Posts Tagged ‘Peter Reilly’

Tax Roundup, 6/8/15: Hush money edition. And: IRA invests in IRA owner’s business, disaster ensues.

Monday, June 8th, 2015 by Joe Kristan
"Dennis Hastert 109th pictorial photo" by United States Congress - Licensed under Public Domain via Wikimedia Commons

“Dennis Hastert 109th pictorial photo” by United States Congress – Licensed under Public Domain via Wikimedia Commons

The TaxProf and I are cited in a New York Times article on the tax implications of former House Speaker Hastert’s hush money scandal: If Hastert Was Extorted, He Could Deduct Some Losses From His Taxes.

Mr. Hastert has been indicted on charges of “structuring” deposits to avoid reporting rules as part of a plan to pay for silence from “Individual A” for alleged sexual contact pre-Congress. From the article:

While extortion payments would be taxable for Individual A, they would actually be partly deductible for Mr. Hastert, said Paul Caron, a tax law professor at Pepperdine University. It’s right there in I.R.S. Publication 17, Chapter 25: You get to deduct losses because of theft, to the extent those losses exceed 10 percent of your adjusted gross income. Blackmail and extortion count as theft.

But to claim the deduction, Mr. Hastert would have to convince the I.R.S. or a court he had been extorted, which could be difficult.

”Sometimes judges will find a way to disallow deductions for what they find unsavory behavior,” said Joe Kristan, a tax accountant with the Roth C.P.A. firm. He noted a case in which a divided Ninth Circuit panel denied a tax deduction for extortion to a man who said he paid hush money to his mistress.

For the record, I have no personal experience in deducting extortion and hush money payments.

Related: Jack Townsend, Article on Structuring to Avoid Bank Currency Reporting Requirements, on the structuring charges of the Hastert case.

 

No Walnut STTaxpayer’s IRA-owned corporation leads to tax disaster. The Eighth Circuit appeals court has upheld horrendous tax penalties against a taxpayer who had an IRA capitalize his business as an investor.

A Mr. Ellis rolled his 401(k) plan into an IRA, which invested about $310,000 in CST, a C corporation. CST started an auto dealership and employed Mr. Ellis as General Manager. That led to unfortunate tax results. From the court opinion (my emphasis):

The tax court properly found that Mr. Ellis engaged in a prohibited transaction by directing CST to pay him a salary in 2005. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. See 26 U.S.C. § 4975(c)(1)(D), (E); 29 C.F.R. § 2509.75-2(c) (“[I]f a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation . . . will ordinarily be a prohibited transaction if the plan may, by itself, require the corporation . . . to engage in such transaction.”)

While the investment itself wasn’t ruled a prohibited transaction, things got messy once the IRA-owned corporation started paying Mr. Ellis a salary — an “indirect transfer” occurred.

The consequences? The prohibited transaction terminated the IRA. That means the whole value of the IRA became taxable income, with no cash made available to cover the taxes. With penalties, the bill will exceed $160,000.

The Moral? Direct business investments from IRAs are dynamite. If you must use retirement plan funds for a business start-up, it may be wiser to take a taxable withdrawal and use the after-tax funds to make the investment. If there is any way to fund it without retirement plan funds, that would be wiser still.

Cite: Ellis, CA-8, No. 14-1310 

Prior coverage here.

 

20150528-1Margaret Van Houten, Legislature Passes Bill Affecting Iowa Trusts and Estates (Davis Brown Tax Law Blog).  “Beginning on July 1, 2016, a step grandchild will no longer be subject to Iowa Inheritance Tax.  Currently, direct ancestors and descendants, including stepchildren, were exempt from the tax, while step grandchildren were grouped with other individuals, such as siblings, nieces and nephews and unrelated individuals and were subject to the tax.”

TaxGrrrl, The Not So Skinny On National Doughnut Day. That’s every day!

Jason Dinesen, Breakeven Analysis for Small Businesses — Service Providers and Not-for-Profits

Annette Nellen, More on marijuana businesses and tax ethics. “Despite state actions, the production, sale and use of marijuana is a crime under federal law. Thus, for licensed practitioners, there is concern about ethical violations of helping someone commit a crime.”

Kay Bell, H&R Block explores virtual tax preparation.

