Posts Tagged ‘Paul Neiffer’

Tax Roundup, 3/6/14: My lips are sealed edition. And: more budget!

Thursday, March 6th, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner still isn’t talking.  That would seem to make for a dull hearing of the House Committee investigating the harassment of Tea Party organizations by the IRS, but there was some interest.  From the Wall Street Journal:

A House hearing on the Internal Revenue Service scandal ended in acrimony, as the ranking Democrat, Rep. Elijah Cummings (D., Md.) accused Republicans of a “one-sided investigation” and GOP members walked out.

Chairman Darrell Issa (R., Calif.) ended the hearing after the lone witness, former IRS official Lois Lerner, declined to answer several of his questions, citing her Fifth Amendment privilege.

Yes, everyone is entitled to the protection of the Constitution, but those of us not sitting on a jury are also entitled to draw our own conclusions.  When the key figure in the scandal fears honest testimony will incriminate herself, you can be forgiven for questioning the President’s assertion that there is “not even a smidgen of corruption” involved.

Take it away, GoGos:

 

Althouse, After Lois Lerner re-asserts the 5th, Cummings yells at Issa and Issa cuts the microphone.  “Issa is closing down the meeting, Cummings asserts what he calls a “procedural question” that’s really a political scolding, and Issa cuts the microphone and walks out. It’s pretty unpleasant.”  Video provided.

TaxProf, The IRS Scandal, Day 301

TaxGrrrl, Former IRS Official Refuses To Testify Again, Lawyer Blasts “Partisan” Hearing.

Kay Bell, Tempers flare at IRS hearing. Reality show, anyone?

Peter Reilly, Lois Lerner Takes The Fifth Again – Political Theater?:

There are two narratives about this whole mess.  One is that there was something of a left wing conspiracy inside the IRS to pick on the political activity of organizations that were not supposed to be mainly political, which hurt those groups in their effort to prevent the President from being re-elected.  My blogging buddy, Joe Kristan, supports that theory having grown up in Chicago, where all sorts of enforcement is politically motivated.The other narrative is that the whole thing is a phony scandal.  I think that I am the only person left who has looked at this without fully making up his mind.

As Peter notes, I think the science is settled.

 

William Perez, Health Savings Accounts Provide a Tax-Deductible Way to Save for Medical Expenses

 

Economic supergenius

Smidgenless.

Andrew Lundeen, Kyle Pomerleau, The Tax Changes in President Obama’s Fiscal Year 2015 Budget (Tax Policy Blog):

He proposes to expand the child tax credit and the EITC, two of the largest family tax benefits. His budget also proposes to alter retirement plans and create an auto-enrollment IRA program. In order to pay for these expansions, his budget will raise taxes on high-income earners through a series of changes to tax expenditures, most notably placing a cap on the value of itemized deductions.

It will never be enough.  The rich guy isn’t buying.

Renu Zaretsky, Obama’s 2015 Budget Hits Capitol Hill (TaxVox)

Tony Nitti, Tax Aspects Of The President’s FY 2015 Budget . “…in simple terms, the President’s proposal would add a(nother) alternative minimum tax calculation to the current individual income tax regime.”

Paul Neiffer, How Much Longer for Section 1031 Exchanges?  ”  Most likely, nothing will happen this year, but in 2015, watch out.”

 

Cara Griffith, California Needs a Dose of Sunshine (Tax Policy Blog):

This issue arose after references to two forms were noticed in an FTB multistate audit technique manual

 By not disclosing forms like this, the FTB is enabling its auditors to take inconsistent positions regarding similarly situated taxpayers. If that’s the case, any guidance the FTB puts out on its application of the unitary business principle is meaningless.

When you have to disclose the standards you apply, you risk being held to them.

 

News from the Profession.  The Latest New Jersey CPA Magazine Cover is a Little Freaky (Going Concern)

 

Share

Tax Roundup, 1/5/14: President proposes $1 million Sec. 1031 cap. And: other doomed stuff!

Wednesday, March 5th, 2014 by Joe Kristan
Economic supergenius

0-99, 0-414

The President trotted out his old petty tax increases in his 2015 budget yesterday, and a few new ones.  The  new taxes would go towards, among other spending increases, an increase in the Earned Income Tax Credit welfare program for childless taxpayers.

If history is a guide, the Obama budget isn’t going to do well in Congress.  His own party leadership in the Senate has already pledged to pass no budget at all.  When his 2013 budget plan came up for a vote in Congress, it was rejected 99 -0 in the Senate and 414-0 in the House.

Still, it is worth mentioning some of the tax proposals, just so you are aware of them and their low likelihood of passage anytime soon.  Also, in light of the recent Camp “tax reform” proposal, apparently no tax provision is too dumb to get bipartisan consideration, so some of these might even pass someday.

S corporations: the bill would tax as self-employment income 100% of K-1 income from professional S corporations and partnerships of materially-participating owners.  Businesses covered would include health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, brokerage services, and lobbying.  For some reason, regular compensation would no longer be wages, but would instead be self-employment income.  That would wreak havoc on everybody’s 401(k) and profit-sharing plans.

- Like-kind exchange benefits would be capped at $1 million per taxpayer per year.  That won’t be popular with the real estate industry.

The bill also drags out dozens of the old proposals from his prior budgets, including LIFO repeal, ordinary income treatment for carried interests, capping the value of deductions at 28%, and capping build-ups in retirement plans.  Nothing at all is likely to happen before the next election on these proposals, but as many Obama proposals are also included in some form in the GOP Camp plan, they all have to be considered viable next time a major tax bill shows signs of moving.

The TaxProf has a good link-filled roundup.  The official explanation of the revenue-raisers is here.

Other coverage:

Kay Bell, Obama budget proposes more child care help for younger kids

Leslie Book, President’s Budget Proposes Major Procedural and Administrative Changes (Procedurally Taxing).  “The popular media has generally described the plan overall the way Reuters did in reporting that it ‘stands little or no chance of being approved as is by Congress, where Republicans, who control the House of Representatives, disagree with the president’s policy priorities.’”

 

Des Moines Register, Voters OK increasing franchise fee in Des Moines.  The vote is the result of the city being ordered to repay an illegally-collected utility tax:

The money raised by increasing the franchise fee to 7.5 percent from 5 percent for seven years will be used to pay off about $40 million in bonds issued by the city to pay for the refund and administrative costs.

Among the “administrative costs” is $7 million in legal fees Des Moines was ordered to pay to the winning taxpayer attorneys after a scorched-earth court battle by the city to avoid repaying the illegal tax.  Next time, don’t collect an illegal tax, and pay up if you’re called on it.

 

Alan Cole, True Marginal Tax Rates under Chairman Camp’s Proposal (Tax Policy Blog).  Full of high-income phase-outs, it creates all sorts of goofy marginal rate anomalies:

Marginal Tax Rates Camp Tax Reform

Note the spike in rates at the low-end as a result of the earned-income tax credit phase-out.  That doesn’t even include the effect of the state EITCs that piggyback on the federal credit.  All of this is the opposite of tax reform.  Apparently neither party is ready for reform.

William Gale and Donald Marron, The Macro Effects of Camp’s Tax Reform (TaxVox): “How would Camp’s plan increase growth, and why is the range of estimates so wide?”

 

Paul Neiffer, Additional Tax Reform Items.  “Remember, this is just a proposal and nothing will happen this year.”

Gene Steurle, A Camp-ground for Tax Reformers (TaxVox).

 

20130419-1Russ Fox, Deadlines for Us, but Not for Them:

For practitioners, the current state of the IRS is such that you can expect a lot of delays in responding to notices. Think months instead of weeks. Expect to have to call the IRS to verify that your response was received, and make sure clients are aware that the IRS is moving like molasses rolling uphill. Make sure anything you send is documented: certified mail with proof of receipt if by mail; if faxing, make sure you have the proof of receipt. Given the lengthy delays our clients are going to be in fear for far longer…

For taxpayers, you need to be aware that expediency is not part of today’s IRS. You have to be expedient in responding to notices but don’t expect the IRS to be expedient in getting back to you. Do not worry if it takes a long, long time to resolve something with the IRS. That’s just par for the course today.

Unfortunately, clients generally assume that if the IRS has sent a letter, that means the practitioner screwed up.  Many people, especially old folks, just pay up when they get an IRS notice.

 

William Perez, Tax-Deductible Relocation Expenses

TaxGrrrl, Taxes From A To Z (2014): B Is For Basis   

David Brunori, Taxing Coca Cola while Exempting Broccoli is Bad Policy Even for Native Americans (Tax Analysts Blog):

 In any event, several newspapers reported that one of the sponsors of the proposal was himself obese. He decided to change his life and lost 100 pounds. And he did it without any tax increases or help from the government.

Like so many reformed smokers/overeaters/drinkers, he has become annoying about it.

Tax Justice Blog, State News Quick Hits: State Policy Makers Need a Tax History Lesson

 

TaxProf, The IRS Scandal, Day 300.

 

Cheer up!  Filing Your Tax Return Is Terrible — But It Was Worse 100 Years Ago (Joseph Thorndike, Tax Analysts Blog).

News from the Profession.  The Real Loser at the Oscars This Year Was PwC.  (Going Concern)

20140305-1Jason Dinesen shares his Tax Season Tunes:

Here’s a sampling of other tunes I listen to while working when not getting my Gordon Lightfoot fix:

  • Neil Diamond. Generally not his “famous” songs. I detest — and I mean absolutely revile — “Sweet Caroline,” for example. The original recording is okay, but he’s turned it into a hokey, over-the-top, karaoke show-tune over the last few decades. Blech. I like the more introspective songs like “Shilo,” “If You Know What I Mean,” “Stones,” pretty much anything from his relatively new “12 Songs” and “Home Before Dark” albums,  and a host of other Neil Diamond songs that most people have probably never heard of.

  • An mix of songs that include Billy Joel, pop rock from the 60s and early 70s, Elvis, Willie Nelson, Conway Twitty, AC/DC, Juanes, Bon Jovi, CCR, Johnny Cash and Jimmy Buffett.

In case you were wondering, I believe Jason works alone.

 

Share

Tax Roundup, 2/27/14: Doomed Tax Reform Frenzy Edition.

Thursday, February 27th, 2014 by Joe Kristan

President Reagan signs PL 99-514, the Tax Reform Act of 1986.
When I think of income tax reform, I think big.  I think of massive elimination of tax deductionPresident Reagan signs PL 99-514, the Tax Reform Act of 1986.s, with great big rate reductions as consolation for taxpayers that lose their breaks.  I look for elimination of alternative ways of tracking income and deductions, with the idea that one way that everyone can understand is better than special breaks for different industries.  I look to eliminate double taxation of income everywhere, including elimination of capital gain taxes and integration of the corporate and individual systems.

By these standards, the tax reform plan put forth by Dave Camp, the chairman of the House Ways and Means Committee, is a disappointment.  While it would make many simplifying changes to the tax law while rates, it would leave behind a system that would still be very recognizable to a Rip Van Taxman who fell asleep in 1993.  It prunes tax complexity, but it doesn’t begin to clear the forest.

Still, politics being what it is, trimming the weed sanctuary is probably the best we can expect.  Maybe better than we can expect.

 

Tony Nitti has already posted detailed walk-throughs of the individual and business parts of the proposal, so there’s no point in me repeating his work.  Instead I will list some of the bigger changes proposed, with my commentary.  I don’t expect anything like the Camp plan to be enacted during the current administration, but I think it gives us an idea of the kinds of changes that could happen after 2016, if the stars align.

Individual Rates.  The bill would have a three-bracket tax system: 10%, 25%, and 35%.  The 35% bracket would replace the current 39.6% bracket, and would only apply to income other than “qualifying domestic manufacturing income.”  Lowering rates is fine, but this would retain the stupid difference between manufacturing income and other income embodied in the current Section 199 deduction.  It’s a complex and economically illiterate break for a favored class of income paid for by higher rates on all other income.

Capital gains and dividends would be taxed as ordinary income, but only after a 40% exclusion.  That would be a 21% net rate on 35% taxable income. (Initially I said 14%, math is hard).

Against the forces that have risen on K Street, there is no victory.

Against the power that has risen on K Street, there is no victory.

Deductions would be trimmed back.  The maximum home mortgage interest debt allowed for deductions would be $500,000, instead of the current $1.1 million.  Medical deductions would go away.  Standard deductions would increase to $11,000 for individuals and $22,000 for joint filers.  Many itemized deductions would reduce taxes only at the 25% rate, rather than the 35% top rate.  Charitable deductions would be simplified, but only deductible to the extent they exceed 2% of AGI.  The deduction for state and local taxes would be eliminated.

The increase in the standard deduction is an excellent idea.  I’m fine with reducing the mortgage interest deduction.   The limiting of deductions to the 25% rate is pointless revenue-raising complexity.  The elimination of the medical deduction will be a real burden on people in skilled nursing care; they are the people who generally can take this deduction.  Taxing them while they burn through their assets paying nursing home costs  will only put them into title 19 that much sooner.

While I am sympathetic with the policy reasons for not allowing a deduction for state and local taxes, those reasons don’t apply to taxes arising from pass-through business income.  State taxes are a cost of doing business for those folks, and should be deductible accordingly.

Alternative Minimum Tax would go away.  About time.

