Former IRS Commissioner Shulman, showing how bad he feels about politcal harassment under his watch.
The Worst Commissioner Ever returned to Washington yesterday to testify before a Senate committee on the IRS scandal. He bravely took responsibility for the targeting of disfavored political groups and apologized to the victims.
I certainly am not personally responsible for creating a list that had inappropriate criteria on it. And what I know, with the full facts that are out, is from the inspector general’s report, which doesn’t say that I’m responsible for that. With that said, this happened on my watch. And I very much regret that it happened on my watch.
In other words, I was just the boss, and you can’t blame me for what those crazy kids in Cincinnati do.
Lois Lerner, the head of the Internal Revenue Service office that targeted conservative groups, intends to invoke her constitutional right against self-incrimination and decline to answer questions about the matter when questioned by a congressional committee Wednesday.
Ms. Lerner, director of the tax-exempt-organizations division at the IRS, notified the House Committee on Oversight and Government Reform through her attorney that she wouldn’t answer questions on the matter, according to a committee spokesman.
When it comes to the Bill of Rights, better late than never.
On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller’s motion for reconsideration in Comptroller v. Wynne, which struck down the state’s application of credits against pass through income from S corporations; however, the court stayed implementation of the ruling to allow the comptroller to petition the U.S. Supreme Court for certiorari.
It’s too bad that the cost of a sensible property tax is a big increase in a program that is a poverty trap for honest taxpayers and a pinata for thieves. The phase-outs of the EITC result in shockingly-high marginal tax rates on each additional dollar earned by relatively low-income taxpayers.
The EITC is refundable, which means it is really a welfare program run through tax returns. About 25% of the EITC is claimed “improperly,” which is a nice way to say it’s stolen. The annual cost of the Iowa EITC boost is estimated at $35 million, so the price of fixing a broken commercial property tax regime is an $8 million annual thief subsidy. So while the politicians celebrate their great compromise, Iowa’s petty thieves also have occasion to raise a glass, filled by you.
It is unlikely that Republicans will find Paul’s smoking gun, but the IRS scandal is almost certainly the result of political bias on some level. It is hard to believe that a group of officials would innocently pick terms like “Tea Party,” “patriot,” and “9/12” to single out organizations for additional scrutiny. It would be incredible to find such disinterested tone-deafness even in the most politically insulated of civil servants (and the IRS is far from insulated).
I doubt the White House left fingerprints on IRS efforts to harass political opponents (though it didn’t lift a finger to stop it). That leads to an even more depressing possibility: that the IRS went out its way to beat up on the President’s opponents on its own. Nobody blew the whistle. That means IRS management is so corrupt and political that it would go after the administration’s political opponents with only a wink and a nudge. And anybody who doesn’t think this was politically-motivated is kidding themselves.
And the IRS scandal was a subversion of democracy on a massive scale. The most fearsome and coercive arm of the administrative state embarked on a systematic effort to suppress citizen dissent against the party in power. Thomas Friedman is famous for musing that he wishes America could be China for a day. It turns out we’ve been China for a while.
With all the excitement over tax-exempt entities, it’s worth remembering that their returns — the 990 series — are due today for calendar-year filers. And if an organization fails to file 990s for three years, its exempt status lapses. Extensions are available, but they have to be filed today.
Late filing can be expensive. For small organizations, the penalty is $20 per day of late filing; for those with receipts over $1 million, its $100 per day. That adds up fast.
So let’s get started with this morning’s IRS Scandal news. The TIGTA report whose imminent release triggered the IRS announcement of the scandal last Friday came out yesterday. I covered it in a post last night. Other coverage:
It is no secret. This may hurt my libertarian credentials, but I believe the U.S. Congress should pass the Marketplace Fairness Act. The tax system is sound when built on a broad base and low rates. Broad base means you tax everything without regard to who is lobbying the legislature. It follows – and it really does follow – that the sales tax should be imposed on all personal consumption.
I can see a need for something like this, but I think it should be done by having a single point of compliance for sellers under a uniform set of rules, rather than subjecting internet sellers to the thousands of local tax systems. David minimizes the compliance burden. As somebody who makes a living off of the compliance burden, I can say with confidence that he is mistaken.