Peter Reilly, A New York Day Is Like A New York Minute At Least For Taxes:

In the case of John and Janine Zanetti, the New York Supreme Court Appellate Division agreed with the Commissioner of Taxation and Finance that a New York day can be less than 24 hours.  The point of the decision was to determine whether the Zanettis had spent enough time in New York to be considered statutory residents for the year 2006.

Lovely.

Jim Maule asks Is the Federal Income Tax Progressive? He focuses on the “low” federal effective rate on the “Top .001%.” Of course, the reason people get to those rates is normally because of a one-time event, typically the sale of a corporation, that is taxed at long-term capital gain rates. Such taxpayers are normally at that income level only once in their life. Of course, Prof. Maule ignores the built-in double tax hidden in these figures.

Leslie Book, DC Circuit Criticizes Government in Case Alleging an Israel Special Policy for Tax Exemptions (Procedurally Taxing). “As IRS has increased responsibility beyond its paramount mission of collecting revenues, the historical reasons for the discretion IRS has exercised have lessened.”

Robert Wood, Are On Demand Workers Independent Contractors In Name Only?

Tony Nitti, Put It On The Card! Congressman Proposes To Make Credit Card Debt Forgiveness Tax Free

Russ Fox, Another Las Vegas Preparer Gets In Trouble Over the Foreign Earned Income Exclusion. “I’d say it was something in the water but Las Vegas is in a desert.”

 

20150608-1

 

TaxProf, The IRS Scandal, Day 758Day 759Day 760. The IRS treatment of the Tea Partiers is compared and contrasted with that of the Clinton Foundation.

 

Arnold Kling, Payroll Taxes in Europe. ” I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.”

David Henderson responds:

I don’t find it hard to reconcile the two. The reason: Germany has had high payroll tax rates for a long time–for decades, actually. So real wages have had a long time to adjust.

I understand this as saying the total employment cost is about the same, but the employee gets less of it.

 

Kyle Pomerleau, CRS Outlines Four Important Aspects of the EITC. “The EITC enjoys bipartisan support among lawmakers. This is due to the fact it both reduces poverty among families with children and has a positive impact on the labor force for certain individuals. Yet, the EITC is not without its flaws. It’s benefit phase-out has a negative impact on the labor force and it suffers from high error rate and overpayment.”

Richard Auxier, Choose your tax system: progressive vs. regressive (TaxVox). A critique of the “Fair Tax” and other national sales tax proposals.

 

News from the Profession. Pope Figured The Lord’s Work Could Use a Good Auditor (Caleb Newquist, Going Concern)

 

 

Share

Tax Roundup, 6/5/15: Iowa adds deductions to 1041s. And: the dangers of unmonitored payroll services.

Friday, June 5th, 2015 by Joe Kristan

20130117-1Federal 706 costs good for Iowa 1041. The Iowa General Assembly yesterday eased restrictions on administrative deductions for fiduciaries. Iowa uses federal taxable income, with modifications, as its tax bases. Both houses passed HF 661, which provides a modification to this tax base:

On the Iowa fiduciary income tax return, subtract the amount of administrative expenses that were not taken or allowed as a deduction in calculating net income for federal fiduciary income tax purposes.

If I understand this correctly, this means fiduciaries can now deduct on Iowa 1041s expenses that executors have opted to deduct on the federal estate tax return; executors get to choose to deduct estate administration costs on either the Federal 706 or the Federal 1041, but not both. This bill makes some sense, as there is no Iowa estate tax; any deductions taken on the federal Form 706 estate return would otherwise provide no Iowa benefit.

It also appears to allow the deduction of any “administrative” expenses that would otherwise be disallowed under the 2% of AGI floor. The explanation to the bill doesn’t add much, so we will have to see if this is how the Department of Revenue reads the bill.

The bill passed both houses unanimously, so it seems likely the Governor will sign it. It is to take effect for “tax years ending on or after July 1, 2015 — so it will apply to the current calendar year.

 

EFTPSPEO operator gets 12 years after looting client payroll taxes. A Kentucky man will go away for a long time for an ambitious list of crimes that include stealing payroll taxes from clients. Wilbur Huff ran a professional employer organization. Such organizations take over employer payroll tax functions for their clients. PEOs file and pay the payroll taxes under their own tax ID number. This differs from traditional payroll tax services, which remit taxes under client tax ID numbers and provide prepared returns for the clients to submit.

