Posts Tagged ‘Peter Reilly’

Tax Roundup, 3/23/16: “Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.” And more!

Wednesday, March 23rd, 2016 by Joe Kristan

norcal logoNo Scandal here. The IRS has long history of hiding behind taxpayer confidentiality rules to avoid accountability. The Sixth Circuit Court of Appeals called the IRS on this yesterday in a harshly-worded opinion.

The case arose from the Tea Party scandal. NorCal Tea Party Patriots sued the IRS after the scandal emerged. The IRS has used every trick in the book to drag out the case, citing the “confidentiality” of the very taxpayers it abused. From the Sixth Circuit opinion (my emphasis):

The IRS argues that the “names and other identifying information of” organizations that apply for tax-exempt status — along with the applications themselves — are confidential “return information” under 26 U.S.C. § 6103. IRS Petition at 2, 16. The IRS argues further that the district court lacked authority to order disclosure of those names under a statutory provision for disclosure in judicial proceedings where “the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding[.]” 26 U.S.C. § 6103(h)(4)(B). The IRS contends that the district court’s discovery orders threaten to undermine statutory protections for taxpayer privacy, and that a writ of mandamus is therefore appropriate.

A “writ of mandamus” is “an extraordinary remedy reserved to correct only the clearest abuses of power by a district court.” The Sixth Circuit wasn’t buying. They reviewed the IRS foot-dragging:

To that end, the plaintiffs sought discovery in the form of basic information relevant to class certification, including the names of IRS employees who reviewed the groups’ applications for tax-exempt status and the number of applications from similar groups that had been granted, denied, withdrawn, or were still pending. On the record before us here, the IRS’s response has been one of continuous resistance. For example, the IRS asserted that the names of IRS employees who worked on the groups’ applications were taxpayer “return information” protected from disclosure by § 6103. The IRS eventually abandoned that position, but argued instead that § 6103 barred the Department of Justice’s attorneys from even reviewing the groups’ application files to find the names of the IRS employees who worked on them. That was true, the IRS asserted, even though § 6103(h)(2) — entitled “Department of Justice” — expressly allows the Department’s attorneys to review a taxpayer’s return information to the extent the taxpayer “is or may be a party to” a judicial proceeding. See 26 U.S.C. § 6103(h)(2)(A). The IRS further objected — this, in a case where the IRS forced the lead plaintiff to produce 3,000 pages of what the Inspector General called “unnecessary information” — that “it would be unduly burdensome” for the IRS to collect the names of the employees who worked on the groups’ applications. The district court eventually intervened and declared the IRS’s objections meritless. Yet the IRS objected to still other document requests on grounds of “the deliberative process privilege[.]” That privilege, the IRS acknowledged, can be waived in cases involving “government misconduct”; but in the IRS’s reading, the IG’s report “does not include any allegation or finding of misconduct.”

Many taxpayers and preparers wish the IRS would use such a generous definition of “misconduct” when the criminal agents come calling.

The Sixth Circuit rejected all of the IRS arguments:

Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.

Words that should be chiseled over the entrance to IRS headquarters.

Cite: United States v. NorCal Tea Party Patriots et al.; CA-6, No. 15-3793.

More coverage:

TaxProf, IRS Scandal, Day 1049:  6th Circuit Slams IRS Treatment Of Tea Party Group

Russ Fox, A Bad Day for the IRS in Court

 

Scott Drenkard,New Study on Electronic Cigarettes Released Today (Tax Policy Blog):

To some, vapor products are an exciting innovation that offers a new, less harmful alternative to traditional incinerated cigarette use. By contrast, tobacco control groups are concerned about youth use of the products.

Meanwhile, politicians are concerned about losing their sweet tobacco revenues if people stop gassing themselves with the real thing. Hence the moral panic.

This map is in the study:

20160323-1

“Vapor products are generally found to have a much lower risk profile than traditional incinerated cigarettes.”

 

Paul Neiffer, Expanded Cost Basis Reporting is Here! Are you Ready? “The Surface Transportation and Veterans Health Care Improvement Act of 2015 (those two don’t really go together) added new tax laws that require executors to file cost basis information with the IRS.  This is required only when there is a taxable estate.”

Kay Bell, IRS releases Top 10 identity theft, tax fraud cases. 2015 only. 

Jack Townsend, IRS Publicizes Success in Prosecuting Identity Theft Refund Fraud

The IRS’s message from the selected 10 examples is that identify theft is serious and draws serious sentencings, with the principals involved receiving over 70 months (some well in excess of 100 months) incarceration (persons with lesser roles receive lesser, but still significant sentences).

That’s appropriate, but it’s not enough. Even though the thieves highlighted by the IRS report will rot for a long time, the millions they have stolen aren’t coming back. The petty grifters hightlighted in the report are probably not the type of folks who carefully weigh consequences when they can get free money right now. Nor will long sentences aren’t going to bother Russian organized crime networks, who have no intention, and little prospect, of facing U.S. justice.

Improved IRS processes that stop the crimes before they happen are what’s needed.

 

William Perez, How Much Can You Deduct by Contributing to a Traditional IRA? “Updated for 2016 contribution limits.”

Leslie Book, Filing a Day Late Can Be Timely Under Tax Court E-Filing Rules and So is Filing an Income Tax Return Ten Days Later After E-File Rejection. Good to know.

Robert Wood, Does Extending April 15 Deadline Increase Odds Of IRS Audit?. “It is worth saying it again: there is no increased audit risk to going on extension.” But there is definitely an increased risk if you mess up a return by doing it hastily, or by leaving off a late-arriving K-1.

Tony Nitti, Tax Geek Tuesday: Death Or Retirement Of A Partner In A Partnership. “Importantly, when a partner’s interest is to be liquidated by a series of distributions, the interest will not be considered liquidated until the final distribution has been made.”

 

TaxGrrrl, How To Survive Tax Season (Or Any Busy Work Day) In 10 Easy Steps.

Peter Reilly, IRS Bounty Hunters Should Not Waste Time On FBAR Penalties. In too many cases, that’s true of the IRS too.

 

20150326-3

 

Donald Marron, Britain Builds a Better Soda Tax (TaxVox). Better at stupid is still stupid.

Annette Nellen, Taxing Candy and Snacks – That’s a Good Start. At meddling in places where the government has no business.

 

Career CornerAccounting Talent Demanding Everything Shy of the Moon, Your First Born (Caleb Newquist, Going Concern). “If I may speak for myself and many, many other people, I’d be “history” after a few days of being treated like family. The nagging questions, the guilt, the constant phone calls, the passive aggressive suggestions about marriage/kids/life direction/bad habits.”

Share

Tax Roundup, 3/22/16: Iowa couples to 2015 federal Sec. 179 and other changes, except bonus depreciation.

