver screen and stage. President Obama seems to be taking tax policy advice from the musical’s comical antagonist, Thenardier.
Well, that would explain many things.
Trish McIntire, Referrals – A Double Edged Sword.
Peter Reilly, What Were They Thinking ? Another example of the unwisdom of failing to remit payroll taxes.
Linda Beale, Private equity and real estate managers get a “costly and unjust [tax] perk”. Not really, but some people really hate carried interests.
Me: Identity theft tax fraud: women’s work?
Put the champaign back on ice. The Income Tax is NOT Turning 100 – Yet. (Joseph Thorndike, Tax.com).
One less metal home in town. Demise of Another Lustron House. (IowaBiz.com) These are funky steel houses, not mobile homes. They don’t build ‘em like that anymore.
Tags: Elaine Maag, iowabiz.com, Jeremy Scott, Joseph Thorndike, Kay Bell, Linda Beale, Lustron homes, Nick Kasprak, OREO, Paul Neiffer, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, TaxGrrrl, TaxProf, Trish McIntire
Posted in Tax Roundup | No Comments »
Thursday, February 21st, 2013 by Joe Kristan
I arrived from out-of-town late, so I’m off to a late start this morning, so the roundup is abbreviated today.
Russ Roberts, Why so many Americans pay no income tax. “I still think we should get rid of the payroll tax and raise income tax rates.”
TaxProf, Supreme Court Hears Oral Argument in PPL Corp. v. Commissioner, involving a foreign tax credit shelter.
Kay Bell, Travel tracking apps, website can help at tax time. Nothing says auto business logs have to be on paper.
Christopher Bergin, Leaving the IRS: A True Tax Pro (Tax.com) On the retirement of Deborah Butler.
Jim Maule, Tax Commercial’s False Facts Perpetuates Falsehood. If the ad’s error on the length of the Internal Revenue Code is the only thing wrong, that may actually be progress, sadly.
TaxGrrrl, Five Ways To Pay Your Taxes When You Don’t Have The Cash
Trish McIntire, OIC Calculator. When you absolutely, positively can’t pay.
William McBride, Bowles Simpson Call for More Taxes, More Growth
Patrick Temple-West, Sequester talks grow harsh, and more (Tax Break)
Sure the murder charges are serious, but don’t let them find out about the offshore bank accounts! Pistorius’ Brother and Lawyer Allegedly Removed Documents from the Crime Scene Related to Offshore Bank Accounts (Jack Townsend).
Paul Neiffer, Good News for Blackberry, Raspberry and Papaya Farmers. You know who you are.
A new Cavalcade of Risk is up at Nerd Wallet.
Today’s career tip: Bad Spelling Can Derail an Otherwise Promising Career in Fraud (Going Concern)
Tags: cavalcade of risk, Christopher Bergin, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Russ Roberts, TaxGrrrl, TaxProf, Trish McIntire, William McBride
Posted in Uncategorized | No Comments »
Wednesday, February 20th, 2013 by Joe Kristan
Flickr Image courtisy Llima under Creative Commons license
If you are going to say the dog ate your tax records, make sure you have a dog. A New Jersey man was having a hard time coming up with records supporting his deductions in Tax Court. He blamed a fire. The success of the argument can be guessed from the Tax Court’s discussion of “Petitioner’s Alleged Fire”:
The circumstances surrounding petitioner’s purported fire are vague, and he has offered no evidence, apart from his testimony, that a fire occurred and that his 2006 tax records were destroyed in such a fire. Significantly, he failed to introduce insurance documentation or third-party testimony describing the alleged events or the extent of any fire.
The Tax Court said the man couldn’t support his deductions.
The Moral? Back up your work. And if you are going to have a fire, something needs to actually burn. (Cite: Mears, T.C. Memo 2013-54)
It looks like the dreaded automatic “sequestration” spending cuts are going to happen, so there is a flurry of proposals to stop this sliver of random spending discipline:
Martin Sullivan, A Proposal to Get Tax Reform Back on Track:
Before earmarking what we will do with the money from limits on chimerical loopholes, our leaders need to clear the path for the painful process of broadening the tax base. President Obama has now poisoned the well by turning Republicans’ tax reform instincts against them. If they were to put any revenue increases on the table, the President would claim the proposals have the Republican seal of approval and incorporate them into his tax hike plans.
At the same time Republicans tax reform strategy is wearing thin. Their extravagant claims about cutting the top individual rates below 30 percent are just hollow speechifying as long as they refuse to put specific revenue-raisers on the table.
Inspiring leadership.
Jeremy Scott, Simpson-Bowles Try Again (Tax.com):
Simpson-Bowles is just another deficit reduction plan — and a politically infeasible one at that. Its authors want to make it seem grander by attaching tax reform to it, just like Obama wanted his own proposals (which simply include ways to raise revenue that Democrats have proposed ad infinitum over the years) to sound better when he mentioned tax reform at least three times during the State of the Union. But what they are offering isn’t comprehensive enough to qualify as true tax reform. Deficit reduction has its place, but conflating it with tax reform will stall whatever momentum people like Camp are trying to create for a true tax system overhaul.
They just aren’t serious yet.
Also:
Howard Gleckman, Bowles-Simpson II: A New Plan to Avoid the Sequester (TaxVox)
Patrick Temple-West, Simpson, Bowles revive deficit plan, and more
Jacob Sullum on Obama’s Misguided Vision of Tax Reform (Reason.com)
High taxes are good for us, so infinite taxes will make us perfect. The high-tax advocacy group Citizens for Budget and Policy Priorities has generated a paper that says that state tax cuts do no good:
This paper argues that state personal income tax cuts won’t help small businesses create jobs, and in fact could harm the ability of the small-business sector to contribute to economic growth. For all the reasons stated in this paper, the converse is also true: personal income tax increases, including those on the highest earners, won’t harm small-business job creation.
Really? There is no level of taxation that would discourage economic activity? There is no level of tax increase that would cause economic activity to be located in a neighboring state with lower taxes?
The paper makes the same mistake as the guy who drowned trying to wade across the river that was only two feet deep, on average. You can see it on the headings of the paper: “The vast majority of those who would get a personal income tax cut are in no position to create small-business jobs.” “Most small businesses make too little money for tax cuts to produce enough income to pay new employees.” “Most small business owners are not significant ‘job creators’ and have no plans to be.”
This is the same logic we heard when we were told that individual tax increases wouldn’t hurt business because most small businesses wouldn’t be affected. When you define “small business” to include your office Avon Lady and a manufacturer with dozens or hundreds of employees, of course “most” businesses won’t hire more if taxes are lower. Just the ones that matter.
When you measure by amount of income, the amount of business affected by individual rates is huge:
Sure, relatively few businesses achieve enough success to hire a lot of employees. Yet some do, and they do a lot of hiring. And, contrary to the CBPP paper, their ability to expand does shrink if they have to pay more taxes. As a tax accountant, it’s part of the world I live in. Prices matter in making decisions — including the price of living, doing business and paying taxes in a state. Any argument to the contrary has to overcome the basic rule of economics that incentives matter.
Paul Neiffer, 1031 Tax-Deferred Exchange Does Not Always Defer All Taxes!
Jack Townsend, Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor
Tax Trials, Petition for Writ of Certiorari Filed in Historic Boardwalk Hall Tax Credit Case
Trish McIntire, FASFA?
Kay Bell, Tax Carnival #113: Presidents Day 2013 or maybe you, too, can one day be Acting President of the United States
Breaking news from 1147: Tax Havens: The Second Crusade (Robert Goulder, Tax.com)
Going Concern, The IRS Is Wasting Millions on Unused Blackberrys and Aircards Because Of Course It Is. Meanwhile they prepare to lay off their useful employees when sequestration hits.