Steven Miller, acting head of the IRS since Doug Shulman left office, apparently hasn’t been any more honest than The Worst Commissioner Ever about IRS harassment of right-side political groups. AP reports:
Miller was first informed on May, 3, 2012, that applications for tax-exempt status by tea party groups were inappropriately singled out for extra scrutiny, the IRS said Monday.
At least twice after the briefing, Miller wrote letters to members of Congress to explain the process of reviewing applications for tax-exempt status without disclosing that tea party groups had been targeted.
We’re supposed to tell the truth when we file our returns. It’s not asking too much for them to return the favor.
The incompetence boggles the mind. It’s also bewildering how the Service could sit in front of GOP lawmakers and chastise them for underfunding tax enforcement when employees were using some of those supposedly precious funds to conduct a politically charged vendetta against conservative exempt organizations.
I think the perpetrators were quite competent in doing what they set out to do. The only incompetence was in getting caught. But he’s absolutely right that the agency’s poor-mouthing, including next week’s furloughs, will no longer convince anybody.
But it still disturbs me that no one in Washington really seemed to care until the behavior went public.
Many of us didn’t believe the IRS would really do something so outrageous. I had seen some of the questions that IRS was asking Tea Party outfits, and they seemed out of line, but I figured the IRS was being an equal-opportunity annoyance. That they did it politically is what is triggering the outrage.
Tax.com has moved. For reasons that elude me, Tax Analysts has apparently given up the handy Tax.com domain and moved their excellent group blog to a tab on their home page, Tax.org. I think that’s a mistake, but it’s worth going out of your way to find it.
It’s Tuesday, so it’s Buzz Day at Robert D. Flach’s place.
Career Advice. Protip: Threatening to Kill Your Colleagues, Even in the Midst of a Brutal Busy Season, Is Never Cool(Going Concern). OK, I take it back. Mistakes were made. There was no threat intended in my overzealous pursuit of tax return excellence. It was just an administrative shortcut. OK, incompetent, but not evil. I vow to find out exactly what happened. If I threatened anyone, it was outrageous.
If the IRS hoped Friday’s “apology” for giving extra special attention to tax-exemption applications of right-side groups would settle things, they’re very disappointed this weekend. The Washington Post reports that the Treasury Inspector General for Tax Administration will soon issue a report saying Friday’s apologizer, IRS Director, Exempt Organizations, knew this was going on in 2011. Meanwhile, in 2012 IRS Commissioner Doug Shulman was still testifying that IRS was not picking on the Tea Party.
So not only was the Shulman era at IRS grasping, incompetent and casually cruel, it was dishonest.
The documents, obtained by The Washington Post from a congressional aide with knowledge of the findings, show that the IRS field office in charge of evaluating applications for tax-exempt status decided to focus on groups making statements that “criticize how the country is being run” and those that were involved in educating Americans “on the Constitution and Bill of Rights.”
Yes, we sure need to keep an eye on those wingnuts who want to educate people on the Constitution and Bill of Rights. Dangerous lunatics, they are!
There is so much blog coverage of this that I won’t even try to round it all up. A few links from our blogroll:
The report doesn’t shay whether or not Shulman was informed about the Tea Party questioning, but it does show the IRS’s chief counsel was. It’s standard procedure for the counsel and commissioner to discuss this sort of thing before a Congressional hearing.
If so, The Worst Commissioner Ever can only plead incompetence instead of lying to Congress.
Nina Olson, IRS Taxpayer Advocate, has an article in Tax Analysts (via the TaxProf) affirming her support for taxpayer regulation. Ms. Olson has done much good work as Taxpayer Advocate, but her support for increased preparer regulation is economically uninformed and hopelessly wrongheaded.
I’d like to report a hijacking. It looks like somebody at Tax Analysts forgot to renew their ownership of the tax.com domain name. Going there this morning gets this:
Tax.com is (has been?) home to the great group blog featuring, among others, David Brunori, Christopher Bergin, David Cay Johnston, Martin Sullivan, Cara Griffith and Clint Stretch. I hope this is only a temporary hijacking.
