Posts Tagged ‘Peter Reilly’

Tax Roundup, 11/20/14: ACA and filing season pessimism revisited.

Thursday, November 20th, 2014 by Joe Kristan

Programming note: The Tax Update will take tomorrow off. I will be in Phoenix tomorrow on a panel on state film tax credits sponsored by the National Conference of State Legislators.  The panel will include, among others, Joseph Henchman of the Tax Foundation. Normal programming resumes Monday.

 

guillotineACA frenzy! Thanks to a kind Twitter mention from Megan McArdle (who you really should follow at @asymmetricinfo), my Tuesday post on ACA and filing-season dread made it to a wider audience than usual, including the readers of Real Clear Politics. A cousin who I normally only see at family weddings and funerals saw it and sent me a note (Hi, Bob!), so I know it really got around.

It has also generated questions in the comments and the Twitterverse that are worth addressing. We’ll start with this from Alan in the comments:

In a few months when people receive their W2’s they will get a real shock when all the employer paid share of the company paid share of health care plan is included in their gross pay and now they must pay taxes on all that extra income.

Obamacare is ugly, but it isn’t that ugly. While many (but not all) employers will disclose the cost of coverage on W-2 box 12 (code DD), it will not be included in W-2 Box 1, “taxable wages.” From IRS.gov, Employer-Provided Health Coverage Informational Reporting Requirements: Questions and Answers:

Q1. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?

A. No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.

20121120-2From Ms. McArdle on Twitter:

Any chance it won’t be that bad?

I suppose that depends on what “that bad” means. Blood seeping from the walls, shape-shifting brain-eaters from Planet Zargon, cats and dogs living together– probably not that bad. But there’s still plenty of bad to go around. The things that worry me:

- Many taxpayers will not have the information handy to determine their health insurance status for all 12-months of 2014. Only those who buy insurance on the exchanges will have Form 1095, the information return on insurance status.  Others are supposed to get information from employers, but they are likely to lose track of it, especially this first year.

- Lacking any matching documents, taxpayers will be tempted to claim coverage where there is none, or maybe wasn’t for part of the year, to avoid penalties. There won’t be an easy way to verify this. Preparers will either have to take taxpayers at their word or send them back for proof (or, inadvertently, to another preparer). It’s always bad when taxpayers feel they should lie to preparers. Yet as the IRS will often have no way to detect false claims of coverage, they will feel like chumps for telling the truth.

- Taxpayers with penalties for non-coverage will be irate when they find they get no refund. As Ms. McArdle wisely put it, “I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.” Experience shows that the taxpayer’s first instinct is that the preparer screwed up.

- It will be even worse when we have to tell people to repay advance health-care tax credits paid to insurers to lower consumer out-of-pocket costs. This can happen when actual taxable income exceeds the amounts estimated when coverage was obtained on the exchanges. As the taxpayer never “saw the money” — it was paid to the insurer, not to the taxpayer directly — she may not be easily convinced that she has an excess benefit to repay.

20140521-1- Preparers haven’t had to deal with this before. Any new tax provision has a learning curve, and this is a complicated one that will apply to almost everyone. In many cases, preparers will mess up, being human. Getting it right will take extra time that is hard to come by during tax season.

- This doesn’t even touch the problems that many small employers are going to be dealing with as they realize their Section 105 individual coverage premium reimbursement plans, and their cafeteria plans funding premium payments on individual policies obtained by employees, are considered non-compliant under the ACA “market reforms.” At $100 per employee, per day, the penalties could be ruinous. While taxpayers are encouraged to report the penalties on Form 8928 and zero them out with a “reasonable cause” claim, we don’t know yet how generous the IRS will be in granting reasonable cause relief. Figuring out what to do here will be time-consuming and nerve-wracking for taxpayers and preparers, unless the IRS issues a blanket penalty waiver for 2014 (as it should).

On top of all this, we will probably have another late “extender” bill like we had two seasons ago, which made for an awful tax season by itself. Maybe things will go well this season, but so many things seem likely to go wrong that it’s hard to be optimistic.

 

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #6-The IRS (Finally) Figures Out The Real Estate Professional Rules. It’s an excellent lesson on the tax rules covering “real estate professionals” and passive losses — and by extension, the 3.8% net investment income tax.

TaxGrrrl, Al Sharpton Denounces Claims He Owes Millions In Taxes To IRS, New York.

Jack Townsend, Another UBS/Wegelin Related Indictment in SDNY

Peter Reilly, Kent Hovind And Creation Science Evangelism – How Not To Run A Ministry. When it gets you imprisoned, you may well be doing it wrong.

Kay Bell, Former GOP VP candidate Paul Ryan to head House tax panel

Jason Dinesen, I Don’t Have Time to Write Grant Proposals or Meet with Donors … But Give Me Money Anyway!  OK, then…

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Work proceeds in clearing the ruins of the Younkers department store, which burned in March.

 

TaxProf, The IRS Scandal, Day 560.

Cara Griffith, Bad News for State Public Pension Plans (Tax Analysts Blog). “New research has come out revealing the level at which state public pension plans are underfunded, and it’s not good news.”

The denial of reality in administering public pensions is amazing. Public defined benefit plans are a lie. Either the public is being lied to about how much current public services cost, or current employees are being lied to about their retirement benefits. Maybe both.

 

20140910-1Alan Cole, Extenders and the Opportunity for Tax Reform (Tax Policy Blog):

The Examiner characterizes many of the extenders as “repugnant carve-outs.” This is undeniably true, but it is also the case that some – but not all – of the tax extenders are genuinely good policy. Particularly, Bonus Depreciation and Section 179 are important for moving the tax code towards proper treatment of new investment.

In any case, the current system of pretending tax provisions are “temporary” to hide their true cost is dishonest and should end.

Renu Zaretsky, “Dead Reform Walking:” On Fairness, Immigration, and Spending. The TaxVox headline roundup covers developments in the Marketplace Fairness Act, extenders and immigration, among other things.

 

News from the Profession. KPMG Gives the Department of Homeland Security a Clean Audit Opinion Because of Course They Did (Adrienne Gonzalez, Going Concern). “I don’t know about you but I feel safer already.”

 

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Tax Roundup, 11/19/14: Mayor of London, U.S. tax delinquent. And: sticks, stones, and IRS.

Wednesday, November 19th, 2014 by Joe Kristan
Boris Johnaon and an unidentified IRS agent.

Boris Johnson and an unidentified IRS agent.

I thought the Revolution was fought to get away from the English, not to tax them. From Robert W. Wood comes a story that says volumes about how absurd America’s system of worldwide taxation is:

London’s Mayor Boris Johnson is English, but being born in New York means he’s American too. Turns out he never gave up his U.S. citizenship, as the BBC confirmed. Sure, he threatened to renounce in a column for the Spectator, but he renewed his U.S. passport instead.

And on his recent book tour, in a Diane Rehm Show Interview, November 13, 2014, Mr. Johnson even said a thing or two about the American global tax regime. He thinks it is outrageous to tax U.S. citizens everywhere no matter what. He hasn’t lived in the U.S. since he was 5 years old, he notes. Still, the IRS wants money.

Only the U.S. tax law is stupid enough to consider Boris Johnson an American taxpayer. Of course, the U.S. tax law says he’s taxable on his worldwide income as a U.S. Citizen, and that means he’s delinquent on U.S. tax on everything he’s ever earned. Of course, the IRS also claims FBAR penalties on “foreign” financial accounts that would render the Mayor of London a pauper.  He could renounce his U.S. citizenship, but Mr. Wood notes that “When you exit you must certify five years of U.S. tax compliance to the IRS. And any tax for the current or prior years must be paid.”

Boris Johnson is only the most prominent victim of a system supposedly designed to catch international financial fraud, but that works much better in making financial criminals and paupers out of ordinary people for committing personal finance while abroad. And yet there seems to be no movement at all to fix this horrible system. Because Swiss banks, or something.

 

20140106-1William Perez, Excluding Foreign Wages from US Taxes

Paul Neiffer, Another Section 179 Update:

Whenever, I indicate that we should know what the final number should be around Christmas or even New Years, I get emails back saying doesn’t Congress know that taxpayers really can’t make informed equipment decisions without knowing what Section 179 is.

The quick answer is that “Congress does not care!”

So true.

 

Russ Fox, IRS Clarifies Electronic Signature Requirements:

The IRS released a new version of Publication 1345 today (html version only is available for now). Included in it is the following:

Note: An electronic signature via remote transaction does not include handwritten signatures on Forms 8878 or 8879 sent to the ERO by hand delivery, U.S. mail, private delivery service, fax, email or an Internet website.

Thus, if a client signs a signature document in ink, hands it to me, mails it to me, faxes it to me, or uploads it to me via our web portal (or even if he emails it to me), it’s not an electronic signature and I don’t have to check id, etc. (So, mom, I don’t need to see your ID.)   

That’s good news.

 

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Kay Bell, States continue efforts to tax e-cigarettes as vaping grows. E-cigs threaten the states’ tobacco settlement gravy train. That’s why politicians hate them. All of the vaporous public health claims used against E-cigarettes is just blowing smoke.

 Peter Reilly, What’s In A Name? Should Naming Rights Reduce Charitable Deductions?

TaxGrrrl, Top Ten Area Codes Making Spam Calls: Are They Dialing You Up? If you aren’t expecting a call from the IRS, it’s not the IRS.

Robert D. Flach, DON’T BE A NON-FILER! “It is much “more better” to submit a balance due return with no payment than to submit nothing at all.”

Jack Townsend, IRS Documents On OVDI/P From FOIA Request.

 

TaxProf, The IRS Scandal, Day 559

Alan Cole, Obamacare’s Contradictory Tax Incentives (Tax Policy Blog):

All too often, the motives behind Obamacare’s taxes are incoherent. We don’t like the distortion towards employer-provided health insurance, so we levy taxes on it. But we also do like the distortion towards employer-provided health insurance, so much so that we will actually mandate it!

The real motivation was to pass something and let IRS work out the details.

Howard Gleckman, Will Obama’s Executive Action on Immigration Kill Tax Reform? Hint: You Can’t Kill Something That’s Already Dead (TaxVox)

 

Hello, IRS readers! Apparently the IRS reads the blogs. Legal Insurrection reports that the IRS is trying to avoid disclosing names of their personnel in a lawsuit because of things said about Lois Lerner in that blog’s comments:

In a federal FOIA lawsuit by Judicial Watch seeking records of Lerner emails and IRS efforts to retrieve the emails, the IRS used two of the comments to the Legal Insurrection Reader Poll post to justify the IRS no longer disclosing the identities of IRS personnel.

Here are the awful comments:

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Juvenile? Sure, but pretty tame stuff for political blogs. Go hang out at Daily Kos if you think otherwise. By the standard the IRS is using here, you would have to conceal the names of just about anybody remotely connected with the government or politics. I’ve been called a “hamburger chomping, malleable moron in the comments,” with no ill consequences other than now I’m self-conscious at McDonalds.

But all the same, be nice in the comments here.

 

Career Corner. Your Open Office May Be Making You a Crappy Worker (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 11/12/14: IRAs, IRS, and the Liar’s Paradox. And: mass benefit, class tax.

Wednesday, November 12th, 2014 by Joe Kristan
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You trusted us.

The Liar’s Paradox, IRS Version. If somebody says “I am lying,” can he be telling the truth? It’s a puzzler. So are many tax law rules, like the rules governing IRA rollovers.

The tax law does not subject an IRA withdrawal to tax if it is reinvested in an IRA within 60 days. It can only be done once each year. The IRS publication on such “rollovers” said from 1984 though 2013 that the one year restriction applied to each IRA, so a taxpayer with multiple IRAs could make multiple rollovers.

Alvin Bobrow made multiple IRA rollovers in 2008 consistent with this guidance. On examination, the IRS said the once-a-year rule applied per taxpayer, not per IRA, and assessed him tax and penalties.  The Tax Court upheld the assessment and penalties, in spite of the published IRS position. This is a classic example of the unfair, penalty-happy nature of the IRS examination process, too often abetted by the courts.

While manifestly unfair, the IRS long ago won the right to bait-and-switch via its publications. As the Tax Court said years ago, “well established precedent confirms that taxpayers rely on such publications at their peril.”