From a Department of Justice Press release (my emphasis):

From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (“PEO”) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax, and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS, and instead of paying $5 million to Providence Property and Casualty Insurance Company (“Providence P&C”) – an Oklahoma-based insurance company – for workers’ compensation coverage expenses for O2HR clients, HUFF stole the money that his client companies had paid O2HR for those purposes.  Among other things, HUFF diverted millions of dollars from O2HR to fund his investments in unrelated business ventures, and to pay his family members’ personal expenses.  The expenses included mortgages on HUFF’s homes, rent payments for his children’s apartments, staff and equipment for HUFF’s farm, designer clothing, jewelry, and luxury cars.

Taxpayers using traditional payroll tax services can make sure their payroll taxes are actually paid to the IRS by logging into EFTPS, the Electronic Federal Tax Payment System. This doesn’t work for PEOs. That turned out very badly for Mr. Huff’s clients, who still have to pay the IRS the payroll taxes that went for the fancy cars and clothes.

 

buzz20140909Robert D. Flach has your Friday Buzz! It’s the place to go whether you Love Lucy or you love reading about tax administration.

Peter Reilly, Structuring Seems Like A Crime You Can Commit By Accident

 Imagine that you go to the bank every four days and deposit $12,000.  The bank will file currency transaction reports that let the Treasury Department know that.  That notion annoys you, so you start going every three days and deposit $9,000. No more currency transaction reports, but before long there will be suspicious activity reports.  If the reason you made the switch was to stop the currency transaction reports, you have committed the crime of structuring, even if there is nothing illegal about the source of the funds or the use of them and you are paying all your taxes.  

The crime of avoiding paperwork.

Kay Bell, Weather claims, estimated taxes and more June tax tasks

Jack Townsend, Two More Banks Obtain NPAs Under DOJ Swiss Bank Program

Robert Wood, Obama’s Immigration Action Means Tax Refunds For Illegals, Says IRS

TaxGrrrl, IRS, TIGTA Talk Tech, Identity Theft & Security At Congressional Hearing.

 

IMG_1514

 

Cara Griffith, Is the IRS Protecting Taxpayer Information or State Tax Authorities? (Tax Analysts Blog). “Although the IRS indicated it would make changes to improve the oversight of federal taxpayer information, it still seems information is shared between the IRS and state tax authorities as a matter of course and without a true determination (before information is shared) about whether a state tax authority has a secure system in place to protect the information received.”

Scott Drenkard, Why Do So Many Businesses Incorporate in Delaware? (Tax Policy Blog). “Delaware’s attractiveness for incorporation is driven by many things: favorable incorporation regulations, rules limiting corporate liability, and a second-to-none corporate court system (the Court of Chancery) with judges that are corporate law experts.”

Howard Gleckman, How Many Americans Get Government Assistance? All of Us. But some of us pay more than others for it.

Robert Goulder, Global Tax Harmonization and Other Impossible Things (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 757 “The IRS responded to a Republican request for an investigation into the Clinton Foundation’s tax-exempt status with a one-page form letter that starts with ‘Dear Sir or Madam.'”

 

Career Corner. ICYMI: AICPA Will Squeeze Excel Into the CPA Exam This Decade (Caleb Newquist, Going Concern).  In my day we had pencils — no calculators, no slide rules, no nothing. Spoiled kids won’t get off my lawn.

 

Share

Tax Roundup, 6/3/15: Oh, THAT million-dollar rent payment. And: the IRS data breach is on management, not budget.

Wednesday, June 3rd, 2015 by Joe Kristan

 

Flickr image courtesy John Snape under Creative Commons license

Flickr image courtesy John Snape under Creative Commons license

Pay me now, tax me now. A real estate operator agreed to build and lease a building to a tenant, a plasma collection center. The 10-year lease had a provision allowing the tenant to buy down monthly payments by reimbursing the landlord development costs. In 2008, the tenant chose to pay $1 million to the landlord under this lease clause.

Getting a $1 million payment can complicate your tax planning. Tax Court Judge Ruwe explains the simple approach used by the landlord on the joint return he filed:

Petitioners jointly filed a Form 1040, U.S. Individual Income Tax Return, for 2008. On one of the Schedules E attached to the return petitioners reported rents received of $1,151,493 in connection with the plasma collection center rental. Among the deductions that petitioners claimed on this Schedule E was a $1 million “contribution to construct” expense.

The IRS disagreed, saying that the taxpayer should have reported the amount as rent without the “contribution to construct” deduction.