Tuesday, March 22nd, 2016 by Joe Kristan

CouplingcrescoSee you next year. 81 days after 2015 ended, Iowa finally has its 2015 tax law. Governor Branstad yesterday signed HF 2433, adopting federal tax law changes for 2015, including the $500,000 Section 179 limit, but not including bonus depreciation.

While Congress enacted the $500,000 limit permanently last year — and indexed it for inflation — Iowa’s coupling is for one year only. That sets up a fight in the 2017 General Assembly not only over bonus depreciation, but over all of the other “expiring provisions” that Congress re-enacted in December.

How we got here. While Iowa’s income tax is based on federal income tax rules, it doesn’t automatically adopt federal tax law changes. Every spring the General Assembly passes a “coupling” bill where they choose whether to adopt federal tax changes made in the prior year. The Congressional habit of enacting important tax provisions for one or two-year periods — to pretend they cost less — has made the annual coupling bill an important part of the legislature’s work.

Since 2010, Iowa has adopted all federal tax law changes except for bonus depreciation. These have included the $500,000 Section 179 deduction for new asset purchases that would otherwise have to be capitalized and depreciated over a period of years — usually three to seven years. In recent years the coupling bill has been one of the first bills to go to the Governor.

This year is different. Governor Branstad surprised the Iowa tax world when he announced on January 13 that there would be no coupling for Section 179 for 2015, on the grounds that the state budget required the revenue. It soon came out that he opposed coupling for anything but the federal research credit. That would have made a major mess out of Iowa tax filing season, affecting a broad range of deductions, including:

Exclusion for IRA distributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

His Republican partisans in the Iowa House of Representatives rebelled. A coupling bill that included Section 179 passed the Iowa house by month-end, 82-14. Notably, not only did all voting Republicans support the bill, but so did a large majority of Democratic representatives.

Yet the prospects for coupling at the time looked grim. Citing the Governor’s opposition, Senate Majority Leader Gronstal (D-Council Bluffs) was set to keep the House-passed bill from ever coming to a Senate vote.

coupling20160213But the natives were restless. The legislators heard from a lot of their constituents that they were unhappy to lose the deduction, which could be worth around $40,000 for many taxpayers. The Des Moines Register reported that “only” 25,000 taxpayers would have lost deductions under that, but that comes out to 250 grumpy business constituents and farmers for every Representative, and 500 per senator. It seems most of them got on the phone and called their legislator. Business groups such as the Iowa Association of Business and Industry pushed for coupling, as did Iowans for Tax Relief.

The message got through. By February 22, Governor Branstad reversed himself and decided Iowa could afford Section 179 coupling for one more year. That left Senator Gronstal as the remaining roadblock to coupling. He extracted a face-saving reduction in the sales tax exemption for manufacturing supplies that the Department of Revenue put into place last year — by accepting a version of the break that he blocked in 2014.

Now it’s time to catch up. The software vendors will scramble to update their tax prep programs to include the coupling, and we can finally start to move all of the Iowa tax returns that have been on hold awaiting the coupling.

Unfortunately, this coupling bill is only for one year — even though $500,000 Section 179 is now a permanent federal tax provision. We can expect both the Governor and Senator Gronstal to oppose Section 179 coupling in the next General Assembly. They have other priorities.

Other coverage:

Gazette.com, Branstad signs tax-policy compromise

Des Moines Register, Branstad signs tax policy compromise

Maria Koklanaris, Iowa Governor Signs Exemption, Federal Conformity Bill

Paul Neiffer, Iowa Governor Branstad Finally Signs Coupling Bill.

 

IMG_1429a

 

Kay Bell, Figuring the tax value of goods you give to charity

TaxGrrrl, The 9 Most Common Tax Filing Mistakes – And How To Avoid Them. “Rushing tends to result in mistakes – and those errors can slow processing of your tax return, resulting in delayed tax refunds or worse, a second glance from Internal Revenue Service (IRS).”

Jason Dinesen, Success Comes Too Easily for a Side Business. “In my experience, most of us who try taking a side business full time end up overwhelmed. A few of us make it through.”

Peter Reilly, AICPA Versus Block Advisors In Spat I Hope They Both Lose. “The reason that the H&R Block ‘Who actually prepares your return?’ question is the money shot is that at many national and large CPA regional firms, the answer will be ‘Somebody in India‘”  All Roth & Company returns are 100% U.S. content, by the way.

Leslie Book, Clarke Case Finally Comes to End: Eleventh Circuit Orders Enforcement But Also Leaves Door Open For Allegations of Improper Purpose (Procedurally Taxing).

Jack Townsend, Ruminations on Inconsistent Verdicts. “The issue of inconsistent verdicts is a big issue.”

 

IMG_1396

 

Joseph Henchman, U.S. Supreme Court Declines to Hear Case Challenging Colorado Marijuana Law (Tax Policy Blog). “The U.S. Supreme Court today turned down an attempt by Nebraska and Oklahoma to challenge Colorado’s legalization of marijuana, without explanation.”

Renu Zaretsky, Are Presidential Candidates’ Tax Plans Getting Closer Looks? Today’s TaxVox headline roundup covers the millionaires who want to pull up the ladder behind themselves in New York, polling on the Bernie plan, and more.

TaxProf, The IRS Scandal, Day 1048

Jeremy Scott, Scotland Makes the Case That Taxes Pay for Things People Want (Tax Analysts Blog) “The Conservatives were quick to point out that she was essentially putting a ‘higher taxes here’ sign on the border that would encourage migration and tax planning.”

Ajay Gupta, Trump Only Threatens a Trade War, But Obama Might Actually Start a Tax War (Tax Analysts Blog)

 

News from the Profession. This 8-K From Valeant Is Something to Behold (Caleb Newquist, Going Concern).

Share

Tax Roundup, 3/18/16: The income tax difference between gifts and compensation, illustrated. And: twins!

Friday, March 18th, 2016 by Joe Kristan

Twins! I’m delighted to report that Abby Croll, a Roth & Company Tax Manager, delivered twins yesterday, a boy and a girl. All are well.

 

20160215-1Too darn busy to file? There are many good reasons to stay current on your tax filings. One compelling reason is that failure to file can draw unwanted attention from the IRS. Returns that aren’t there can stand out.

That seems to be how it worked for an entrepreneur in Northwest Iowa, a Ms. Fairchild. An Eighth Circuit panel yesterday upheld her 33-month sentence on tax charges. The court takes us back to the beginning of the investigation (any emphasis is mine):

In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004.

With no returns with which to start, Agent Wright did a little digging:

Agent Wright obtained records from Fairchild’s two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier’s checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild’s accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.