Even the IRS apparently is a little embarrassed by this. On Monday it issued Announcement 2014-32, saying it would not enforce the position it took in Bobrow for distributions before 2015. That seems fair to other taxpayers, if not to the Bobrows.

But here is where the liars paradox comes in. Announcement 2014-32 is mere “administrative guidance,” just like an IRS publication, and it has no more legal standing. Technically, nothing but a sense of self-restraint keeps the IRS from saying “fooled you!” on examination, just like they did in Bobrow. Does that make anyone else a little nervous?

 

The Tax Foundation has issued a wonderful new publication, A Visual Guide to Business, Taxes, and the Economy. It is full of wonderfully-illustrated insights on the economy and taxes. I love this illustration:

 

Source: Tax Foundation, "Business in America Illustrated"

Source: Tax Foundation, “Business in America Illustrated”

The chart shows that most business income subject to tax is reported on 1040s, not on corporate returns. That means every increase in taxes on high-income individuals is a tax on businesses and a tax on employers — not just on some guy lighting cigars with $100 bills.

 

20131209-1Paul Neiffer, Sheldon Iowa is Cold. It is indeed, at least this week.

Andrew Mitchel, New Rules for Canadian RRSPs & RRIFs

Kay Bell, A question for Congress on Veterans Day: Will the business tax break for hiring returning military members be renewed?

Jason Dinesen, Same-sex Marriage, Amended Tax Returns and Filing Status. “So if you’re in a same-sex marriage and you’re amending a 2011 or 2012 tax return, you can file that amended return as married or keep your filing status as single.”

Peter Reilly, Tax Court Goes To Webster For Definition Of Construction – And Watch That NAICS Code. The courts have been placing an undeserved significance on the business code you put on your tax return.

TaxGrrrl, 14 Ways To Show Your Thanks To Our Military On Veterans Day. “Here are 14 ways to show your thanks to our vets – and some of them come with a nice tax benefit to boot.”

 

20130121-2Good. IRS Power To Regulate Tax Practitioners Slipping Away (Christopher Rezek, Procedurally Taxing). The author appears to think this is somehow a bad thing.

TaxProf, The IRS Scandal, Day 552

 

Joseph Thorndike, Democrats Getting What They Deserve on Medical Device Tax (Tax Analysts Blog):

If Democrats eventually face a funding crisis for Obamacare, they have only themselves to blame. After all, they should have known better. It was a Democrat, Franklin Roosevelt, who conclusively established that broad spending programs deserve broad taxes.

Precisely. You can’t fund a mass entitlement with a class tax, but that’s exactly what Obamacare tries to do.

 

 

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Tax Roundup, 11/7/14: The crime of deducting Cal Ripken’s bat. And more!

Friday, November 7th, 2014 by Joe Kristan

bauders

Accounting Today visitors, the godawful link you seek is here.

The principal owner of a local pharmacy has pleaded guilty to two felony counts arising from an investigation of illegal sales of painkillers. Mark Graziano pleaded to one drug conspiracy count and one count of tax evasion. The Des Moines Register story covers all you might want to know about the drug charges. Naturally, we’re more interested in the tax angle.

Surprisingly to me, the tax charge is unrelated to the drug charge.  It involves instead the alteration of business credit card records to conceal purchases of personal non-deductible things.  From the plea deal:

Beginning sometime prior to 2008, and continuing into 2012, Defendant used the business credit card to make purchases which were solely for the personal benefit of the Defendant. Such purchases included airline travel and cruises, jewelry, vehicles, and sports memorabilia and other collectibles.

The pharmacy paid a local accounting firm to write up the business financial statements.

Prior to providing the monthly credit card statements to the accounting firm, Defendant altered the credit card statement by (1) deleting the personal benefit purchases, and (2) increasing the amounts represented as additional inventory from wholesale distributors. Defendant would then provide the altered credit card statements to the bookkeeper, who entered that information…

The deal says that Mr. Graziano was 68% owner of the pharmacy corporation, an S corporation. That means not only was he deducting personal expenses on the business return, but he was also charging 32% of the cost of his toys to his minority owners.

The plea deal says that Mr. Graziano will forfeit sports memorabilia to fund reimbursement of unpaid taxes. It’s an interesting collection. From the indictment:

graziano memorabilia

It seems he was an old-school basketball fan.

The plea deal doesn’t say how he altered the statements, but I would guess he downloaded them and made the chenges on his P.C., to get away with it so long. He might still be doing it if his co-defendant hadn’t unwisely reported a non-paying illegal drug customer to the customer’s parole officer.

Fortunately, the pharmacy will remain open. His sister will acquire his interest, according to the Des Moines Register story. The pharmacy still operates an old-time soda fountain serving delicious homemade ice cream. Des Moines would be a little less without that.

The moral? If the company has a business credit card, the statements should not go to the card user. They should be opened by someone else in the office, someone who might wonder why a pharmacy needs all those ball bats.

 

Home sweet homestead. Illinois County Uncovers $9.4 Million in Fraud Revenue with Analytics (Govtech.com). Using data mining techniques, a contractor helped Cook County identify improper property tax homestead exemption claims.

 

20140826-1Robert D. Flach serves up your Friday morning Buzz! He buzzes about everything from IRAs to muni bond losses.

TaxGrrrl, IRS Warns Taxpayers To Be Diligent As Identity Thieves Add New Twist To Phone Scam. If you aren’t expecting a call from IRS, it’s not the IRS.

Peter Reilly, Technology Officer Denied Capital Gain Treatment On Sale To Google

Kay Bell, Most of 2014’s tax ballot questions approved by voters

Robert Goulder, Apple’s Financial Disclosure: The Lockout Effect at Work (Tax Analysts Blog). “Apple recently disclosed that its stockpile of offshore profits has increased to $137 billion. That’s money the company can’t fully use without suffering massive tax costs. If you’ve ever sought an illustration of the lockout effect run amok, this is it.”

TaxProf, The IRS Scandal, Day 547

Scott Drenkard, Richard Borean, Corporate Net Operating Loss Carryforward and Carryback Provisions by State (Tax Policy Blog)

Richard Auxier, Voters Hate Gas Tax Hikes—That’s a Problem for States *TaxVox). If Governor Branstad proposes one, that probably means he really plans to retire.

 

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Tax Roundup, 11/5/14: Red waves and extenders. And: RIP, Gordon Tullock

Wednesday, November 5th, 2014 by Joe Kristan

20130113-3So what does it mean for bonus depreciation? Sure, there was a turnover of power in the Senate, but we have tax returns to do here, people. What does the new makeup Congress mean for the upcoming filing season?

Well, technically for now, nothing. The same old congresscritters hold their seats until January. These are the same critters who have failed to to pass a bill extending all of the perpetually-expiring provisions that technically died at the beginning of 2014, including $500,000 Section 179 deductions, 50% bonus depreciation, and the research credit.  With the election over, they may finally move these Lazarus provisions. I think they will, considering that failure to do so will make an ugly filing season even worse.

Yet they may not. The Republican House of Representatives has passed a series of bills making some of the extenders permanent. These have been bottled up in the Democrat-controlled Senate. An emboldened GOP may insist on their versions, a stance which at least has fiscal honesty going for it. If so, nothing happens until January. And even then, the President may veto the permanent extenders in the name of “fiscal responsibility,” keeping up the pretense that passing tax breaks every year or two forever is less costly than just passing them once for good.

So we may just all be doomed. But we knew that.

 

20120906-1Meanwhile, nothing changes in IowaGovernor Branstad, avid distributor of economic development tax breaks, cruised to an easy victory over low-income housing credit developer Jack Hatch. The results show that with respect to corporate welfare tax credits, it truly is better to give than to receive.

While the GOP Governor won easily, the Democrats retained their 26-24 margin in the Iowa Senate.  That means no comprehensive Iowa tax reform is likely for at least the next two years. Not that it would be anyway, as Governor Branstad seems to have made his peace with high rates and complexity, given the ribbon cuttings he gets to attend when tax credits are awarded. But if he changes his mind, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, with its elimination of the corporation income tax and all the credits and its 4% top rate, is ready any time he is.

 

In other election-related newsThe lame smear of an Iowa congressional candidate for “moving his corporation to Delaware to dodge Iowa taxes” failed. Entrepreneur Rod Blum won the race for the seat vacated by Bruce Braley, who lost his bid for Iowa’s open U.S. Senate seat. Really, implying that it is somehow improper for a public company to incorporate in Delaware is right up there with accusing someone of being a notorious extrovert in a relationship with an admitted thespian.

And the attempt to get a local option sales tax passed in the Iowa City area failed.

 

train-wreckMeanwhile, we may be headed for a disastrous filing seasonBoth Commissioner Koskinen and Taxpayer Advocate Nina Olson had grim forecasts for the coming tax season, reports Tax Analysts ($link):

“I think it will rival the 1985 filing season,” Olson said. “Those of you who have been in practice that long remember that time when all the returns disappeared, and Philadelphia melted down, and bags were stuffed in the trash full of returns, and we all got nice little calls from the IRS saying, ‘We know your client filed a return, but would you please file it again because we lost it.’ And it took years to undig ourselves from that.”

Oh goody. Of course, the Commissioner used the occasion to try to jack up his budget:

Both Koskinen and Olson said that there is only so much they can do without increased funding from Congress. 

“You really do get what you pay for,” Koskinen said. “And if you’re not paying for it, there’s no way you’re going to get it.”

The IRS will offer no tax return preparation at its walk-in assistance centers and will answer only limited tax law questions over the phone, Olson noted.

Yet with his condescending dismissal of GOP concerns over the Tea Party scandal, and his continuing stonewalling, he has done everything he could to antagonize the folks that set his budget. I’ll believe the IRS needs more money when it stops spending what it has on a “voluntary” preparer regulation regime nobody wants, when it stops using its “scarce” resources to steal cash from small businesses, when it stops giving away millions in cash to ludicrous fraud schemes, and when it stops covering up its harassment of the President’s political opponents. In other words, I’ll believe they are out of money when they don’t have money to spend on dumb things.

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Kay Bell, Tax reform a big factor for mid-term election voters

Peter Reilly, AICPA Wasted Member Dues On IRS Lawsuit. I don’t think it’s wasteful to fight IRS overreach.

Robert D. Flach, FEAR OF CPAs

Keith Fogg, Rare Suspension of Statute of Limitation Due to Continuous Absence from United States (Procedurally Taxing)

David Brunori, Taxing the Internet Is a Bad Idea – As the Hungarians Learned (Tax Analysts Blog)

Howard Gleckman, Will Consumers Come To Love Longevity Annuities? (TaxVox)

TaxProf, The IRS Scandal, Day 545

 

20130110-2RIP, Gordon TullockAn intellectual giant left the scene this week when Gordon Tullock died Monday in Des Moines, where he moved in the past year. It was sadly appropriate that he died just prior to election day, given his aversion to voting.

Gordon Tullock was a father of the “Public Choice” school of economics. The online “Concise Encyclopedia of Economics” explains:

As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns.

A bureaucrat is as human and as selfless, or selfish, as any businessman. This insight helps explain why so many good intentions go awry when they become law.

Dr. Tullock also had important observations on the tendency of powerful interests towards “rent seeking,” whereby the well-connected enrich themselves by to suppressing competitors via regulation and other government intervention.

I met Dr. Tullock once doing tax work for his family, before I understood who he was. He struck me as an absent-minded professor at first, until I realized that he seemed distracted because he was about five steps ahead of me in the discussion. He later sent me an inscribed copy of one of his books, “The Economics of Non-Human Societies.” The inscription said that my profession was described in the chapter beginning on page 47.

The chapter is about termites.

Other Gordon Tullock coverage from Don Boudreaux, Brian Doherty, Bryan Caplan and Tyler CowenFrom Caplan:

While I often disagreed with him, everything he wrote is worth reading.  Start with this excellent compendium.  Unlike many “interdisciplinary” economists, Tullock was a genuine polymath; his knowledge of history was especially impressive.

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Tax Roundup, 11/4/14. Vote. Or don’t. And: Pittsburgh police 1, IRS Agent 0.