Politicians advance plan to allow politicians to give more tax money to private businesses. From TheGazette.com:
Iowa communities would be able to designate special 25-acre development zones and use a share of sales tax and hotel-motel tax revenues to assist private projects of at least $10 million under legislation that’s getting bipartisan support.
House File 641 would establish reinvestment districts designed to spur development of “big ideas,” said Sen. Matt McCoy, D-Des Moines, who led a Senate Ways and Means subcommittee that revamped the bill representatives approved 87-9 last month.
This is, of course, an awful idea. Politicians are notoriously bad at allocating investment capital, and they tend to make sure it goes to their cronies and contributors. But when the state’s Governor, a member of the purported small government party, does an end-zone dance over a giant federal subsidy to a private utility controlled by a billionaire, the battlefield is left to the crony capitalists. The House version of HF 641 passed 87-9.
New York State’s comptroller says giving $2.8 billion in tax breaks over five years added more than a million jobs, which would be great news except that the state lost jobs.
I’m confident Iowa’s job-creating tax breaks work just as well.
For capital gains, the current law is already out-of-step with international standards. After the fiscal cliff, combined state and federal capital gains rates increased from 19.1 percent to 28 percent. This is more than 10 percentage points higher than the international average. One suggestion, of course, is to tax capital gains at the rate at the 1986 rate of 28 percent. This would push America’s average combined federal and state capital gains rate to more than 35 percent, more than double the international average.
A chance traffic stop on I-75 in Lee County uncovers a massive tax fraud scheme. Deputies say the woman accused used her job to steal personal information – even stealing from people who were dead.
Thursday, 23-year-old Tequila Gordon was sitting in the Lee County Jail. Her bond was set at $72,000.
Prosecutors say she worked at liberty tax services in 2009 and stole personal information from dozens of people.
I would think having a first name of “Tequila” would make getting a good job challenging. It won’t be any easier now.
Lauryn Hill’s parents are 150 years old! The singer received a three-month prison sentence yesterday for failing to file tax returns, but the New Jersey native still may struggle with math, according to the reliable source of tax news, TMZ.com:
“I was put into a system I didn’t know the nature of. … I’m a child of former slaves. I got into an economic paradigm and had that imposed on me,” Hill said.
She continued, “I sold 50 million units … now I’m up here paying a tax debt. If that’s not likened to slavery, I don’t know what is.”
As slavery was eliminated nearly 150 years ago with the passage of the 13th Amendment, Ms. Hill either has difficulty with arithmetic or remarkable parents. The slavery analogy is interesting. So if tax is slavery, is President Obama the chief slave driver? The IRS Commissioner? Can we be sold down the river? To who?
Ideas that would work perfectly well in song lyrics can sound so wrong in court. The artist describes feelings, impressionistically. It’s in no way an excuse or justification. But sometimes artists/politicos use court as a forum for expression without any expectation that it will advance their legal cause. One can intelligently and consciously eschew persuasion and victory.
Perhaps. Still, sometimes celebrities just say strange things.
A reporter for a nationally prominent publication has contacted me to help him get in touch with people who have gone through one of the OVDI/P programs to discuss their experiences and thoughts about the programs. If you are interested and/or willing to do that, please contact me at jack@tjtaxlaw.com and I will put you in touch with the reporter.
So maybe it’s a chance for those of you who’ve been put through the ringer for a foot-fault violation to get a little justice.
The opposite of a sales tax holiday: Retailer Target Jumps The Gun On Sales Tax (TaxGrrrl). A South Carolina Target store probably made few friends when it started charging a higher sales tax rate a month early.
Are you irritable? Sleeping less? Impatient with your friends? Putting on weight? Thinking about divorce? Yes? Sorry to hear, you must be going through a stressful time.
Oh, wait, are you an American? Yes?! Whew, you’re behaving normally then. If you were to read this AICPA press release, you might be inclined to believe that your take home pay being 2% lower than last year would have been the cause of all those things…
The Obamacare “Net Investment Income” tax hammers trusts. The new 3.8% tax affects trusts with taxable income as low as xxx in 2013. In contrast, it only affects single individuals with Adjusted Gross Income of at least $200,000, and joint filers starting at AGI of $250,000.