That was enough to pique Agent Wright’s interest. Meanwhile, Ms. Fairchild wasn’t exactly ignoring her tax issues:

In July 2010, Fairchild and her husband filed joint income tax returns for 2005, 2006, 2007, and 2008, apparently unaware of the ongoing IRS investigation. Fairchild, a professional adult entertainer, reported income in each of the respective years as $122,345; $120,000; $120,000; and $151,325. The total income reported of $513,670 was far less than the $1,153,647.84 that Fairchild received from Karlen and Pietz during that same time span. Additionally, the returns did not identify any of Fairchild’s cash deposits during those years as income.

Perhaps a false move, considering that Agent Wright already knew about the deposits. Before long the IRS got copies of these returns to him, and he arranged a chat with Ms. Fairchild:

Agent Wright interviewed Fairchild about her tax returns on July 13, 2011. During that interview, Fairchild explained “that she actually thought all of the money, that every single cashier’s check she received from Mr. Karlen was a gift, but that she had reported some of it to take some of the tax burden off of him.

Very thoughtful.

To determine how much income to claim, Fairchild told Agent Wright that she “ballparked” the amount. In the same interview, Fairchild also claimed that the money from Pietz was a gift and that he had told her that he reported the gift on his income tax return. Even though $30,000 of the money from Pietz was included as income on her 2008 income tax return, Fairchild maintained that it was really a gift that her accountant had mistakenly included as income.

I suppose most people don’t know that gifts don’t show up on income tax returns. Still, one may doubt that gift tax returns were filed for any of these amounts under the circumstances.

In order for a payment to be considered a “gift,” and therefore exempt from income tax, it has to be paid out of “disinterested generosity.” It appears that the benefactors had, um, interests:

According to Karlen, he met Fairchild in 2003 or 2004 while she was dancing. He tipped her money when she danced on stage and paid for private dances inside the club in a private room. Fairchild gave her phone number to Karlen and would call him to tell him when and where she would be dancing. In 2005, Karlen went to watch Fairchild dance at a club; while there, Fairchild asked Karlen if he was interested in paying for sex with her outside of the club. Karlen testified concerning the first time that he met with Fairchild for a “private meeting outside the club.”

You can read the opinion if you care for more details, but they can be condensed into this:

When asked how he “treat[ed] the money that [he] gave to [Fairchild],” Karlen replied, “[f]or her service. . . . For sex.” When asked whether the 37 payments were all for sexual services, Karlen replied, “[e]very one of those.” He later confirmed that “[t]he whole $1.1 million was for sex” and that “[e]verything was for sex.”

Generous, maybe, but not disinterested. It appears that her other benefactor had similar interests.

Ms. Fairchild had an explanation for her late filing:

Fairchild admitted that she did not file income tax returns for 2005 through 2008 until 2010, but she claimed that the delay was due to problems that she experienced during the construction of her new home.

Probably not “reasonable cause,” to IRS thinking. In fairness, it seems she was busy on other things.

20150813-1Now let’s move on to her visit with her tax preparer:

In May 2006, after filing requests with the IRS to file the income tax returns late, [preparer] Anderson met with Fairchild to determine her income. Because Fairchild had no other documentation of her income, she reviewed her bank statements with Anderson to determine which deposits were income. Anderson testified, “I went through and had Veronica [Fairchild] read off the deposits to me, and I ran a tape on my calculator of the number of deposits that she would tell me.

He ran a tape! There’s no school like the old school.

But old school or new, it was all income as far as the IRS was concerned, and it wasn’t reported. Indictment and conviction followed in due course, and yesterday the appeals court upheld a 33-month prison sentence for the underreporting. It perhaps didn’t help that while she didn’t report all of the deposits as income on her 1040, she did report it all to several banks when she applied for loans.

The moral? There are several lessons we can draw. First, file timely. She might have never attracted Agent Wright’s attentions had she filed, unless he was a strip club patron.

Next, beware the tendency to believe what you want to believe about taxable income. Just because the nice man gives you money doesn’t mean he’s doing it because he’s a nice man.

Finally, level with your preparer. The court seems to have held it against her that she didn’t.

Cite: Fairchild, CA-8, No. 14-3517

Prior coverage here.

 

KCRG.com, Iowa Businesses Spend Billions In Tax Coupling

Specifically, agriculture businesses and farms use it for high cost equipment. In 2012 through 2014, agriculture applied that tax law to around 38 percent of their investments. More than twice of any other industry.

In terms of dollars, across all small businesses in Iowa, that’s about $2.7 billion in 2012, $2.7 billion in 2013, and $2.2 billion in 2014. Of that, farm returns claimed between 54 and 66 percent over those three years.

Those numbers come from a white paper by Roger McEowen, a professor of Ag Law at Washburn University and the Midwest Tax Director of CliftonLarsonAllen in West Des Moines.

But what good is it if it never lets a politician issue an economic development press release?

 

The Critical Question: How High Are Beer Taxes in Your State? (Scott Drenkard, Tax Policy Blog). This high:

20160318-1

 

Peter Reilly, IRS And Liquor By The Wink. Wherein a glorified bar isn’t a tax-exempt social club.

TaxGrrrl, You Can Thank Excise Taxes For Guinness Stout. That wouldn’t have occurred to me.

Jason Dinesen, Glossary: College Savings Iowa. “It’s a type of529 Plan, where money going into the plan is not tax deductible (for federal taxes) but money coming out not taxed as long as it’s used for qualifying expenses.” And it has an Iowa tax benefit.

Robert Wood, Confusing Personal With Business On Your Taxes Can Mean IRS Penalties Or Jail. Expecially when “confusing” means “pretending.”

Kay Bell, Alexander Hamilton will remain on redesigned $10 bill. Phew.

 

Picture by Dan Kristan

Picture by Dan Kristan

 

William Gale, Taxes on the Rich May Change a Lot in 2017 (TaxVox)

Alex Durante, The U.S. Tax and Transfer System is Very Progressive, New Paper Confirms (Tax Policy Blog). But it is also whimsical: “However, due to the complex system of phase outs of certain tax credits and government transfers, poor households may face marginal tax rates as high as some middle and upper-income households.

All points bulletin! Beware the Slayer of Tax Reform Fantasy (Robert Goulder, Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 1044

Stuart Gibson, Two Steps Forward, Three Steps Back for Europe? (Tax Analysts Blog) “Unfortunately, every time it looks like Europe will unify behind certain tax policies, the member states start circling the wagons and shooting inward.”

News from the Profession. Cyber Extortion: Leprechauns vs. Accountants (Megan Lewczyk, Going Concern)

Share

Tax Roundup, 3/15/16: Deadline Day, Coupling Vote Day. And: Arnold Palmer’s worst golf partner goes to Tax Court. (Updates)

Tuesday, March 15th, 2016 by Joe Kristan

coupling20160129Coupling day in the General Assembly. The bills to couple Iowa’s 2015 tax law with federal 2015 tax changes (HF 2433 and SF 2303) are scheduled for debate today in the Iowa House and Senate. I expect them to pass easily. The Governor is on vacation in Florida, but GlobeGazette.com reports that he “is expected to return to Iowa later this week” and sign the bill. We will update this post if and when the votes come down.