Corporate rates.  The proposal replaces the current multi-rate corporate tax with a flat 25% rate.  Excellent idea, as far as it goes, but it is flawed by the 35% individual top rate; it provides a motivation to game income between the individual and corporate system.

The proposal eliminates a number of energy credits while retaining the research credit.  I think that it would be better to get rid of the research credit and lower rates.  I think the IRS is no more capable of identifying and rewarding research than it is of fairly administering political distinctions.  Unfortunately, the credit seems to be a sacred cow among taxwriters.

Incredibly, the Camp corporate system gets rid of the Section 199 deduction while retaining a similar concept for individual rates.  Here it doesn’t get rid of pointless and economically foolish complexity; it just moves it around in the code.

LIFO inventories go away under the proposal.  As this comes up every proposal, it’s going to happen sometime.

Carried interests become taxable as ordinary income.  This is more complexity, apparently a sop to populist rhetoric.

Pass-throughs would be tweaked.  S corporation elections would be easier to make, and could be delayed until return time.  Built-in gains would only be taxable in the first five years after an S corporation election, instead of ten years.  Basis adjustments on partnership interest transactions would be mandatory, instead of elective.

Fixed assets would have mixed treatment.  While the Secti0n 179 deduction would permanently go to $250,000, depreciation would go to a system more like the pre-1986 ACRS system than the current MACRS system.

20120702-2Cash basis accounting would be more widely available, and fully available to Farmers and sole proprietors.  This is a step in the wrong direction.  Advocates of cash accounting say that it provides “simplicity,” implying that poor farmers just can’t handle inventory accounting.  Meanwhile these “poor” bumpkins play this system like a fiddle, manipulating cash method accounting to achieve results that are only available through fraud to the rest of us.  Modern farm operations with GPS, custom planting and nutrient plans, and multi-million dollar asset bases are as able to handle accrual accounting as any other business of similar size.

There’s plenty more to the plan, but you get the idea.  I find it disappointing that they don’t replace the current system of C and S corporations with a single system with full dividend deductibility.  I find the treatment of preferences and tax credit subsidies half-hearted.  I think there should be fewer deductions, fewer credits, and a much bigger standard deduction.  That’s why I’d never get elected to anything, I suppose.

The TaxProf rounds up coverage of the proposal.  Other coverage:

Peter Reilly, The Only Comment On Camp Tax Proposal You Need To Read – And Some Others

Paul Neiffer, Tax Reform – Part ?????!!!!!  “Since this is a mid-term election year, it has little chance of passing this year, but it is important to note possible changes that Congress is pondering.”

Annette Nellen, Congressman Camp’s Tax Reform Act of 2014 Discussion Draft

Leslie Book, Quick Thoughts on Procedural Aspects of Camp’s Tax Code Overhaul Proposal and the Spate of Important Interest Cases (Procedurally Taxing)

Joseph Thorndike, Democrats and Tax Reform: Can’t Do It With ‘Em, Can’t Do It Without ‘Em (Tax Analysts Blog).  “If you’re a left-leaning populist, what’s not to like?  Well, at least one big thing: The bill doesn’t raise taxes.”

TaxGrrrl, Camp’s Tax Proposal: The First Thing We Do, Let’s Kill All The Lawyers 

Kyle Pomerleau, Andrew Lundeen, The Basics of Chairman Camp’s Tax Reform Plan (Tax Policy Blog).  “We’ll have more analysis on the plan soon – it will take us days to get through the 979 pages of legislative text – but in the meantime, here are the basics.”  They note that the plan uses tax benefit phase-outs based on income — a bad idea that creates hidden tax brackets.

Renu Zaretsky, Tax Reform: one foot in front of the other (TaxVox)

 

Other Things:

William Perez, Last Year’s State Tax Refund Might Be Taxable

Jason Dinesen, Glossary of Tax Terms: Depreciation 

Trish McIntire, Brokerage Statements.  “Actually, my problem is clients who don’t bring in the whole statement.”

 

Jack Townsend, Wow! Ty Warner Is Ty Warner is Not Quite the Innocent Abroad 

Janet Novack, Senate Offshore Tax Cheating Report Skewers Credit Suisse And U.S. Justice Department 

TaxProf, The IRS Scandal, Day 294.  I note that Lois Lerner won’t testify without being immunized from prosecution.  “Not a smidgeon” of wrongdoing, indeed.

 

Finally, Seven People Who Have a Worse Busy Season Than You, from Going Concern.  That’ll cheer you right up.

 

Share

Tax Roundup, 2/13/14: Hatching a tax boost. And: spring training!

Thursday, February 13th, 2014 by Joe Kristan


hatch
Jack Hatch, Candidate for Governor,
yesterday introduced legislative text for his tax plan (SF 2164), which would result in a big tax increase for a lot of voters.

First the good points:  It would increase the minimum income subject to tax from the current $9,000 level to $20,000 for single taxpayers, and to $24,500 from $13,500 for heads of household and surviving  spouses.  It reduces the number of tax brackets from nine to four.  And it eliminates the deduction for federal taxes.  It increases the depended credit to $500, from $40.

Unfortunately, the way he adjusts the brackets will result in a big tax increase for taxpayers at not very high income levels.  His 6.2% bracket would kick it at taxable income of $42,091.  Under current law, 6.2% is roughly the highest Iowa effective rate when you take the deduction for federal taxes into account.  Under current law, that starts at $67,230 for 2014.  With a top rate of 8.8%, the Hatch plan means about a 25% increase in the top rate at the highest brackets — and his top rate begins at taxable income of only $88,822.

I did some quick computations on four very simplified taxpayers — single filers with one item of ordinary income.  The results are below:

 

hatch2014

The result is a small tax cut at the lower brackets, but some big increases in higher brackets.  Remember that much of the income taxed at higher brackets is pass-through business income.  That makes it a big tax increase on employers.  It’s hard to see how this will sell.

 

20121120-2Megan McArdle, Latest Obamacare Delay Is Probably Illegal:

That doesn’t mean that the courts are going to step in. Courts don’t just swoop down and body-check the executive branch or Congress every time one of them oversteps its constitutional powers. They wait for someone to sue. And in order to sue, you need to have legal standing, which, Adler points out, no one seems to. It’s not enough to say that your taxes will be higher, or your government measurably less constitutional, because of the government’s actions. You need to prove that you have been substantially harmed, and it’s not clear that anyone can.

Unlike Megan, I think a successful lawsuit is a real possibility.   There are surely employers just over the 100-employee limit who will be at a disadvantage compared to those who are just under, and who therefore don’t have to comply with the mandate.  While I am not a lawyer and far from a specialist in “standing,” that seems like somebody who would have it.

 

TaxGrrrl, The IRS, The Refund Process and That Pesky 1121 Code.  It appears earned income credit refunds are getting held up.  Considering the level of fraud and error in the program, it’s hard to fault the IRS here.

Jason Dinesen, Iowa Charitable “Checkoffs”

Something that a lot of taxpayers (and tax preparers — including me) in Iowa often overlook is the “charitable checkoffs” a taxpayer can make on their Iowa tax return. Taxpayers can choose to donate money on their Iowa return to these causes:

  1. Fish and Wildlife: donations made here go towards Iowa’s Wildlife Diversity Program, which monitor’s the state’s “non-game” wildlife.

  2. Iowa State Fair Foundation: donations made here help fund improvements to the Iowa State Fairgrounds.

  3. Firefighters/Veterans Trust Fund: donations made here are split 50/50 between helping volunteer fire departments with training and helping veterans with things such as job training.

I like the wildlife one best.

 

Paul Neiffer ponders IRS Data by Zip Code and County.  It’s full of interesting stuff, and I hope to post about our local zip codes and their 2011 tax data.

Kay Bell, IRS options after losing tax preparer regulation appeal. Um, do their job, and don’t try to revive the failed power grab?

William Perez looks at the Percentage of Tax Returns Claiming Itemized Deductions.

 

Andrew Lundeen, The Economics of Senator Wyden’s Tax Reform Plan (Tax Policy Blog):

Though the plan does simplify the individual side of the tax code, the most important measure of tax reform plans should be the growth it produces. On that measure, this plan falls short predominately due to its treatment of capital.

It does go the wrong way.

 

Jack Townsend, Article Analyzes Counter-Intuitive Effects of IRS Offshore Penalty Structure.  “As the authors note, ‘the GAO Report indicates [that] taxpayers with little or no criminal or civil fraud exposure were punished proportionately in higher amounts than those who participated and had true criminal tax exposure.’”

Of course.  You have to shoot the jaywalkers so you can be nice to the real crooks.

 

Peter Reilly, Pilot To Black Panther To Pastor Calls For Financial Transparency In Churches.

TaxProf, The IRS Scandal, Day 280

 

Career Corner.  If No One Will Hire You, Maybe It’s Because Your Parents Aren’t Offering to Pay Them   (Going Concern).  Probably not, though.

Bleacher Nation, Chicago Cubs Pitchers and Catchers: REPORT!!!  Let’s do this.

 

Share

Tax Roundup, 2/12/14: Lawless and Unregulated edition. And: Lincoln!

Wednesday, February 12th, 2014 by Joe Kristan

20130121-2As we reported yesterday, the IRS preparer-regulation power grab failed in the D.C. Court of Appeals.  The three-judge panel unanimously ruled that “The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading” of the law.

One grumpy IRS person told us that we would regret it, that Congress will pass a worse IRS-run preparer regulation regime.  While it’s possible, I don’t think Congress is in any mood to give the IRS more power right now (see TaxProf, The IRS Scandal, Day 279).

It’s a victory for taxpayers, for preparers, and for the rule of law.  One hope it is a good omen for future court decisions on the on-the-fly rewrites of the Obamacare effective dates.

My endzone dance is here.  The Tax Prof has a roundup of coverage, as well as a guest op-ed: Johnson: The D.C. Circuit Rejects the IRS’s Regulation of Tax Return Preparerswhich says “At bottom, Loving stands for the proposition that exigency does not excuse illegality.” 

Other tax bloggers weigh in:

Russ Fox, DC Court of Appeals Rules Against IRS: Loving Decision Upheld.  “The real problem is the huge complexity of the Tax Code, and the biggest villain here is Congress. Rather than regulating tax professionals, we need to regulate (gut) the Tax Code itself.”

Leslie Book, Initial Reactions to the Government’s Loss in Loving (Procedurally Taxing):  “The government may seek to get Supreme Court review of the matter, or may work with Congress to get specific legislative authority. I offer no views on the odds of the government seeking cert, but its sound beating in two opinions leaves the possibility of obtaining cert and a victory in the Supreme Court seemingly small.”

Joseph Henchman, Big Win for Taxpayers: IRS Loses Effort to Expand Power Over Tax Preparers (Tax Policy Blog).  “In May 2013, we filed a brief opposing an IRS appeal of a court decision striking down their regulation of small tax preparers.”  That’s the brief I joined, along with fellow tax bloggers Russ Fox and Jason Dinesen.

Trish McIntire, The IRS Lost!  “I don’t know if there can be any more appeals (not a lawyer) but I bet there will be a tax preparer bill in Congress soon.”

 

20130419-1Paul Neiffer, When Farmers Barter.  While bartering is taxable, Paul muses: “Some of these barter transactions are properly reported, however, my educated guess is that much higher percentage is not.”

William Perez, How to Handle Owing the IRS

Tony Nitti, Tax Geek Tuesday: Allocation of Partnership Liabilities “Admit it. Nobody really understands what’s going on in this remote corner of the K-1; typically, most tax preparers just apply the tried-and-true “same as last year” approach to allocating liabilities, and trust that it won’t matter in the end.”  Oh, it does, it does.

Jana Luttenegger, “Extensive Wait Times” Ahead with the IRS (Davis Brown Tax Law Blog).  And it’s not like they were brief before.

Kay Bell, The pros and cons of tax refunds.  While logically you don’t want to let the taxman sit on your money, clients always seem happiest with a fat refund.  That leads many tax advisors to sandbag a bit on payments.

TaxGrrrl, Yes, Olympic Wins Are Taxable (And Should Stay That Way) 

 

Peter Reilly, Pilot To Black Panther To Pastor Calls For Financial Transparency In Churches 

 

Jack Townsend, Corporate Corruption Case Charged With Swiss Bank Accounts to Hide the Loot 

Tax Trials, The Tax Education of Lauryn Hill

Annette Nellen links to the Video of IRS Commissioner Koskinan on the filing season.

 

The Iowa Department of Revenue has a Facebook page!  It’s a good idea, and they actually answer questions, like this:

 20140212-1

It’s great that they are answering disgruntled taxpayers for everyone to see.  Best thing is that it’s available to anybody, not just Facebookers.  You don’t have to bring yourself to “like” the Department of Revenue to read it.

 

David Brunori, Tax Breaks for Lawyers — No Joke (Tax Analysts Blog):

I read recently in the Kansas City Business Journal that Missouri gave a big law firm $2.8 million in tax incentives to move to Kansas City. I thought there must be some kind of mistake. Certainly, no politician would agree to give citizens’ hard-earned money to lawyers. And certainly, they would not give citizen money to big-firm, wealthy lawyers. But once again, reality trumps good tax policy. The Missouri Department of Economic Development gave the nearly $3 million to attract the international law firm Sedgwick LLP to downtown Kansas City. 

Must be a rough neighborhood if that’s considered an improvement.  Or, more likely, Missouri has completely lost its mind.