Tags: CBPP, Going Concern, Howard Gleckman, Jack Townsend, Jacob Sullum, Jeremy Scott, Judge Thornton, Kay Bell, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Robert Goulder, tax court, Tax Trials
Posted in Tax Roundup | No Comments »
Monday, February 18th, 2013 by Joe Kristan
Why don’t some big companies complain about Iowa’s highest-in-the-nation corporation tax rate? Because they are on the receiving end.
The Department of Revenue last week issued the 2012 list of recipients of of the Iowa Research Activities Tax Credit over $500,000. Like the Earned Income Tax Credit for the working poor, the Research credit is “refundable.” If a recipient doesn’t actually owe tax, the state will send a check for the amount of the credit anyway.
For the working poor, the EITC is unabashedly a welfare program. For the corporate recipients, the credit is touted as “economic development.” I’m sure EITC recipients feel the same way about their government checks.
The report shows that about $34.2 million of the $50.5 million claimed in research credits was refunded — about 2/3. The biggest recipient of the credit was Rockwell Collins, which received $13.8 million in credits. The report doesn’t say how much credit was refunded for each large recipient; If 2/3 of the Rockwell Collins credits were refunded, that means Iowa taxpayers gave the company $9.2 million
I don’t believe Rockwell Collins, or anyone else, should pay Iowa corporation income tax. It is a bad tax whose repeal would make life better for Iowans. But that’s a long way from saying that taxpayers should actually cut annual welfare checks to corporations doing business in Iowa. While I don’t blame them for taking the checks — who turns down free money? – don’t try to tell me that it’s good for me.
Repeal of giveaways like the refundable research credit and the “economic development” credits given to the big fertilizer companies would go a long way towards paying for repeal of the corporation income tax for businesses lacking the lobbyists and wire-pullers needed to hit the corporate welfare jackpot. Maybe some day we’ll demand the legislature replace the tax-some, pay-others Iowa tax system with something better, like The Quick and Dirty Iowa Tax Reform Plan.
Speaking of Iowa Tax Reform, I have posted my analysis of the proposed Iowa 4.5% optional flat tax.
Dislike. The left-wing high-tax advocacy group Citizens for Tax Justice is scandalized that Facebook isn’t paying income taxes on its 2012 income (via the TaxProf):
Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.
Instead, Facebook says it will receive net tax refunds totaling $429 million. Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.
So why are “executive stock options” deductible? Because they are taxable to the recipients as W-2 income. They are reported as taxable income on the executives 1040s at the same 35% top rate that the corporation pays. In other words, CTJ is upset because the executives, rather than the corporation, write the checks to the IRS.
There is no actual tax reduction. In fact, the government actually gets more income from the options than if Facebook had not issued the options and just paid 35% tax. Because they are also subject to the 2.9% medicare tax (3.8% starting in 2013), the option exercises actually generate additional revenue for the IRS. Presumably CTJ would want the executives to pay tax with no deduction on the other side. That seems unjust.
Another victory for Citizens for Tax Justice! After Illinois Tax Increase, State Farm Reportedly Moving Operations to Texas (Joseph Henchman, Tax Policy Blog).
Peter Reilly, Married Same Sex Couples – Windsor Decision Requires Action This Tax Season
Kay Bell, Sign up now to pay your federal tax bill via EFTPS. With the ongoing disintegration of the postal service, it’s good to have a secure and sure way to get your taxes paid on time. I’m signed up.
Tony Nitti, Former San Diego Mayor Gambles Away $1 Billion; What Are The Tax Implications?
Martin Sullivan, Taxation of Intangibles: Still Hazy After All These Years (Tax.com)
Roberton Williams, A New Marriage Penalty for High Earning Couples—and a Bonus for Some (TaxVox):
Our new Marriage Bonus and Penalty calculator, despite all its Valentine’s Day finery, ignores the new 0.9 percent Medicare payroll tax hike buried in the 2010 health law. The extra levy affects only a few high-income couples but in very different ways. Lucky couples will collect marriage bonuses of up to $450. But those less fortunate—if anyone making $250,000 can be considered less fortunate—will incur marriage penalties of as much as $1,350 in additional Medicare tax.
Just another example of the whimsical and poorly-conceived nature of the Obamacare Net Investment Income tax.
Brian Mahany, IRS Wins Tax Shelter Case – Will Claims Of Accounting Malpractice Follow?
Jack Townsend, New Plea Agreement Involving Israeli Banks
Robert Goulder, Jack Lew, the Cayman Islands & FATCA (Tax.com)
Ben Harris, Five reasons Why the Sequester’s Automatic Spending Cuts are Bad Policy (TaxVox).
Yeah, that’ll work. Newtown Lawmaker Proposes ‘Sin Tax’ On Violent Video Games (TaxGrrrl).
Traverse City! I will be speaking at a Farm Income Tax, Estate and Business Planning Seminar in Traverse City, Michigan June 13-14. The seminar is co-sponsored by the Iowa State University Center for Agricultural Law and Taxation. Other speakers include Roger McEowen and Paul Neiffer. Register now!
Chicago! Jackson’s Fall Includes Tax Charge (Russ Fox):
The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats). Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).
Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council. Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return. They pleaded guilty on Friday.
The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses. As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return. And we’re not talking nickel and dime purchases; the total is $582,772.58. Add in filing false campaign reports and you have problems.
When people complain about the need to turn power over to government instead of ”greedy corporations,” there is an implied assertion that the government and its operatives are somehow less vulnerable to avarice and self-dealing. Against all evidence.
Tags: Ben Harris, Branstad tax policy, Brian Mahany, Citizens for Tax Justice, corporate welfare, economic development, Facebook, Iowa tax p, Jack Townsend, Kay Bell, Martin Sullivan, Paul Neiffer, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert Goulder, Roberton Williams, Roger McEowen, Russ Fox, tax crime, TaxGrrrl, TaxProf, Tony Nitti
Posted in Tax Roundup | 1 Comment »
Friday, February 15th, 2013 by Joe Kristan
Governor Branstad has signed the bill conforming Iowa’s tax law to federal changes enacted last month. The Governor signed SF 106 yesterday afternoon.
The bill allows taxpayers to use several federal provisions in computing their 2012 Iowa taxes, including:
- The federal Section 179 deduction of up to $500,000.
- The federal above-the-line deductions for tuition and educator expenses.
- The exclusion for IRA distributions to charity for taxpayers who have reached age 70 1/2, and the transitional rules for January 2013 charitable rollovers of IRA distributions.
- The optional deduction for state and local sales taxes.
The bill does not conform Iowa to federal bonus depreciation; Iowa filers will normally use federal standard MACRS depreciation instead.
Tony Nitti, Senate Proposal for Tax Reform Part II: Democrats Seek To End S Corporation Payroll Tax Loophole. It’s similar to nonsensical proposals put forward in prior years to tax S corporation K-1 income when 75% or more of revenues are “attributable” to three or fewer shareholders — an impossible standard to evaluate in many cases, and one that discriminates against the smallest S corporations. It shows they are lazy — the problems with the approach are well known, yet the won’t make the effort to correct, instead trotting out the same old bill. It just shows they aren’t serious.
David Cay Johnston finds the cuts to IRS funding that would result from the impending sequester “Particularly Devastating” (Tax.com)
Going Concern, Former Dixon Comptroller Rita Crundwell Gets Nearly 20 Years. She stole over $50 million from an Illinois municipality of 15,000 people going back to 1990. And nobody noticed for over 20 years.
Kay Bell, IRS’ Where’s My Refund? site swamped by impatient refund tracking taxpayers.
Taxpayers overwhelmed with compliance demands, asks government to slow down. IRS Overwhelmed With Refund Requests, Asks Taxpayers To Slow Down. (TaxGrrrl)
Paul Neiffer, Another Bill to Reduce Farm Payments is Introduced!