Update, 3:40 p.m.: The Senate passes the House bill without amendment, 50-0. On to the Governor.

Update, 1:09 p.m.: A glitch? The Iowa Society of CPAs twitter feed reports:

201603015-3

I know nothing more, but if they approve an amended version, it has to go back to the House for a re-vote. I’ll monitor and update if I learn more.

Update, 10:26 am: coupling bill HF 2433 passes Iowa House, 78-17. On to Senate later today.

 

Deadline day! Corporation returns are due today. Also due are two key international tax forms, for trusts and withholding on interest, dividend and other non-business income paid to foreign taxpayers. Russ Fox has more on that.

e-file logoTake care to document that you are filing your returns or extensions timely. E-file is best if you can, as you have no worries about mail truck mishaps. If you file on paper, Certified Mail, Return Receipt Requested, is the tried-and-true way to prove you filed your returns on time.

If you don’t get to the post office on time, you can file up until midnight at the UPS Store or Fed-ex store, but be careful. Make sure you use one of the IRS-approved shipping services (for example, UPS Ground doesn’t qualify, but “Next-Day Air does). Make sure that you shipping slip has a pre-midnight time stamp. And you have to use the street addresses of the IRS service centers, rather than their P.O. boxes.

Related: William Perez, How to Mail Tax Returns to the Internal Revenue Service

 

(also see [1]). Direct image URL [2], Public Domain, https://commons.wikimedia.org/w/index.php?curid=2199960

By U.S. Coast Guard – U.S. Coast Guard historical photo

Worst Golf Partner Ever. Arnold Palmer, the famous golfer, did less well in the auto business, thanks to a partner involved in a Tax Court case released yesterday. The companies, BOH and APAG, were funded in part by Mr. Palmer. Judge Nega sets the stage:

Petitioner began siphoning money from Arnold Palmer Motors, Inc., as early as October 1985. When one dealership ran short on cash, petitioner transferred money from another dealership to cover the shortfall. Rather than transferring funds directly between dealership accounts, petitioner routed transfers through his personal bank account. Petitioner routinely kept some of the transferred funds in his own account instead of transferring them to the appropriate dealership. Messrs. Palmer and McCormack did not authorize petitioner to take money from the dealerships.

The bad partner diversified into stealing from other S corporations funded by Mr. Palmer and others, but in which he held a 1/3 interest. After some time he was caught, and the tax man came calling.

The taxpayer took a bold tax return position. You need basis in an S corporation to take losses. Loans you make to an S corporation can create basis for taking losses. The taxpayer said that he made loans to the corporations he was stealing from, giving him basis.

The Tax Court found this improbable (my emphasis):

The record contains no evidence reliably establishing petitioners’ bases, if any, in the Arnold Palmer dealerships or their entitlement to NOLs arising therefrom. Petitioners have not provided any Forms 1120S, U.S. Income Tax Return for an S Corporation, or Forms 1065, Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., for any of the Arnold Palmer dealerships in which petitioner was a one-third shareholder. They contend that he contributed “significant funds” to the dealerships but do not identify any specific dollar amounts contributed. In contrast, the record reflects that petitioners misappropriated amounts in excess of $6 million from the Arnold Palmer dealerships during the late 1980s which they did not report on their 1988 or 1989 income tax return.

As you may guess, the Tax Court ruled against the taxpayer, big time, with 75% civil fraud penalties.

I assume, dear reader, that you aren’t stealing from your employer. If you are, you should be reading another tax blog. But even non-thief readers can draw a lesson. You need basis to take an S corporation loss, and you need the records to show it. The taxpayer here was claiming losses from net operating loss carryforwards created by alleged S corporation losses. He failed to provide sufficient records from the loss years to convince the Tax Court.

The Moral? If you are claiming loss carryforwards, you need to preserve the tax records for the years in which the losses arise, and all intervening years, to document your right to the losses. That’s true even though the statute for limitations for the loss years has expired. Net operating losses carry forward for 20 years. That means you may need to maintain the records for the loss years for 23 years — and for all of the years in between — if you take 20 years to use them up.

Cite: O’Neal, Jr., T.C. Memo 2016-49.

 

20160315-2

 

TaxGrrrl, IRS Alerts Taxpayers To New Tax Season Related Phone Scam:

Here’s how the new scam works. The scammer calls you and says that are with the IRS and have your tax return. They then say they need to verify some information to process your return. Those details generally involve asking for your personal information such as a Social Security number or personal financial information, such as bank numbers or credit cards.

To make the scam appear legitimate, scammers often alter caller ID numbers to make it look like the IRS or another government agency is calling. The callers may refer to IRS titles, fake names and fake badge numbers. They may know your name, address and other personal information that they offer to make the call sound official.

Be careful, and remember: if the caller says he’s from the IRS, he’s lying.

 

Peter Reilly, Sales Tax Collection By Out Of State Vendors May End Up At Supreme Court Again. “The reporting requirements may have created a situation illustrative of Reilly’s Second Law of Tax Planning – Sometimes it’s better to just pay the taxes.”

David Vendler, Can a Receiver Take Advantage of the Claim of Right Provisions to Benefit Defrauded Consumers? (Procedurally Taxing)

Paul Neiffer, When Not To Take A Discount? “When a farmer has a taxable estate, we usually try to obtain a discount by splitting up land ownership into “fractional” ownership.”

Kay Bell, How long are you willing to wait for your tax refund? I.D. theft has forced tax agencies to slow down refunds to keep them from going to thieves.

 

20160309-1

 

TaxProf, The IRS Scandal, Day 1041.

J.D. Tucille, Poor Americans Will Be Stuck With the Tab for Bernie Sanders’ Generous Promises (Reason.com). “At the end of the day, grandiose promises of massive government programs are cheap. But paying for them has a high price tag—and it will be shouldered by those with the fewest means to afford the cost.” In other words, the rich guy isn’t picking up the tab, because he can’t.

Kyle Pomerleau, It Was Not A Good Week For The Patent Box (Tax Policy Blog):

A patent box, or “innovation box,” is a tax policy that provides a lower tax rate on income related to intellectual property. The stated goal of a patent box is to promote research and development, encourage companies to locate intellectual property in the country with the incentive, and to make a country’s tax code more internationally competitive.

Just as the research credit is an incentive to call more of what you do “research,” the patent box would end up broadening the definition of intellectual property income. The only innovation it would generate would be on the part of the same sort of specialty companies that make their living doing research credit studies.

Renu Zaretsky, Only Thirty-three days till Tax Day! Today’s TaxVox headline roundup covers tax refund statistics so far this season and the hiring by H&R Block of a former senator as a lobbyist for increasing barriers to competition and H&R Block profits through regulation of (other) tax preparers.

Share

Tax Roundup, 3/8/16: Getting robbed, and again. And: IRS allows retroactive WOTC certification for 2015.