 

Tax Justice Blog, The States Taking on Real Tax Reform in 2014.  One blog’s “real tax reform” is another blog’s march to madness.

News from the Profession: Big 4 Dude Says Dudes at His Firm Rewarded For Treating Non-Dudes Like Dudes (Going Concern)

 

LincolnToday is Abraham Lincoln’s birthday.  He was born 205 years ago today in Kentucky, before anybody thought of an income tax.  His presidency saw the first U.S. federal income tax, passed to finance the Civil War.  The Revenue Act of 1861, Section 49, imposed a flat 3% levy “upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever” over $800.  It was replaced by a progressive levy in 1862, with a 3% rote on income over $600, with a 5% rate kicking in at $10,000.

The tax expired under its own terms in 1866, after Lincoln’s death.  Lincoln never came back, but the income tax returned to stay in March 1913.

 

Share

Tax Roundup, 2/11/14: Employer mandate “shared responsibility” delayed for some. And: fresh scam!

Tuesday, February 11th, 2014 by Joe Kristan

20121120-2It’s such a disaster, we’re only going to force some employers to do it right now. The IRS has issued final regulations on the employer health insurance mandate that delay their impact on companies with 50-100 employees until 2016.  The “shared responsibility provisions” — such a creepy name — will still apply to employers with 100 “full-time equivalent” employees in 2015.  The Wall Street Journal reports:

 Under the original 2010 health law, employers with the equivalent of at least 50 full-time workers had to offer coverage or pay a penalty starting at $2,000 a worker beginning in 2014. Last year, the administration delayed the requirement for the first time by moving it to 2015.

The new rules for companies with 50 to 99 workers would cover about 2% of all U.S. businesses, which include 7% of workers, or 7.9 million people, according to 2011 Census figures compiled by the Small Business Administration. The rules for companies with 100 or more workers affect another 2% of businesses, which employ more than 74 million people.

You’ll look in vain in either Sec. 4980H, the “shared responsibility” tax code section, or Sec. 1513 of the Affordable Care Act, which enacted 4980H, for anything that says the provision can take effect later than 2014.  Once again the administration is making it up as it goes in a tacit admission that Obamacare is a half-baked mess.  I hope somebody with 100 employees sues the IRS on equal-protection grounds to enjoin this politically-motivated selective enforcement.   To me it’s another clue that the individual mandate will also be delayed, and ultimately abandoned.

Paul Neiffer, Some ACA Relief for Employers with 50 to 99 Employees

Jason Dinesen, The Affordable Care Act and Small Businesses   

Martin Sullivan, Forget Obamacare for a Minute. Here’s Some Good News About Health Policy (Tax Analysts Blog).  

 

Via Wikipedia

Via Wikipedia

New filing season, same old scams.  Our area IRS Taxpayer Liason says this email is circulating:

Dear Applicant,

An Income Tax repayment is a refund of tax that you’ve overpaid.
Internal Revenue Service  ( IRS ) has received new information about your taxable
income you’ve overpaid too much tax through your job or pension in previous years.

There was a mistake with your tax, which an error occurred on your tax return,
and therefore your income reduced. Your employer also used the wrong tax code.

You are eligible to receive a refund of $2670.48 USD as your recent tax refund.
IRS will send you a repayment. You’ll get the repayment either by cheque in the post or by bank transfer.

Please click here to get your tax refund on your Visa or Mastercard now.

Note : Your refund can be delayed for a variety of reasons. For example submitting
invalid records or applying after the deadline.

Best Wishes,

IRS Tax Refund Service Team
Internal Revenue Service.

Of course it is a scam.  Some obvious clues: a real IRS notice doesn’t have to tell you that it’s dealing in “USD.”  We say “checks” in the US; you get “cheques” in Canada, the UK, or other old Commonwealth countries.  IRS doesn’t do refunds on credit cards.  And, of course, the most important clue:  the IRS will never initiate contact you with an e-mail or phone call.  If an email says it’s from the IRS, it’s not.

 

TaxGrrrl, Understanding Your Tax Forms: The W-2   

 

haroldHooray for Hollywood!  Movie Producer Peter Hoffman Charged With Film Tax Credit Fraud.  It involves Louisiana, which continues its co-dependent relationship with Hollywood with film tax subsidies.  Iowa, sadder but wiser, now prefers producer room and board subsidies to Film Tax Credits.

 

Howard Gleckman, Incoming Senate Finance Chair Wyden Outlines His Tax Agenda (TaxVox):

Speaking in Los Angeles to a conference sponsored jointly by the USC Gould School of Law and the Tax Policy Center, Wyden framed his tax agenda around several key issues:

Narrow the gap between taxation of investment income and ordinary income.

Significantly increase the standard deduction.

Simplify and enhance the refundable Child Tax Credit and Earned Income Tax Credit.

Revise savings incentives by creating a new investment account for all Americans at birth, shift savings subsidies from high-income taxpayers to low- and moderate-income households, and consolidate and simplify the current tangle of existing tax-preferred savings incentives.

Enhance job training.

Restore Build America Bonds—a short-lived idea that partially replaced tax-exempt state and local bonds with direct federal subsidies. He’d also seek ways to encourage business to funnel overseas earnings into domestic infrastructure investment.

It’s a disappointing agenda from somebody considered a thoughtful center-left voice on tax policy.   Any tax on investment income is best understood as a double-tax, and I don’t think by “narrowing the gap” he means lowering ordinary inocme rates.  His second, third and fourth points are fine, but the “Enhance job training” and “Build America Bond” proposals are just political pinatas to be broken open by insiders.  If you want to see what jobs training dollars really accomplish, I refer you to Iowa’s own CIETC.

 

TaxProf, The IRS Scandal, Day 278

checkboxJeremy Scott, Check the Box for Tax Avoidance (Tax Analysts Blog).  

The check-the-box rules allowed multinationals to create entities that were treated one way in a foreign jurisdiction and another by the United States. These entities, so-called hybrids, are at the core of companies like Apple’s tax strategies, and they have been used to bring about obscenely low effective tax rates (2.3 percent on $700 billion in foreign earnings, according to the Obama administration).

I think any corporate above zero is obscenely high.

 

Kyle Pomerleau, Proposal to Exempt Olympians’ Prize Money from Taxation: Good Politics, Wrong Solution (Tax Policy Blog)

Kay Bell, IRS takes a bite out of U.S. Olympic medalists’ winnings

 

Keith Fogg, Holding People Hostage for the Payment of Tax – Writ Ne Exeat Republica (Procedurally Taxing). No, he’s not talking about tax season.

 

News from the Profession: PwC Will Probably Be the First Accounting Firm to Replace Interns With Robots.  (Going Concern).  Makes sense, as they were the first to do so with partners.

Share

Tax Roundup, 2/5/14: Tax Credits do it all! And: advice from a champion.

Wednesday, February 5th, 2014 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Tax Credits! Is there nothing they can’t do?  Bill offering tax credits to rehab abandoned public buildings advances (Jason Noble, Des Moines Register):

House Study Bill 540 adds abandoned public buildings to the list of properties eligible for tax breaks under the state’s Redevelopment Tax Credits program, meaning businesses or nonprofits could obtain state aid for such projects as they currently can on renovations of industrial or commercial properties.

It’s an idea that Gov. Terry Branstad highlighted in his Condition of the State Address last month, and appears to have bipartisan support.

This is a back-door appropriation to help out school districts and local governments, but running it through tax return hides it from those pesky taxpayers who foot the bill.  As with Congress, the Iowa General Assembly sees the tax law as the Swiss Army Knife of public policy.

 

20121120-2Arnold Kling exposes the vastness of the Right Wing Conspiracy:

The Congressional Budget Office, a Koch-funded organization known to be affiliated with the Tea Party, writes,

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

A conspiracy so vast…

 

James Schneider, guest-posting at Econlog, discusses why we pay our taxes in  The Sucker Tax:

Imagine a state of anarchy (a lack of government not a house full of boys). An evil genius announces that he will impose a sucker tax. Everyone will be taxed ten dollars, and the proceeds will be redistributed back to all the citizens in equal shares without reference to who paid the tax. In a certain sense, this tax maximizes unfairness. It serves no other purpose than to punish people in direct proportion to how much of the tax they paid. To make tax compliers feel even more ridiculous, the evil genius announces that he will make no effort to punish “tax cheats.” A fair outcome of the game requires that there be no suckers. This will occur if everyone evades the tax. However, it will also occur if everyone pays the tax. Under this scenario, you probably wouldn’t pay the tax (even if you believed in fairness) because you would assume that no one else was going to pay the tax.

Now imagine that the evil genius announces that unless everyone pays the tax one person will be punished.

Read the whole thing.  I especially like this: “Compliance does not mean consent.”

 

20121220-3TaxGrrrl, Baby, It’s Cold Outside: Surviving The Winter With Some Tax Help From Uncle Sam

Paul Neiffer considers One Possible Section 179 Strategy. A reader asks Paul, “Should I wait to buy section 179 property until the date 179 property is raised from $25,000 to whatever?”  He has a way for farmers to plan around the uncertainty.

William Perez, Filing Form 1040A May Help Parents Qualify for the Simplified Needs Test.  For college financial aid.

Jason Dinesen asks, Why Doesn’t the IRS Push the EA Designation?:

The IRS already oversees the EA program. There’s no new infrastructure to put in place. No new exams to create. The infrastructure and exams already exist.

Yet throughout the IRS’s ill-fated attempts at creating the “Registered Tax Return Preparer” designation, the IRS rarely mentioned the EA program, except as a side note of “CPAs, EAs and attorneys are exempt from the RTRP testing.”

I think it’s because it would be inconvenient to their efforts to regulate all preparers.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Peter ReillyThe Dog That Did Not Bark – IRS Issues Adverse 501(c)(4) Rulings To Deafening Silence:

An interesting question about the whole scandal narrative is how it would look if it turned out that many of the groups that the IRS “targeted”  were in fact inappropriately claiming 501(c)(4) status.  Tea Party Patriots Inc, for example, spends a lot of energy talking about how all those intrusive questions were harassment, but what if it turns that, in fact, all those phone calls that TPP Inc made telling people that November 2012 was the last chance to stop Obamacare from turning the country into a cradle to grave welfare state could be viewed as political? 

I think Peter is missing the point.  The issue isn’t whether every right-wing group qualified under the standards historically used for 501(c)(4) outfits.  It’s whether the rules were selectively enforced against right-side applicants —  as seems to be the case.   After all, it wouldn’t be OK to examine 1040s of only Republicans even if it turned out some of them were tax cheats.

 

TaxProf, The IRS Scandal, Day 272

 

David Brunori, Casino Taxes for Horses or Children? (Tax Analysts Blog):

Horse racing has been a dying sport since Nathan Detroit bet on a horse named Paul Revere in Guys and Dolls. In Pennsylvania, the schools are broke. So naturally, when governments need money, they turn to a moribund pastime to pay the bills. 

For the children!

 

William McBride, New CBO Projections Understate the Average Corporate Tax Rate. “Particularly, the CBO is using as their corporate tax base measure domestic economic profits from the BEA, which includes both C and S corporations, even though S corporations are pass-through entities not subject to the corporate tax.”  Well, that’s just nuts.

Tax Justice Blog, Gas Tax Remains High on Many States’ Agendas for 2014

 

Joseph Thorndike, Debt Limit Debates Are Good for Theater, Not For Policy Reform. (Tax Analysts Blog)

Jack Townsesnd, TRAC Posts Statistics on Criminal Tax Enforcement Related to IRS Referrals   “[A] surge in IRS criminal investigations referred under Obama has fueled an increase in the number of cases prosecuted.”

 

Answering the Critical Question: What Kids Peeing in the Pool Can Teach Us About Tax Compliance (Leslie Book, Procedurally Taxing)

News from the Profession: McGladrey Interns Are Busy Learning Their Colleagues Are Boring, How to Use an Ice Cream Truck (Going Concern)

 

Nice Work, Champ.  It’s funny how hard it can be for some people to heed their own good advice.  Take this North Carolina man:

Prosecutors said Larry Hill, who coined himself “the people’s champ” for his efforts to keep local children out of trouble, didn’t live by his own message and that his case represented “disturbing hypocrisy.”

In a YouTube clip posted in November 2012, Hill says, “I want all my young people to think before you act. Trouble is too easy to get into, and once you get into trouble, you’ll be all by yourself.”

Federal Judge Earl Britt sentenced Hill to 100 months in prison for conspiracy to defraud the U.S. government and 18 months for filing false tax returns.

If it’s any comfort, Mr. Hill will have plenty of company where he’s going.  But he will have to get used to a more spartan existence:

The judge agreed to the lower sentence of 100 months but said Hill deserved the “most severe punishment to reflect the seriousness of the offense,” pointing out that Hill used much of the money to buy himself expensive jewelry and cars, including a Maserati. The judge also noted that Hill was on supervised release from an insurance fraud prison term when he committed the tax fraud.

That doesn’t make his advice any less sound:

He should follow it sometime.  Russ Fox has more on Mr. Hill.

 

Share

Tax Roundup, 2/4/14: Sometimes the tax crime isn’t the worst crime. And the Carnival moves on.

Tuesday, February 4th, 2014 by Joe Kristan

WashingtonRule 23 of George Washington’s Rules of Civility has a lot going for it:

When you see a Crime punished, you may be inwardly Pleased; but always show Pity to the Suffering Offender.