Jack Townsend, Swiss and US Sign IGA. An agreement under the “FATCA” foreign bank reporting rules.
Patrick Temple-West, Married couples face tough taxes, and more (Tax Break)
Russ Fox, Nevada Looks to Tax Online Poker Tournaments
Donald Marron, The Balanced Budget Amendment’s $300 Billion Error
News you can use. Retire Rich: The Forbes 2013 Antiretirement Guide (Janet Novack)
Nick Kasprak, Happy Valentine’s Day! Will You Marry Me (For Tax Reasons?) (Tax Policy Blog).
Some people are just incurable romantics!
Tags: Anthony Nitti, Branstad tax policy, David Cay Johnston, Donald Marron., Going Concern, Iowa bonus depreciation, Jack Townsend, Janet Novack, Kay Bell, Nick Kasprak, Patrick Temple-West, Paul Neiffer, Russ Fox, Section 179, SF106, TaxGrrrl
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Thursday, February 14th, 2013 by Joe Kristan
Wikipedia image
The TaxProf Reports: IRS Whistleblower Office Issues Annual Report to Congress. It looks like ratting out tax cheats could be lucrative. Changes requiring the IRS to issue more awards were enacted in 2006, and it appears that the whistleblowers have done well. In 2012, for example, 128 awards were paid totalling $125,355,799, according to the report. That works out to nearly $1 million each.
Awards may well be one of the most effective ways to enforce the tax law, as well as one of the most creepy. They make every disaffected employee a potential IRS mole. Sure, it may make employment awkward for the whistleblower, but $1 million cash can be very consoling.
But before you go racing to the IRS, consider this sobering news from the report: From 2008 through 2012, whistleblowers reported 33,064 cases to the IRS, but awards were paid only 630 times. That means about 1 in 50 claims cashed out. Because the IRS collection process is slow, some more of those claims will get paid out, but the great majority won’t.
The moral? If you have a Valentines Day date, be careful how much of your tax life you share. Love is one thing, but cold hard cash is something else entirely.
I’ll start that diet right after I finish this cheesecake:
Treasury nominee Lew calls tax reform top priority (Reuters)
Obama Proposes Tax Incentives for Manufacturing (Tax Analysts, $link)
If tax reform is a top priority, you don’t start the process by adding more gimmicks to the code.
You mean not all appraisals are trustworthy? Ohio Federal Court Bars Appraiser of Historic-Preservation Easements. From a Department of Justice press release:
A federal court in Cleveland has barred MAI-designated real estate appraiser Michael Ehrmann and his firm, Jefferson & Lee Appraisals Inc., from preparing property appraisals for federal tax purposes, the Justice Department announced today. Judge Dan Aaron Polster of the U.S. District Court for the Northern District of Ohio signed the civil injunction order against Ehrmann and Jefferson & Lee Appraisals. The defendants consented to the injunction without admitting the allegations against them.
Federal law allows a taxpayer in certain limited circumstances to claim a charitable deduction for the value of a conservation easement donated to a qualified organization. The easement’s value must be determined by a qualified appraiser. According to the government complaint, Ehrmann’s appraisals repeatedly overstated the value of conservation easements placed on historic properties, including the Book Cadillac Hotel in Detroit and the Powerhouse Building in the Flats District of Cleveland.
The tax law is very touchy about the rules for appraisals. The obvious potential for abuse shows why.
A sad story from Buffalo. A tax preparer scammed his own clients, reports buffalonews.com:
Elizabeth Wopperer lost everything. She lost her business. She lost $40,000 in cash. And by the time it was all over, she found herself filing for bankruptcy.
On top of all that, the IRS now wants the money that was stolen from her.
The man she blames is going to federal prison for up to 30 months, but that won’t return the cleaning business she was forced to sell or pay the taxes she now owes because of his fraudulent actions.
What happened?
Mangione, the operator of a North Tonawanda payroll and tax preparation business, was supposed to pay federal income taxes on behalf of his clients but didn’t.
He chose instead to pocket some of the money, which means Schunke, Wopperer and several others are still on the hook for those taxes.
There’s no reason to give money to your preparer to pay your taxes.
Gene Steurle, Why Tax and Transfer Programs Often Discourage Work and Savings (TaxVox):
The tax code also is loaded with disincentives to work, save, and study. They include PEP and Pease (reductions in tax allowances for personal exemptions and itemized deductions), child tax credits, and the earned income tax credit. These implicit taxes combine with explicit taxes to create incentives for many households that are often inefficient and inequitable, to say nothing of strange and anomalous.
That’s why proposals to increase the earned-income credit are pernicious. The phase-outs of the benefits as incomes rise punish taxpayers for improving their lot.
But I thought nobody moved because of state taxes! Two Dozen Companies Announce California Departures, Citing Higher Taxes (Joseph Henchman, Tax Policy Blog).
Cara Griffith, Income Redistribution Has No Place in State Tax Systems. (Tax.com) The goal of taxes should be to finance operation of the government. The tax commissioner is not Handicapper General. When states try to soak the rich, they’ll rinse them right across the state line.
Kay Bell, Mistakes on child tax credit form are delaying some returns
Paul Neiffer, Don’t Forget the “Magic Blurb” on Donation Acknowledgements! A cancelled check by itself doesn’t get you a charitable deduction over $250.
Missouri Tax Guy, Maximize your Travel & Entertainment Benefits.
TaxGrrrl, The Cost Of Health Care Insurance, Taxes and Your W-2
Patrick Temple-West, Vital New York City property taxes lost, and more (Tax Break)
Andrew Mitchel, 48% Decrease in Number of Expatriates for 2012
Jack Townsend, Interview of R. J. Ruble, A Tax Lawyer Incarcerated for Tax Shelter Crimes. Sobering.
Say, what time is it? Madness Time. (Christopher Bergin, Tax.com)
If you are thinking of proposing tonight, check out An Updated Marriage Bonus and Penalty Calculator for Valentine’s Day from Roberton Williams at TaxVox before you commit!
News you can use. The SEC is Developing an Army of Robots to Replace You (Going Concern)
Tags: Andrew Mitchel, Cara Griffith, Christopher Bergin, Gene Steurle, Going Concern, Jack Townsend, Joseph Henchman, Kay Bell, Missouri Tax Guy, Patrick Temple-West, Paul Neiffer, Roberton Williams, tax crime, TaxGrrrl, TaxProf, whistleblower rewards
Posted in Tax Roundup | No Comments »
Tuesday, February 12th, 2013 by Joe Kristan
Meanwhile, somewhere an ID thief is trying to get cash from an ATM with a peanut butter sandwich. TBO.com reports:
A 6-year-old pupil at Symmes Elementary School in Riverview was asked to take her homework out of her backpack, according to Cpl. Bruce Crumpler of the Hillsborough County Sheriff’s Office.
The girl reached into her bag and pulled out a baggie containing 52 debit cards, Crumpler said.
The cards, which can be used as accounts for depositing tax refunds are commonly used by people who use stolen personal identities to file tax returns to obtain fraudulent refunds.
Maybe she’s the little princess of tax fraud. Meanwhile, the same TBO.com has an update on Rashia Wilson, who allegedly proclaimed herself the “Queen of IRS Tax Fraud:”
Wilson may not have been the biggest player in Tampa’s income tax fraud explosion, but she was one of the most brazen — “flashy,” a sheriff’s investigator called her, “in your face about it.”
The affidavits show Wilson even had a picture of herself with a cool smile on her face, wearing an oversized jewel-encrusted pendant spelling out her first name as she held bundles of cash.
“YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD,” reads a May posting on her Facebook page described in the affidavits. “IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!”