Tuesday, March 8th, 2016 by Joe Kristan

walnutstreet20160308It’s not enough to get robbed; you have to time it right. A “pump-and-dump” securities fraud victim claimed a theft loss deduction. The IRS said “yep, you were robbed.” But they also said that they didn’t time their robbery deduction properly, and therefore were out of luck. And, it turns out, they were.

Court of Federal Claims Judge Sweeney explains (my emphasis, citations and footnotes omitted):

There is no dispute that plaintiffs discovered the theft loss in 2002.31 And, neither plaintiffs nor defendant disputes that in 2002, there existed “a claim for reimbursement with respect to which there [was] a reasonable prospect of recovery Plaintiffs filed their arbitration claim against Donald & Co., Mr. Stetson, Mr. Volman, and Mr. Ingrassia in February 2002, and by the end of that year, they had neither sought to adjourn the proceedings nor withdrawn their claim. Accordingly, in light of the ongoing arbitration proceedings, plaintiffs could not claim a theft loss deduction in 2002. Instead, they were required to delay their deduction until the “year in which it [could] be ascertained with reasonable certainty whether or not” they would receive reimbursement of their losses from their arbitration claim. Plaintiffs determined that the proper year to claim their theft loss was 2004, and filed amended federal income tax returns reflecting the deduction. The IRS disallowed plaintiffs’ refund claim, and takes the position in this litigation that 2004 was not the proper year for plaintiffs to claim their theft loss deduction.

The court said the victims didn’t prove that they were entitled to the deduction:

Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovering on their arbitration claim. However, under the factual circumstances presented in this case, the test is not whether plaintiffs had a reasonable prospect of recovering on their arbitration claim in 2004, but is instead whether, in 2004, plaintiffs could have ascertained with reasonable certainty that they would not recover on their arbitration claim. To satisfy their burden under the latter test, plaintiffs were required to produce objective evidence that they abandoned their arbitration claim in 2004. They failed to do so. In the absence of such evidence, plaintiffs are not entitled to a theft loss deduction for the 2004 tax year.

The opinion doesn’t say whether the victims filed protective refund claims for subsequent years to preserve their refund rights. It would be another robbery if they were unable to get their theft loss deduction because they got the year right. The statute in such cases should allow taxpayers to recover in the proper year if the IRS successfully second-guesses the timing of a theft loss.

The Moral? If you are a fraud or theft victim, the timing of the loss deduction is very important. If the IRS disputes the loss on examination, be sure to file protective refund claims for open years to protect your rights.

Cite: Adkins, Ct. Fed. Claims No. 10-851T.

 

Speaking of getting robbed twice: IRS shuts down ID-thief assistance portal. A week after The Tax Foundation pointed out that the IRS IP-PIN online portal made identity theft victims vulnerable to being victimized a second time, the IRS has temporarily shut it down:

As part of its ongoing security review, the Internal Revenue Service temporarily suspended the Identity Protection PIN tool on IRS.gov. The IRS is conducting a further review of the application that allows taxpayers to retrieve their IP PINs online and is looking at further strengthening the security features on the tool.

Nothing to see here, move along.

 

Work Opportunity Credit guidance updated for retroactive 2015 credits. Congress re-enacted the expired Work Opportunity Tax Credit retroactively for 2015. To claim the credit for hiring certain classes of hard to employ workers, employers have to get the employee eligibility verified within 28 days. As this was impossible for an expired credit, the IRS yesterday gave employers until June 29 of this year to get the certification for 2015 hires (Notice 2016-22)

 

20160308-1

 

Russ Fox, What Part of “Permanent Injunction” Didn’t You Understand? “Mr. Herrera is being held at ClubFed until he closes his business and complies with the injunction.” That should do it.

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-B, Proceeds From Broker & Barter Exchange Transactions

William Perez, How to Mail Tax Returns to the Internal Revenue Service

Keith Fogg, Making Claims and Spending Refunds in Bankruptcy. “The 9th Circuit recently affirmed the district court opinion granting summary judgment to the IRS in a case brought by Mr. Stanley Burrell aka M C Hammer seeking to equitably estop the IRS from collecting on taxes for two years which it failed to include on the proof of claim in his bankruptcy case.”

Jack Townsend, Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals

 

Tony Nitti, Would Hillary Clinton’s Tax Plan Kill The Incentive Stock Option?. Actually, AMT has done that pretty well already.

Robert Wood, President Hillary Won’t Cut Tax Deductions To Charities Like Clinton Foundation. Of course not.

Peter Reilly, Chasm Of Class And Privilege – Clinton Tax Plan Hits Top 1% – Sanders Plan Hits Top 5%. “What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.”

Kay Bell, Trump is last holdout as Kasich releases tax returns

 

Jason Dinesen, 6 Things You Might Not Know About Enrolled Agents. “2. We Don’t Work for the IRS

 

20160308-2

 

Renu Zaretsky, Budget Chaos, Tax Breaks, Loopholes, and Incentives. Today’s TaxVox headline roundup covers EU tax investigations of multinationals, IRS tax investigations of multinationals, and scoundrels “patriotic millionaires” against carried interests.

TaxProf, The IRS Scandal, Day 1034

Stuart Gibson, Competition Policy and Tax Policy in The Twilight Zone (Tax Analysts Blog). “From a tax perspective in the U.S. (and probably Europe), this is simply a garden-variety case of a taxpayer negotiating a good deal with a foreign tax authority. From a European competition perspective, the answer is a bit more complicated.”

 

News from the Profession. Why Accountants Suck at Marketing (Blake Oliver, Going Concern)

 

Share

Tax Roundup, 3/7/16: “Only” 25,000 Iowa filers hit by not coupling Sec. 179. And more late news!

Monday, March 7th, 2016 by Joe Kristan

Note: Our web server has been having a bad day, which is why this is “late” news.


coupling2016021325,000 to 8.
The Des Moines Register covered the Section 179 coupling controversy over the weekend, but missed a big part of the story:

The debate pits two conflicting priorities against each other.

On one hand is the legislature’s
desire to support small business owners and farmers who could use any extra money from the tax break to buy more equipment, make renovations or hire more employees.

On the other hand is the concern that Iowa needs to tighten its belt financially and focus on bolstering other priorities such as school funding, rather than giving away tax revenue.

What other priorities might there be for the $95 million or so “lost” to Section 179 besides school funding? How about this:

Iowa credits fy 2017

The Register article includes this item that attempts to show that Section 179 isn’t a big deal:

Only about 25,000 Iowa taxpayers in 2014 made a Section 179 claim of more than $25,000, according to numbers from the Iowa Department of Revenue. About 12,000 were farmers.

By comparison, the state Department of Revenue processed 1.58 million individual income tax returns for 2014.