“Passive income” is one item subject to the tax. This means most rental income and business income from pass-through entities, unless the trustee “materially participates” in the business.
The new tax piggybacks off of the old “passive loss” rules for determining whether income is passive. If a taxpayer has business income or loss, it is passive unless the taxpayer “materially participates” in an activity. When losses are “passive,” they are only deductible when there is other passive income to offset it, or when the passive business is sold.
So how does a trust participate? A trust can’t punch a time clock, after all. The IRS says in newly-released TAM 201317010 that a trustee’s participation counts as the trust’s participation — and then only if the trustee participates as a trustee.
The TAM involves trusts that own an interest in an S corporation. The trusts each had a main trustee and a “special trustee” who also happened to be president of the S corporation. A corporate president normally has no trouble materially participating in corporate business, but the IRS said that wasn’t good enough (my emphasis):
As Special Trustee, A lacked the power to commit Trust A and Trust B to any course of action or control trust property beyond selling or voting the stock of Company X or Company Y. The work performed by A was as an employee of Company Y and not in A‘s role as a fiduciary of Trust A or Trust B and, therefore, does not count for purposes of determining whether Trust A and Trust B materially participated in the trade or business activities of Company X and Company Y under § 469(h).
I think the IRS is wrong here. They are just making up this requirement that the trustee participate “as a fiduciary.” If somebody is both a trustee and a corporate employee, how are they to divide the time? This IRS requirement should be rejected, but it poses a compliance problem until and unless it is overturned. It creates uncertainty and makes it more difficult for trust businesses to avoid the 3.8% tax.
The TAM also rejects one district court case that allows trustees to count participation of the “employees and agents” as trust participation. I believe the IRS is correct on that point.
The tax, which took effect Jan. 1, applies to the “net investment income” of married joint filers who have more than $250,000 of income (or $200,000 for singles). Only investment income—such as dividends, interest and capital gains—above the thresholds is taxed. The rate is a flat 3.8% in addition to other taxes owed.
“Affluent investors who ignore this tax will be in for a total shock next April 15,” says David Lifson, a certified public accountant specializing in tax at Crowe Horwath in New York. Such income is typically not subject to withholding, and people won’t be factoring it into their estimated taxes. Lower-bracket taxpayers who receive a windfall large enough to owe the tax will also be in for a surprise.
This tax is shockingly complex, and it will surprise a lot of taxpayers next April.
Feds sue over Des Moines utility tax (Des Moines Register). Des Moines lost a long legal battle over its “utility tax” on electric bills. Now the federal government is after the city:
Federal prosecutors acting on behalf of the U.S. Department of Veteran Affairs sued the city of Des Moines and MidAmerican Energy Co. on Friday, alleging that the city’s longstanding surcharge on gas and electric customers in Des Moines constitutes an illegal tax when levied against Uncle Sam.
When a taxpayer wins a jackpot, the casino gives them the W-2G for the win at that time. It’s up to the taxpayer to keep the W-2G safe and bring it into me, or their preparer, when their taxes are done. What happens to the W-2G? It gets shoved into a purse or pocket, thrown in the glove compartment or on the desk at home or thrown in the trash by accident.
I support keeping the deduction for acquisition debt mortgage interest on one’s primary personal residence, and the deduction for real estate taxes on the same primary personal residence, not to encourage home ownership, but as a form of “geographical equalization”.
In other words, he wants to help out people who live in places where houses cost more. I think that’s misguided, as it also encourages people who live in low-cost locales like Des Moines to build palaces with help from the taxman.
Russ Fox, 1700 Miles and a 7% Difference. Joe Mauer of the Minnesota Twins tries to avoid Minnesota residency for low-tax Florida. It went about as well as this season will for the Florida Marlins (or the Twins, for that matter).
Paul Neiffer, Don’t Forget Your Retirement Plan. “I was talking with a new farm client the other day about his estate plan and what struck me the most was not how much farm land value he had accumulated but rather the amount he had tucked away into his retirement plans.”