Easier than she thought, apparently. She has been indicted on 57 federal tax fraud charges for collecting $1.3 million through fake tax returns, apparently claiming earned income credits and refundable education credits. That should make the politicians think twice before they expand these fraud-ridden credits, but it won’t.
How many lawyers does it take to lose a tax case? 15. At least that’s how many lawyers were listed on the losing side yesterday in Bank of New York Mellon Corp., a Tax Court case disallowing foreign tax credits in a tax shelter case. Six lawyers are listed on the IRS side, for a total of 21. The losing side was led by former IRS Chief Counsel B. John Williams. If nothing else, the legal expense deductions should take a bite out of the losing side’s tax bill. The TaxProf has more.
Iowa’s push for a 4.5% optional flat tax — which I call an “alternative maximum tax” – puzzles David Brunori ($link)
Many liberals in Iowa are complaining that a flat tax wouldn’t require the rich to pay their fair share, whatever that means. But a lot of those people seem more interested in soaking the rich than in helping the poor. Personally, I am much more in favor of reducing the tax burdens on the poor and dispossessed than I am in making rich people suffer.
I think a flat income tax with few deductions (and a sizable exemption for low-income people) is the way to go. I’m unsure why the state would continue its horribly complicated personal income tax system that benefits return preparers, tax lawyers, and tax accountants.
It’s because of a peculiarity of Iowa politics. The powerful lobbying group Iowans for Tax Relief opposes a repeal of the Iowa deduction for federal taxes paid. ITR has shown that it can provoke successful primary challenges of Republican legislators who displease the Muscatine-based lobby. Yet significant rate reduction is impossible if the deduction is retained. Making the lower rate an “alternative” rather than a replacement appeases Muscatine, though at a cost in incoherence.
Will we see a revival in enforcement of the accumulated earnings tax? The obscure depression-era tax on C corporations that retain cash in excess of their “needs,” as second-guessed by the IRS, is rarely asserted. With left-side economists like Paul Krugman asserting that corporate cash-hoarding is one reason why the economy remains weak, don’t be surprised if his friends in the Obama administration try to revive enforcement of this archaic and foolish penalty tax. (Via Tyler Cowen).
William McBride, CBO Projections of Spending and Tax Credits (Tax Policy Blog):
As the chart below shows, mandatory spending represents the majority of the federal budget, and the part that has grown most dramatically in recent years. Mandatory spending was about 10 percent of GDP for most of the 30 years prior to 2008. It leapt to 15 percent of GDP in 2009 and now remains at 13.1 percent. It is projected to increase to 14.1 percent of GDP by 2023. Meanwhile, discretionary spending, on programs like defense, roads, and other infrastructure, is on a steady decline. Discretionary spending is now 8.3 percent of GDP and set to go to a 50 year low of 5.5 percent of GDP by 2023.
No spending is really “mandatory.” Congress and the President can always change the “mandatory” programs. And they will, or we will face fiscal disaster and crushing taxes.
Paul Neiffer, Farmer Filing Due Date Update
Yes. Will Obama’s Call for Tax Reform Ring Hollow? (Jeremy Scott, Tax.com).
TaxGrrrl, A Beginner’s Guide To Taxes: Do I Need To Hire A Tax Preparer Or Can I Do My Return Myself?
William Perez, Finding the Right Filing Status
Patrick Temple-West, Sandy damage leads to tax trouble, and more (Tax Break)
Peter Reilly, Co-op Owner Wins Casualty Loss Appeal
Missouri Tax Guy, Safeguarding Financial Records
Brian Strahle, Delaware’s NEW Voluntary Disclosure Program for Unclaimed Property: Should You Utilize It?
Jack Townsend, Good Faith as a Defense to Tax Crimes
The Critical Question: Would a Carbon Tax and Corporate Tax Reform Taste Great Together? (Donald Marron, TaxVox).
Kay Bell, Man gets $161,392 erroneous tax refund. And in this case he didn’t even ask for it.
Tags: Brian Strahle, David Brunori, Donald Marron., identity theft, iowa tax policy, Iowans for Tax Relief, Jack Townsend, Jeremy Scott, Kay Bell, Missouri Tax Guy, Patrick Temple-West, Paul Krugman, Paul Neiffer, Peter Reilly, tax crime, TaxGrrrl, TaxProf, Tyler Cowen, William McBride, William Perez
Posted in Tax Roundup | 3 Comments »
Monday, February 11th, 2013 by Joe Kristan
When a convicted criminal feels he has been ill-used by an accomplice, the normal recourse tends to involve unpleasant events in the prison gallery. Lawyers are rarely consulted. But when international tax cheating is involved, it apparently works differently.
A group of clients of Swiss bank UBS who claim that bad things happened to them as a result of their Swiss accounts sued UBS. Seventh Circuit appeals judge Posner was distinctly unsympathetic (my emphasis):
The plaintiffs are tax cheats, and it is very odd, to say the least, for tax cheats to seek to recover their penalties (let alone interest, which might simply compensate the IRS for the time value of money rightfully belonging to it rather than to the taxpayers) from the source, in this case UBS, of the income concealed from the IRS. One might have expected the plaintiffs to try to show that they had forgotten they had accounts with UBS (though that would be preposterous, for these were significant investments for each of the plaintiffs). Or that UBS had told them that income earned in those accounts was somehow tax exempt and moreover that the accounts themselves were somehow not foreign bank accounts within the meaning of the tax code and so the plaintiffs didn’t have to acknowledge having accounts with UBS. They don’t make any of these feeble arguments. They do argue, as we’ll see, that UBS was obligated to give them accurate tax advice and failed to do so, but not that it gave them inaccurate, as distinct from no, advice.
While the IRS offshore compliance programs have abused many innocent Americans who have foot-fault violations, that doesn’t appear to be the case here. A U.S. resident who set up a Swiss bank account probably didn’t do so to ensure tax compliance.
At worst, UBS, as we’re about to see, violated an agreement with the IRS designed to prevent the kind of evasion that the plaintiffs engaged in. That might conceivably make UBS an aider or abettor of the plaintiffs’s tax evasion and so make this case a distant relative to Everet v. Williams (Ex. 1725), better known as The Highwayman’s Case and eventually reported under that name in 9 L.Q. Rev. 197 (1893). A highwayman had sued his partner in crime for an accounting of the illegal profits of their criminal activity. The court refused to adjudicate the case, and both parties were hanged. Minus the hanging and with certain exceptions (such as contribution and indemnity) irrelevant to this case, the principle enunciated in The Highwayman’s Case applies to accomplices in civil wrongdoing, as noted in our recent decision in Schlueter v. Latek, 683 F.3d 350, 355-56 (7th Cir. 2012). In The Highwayman’s Case one accomplice was seeking a bigger share of the profit from the crime from the other one; here one accomplice is seeking a smaller share of the costs of the crime from the other one. The principle is the same; the law leaves the quarreling accomplices where it finds them.
The moral? Your banker isn’t your tax advisor, and when you are cheating, you are on your own. At least in Judge Posner’s court.
More coverage: TaxProf, Posner: Tax Cheats Suing UBS for Not Stopping Them From Cheating Like Suing Parents for Not Raising Them to be Honest
Overwhelming? A Tax Analysts story on the fallout from the Loving decision overturning the IRS preparer regulation program reports:
“There is overwhelming support for registration” among EAs, said Frank Degen, president of the National Association of Enrolled Agents. While preparers are watching to see what an appeals court will do — as the IRS said it would file an appeal soon — “most practitioners are just interested in cranking out those 1040s right now,” Degen said.