When it got to Tax Court, the taxpayer dropped the deduction argument and instead argued, first, that the $1 million payment wasn’t income in the first place, but an expense reimbursement. The Tax Court said that the use of the payment to buy down rent payments was fatal to that argument.

The taxpayer then argued that the rental income should be spread over 10 years under the “rent levelling” rules of Section 467. This often-overlooked section was enacted to prevent games like tenants front-loading rent deductions via prepayments to tax-indifferent landlords. Judge Ruwe provides some background (some citations omitted):

Congress enacted section 467 to prevent lessors and lessees from mismatching the reporting of rental income and expenses.  Section 467 provides accrual methods for allocating rents pursuant to a “section 467 rental agreement”. In order to qualify as a section 467 rental agreement, an agreement must have: (1) increasing/decreasing rents or deferred/prepaid rents and (2) aggregate rental payments exceeding $250,000.  Both parties agree that the lease in this case qualifies as a section 467 rental agreement.

The court held that the lease didn’t “allocate” the $1 million payment across the ten-year lease term:

Petitioners argue that they should be permitted to use the constant rental accrual method provided in section 467(b)(2) in order to spread their rental income to other years. However, this method is inapplicable because it was intended to allow the Commissioner to rectify tax avoidance situations, and the regulations provide that this method “may not be used in the absence of a determination by the Commissioner”.

That’s a tool for the IRS, not for you, silly taxpayer!

dimeThe court also held that the rent was not “prepaid rent” that could be deferred over the lease term:

In applying this regulation to the facts of this case we first find that the lease in question does not “specifically allocate” fixed rent to any rental period within the meaning of section 1.467-1(c)(2)(ii)(A), Income Tax Regs. However, the lease does provide for a fixed amount of rent payable during the rental period (i.e., rent payable pursuant to the terms of the lease). Accordingly, in the absence of a “specific” allocation in the rental agreement, the amount of rent payable in 2008 must be allocated to petitioners’ 2008 rental period pursuant to section 1.467-1(c)(2)(ii)(B), Income Tax Regs., which provides that “the amount of fixed rent allocated to a rental period is the amount of fixed rent payable during that rental period.” Therefore, petitioners are required to include as gross income the entire $1 million lump-sum payment made pursuant to the terms of the lease for the year of receipt, 2008.

The Moral? Heads they win, tails you lose, when you aren’t extremely careful drafting a funky lease. Section 467 is obscure and, I suspect, frequently overlooked. It usually doesn’t matter, as most leases don’t get fancy. When they do, though — especially when you see big payment variances — you need to pay attention. The tax results may surprise.

 

TaxProf, TIGTA: IRS Ignored Recommended Security Upgrades That Would Have Prevented Last Week’s Hack Of 100,000 Taxpayer Accounts. Prof. Caron quotes the Washington Post:

A government watchdog told lawmakers Tuesday that the Internal Revenue Service has failed to put in place dozens of security upgrades to fight cyberattacks, improvements he said would have made it “much more difficult” for hackers to gain access to the personal information of 104,000 taxpayers in the spring.

“It would have been much more difficult if they had implemented all of the recommendations we made,” J. Russell George, the Treasury Inspector General for Tax Administration, told the Senate Finance Committee at a hearing on the data breach, which the IRS says was part of an elaborate scheme to claim fraudulent tax refunds.

Identity theft has been a neglected problem at the IRS for years. Billions of dollars have been lost both to petty Florida grifters and to “a worldwide criminal syndicate” taking advantage of IRS laxity. Yet the last two commissioners (and, sadly, the Taxpayer Advocate) have spent more effort trying to set up a preparer regulation scheme that would do nothing to stop fraud — but would increase IRS power and the market share of the big franchise preparers. Priorities.

And it’s not a matter of a pinched budget. Ask Commissioner Koskinen (via Tax Analysts, $link): “Koskinen acknowledged before the Finance Committee that the Get Transcript security breach was not a matter of resources, and thus budget, but of management.”

20121004-1

 

Russ Fox, The BEA Responds, or Making IRS Customer Service Look Normal (Bad). Russ reports that BEA has extended the deadline for its mandatory “survey” of foreign business ownership to June 30 for most filers.

Peter Reilly, Failure To File Texas Franchise Tax Form Voids Lawsuit. Sometimes ignoring a state tax filing can bite you in a surprising place.