Yet even the Father of His Country might have had a hard time suppressing a smile over a federal tax sentencing in California yesterday.  From the Contra Costa Times:

A former San Ramon family law attorney was sentenced to two years in prison Monday for evading taxes and illegally eavesdropping on a client’s estranged spouse with the help of a now-incarcerated private investigator who set up divorcing men for drunken-driving arrests.

Mary Nolan, 62, of Oakland, already relinquished her law license and paid $469,000 in back taxes Sept. 27 after she pleaded guilty to four counts of tax evasion and one count of illegal eavesdropping.

Nolan represented the ex-wives of two men who were arrested after [the private investigator's] attractive female employees lured them into drinking and driving. Those convictions were expunged after the scheme became known in 2011, when Butler and jailed former Contra Costa Narcotics Enforcement Team Commander Norman Wielsch were caught selling drug evidence and admitted to pimping and robbery, among other crimes.

Oddly, the sentencing judge not only failed to impose the 33-month sentence requested by the prosecution, but he also seemed to think the tax charge was more serious than the honey-trap thing, reports Concord Patch:

Breyer told Nolan during the sentencing today, “To eavesdrop on conversations that clearly weren’t intended for an adversary to hear is a
very unfair thing to do.”

But he said he was especially concerned about the failure of Nolan, as a lawyer, to pay the taxes due.

“What I find most troubling is the fact that you were a lawyer. Lawyers have that special responsibility not just to know the law but to follow it,” he told Nolan.

Yes, evading $400,000 of taxes is a bad thing, whether or not you are a lawyer.  Still, ruining lives setting up and framing people to win divorce cases strikes me as worse than making the IRS work hard for its money.   Maybe when you’re a federal judge, things start to look a bit funny.

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Well, technically “a bunch” isn’t “a smidgeon.”   ‘Not Even a Smidgeon of Corruption’ at IRS, Obama Says.  (Tax Analysts, $link).   If so, it sure is funny how Lois Lerner was so quick to invoke her 5th amendment right against self-incrimination.  

Clint Stretch, Dumb Mistakes Aren’t Crimes.  (Tax Analysts Blog)  He says “IRS employees will not knowingly do someone’s political bidding.”  History shows otherwise.

 

 

TaxProf, OMB: EITC Is 4th Most Error-Prone Federal Program, With 22.7% Error Rate.  If it makes you feel better, the three worse ones are all Medicaid or Medicare.  Makes you want the government and IRS to pay in a bigger role in health care, for sure.

 

Minnesota:  Come for lovely winter weather, and stay for the annual tax hit!  The Minnesota Center for Fiscal Excellence has computed the annual cost for a high-earning individual of life in the tundra.  It’s not cheap:

MNvIA

Of course, beautiful Iowa doesn’t have a lot to crow about, as it looks good only by comparison with Minnesota.  While the hypothetical taxpayer could only buy a nice new sedan annually for the savings of moving from Minnesota to Des Moines, she could buy some really nice wheels every year with a move to Sioux Falls.

 

Tony Nitti, Tax Geek Tuesday: Reasonable Compensation In The S Corporation Arena:

The IRS Fact Sheet provides “The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property…did go to the shareholder…the level of salary must be reasonable and appropriate.”  This language would seem to indicate that there is no requirement that compensation be paid to a shareholder-employee provided the shareholder also foregoes distributions. Even with that bit of guidance from the IRS, it is prudent advice to encourage a profitable S corporation to start making reasonable salary payments to its shareholder-employees as soon as it has the means to do so.

Unfortunately, the IRS has shown that it will attempt to force a salary even when the means are lacking.

Paul Neiffer, You Can File Income Tax Returns Now (Maybe)

 

Jeremy Scott, Making Tax Reform a Partisan Issue (Tax Analysts Blog):

And it isn’t hard to see why. Linking tax reform to the debt ceiling risks making it a partisan issue. Forcing Congress to take up reform is a GOP victory, because it causes Democrats to give up on a clean bill. So Democrats, many of whom are sympathetic to the tax reform process, will have to oppose tax changes because Republicans have politicized the debate, defining tax reform as a win for their side.

Ah, the majesty of government.

 

Lyman Stone, New Study: High Excise Taxes Drive Cigarette Smuggling in Boston, New York, Providence (Tax Policy Blog).  That has to be the most predictable news of the day.

Sad news from Kay Bell “The time has come, however, to put the Tax Carnival on hiatus.”  It’s a lot of work to put one together.  Thanks, Kay, for all of the help you’ve given tax bloggers over the years with the Carnival of Taxes.  So until she feels like reopening the Carnival, let’s have one last ride on the Midway.

20120829-1

 

Going Concern, Here Is a Short List of People Less Deserving of Bonuses Than IRS Employees.  Hard to argue with the list, especially the first two, but I would throw in the other branches as well.

 

Share

Tax Roundup, 1/30/14: Gas tax increase advances. And: IRS starts to accept 1040s, but not issuing refunds yet.

Thursday, January 30th, 2014 by Joe Kristan

 

Via Wikipedia

Via Wikipedia

They’re still trying to increase Iowa’s gas tax, reports William Petroski of the Des Moines Register:

An Iowa House subcommittee voted 5-0 today to approve a 10-cent increase in the state’s gasoline tax, although the proposal still faces steep odds of winning final approval this session.

The bill, managed by Rep. Josh Byrnes, R-Osage, would raise the fuel tax by three cents the first year, an additional three cents and following year, and four cents the third year. When fully implemented, the tax increase would generate $230 million annually for city, county and state roads.

It’s always hard to increase taxes in an election year.  There is a good argument that gas taxes are the way to pay for roads, and that Iowa’s tax needs updating, but so far Iowa’s road spending is in line with most other states, and the talk of a “crisis” isn’t convincing everyone.

 

Iowa Farmer Today, Little action expected on taxes in Legislature.  It quotes my co-presenter at the Farm and Urban Tax Schools, Roger McEowen:

McEowen, head of the Center for Agricultural Law and Taxation (CALT) at Iowa State University, says it is always possible the state might do something to clean up its tax code, but it appears unlikely this year.

“Frankly, I don’t think anything important is going to happen on taxes, not in this legislative session,” he says.

It is a sentiment echoed by many other legislative observers.

Like me.

 

 

20130419-1TaxGrrrl, IRS Accepting Returns As Part Of Test Program, Not Issuing Refunds Early

Trish McIntire, Yes, You Have to Wait.  If you haven’t received your W-2, you can’t file using your last 2013 pay stub.

Jason Dinesen, Iowa Firefighter/EMS Tax Credit.  A $50 spiff to volunteer firefighters and EMS people. One more feel-good provision that clutters up the tax law but is too small to enforce.

Brian Strahle, SALT PRACTICES: WHAT PEOPLE THINK, BUT DO NOT SAY.  “SALT” is “State And Local Taxes.”

Paul Neiffer looks at the predictably expensive and absurd farm bill: How To Make an Extra $100 Per Acre!  It brings to mind the old joke:  “How did the farmer double his income?  He bought a second mailbox.”

Related: Billionaires Received Millions From Taxpayer Farm Subsidies: Analysis (Huffington Post)

William Perez, Earned Income Credit Recipients by State

 

 

Phil Hodgen, How Many Appointments in Buenos Aires to Expatriate?  The State Department doesn’t always make it easy to shed U.S. citizenship.

Brian Strahle, FATCA and Unintended Consequences.  A story of an American in Switzerland who is losing the ability to commit personal finance because of this anti-”fatcat” legislation.

 

taxanalystslogoDavid Brunori, A Sales Tax Conundrum (Tax Analysts Blog):

The sales tax has been a blessing and a curse. One of its great virtues is that it is collected by the vendor, which then remits it to the state. Neither the taxpayer nor the tax agency has much to do except pay and collect. The vendor does the work. The success of the sales tax for the last 90 years is largely attributable to vendor collection. But if the vendor doesn’t collect and remit the appropriate tax, it is liable for the amounts. The vendor will have to pay the unremitted tax and could face severe penalties and even criminal charges.

So if a vendor is unsure about the status of an item it’s selling, it will collect the tax. Better to collect and remit tax not owed than to face the consequences of a mistake.

David notes that online vendors will have to deal with many states, with very confusing rules, and that over-collection of sales taxes is the inevitable result.  Not that the states mind.

Cara Griffith wonders, Are State Tax Authorities Hiding the Ball? (Tax Analysts Blog).  “I’ve noticed an emerging trend in some state departments of revenue – a move toward secret law. In a time when transparency has become a buzzword, some revenue departments are doing what they can to avoid transparency.”

 

William McBride, State of the Union: Corporations Continue to Flee (Tax Policy Blog)

Tax Justice Blog, Why the Business Tax Reform Proposal in Obama’s SOTU Is Not as Great as It Sounds

Kay Bell, Taxes touched on lightly in State of Union via EITC, MyRA

Joseph Thorndike, The War on Wealth Is Not New.  (Tax Analysts Blog).  True.  And it has always been dishonest, disgraceful, corrupt, and impoverishing.

 

The Critical Question.  What Happens When You Mix a Seedy Strip Club, an Unsophisticated Taxpayer and the Tax Court? (Going Concern).  I’m sure if it was one of those real elegant and distinguished strip clubs, there wouldn’t have been a problem…

 

Share

Tax Roundup, 1/28/14: Another Iowa ESOP debacle. And: soft skills!

Tuesday, January 28th, 2014 by Joe Kristan


20120920-3
Iowa gets all of the good bad ESOP cases.  
Thanks largely to the energetic work of a single ESOP evangelist in the 1980s and 1990s, Iowa has been treasure trove of cases involving faulty employee stock ownership plans.  The pinnacle of these cases may have been the Martin v. Feilen case, finding violations sufficient for the Eighth Circuit to rule that a district court “abused its discretion” by not banning the Iowa ESOP evangelist from doing any further ERISA work.

Iowa’s bad ESOP history got another chapter yesterday in Tax Court.  The ESOP involved a Rockwell, Iowa S corporation, which had an ESOP owner.  The non-ESOP shares were owned by the corporation’s sole employee and his wife.

So many things can go wrong with this sort of arrangement, and they all did — starting with Sec. 409(p).  Judge Kroupa explains (some citations omitted, emphasis added):

  Responding to perceived abuses, Congress in 2001 enacted section 409(p), which generally limits the tax benefits available through an ESOP that owns stock of an S corporation unless the ESOP provides meaningful benefits to rank-and-file employees.

There are significant tax consequences when an ESOP violates the section 409(p) requirements. For one, an excise tax equal to 50% of the total prohibited allocation is imposed. Sec. 4979A. Furthermore, the ESOP will not satisfy the requirements of section 4975(e)(7) and will cease to qualify as an ESOP. 

Those are pretty severe penalties.  So how do you violate Sec. 409(p)? Roth and Company alum Nancy Dittmer explains:

Section 409(p) is satisfied if “disqualified persons” do not own 50% or more of the S corporation’s “stock.” This stock includes allocated and yet-to-be allocated ESOP shares, synthetic equity of the S corporation, and any shares held directly in the S corporation. The ESOP shares and any synthetic equity are considered to be “deemed-owned” shares for purposes of Section 409(p).

In general, a disqualified person is any ESOP participant who owns 10% or more of the ESOP’s stock. 

20140128-1As our Rockwell taxpayer was the only employee of the S corporation and, by attribution, the only owner of the ESOP, he owned 100% of the shares.  Those of you who are good at math will realize that 100% exceeds 50%, and 409(p)’s excise tax and plan disqualification applies.

So things looked dark for the Rockwell ESOP.  Yet there was a glimmer of hope — not only was the ESOP screwed up, so was the S corporation.  The corporation had 2 classes of stock, which normally disqualifies an S corporation election.  If the corporation isn’t an S corporation, it can’t violate 409(p)!  Alas, Judge Kroupa decided here that two (OK, more than two) wrongs didn’t make a right:

     Petitioner represented to respondent that it qualified as an S corporation for 2002 when it filed its election to be treated as such. Respondent relied on this representation for 2002 because petitioner reported on its 2002 Form 1120S that it owed no income tax because of its electing to be treated as a passthrough entity under subchapter S. The statute of limitations on assessment now bars respondent from adjusting petitioner’s income tax liability for 2002. See sec. 6501(a).

Petitioner was silent regarding its desire to be treated as something other than an S corporation for 2002. Petitioner cannot avoid the duty of consistency, however, by simply remaining silent. Allowing silence to trump the duty of consistency would only encourage gamesmanship and absurd results. Therefore, we will treat petitioner as an S corporation for 2002 under the duty of consistency. 

This bundle of bad facts resulted in $161,200 in taxes and another $76,000 or so in penalties.

The moral?  In spite of media reports, it can be dangerous to game the ESOP rules to avoid tax on S corporation income.  There are many hazards and much legal complication.  If you want to have an ESOP, be sure to bring in a specialist.

Cite: Ries Enterprises, Inc., T.C. Memo 2014-14.

 

Me: IRS gives mulligan to elect portability for $5 million estate exclusion

Paul Neiffer, Not Too Late to Make Portability Election!  I have more here.

Kay Bell, Decoding your W-2

TaxGrrrl, Do You Need To File A Tax Return In 2014?   