“Only” 25,000? That works out to 252 businesses in every county that are seeing a tax increase to feed that $95 million to the Iowa treasury. Meanwhile, the state pays about $42 million in actual cash subsidies through the Iowa Research Activities Credit to a handful of businesses that each claim over $500,000 in credits. Of that, about $29.5 million goes to only eight taxpayers. 25,000 is a lot more than 8.

With its focus on spending, the Register story misses a huge point: the Iowa income tax favors well-connected insiders who know how to play the tax credit game, to the detriment of the 25,000 smaller businesses that would benefit from Section 179 coupling. Rather than remedying the inherently corrupt tax credit game, the state is giving out more special interest credits left and right.

20150327-1

 

TaxGrrrl, Understanding Your Tax Forms 2016: SSA-1099, Social Security Benefits

Peter Reilly,How Much Personal Use Of Airplane Is Too Much For Tax Free Exchange? “One of the tricky things about 1031 is the ‘trade or business or held for investment requirement’ – let’s call it the ‘held for’ requirement for short.”

Kay BellIRS ‘Future State’ plans and service, security concerns “The IRS is working on what it calls its Future State plan, an outline of agency activities in five years and beyond. One of the plan’s central components is online taxpayer accounts.”

Jim Maule, What Gets Taxed If the Goal Is Health Improvement? Trick question. The goal is moral preening and revenue-raising, not public health.

TaxProf, The IRS Scandal, Day 1031, 1032, 1033. Day 1032 covers the bizarre award given to awful Commissioner Koskinen: “IRS Chief John Koskinen Honored With an Award For ‘Excellence in Public Service’. Yes, That Guy. Yes, Really.”

Russ Fox, Koskinen Wins Public Service Award; Chaffetz Gets It Right:

I have to ask the NAPA: What were you thinking? Yes, Mr. Koskinen has served for many years, and he may have generosity of spirit. But as Congressman Jason Chaffetz said, “If obstructing a congressional investigation and misleading Congress merits an award, then it seems like they have the right guy. I guess I define excellent public service differently.”

In fairness, I think he’s doing exactly what the man who appointed him wants him to do.

Scott Greenberg, Four Million Taxpayers are Subject to the AMT. Who Are They? (Tax Policy Blog). “As these statistics show, the AMT basically functions as a surtax on high-income taxpayers in high-tax states with children.”

Norton Francis, The Perils of Tax Incentives for Economic Development (TaxVox). “And if every state is offering subsidies, one wonders whether they are engaged in a form of economic mutually-assured destruction, where the subsidies are pure windfalls to firms that have little effect on their decisions to move.”

News from the Profession. Let’s Review: Performance Art, Productivity, Binge-Watching (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 3/3/16: IRS sets up ID theft victims for another round. And: if you don’t have kids, there’s Craigslist!

Thursday, March 3rd, 2016 by Joe Kristan
This convicted ID thief likely was a first-day filer.

The kind of criminal mastermind ID thief that continually outwits the IRS.

There is no bottom. Every time I think that the John Koskinen’s IRS couldn’t possibly be less competent, they prove me wrong. Identity Thieves Bypass IRS Protections for Previous Victims (Tom VanAntwerp, Tax Policy Blog):

The IRS provides an Identity Protection PIN (IP PIN) to victims of identity theft with the goal of preventing it going forward. This IP PIN is mailed to individuals at the start of tax season, and is required to file a return. But the IRS also allows taxpayers to retrieve their IP PIN online by answering the same kinds of knowledge-based authentication questions that let thieves take advantage of the older Get Transcript website.

Computer crime reporter Brian Krebs published this account of Becky Wittrock, a previous identity theft victim whose IP PIN was compromised:

“I tried to e-file this weekend and the return was rejected,” Wittrock said. “I received the PIN since I had IRS fraud on my 2014 return. I called the IRS this morning and they stated that the fraudulent use of IP PINs is a big problem for them this year.”

Wittrock said that to verify herself to the IRS representative, she had to regurgitate a litany of static data points about herself, such as her name, address, Social Security number, birthday, how she filed the previous year (married/single/etc), whether she claimed any dependents and if so how many.

“The guy said, ‘Yes, I do see a return was filed under your name on Feb. 2, and that there was the correct IP PIN supplied’,” Wittrock recalled. “I asked him how can that be, and he said, ‘You’re not the first, we’ve had many cases of that this year.’”

Wittrock noted that the IRS representative said that they would be moving away from using the IP PIN in the near future and replacing it with a different system. No details are known about how this new system might function or if it will avoid the insecure knowledge-based approach to authentication.

Through lax IRS controls, the IRS lets a thief file a return in your name. You go through a long, exasperating process to straighten things out. Meanwhile, the IRS sits on your refund, even though it promptly wired cash to the thief. Then they give you an IP-PIN and assurance that it won’t happen again. And it happens again.

I never thought Doug Shulman would lose his crown as Worst Commissioner Ever. I wish I were right about that. And they think they should regulate preparers because we’re incompetent and out-of-control.

More coverage:

TaxProf, The IRS Is Using A System That Was Hacked To Protect Victims Of A Hack—And It Was Just Hacked

Taxable Talk, The Most Terrifying Words in the English Language Strike Again

 

20150918-3

 

TaxGrrrl, On Dr. Seuss’ Birthday, Oh, The Taxes You’ll Pay!:

More taxes!
Whether you like it or not,
Taxes will be something
you’ll pay quite a lot.

Oh, but the IRS will take such good care of it, you’ll not mind, not one little bit!

 

Peter Reilly, Tax Losses From Genetically Engineered Deer Allowed. “The purpose of the selective breeding is to get deer with really impressive head gear.”

Kay Bell, Doing the weird and wacky tax deduction dance. Yes, deer.

Leslie Book, Follow up On Clean Hands Post: The Imposition of Penalties and How Using a Preparer Does Not Automatically Constitute Good Faith and Reasonable Cause (Procedurally Taxing). “At the end of the day, the opinion is certainly a warning that merely hiring a preparer is not enough, and proving reliance on an advisor requires perhaps a bit more focus than a taxpayer’s testimony that the accountant prepared the return.”

 

20140729-1

 

Scott Drenkard, Philadelphia Mayor Proposes Gigantic Soda Tax (Tax Policy Blog). It’s the tax that’s gigantic, not the pop serving.

Donald Marron, Budgeting for federal lending programs is still a mess (TaxVox). A good reason to not have federal lending programs.

TaxProf, The IRS Scandal, Day 1029

News from the Profession. Accounting as Performance Art? Sure, Why Not? (Caleb Newquist, Going Concern)

 

You can get anything on Craigslist! Even dependents, it seems. From a Department of Justice press release:

Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that an Ozark, Mo., man has been indicted by a federal grand jury for filing false income tax returns after he advertised on Craigslist to purchase identity information for children that he could claim as dependents.