I’d want to see some polling showing that “overwhelming” support. The preparer regulation program strikes me as potentially fatal for the Enrolled Agent brand. EA’s, who have to pass a much stricter test and more stringent continuing education requirements than the registered preparers would have to, already have difficulty marketing their additional qualification. The IRS blessing of a competing bargain brand could easily bury the EA designation. At the very least, I see no overwhelming support for the preparer registration program from EA-bloggers Jason Dinesen and Russ Fox.
To your health! Compliance with ObamaCare Estimated to Take 127.6 Million Hours (Kyle Pomerleau, Tax Policy Blog).
Martin Sullivan, State of the Union: Stasis or Progress on Taxes? (Tax.com). My bet is on stasis.
Doom. What You Should Know About the Budget Outlook (William Gale, TaxVox).:
Even if seemingly everything goes right – in economic terms and in political terms – we are still on the edge of dangerously high debt and deficit levels with little room to spare.
Nah, we’re over the edge:
Jana Luttenegger, Social Media and Other Digital “Assets” After Death. (Davis Brown Tax Law Blog) If I die, please take me out of my high school reunion Facebook group.
William Perez, IRS Announces Start Dates For Processing Some Tax Returns. Y0u can file a return with depreciation starting today, and one with education credits starting Thursday.
Claudia Hill, Can This Tax Filing Season Be Saved? (Via @janetnovack’s Twitter Feed).
Paul Neiffer, Crop Insurance Proceeds on Feed Consumed by Livestock
And then pay your bill timely. 4 ways to be a better tax client (Kay Bell)
Patrick Temple-West, Higher payroll tax pinches those with the least to spare, and more
Jack Townsend, A Tax Curmudgeon Offers Ideas on Tax Compliance
Tax Trials, IRS Releases Schedule UTP Statistics for 2011. 1,783 taxpayers filed forms disclosing Uncertain Tax Positions for 2011. Seems low.
Peter Reilly, Is IRS Persecuting Kent Hovind For Creationism ? His tax planning shows little evidence of intelligent design, anyway.
Proposed by a guy wearing wing-tips, no doubt. Lawmaker Proposes Sneaker Tax, Retailers Opposed (TaxGrrrl)
Tags: Claudia Hill, EA, Jack Townsend, Jana Luttenegger, Jason Dinesen, Judge Posner, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, RTRP, Russ Fox, tax crime, Tax Trials, TaxGrrrl, UBS, William Gale, William Perez
Posted in Tax Roundup | 2 Comments »
Friday, February 8th, 2013 by Joe Kristan
Flickr image courtesy Dinner Series
About time. IRS Cracking Down on ID Theft, Tax Fraud (AP):
In 2012, the IRS says its investigations and in-house filtering systems prevented $20 billion in would-be fraudulent refunds, up from $14 billion the year before. But [Acting IRS Commissioner] Miller acknowledged that thieves still get away with stealing numerous tax refunds, although the IRS could not provide exact loss figures.
“In terms of how much got past us, we’re quite sure some did,” Miller told reporters in a conference call. “I know it doesn’t approach the number that we stopped.”
How much might that be? Maybe $5 billion a year, maybe more. That’s means about 20% of the fraud gets through. If your “in-house filter” let 1/5 of the grounds of your coffee into the pot, you’d change filters.
This is the first highly-publicized nationwide IRS crackdown on identity theft, years after the problem began to spiral out of control. It’s surely coincidence, but it almost is as if the IRS, now that it has been barred from it’s preparer regulation power grab, has decided that maybe it really should do something about ID theft after all.
Other Coverage: TaxGrrrl, IRS Makes Arrests, Targets Businesses In Massive Identity Theft Crackdown
Governor “likely” to sign Iowa coupling bill. GlobeGazette.com reports:
DES MOINES – The first bill the Iowa Legislature will send to the governor this year will align the Iowa and federal tax codes, a move that will reduce the amount of taxes Iowans pay to the state.
Although Republican Gov. Terry Branstad will thoroughly review the legislation, his spokesman said the governor supports the intent of Senate File 106 “and will likely support it.”
That’s good news. The sooner he signs it, the sooner the state can begin processing 2012 returns with Section 179 deductions, educator expenses, and a number of other provisions affected by the Fiscal Cliff legislation.
Christopher Bergin, More Than an Obstacle to Tax Reform (Tax.com):
Up until now, I’ve given the President the benefit of the doubt about reforming our broken tax system. I just didn’t think tax reform was a big issue for his administraiton. But now I’m beginning to think he doesn’t care about tax policy at all.
What was the tip-off?
No matter the fiscal crisis, the President never misses an opportunity to propose tax increases on “the fat cats.” To the President, the fat cats are the people and the businesses he thinks can pay a “little more” to support their government. I’m not sure I buy his definition of fat cat. But I certainly don’t buy his definition of tax reform. Tax reform is about building a tax system that is fairer, simpler, and more economically efficient. If in the process it raises revenue, I’m fine with that, but I don’t think the primary goal of tax reform is to wring more money from the well-to-do simply because they are doing better than you are.
It’s been blindingly obvious from the beginning that the President has no interest in tax policy. Look at his record:
- Increases in top marginal rates, which creates incentives for more loophole-carving.
- A baffling new tax on “net investment income” just to pretend that “the rich” will be paying for Obamacare.
- New “targeted” tax credits, which are pretty much the opposite of tax reform.
And his big current proposals are to limit deductions for corporate jets and screwing around with how private equity is taxed — symbolic and political gestures that would make the tax law even more complex. Any belief that the Obama administration cares a fig about tax reform requires more unfounded faith than a fourth marriage.
Tax Trials, Conservation Easement Deduction Denied as Quid Pro Quo for Subdivision Approval. Interesting case for developers.
Paul Neiffer, Capital Gains Tax On Inherited Property
Roberton Williams, Finally, a Permanent Estate Tax, Though Just for the Wealthy Few
I’ll bet he does. Stop the Indictment; My Client Wants Off (Jack Townsend).
Dan Meyers, The Second Hundred Years of The Federal Individual Income Tax
Patrick Temple-West, Pharmaceutical makers lower their taxes, and more (Tax Break)
Jim Maule ponders the imponderable: When Is a Tax Increase Not a Tax Increase?
Peter Reilly, Maryland Exempts Residence For Mormon Temple Workers As “Convent”
Kay Bell, ‘Devil’s’ tax form prompts man to quit job. Maybe there should be a Super Bowl ad, “Satan Made a Tax Accountant.”
I don’t condone this behavior, but I understand: Police say people smoking pot, doing taxes at Clay H&R Block (Charleston Daily Mail).
Central Iowa Culture Watch. The State Fairgrounds in Des Moines hosts the cultural event of the season this weekend: the Blue Ribbon Bacon Festival. Tickets routinely sell out in minutes, so if you have to ask, you can’t go. What will you miss? KCCI.com reports:
Start with the dress. It is made of real bacon, created by an East Des Moines dressmaker – and it is actually worn by the Bacon Queen…
“It wildly surpassed anything I thought was achievable. I mean, look at it, it sparkles,” said Porter.
Tags: bacon, Bacon Fest, Branstad tax policy, Christopher Bergin, Dan Meyers, identity theft, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Peter Reilly, Roberton Williams, Satan, tax crime, Tax Trials, TaxGrrrl
Posted in Tax Roundup | No Comments »
Tuesday, February 5th, 2013 by Joe Kristan
The Iowa Senate approved the Iowa tax code conformity bill, SF 106, yesterday. The bill was approved 48-0, which is a good sign that it will pass quickly — enabling Iowans to get on with filing their 2012 business returns.
The bill updates Iowa’s income tax for the Fiscal Cliff tax bill changes passed last month by Congress. Key items updated to match federal rules include:
- Conforming with the $500,000 federal Section 179 deduction limit for 2012 and 2013.