 

TaxProf, The IRS Scandal, Day 264

Kyle Pomerleau, The U.S. Has the Highest Corporate Income Tax Rate in the OECD (Tax Policy Blog):

OECD corporate rates

And as Iowa has the highest corporate rate in the U.S., at 12%, we’re number 1!  In a bad way.

 

Robert D. Flach is right on time with your Tuesday Buzz!

 

Career Corner: Soft Skills Are For Pansies (Going Concern)

 

 

Share

Tax Roundup, 1/27/14: Job destruction incentives. And: did you ride your bike today?

Monday, January 27th, 2014 by Joe Kristan

 

Flickr image courtesy Retrofresh! under Creative Commons license.

Flickr image courtesy Retrofresh! under Creative Commons license.

You mean state tax credits aren’t magic beans for economic development?  A frequent commenter on the Econlog blog, Daniel Kuehn, shares some early work on a paper he is preparing on “job creation tax credits” (my emphasis):

 The paper is on the employment and earnings effects of job creation tax credits (and actually investment credits… I’ve recently found out they were phased in using the same selection rule so I can’t distinguish the two, which is fine I guess).

My prior was that they would create jobs and raise wages. I have a good identification strategy – an RDD model. But one thing lacking in the existing literature on it is a way of dealing with displacement effects (in other words, person A gets the job from the tax credit by displacing person B who was not eligible for the credit). I can deal with that (at least within-county displacement). I expected that would reduce the effect somewhat of course, but I was sure even after accounting for displacement the credits would still generate jobs.

So far, they seem to reduce employment. Displacement appears to be a big problem.

There is one other explanation I’m investigating now. You have to create full time jobs to get the credit, so it is possible that I’m seeing a negative employment effect because part time jobs are being replaced with full time jobs. I’m investigating that now with individual level data. So in the end, it may create full time jobs and destroy more part time jobs, in which case it would be interesting to look at the impact on total hours.

I’m not sure how it will all shake out in the end, but I am definitely less confident in policy than I was before I started this.

Mr. Kuehn should be respected for following his data in spite of his prior assumptions, but that’s the result I would have expected.  The money going to the subsidized jobs has to come from somewhere, and much of it comes from unsubsidized businesses.  The politicians like to point to the jobs they “create” with “Economic development” incentives, but they ignore the loss of jobs in competing businesses and from the increased taxes on the unsubsidized.

It’s the old broken window thing.

Related: IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

Scott Drenkard, Indiana House Unanimously Approves Incentive Study Commission.  Iowa did this a few years ago, and the study panel was unable to identify any clear economic benefit to the giveaways.  And they just went on enacting more giveaways.

 

William Perez points out some Resources for Getting Organized for Tax Time

Kay Bell, Tax filing checklist 2014

Paul Neiffer reminds us that You Must Start IRAs Draws at Age 70 1/2!.  Except for Roth IRAs, of course.

Jana Luttenegger, Taxing Bike Share Programs.  She discusses the expiration of a tax break for bike commuters, but notes:  ” With our recent below-zero weather, the bikes likely aren’t being used much currently… “

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Russ Fox answers the question, It’s Only $1,300; Do You Really Have To Send Me the 1099?

 

Annette Nellen, Minnesota Storage Tax Problems.  She discusses an expansion of Minnesota sales taxes:  “Any base broadening should only cover consumption of individuals (non-businesses).”

Peter Reilly, Obama Administration Weak On Church State Separation? Clergy Housing Allowance Appeal.  The Department of Justice has appealed the Wisconsin District Court Ruling disallowing tax-free cash “housing allowances” for pastors.  The ruling is stayed pending the appeal.  I suspect this is just a maneuver to get through this tax season with minimal disruption to existing plans.  I think it is likely that the District Court ruling will be upheld, and churches should plan accordingly.

 

tax fairyJack Townsend, Yet Another B***S*** Tax Shelter Goes Down Flaming.    There is no tax fairy.

Stephen Olsen, Summary Opinions for 1/24/2014 (100th Post!!!), a roundup of tax procedure news.

 

TaxProf, The IRS Scandal, Day 263

That’s a funny way to aid the nurses.  Second Nurses Aide Sentenced for Conspiracy to Defraud the Government (U.S. Attorney press release)

Tax Trials, Willie Nelson, The IRS’s Most Talented Musician.  Talk about not building expectations.

News from the Profession: The SEC Bans Big 4 Member Firms in China For Failing to Show Their Work (Going Concern)

 

Share

Tax Roundup, 1/24/14: Executive stock spiff proposed for Iowa. And: Haiku!

Friday, January 24th, 2014 by Joe Kristan

20130117-1Legislators propose to exempt employer stock gains from employee Iowa income tax.   S.F. 2043 would exclude from taxation capital gains from stock received by an “employee-owner” of a company “on account of employment” with the corporation, and acquired while the taxpayer was still employed..  While it isn’t entirely clear from the legislation, it would appear to include long or short-term gains, and would include stock acquired by exercise of options or stock bonus plans.  It’s not clear that it would apply to gains on ESOP shares, which are generally issued to owners or redeemed on retirement, but I suspect it would.

It’s an astonishingly broad exclusion.  Once elected, it would apply to stock gifted by the employee-owner to spouses and lineal descendants.  It wouldn’t apply to many family owned companies, because it requires five shareholders, at least two unrelated under IRC Section 318 attribution.  Interestingly, the bill misstates Sec. 318, saying:

Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly.

No, that would be Section 267 attribution, and only for pass-throughs.  Section 318 only makes a taxpayer related to:

his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents. 

No siblings, nieces or nephews to be seen.  If they can’t even read the Code, should they really be messing with the state income tax?

If the Iowa income tax is so awful that we need to carve out a special exemption to executive stockholders to get them to come to Iowa, we should fix it for everyone, not just for them.  Does anybody really doubt that Iowa would be more attractive to business with no corporate income tax and a 4% top individual income tax rate than with the current system plus a new executive spiff?  Come on, legislators:  take the Tax Update’s Quick and Dirty Iowa Tax Reform Plan off the shelf!

Related: Iowa House advances one-time stock gain bill, on a similar bill introduced last year.

 

David Henderson, Steve Moore’s Alternative Maximum Tax (Econlog).  Governor Branstad floated a plan to allow taxpayers to choose between Iowa’s current baroque income tax and a simpler one with lower rates, before abandoning it prior to the opening of the legislative session.   I thought I was being clever by calling an alternative maximum tax.  David reports that Steve Moore came up with both the idea and the name for a proposal he made for the federal tax system in the 1990s.

I still don’t care for it.  In practice we would be computing the tax both ways and paying the lesser amount.  By adding another computation to the process, it would actually make things harder.  The only way it would work would be if it resulted in lower taxes for everyone; then in a few years they could repeal the regular income tax without anyone noticing.

 

20120531-1The 200th edition of the Cavalcade of Risk is up!  This milestone edition of the long-lived roundup of insurance and risk management posts is at Rootfin.  Congratulations to Hank Stern, the evil genius behind the Cavalcade; he participates in this edition with Hacktastic!, on the security troubles of Healthcare.gov, and government’s efforts to hush them up:

See, the problem isn’t the wide-open portal, it’s the folks trying to alert the folks who run it that there is, in fact, a problem. I’m reminded of a certain Middle East river.

More alarming still, though, is that that it’s not just the state folks yelling “burn the witch:” now the FBI has warned Mr Hermansen to zip his lips. That’ll sure make the problem go away.

Your healthcare is in the very best of hands.

 

Jim Maule, How Not to Compute a Casualty Loss Deduction:

The taxpayer claimed a $12,020 casualty loss deduction on account of the loss of the vehicle. The taxpayer computed the deduction by subtracting the $48,000 from $60,020, the original value of the vehicle. However, the first step in computing the amount of a casualty loss deduction is to subtract the insurance recovery from the difference between the value of the property immediately before the casualty and the value of the property immediately after the casualty, unless the taxpayer chooses to use cost of repairs as a substitute measure, though that was not relevant in this case.  Because the taxpayer did not provide evidence of those values, and because the Tax Court was unwilling to assume that the vehicle’s value immediately before the accident was the same as its value when it was new, it upheld the determination of the IRS that the taxpayer was not entitled to a casualty loss deduction.

The IRS often examines casualty loss deductions, so you need to do your legwork on getting the valuations documented before you file.

 

Jason Dinesen, Small Businesses — Review Those Benefit Programs  “When was the last time your small business reviewed the benefit programs your business offers?”

William Perez weighs in on Finding the Right Tax Professional.

Kay Bell, Tax season is tax scam, tax identity theft season. “If you get any unexpected communication in any form that is purportedly from the IRS, especially at the start of tax season, be wary.”  And they will never initiate contact by phone or email.

Paul Neiffer, Cash Does Not Equal Gain.  You can’t make taxable gain go away by using it to pay off loans.

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

Kyle Pomerleau, High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season.  Be glad we don’t take it all, serf!  He computes Iowa’s top combined rate at 47.4%.

 

taxanalystslogoChristopher Bergin, Fortress Secrecy – No News Here (Tax Analysts Blog).

Anyone familiar with my writing knows that I have bent over backwards to give the IRS the benefit of the doubt in this black eye some call the “exemption scandal.” I must admit I’m getting a little tired of bending.

Back in the day, as the saying goes, I often referred to the IRS as Fortress Secrecy, a term meant to describe the agency’s obsession with hiding as much of its operations as it can get away with. I am not a casual observer, and I have never seen things this bad. Everything the IRS has done in addressing the exemption scandal leads to just one conclusion: that this agency now believes it is accountable to no one other than itself.

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

Howard Gleckman, Fiscal Magic: Paying for New Highways by Cutting Corporate Taxes (TaxVox)

 

Frank Agostino, Jairo G. Cano, and Crystal Loyer.  Guest posters at Procedurally Taxing, including the prolific Tax Court litigator Frank Agostino, discuss how IRS rules against giving false testimony bolstered an IRS man’s own case, in Section 1203 to Bolster a Taxpayer’s Credibility at Trial.

Jack Townsend, Required Records IRS Summons Enforced Again

 

News from the Profession.  Pulling Back the Curtain on Making Partner in a Big 4 Firm. Just sell, baby!

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

Share

Tax Roundup, 1/22/14: Let’s pay it for Hollywood! And: choosing a preparer.

Wednesday, January 22nd, 2014 by Joe Kristan

haroldTaking your money and giving it to Hollywood.  Oscar Nominees Cash In On State Tax Subsidies (Howard Gleckman, TaxVox):

Each of the nine movies nominated for this year’s Oscar for best film may already have taken home a pile of tax subsidies. Seven brought back state goodies from the U.S. and two got cash for their work in the U.K.

And, according to data collected by the Manhattan Institute, the winner is….Wolf of Wall Street. The $100 million black comedy about (irony alert) over-the-top greed among sleazy stockbrokers got a 30 percent tax credit for making the movie in New York State.

The Empire State isn’t even the most generous when it comes to doling out tax incentives to filmmakers. In Louisiana, moviemakers not only get a 30 percent credit against overall in-state production costs but also an additional 5 percent payroll credit. Even better, filmmakers with no state tax liability can monetize the credits by selling them to firms that do owe Louisiana tax or even selling them back to the state at 85 percent of their value.

Iowa used to do this, until its film tax credit program collapsed in scandal and disgrace following revelations that filmmakers were charging fancy cars and personal items to Iowa taxpayers under the guise of “economic development.   Further revelations showed that millions of dollars of pretend expenses were used to claim the credit, taking advantage of credulous administration and almost non-existent oversight.

More from Howard Gleckman:

No doubt these credits are good for filmmakers. And I’m sure residents get a kick out of seeing Leonardo DiCaprio shooting a scene in their neighborhood (assuming they are not steamed over the related traffic jam). But is there an economic payoff in return for these substantial lost tax revenues as supporters claim?

Most studies conclude there is not.

It’s amazing that politicians think Hollywood deserves their taxpayers dollars.  Fortunately, Iowa film subsidies now are limited to housing and meal expenses for filmmakers.

 

Jason Dinesen, Deducting Miles Driven for Charity.  “Taxpayers can take a deduction of 14 cents/mile for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.”

Tony Nitti, Tax Geek Tuesday: The Sneaky Tax Consequences of Real Estate Repossessions 

 

Choosing a preparer?

Kay Bell, Time to pick the proper tax pro.  She gets one thing wrong about the IRS:  “For years, the agency has been trying to set up a system under which it register and test tax preparers to help ensure that they meet a minimum competency level.”

No, the agency simply wants to expand its control over preparers and help powerful friends in the big tax prep franchises.  The “minimum competency level” stuff is a weak pretext.

Robert D. Flach, IT’S THAT TIME OF YEAR AGAIN – CHOOSING A TAX PREPARER:

Contrary to the popular “urban tax myth”, unfortunately perpetuated by uninformed journalists and bloggers, just because a person has the initials “CPA” after his/her name does not mean that he/she knows his arse from a hole in the ground when it comes to preparing 1040s.  

True.  But a lot of the best prepaers are CPAs.  Not everybody needs a CPA.  Many folks just need somebody who knows a little more than they do to help them put the W-2 income in the right place.  But if you are doing a complex business return — even on a 1040 — a CPA may be your best bet.

That’s not to say only CPAs are competent preparers.  Enrolled Agents can be very good, and there are many very competent unregulated preparers, like Robert.  I think the competence curve between CPAs and unenrolled preparers would look something like this:

competence curve

The more complex your return, the more likely it is that you will want to bring in an Enrolled Agent or a CPA, but if you already have a strong unregulated preparer who is taking care of your tax needs, you’d be foolish to switch.