Raheem L. McClain, 37, of Ozark, was charged in a three-count indictment returned under seal by a federal grand jury in Springfield, Mo., on Feb. 23, 2016. That indictment was unsealed and made public upon McClain’s arrest and initial court appearance on Tuesday, March 1, 2016.

The federal indictment alleges that McClain caused an advertisement to be posted on Craigslist on Jan. 16, 2015, stating:

“WANTED: KIDS TO CLAIM ON INCOME TAXES – $750 (SPRINGFIELD,MO)

IF YOU HAVE SOME KIDS YOU ARENT CLAIMING, I WILL PAY YOU A $750 EACH TO CLAIM THEM ON MY INCOME TAX. IF INTERESTED,REPLY TO THIS AD.”

In a way, it makes economic sense. It would let people whose incomes are too high monetize otherwise useless dependents. But as you might have gathered from the word “indictment,” the tax law frowns on this sort of thing.

 

Share

Tax Roundup, 3/2/16: It’s your fault. You trusted us! And: don’t get phished.

Wednesday, March 2nd, 2016 by Joe Kristan

coupling20160213Insults always convince the insulted. Those dumb small businesses, thinking Congress and the legislature would do what they have been doing every year. That’s apparently the take of Iowa Senator Robb Hogg, reports the Caffeinated Thoughts blog:

State Senator Robb Hogg (D-Cedar Rapids) was very critical of small business owners and farmers who have contacted their legislators urging their support on coupling with federal tax changes which encourage growth in Iowa’s economy. Even worse, Senator Hogg shifted the blame from the inaction of Senate Democrats to Congress.

“I understand there are a lot of big crocodile tears being shed over this issue,” Hogg said. “Congress is to blame.”

“Those investment decisions have been made and maybe people had this belief that it might or would happen, but that doesn’t justify their claim that they were counting on it.”

Congress has renewed the higher Section 179 limit every year since 2009, and Iowa has coupled with the $500,000 limit since 2010. There was no indication that Iowa would do anything different until the Governor said otherwise in January. Either way, it’s still a big tax increase just as the ag economy is sagging.

I’ll also add that Sen. Hogg misuses the term “crocodile tears.” Per phrases.org.uk:

Meaning

To weep crocodile tears is to put on an insincere show of sorrow.

Origin

The allusion is to the ancient notion that crocodiles weep while devouring their prey. Crocodiles do indeed have lachrymal glands and produce tears to lubricate the eyes as humans do. They don’t cry with emotion though. Whatever experience they have when devouring prey we can be certain it isn’t remorse.

There’s nothing insincere about the sorrow of finding your taxes increased. The term is better reserved for someone who says, gee, too bad we need to take more of your money, but we sure do need to spend it.

Still, the tactic of criticizing your constituents is an interesting approach. It does seems to work on a national level lately.

 

Kay Bell, March arrives not as lion or lamb, but as a fish phish:

In this latest phishing ploy, one of several the IRS has seen surging this tax-filing season, the faux corporate execs are asking for payroll data, including W-2 forms that contain Social Security numbers and other personally identifiable information.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments,” warns IRS Commissioner John Koskinen.

“If your CEO appears to be emailing you for a list of company employees, check it out before you respond,” adds Koskinen. “Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.

Just this morning I got an email from someone I never heard of with a heading: “W2 Information EIN: 13-2655998.” Don’t click on this sort of thing. It’s bad news.

 

Kristine Tidgren, A New Farm Year Begins: Pay Taxes and Perfect Landlord’s Lien! (AgDocket)

Hank Stern, Aetna joins the parade (InsureBlog):

Aetna, and its Coventry affiliate, becomes the next major player to cry “no mas” on new business. In email this morning:

We will not pay commissions for sales with coverage effective dates after March 1, 2016, and continuing through December 31, 2016 effective dates.  This applies to on- and off-exchange business.”

If an insurance company doesn’t pay commissions, it’s a safe bet that they aren’t making money on the product.

Robert Wood, To Fight IRS Tax Bills, Go Step By Step

 

William Perez, Tax Advice for Cannabis Entrepreneurs. Interestingly juxtaposed with another post:

20160302-1 copy

It’s certainly conceivable that someone could find both posts useful.

 

Jason Dinesen, Sometimes I Wish I Could Just Prepare 1040-EZs.

 

 

Scott Drenkard, Celebrating 75 Years of Facts & Figures (Tax Policy Blog):

Today we released the 2016 edition of Facts & Figures, our pocket- and purse-sized booklet on quick tax facts. This publication has a long history—it dates back to 1941, when our think tank (which was just four years old at the time) published a booklet that was both a source of otherwise hard-to-find government data, and also a treasure trove of infographics to illuminate that information.

The Tax Foundation continues to be a valuable source of tax data and analysis, even though some folks don’t like the math.

TaxProf, The IRS Scandal, Day 1028

Renu Zaretsky, What comes after a big night for Clinton and Trump? The TaxVox headline roundup covers the Super Tuesday results and other tax news.

News from the Profession. FLASH: Sales, Accounting Personnel Face Pressure to Meet Revenue Goals (Caleb Newquist, Going Concern).

xx

Share

Tax Roundup, 3/1/16: Iowa-only preparer regulation dies unmourned.

Tuesday, March 1st, 2016 by Joe Kristan

20151124-1Bwahahaha! Tax pros across Iowa can continue to pillage their poor unsuspecting clients, and there’s nothing you can do about it!

What? You aren’t being pillaged? You are free to hire and fire a tax preparer or consultant who is incompetent, or who charges more than you want to pay? Then maybe it’s not such a tragedy that a bill to license and regulate tax preparers in Iowa, SSB 3135, died in the Iowa legislature at the “funnel week” deadline. The bill, sponsored by the Chairperson of the Iowa Senate State Government committee, “requires the Iowa accountancy examining board to license all persons who wish to practice as tax consultants or tax preparers.” As Russ Fox and Jason Dinesen note, it would exempt attorneys and CPAs while covering enrolled agents.

The proposal has all of the bad features of the abortive federal tax practice regulation, plus the additional flaw of making tax preparation in Iowa more expensive than in other states.

Occupational licensing is a crony capitalist job killer, and observers across the spectrum, from The Des Moines Register to the Koch Brothers have figured this out. SSB 3135 dies unmourned.

 

Russ Fox, Frivolity Has a Price: $19,837.50. In case you’re wondering why your attorney won’t help you argue that you don’t have to pay taxes because the judge has gold fringe on his flag, Russ can help you.

TaxGrrrlFiguring Out Taxes, Pay And More On Leap Day: Are You Working For Free Today?

Peter Reilly, Colorado Can Force Vendors To Rat Out Residents On Use Tax. Oh, boy.

Keith Fogg, Judge Paige Marvel Will Become New Chief Judge of the Tax Court on June 1 (Procedurally Taxing).

Robert Wood, 9 IRS Audit Tips From The Trump Tax Flap. I’m not sure how universal these tips are.