Tuesday, November 4th, 2014 by Joe Kristan
Flickr image courtesy Letta Page under Creative Commons license

Flickr image courtesy Letta Page under Creative Commons license

Today is election day. Vote if you think you know what you’re doing.  But ask yourself: do you know, without looking it up, the names of both of your Senators, your congresscritter, your Governor, the President and Vice-President, and can you properly identify their political parties? Can you name the three branches of the Federal government? If not, you should ponder whether you really ought to be doing this.

Jared Walczak, Voters to Consider Tax Ballot Initiatives in Eighteen States Tomorrow. (Tax Policy Blog) That would be today now.

Election days are on Tuesdays, so you can catch a fresh Buzz from Robert D. Flach before you hold your nose and vote. His roundup today includes links to a story about tax initiatives up for a vote around the country, among other good stuff.

 

Peter ReillyWhat If Lois Lerner Was Right About The Tea Party?

 If there is a pretty compelling case that Tea Party Patriots Inc was intended from day 1 to be a political organization, rather than a social welfare organization, would that make any difference in how we view Lois Lerner?

No. “Tea Party Patriots Inc.” was one organization that appropriated the “Tea Party” name, but the Tea Party movement is not any one organization. It was (and is) an amorphous grassroots reaction to the percieved overreach of the Obama administration. Lois Lerner went after a range of groups with “Tea Party” and other words she associated with small government activism– like “constitution.” The IRS held up the applications of those groups, harassing them with improper and ridiculously intrusive questions. Meanwhile, the applications of “progressive” groups flew right on through.

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The issue was never whether Tea Party Patriots Inc. abused tax-exempt status. The issue is whether the IRS discriminated against groups opposed to the Administration. The answer is clearly yes. If you only enforce laws against people you disagree with (and it’s clear she didn’t like the Tea Party), that’s abuse of power.

 

Jason Dinesen, Joe the Window Washer Gets a Reality Check:

For example, here are a few realities Joe will have to face:

  • In Iowa, if Joe cleans windows on commercial property, he has to collect sales tax.

  • He has to file an income tax return.

  • While not necessarily required, it would be good for Joe to talk to an insurance agent about having a business liability policy in case he accidentally damages a customer’s property.

It’s amazing how complicated washing windows can be.

 

Russ Fox, Math Is Hard (Tax Court Edition). When the judge tells you to keep it to 75 pages and you file an 88 page brief, you might as well not file one at all. It saves paper, and you get to the same place.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #8-A Big Break For Home Builders

 

20130426-1Michelle Feit, Failure to File Required International Information Return Suspends Statute of Limitations on Entire Return until the Information Return is Filed (Procedurally Taxing):

Thus, if a taxpayer is required to report on interests in, control over, transfers to, or distributions from foreign accounts, corporations, partnerships, entities or trusts (as provided for in the above-listed sections), the three-year statute of limitations will not start running until the taxpayer submits that foreign information report to the IRS.

And, since March 2010, the extended limitations period generally applies to the entire return applicable to that Taxpayer, not simply to the liabilities associated with the information that was not filed.

It’s not enough to get clobbered with a $10,000 penalty for not filing a return they won’t read. You keep the whole year open indefinitely too.

 

Kay Bell, November tax moves to help you avoid tax turkeys

Jack Townsend, Raoul Weil Found Not Guilty. A high-profile Swiss bank prosecution fails.

 

Jeremy Scott, Is the IRS Office of Professional Responsibility in Decline? (Tax Analysts Blog) “Hawkins’s legacy as OPR chief might end up being defined more for the IRS’s overreach and what she didn’t accomplish than the numerous things she has.”

Mr. Scott’s post does have an error, or at least a badly-worded sentence.  He says:

Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012.

While the Institute for Justice did help the preparers, the implication that it was formed by preparers is incorrect. IJ is a public-interest law firm with a libertarian bent that was around before the preparer case. It continues to do righteous work on behalf of victims of asset forfeiture (including the Arnolds Park  IRS victim) and in battles against regulations that protect existing busiensses from competition.  I support it with my donations, and you can too.

 

Martin Sullivan, Immigration Reform in 2015? We Could Use the Money (Tax Analysts Blog). I don’t think this issue is really about the tax revenue, but if it is, it would be more direct to just sell admission.

 

This will sure attract outside investment. Argentina accuses Procter & Gamble of tax fraud, says suspends operations

TaxProf, The IRS Scandal, Day 544

Revecca Wilkins, New Filing This Week Reveals Apple Continues to Divert Profits to Tax Havens (Tax Justice Blog). In other news, heavy things fall to the floor if you let go of them.

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News from the Profession. Deloitte, Please Stop Trying to Be the Walmart of Professional Services (Adrienne Gonzalez, Caleb Newquist, Going Concern).  I’m not even sure what that would mean. Retired partners offering a friendly greeting at the door?

 

The best and the brightest. Police: Man Arrested For Kicking Heinz Field Barriers, Trying To Bribe Officers (CBS Pittsburgh):

A man was arrested after injuring a woman by kicking a steel barrier at Heinz Field Sunday evening.

According to police, 29-year-old Stephen Sapp was intoxicated at the time of the incident.

According to the criminal complaint, Sapp stated, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”

The officers informed Sapp that he could not attempt to bribe them, but Sapp continued.

“Look, I am an IRS agent and I can help you in other ways if you let me go home and make this go away.”

Was an IRS agent, anyway. (via Instapundit)

 

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Tax Roundup, 10/30/14: Maquoketa! And: I was so upset, I only reported the loss items from my K-1.

Thursday, October 30th, 2014 by Joe Kristan

 

MCSD Cardinal LogoGreetings from Maquoketa, Iowa, home of the Cardinals and the largest cave complex in the state. Today is Day 1 of the second session of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m on the Day 1 panel with Roger McEowen and Kristy Maitre, updating practitioners on 2014 developments and the upcoming ACA reporting nightmares. There is still time to register for the schools in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. Register today!

 

 

Emotional stress can have strange effects. But maybe not that strangeA married couple operated two LLCs as partnerships owned entirely between them. They paid a preparer to put together the 1065s and K-1s. But they apparently figured they could handle things from there, self-preparing the 1040s.

Their son took ill on a foreign trip, and they traveled overseas from October 4, 2011, to November 4. Perhaps as a result, they missed the extended return deadline for 2010 and filed late.  Better late, than never, of course.

There was a small problem with the self-prepared return. The K-1s showed about $129,000 in ordinary losses and $553,000 in long-term capital gains. The losses made it on to the self-prepared 1040s, but the capital gains somehow did not.

The IRS notices that sort of thing, and they assessed the additional tax on the gain, as well as a 20% “accuracy-related penalty” on the underpayment. The case ended up in Tax Court, where the taxpayer pleaded — well, I’m not sure how to describe this. From the Tax Court decision:

Petitioners reported in their 2010 return all of the information reflected in [Husband]‘s K-1 and [Wife]‘s K-1 except for the information relating to “[n]et long-term capital gain (loss)”. At trial, the Court attempted to focus [Husband] on petitioners’ inconsistent reporting in their 2010 return of the information that MMIT reflected in [Husband]‘s K-1 and [Wife]‘s K-1 by asking him about [the preparer’s} September 15, 2011 letters. The following exchange between the Court and [Husband] took place:
THE COURT: Now, what does it mean to you when a letter to you and to your wife says, this information reflects the amounts you need to complete your income tax return?

THE WITNESS: To be truthful, I never read it.

THE COURT: You never read it?

THE WITNESS: Yes.

THE WITNESS: Yes.

That sort of blew the “reliance on the preparer” defense. The taxpayer fell back on emotional trauma:

We consider now petitioners’ contention that [Husband] was so emotionally distraught about his son’s health at the time that he prepared petitioners’ 2010 return that he was unable to prepare that return properly. We are sympathetic that petitioners’ son was experiencing certain medical problems around the time petitioners’ 2010 return was due and that petitioners were seriously concerned about their son’s health. Nonetheless, on the record before us, we find that petitioners have failed to carry their burden…

 Indeed, petitioners reported in their 2010 return, which [Husband] prepared, all of the information reflected in [Husband]‘s K-1 and [Wife]‘s K-1 except for the information relating to “[n]et long-term capital gain (loss)”.

Adding the income lines to the 1040 after having to deal with a seriously ill son overseas would seem like emotional piling-on, but that means nothing to the tax law.

The Moral? As traumatic  as reporting a K-1 capital gain may be, you have to report what’s there. And maybe if your tax situation is complex enough to require hired help to prepare your pass-through returns, you might want to spring to have the preparer handle the 1040 too. The fee surely would have been less than the $12,000 penalty.

Cite: Singhal, T.C. Summ. Op. 2014-102

 

Kyle Pomerleau, Most of the Private Sector Workforce is Employed by Pass-through Businesses (Tax Policy Blog):

In the past three decades, the importance of “pass-through” businesses has grown substantially. The combined net income of sole proprietors, LLCs, Partnerships, and S corporations has increased fivefold and now accounts for more than 50 percent of all business income. C corporations now earn less than half of all business income.

Pass Through Employment by state

It you jack up taxes on “the rich,” you jack up taxes on employers. If you tax something more, you get less of it.

 

Friday is Thursday this week at Robert D. Flach’s place – with an early Buzz covering the AICPA’s loss on its suit against the “voluntary” IRS preparer program and on IRS cash seizures.

Kay Bell, Voters get their say Nov. 4 on myriad ballot initiatives

Peter Reilly, Government Coming Down Harder On Kent Hovind. Bad science isn’t a tax crime.

Joseph Thorndike, Can Jeb Bush Save Conservatism by Compromising It? (Tax Analysts Blog). If recent polls are any indication, having their opponents in power seems to be “saving” conservatism already.

Steve Warnhoff, Senator Rob Portman: Case Study in Radical, Rightwing Arguments for Slashing Corporate Taxes (Tax Justice Blog). Remember, TJB is part of Citizens for Tax Justice, a “non-partisan” exempt organization.

 

taxanalystslogoCara Griffith, Benefit Corporations: The Corporate Entity of the Future? (Tax Analysts Blog):

Those who shop at Patagonia or Etsy are likely aware of a new type of business entity that is growing in popularity. These companies and a thousand more have chosen to organize as either B corporations or benefit corporations…

 Still, the number of benefit corporations is relatively small. The reason for this is – ironically – a lack of benefits. Benefit corporations are not given tax, incentive, or procurement preferences by state or federal lawmakers. While nonprofits receive substantial benefits for their chosen entity type, benefit corporations receive no such benefits. They are taxed like c corporations – at least for now. 

This is new to me. A business structure built around moral vanity seems implausible to me, but I’ve never shopped Etsy.

 

TaxProf, The IRS Scandal, Day 539.

 

News from the Profession. Let’s Talk About Creative Accounting Themed Halloween Costumes (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/24/14: IRS attorney says revolving door spins away billions. And: pass-through isn’t always small.

Friday, October 24th, 2014 by Joe Kristan

20130129-1Taxes are for the little people without connections. A sensational open letter to the top Treasury tax brass from an IRS attorney alleges that the agency routinely shuts off promising examinations of big well-connected taxpayers. From Raw Story (via the TaxProf):

In a letter to Treasury Secretary Jacob Lew, IRS commissioner John A. Koskinen, and IRS chief counsel William Wilkins, Jane J. Kim, an attorney in the IRS Office of the Chief Counsel in New York, accused IRS executives of “deliberately” facilitating multi-billion dollar tax giveaways. The letter, dated October 19, will add further pressure on the agency, which is under fire for allegedly targeting conservative and Tea Party groups.

The letter describes three cases where Ms. Kim says the IRS walked away from large well-founded assessments of big corporate taxpayers raised by whistleblowers. The story implicates the revolving door between big law and accounting firms and the top levels of the IRS as a key to the strange taxpayer friendliness.

Bill Henck, who has worked for over 26 years in the IRS Office of the Chief Counsel, agreed. “The senior executives drive the train on all this and pal around with lobbyists,” he said. “Treasury was involved with both the Elmer’s Glue scam and the black liquor taxability issue. IRS executives look out for themselves, which usually means protecting corporate interests, since they hire lobbyists and are close to politicians.”