TaxGrrrl, IRS Changes Position On Identity Theft, Will Provide Copies Of Returns To Victims. “Thanks to an inquiry from Sen. Kelly Ayotte (R-NH), IRS will now provide victims of identity theft with copies of the fraudulent tax returns filed using their personal and financial information.”

Robert Wood, If You Handle Cash, IRS Can Seize First, Ask Questions Later. “Even if your bank/cash efforts come from 100% legal money, the IRS says it still  [c]an seize it.”

IJim Maule, Where’s the Promised Trickle-Over? Another example of the illusory nature of the benefits of publicly-funded pro sports venues.

Keith Fogg, Tax Court Continues to Take the Same “Angle” on Attorney’s Fees When IRS Concedes the Case. “I continue to find this line of cases to contradict the purpose of the statute.  Particularly for those of us representing low-income taxpayers where the amount of tax at issue is low but the amount of time spent to prepare a case for trial not inconsequential, this loophole is swallowing the rule.”

Jack Townsend, Third Circuit Reverses Variance to One Day from Guidelines Range of 63 to 78 Months. Apparently one day isn’t close enough to 63 months.

Tony Nitti, Will Caitlyn Jenner’s Gender Reassignment Costs Be Tax Deductible?

 

20150603-1

David Brunori, Amazon Does the Right Thing (Tax Analysts Blog):

Shakopee was prepared to provide direct incentives to Amazon. But Amazon told Shakopee it didn’t want them. That’s right — Amazon said no to the tax incentives being offered.

Good. Why?

I would like to think Amazon is being a good corporate citizen, but I really like the idea that it may have backed off because of potential political opposition to the incentives. Only politicians can stop the scourge of incentives. So if political hassles lead to fewer tax incentives, let’s have more political hassles.

Amen.

Megan Scarboro, New Hampshire Considering Cuts to Corporate Tax Rate (Tax Policy Blog):

While New Hampshire generally has a good tax code, a tax cut for businesses could improve the state’s economic climate.

Because the state has no tax on wage income or general sales, New Hampshire is ranks 7th overall in our State Business Tax Climate Index, but a notable weakness is that high corporate rates drive a ranking of 48th in the corporate tax rate component.

In case you are wondering, Iowa is #50.

Jeremy Scott, Republican Support for Brownback’s Tax Plan Begins to Erode (Tax Analysts Blog).

 

Howard Gleckman, What’s Up With the No Climate Tax Pledge?

TaxProf, The IRS Scandal, Day 755

 

Career Corner. Study: Faking Long Hours Is Just As Good As Working Long Hours (Greg Kyte, Going Concern).

 

Share

Tax Roundup, 6/2/15: See what the thief filed to claim your refund. And: a crowded Irish address files 580 1040s!

Tuesday, June 2nd, 2015 by Joe Kristan

20111040logoIt seems only fair. In a policy change, the IRS will enable identity theft victims to see copies of fraudulent returns filed in their names, reports Tax Analysts ($link).

Tax-related identity theft victims will soon be able to obtain IRS copies of the fraudulent tax returns used to steal their identity, thanks in part to a push by Sen. Kelly Ayotte, R-N.H.

“Once we have a procedure in place, we will issue an announcement informing tax-related identity theft victims of the process for receiving a redacted copy of the fraudulent return,” IRS Commissioner John Koskinen said in a May 28 letter that acknowledged Ayotte as the impetus for the change in the tax agency’s identity theft policy.

The redactions will deal with other taxpayers included on the stolen return. I am guessing could include pretend spouses and dependents used by the ID thief.

This is good news for taxpayers, as it may help them resolve otherwise inexplicable problems with their IRS accounts. It also promises to help shed light on how the thefts occur and, perhaps, help practitioners suggest measures to fight the fraud. It’s also long overdue. It’s not as if thieves can reasonably expect confidentiality for their crimes.

 

20130316-1The luck of the IRisSh. The tax agency still seems to be way behind the ID thieves. This report from the Irish Times is hardly reassuring: 

An address in Kilkenny topped a table of addresses used for multiple potentially fraudulent tax return applications submitted to the Internal Revenue Service in 2012, a study by the US treasury has found.

The address in Kilkenny was used for 580 returns in 2012, which led to “refunds” totalling $218,974 being issued, according to the study by the treasury inspector general for tax administration in the United States.