- Allowing the optional deduction for state and local sales taxes for 2012 and 2013.
- Conforming to federal research credit rule changes
- Continuing the IRA charitable distribution exclusion
- Adopting the federal “above the line” deductions for college tuition and for out-of-pocket expenses of educators.
The bill does not adopt federal bonus depreciation for 2012 and 2013. The bill does not show up yet on the calendars for the House Ways and Means Committee or for House floor debate, so it may not get to the Governor this week. Update, 9:00 am: An e-mail from the House floor manager for the bill says the House may take it up as soon as tomorrow.
More boffo reviews for the shutdown of the IRS preparer regulation program!
The Weekly Standard raves:
It’s hard to choose just one IRS knee-slapper, but here goes. The agency insists IJ’s “suggestion that the return preparer program is the product of a tainted lobbying effort is belied by support for the program from the Taxpayer Advocate, the Electronic Tax Administration Advisory Committee, numerous consumer advocacy groups, and comments from individual practitioners.”
The ETAAC is an IRS-administered panel whose members include lawyers and CPAs—who weren’t subject to the regulations—and people with connections to H&R Block and Jackson Hewitt, big businesses happy to help the government force the little guys out of the industry.
Protecting the taxpayers has never been the point.
The Wall Street Journal weighs in:
Rather than continuing to fight in court, the agency would do better to cashier the rules on legal and economic grounds. They are a classic example of big business harnessing government power to aid the powerful at the expense of small-business competitors. Meantime, won’t someone in Congress tell the IRS to stop exceeding its legal authority?
Sadly, no.
Meanwhile, the IRS has re-opened its PTIN registration system. It appears the IRS will still charge for them, though it’s not clear why anymore.
Nick Kasprak, Weekly Map: Sources of State and Local Tax Revenue: Sales, Excise, and Gross Receipts Tax:
Leave Gennifer Flowers Alone! Clinton woman pleads guilty to false tax returns. Clinton, Iowa, that is. From the Clinton Herald:
Regina Jimenez, 60, of Clinton pleaded guilty to two counts of filing
false tax returns. She faces up to three years of prison, a fine of up
to $1 million and costs of prosecution on each count.
According to court documents, Jimenez operated AA Accounting & Tax
Services, Inc. in Clinton from approximately 2007 through 2011. Jimenez
used the business to facilitate the theft of more than $200,000 from a
client who believed that Jimenez would use the money to pay the client’s
taxes.
There’s never a good reason to have your tax preparer pay your income taxes for you. If your preparer tries to get cash from you “to give to the IRS,” ask many questions.
Paul Neiffer, Hedging Versus Speculation:
Remember, if the farmer purchases a corn call option as part of this hedging strategy, this no longer qualifies as a hedge (even though is a normal strategy of selling actuals and buying the “board”, for tax purposes, it is not a hedge) and is considered speculation. In many cases, the tax treatment can be harsh since if the option produces income, the IRS will treat it as ordinary and if it produces a loss, it will be considered a capital loss (the worst of both).
Because partnership tax isn’t screwed up enough? Why the IRS Should be Taxing the Profits of Private Equity Funds as Ordinary Income (Steven Rosenthal, TaxVox).
Robert D. Flach, tax man of La Mancha New Jersey Pennsylvania, chases his favorite windmill: BEFORE I GO – MY “CRUSADE”
Windmills everywhere! Carl Levin Continues to Play the Role of Don Quixote (Jeremy Scott, Tax.com)
Patrick Temple-West, Democrats target corporate tax breaks, and more
TaxGrrrl, Guess What Turned 100 This Weekend?
Kay Bell, Happy 100th birthday federal income tax
Brian Strahle, The Maryland Wynne Case is Decided, Will The State Appeal Further? A possible refund for Maryland residents with taxes in other states.
Brian Mahany, OVDI – It’s Not Just For Unreported Foreign Accounts
Why you should spring for a good GPS unit. You might get lost otherwise, like a star-crossed couple in my home town of West Des Moines. The Des Moines Register reports:
The incident occurred at about 2:12 a.m. Friday, when a car pulled into a police station driveway at 250 Mills Civic Parkway marked for “Authorized Personnel,” according to a police report.
Police said the car passed two patrol cars and drove up a private drive before turning around when it reached a garage. An officer in one of the patrol cars then turned on his top lights and stopped the car.
The driver told officers they were trying get to Beach Girls, an adult entertainment venue at 6220 Raccoon River Dr., West Des Moines, according to the report.
The two officers reported that both the driver and passenger had bloodshot, watery eyes and that the vehicle smelled of marijuana.
If they mistook the West Des Moines cop shop for a strip club, either they already had enough fun for the night, or strip joints have changed a lot since my bachelor days.
Tags: Brian Mahany, Brian Strahle, iowa tax policy, Jeremy Scott, Kay Bell, Nick Kasprak, Patrick Temple-West, Paul Neiffer, preparer regulation, Robert D Flach, SF106, Steven Rosenthal, tax crime, TaxGrrrl
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, February 4th, 2013 by Joe Kristan
Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order. The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal. The judge declined:
As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.
So where do things stand? The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them. Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.
More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.
You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday. They had a football game and everything to observe it. The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official. And yes, it is official. While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons. So, in any way that matters, it’s official. Still, I can’t bring myself to say “Happy” anniversary.
More from Richard Morrison: 100 Years of the Federal Income Tax (Tax Policy Blog)
Iowa’s oldest judge, age 90, steps down. Ruth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court. Happy Retirement, Judge Klotz!
Paul Neiffer, Many States Are Delaying Farmer Filing Deadline
Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS
Kay Bell, Tips are taxable income
TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It
Trish McIntire, Gambling 1099MISCs. They don’t make your winnings taxable, they just let the IRS in on the secret.
Patrick Temple-West, Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)
Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com). Strange question. If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?
Rudy Penner, The Risks of Dumbing Down Fiscal Goals (TaxVox). It’s hard to think they could get any dumber than they are now.
Jim Maule, Looking Again at Tax and Political Ignorance:
The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.
Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.
Linda Beale, Red state tax “reform” and “economic growth”
Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE
The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).
What this country needs is a good 25-cent sneaker. Illinois Proposes 25-Cent Sneaker Tax (TaxProf)
It’s the little things. The mark of a true craftsman is attention to detail. Two Ohioans’ alleged failure to mind the details has led to trouble. From the Columbus Dispatch:
Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.
But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.
So did misspelling some of the occupations they listed on the phony tax returns.
I bet they thought those spelling drills in grade school were pointless.
Tags: 16th Amendment, Institute for Justice, Jack Townsend, Kay Bell, Linda Beale, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, Richard Morrison, Robert D Flach, Robert Goulder, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
Posted in Tax Roundup | No Comments »
Monday, January 28th, 2013 by Joe Kristan
Iowa is collecting more tax money than it is spending. Iowa House Republicans propose to give the money back as a one-time tax credit. The Des Moines Register reports:
The proposal would capture the state’s estimated $800 million budget surplus, divide it equally among the state’s income tax payers and issue an income tax credit to every taxpayer for his or her share. Senate Republicans said last week the credit amounts to $375 for individuals or $750 for couples who file jointly.
That means, for example, if a married couple’s state income tax liability was $1,000, they would receive a $750 tax credit, reducing the amount they were actually required to pay to $250. If a payer’s burden was less than $375, he would receive a credit equal only to his actual bill.
It’s a simple plan that treats the surplus as a non-recurring event. Unfortunately, there is nothing simple about Iowa’s tax law otherwise. I’d prefer to see it returned as part of a tax reform plan.
House Democrats prefer to spend the money, and the Governor wants some of it to fund his education reform plan. ISU economist David Swenson says the money should be run through the government:
Drawing on a statistical model that predicts economic impacts, he said $780 million in government spending could support roughly 2,000 more jobs than the same amount of spending by households.