Backing up Henck’s concerns, the private sector lawyer and ex-IRS attorney explained that since 1998, IRS restructuring has focused on bringing in “outside people.” This led to the employment of an extra layer of executives who were previously “partners from big accounting firms.” Citing active IRS criminal agents, the ex-IRS attorney said: “Almost every large firm or corporation has a person inside the IRS. It’s a revolving door, with the top two or three management layers all from big accounting and law firms, and this is why they won’t work big billion-dollar cases criminally. Private bar attorneys are, in effect, controlling the IRS. It’s a type of corruption – that’s the word used by one IRS agent I’m in touch with whose case was shut down by higher ups without cause.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

That brings to mind Commissioner Koskinen’s view of the revolving door:

So I’ve always said the best testimonial to a good place to work is people are forever coming in and trying to steal your people. And so I would be delighted to have young people come here for two or three years and some of them get recruited away because they were so good and the training is so good, because the more of that that happens, the more people are going to stand in line to get here. And as I say, the experience is, because it would be a great place to work, is the capture rate would be terrific.

So the Commissioner thinks the revolving door is a good thing. That probably means Ms. Kim’s letter isn’t exactly going to trigger reforming zeal from Mr. Koskinen. And don’t expect that you can skip out on taxes without your own mole in the IRS, chump.

 

 

Robert D. Flach has your fresh Friday Buzz! Including depressing news that Congresscritters are going to wait until January 2015 to enact the tax laws for 2014.

Kay Bell, Some retirement plan contribution, AGI limits go up in 2015

Brett Bloom, Dismantling a Partnership: The IRS’s Toolbox (Tax Litigation Survey)

William Perez, How to Plan for, Minimize, and Report the Self-Employment Tax

TaxGrrrl, IRS Gets Big Win In Court As Judge Dismisses Tea Party Targeting Cases

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

TaxProf, The IRS Scandal, Day 533

 

Kyle PomerleauPass-Through Businesses are not Always Small Businesses (Tax Policy Blog). This article is a good read for anyone who thinks increases in top rates don’t hurt business because most pass-throughs are small. While that may be true, there a lots of large ones:

Compared to c corporations, pass-through businesses are still much smaller on average. The same Census data shows that 1.6 percent of corporate businesses employ 100 or more employees and 0.36 percent employ 500 or more employees. 44 percent employ between 1 and 100 employees.

However, in absolute terms, there are about as many pass-through businesses with 500 or more employees than there are traditional c corporations. According to the Census, there are approximately 9573 pass-through businesses with 500 or more employees and 9434 c corporations with 500 or more employees.

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Source: Tax Foundation

So when you increase taxes on high-income individuals, you are also increasing taxes on employers, which isn’t likely to do good things for employment.

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Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog) Other countries just might want to poke into foreign accounts the way we do.

Howard Gleckman, Why Tax Lawyers and Tax Economists Can’t Communicate (TaxVox)

 Megan McArdle,  Can’t Afford a House? Don’t Buy One. Wise advice, but politicians think we should have a program to buy a pony for everyone.

Tax Justice Blog asks What Horrors Await Us in Congress after the Election?  And will they be better or worse horrors than the current bunch of congresscritters?

 

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Tax Roundup, 10/23/14: Iowa Tax Crime Edition. And: USPS > Stamps.com, in Tax Court.

Thursday, October 23rd, 2014 by Joe Kristan

Tax crime happens in Iowa too. While Iowa doesn’t seem to get the same attention from tax prosecutors as some other places, tax evasion can get Iowans the same prison time as anyone else. Two Iowa entrepreneurs are learning that lesson now.

Via Wikipedia

Via Wikipedia

The operator of a venerable Des Moines pharmacy and soda fountain apparently will plead guilty to tax evasion on charges arising out of back-door sales of hydrocodone pills, according to reports.  The Des Moines Register article on the plea deal provides insight on how the charges against pharmacist Mark Graziano came about, and on the inherent dangers of tax crime:

The allegations came to light after admitted drug user Kirby Small called state regulators in 2011 and told them Graziano and Enloe were selling wholesale quantities of hydrocodone pills out of Bauder’s back door. State agents raided the business in 2012, and the Iowa Board of Pharmacy filed administrative charges against Graziano and the pharmacy. Federal officials filed criminal charges last spring.

Small, in an interview Tuesday, said that he called the pharmacy board because he was angry at Enloe, who had been a longtime friend. Enloe and Graziano had been selling Small pills, but cut him off over money issues, Small said. Then Enloe called Small’s probation officer and said that Small had been taking drugs, Small said. So Small decided to get back at them.

“You call the cops on an east-sider, what do you expect?” he said, chuckling.

The pharmacy is on the west side, for the record.

Tax crimes by businesses are almost impossible to commit without somebody besides the perpetrator finding out. Those who pay employees in cash to avoid payroll taxes create a potential informant with every new hire. Those who ask for cash payment for sales, as illegal drug sellers normally do, create a potential informant with every new customer. And if the customer falls behind on payments, it is unwise for someone committing crimes to summon the authorities.

The reports say Mr. Graziano is likely to receive a 24-37 month sentence.

 

20141023-1Stripped-down gross incomeA Northwest Iowa entrepreneur will go to prison for 33 months on charges of evading over $214,000 in taxes, reports the Sioux Falls Argus Leader:

Veronica Fairchild, 42, collected $1.1 million between 2005 and 2008, mostly from a wealthy client named David Karlen.

She declared only 45 percent of that money as income on her tax returns for those years, which she didn’t file until 2010. The remaining $643,648 was declared as a gift.

At her trial in June, Karlen testified that he’d paid Fairchild to dance, and later for sex. He claimed to have paid between $1,000 and $5,000 for a variety of sexual acts.

Ms. Fairchild, who reportedly owns a strip club in Okoboji, Iowa, denies sleeping with Mr. Karlen:

She said Karlen invented the stories about sexual encounters to cover for his failure to pay taxes on the monetary gifts.

The jury apparently concluded that that payments were for something other than disinterested generousity.

 

On the lighter sidethe usual suspects showed up at a Des Moines Burger King to protest the Kingdom’s proposed merger with Canadian donut empire Tim Hortons. The Des Moines Register reports:

About 15 Iowans rallied outside of a Des Moines Burger King Tuesday to protest the company’s plans to move its headquarters to Canada.

“About” 15? For a crowd that size, I think greater precision is possible. It would have been about 16 if Ed Fallon weren’t traveling. If you missed the rally, you can show your support by asking for large fries with your next Whopper.

 

20130415-1USPS > Stamps.comThe Tax Court ruled against a man who used Stamps.com on March 3 to buy postage to mail his Tax Court Petition on the March 3 filing deadline. The postal service postmark was March 4, and the court said that was the controlling date.  From the case:

In support of his argument petitioner provided a statement by the third party who prepared the petition for mailing and then delivered it to the post office. In her statement the third party describes how on Monday, March 3, 2014, after being “given documents to mail”, she printed postage using Stamps.com software, added extra postage for certified mail, and then took the petition to the U.S. Post Office in Bountiful, Utah, for deposit into the mail. The third party candidly states that in order to “avoid[ ] the long lines” at the post office, she dropped the petition off without having a certified mail receipt stamped by a Postal Service employee and that as a consequence “the sender has no documentation showing * * * [the post office] received the certified package” on March 3, 2014.

The moral? When your down to a mailing deadline, take no shortcuts. Go Certified Mail, Return Receipt Requested, and get the hand-stampted postmark — even if you have to wait in line.  If the line is really too long, use a Designated Private Delivery Service and get a timely shipping receipt. I bet the “third party” wishes she had done so.

Cite: Sanchez, T.C. Memo 2014-223.

 

Joseph Thorndike, What if Congress Raised Taxes and Nobody Cared – Or Even Noticed? (Tax Analysts Blog). I think Joseph is operating from a false premise:

In 2011 and 2012, Congress cut the Social Security payroll tax by two points. More specifically, lawmakers reduced the portion of the tax levied on employees from 6.2 percent of taxable wages to 4.2 percent. (The portion paid by employers remained at 6.2 percent; most economists believe that this other half of the tax is also ultimately borne by workers in the form of lower wages.)

The payroll tax cut was explicitly designed to be temporary – a one-year shot in the arm for the struggling economy. After a year, lawmakers agreed to extend the cut for another 12 months. But on January 1, 2013, the payroll cut expired, and workers began paying the full 6.2 percent again.

And hardly anybody noticed.

Trust me, people noticed. I got the phone calls.

 

20141023-2Robert D. Flach, THIS JUST IN – SOCIAL SECURITY COLA INCREASE FOR 2015

Me, FICA Max increases to $118,500 for 2015

Jason Dinesen, Meet Joe the Window Washer. Joe will be used for life lessons in small business tax compliance.

Jack Townsend, Blog on the Disqualification of Some Canadian “Snowbirds” from Streamlined Treatment

 

Cara Griffith, Drop Shipping Is Popular With Retailers, but Can Create Tax Challenges (Tax Analysts Blog). “From a sales and use tax perspective, if the retailer has nexus with a particular state or is voluntarily registered in the state where the sale took place, the retailer is required to collect sales tax on the transaction with the customer. Conversely, if neither the retailer nor the shipper has nexus with the state in which the sale took place, neither can be required to collect sales tax.”

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

 

TaxProf, The IRS Scandal, Day 532

Richard Phillips, New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs (Tax Justice Blog) Not to defend the movie (which Peter Reilly watched so I don’t have to), but it’s not always easy to portray the IRS as, say, unicorn nurses.

Career Corner. Let’s End the Big 4 or Bust Myth Once and For All (Tony Nitti, Going Concern)

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Tax Roundup, 10/21/14: Gander gets sauced! And: IRS Commissioner’s prophecy of tax season doom.

Tuesday, October 21st, 2014 by Joe Kristan
Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

Gander, Meet Sauce. An alert reader points out something wonderful I had missed — a ruling awarding attorney fees and costs of $257,885 to the return preparers who successfully challenged the IRS preparer regulations. It’s a rare and welcome example of the IRS being held accountable for being unreasonable with taxpayers. And the court said the IRS was being unreasonable (all emphasis mine; some citations omitted):

In the present case, the reasonableness of the government’s position can be measured by the familiar guideposts of statutory interpretation: text, legislative history, statutory context, and congressional intent. In each of those dimensions, the interpretation of § 331(a)(1) advocated by the government was deficient. Indeed, on several key points, such as the proper meaning of the word “representatives,” the IRS offered no support whatever for its interpretation. The Court therefore finds that the government’s position was not substantially justified.

Losing the battle over whether its position was justified, the IRS dipped into its seemingly bottomless supply of chutzpah to challenge the amount:

As an initial salvo, the IRS argues that it was unreasonable and excessive for Plaintiffs to request compensation for over 1,700 hours spent advocating an interpretation of the statute that Plaintiffs themselves contend is obvious.

Our position was reasonable! OK, it was so unreasonable that even a cave man could litigate against it!

The Court declines the IRS’s request for across-the-board cuts to Plaintiffs’ award. The choice of a hatchet is particularly inappropriate here for several reasons. First and foremost, Plaintiffs prevailed at every stage of this litigation and achieved the entirety of their requested relief. Degree of success is “the most critical factor” in evaluating the reasonableness of a fee award.  Second, the IRS understates the complexity of this case. To be sure, this Court and the D.C. Circuit both concluded that Plaintiffs’ was the only reasonable interpretation of 31 U.S.C. § 330(a)(1). That conclusion, however, was apparent largely as a result of Plaintiffs’ thorough research and well-reasoned briefs.

Hah.

The only thing that would make it better would be if the IRS were assessed a penalty for taking a frivolous or negligent position. Maybe someday. But congratulations to the plaintiffs and the Institute for Justice for pulling off a legal end-zone dance.

 


Cite: Loving, Civil Action No. 12-385 (DC-District of Columbia)

And if you think that preparers can now do whatever they please, read Tax preparation business owner sentenced for tax fraud:

Charles Lee Harrison has been ordered to federal prison following his conviction of willfully aiding and assisting in the preparation and presentation of a false tax return, announced United States Attorney Kenneth Magidson along with Lucy Cruz, special agent in charge of Internal Revenue Service – Criminal Investigation (IRS-CI). Harrison, the owner of a tax preparation business in Houston and Navasota, pleaded guilty June 16, 2014.

Today, U.S. District Judge Lynn N. Hughes, who accepted the guilty plea, handed Harrison a 36-month sentence to be immediately followed by one year of supervised release. He was further ordered to pay $396,057 in restitution.

I’m confident Mr. Harrison feels quite regulated at the moment.