 

Paul Neiffer, Average is Important for 2013 Tax Filing.  Farm income averaging, that is.  Another example of a provision that would result in frivolous return penalties for anyone but farmers.

Fairmark.com: Share Identification Under Attack

 

20121120-2Tea Party: Resolved: Obamacare Is Now Beyond Rescue.  Oh, wait, that wasn’t the Tea Party.   It was a debate audience on New York’s Upper West Side.  

TaxProf, The IRS Scandal, Day 258

William Perez, The Number of Sole Proprietors has been Rising for 30 Years

Tax Justice Blog: CTJ Submits Comments on the Finance Committee Chairman Baucus’ International Tax Reform Proposal.  They have very different, and largely opposite, concerns from the Tax Foundation.

Jack Townsend, Tax Notes Article on IRS 2013 Victories in Offshore Evasion

 

gatsoNext: automated pedestrian jaywalking camera fines, for our own safety:  NYC Cops Allegedly Beat Up Jaywalking Elderly Man, Refused to Tell Son Which Hospital He Was In (Ed Krayewski, Reason.com)

But I thought it was about traffic safety, not money…  Council members: Traffic camera revenue helped keep property taxes down, pay for public safety.

 

The importance of philanthropy: Warren Buffett Offers $1 Billion For Perfect March Madness Bracket  (TaxGrrrl)

 

The Critical Question: A Meat Tax? Seriously?  (Joseph Thorndike, Tax Analysts Blog).

News From the Profession: Guy Who Couldn’t Hack Two Years in Public Accounting Needs Validation He Isn’t a Loser (Going Concern)

It’s Academic!  How Not to Use Your Faculty Laptop (TaxProf)

 

Share

Tax Roundup, 1/21/14: Weaponizing the IRS. And: whither Section 179?

Tuesday, January 21st, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The new, “weaponized” IRS is a focus of Glenn Reynolds, the Instapundit, in a USA Today Column:

Since then, of course, the new “weaponized IRS” has, in fact, come to be seen as illegitimate by many more Americans. I suspect that, over time, this loss of moral legitimacy will cause many to base their tax strategies on what they think they can get away with, not on what they’re entitled to. And when they hear of someone being audited, many Americans will ask not “what did he do wrong?” but “who in government did he offend?”

This is particularly true since the Obama administration is currently changing IRS rules to muzzle Tea Partiers.

While I don’t think it’s that bad yet, it’s headed that way if things don’t change.  And, as Glenn points out, it’s not changing:

Meanwhile, the person chosen to “investigate” the IRS’s targeting of Tea Party groups in 2010-2012 is Barbara Bosserman, a “long-time Obama campaign donor.” So the IRS’s credibility is in no danger of being rebuilt any time soon.

I think this is a terrible and shortsighted mistake by the Administration.  So much of its agenda, especially Obamacare, depends on effective IRS administration, but as the recent budget agreement proved, the GOP isn’t going to fund the IRS when it thinks that’s the same as funding the opposition.

The USA Today piece makes broader points about the effect of the loss of faith in civil servants as apolitical technocrats; read the whole thing.

Via the TaxProf.

Andrew Lundeen at Tax Policy Blog has two new posts on tax reform.  In Tax Reform Should Simplify the Code and Grow the Economy, he says:

We need to eliminate the biases in the code against savings and investment, so individuals have the incentive to add back to the economy, and businesses have the capital to buy new machines, structures, and equipment – all the things that give workers the ability to be more productive and earn higher wages. And we need a tax code that is simple and understandable, so taxpayers know exactly what they pay and why. 

Max Baucus

Max Baucus

We’ve been going the wrong way now for 27 years.  In Responses to Senator Baucus’s Staff Discussion Drafts, he curbs his enthusiasm for the tax reform options offered by outgoing Senate Finance Committee Chairman Baucus:

Generally speaking, we found that the tax reform proposals in these drafts go in the wrong direction. Our modeling shows that they damage economic growth, hurt investment, and, in many instances, violate the principles of sound tax policy: simplicity, transparency, neutrality, and stability.

The post links to a point-by-point examination of the Baucus proposals.

 

 

TaxProf, Martin Luther King, Jr. and the IRS:

This past year, much ado was made about the so-called “IRS-Gate” and concerns that the Obama administration may have used the agency to target Tea Party and other right wing groups. … [W]hat often is not stated during the Martin Luther King Holiday weekend is that King, early in his leadership of the Southern Christian Leadership Conference (SCLC), was routinely subjected to IRS audits of his individual accounts, SCLC accounts as well as accounts of his lawyers, first starting during the administration of President Dwight Eisenhower and continuing through the Kennedy administration.

If you audit me, I shall become more powerful than you can possibly imagine…

Kay Bell, IRS abuse of power, now and in MLK’s day. “Overall, the IRS is paying for its operational indiscretions by receiving less money and more restrictions on how it does spend what funds it has.”

 

Paul Neiffer, Section 179 Update (or Not):

 Here are my official updated odds on when we might know what the actual 2014 Section 179 amounts will be:

By Memorial Day 10 Billion to 1

By Labor Day 10 Million to 1

By the November Mid-Term elections 500 to 1

Between the November Mid-Term Elections and December 15, 2014 25 to 1

After December 15, 2014 and before January 1, 2015 1 to 1

After December 31, 2014 5 to 1

I give about 5 to 1 odds in favor of the current Sec. 179 deduction being extended to $500,000 for 2014, and I think that Paul is right that it is most likely to occur during the lame-duck session.  I think odds are about 50-50 on an extension of 50% bonus depreciation. It’s too bad the Feds have closed Intrade, as this would be a betting market I would like to follow.

 

HelmsleyTaxTrials, Leona Helmsley, Angry Employees Strike Back:

Their mistreatment of employees and squabbles over bills are the stuff of legend and left prosecutors rife with eager witnesses when it came time for trial.

Helmsley was just as arrogant about her taxes, famously telling her housekeeper: “We don’t pay taxes, only the little people pay taxes.”  Helmsley participated in several schemes to avoid paying millions of dollar in income and sales taxes.  

Sometimes that sort of thing comes back and bites you; read the post to see how it bit Helmsley.

 

William Perez on an important topic: Tips for Securely Sending Tax Documents To Your Accountant.  First, don’t send anything with your Social Security Number in an unencrypted email.  Like many firms, Roth & Company offers a secure upload platform to send sensitive information.  If your tax firm has one, use it.  They are the safest way to transmit confidential information and files.

 

Phil Hodgen wonders whether there is a Delay in approving renunciations at State Department?  It’s harder to shoot jaywalkers when they are running away.

Missouri Tax Guy goes back to basics with An Introduction to the Double-Entry Bookkeeping System.  Just remember, Debits are on the door side.

Andrew Mitchel has posted a New Resource Page: 2013 Developments in U.S. International Tax

 

Kay Bell, $4 billion more tax breaks for Boeing from Washington State. Taxing you to give money to folks with good lobbyists.

Jim Maule is appropriately annoyed by the use of the term “IRS Code.”  It’s the Internal Revenue Code, and it’s written by Congress, not the IRS.  Remember that when you vote.

Keith Fogg, Qualified Offers – Is it meaningless to offer what you think a case is worth? (Procedurally Taxing)

Jack Townsend, The New Provision for Tax Restitution and Ex Post Facto

 

The Critical Question: Is Kent Hovind A Tax Protester?  It doesn’t seem like a more promising career path for him than his forays into evolutionary biology.

TaxGrrrl, Hot Tub Tax Machine: News Anchor Takes Plea In Scandal.

 

Share

Tax Roundup, 1/20/14: If it’s not a scandal, it hurts like one. And: S corporation ESOP play in WSJ.

Monday, January 20th, 2014 by Joe Kristan

The U.S. District Court for the Southern District of Iowa didn’t need my services as a juror this week, so  I will be participating in the Iowa Bar Association webinar this afternoon on new developments for 2014.  It starts at noon.  You can register here and find more information here.   I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and Kristie Maitre, IRS Stakeholder Liason for Iowa.

 

20130419-1If the Tea Party scandal is not a scandal, why would it be so damaging to the IRS?  The TaxProf’s IRS Scandal Roundup for Day 255 has some eye-opening quotes from a high-powered panel from a Pepperdine/Tax Analysts Symposium last week:

Donald Korb (Partner, Sullivan & Cromwell; former IRS Chief Counsel):  I think it is incredibly damaging.  Frankly, I see it as one of the seeds of the next tax shelter era. … And in terms of scandal, I don’t think we really know. We have not been permitted to understand exactly what happened. So, who knows.

George Yin (Edwin S. Cohen Distinguished Professor of Law and Taxation, Virginia; former Chief of Staff, Joint Committee on Taxation):  I think there has been tremendous damage.  Almost without regard to what actually happened.  And I actually despair of finding out what actually happened. …

Donald Tobin (Frank E. and Virginia H. Bazler Designated Professor in Business Law, Ohio State):  I think it is awful. I agree with Don and George.  7 or 8.  I think this is ultimately going to have huge implications. …

Ellen Aprill (John E. Anderson Chair in Tax Law, Loyola-L.A.):  I agree with all of that.  I have myself avoided the word “scandal” because I just don’t know.  And some of the people I know personally.  I don’t think that was their political motivation.  So I’ve used “controversy” and “brouhaha” and everything but tried not to go all the way to scandal. …

Korb: … This is very, very damaging.  Maybe we are at a 9.5

You can already see effects in the reduction of the IRS funding request in the latest budget deal.  While Congress makes the IRS the Swiss Army Knife of tax policy, it continues to cut back its resources.  That can’t end well.  But the GOP sees that the IRS has acted as a tool for its political opponents, and it’s asking a lot for them to fund their opposition.

 

Robert D. Flach ponders whether the Registered Tax Return Preparer designation could be revived as a voluntary credential.  If any group of preparers can unite behind a voluntary credential with self-administered standards, great.  Just keep the IRS out of it.  It’s a poor use of their resources, and they aren’t to be trusted with that sort of power.

 

S imageS imageS-SidewalkESOP S corporation strategy.  The Wall Street Journal (Laura Saunders, via the TaxProf) reports on an S corporation that may have found a way to funnel all of its income to a tax-exempt ESOP via restricted stock for the non-ESOP owners.  Paul Neiffer suspects it may be too good to be true.

It would be a hard needle to thread, giving the severe 409(p) excise tax that can apply to allocations of ESOP shares to owners of closely-held S corporation.  If the strategy does win in the courts, I would expect to see legislation to change the result quickly.

 

Jack Townsend, Eighth Circuit Affirms Offshore Account Related Conviction

 

Joseph Henchman, What Same-Sex Couples Need to Know This Filing Season  (Tax Policy Blog).  He links to a nice Tax Foundation study that tells how each state is approaching same-sex marriage this filing season.

Roberton Williams, Utah Lets Same-Sex Couples File Joint Tax Returns (TaxVox)

Kay Bell, Girl Scout cookies might be tax deductible.  Unfortunately, only if you don’t eat them.

Russ Fox, The Trouble With Bitcoins: Taxation.  “If you make money with Bitcoins, it is absolutely taxable.”

Jason Dinesen, Issuing 1099s to an Incorporated Veterinarian.  So veterinary services are “medical services.”

So the IRS agrees with Corb Lund.

 

Tax Justice Blog, Oklahoma Shows How Not to Budget.  “The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase.”

William Perez, In Honor of Martin Luther King, Jr.  “In 1960, Dr Martin Luther King, Jr., was found not guilty of filing fraudulent state tax returns for the years 1956 and 1958.”  That’s why you don’t want politicized tax enforcement.

TaxGrrrl, Why Justice Matters: The Indictment & Trial Of Dr. Martin Luther King Jr. On Tax Charges   

 

Annette Nellen, Real revenue sources for tax reform.  “Where can permanent tax increases be generated to offset the desired permanent tax decrease generated from permanent lower rates?”

Good, we need it.  Bloggers = Media for First Amendment Libel Law Purposes (Eugene Volokh).  “To be precise, the Ninth Circuit concludes that all who speak to the public, whether or not they are members of the institutional press, are equally protected by the First Amendment.”

That’s how it should be.

Peter Reilly, Soldier To Tax Accountant – Rachel Millios EA   

 

News from the Profession.  CPA Exam Pass Rates Basically Went Right Off the Cliff at the End of 2013 (Going Concern).  

Share

Tax Roundup, 1/8/2014: Instructions for the Net Investment Income Tax! And new foreign account reporting rules.

Wednesday, January 8th, 2014 by Joe Kristan

20140108-1Almost four years after the passage of the Patient Protection and Affordable Care Act, the IRS has issued draft instructions for the act’s “Net Investment Income Tax” form, Form 8960 — which itself has only been issued as a draft so far.  With work already underway on many returns subject to this tax, especially trust returns, the timing is lame.  But this is one aspect of Obamacare that isn’t going to get punted, so we will have to go to war with the forms we have.

The draft instructions provide worksheets for some of the more baroque computations that will be needed to complete the form, including the net loss computation and the allocation of itemized deductions to net investment income.  Still, much of the work will have to be done off-the-forms on preparer worksheets applying the regulations.  Tony Nitti says:

That is my big takeaway from the instructions – there’s no faking it. When we saw that this new, complex area of the law would ultimately be computed on a one-page form, we anticipated that the meat of the computation would be done off-form in worksheets provided by the instructions. And that’s exactly what happened. But that shifts the onus back to us as tax advisors to make sure our inputs are correct, which means we must understand the nuances of the final regulations.