The IRS likes to claim that budget constraints are behind its abject failure to control the identity theft refund fraud epidemic. The inability to flag hundreds of refunds claimed from the same offshore address — which would seem like an easy enough programming problem to solve — indicates the problems are deeper than lean budgets.

 An address in Kaunas, Lithuania, was used for 525 applications that prompted the payment of $156,274, while an address in Miami, Florida, came third on the list, with 417 applications leading to the payment of $221,806. 

Somehow this doesn’t tell me the IRS needs to expand its responsibilities — but Congress and the President clearly feel otherwise.

 

Will there finally be real steps to fight the problem? Tax Analysts also reports ($link) that the IRS, in cooperation with states and software vendors, will require additional information to process e-filings:

Central to the announcement is a greatly enhanced public-private effort to combat fraud through increased information sharing.

Another upshot is that industry and government will need to process returns differently starting with the 2016 filing season, said Alabama Department of Revenue Commissioner Julie Magee. On the front end, tax return preparation software providers will need to provide multifactor authentication steps when a taxpayer logs in or returns to a site, she said.

The changes also will require vendors to increase by a few dozen data points the amount of information collected from the taxpayer or the return and sent in a standardized format to the IRS and state revenue departments, Magee said.

The story says the details will be announced sometime this month to enable vendors to prepare for next season. We will cover the announcement when it is made.

 

20150529-1

 

Robert D. Flach has a fresh Tuesday Buzz roundup, covering topics as diverse as extenders and “I Love Lucy.

William Perez, The Key Benefits of Health Savings Accounts. Tax deductible contributions, tax-free accumulation, and tax-free withdrawals for qualified medical expenses.

Robert Wood, IRS Says If You’re Willful, FBAR Penalties Hit 100%, $10,000 If You’re Not

Peter Reilly, Conservation Easements – Tax Court Lets Owner Sell Them Or Give Them But Not Both

Jason Dinesen, History of Marriage in the Tax Code, Part 9: After Poe v. Seaborn. “Finally in 1948, Congress acted. For the first time, filing statuses were created and we moved closer to the tax system we know today.”

Kay Bell, Ohio becomes 25th state in which Amazon collects sales tax

Me, How states try to tax the visiting employee. My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

20120503-1

 

Alan Cole, Oregon to Experiment with Mileage-Based Tax (Tax Policy Blog):

Oregon will become the first state to implement a per-mile tax on driving. The tax is voluntary – an alternative to the state’s fuel tax. Drivers will get the choice of paying one or another. Should they choose the mileage-based tax, they will be charged 1.5 cents per mile, but get a credit to offset the taxes they pay on gas.

States have difficulty increasing gas taxes. Energy-efficient cars and electric (coal powered!) vehicles also are affecting gas tax revenues. The post doesn’t expain how the state will measure mileage; privacy issues promise to be a big obstacle for mileage taxes, but if this can be overcome, expect more states to follow Oregon.

TaxProf, The IRS Scandal, Day 754

Martin Sullivan, How Grover Norquist’s Pledge Can Hurt the Conservative Cause (Tax Analysts Blog). “First, the pledge’s hard and fast prohibition on tax hikes can prevent signers from agreeing to compromises that would result in outcomes most conservatives would consider highly favorable.”

 

Scott Sumner asks Why are interest expenses tax deductible? (Econlog).

The cost of equity (dividends, etc.) is not tax deductible, while interest is deductible. But why?

Good question. I respond with another — why aren’t dividends deductible? That would prevent double taxation of corporate income while making sure corporations can’t be used as incorporated investment portfolios.

 

 

 

Share

Tax Roundup, 6/1/15: Trusts, but verify. And lots more!

Monday, June 1st, 2015 by Joe Kristan

tack shelterTrust not flaky trusts. There’s a sort of folk belief that the rich and the sophisticated skip out of income taxes through clever use of trusts. That’s not true; trust income is taxed either to the trust owners, their beneficiaries, or to the trusts themselves — and at high effective rates. The 39.6% top rate that kicks in for unmarried individuals at $413,200 applies starting at $12,300 for trusts.

Still, this folk belief creates a market of gullible people who want to be like the sophisticated kids that don’t pay taxes. Where there’s a market, someone will attempt to meet the demand. That can go badly.