 

Oh, Goody. “So we have right now probably the most complicated filing season before us that we’ve had in a long time, if ever. ”

-IRS Commissioner John Koskinen in an interview with Tax Analysts October 17 ($link)

The Commissioner also had an interesting idea for large partnerships ($link):

Our position is the most significant thing we can do to break that bottleneck — and I think it’s supported by a lot of people in the private sector — would be to say we need to amend [the 1982 Tax Equity and Fiscal Responsibility Act] and say we can audit a partnership,” Koskinen said. “And when we make an adjustment to the tax quantities, the partnership will absorb that that year,” he said, adding that the reporting would take place on the partnership’s Schedule K-1 for that year and the adjustment would automatically flow through to the partners.

Koskinen added that even though that statutory change would effectively shift the tax liability from those who were partners in the year under audit (and who benefited from the improper tax position) to the current partners, “that happens with mutual funds all the time. . . . People are used to buying and selling investments, recognizing whatever the tax and investment situation is.

Maybe that makes some sense for large partnerships, but it would be horrible for small ones, as anybody buying a partnership interest would also be buying three open years of audit exposure.

 

buzz20140923It’s Tuesday. That means Robert D. Flach is Buzzing with links from around the tax world!

Jason Dinesen, Iowa Tax Filing Deadline is October 31: Claim Your $54 Credit Before Then

Paul Neiffer, Will ACA Require You To Include Health Insurance as Wages. Spoiler: no.

Matt McKinney, Can I force my Iowa corporation to buy my stock? (IowaBiz.com). A common question from minority owners of closely-held corporations.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #10 – IRA and Qualified Plan Rollovers Are More Treacherous Than You Realize.

TaxGrrrl, Suspected Nazi War Criminals Collected Millions In Social Security Benefits After Fleeing The U.S.

William Perez, Payroll Taxes: A Primer for Employers

Peter Reilly, Taxpayer Barred From Communicating With CPA Still Hit With Late File Penalty. Weird and unjust.

Kay Bell, Jury doesn’t buy ‘vow of poverty’ as excuse for not filing taxes. Well, this tax evasion conviction will help the defendant fulfill the vow.

 

 

20141021-1Martin Sullivan, A Double Bias Against Infrastructure (Tax Analysts Blog)  He doesn’t mention the biggest problem: When most of government spending is just transfers from some taxpayers to others, it squeezes out everything else.

Donald Marron, A “Normal” Budget Isn’t Really Normal (TaxVox): “From 1975 to today, the federal debt swelled from less than 25 percent of GDP to more than 70 percent. I don’t think many people would view that as normal. Or maybe it is normal, but not in a good way.”

TaxProf, The IRS Scandal, Day 530

 

News from the Profession. AICPA Seeks to Better Weed Out Losers, Misfits with Evolved CPA Exam (Adrienne Gonzalez, Going Concern). Good thing I passed the exam before this development.

 

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Tax Roundup, 10/20/14: Extension season is over. Now what? And: do your part for Boeing!

Monday, October 20th, 2014 by Joe Kristan

We are now in the sweet spot of the tax year. We are done with extended 1040s, and it’s too early to get most people to do year-end tax planning. That’s why this is the continuing education season for most of us.

The Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax Schools begin next week. I will be speaking on the Day 1 program for all schools, starting October 28 in Waterloo, Iowa. Tour stops also include Maquoketa, Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. Who said public accounting lacks glamour?

Now to get those slides prepared…

 

Government is just a word for things we do together. Like subsidizing big corporations. Using information from Good Jobs First, Veronique de Rugy of the Mercatus Institute provides a chart of the biggest known recipients of state subsidies:

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Meanwhile, everyone else pays a little higher tax rate to grease Boeing’s landing gear. I believe that the damage caused to the taxpayers who don’t get these subsidies makes losers out of the states that win tax incentive bidding wars.

 

20140805-3Kay Bell, 2014 tax planning starts with your tax bracket

Annette Nellen, Premium Tax Credit Problems, “This is a big deal because the PTC serves to help make health insurance affordable to individuals with income between 100% and 400% of the federal poverty line.”

TaxGrrrl, Apple Seeds Perk Wars, Adds Egg Freezing As Employee Benefit.  Is that a tax-free benefit? It makes me wonder about their work-life balance.

Peter Reilly, UnFair: Exposing The IRS – Does Not Make Strong Case Or Decent Documentary. Peter watched the movie so you don’t have to.

Tax Trials, Tax Court Preserves Taxpayer Protections against Arbitrary and Capricious Appeals Rulings

Russ Fox, Copying Steven Martinez’s Idea Is Not a Good Choice. If you think you need to murder nine witnesses to stay out of jail, you probably won’t stay out of jail.

 

 

The Tax Prof reports that Linda Beale will resume tax blogging after going off the air as a result of the death of her husband. My condolences to Linda and her family.

Jim Maule, Putting the Brakes on Tax Breaks. “Never do indirectly through taxes what can and should be done directly.”

 

Andrew Lundeen, Most Common Jobs by Income Bracket (Tax Policy Blog). The professions do well.

Richard Auxier, Ahead of the Midterms, State Economic Trends Present Mixed Signals (TaxVox). “A September Pew Research poll found that while Americans’ assessment of job opportunities had improved, 56 percent reported their family’s income was falling behind the cost of living.”

 

TaxProf, The IRS Scandal, Day 529

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Quotable. Tax Analysts David Brunori  on a proposed film credit for the music industry in New York ($link):

Like their film equivalents, tax breaks for musicians are bad tax policy. Even if music producers were swayed by taxes, those breaks would be bad policy. Why musicians? Why not cab drivers? Orthodontists? Flamenco dancers? New York lawmakers, many of whom wanted to be Billy Joel growing up, will probably say yes to this terrible idea.

While I have a rooting interest in the music industry, the tax credit idea is awful.

 

News from the Profession. Let’s Watch This Audit Senior Quit His Job in the Most Fabulous Way (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/14/14: Iowa tax credits expected to pay out $361 million this year. And: Fix FBAR!

Tuesday, October 14th, 2014 by Joe Kristan

Extended 1040s are due tomorrow!

 

20120906-1$521 million for the well-connected and well lobbied. The Des Moines Register reports on a new set of estimates from the Iowa Department of Revenue:

Iowa would have to pay about a half-billion dollars for tax credits during a 12-month period should every recipient come to the table asking for their awards.

The state has a tax credit liability of $462 million for the 2015 fiscal year, which started July 1 and runs until June 30, 2015, according to an Iowa Department of Revenue report.

For the 2016 fiscal year, the state’s tax credit liability is expected to hit $521.2 million.

But it’s not so bad as all that:

The Revenue Department said it only expects $361.4 million worth of tax credits to be claimed in fiscal 2015 and $402.8 million to be claimed in fiscal 2016.

Compare the $361 million in expected tax credit giveaways to expected receipts, net of refunds, from the entire Iowa corporation income tax in fiscal 2015 of $413.5 million. A good chunk of this is actually in the form of cash grants via the Iowa research credit. Iowa persists in giving these away even though a commission tasked with finding out whether they do any good was unable to say they were worth anything.

Iowa couples its regime of special favors for special political friends with high individual rates, and the highest corporation tax rate in the U.S., for those of us lacking lobbyists or state house connections.  Far better to slash individual rates, get rid of the near-worthless corporation income tax, strip out loopholes and deductions, and make everybody’s tax life easier.  It’s time for The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

passportAllison ChristiansPaperwork and Punishment: It’s Time to Fix FBAR (Tax Analysts, Via the TaxProf). A righteous takedown of one of the worst features of an awful tax law:

The FBAR penalty structure is harsh at best and tremendouosly unfair at worst. An FBAR failure or mistake attracts a one-size-fits-all punishment, which rapidly escalates according to a formula that is known only to the IRS. The instructions claim that a taxpayer can avoid penalties by showing a “reasonable cause,” but they also state that a “non-willful” mistake or failure carries a $10,000 penalty, regardless of the amount of money actually at stake…

It cannot be noted without irony that for a regime created to catch hard-core financial criminals, FBAR now criminalizes something we would hardly consider a serious crime — namely a paperwork mistake.

It’s IRS policy to shoot the jaywalkers so they can slap the real international financial criminals on the wrists.  Read the whole thing.

 

Paul Neiffer reminds us that you have Less Than Two Full Days to Get Your Return Filed

It’s a quiet Buzz day at Robert D. Flach’s place. 

Kay Bell, Federal holiday effects on federal taxes,

Stephen Olson has the Summary Opinions for 10/03/14, rounding up developments in tax procedure at Procedurally Taxing.

 

20121022-1TaxProf, The IRS Scandal, Day 523

Me, The C corporation dilemma and how not to solve it. My latest at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog. I discuss the C corporation double-tax, and a failed effort to solve the problem with a “midco transaction” in advance of a sale of the business.

 

How is that even possible? District Court Sets The Bar Lower For Accountants Than Attorneys (Peter Reilly)

News from the Profession. Center for Audit Quality Managed to Find Some People Confident in Audits (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

20141013-1

TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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Tax Roundup, 10/10/14: Tax Court: consolidated return, consolidated determination of professional corporation status. And more!

Friday, October 10th, 2014 by Joe Kristan

20120511-2

Accounting Today visitors, click here for the pile of clothes.

Professional Services Corporation in consolidated return not subjected to flat rate tax. When a professional business – law, medicine, consulting, engineering, architecture, actuarial science, performing arts, or accounting – is operated as a C corporation, the “professional service corporation” rules tax its income at a flat 35%. It is denied the use of the 15, 25 and 34% brackets otherwise available.

A corporation is a Qualified Personal Service Corporation (QPSC) subject to the flat 35% rate if it passes (or fails, depending on how you look at it) two tests:

– Substantially all of its activities involve the performance of personal services, and

– 95% of the shares are held by employees who performed such services.

An engineer and his wife operated an engineering practice in a C corporation. This C corporation owned 100% of the stock of a ranching business. The tax law allows C corporation parent corporations to file consolidated returns with their subsidiaries, reporting all of the income on one return. On a consolidated bases, the ranch activity caused the company to not have “substantially all” of its activities involve performing personal services.  As a result, it filed its return using the lower brackets.

The IRS came in with a novel argument. It said the QPSC tests had to be applied separately to each group member — not to the consolidated return as a whole. On that basis, the engineering business would have to pay up its taxes at a flat 35% rate. Tax Court Judge Jacobs explains:

Respondent asserts that where one member of an affiliated group is a qualified personal service corporation and another is not, the consolidated taxable income of the affiliated group must be broken up into two separate baskets. Respondent argues that section 448 requires that the determination as to whether a corporation is a qualified personal service corporation is to be made at the entity level, not at the level of the affiliated group. Further, respondent posits that the Code provides for treating qualified personal service corporate members of an affiliated group differently from other members.

The Tax Court decided that the tax law fails to support the IRS here:

Although section 448(d)(4) provides special rules by which members of an affiliated group may determine their status as a qualified personal service corporation in electing whether to use the cash method of accounting, it provides no illumination as to the rate of tax to be applied to the consolidated taxable income of the entire group. Nor does section 448(d)(4) provide support for the proposition that the consolidated taxable income of an affiliated group is to be broken up into separate baskets.

The court also found that the consolidated return regulations don’t provide for a breakout of QPSC income from other income:

In computing the proper tax liability of an affiliated group, we begin with section 1.1502-2, Income Tax Regs. Section 1.1502-2(a), Income Tax Regs., does not distinguish between taxable income under section 11(b)(1) and (2), and we find no authority to permit the breakup of an affiliated group’s consolidated taxable income into separate baskets. We look to the affiliated group as a whole, i.e., the entity which generated the consolidated taxable income, to determine the characterization of the consolidated taxable income. And in this regard, the parties agree that, when viewed as a whole, Applied Research’s affiliated group is not a qualified personal service corporation.

To conclude, we hold that in the situation involved herein, graduated rates set forth in section 11(b)(1) should be applied to the affiliated group’s consolidated taxable income. I

I’m surprised the IRS even made this argument. To me, it doesn’t even seem like a close issue. It’s the sort of assertion the IRS can make without risk, because it isn’t subject to the same penalties for taking unsupported positions that apply to taxpayers. A sauce for the gander rule, allowing taxpayers to collect the same penalties for bad positions asserted by IRS that they can assert against taxpayers, is overdue.