Based on my review of the instructions, it will be virtually impossible for a tax advisor to accurately compute, for example, the Net Gains and Losses worksheet without a solid understanding of the types of gains and losses the final regulations contemplate being included in and excluded from net investment income.

As with the rest of the ACA, what could possibly go wrong?

 

Russ Fox, FBAR Changes for 2014

First, Form TD F 90-22.1 is no more. The FBAR has a new form number, Form 114.

Second, as of last July the FBAR must be electronically filed. The good news is that as of last October, your tax accountant can file the form for you as long as you complete Form 114a.

Also, notes Russ, the filing requirement now kicks in when the balance of all foreign accounts together exceeds $10,000.  It used to be account-by-account.

 

William Perez offers Resources for Preparing Form 1099-MISC for Small Businesses

Kay Bell says it’s Time to get organized for your 2014 tax filing tasks

Paul Neiffer advises us to Decant a Trust – Not Wine.

 

David Brunori on the unwisdom of subjecting business inputs to sales tax:

Indeed, virtually every state tax commission that has studied this issue has concluded that business inputs should be exempt from tax. Why? When you tax business purchases, the tax becomes part of the cost of doing business, and companies try very hard to pass those costs on to consumers. Two bad things then happen. First, consumers unwittingly pay the tax in the form of higher prices. It is a hidden tax and a most cynical way of financing government. Second, consumers often pay sales tax on the tax embedded in the retail price of the goods they purchase. So we are actually taxing a tax. This “cascading” amounts to awful tax policy.

But, as David points out, that doesn’t stop the demagogues:

Several years ago, I had the opportunity to talk to a group of legislators about sales tax policy. I was asked if I had any ideas for reform. I mentioned the common ideas of broadening the base by taxing services and remote sales, and lowering rates. I also said that states should exempt business purchases from the sales tax. One legislator looked at me like I had three heads and asked, “Do you mean letting corporations off the hook for sales taxes?” He asked where the justice was in a system that would make poor working families pay sales tax but let multinational companies go free.

Not all that different from the Iowa Senate’s approach to income taxes.

 

Andrew Lundeen, The Top 1 Percent Pays More in Taxes than the Bottom 90 Percent (Tax Policy Blog):

An interesting piece of information from the chart below is that after the 01/03 Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1 percent actually increased significantly.

Top 1 pays more than bottom 90

No matter how much you jack up taxes on the “top 1%,” the same people always will say “the rich” aren’t paying “their fair share” and need to indulge in some “shared sacrifice.”

 

Howard Gleckman, Taxing Bitcoin (TaxVox)

What if bitcoin is a currency for tax purposes, the same as, say a euro? In that case, profits from sales would be taxed as ordinary income, with a top rate of 39.6 percent, though all losses could offset other income.

Either way, the mere act of buying something [with Bitcoins] would likely be a taxable event.

Tax Justice Blog, GE Just Lost a Tax Break – and Congress Will Probably Fix That.  That’s what fixers do.

Jack Townsend, Prosecuting the Banks: Does the U.S. Prefer Foreign Banks to U.S. Banks?

 

TaxProf, The IRS Scandal, Day 244

Programming note: I will be doing a tax update program sponsored by the Institute for Management Accountants over the Iowa Cable Network tomorrow evening at 6:00 p.m.  It’s a chance to get your continuing education for 2014 off to a roaring start.  I figure on talking about an hour, with an emphasis on the new Net Investment Income regulations and other 2013 changes we will see this filing season.  I’ll also cover some of the more interesting cases and rulings of the last year.

In case you were wondering, our friends at Going Concern explain How To Tell if Your Accounting Firm is Really a Car Wash

Share

Tax Roundup, 1/7/2014: Koskinen proposes voluntary IRS preparer certification. And: Obamacare, small business incubator?

Tuesday, January 7th, 2014 by Joe Kristan
This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

The new IRS Commissioner, John Koskinen, would like for IRS to oversee a voluntary preparer certification program if their preparer regulation power grab fails in the courts, reports Accounting Today. But he would still prefer the power grab:

“If you could require certification of preparers and some educational requirements, it would help taxpayers feel some level of confidence that preparers actually know what they’re doing, and the vast majority of them do,” Koskinen said during a conference call with reporters after he was sworn in ceremonially Monday by Treasury Secretary Jack Lew with an audience of many IRS employees in attendance. “My sense is that we should be able to provide that same educational training and that background to preparers. If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’ Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”

Somebody should point out to him that there already is such a program: the Enrolled Agent Program.  If the IRS runs the now-mothballed Registered Tax Return Preparer literacy test as a voluntary program, it will be a crippling blow to the more rigorous and underappreciated EA designation. Before he worries more about the competence of preparers, Commissioner Koskinen should fix his agency first (my emphasis):

“When I look at the impact of the budget and the implications of further cuts or what happens the next time there’s a sequester, the first thing that happens is the waiting time on a phone call goes up and our service goes down,” he said. “We try to get to 70 or 80 percent, but sometimes it gets as low as 50 or 60, which means at 50 percent that half the people who are calling are getting no answer at all and no satisfaction. It just seems to me that’s intolerable. Taxpayers deserve better, so we need to do whatever we can to provide the services that taxpayers need and expect. They ought to be able to dial the IRS number and get an answer promptly, and they ought to be able to get accurate information.”

Even the shabbiest storefront preparer at least processes more than half of its customers.

 

Why Iowa income tax reform will go nowhere this yearvia the Sioux City Journal:

Senate Democratic Leader Mike Gronstal, D-Council Bluffs, said Senate Democrats would formulate a tax-relief approach geared toward income tax cuts for middle-class Iowans, not the two-tiered plan being pushed by Republicans.

“Nobody in my caucus is going to go along with a scheme that leaves middle-class Iowans carrying more than their share of the tax burden in Iowa so rich people can choose whichever one works the best for them,” Gronstal said.

The idea that the state income tax system is somehow a way to fight The Rich Guy is willfully dumb, with zero-income-tax South Dakota right next door.  Oh, and you know what another word for “the rich” is?  Employers. 

Source: The Tax Foundation

Source: The Tax Foundation

 

Megan McCardle poses the question “Will Obamacare Inspire Small-Business Ownership?“:

One theorized benefit of the Patient Protection and Affordable Care Act is that it will unleash a new era of entrepreneurship. Undoubtedly, there are people in the U.S. who wanted to start a business but feared losing their health insurance. Now that they know they can buy it, presumably they’ll be freed to take risks without fearing that they could end up uninsured and uninsurable.

Unfortunately, we just don’t have that much empirical evidence. European nations with more generous social safety nets have lower rates of entrepreneurship than the U.S. does, even though a thought experiment might suggest that generous welfare programs would encourage people to take more risks. Nor did we see a radical unfurling of entrepreneurial energy in Massachusetts after RomneyCare.

She also points out that Obamacare is a kick in the head for businesses that actually succeed:

Meanwhile, of course, the law imposes significant new penalties for growing a company; anyone with more than 50 employees not only has to provide health insurance for their employees, but they also have to meet a substantial regulatory burden to demonstrate that they’re providing affordable coverage. That might discourage people from growing their firms. 

You know, it just might.

 

Russ Fox, Your Mileage Log — Start It Now (2014 Version).  You would not believe how much it helps in an IRS exam.  And doing it retrospectively when the IRS exam notice arrives tends to go badly.

Peter Reilly, Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex   Ewww…

Paul Neiffer, Roger’s Top Ten. “Roger McEowen from Iowa State University and their Center for Agricultural Law and Taxation (CALT) just listed his Top 10 Ag Law and Taxation Developments for 2014.”

William Perez, Resources for Preparing and Filing Form W-2 for Small Businesses

Robert D. Flach tells us WHAT’S NEW FOR NJ STATE TAXES FOR 2013

Kay Bell, Tax Carnival #124: Happy New Tax Year 2014

20120829-1

 

Martin Sullivan, Goodbye Baucus, Hello Wyden (Tax Analysts Blog): “On tax reform the current chair of the Senate Finance Committee has been a laggard. Wyden will be a leader.”

Jeremy Scott, A To-Do List for Wyden (Tax Analysts Blog).  Tax Reform, Extenders, and the Tea Party investigation.

TaxProf, The IRS Scandal, Day 243

 

Joseph Henchman, Parking and Transit Benefits Tax Exclusion Parity Expires Again; Congress Should Consider Permanent Fix.  (Tax Policy Blog).  “The tax code is probably the wrong place to be subsidizing commuters, and the entire provision ought to be eliminated. If Congress wishes to retain it, it ought to consider a non-expiring unified exclusion of all transportation commuting expenses.”

Tax Justice Blog, Corporate Income Tax Repeal Is Not a Serious Proposal.  Stawmen go up in flames.

Ben Harris, Rethinking Homeownership Subsidies (TaxVox).  He wants to revamp them.  I’d prefer to get rid of them.

 

TaxGrrrl, Cracker Barrel Waitress Serves Up Happiness, Gets Tip & More .  $6,000 more.

The Critical Question: Is College That Guy on eBay Who Never Paid For the Crap You Sent Him? (Going Concern)

 

Share

Tax Roundup, 1/6/2014: Start this year’s year-end planning now! And lots more.

Monday, January 6th, 2014 by Joe Kristan

20140106-1I’m back.  It was good to take a little time off after year-end planning season and before the 2013 return season starts.  But now that it’s 12 below with howling winds, I might as well be at the office.

It was sort of a busman’s holiday, though, as I got an early start on my 2014 year-end tax planning.   While December year-end planning is important, it’s asking a lot of one month to do the work of all 12.  You can do some important tax planning in January that will pay off all year long.  For example:

- You can fund your 2014 Individual Retirement Account right now.  If you are married, you can also fund your spousal IRA.  The maximum contribution is $5,500, or $6,500 if you will reach at least age 50 by December 31, 2014.

- You can fund your 2014 Health Savings Account today too.  The HSA limit for taxpayers with a high-deductible plan and family coverage is $6,550 this year; for a single plan, the limit is $3,300.  You need to have a qualifying high-deductible insurance policy, but if you do, you can deduct your contribution and withdraw funds for tax-deductible expenses tax-free.  If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs.  If you stay too healthy to use the funds on medical care, withdrawals are taxed much like IRA withdrawals.

Using spousal IRAs and an HSA, a 50-year old with family coverage can tuck away a combined $19,550 right now and have it earn interest or dividends tax free right away — 15 1/2 months sooner than if you wait until April 15, 2015, the last day you can make these contributions.  And by saving it now, you won’t be tempted to spend it later in the year.

A few other things that you can do right away to get some of your 2014 year-end planning out of the way:

- If you care about estate planning, nothing keeps you from making the $14,000 maximum 2014 exempt gift to your preferred family donees right now.

- Make sure you’ve maxed out your 2014 401(k) deferral with your HR people — or at the very least, be sure you are deferring as much as you can get your employer to match.

- If you are an Iowan with kids, you can make a 2014 College Savings Iowa contribution that you can deduct on your 2014 Iowa 1040.  The maximum deductible contribution is $3,098 per donor, per beneficiary, so a married couple with two kids can put away $12,392 right now.  The Iowa tax benefit works like an 8.98% bonus to you for putting money in your college savings pocket.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 242: Lois Lerner Is 2013 Tax Person of the Year.  The TaxProf provides access to a Tax Analysts piece that says:

     While many of the Service’s problems were not necessarily its own fault, the exempt organization scandal was an almost entirely self-inflicted wound. No one personifies that scandal more than Lois Lerner.

Lerner ignited a political and media firestorm when she confessed in May that the exempt organizations unit of the IRS Tax-Exempt and Government Entities Division inappropriately handled many Tea Party groups’ exemption applications.

The now former exempt organizations director’s admission and subsequent refusal to testify before Congress contributed to her becoming the public face of the scandal. Although Lerner does not bear sole responsibility for the IRS’s missteps in processing conservative groups’ exemption applications, the publicity of her role in one of the year’s biggest news stories earns her the distinction of being Tax Notes’ 2013 Person of the Year. 

And in spite of much wishful thinking, it is a scandal.

It’s worth noting that Tax Analysts gives an honorable mention to Dan Alban, the Institute for Justice attorney behind the District Court defeat for the IRS preparer regulation power grab.

 

1040 2013William Perez, How Soon Can a Person File Their 2013 Tax Return?: “The Internal Revenue Service plans to begin processing personal tax returns on Friday, January 31, 2014, for the tax year 2013 (IR-2013-100).”  But don’t even try to get it done until you have your W-2s and 1099s all in hand.

Jana Luttenegger, Reinstating Tax-Exempt Organizations  (Davis Brown Tax Law Blog). She explains new IRS procedures for organizations that have lost their exemption by failing to file annual reports with the IRS.

Kay BellSocial Security taxable earnings cap in 2014 is $117,000. Thousands have already hit that tax limit.

Jason Dinesen, Small Business Planning: Got Your Financial Statements and Budget Done Yet?

Paul Neiffer, Remember Your Simplified Home Office Deduction

TaxGrrrl, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More.

Russ Fox, 1099 Time.  A look at who has to issue information returns, and who gets them.