Yes, the magical power of the government to transform your money into jobs. If we just gave the government infinite money, we’d get infinite jobs. If that worked, you’d think we’d have more jobs than ever, considering that Federal and state governments are spending more money than ever.
Link: Text of HF 1.
Tax Notes, Preparers in Limbo as IRS Shutters PTIN System After Loving Decision ($link):
Tax return preparers who just recently were rushing to get their preparer tax identification numbers from the IRS before it starts accepting 2012 tax returns on January 30 are in limbo after a federal district court enjoined the Service from enforcing requirements under the registered tax return preparer (RTRP) designation.
The IRS’s online PTIN system appears to be unavailable. People familiar with the system are uncertain why the IRS took it offline and what its unavailability means for the hundreds of thousands of potential PTIN registrants.
“From a practical point of view, [the IRS] has already shut the [PTIN] system down,” said Dan Alban of the Institute for Justice and the lead attorney for the plaintiffs in Loving v. IRS, No. 1:12-cv-00385 (D.D.C. 2013) “Whether they are legally required to do so is the question.”
Well done, IRS! Preparers are required to have a PTIN. The IRS apparently tied it’s PTIN software to the preparer regulation system overturned earlier this month. Another triumph for tax administration.
TaxProf, What’s FATCA Got To Do With It? Tina Turner Renounces U.S. Citizenship. It’s always easier for the wealthy to avoid the ridiculous paperwork the tax law imposes on Americans abroad. It’s the little jaywalkers that get shot to ensure the serious money-launderers get slapped on the wrist.
Andrew Mitchel has posted two videos explaining Form 5471. Think that sounds dull? If you fail to report your interest in a foreign corporation, the $10,000 fine will make it interesting.
Martin Sullivan, UK Conservative Policies in Trouble (Tax.com)
Brian Mahany, Tiger Woods and Tax Migration – The Wealthy Flee High Tax States (tax planning post)
Patrick Temple-West, Republican governors open new front in tax debate, and more
Paul Neiffer, AMT Causes a Few More Capital Gains Tax Rates!
Robert Goulder, The Pepperdine Papers: Advice for Obama’s Second Term (Tax.com)
Kay Bell, Deducting sales tax on your new car … or boat or airplane or home
Jim Maule, Tax Planning: A Chore That Never Sleeps. I think it works better if it does.
Trish McIntire, Who Do You Believe?. If your tax advisor contradicts your bar buddy on a tax issue, go with the tax advisor.
Dan Meyer, Will Tax Benefits Later Cost You Now?
Robert D. Flach, THE RESIDENTIAL ENERGY CREDIT IS BACK FOR 2012 (AND 2013)!
Joseph Henchman, Municipal Bankruptcies Since 1988. (Tax Policy Blog). He lists about 43.
Russ Fox, Cash and Carry Doesn’t Work for Strip Club Owner. I don’t think it’s allowed for the patrons either.
Worth a try. Shop Till Your Taxes Drop (TaxGrrrl)
Tags: Andrew Mitchel, Branstad tax policy, Brian Mahany, Dan Meyer, Joseph Henchman, Kay Bell, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, PTIN, Robert D Flach, Roburt Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Thursday, January 24th, 2013 by Joe Kristan
Tax Foundation graphic.
TaxProf, NY Times: it Is Time to Raise Taxes on Everybody — Including the Middle Class. Paul Caron links to a New York Times Op-ed:
To make ends meet, both parties agree, spending must be drastically cut. Under the White House budget proposal, discretionary spending on everything except the military is projected to shrink to its smallest share of the economy since the Eisenhower administration by the beginning of the next decade. Though he has resisted Republican demands to slash entitlements, President Obama remains willing to look for further savings from Medicare.
This is not, however, the only option we have. There is an alternative: raising more money from all taxpayers, including the middle class.
Nobody wants to talk about this. … Yet Americans would benefit from a discussion of this possibility.
It’s not true that “both parties agree” that spending must be drastically cut. It’s not clear that either party, as a whole, admits it, and at least one party remains in firm denial. The President’s campaign was all about spending money and sending the bill to the rich guy. Still, it’s nice that finally somebody at the New York Times admits that the rich guy isn’t buying. He can’t.
Janet Novack, As IRS Tax Filing Season Begins, Bad News For Honest Taxpayers. She speaks with Taxpayer Advocate Nina Olson. The article has some depressing truth:
Customer service at the Internal Revenue Service is dismal and deteriorating. (Only 68% of telephone callers who wanted to talk to a human at the IRS last tax filing season eached one, and then only after an average 17 minute wait.) The epidemic of identity theft refund fraud hasn’t yet been contained. Hope for a major reform that might simplify the tax code is waning.
The article also has some serious nonsense about last week’s ruling shutting down the IRS preparer regulation power grab:
“If the injunction stands, the taxpayers of the United States will be grievously harmed,” IRS National Taxpayer Advocate Nina E. Olson told Forbes. “The practical effect of not having some kind of consumer protection for taxpayers going to return preparers is enormous. And I say that seeing all the return preparer fraud, and the return preparer negligence, and the return preparer inadvertent mistakes that happen.”
Enormous? More like what we did forever until two years ago. If anybody has evidence that last year’s tax preparers were significantly more accomplished and accurate than they were before the regulations, they haven’t shared it. And the idea that the RTRP literacy competency test and minimal CPE requirement would have changed that is silly.
Ms. Olson believes that depriving consumers of choices in preparers is in their interest because the diminished choices would be better. That flies in the face of all we know about regulation. The net result would be higher prices, driving more taxpayers to do their returns and driving some on the margins out of the system altogether, while sending more business to the big franchise tax prep outfits.
Robert D. Flach, TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION. Robert’s magnum opus on how tax preparers should be regulated.
While I agree that having the Internal Revenue Service regulate tax preparers is not the best option – it is without a doubt a far superior option to having Congress legislate regulation. My opinion of the intelligence, competence, and ability, or rather lack of intelligence, competence, and ability, of the current members of Congress is well known.
The optimal source of tax preparer regulation/licensure/certification, whether mandatory or voluntary, would be an independent industry-based organization, not unlike the AICPA or ABA, such as the National Institute of Registered Tax Return Preparers that I have proposed.
Robert also calls me out:
As I have asked in response to Joe’s assertion, would you want a “casual” electrician wiring your kitchen, or a “casual” dentist filling a cavity, or a “casual” architect designing your home?
If I do, what business is it of anybody else? If I want to pay a talented handyman neighbor or cousin to install a ceiling fan for me, why is it anybody’s business? Why should he be not allowed to take my money just because he doesn’t have an electrician card from the Bureau of Electrical and Mortuary Science? As TaxGrrrl noted yesterday, occupational licensing is taking over the economy, and that’s not a good thing.
TaxGrrrl, With A Week To Go, IRS Talks Opening Day and Refunds
Cara Griffith, Have State Income Taxes Run Their Course? (Tax.com)
The corporate income tax is inefficient and a not sufficiently stable source of revenue for states. It should be eliminated. The individual income tax is likewise not a particularly stable source of revenue for states, and while counterintuitive, progressive tax systems do not work well at the state-level. Income redistribution, to the extent that it should be a goal at all, should not be undertaken at the state-level. So in a perfect world, yes, the state individual income tax should be eliminated as well.
Christopher Bergin agrees.
Good. Another bid to ban traffic enforcement cameras in Iowa. (O. Kay Henderson, via The Beanwalker). Traffic cameras are your local government’s most sincere way of showing their contempt for you.
Trish McIntire, Form 8332 and Fairness. How the IRS enables bitter ex-spouses.