Cite: Applied Research Associates, Inc., 143 T.C. No. 17.

 

 

20120906-1Yes, Smith’s tax break does take money out of Jones’s pocketFans of corporate welfare tax credits sometimes argue that nobody gets hurt when a favored business gets a sweetheart deal. But their competitors who don’t get the sweet deal may not agree. An Iowa City grocer sure doesn’t:

New Pioneer Food Co-op is crying foul over the idea of the city of Iowa City providing $1.75 million in tax-increment financing assistance to attract a national grocery chain.

New Pioneer’s board of directors sent a letter to the Iowa City Council’s Economic Development Committee this week saying that using TIF money to bring an out-of-state company to Iowa City would hurt local grocers.

These tax breaks — like the state income tax credits the Governor likes to hand out — take money from existing taxpayers to lure and subsidize their competitors — a point not lost New Pioneer:

New Pioneer’s board said if the city were to approve the TIF assistance, it would be at the expense of existing local businesses that would lose customers and be essentially subsidizing a competitor with their tax dollars.

“The market for groceries in the Johnson County area is fixed, and already very competitive,” the board said in its letter. “Bringing in an additional competitor in this category will not drive economic development in the city. It will not increase the size of the market, nor will it increase employment in Johnson County since one or more other stores likely will be forced to eliminate jobs to match their reduced market shares.”

But that’s no concern of the politicians handing out the breaks:

[Iowa City Economic Development Administrator] Davidson said although he respects New Pioneer’s perspective, it’s appropriate for the city to get involved because the project would have a significant impact on the taxable value of the Iowa City Marketplace and properties in the surrounding commercial district.

In other words, screw you guys who are already here paying taxes. We want to give away your money because we think it will enable us to collect more somewhere else in town.

 

buzz20140905Fresh Friday Buzzfrom Robert D. Flach, including word on the upcoming extender train wreck.

Paul Neiffer, Time Running Out on Late Portability Elections. If a taxpayer wants to carry over a deceased spouse’s unused estate tax exclusion, they have to file an election by December 31 for deaths in 2012 or 2013.  This filing requirement is, of course, stupid.

Kay Bell, Tax extenders delay could delay 2015 filing season

Jason Dinesen, Move Up the W-2 Filing Deadline to Combat ID Theft? “Moving up the W-2 deadline should be done and it might be a partial fix to the problem of identity theft … but it’s one piece of a solution, not a cure-all.”

Peter Reilly, Teresa Giudice’s Surprise Sentence And Possible Better Ways To Motivate Compliance. “What I found interesting in this piece by Kelly Phillips Erb was that Ms. Giudice was surprised when she was sentenced to some prison time.”  Me too.

TaxGrrrl has more guest posts: “Tisha,” Giving Up Citizenship Because Of Taxes; and Matthew Litz, The Inverted Talk About Tax Inversions — They’ve Got it All Upside-Down.

Keith Fogg, Unrecorded Conveyances and the Attachment of the Federal Tax Lien or Innocent Spouse Once Removed (Procedurally Taxing)

 

A map of per-return Iowa Earned Income Credit by Iowa School District, courtesy  Iowa Taxpayers Association and the Legislative Services Agency:

Iowa EITC map

Click image for full-size map.

 

TaxProf, The IRS Scandal, Day 519

Andrew Lundeen, The Tax Code Isn’t Good at Fighting Inequality (Tax Policy Blog):

A recent article on Vox, How Sweden Fights Inequality—Without Soaking the Rich, notes that countries with the most success in fighting inequality do not have highly progressive tax systems, such as the United States’ tax code.

Inequality is just something our politicians use as a distraction from their own failure to improve the lot of the poor.

 

News from the Profession. Deloitte So Desperate to Populate Its LinkedIn Group They’ve Resorted to Bribery (Adrienne Gonzalez, Going Concern). So where’s my bribe?

 

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Tax Roundup, 10/7/14: Sweet pursuit of Tax Fairy turns sour. And: shut up and get used to FATCA!

Tuesday, October 7th, 2014 by Joe Kristan

tax fairy

Isaac Brock visitors: here is a direct link to what you are looking for.

Not so sweet.  A business owner who turned to a man associated with the JoY Foundation “pure trust” scam in pursuit of the Tax Fairy may be regretting his choice of tax advisors after a bad day in Tax Court yesterday.

The taxpayer had an apparently successful S corporation, Specific Enterprises, specializing in cabinet doors.  In 2002, Mr. Joseph Sweet came up with a cunning plan, starting with a liquidation of Specific Enterprises.  Tax Court Judge Nega takes up the story (footnotes and citations omitted, emphasis added):

On December 3, 2002, an entity called RCC Capital Group (RCC) was formed that purported to be a “PRIVATE, NON-STATUTORY, NON-ASSOCIATED, CONTRACTUAL PURE TRUST (CPT)”…

On January 2, 2003, petitioner and RCC entered into an “Asset Purchase Option Contract” (drafted by petitioner) where petitioner purported to grant RCC options to purchase petitioner’s factory building, the land upon which it was located, and equipment. The exercise price for the contract was $1,650,000, and petitioner accepted $21 (presumably the same $21 conveyed to RCC by Brad R. Scott) plus two promissory notes valued at $700,000 and $950,000 in full consideration of the deal. The contract was also contingent upon a separate rental contract, the “Facility Production Contract”, between RCC and Cabinet Door Shop for Cabinet Door Shop’s use of the factory building, land, and equipment… At the behest of petitioner, RCC did not file income tax returns.

Pursuant to the “Facility Production Contract”, dated January 3, 2003, Cabinet Door Shop made total rental payments of $273,000 and $126,000 to RCC for 2003 and 2004, respectively, although RCC did not exercise the option to purchase the factory building, land, and equipment from petitioner until some time around March 10, 2004. After receiving these rental payments RCC made total payments to petitioner in the exact same amounts: $273,000 in 2003 and $126,000 in 2004.

In 2003 as part of a separate transaction Cabinet Door Shop made monthly installment payments to petitioner totaling $80,798 for the sale of inventory.

“Pure trusts” are a hackneyed and worthless tax scheme that retains a following among tax deniers. The IRS naturally didn’t like the way this stuff was reported, assessing tax on the sale of inventory and sticking the taxpayer with the income earned in the “pure trust.”  First, the inventory:

Petitioner has not provided any facts or details that permit a reasonable estimate of his basis in the inventory. Although petitioner provided respondent with his personal tax returns and tax returns for Specific Enterprises one day before trial, these returns are mere admissions; and we are unwilling to attach significance to them in the absence of corroborating evidence as to petitioner’s basis in his assets. The record does not establish the cost basis of the inventory. The record indicates only that Cabinet Door Shop paid $80,798 to petitioner for the inventory…  Because petitioner has not provided any pertinent information that would help us estimate his basis in the inventory, the Cohan rule does not apply. Consequently, the entire amount paid by Cabinet Door Shop for petitioner’s inventory is includable in petitioner’s gross income for the 2003 taxable year.

A self-inflicted wound. Surely the taxpayer had basis in the inventory, but apparently he didn’t take the Tax Court proceeding seriously enough to document it.

The “pure trust” fared no better, with all of the “rental payments” received by the trust taxed to the taxpayer instead.  The IRS also won 25% penalties for non-filing of returns for 2003 and 2004.

It’s interesting that no tax is assessed for 2002, the year the corporation was liquidated — a corporate liquidation would normally have triggered a lot of tax. I assume the omission of 2002 from the case implies that a return was filed, starting the statute of limitations, though the Tax Court decision doesn’t confirm this. Considering the whole thing was done to start a tax avoidance scheme, it would seem strange for the gain to be properly reported.

The Moral: Beware of trust schemes that say they make your taxes go away. They are just Sweet nothings. If the Tax Court wants you to document something, don’t give them the information the day before trial. And there is no Tax Fairy.

Cite: Wheeler, T.C. Memo. 2014-204

 

No-longer-Acting IRS Commissioner Steven Miller

No-longer-Acting IRS Commissioner Steven Miller

Worst Acting Commissioner Ever says FATCA may not be worth it, but it’s here to stayTax Analysts reports ($link) on a speech by Steve Miller, who was Acting IRS Commissioner when the Lois Lerner scandal broke. He says that while the FATCA offshore disclosure bill may not be worth its cost, it shouldn’t go away:

“I can’t even say with conviction that I’m sure, looking strictly on a cost-benefit basis, that FATCA’s . . . benefits are going to outweigh the cost,” Miller told a lunch crowd at the Securities Industry and Financial Markets Association FATCA Policy Symposium in Washington. “It’s not clear to me that when you look solely at the burden placed on financial institutions and others, versus the amount of revenue that may come into the treasury, that this is going to be a revenue-positive event for the United States.”

And despite the fervent wishes of some in the finance industry, FATCA is here to stay, said Miller, now national director of tax for Alliantgroup. “I don’t see a repeal in the cards,” he said. “FATCA . . . is tied inextricably to offshore evasion work, and that has to be kept in mind as you talk about repeal, as you talk about changes.”

In case you’re wondering, Alliantgroup is a tax consulting company that specializes in tax code complexity exploitation via services like research credit studies.

Miller said he recognized “that the folks in this room are sort of on the wrong end of FATCA implementation and that you’re bearing the cost and not necessarily the benefit of FATCA.”

But Miller added, “The future is an improved global set of rules, [and] I have high hopes that it will create a level playing field that will make it much more expensive and risky to hide assets offshore. And that should be some help at least to compliant financial institutions as people consider where to invest their money into the future.”

FATCA has made ordinary personal finance difficult to impossible for Americans abroad. Americans are losing opportunities to work offshore because foreign employers fear FATCA hassles. U.S. citizens who do find work offshore face hassles and headaches just trying to open a bank account. But that’s a small price to pay for “an improved set of global rules,” right?

Of course, a defense of burdensome tax provisions is no surprise coming from an IRS official going out the revolving door to a company whose business depends on helping taxpayers deal with “the burden placed on financial institutions and others.” It makes Glenn Reynold’s Revolving Door Surtax proposal look very tempting.

 

buzz20140909Robert D. Flach has some fresh Tuesday Buzz,  including a link to a discussion of the prospects for tax reform (dismal) and the immediate future for figures in the T.V. show “Real Housewives of New Jersey” (dismal also).

TaxGrrrl has two new guest posts: Steven Chung, The Vehicle Miles Traveled Tax and Dominic Ferszt, The Accidental Tax Invasion. The second post is an excellent summary of the FATCA nightmares Steven Miller says offshore taxpayers should just suck up and get used to.

Kay Bell, Signs of change for sports league tax exempt status

 

Martin Sullivan, Can Multinationals’ Offshore Cash Fund a U.S. Infrastructure Bank? (Tax Analysts Blog). Apparently fixing a tax code debacle may be doable if we create a domestic spending boondoggle.

 

TaxProf, The IRS Scandal, Day 516

 

20140729-1Scott Drenkard, North Dakota Democrat Tax Commissioner Candidate Proposes Flat Tax—Big Tax Climate Improvement (Tax Policy Blog). In North Dakota, Tax Commissioner is a statewide elective office.

Imagine an Iowa Democrat proposing what Joseph Astrup proposes:

His plan would flatten and simplify the individual income tax to a single bracket, while lowering the top rate from 3.22 percent to 2.52 percent. The exemption would be raised to $40,000 for singles and $80,000 for married filers.

In fairness, I can’t imagine an Iowa Republican proposing something like this, either. But if an Iowa politician does want to take some inspiration from North Dakota, the Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a fine place to start.

 

Tracy Gordon, It’s Not Easy to Escape the Local Pension Vise (TaxVox). Maybe not, but it’s necessary.

Peter Reilly, Tax Court Judge Appreciates Art More Than Your Average Revenue Agent, Which presumably makes a certain art professor appreciate the Tax Court more than the IRS.

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Tax Roundup, 10/6/14: Nine more days, folks. And: four hours of ethics to rule them all!

Monday, October 6th, 2014 by Joe Kristan

4868It’s October 6. That means extended 1040s are due in nine days, no further extension allowed.