 

Robert D. Flach poses AN ETHICAL, AND PERHAPS LEGAL, DILEMMA:

Beginning with the 2014 Form 1040, am I legally, or ethically, required to assess my client a penalty for not having health insurance coverage?  Or can I, as I do with the penalty for underpayment of estimated tax, ignore the issue and leave it to the IRS to determine if a penalty is appropriate?  Will I face a potential preparer penalty if I ignore the issue?

It’s a good question.  I suspect they plan to make us ask the question, under the same sort of rules that make preparers unpaid social workers for the earned income tax credit.  I don’t expect to ever have to ask the question, though, as I think this dilemma will resolve itself by an indefinite delay, and eventual repeal, of the individual mandate as Obamacare falls apart.

 

David Brunori, State Tax Reform Advice for 2014 – Think About Spending (Tax Analysts Blog). Sometimes I think that’s all they think about.  But hear David out:

But in thinking about tax reform efforts in the past year, I am more convinced than ever that our refusal to rethink the size of government makes fixing problems with the tax code impossible. Here is what we know. Cutting government programs is difficult because each program has a constituency that will fight like a gladiator to protect its access to public money. So when the topic of tax reform comes up, conservatives and liberals vow to find a fix that will neither raise nor decrease spending. But we also know that politicians – the majority anyway – generally hate raising taxes. This reflects the fact that most of their constituents hate the idea of paying more taxes. But the costs of government continue to increase. And that leads to worse tax policy as states look to gimmicks, excises, gambling, and other junk ways of collecting revenue. It also ensures that some horrible tax policies are never fixed.

If the government dialed back spending to population-and-inflation adjusted 1990 numbers, I don’t think mass famines would result.

Scott Hodge, Despite Rising Inequality, Tax Code is at Most Progressive in Decades (Tax Policy Blog). I’m not sure “despite” is the right word here.

Annette Nellen, Continued bonus depreciation or tax reform?

Cara Griffith, Cyclists: The Next Great Source of Tax Revenue? (Tax Analysts Blog):

 While I strongly believe taxes should not be used to encourage or discourage behavior, the effect of requiring cyclists to register their bikes is not the big problem with these types of proposals. The real problem is that they don’t raise any revenue. Dowell’s suggestion that a bike registration fee would raise some $10 million for the city of Chicago is a pipe dream. Almost every cent would be used simply to administer the program.

From the interests of the bureaucrats proposing the program, just funding new patronage jobs is a perfectly acceptable result.

Howard Gleckman, Time To Park The Commuter Tax Subsidy (TaxVox)

Peter Reilly, Are IRS Property Seizures The Stuff Of Reality TV?   Now there’s some grim viewing.

The ISU Center for Agricultural Law and Taxation has a shiny new look at its website.

Tony Nitti, Yes Virginia, There Is A Tax Extender Bill In Congress.

The Critical Question: If You Won the Lottery Tomorrow, Would You Still Go to Work? (Going Concern).  Only to clean out my desk, and laugh.

 

Share

Tax Roundup, 12/26/2013: Tax loss harvest time! And: people like you to give them money.

Thursday, December 26th, 2013 by Joe Kristan


harvest
Harvest those tax losses.  
Just as millions of disappointed gift recipients rush the retailers to improve on Santa today, investors can get busy over the next few days trying to make the best of their own disappointments.  They can cash out losses on disappointing investments to shelter their 2013 gains.  Some tips to make sure you do it right:

- You have to take the loss in a taxable account. A loss in an IRA or 401(k) plan doesn’t help you.

- Normally the “trade date” is the effective date for tax purposes, so you can sell a stock as late as December 31 this year and still deduct the loss on your 2009 1040.

- If you have a loss on a short sale, the tax law treats it as closing on the settlement date, not the trade date, so you can’t wait to the last minute to close a short sale to get a deduction.

- You don’t need to overdo it.  You can deduct your capital losses only to the extent of your capital gains, plus $3000.  But if you do overdo it, individual capital losses carry forward indefinitely.

- Harvesting losses helps taxpayers subject to the Obamacare/ACA Net Investment Income Tax to the extent it helps for regular taxes.

- Watch out for the wash sale rules. If you buy the same stock within the 30 days preceding or following the sale of a loss stock, your loss is disallowed. This is true even if you sell from a taxable account and buy in an IRA, according to the IRS.

Come back tomorrow for another 2013 year-end tax tip!

 

Paul Neiffer offers Some Quick Year-End Tax Tips

 

20120906-1Give away money and folks will line up.State tax credit program hits a big bump: It’s out of money, and that’s a good sign,”  reports the Des Moines Business Record:

Economic development officials in Des Moines and other Iowa cities have been told to stop sending requests for a state economic development tax credit. The reason: The fund is tapped out.

Greater Des Moines developers were told during a meeting last week with officials from the Iowa Economic Development Authority and the city of Des Moines that a tax credit program used to provide gap financing for multimillion-dollar developments has reached its $3 million annual cap on the ability to transfer the credits, a key element in financing the projects.

“Transferable” tax credits are actually subsidies. It is economically identical to giving the developers a license to factor the state’s receivables at a small discount.

Local developers, the Greater Des Moines Partnership, and state officials will press the Iowa Legislature to at least raise the $3 million cap and make adjustments that could eliminate the ranking system.

So people who want the state to give them more of our money and the state officials that give away our money want the legislature to make it easier to give away our money. What could go wrong?

 

Speaking of the people giving away our money,  State-owned Honey Creek Resort near Moravia continues to struggle financially.  (thegazette.com, via Gongol) What madness led the government to open a resort?  Maybe the same madness that makes people think the government should be allocating investment capital.

 

tf logoJoseph Henchman, Tax Foundation Wins State Tax Notes Honor, Third Year Running:

For three years running now, we have been honored as most influential in state tax policy by State Tax Notes (subscription req’d). This year, they present it as an unranked list of ten recipients. The list is five state officials, three lawyers, one legislator, and us…

Given the response of the Iowa legislature to my suggestions, I am sure that I rank among the ten least influential in state tax policy.  I wonder if there’s a prize for that?

 

Howard Gleckman,  TheTaxVox 2013 Lump of Coal Award: Wait ‘Til Next Year Edition.  He doesn’t think the Tea Party scandal was more than “merely bungling the job on a bipartisan basis.”  Given the overwhelming attention paid to the right, that’s an unsupported statement.   Mr. Gleckman is a man of the center-left; when it’s your opponents being targeted, it’s easier to conclude that it’s all fair.

 

Tony Nitti, Tax Geek Tuesday: When Structuring The Sale Of Your Business Goes Wrong   Tony addresses the related-party debacle of Fish v. Commissioner, where a Kansas City taxpayer generated $9 million in ordinary income when he thought he was going to have capital gains, because a partial cash-out of his business worked out to be a sale of goodwill to a related party.

Margaret Van Houten,  Do My Estate Planning Documents Need to Have Special Language to Deal with My Digital Assets?  (Davis Brown Tax Law Blog)

Russ Fox, Nominations Due for 2013 Tax Offender of the Year.  Sadly, Russ will have plenty of worthy candidates.

 

TreeTreetreetreetreePeter Reilly offers Kind Christmas Wishes To Those Behind Bars And The Tax Collectors Too  “So when you think treeabout it, you realize that one of the reasons that Jesus was born in Bethlehem was that Joseph and Mary were tax compliant.”

Kay Bell, The Christmas tax story

Jason Dinesen, Greatest Hits: Deducting Mileage from a Home Office   

TaxProf, World Giving Index 2013: U.S. Is #1

Me, What’s new in year-end tax planning, my new post at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog.

Career Corner. How to Choose Between Two Big 4 Offers When You Have No Clue What Either Involves (Going Concern)

 

TaxGrrrl, The True Cost Of Christmas: Santa’s Tax Bill:

Compensation is taxed to the elves as income – but Santa has taxes to pay on their behalf. Payroll taxes – at the employer contribution rate of 7.65% – for the elves work out to $1,890,927.

Santa doesn’t pay income taxes on compensation paid to the elves but he does have to manage their withholding according to any forms W-4 provided to him. Fortunately for Santa, there is no withholding requirement for state taxes in Alaska. 

I would argue the residency issue.  Technically, the North Pole is in the middle of the ocean, and I don’t believe there are territorial claims though.  Of course, with his fearsome legendary powers of retaliation, no IRS agent wanting to be on the “nice” list would mess with him.

 

Share

Tax Roundup, 12/23/2013: The joys of being at-risk. And: commence self-destruction sequence!

Monday, December 23rd, 2013 by Joe Kristan

S imageS image20091210-1.JPG‘Tis the season to be at-risk.  We mentioned yesterday how you can get basis for deducting S corporation losses by making a loan to the corporation.  But not just any loan.  If you borrow from another S corporation shareholder to make your loan, your basis won’t be “at-risk.”

A Monroe, Iowa farmer learned that the hard way with his 1991 loan, as we discussed long, long ago:

Larry Van Wyk, a farmer from Monroe, Iowa, got a taste of the dangers of the at-risk related-party loan rules back when farmers were their primary target. He owned an S corporation farm 50-50 with his brother-in-law, Keith Roorda. On December 24, 1991, Larry borrowed $700,000 from Keith. The loan was fully-recourse, so the brother-in-law could proceed ruthlessly against Larry in the event of non-payment. Larry used about $250,000 to repay money he owned the S corporation and loaned the remainder to increase his basis to enable him to deduct losses.

 Unfortunately, Larry’s brother-in-law had “an interest in the activity” – he owned half of it. This made the deduction not “at-risk,” even though no loan from a brother-in-law is without risk in a very real sense. The efforts of some of the finest tax attorneys west of the Mississippi were unavailing; the Tax Court agreed with the IRS, and Larry lost his losses.

It’s not enough to avoid borrowing from another shareholder; you don’t want to borrow from somebody related to another shareholder.  And as “interest in the activity” isn’t necessarily the same as “shareholder,” you should watch out for borrowing from anybody else involved in the business.  The safe thing is to visit your friendly community banker for your loan.

This is another of our daily year-end 2013 tax tips — one a day through December 31!

 

Weekend update!  In case you missed it over the weekend:

2013 Winter Solstice Tax Tip: S corporation basis and

Winter Sunday tax tip: loans for S corporation basis.

 

William Perez, Roth Conversions as a Year-End Tax Strategy

Jason Dinesen,  Six Things I’m Talking to My Small Business Clients About at Year-End (Part 2) 

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

We have a Commissioner.  Senate Votes 59-36 to Confirm John Koskinen as IRS Commissioner (TaxProf).  A lot of folks have noted that once again we have a Commissioner who hasn’t done taxes for a living.  That doesn’t have to be fatal.  Anybody who has hung around CPA firms can tell you that somebody who is good at taxes can be pretty terrible at running an organization.

Still, it’s not a great sign.  The new guy, John Koskinen, will be 79 years-old when his five-year term runs out.  He got his reputation as a “turnaround guy” at Freddie Mac in the wake of the financial crisis, preserving the bureaucracy as responsible as any for the financial meltdown.  I suspect he was hired to protect the agency, not the taxpayer.

By the way, there is another Koskinen.

 

The crumbling mandate.  Tax Analysts reports ($link):

Individuals whose health insurance plans were canceled by insurers because they did not meet the requirements of the Affordable Care Act will be eligible for an exemption from the individual mandate penalty that takes effect in 2014, the Department of Health and Human Services said late December 19.

20121120-2Megan McArdle says this means Obamacare Initiates Self-Destruction Sequence:

As Ezra Klein points out, this seriously undermines the political viability of the individual mandate: “But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it’s wrong. But it’s hard to argue that it’s right for the currently uninsured but wrong for people whose plans were canceled … Put more simply, Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people whose plans were canceled more deserving of help than people who couldn’t afford a plan in the first place?”

Arnold Kling put it more pithily: “Obama Repeals Obamacare.”

They’re desperately improvising as they go.  Not a good situation, considering the mandate tax is supposed to take effect in less than two weeks.   I’m starting to doubt that it ever gets enforced.

Related: Paul Neiffer, Cancelled Health Insurance Policies

 

20121220-3Kay Bell, Singing the praises of tax-favored retirement savings

Brian Mahany, IRS Ordered To Pay Taxpayer’s Legal Fees 

Russ Fox, The Death of the Death Master File (Sort of)

Peter Reilly,  Woody Allen’s Blue Jasmine Has A Tax Lesson.  If you don’t wan’t to stay married to a spouse, you might not want to file a joint return either.

TaxGrrrl,  12 Days Of Charitable Giving 2013: Esophageal Cancer Action Network

Robert D. Flach has a special Monday Buzz!

 

Tax Justice BlogUltra-Wealthy Dodge Billions in Taxes Using “GRAT” Loophole

Michael Schuyler, Why A Death Tax “Loophole” May Make Economic Sense (Tax Policy Blog).

Jack Townsend, Swiss Bank Hype and Over-Hype.  ” Merely having U.S. clients with undeclared accounts is not the problem for those banks; it is those banks actions to become complicit in the U.S. clients’ failure to report the accounts.”

Jim Maule finds his inner libertarian, embracing a Reason Foundation report calling for elimination of the home mortgage deduction in exchange for lower rates.

 

News from the Professon.  PwC Won’t Stop Beliebin’ In Ugly Christmas Sweaters (Going Concern)

Share