Get some competent advice about how to handle the past years. If the advice is OVDI, then stand up and walk away, swearing the mightiest oaths that a drunken sailor could swear.
Perhaps the Offshore Voluntary Disclosure Initiative has somehow failed to gain the confidence of the tax bar?
Our politicians have tried to do too much through the tax law. And that has created a complicated mess of winners and losers that makes the task of trying to reform it, even to some level of sensible, a daunting one.The poster child for this mess is the Earned Income Tax Credit. Like it or not, the EITC is welfare administered through the tax system. Do we really want our tax system to do that?
The tax law works best if it is seen solely as a tool to finance the government. Much of its hideous complexity comes from using it is the Swiss Army Knife of public policy. As you add more gadgets it becomes less useful at being a knife.
Mr. Bergin isn’t afraid to mention the elephant in the room:
And there is another huge problem. The EITC program leaks like a sieve. More bluntly and honestly stated, well-intentioned as it may be, the EITC has been corrupted. Don’t take my word for it. Recently, the Treasury Inspector General for Tax Administration released a report stating that up to one-quarter of EITC payments made in fiscal 2012 were improper. How much does that represent? Try $13.6 billion. In one year. Using a ten-year budget window, that’s $136 billion, and that’s just thetainted stuff.
Supporters say the EITC is a program that “works.” Can you say that something “works” when it sprays billions to thieves every year?
Read the whole thing.
Fairness:
But the compliance costs imposed by the Marketplace Fairness Act would place smaller upstarts at a distinct disadvantage, which is, I suspect, one reason that market incumbents such as Amazon support the tax. The real cost of taxes is not the revenue out the door to the taxman; it’s the revenue out to the door to the taxman plus all of the costs involved in complying with the tax code.
Winston Churchill said that Americans can be counted on to do the right thing, after we have exhausted all other possibilities. He might have added that we usually start with the least direct and most complex approach. So it is with the energy tax policy expressed in President Obama’s FY 2014 budget.
I like this sentence: “By their nature, tax credits add complexity to the law and often reward behavior that would occur even without the credits.”
So far two clients have contacted me to report an issue – one with a 2011 refund andone with a 2012 refund. In both cases the refund was not directly deposited to the requested account. Instead it was applied to the subsequent year’s estimated tax. It was as if the taxpayer, or I, had entered the full amount of the refund on Line 75, although we clearly did not.
This isn’t a problem I have seen. Robert famously doesn’t e-file his returns. I wonder if it’s a simple keypunch error at the service center.
Just because an LLC is taxed like a partnership doesn’t mean that every LLC owner can act like a general partner, as Colleen MacRaeexplains:
Last week the Iowa Court of Appeals in Three Minnows, LLC v. Cream LLC, held that a non-managing member did not have the authority to bind an LLC to a contract the member signed on behalf of the limited liability company.
24 current and former employees of the Internal Revenue Service have been charged for crimes relating to fraudulently obtaining more than $250,000 in government benefits. Thirteen of the current and former IRS employees have been charged federally with making false statements to obtain unemployment insurance payments, food stamps, welfare, and housing vouchers. All thirteen, individually charged in separate indictments, are alleged to have falsely stated that they were unemployed while applying for or recertifying those government benefits.
They may have been right about being unemployed, just wrong about the timing.
The headline producing data in the report was that revenue loss – about $181 billion – from corporate tax expenditures in 2011 was “approximately the same size as the amount of corporate income tax revenue the federal government collected that year.” That makes a headline grabber; here would be my version: “Corporations Got More in Tax Breaks Than They Paid in Taxes, Government Says.”
It’s almost like the tax exists only so the politicians can carve loopholes for their friends.
Kyle Pomerleau, TPC, What About the “Pass-Throughs?”. (Tax Policy Blog). Measuring business taxes needs to look beyond corporation taxes when most businesses are taxed on 1040s.
David Cay Johnston, Promises, Promises(Tax.com). “Candidate Obama promised in 2008 to reform the Alternative Minimum Tax, and President Obama promised at least an honest accounting in his first budget, but his proposed budget for Fiscal 2014 is silent on the issue.”