I spent part of my weekend finishing up my own 1040, so I can’t be too self-righteous about procrastinators. Still, my return was 95% done on April 15. This was really just going through the information I had put together for my extension and making sure I hadn’t missed anything. I had gotten all of my information to the preparer (me) months ago.

Meanwhile, I have clients who have gotten me nothing, or maybe just their W-2. These taxpayers often are making the perfect the enemy of the adequate. They want to go through their checkbooks to identify every possible charitable deduction. And that last deduction is rarely worth the wait.

Just get the stuff you have to your preparer now. If you later find a deduction that matters, we have three years to amend the return. But you only have nine days left to file on time.

 

get-outEthics time. I am trying to find four hours of “ethics” courses to take before year-end, because the Iowa Board of Accountancy requires it for license renewal. Robert D. Flach sums up my feelings:

The powers that be seem to feel that unless tax preparers are forced to sit through at least 2 hours of redundant ethics preaching each and every year they will suddenly begin to create large fictional employee business expense deductions for clients, or add erroneous dependents, and false EIC claims, to client 1040s.

I have been preparing 1040s for over 40 years. If I ain’t “ethical” by now, having 2 hours of preaching thrust upon me isn’t going to miraculously make me honest.

In real life, “ethics” courses really seem to be CYA seminars — how to document your file and prepare engagement letters to help ward off frivolous lawsuits. That can be useful, but I’m not sure “ethics” is the right name for it.

 

20140805-2Tony Nitti, Artists Rejoice! Tax Court Concludes Painter’s Activity Isn’t A ‘Hobby’. Tony covers a Tax Court case last week where the IRS improbably went after an art professor’s Schedule C art business on hobby loss grounds.  She won the hobby loss issues, but Tony thinks she will lose other parts of her case, in which the IRS says she deducted personal expenses on her business filing.

Peter Reilly, TIGTA Must Disclose More About Investigation Of Possible IRS Release Of Koch Industries Return Information. Peter looks into whether Koch Industries is an S corporation and learns that some highly political people are humor-impaired and comically challenged.

Russ Fox, Legaspi Gets 21 Months:

Francisco Legaspi didn’t want to go to jail. Back in November 1992, he pleaded guilty to tax evasion. Instead of showing up for his sentencing in January 1993, he headed to Mexico and then Canada to avoid prison. That worked for 20 years. In 2012, the State Department found him when the Bureau of Diplomatic Security found his Facebook page. (A helpful hint to any fugitives out there: Avoid posting anything on the Internet. Law enforcement reads the Internet, too.) They forwarded his information to the Royal Canadian Mounted Police who arrested him; the Mounties always get their man.

Now he’ll serve that 21 months.

 

20141006-1Kay Bell, Estate gets $14 million tax refund on value of art. Kay’s a little giddy about her Baltimore Orioles sweeping Detroit. Now they have to face the Royals, managed by the Magic 8-ball.

Jim Maule, Do Squatters Have Gross Income? A woman moves into an abandoned house. Nobody kicks her out or demands rent. Prof. Maule ponders the implications.

Janet Novack, IRS: We Made A Mistake Valuing Michael Jackson’s Estate. They want more.

Annette Nellen, California to study alternative to current gas tax. Most gas taxes aren’t indexed, and technology is reducing gas consumption. This makes paying for roadwork more complicated.

TaxGrrrl is hosting a bunch of guest posters, including Josh Hoxie, When Income Tax Cuts Masquerade As Estate Tax RepealRebecca McElroy, Making Changes To The Tax Code Starting With The Medical Expense Deduction; and Elaine Kamarck, On The Tax Code, Time for America to Have it Our Way.

 

TaxProf, The IRS Scandal, Day 515

 

Quotable:

There’s nothing wrong with being nostalgic unless you’re trying to do it on someone else’s dime.

-Brian Gongol, on the denial of “landmark” status for Des Moines’ dilapidated riverfront YMCA.

 

News from the Profession. Why are People in Public Accounting So Ridiculously Good Looking? (Adrienne Gonzalez, Going Concern). If you think we’re hot, you haven’t seen the actuaries.

 

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Tax Roundup, 10/1/14: Another court says Obamacare tax credits limited to state exchanges. Also: the Iowa Tollway.

Wednesday, October 1st, 2014 by Joe Kristan

oklahoma logoState means state. A U.S. District Court in Oklahoma has joined the D.C. District in holding that the tax credit subsidies for health insurance are limited to the 14 states that have established a health insurance exchange under the ACA. Other states let the feds set up exchanges.  Michael Cannon reports:

Noting that Obama administration wants to issue Exchange subsidies in states with federal Exchanges even though the PPACA (quoting Halbig) “unambiguously restricts the [Exchange] subsidy to insurance purchased on Exchanges ‘established by the State,’” Judge White argues that the government’s interpretation (quoting the Tenth Circuit in Sundance Assocs., Inc., v. Reno) “leads us down a path toward Alice’s Wonderland, where up is down and down is up, and words mean anything.” As evidence, White quotes the concurring opinion in King: “‘[E]stablished by the State’ indeed means established by the state – except when it does not[.]”

The D.C. District decision was upheld by a D.C. Circuit appeals panel, but has been vacated pending a rehearing by the full panel of judges.  The Fourth Circuit Court of Appeals has sided with the government, holding that the subsidies apply to all exchanges.  The issue is almost certainly going to be decided by the U.S. Supreme Court.

Both the ACA employer mandate and individual mandate penalties depend on how the decision comes out.  The employer mandate only applies if an employee gets a tax credit subsidy, so the Oklahoma rule would exempt employers in 36 states from the mandate. The tax credits are also key for determining whether insurance is “affordable” in computing individual penalties for not buying insurance; if the credits are unavailable, penalties would go away for millions of taxpayers in the 36 states using federal exchanges.

Related:

Whither Halbig and the ACA.

Obamacare tax credits get a reprieve.

Cite: Pruitt v Burwell. DC-OK, No. CIV-11-30-RAW

Peter Reilly, Court Rules Oklahoma ObamaCare Not OK

 

 

20120703-2Many economists say highway tolls are a sound way to finance road improvements. While Iowa has no official tollways, our state troopers are taking matters into their own hands, according to a report in today’s Des Moines Register:

 Two California poker players are refusing to fold in a legal battle against the state, claiming Iowa State Patrol troopers unlawfully seized their $100,020 gambling bankroll.

Troopers with the State Patrol’s criminal interdiction team — which works to catch drug traffickers and other criminals along interstates — used unfair procedures that target out-of-state drivers and cast suspicion on nonthreatening motorists, according to a lawsuit filed this week in federal district court on behalf of professional gamblers William “Bart” Davis and John Newmer­zhycky.

The men were traveling in a rented car from a poker event in Illinois with their bankroll.  They were pulled over on a pretext of not signalling a lane change — a pretext seemingly debunked by the patrol car dash cam recording — and ended up having their $100,000 seized.  They were also charged with having “drug paraphernalia.”

The state has returned $90,000, but the state has kept $7 million in seized funds from other out-of-state motorists, often without bothering to file charges.  A state spokesman defends the indefensible practice, which hits hardest people who are least likely to be able to afford to take the state to court, by saying it hurts criminals. You could probably catch some criminals and raise some cash by stopping and frisking everyone leaving the Harkin Steak Fry too, but that would hardly justify doing so.

Dallas County Sheriff took the practice a little too far; he was convicted of stashing seized funds in his garage (in a case where no charges were filed against the motorists whose cash was confiscated). Even when the troopers don’t help themselves to the cash, civil forfeiture without conviction of a crime is a corrupt and lawless practice that is overdue for reform.

Related: Steven Dunn, Nothing Civil About Asset Forfeiture

Update: From Jacob Sullum (Reason.com), Iowa Troopers Steal $100,000 in Poker Winnings From Two Players Driving Through the State

 

20121022-1William Perez, What You Need to Know About the Penalty for Not Having Health Insurance

TaxGrrrl continues her excellent “back to school” series with Back To School 2014: Educational Assistance Benefits

Kay Bell, Tax evasion charges are never fashionable. But tax cheating never seems to go out of style.

Jason Dinesen, Letting My Hair Grow Back: DIY is Not Always Better. Doing your own hair can be a bad idea; this also often applies to tax returns.

Or expatriations: There is no DIY green card abandonment (Phil Hodgen). 

 

Howard Gleckman, The Public Wants Clear Rules About Campaign Giving Through Tax-Exempts. Is It Possible? Yes, just the other day waiting in line at Hy-Vee, I heard a lady flipping through the People magazine say “Yes, they really need to do something about 501(c)(4) abuse.” She then apparated without even replacing the magazine.

 

TaxProf, The IRS Scandal, Day 510

Sebastian Johnson, State Rundown 9/30: The Gas Tax Cometh? (Tax Justice Blog). Better than taking cash from random travelers, anyway.

Joseph Henchman, State Inflation-Indexing of Gasoline Taxes

News from the Profession. Prospective Intern Wants to Know if Firm Will Let Him Go on Vacation During Internship (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 9/30/14: IRS handling of uncollected taxes slammed. And: ISU TaxPlace goes live!

Tuesday, September 30th, 2014 by Joe Kristan

Priorities.  While allowing billions of false refunds to go to two-bit grifters via ID-theft refund fraud, the IRS also manages to not correctly follow up on billions of unpaid assessed taxes, according to a new report by the Treasury Inspector General for Tax Administration.  “Of a stratified sample of 250 cases reviewed, there was no evidence that employees completed all of the required research steps for 57 percent of the cases prior to their closing.”

How much money was potentially involved?  A chart from the report:

20140930-1

This is what happens when the tax law is treated as the Swiss Army Knife of public policy, rather than as a simple tax collection and enforcement mechanism. It doesn’t help when successive commissioners are more concerned with expanding the agency’s power and suppressing political opponents than with collecting revenue and properly issuing refunds.

The TaxProf has more.

 

20130114-1TaxPlace goes liveThe ISU Center for Agricultural Law and Taxation has launched TaxPlace:

We are very excited to introduce TaxPlace, a 24-7 resource for tax professionals, especially those preparing farm tax returns. For a limited time, we are offering a yearly subscription for the low introductory price of $150. 

What does that include?

This one-year subscription to TaxPlace entitles you and your staff to one calendar year of unlimited access to all TaxPlace materials and services, including:

A searchable database of timely articles and seminar materials explaining basic, new, and complex tax issues, with a particular emphasis on issues impacting farmers, ranchers, and ag-businesses.

Unlimited replays of recorded seminars and webinars addressing timely and challenging farm and urban tax and estate and business planning concepts.

Access to “Ask a Question,” a personal connection with a professional knowledgeable in farm tax requirements. (“Ask a question” is not a gateway for legal advice and does not substitute for services from a legal or accounting professional.)

Tables, charts, explanations of procedures and forms, and contact information to simplify your interaction with the Internal Revenue Service or state tax departments.

Access to a weekly blog and to future archives of “the Scoop,” a bi-monthly live webinar addressing new tax laws and procedures as they develop and providing attendees with an opportunity to ask questions.

A bargain for $150.

 

TaxGrrrlHow To Get Away With Tax Fraud. No, she hasn’t gone over to the dark side. She is outlining some rookie mistakes made by a Ms. Jackson, who tried to cash a $94 million tax refund check she received. Revenue agents were waiting for her at the grocery store where she tried to cash the check:

Among the basic mistakes TaxGrrrl points out is this:

 Unless you are due a lot of refundable tax credits (more on that later), you’ll want to make sure that your math makes sense. I didn’t see Jackson’s tax return. And I’m not licensed in Georgia. But even I can figure from peeking at the Georgia Department of Revenue’s web site that the highest income tax rate for individuals is 6%. To have paid in $94 million of tax, the amount of her refund claim, you’d have to have earned about $1.56 billion in income – in one year (assuming no carry forward or carry back). That kind of money should have landed Jackson on the newly released Forbes’ 400 Richest Americans list. Spoiler alert: she’s not on the list.

And no, it doesn’t appear that she sandbagged a little too much on her estimated tax payments.  Another basic mistake: real tax thieves prefer direct deposit. But, as a man once said to police here in Des Moines, “You don’t spend your days chasing geniuses, do you?’

 

Peter Reilly, New York Springs Sales Tax Trap On Passive LLC Members. Apparently New York is holding LLC members personally liable for sales taxes owed by the LLC. If the Empire State wants businesses and investors to stay far away, this is a pretty good step. Oddly, S corporation owners don’t have this problem.