Paul Neiffer, Why Imputed Interest Matters For 2013 (And Beyond)
Kaye A. Thomas, Another Demutualization Case
Robert W. Wood, Golfer Phil Mickelson Is Not Alone In Fleeing Taxes (Via Kerry Kerstetter)
Peter Reilly, Why Phil Mickelson’s Remark Was Really Dumb
Brian Mahany, Is FATCA In Trouble? Unfortunately, NO
Joseph Henchman, CBPP’s Misleading Chart on Debt Stabilization (Tax Policy Blog). A study in cherry-picking.
Jen Carrigan, Should Capital Gains Be Taxed Differently? (Guest post at The Missouri Taxguy blog).
Patrick Temple-West, Firms keep stockpiles of ‘foreign’ cash in U.S., and more
Tax Trials, District Court Decision Prevents IRS from Regulating Certain Tax Return Preparers
Kay Bell, Fiscal cliff tax provision could help stem fraudulent refund claims by prisoners
News you can use: Passing the CPA Exam While Billing Over 2500 Hours in a Year Is Way Harder Than Having a Baby. (Going Concern). Also less useful and not as smart.
Tags: Brian Mahany, Cara Griffith, Going Concern, Janet Novack, Jen Carrigan, Josehp Henchman, Kay Bell, Kaye Thomas, Kerry Kerstetter, Nina Olson, O Kay Henderson, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, Robert D Flach, Robert Wood, Tax Trials, TaxGrrrl, TaxProf, the rich guy's not buying, Trish McIntire
Posted in Tax Roundup | 1 Comment »
Tuesday, January 22nd, 2013 by Joe Kristan
Wikipedia image
What’s it cost to be a successful golfer in California? Phil Mickelson says his tax rate in California for 2013 is 62%. He doesn’t like it. Naturally he is called a whiny rich guy and told to suck it up.
What is his real rate? He will be paying a real federal rate, considering the itemized deduction phase-out, of 40.788%. His California rate will be an insane 13.3%. That will be deductible on his federal return, so the net combined income tax rate is about 48.662%,
But there’s more! Golfers are independent contractors, so they have to pay self-employment taxes. That rate is 3.8% in 2013, but 1.45% can be deducted on the federal return, so the net is about 3.19%. That gets his rate up to about 51.856%, or so.
In 2011, Lefty’s combined rate worked out to about 42.589%. That means his effective rate increased by about 9.266%. But that understates it. Think of Phil Mickelson as a business. His after-tax profit on a given income level has taken a real hit. Where after-tax income was about 57.411 cents out of every dollar in 2011, now its about 48.144%. That means his after-tax income has fallen by about 16% – nearly 1/6. Don’t think it matters? Try it sometime with your own after-tax income.
A 16% cut in margins would be a worry in any business. Mr. Mickelson is in a business where he can boost his margins by nearly 8% with a moving van. He’d be an odd businessman indeed if he didn’t give the idea serious consideration. And he will have plenty of company.
Jason Dinesen, Further Thoughts on Preparer Regulation:
My concern is more for the EA [Enrolled Agent] name itself. I really fear that EAs are getting pushed further and further to the margins. We’ve always been on the margins, so how much further can we be pushed?
The problem is, there’s no good solution for how to enhance and protect the EA name, because there’s so few of us.
So again, where do EAs fit in? There’s just not a good answer or good solution.
I thought the RTRP designation was a mortal threat to the EA brand.
Enrolled Agents have to pass a much harder IRS-administered test and more rigorous CPE than the RTRPs would face. Yet few people know what an enrolled agent is. If IRS wants to improve the caliber of tax preparers, they should give more publicity to the existing EA designation and make it more desirable. But that doesn’t help them expand their power over all preparers.
Robert D. Flach proposes a voluntary Registered Tax Return Preparer designation. I have no problem with a voluntary branding, and if Robert and other unenrolled preparers can make a brand of it, more power to them. I don’t see it happening, though, as it would do nothing for the big franchise preparation companies, who already have their own brands.
Martin Sullivan, “Now it’s about loopholes.”
Republicans want to use revenues from base-broadening solely to reduce rates. Democrats want to use revenues from base-broadening solely to raise revenue. (The quote in the title of this post is from senior Obama advisor David Plouffe.)
We will never be able to begin the tax reform process in earnest until Republicans and Democrats settle their differences on the total amount of revenue the federal government can collect. It was actually Bowles and Simpson who outlined the process: First, you settle on a number for the amount of revenue you want to raise (if any). In their case the amount of revenue was $800 billion over 10 years (using a different baseline). Second, you broaden the base as much as possible. The money from base-broadening is first devoted to deficit reduction and whatever is left over is used for rate reduction.
That requires agreement on how much we can afford to spend. Until that answer changes from “MOAR!” it won’t be enough.
Brian Strahle, ALERT: California Sales Tax Refund Opportunity: Optional Service Contracts. If you bought a service contact on a Dell and paid California sales tax, you may have a refund coming.
Peter Reilly, Tax Planning – Repairman Jack Style
Missouri Tax Guy, Tax Issues with early Distributions from Retirement savings.
William Perez, Qualified Charitable Distributions from IRAs for 2012. You have until January 31.
Kay Bell, Alternative minimum tax still around, but now indexed for inflation
Jack Townsend, More on Conscious Avoidance
Yes. Are Taxes Progressive in the US? (Paul Neiffer)
Not if you are Phil Mickelson. Can You Use the 1040EZ? (Trish McIntire)
News you can use: JUST SAY “NO” TO HENRY AND RICHARD (Robert D. Flach)
Tags: Anthony Nitti, Brian Strahle, Enrolled Agent, Going Concern, Jack Townsend, Jason Dinesen, Kay Bell, Len Burman, Martin Sullivan, Missouri Tax Guy, Paul Neiffer, Peter Reilly, Phil Mickelson, preparer regulation, Robert D Flach, Trish McIntire, William Perez
Posted in Tax Roundup | 3 Comments »
Monday, January 21st, 2013 by Joe Kristan
After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers. U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.
So now what?
I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months. It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.
Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:
“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”
So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation. This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.
As of this writing, the IRS has yet to comment.
So who wins? Small unenrolled preparers are big winners. They are now free of the brain-dead RTRP bureaucracy. Enrolled Agents are also big winners. The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers. But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.
The losers? The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations. The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors. And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.
When at first you get enjoined, try, try again. In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.” Apparently he dusted himself off and went right back to work. From a Department of Justice Press release:
The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.
Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.
No, you can’t give a tax free “tool allowance” to employees. And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.
In case you were wondering: Iowa explains sales tax treatment of Groupons.
Gongol, The people who pay a tax aren’t always the people who give the money to the government:
Companies that make medical devices are paying a 2.3% excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.
So true.
Paul Neiffer, IRS Announces April 15 Farmer Deadline
Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation
Jack Townsend, Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence. A discussion of the Fiore case, which I discussed last week.
TaxGrrrl, Why Justice Matters, Revisited
Richard Morrison, Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)
Roberton Williams, How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe AMT.”
Robert D. Flach, RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS
Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)
Kay Bell, Tax filing preparation checklist
Brian Strahle, Is Your Company Paying Too Much Virginia BPOL?
Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee
OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale. C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.
Tags: Allen Davison, Brian Strahle, Dan Alban, Dan Meyer, Enrolled Agents, Gongol, Jack Townsend, Jana Luttenegger, Kay Bell, Paul Neiffer, preparer regulation, Preparers, Ray Nagin, Richard Morrison, Robert D Flach, Roberton Williams, RTRP, Russ Fox, Shulman, tax crime, TaxGrrrl
Posted in Tax Roundup | 2 Comments »
Illegal procedure. Former Chicago Bear Chris Zorich has been flagged. CBS Chicago reports:
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