Flickr image by Samat Jain under Creative Commons license
Should we just get a bill from the IRS, instead of filing returns? That’s something Janet Novack seems to be thinking about. She has two guest posts on the issue:
Some people fear return-free filing will separate citizens further from the costs of government. I think that is caused by an income tax that now is effectively only on high-income earners. When 51% can send the bill to the other 49%, bad policy seems inevitable.
It makes me wonder: if there are “Errors to avoid,” are there errors we should seek out, or at least not sweat? I can’t think of errors I’d want to make on a tax return, but I can think of some that I wouldn’t lose sleep over:
1. Forgetting to check the “presidential election campaign fund” box. After all, your entire tax bill is basically the federal election campaign fund.
2. Misspelling the name of a stock on Schedule D.
3. Writing a “smiley face” next to the tax refund line.
4. Forgetting to update your “occupation” on the signature line when you change jobs.
The core problem is that the IRS cannot look into the hearts of companies and see which of them really needs to provide free lunch to their employees in order to have a healthy, vibrant company, and which of them is doing this in order to provide a tax-free boon to their workers.
In case anyone asks, donuts are critical to a healthy, vibrant tax practice.
Radio Iowa runs with this headline ”$8.7 million from “Development Fund” creates 600+ jobs.” This headline arises out a “study” paid for by the economic development bureaucracy (meaning: taxpayers) to demonstrate the tremendous job-creating skills of people who give your money to other people. How did this study demonstrate this job creation?
By assuming it.
From the “study”:
A survey of past recipients of Demonstration Fund investments was conducted by the Iowa Innovation Corporation to determine, among other things, how large these companies are now as compared to their pre-investment levels. This growth in size – in annual revenues and in head count – can be attributed in part to the involvement of and investment by the Demonstration Fund.
Furthermore, the resulting economic impact is greater than the direct increase in expenditures and head count, since those increases lead to a series of spillover effects, whereby the impact of new company spending and employee earnings ripples through local economies and supports additional economic activity and job creation. Job impact estimates are determined by using standard input-output methodologies and multipliers, as provided by the US Department of Commerce.
- that the businesses and jobs wouldn’t happen without the wonderful effects of your money being directed by politicians to those businesses.
- that the money wouldn’t have also generated jobs if it had been spent elsewhere.
That’s the same kind of thinking behind the 2009 stimulus spending spree. The results were less than assumed. The dark line is what government projected that spending would do to unemployment, using “standard multipliers.” The lighter blue line was the grim fate awaiting us absent a government binge. The red dots are the actual post-binge unemployment rates.
The study does not have the two words that could have given it credibility: “opportunity cost.” They assume that the money left in the hands of taxpayers would have done nothing. But it would have been spent elsewhere, undirected by politicians; it would have bought things, creating profits and jobs. But as they would have gone unclaimed by economic development officials, no press conference could have been called, so they don’t count.
Obama consistently ignores the statutory timeline for releasing his budget, and this year is the latest he has ever put forward a fiscal proposal. On all things administrative, the president is frequently dilatory. But those waiting with bated breath for Obama’s proposals will be disappointed — the budget will be more of the same and has little chance of actually being passed or even taken up by Congress.
Apparently, President Obama’s budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts. The details are not yet known, but I think we know enough to say that this is a terrible idea.
A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes. Completely replacing our tax system with a better one is, however, hard. Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax. The use of these accounts should be encouraged, not discouraged.
Unlike some of his other bad ideas, this one isn’t going anywhere.
One of our last posts indicated that the IRS had issued a notice indicating they might not assess the late payment penalty for returns that are extended and paid after April 15, 2013 if the return included certain forms that were delayed by the new tax law.
However, when you read the fine print, it appears that you still need to accurately estimate your tax and pay in at least 90% of this extra tax to escape the penalty.
The IRS language is:
For each taxpayer who requests or has requested an extension to file a 2012 income tax return that includes one of the forms listed in Exhibit 1 of this Notice, the IRS will deem the taxpayer to have demonstrated reasonable cause and lack of willful neglect, provided a good faith effort was made to properly estimate the tax liability on the extension application, the estimated amount is paid by the original due date of the return, and any tax owed on the return is fully paid no later than the extended due date of the return.