 

Fresh Buzz is available from Robert D. Flach, including links to stories on retiree taxation and Roberts side project, The Tax Professional.

Carl Smith discusses The Congressman James Traficant Memorial Code Section at Procedurally Taxing.  Well, if it’s like most code sections, it will outlast all of us.

 

J.D. Tuccille, Yet More IRS Employees Busted for Stealing Taxpayers’ Identities (Reason.com):

Have I mentioned that people signing for health coverage under the Affordable Care Act are supposed to update the government on any major life changes, including marriage status, employment, finances…? Oh wait, yes I have.

I wonder if that information will be better protected.

Remain calm, all is well.

 

20130111-1Andrew Lundeen, Kyle PomerleauEstonia has the Most Competitive Tax System in the OECD. (Tax Policy Blog). The posts tells of a fascinating feature of the Estonian tax law:

Additionally, Estonia only taxes distributed profits and at a 21 percent tax rate. This means that if a business in Estonia earns $100 and pays that $100 to its shareholders, the business would be required to pay a tax of $21 on the distributed profit. Instead, if that business decides to reinvest that $100, the business would not have to pay tax on that $100.

Compare that to the U.S., where the corporations pay tax on income when it is earned, and potentially another tax if earnings are not distributed.  Still another tax is paid when the earnings are distributed; in Estonia, there is no second tax.

If you were designing a tax system to actually make sense, it would look a lot more like the Estonian setup than the U.S. income tax.  You also wouldn’t have the inversion problem people fret about so.

Martin Sullivan, Can Congress Pass Tax Reform That Would Stop Inversions? (Tax Analysts Blog). “Right now the U.S. tax system favors foreign owned corporations over U.S. owned corporations.”

 

Donald Marron, The $300 billion question: How should we budget for federal lending? (TaxVox)

 

TaxProf, The IRS Scandal, Day 509

 

Liz Malm, Businesses Paid Nearly $671 Billion in State and Local Taxes Last Year (Tax Policy Blog)

 

Career Corner. Let’s Waste Some Chargeable Hours Comparing Chargeable Hour Goals (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 9/29/14: Obamacare fines can hit $12,000 for a family for 2014. And: tax-evading Congressman beamed up.

Monday, September 29th, 2014 by Joe Kristan

20121120-2Laura Saunders, Penalty for Not Having Health Coverage Can Be Thousands of Dollars; The ACA Penalty Can Top $12,000 for a High-Income Family of Five:

For a family of five, the penalty could be as high as $12,240 for the 2014 tax year, experts say. And for many people, the penalty will rise sharply in 2015 and 2016.

The massive health-care changes passed in 2010 are phasing in, and this is the first year most Americans must have approved health insurance. Those who don’t will owe a penalty under the Individual Shared Responsibility Provision. It’s due with your income taxes, payable by April 15, 2015.

For your own good, of course.  And even if you get the coverage, you can get surprised by a tax bill at year-end if you mis-estimated your income for the year.  (Via the TaxProf). 

 

TraficantBeamed up. When Congresscritters are called “colorful,” it implies they are harmless and almost cute. James Traficant was often described as a “colorful” Congresscritter.  He would give speeches with the tag line “beam me up.”  Russ Fox reports that his request has been granted; the former Congressman died last week.

His colorful career came to a bad end with seven years in prison for tax evasion and other charges. He was accused of accepting bribes and not paying taxes as a sheriff before he made it to Congress; his defense was that he was conducting a secret undercover investigation of the bribe-givers.  He was convicted and expelled from the House. You have to achieve a pretty high standard of low to be expelled from that wretched hive of scum and villainy.

As his release date neared, a minor league baseball team prepared to celebrate with a “Traficant Release Night” promotion, until they got cold feet and cancelled.

It’s fun to laugh at these antics, and it’s healthy to mock politicians. Yet even an ineffective Congresscritter wields an enormous amount of power, with a 1/535 say in a trillion-dollar federal budget. The real laugh is on the taxpayers who put such power in such hands.

Update: Peter Reilly has a detailed history of Mr. Traficant’s tax troubles: James Traficant Jr. And The Taxpayer’s Burden

 

Russ Fox, California Mandates E-Filing of Business Returns:

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

Impossibility has never been an excuse with California.

 

TaxGrrrl, Back To School 2014: Saving & The Kiddie Tax.

Kay BellLying to your tax pro could result in a bad tax situation. Shockingly, this appears to be an issue with the Jersey Shore guy’s tax problems. I mean, if you can’t trust a guy from Jersey Shore, what’s left to trust?

William Perez, Investing in a 401(k)? Learn Your Yearly Maximum Contribution Amounts

Peter Reilly, Scholarships Do Not Make Beauty Pageant A Charity.  No, but 501(c)(3) also exempts “educational” institutions, and without the Miss U.S.A. pageant, I would have never been educated on the use of red cups as musical instruments.

 

Phil Hodgen, Your expatriation tax return when U.S. income is zero. It’s sad that our insane and abusive treatment of offshore Americans is making this a common issue.

Jack Townsend, Wylys Ordered to Disgorge Hundreds of Millions of Tax Benefits With Interest

Jason Dinesen, The IRS Says I’m Not Authorized to Speak On My Own Behalf:

So to recap:

  1. The IRS says I am not my own authorized representative so they can’t make the changes I requested

  2. The IRS sent me a duplicate copy of their letter because I am my authorized representative

But I’m sure preparer regulation would go smoothly…

 

20140929-1Kyle Pomerleau, Always Be Careful with IRS Income Data (Tax Policy Blog):

The U.S. tax code only accounts for capital income (capital gains, specifically) when it is realized. This means that someone may have been accumulating capital gains for 40 years in an investment portfolio, but the IRS only sees the final (sometimes massive) realization. Suppose an individual invested in stock. Each year, the gains were small, but in the 41st year, he realized all of the past years’ gains and earned $1 million in income. IRS data would show that this taxpayer was a millionaire one year (and part of the 1 percent).

And he’d be the Devil, for one year.

 

Renu Zaretsky, Pressure, Power, and a New View on Cuts. Today’s TaxVox headline roundup covers unintended consequences of the new inversion rules and the changing politics of tax cuts.

 

TaxProf, The IRS Scandal, Day 508. Speculation on whether there is a link between the IRS scandal and the Holder resignation.

 

Department of Unfortunate Examples.  Econlog’s Scott Sumner has an interesting post addressing why pay disparities that seem puzzling on the surface might make sense: Don’t jump to conclusions (markets are smarter than you or I)

It’s a wise post, but I wish he’d have found a different example:

You might think that a secretary is a secretary and a janitor is a janitor. Not so, they vary quite a bit in competence. Goldman Sachs has much more to lose from an incompetent secretary than does a small accounting firm in Des Moines.

I prefer to think that our “small accounting firm in Des Moines” doesn’t have to pay as much as Goldman Sachs because people here don’t have to work with people from Goldman Sachs.

 

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Tax Roundup, 9/24/14: The $3,000+ price tag of Iowa’s special tax breaks. And: Tea Parties in the strangest places.

Wednesday, September 24th, 2014 by Joe Kristan

20120906-1Do special favors for special friends in the Iowa income tax cost Iowa families $3,000? A Buena Vista University professor seems to think so.  Paul Brennan reports that Jeremy Horpedahl, an economist at BV, has determined that removing all “tax privileges” in Nebraska would save the average Nebraska family that much, and that it might be more in Iowa:

Although he hasn’t yet done a thorough analysis Iowa’s tax codes, Horpedahl said eliminating tax privileges would result in at least as great as savings.

“Actually, it would probably be a little higher, because Iowa has more privileges built into its tax code,” Horpedahl said.

Sadly, Mr. Horpedahl said he studied Nebraska’s system because they are actually considering serious tax reform, unlike Iowa.  What does he mean by “privileges?”

“I define a tax privilege as a tax break or exemption that benefits a specific type of industry or an individual taking a certain type of action,” Horpedahl explained.

“The standard deduction on income tax isn’t a privilege, because that’s available to everyone. But a tax break that benefits just the construction industry is. For an individual, that certain goods or services they buy are exempt from sales tax is a privilege,” he said.

Mr. Horpedahl sounds a theme familiar to Tax Update readers:

Horpedahl pointed out that Iowa’s businesses would  also benefit from the elimination of tax privileges.

“Iowa has a very high corporate tax rate — 12 percent — so to be attractive to businesses, the state has to offer them a way of avoiding it,” Horpedahl said.

“But not every business can avoid it. So what we end up doing is rewarding lobbying. Those who are successful in lobbying for privileges get lower taxes. And that implicitly punishes those who don’t lobby, because they end up paying higher rates.”

Also:

“Politicians love to hand out these privileges,” Horpedahl said. “It allows them to say, ‘‘I’m doing something, I’m bringing businesses to the state, I’m creating jobs.’”

“They never mention that the tax rate has to be kept high to pay for all these privileges. And most people don’t realize that research has shown that these sweetheart deals very rarely pass the cost-benefit analysis test, so there’s very little push back.”

Precisely. They take your money to lure and subsidize your competitors, and then they tell you that it is good for you. There is a solution out there, waiting for a bold politician to run with it: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Related:

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

Taking your wife’s purse to buy drinks for the girls

 

 

20140521-1More dangerous and inflammatory anti-tax rhetoric. A political group of Americans abroad surveyed its members and discovered that they think the FATCA crackdown on offshore financial activity is making life tough for innocent non-billionaire expats, reports Laura Saunders of the Wall Street Journal:

The survey… found that nearly one in six respondents had had a financial account closed by a bank or brokerage house. More than two-thirds of the checking accounts that were closed had a balance of less than $10,000. Nearly 60% of the closed investment accounts had a value of less than $50,000. Other people were unable to open accounts.

Respondents also reported Fatca-related difficulties with non-U.S. spouses and partners. More than one-fifth said they have separated or are considering separating financial accounts held jointly with their partner.

Added one person, “Fatca has caused enormous friction in my marriage. My non-U.S.spouse is refusing to let the U.S. government know about his salary/earnings/savings… and moving to separate bank accounts would leave me very vulnerable as I’m an unemployed, stay-at-home mother.”

Well, of course you’d expect this sort of anti-tax rhetoric from some Tea Party outfit. I wonder if Democrats Abroad, who ran the survey, will have its tax exemption questioned now. But if they expect Democrats in Congress to ease their plight, good luck.

 

William Perez, How Do You Report Alimony on Your Tax Return?

Peter Reilly, For Joint Filing Status You Have To File.  “You’re not supposed to do that if you are actually married though.”

TaxGrrrl, Back To School 2014: Internships. ” If there’s no income to report, that makes the income piece easy.”

Robert D. Flach, IRS ANNOUNCES NEW PER DIEM RATES FOR BUSINESS TRAVEL

Keith Fogg, Extracting Yourself from a Tax Court Case (Procedurally Taxing)

 

 

TaxProf, The IRS Scandal, Day 503,  The day 503 of the so-called “so-called scandal” includes a link to this from Jason Keisling and Emily Elkins: Lois Lerner Claims the IRS Did Nothing Wrong. The Data Say Otherwise, with this fine chart:

targetingstatschart

 


Alan Cole, Reducing Compliance Costs for Small Businesses (Tax Policy Blog):

A good principle in tax policy – as well as policy in general – is to let the little things go. This principle has taken form in a legal maxim, de minimis non curat lex, Latin for “the law does not concern itself with trifles.” Currently, any business expected to owe at least $1,000 in tax for the year must file quarterly. $1,000 is a trifling amount to the IRS, one that need not be split into installment payments.

The Peters bill would allow very new businesses, or businesses with less than $1 million in total revenues, to file their taxes only once yearly – an arrangement that seems more reasonable.

Good thinking.

 

Howard Gleckman, Treasury’s New Rules May Slow, But Won’t Stop Corporate Tax Inversions (TaxVox). “Now the dealmakers have the roadmap they need to keep their inversions Kosher. And with that guidance, it is likely that lawyers will attempt to restructure many transactions to satisfy the new rules.”

 

News from the Profession. Why Your Firm Needs a Bring Your Dog to Work Policy (Leona May, Going Concern).  Sounds like animal cruelty to me.

 

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