Kay Bell, Cruz & Rubio release taxes, challenge Trump to do same

Jim Maule, Should Candidates Be Required to Release Tax Returns?  I think they should be required to prepare them by hand on a live webcast.

 

Scott GreenbergThe Most Popular Itemized Deductions (Tax Policy Blog):

20160301-1
“Out of the 44 million households that itemize deductions, almost 43 million deduct the taxes they pay to state and local governments.”

 

TaxProf, The IRS Scandal, Day 1027

David Henderson, Henderson on the Case Against a VAT (Econlog).

Greg Mankiw, Misunderstanding Marco. “The Rubio plan is essentially the X-tax designed by the late Princeton economist David Bradford.  It is a progressive consumption tax.”

Tyler Cowen, The regulatory state and the importance of a non-vindictive President. That ship sailed seven years ago, and its return isn’t on the horizon, given the polls.

Renu Zaretsky, Disputes, Development, Filing, and FuelToday’s TaxVox roundup covers ground from Google’s international tax issues to lax security protocols from IRS “free file” providers.

 

Career Corner. Crackin’ Under Pressure: Making Mistakes During Busy Season (Caleb Newquist, Going Concern). “Regardless, mistakes are always mortifying to those who make them and, regardless of what you think, EVERYONE MAKES THEM.”

 

Share

Tax Roundup, 2/29/16: Governor wants to couple Sec. 179 for 2015 only. And: Iowa Farm 1040s due April 30.

Monday, February 29th, 2016 by Joe Kristan

20120906-1One year for you, forever for them. It turns out there’s a catch to Governor Branstad’s change of heart on conforming with the $500,000 federal Section 179 deduction. He only wants it for one year.

O. Kay Henderson reports:

Branstad did not include this recommendation in the plans he submitted to legislators in January. Republicans in the House have voted to make this tax break available to about 177,000 Iowa small business owners and farmers who’re filing their taxes right now and the Republicans in the legislature would like to make it permanent, but Branstad says he’ll only accept a one-year extension.

“We’d lose too much revenue,” Branstad says, “and it would put us in a financial position that we couldn’t sustain it for the long term.”

The Section 179 deduction allows taxpayers to deduct the cost of up to $500,000 of equipment that would otherwise have to be capitalized and depreciated. It is reduced dollar-for-dollar as purchases exceed $2 million, so it only benefits smaller businesses. The Governor would limit the deduction to $25,000, with the phase-out starting at $200,000. With the cost of a combine often in excess of $200,000, the Governor’s plan would increase taxes for many farmers.

The $500,000 has been passed a year or two at a time by Congress, and Iowa has gone along each year since 2010. Congress enacted the $500,000 limit permanently late last year, effective starting in 2015. Many practitioners were surprised when the Governor announced at the beginning of this legislative session that he opposed conforming to the federal limit. The Iowa House overwhelmingly voted for conformity anyway, and it would likely pass in the Senate if Majority Leader Gronstal would allow a vote.

While the Governor says the state can’t afford the $90-95 million cost of Section 179 for smaller businesses, he has plenty of money for tax credits for big companies. Here is what his 2017 budget provides for incentive and economic development tax credits:

Iowa credits fy 2017

So, according to the Governor, while the state can’t afford $90 million for small businesses buying equipment, except maybe for one year, it can afford three times that for big companies and well connected insiders, forever and ever.

People are starting to figure it out, including The Des Moines Register, which ran an editorial yesterday, End subsidy for big companies:

Last year, the state sent checks for $42.1 million to 186 companies under the research activities program, the Iowa Department of Revenue reported.

80% of that went to just eight companies.

Research and development is essential for corporations to compete in a high-tech world. Should taxpayers give big corporations a subsidy for doing this basic business function?

No, concluded a Special Tax Credit Review panel in 2010. Gov. Chet Culver appointed the panel after the film tax credit scandal. The panel recommended eliminating the refundability of the research activities credit for companies with more than $20 million in gross receipts.

“It seems unreasonable for the state to be providing successful, larger corporations refund checks for amounts of the Research Activities Tax Credit over its tax due to the state,” the panel concluded.

Unreasonable, indeed. The panel made other recommendations, including capping tax credits to businesses and providing a five-year sunset on all tax credits, requiring the Legislature to vote to continue them. Lawmakers largely ignored the recommendations.

It’s nice to see someone else remembers the Culver review panel. It found no clear benefit to any tax credit program. But while politicians can issue a press release when a big company gets a $14 million tax credit, nobody gets to cut a ribbon when a farmer buys a new tractor.

Related: Iowa extends Farmer 1040 due date to April 30.

 

Remember when the film credit repeal was going to kill the Iowa film industry? Film, Television Production Thriving in Iowa (KCRG.com). Whenever someone suggests that we kill film credit programs, the economic development people warn that nobody will stay in Iowa if we don’t pay them to.

20150119-1

Laura Saunders, IRS Says Cyberattacks on Taxpayer Accounts More Extensive Than Previously Reported; Tax data for about 700,000 households might have been stolen (Wall Street Journal). When this first came out, the IRS said 114,000 taxpayers were affected. Then it was 334,000. Are they done yet? The TaxProf has more.

Related: 

Math Is Hard, IRS Edition (Russ Fox). The actual number was more than 700,000. And the unsuccessful attempts didn’t total 10,000; they totaled 500,000!”

IRS: Efforts To Access Taxpayer Accounts Twice As Bad As Originally Thought (TaxGrrrl)

 

Kristine Tidgren, Gifted Assets and Divorce: Nothing is Certain (Ag Docket)

Paul Neiffer, Iowa Farmers Have Until April 30 to File Iowa Tax Returns

Jason Dinesen, Glossary: Iowa Form 126

William Perez, Served Time and Later Found Not Guilty? You Could Be Due a Refund

Annette Nellen, Trailing Nexus – Extra Complexity. “As if it isn’t already difficult enough for a business to know if it has income or sales tax nexus in a state, it might have ‘trailing nexus.'”

Keith Fogg, Private Debt Collection. “Adding non-IRS employees who will contact taxpayers will further confuse taxpayers already receiving calls from scam artist trying to shake them down in the name of the IRS and create other problems as well.”

 

Joseph Thorndike, Forget the Audit: Trump Should Release His Tax Returns Today (Tax Analysts Blog)

Kay Bell, IRS audit doesn’t prevent Trump from releasing taxes

Alan Cole, Why Marco Rubio and Ted Cruz’s Tax Plans Generate More Growth than Donald Trump’s (Tax Policy Blog)

Peter Reilly, Sanders Tax Plan Harder On Millionaires Than Billionaires

TaxProf, The IRS Scandal, Day 1024Day 1025Day 1026.

 

Robert Wood, Oscar Academy Sues Over Racy $230,000 Gift Bags. They want more?

 

 

Share