I suspect that the IRS will not be very strict in making taxpayers demonstrate reasonable cause, but if you have the cash, you should pay up.
One of her clients mailed his tax return to the IRS but forgot to seal the envelope. The return did make it to the IRS, but without page two of Schedule C. The first that the client found out there was a problem was when the IRS sent him a letter noting the omission. The second time he knew that there was a problem was when she found she was a victim of identity theft.
Tax Freedom Day for Iowans will arrive April 9, according to the Tax Foundation. That’s nine days sooner than for the whole country. From the Tax Policy Blog:
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income.
In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 108 days, or 29.4 percent, into the year. Americans will spend more in taxes in 2013 than they will on food, housing, and clothing combined.
You can find Tax Freedom Day for your state from this Tax Foundation Map:
The national Tax Freedom Day is five days later than last year:
Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect.
But cheer up! If taxes were high enough to pay for all government spending without borrowing, it wouldn’t be until May 9.
TaxProf, ESPN: Athletes’ Charities Fall Short of IRS, Nonprofit Standards. Chis Zorich might agree. Actually, the arguments against athletes setting up their own charitable foundations are the same as those for anybody else. They take more work and expertise to run than most people realize. Compliance with federal tax laws and state laws can be costly. It’s easy to get into trouble with them, like Mr. Zorich did. It’s much wiser for athletes with a charitable interest to work with an established charity that knows what it’s doing.
Jason Dinesen, Taxpayer Identity Theft — Part 14 . The latest adventures in trying to get the IRS to pay the refund of his client, an identity theft victim, for 2010. She may have it in “another 6-8 weeks.” We’ll see.
For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.
Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)
Of course Mr. Hatch failed to pay the taxes on income he earned in front of millions, serving a prison sentence as a result. Sometimes watching somebody else get into real trouble can be instructive.
Not your corporate welfare. Just ours. Iowa Senate taxwriters have been eloquent in criticizing the corporate welfare famously doled out to fertilizer companies over the last year. It turns out, though, that not all corporate welfare is bad, to them. Just that proposed by the other party. The Senate Ways and Means Committee advanced a set of its own welfare programs yesterday, including:
SF 238, which would provide a 30% tax credit (subsidy) “for persons who construct, install, and place in service an electric vehicle facility or a natural gas vehicle facility.” So if you buy a Chevy Volt, Senate Ways and Means wants to pay 30% of the cost of installing special plug-ins.
SSB 1240, which “increases to $50 million from $45 million the amount of historic preservation and cultural and entertainment district tax credits.” These are a cash cow for well-connected developers and rehabbers.
SF 205, which opens up an existing program to divert withheld employee taxes “to create economic incentives that can be directed towards business.” The bill “removes the requirement that an employer…be located in an urban renewal area.” In other words, it makes it just another “incentive” slush fund to pay people to be our friends.
So it’s not a principled opposition to business subsidies. They just want different ones.
Far better to get the state out of the subsidy business and make the tax system good for everyone — not just those with the pull and the consultants to game the system. Far better to enact The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.
The article takes for granted that the costs the regulations will impose will exceed the benefits:
Knowledgeable tax return preparers—who are reminded each year through education requirements to conduct effective due diligence on small businesses—can have a much greater impact on compliance than IRS auditors.
That makes an unwarranted assumption: that the IRS can create “knowledgeable tax return preparers.” It can’t. It can make people fill out paperwork, go through the motions of paying for CPE, and take meaningless open book literacy competency tests, but it can’t make anybody competent.
The IRS has limited resources. Semi-literate South Florida grifters are stealing billions through fraudulent refunds. Yet the IRS seems to think its problem is honest preparers.
Finland will lower the corporate rate to 20 percent in 2014, down from the current rate of 24.5 percent (and 26.0 percent in 2011)…
Finland plans to pay for part of the rate cut by boosting the effective investor tax rate on dividends paid by companies listed on the Finnish stock exchange.
Why not instead create a full dividends-paid deduction. It would eliminate the need for a rate preference for dividend inocme while eliminating the destructive double-tax on corproate earnings.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Disclaimer
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