It went very badly for two westerners last week. From a Department of Justice press release:

Joseph Ruben Hill aka Joe Hill, 56, and Lucille Kathleen Hill aka Kathy Hill, 58, both of Cheyenne, Wyoming, and Gloria Jean Reeder, 68, of Sedona, Arizona, were convicted on charges of conspiracy to defraud the United States and obstructing a grand jury investigation following a three-week trial. In July 2014, Joe Hill, Kathy Hill and Reeder were indicted for conspiring to defraud the United States by promoting and using a sham trust scheme. Joe Hill and Reeder were also indicted for conspiring to obstruct the grand jury investigation in the District of Wyoming by causing individuals to withhold records required to be produced by federal grand jury subpoenas.

What were they selling?

Essentially, the scheme involved assigning income to the trust by using a bank account in the trust’s name that was opened with a false federal tax identification number. The Hills, Reeder, and many other CCG clients who testified during the trial used the CCG trusts to conceal income and assets from the IRS.

All of their customers can count on thorough and painful IRS exams.

 

20150601-1

 

Jana Luttenegger Weiler, Did you miss the last holiday in May? Friday was 529 Day (Davis Brown Tax Law Blog). “A recent Forbes article discussing the so-called holiday reported two-thirds of Americans are unfamiliar with 529 Plans.”

Hank Stern, The Flip Side of Halbig/King/Burntwell. “But there’s another side to this, one which has thus far gone unremarked: is there a potential upside to folks whose subsidies go away? (Insureblog)

William Perez, Identity Theft Statistics from the Latest TIGTA Report

Annette Nellen, Should Sales Tax Deduction Be Made Permanent? House Says Yes

Kay Bell, Are we tax sheep? A U.K. collection effort says ‘yes’:

These psychologists, anthropologists and other observers of human nature suggested that a couple of lines be added to tax collection letters:

“The great majority of people in your local area pay their tax on time. Most people with a debt like yours have paid it by now.”

It worked.

I’m sure this approach has its limits, but it contains an important insight: people will pay their taxes if they think other people do. But if they feel other people get away with not paying, they’ll stop. Nobody likes to be a chump.

Jack Townsend, New IRS FBAR Penalty Guidance

Jim Maule, Can Anyone Do Business Without Tax Subsidies? Most of us have to — which is a powerful case against giving special favors to the well-connected and well-lobbied.

Andy GrewalThe Un-Precedented Tax Court: Summary Opinions (Procedurally Taxing). “It’s a bit strange to pretend that a judicial opinion does not exist…”

Peter Reilly, Structuring – First Kent Hovind – Now Dennis Hastert. The IRS has overreached in its structuring seizures, but keeping deposits under $10,000 in order to avoid the reporting rules for large tax transactions is still illegal. Bank personnel are trained to report suspected structuring. If you do it consistently, your chances of getting caught approach 100%.

Robert Wood, 20 Year Old Oral Agreement To Split Lottery Winnings Is Upheld. Still, it’s always better to get things in writing.

TaxGrrrl, Man’s Tax Refund Seized For Parking Tickets On Car He Never Owned. This sort of injustice is inevitable when the tax law is drafted into service for non-tax chores.

Russ Fox, I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption. Eddie Vrdolyak may be involved.

 

20140506-1

 

Tony Nitti, Rick Santorum Announces A Second Run For President: A Look At His Tax Plan. Mr. Santorum is slightly more likely to be president than I am.

 

TaxProf, The IRS Scandal, Day 753The IRS Scandal, Day 752The IRS Scandal, Day 751. I like this from Day 752: “The job of the IRS should be to collect taxes, fairly and efficiently. Since the income tax was enacted in 1913, however, the IRS has appropriated to itself—sometimes on its own, sometimes with congressional blessing—the right to make political judgments about groups of citizens. That is the central failure revealed by this scandal.”

 

Scott Drenkard, How Tax Reform Could Help Stabilize the Housing System (Tax Policy Blog):

Removing the impediment to saving baked into the tax code, then, has real impacts on real people. It helps people save for down payments on homes, or to put money toward education. Perhaps, if pared with a reduction in policies meant to artificially reduce down payments, tax reform could be an important component to stabilizing the housing market.

No-down-payment means you’re betting someone else’s money.

 

Richard Phillips, Martin O’Malley’s Record on Taxes is Progressive (Tax Policy Blog). That means he likes to raise them.

News from the Profession. Madoff Auditor Better at Cooperating Than Auditing, Won’t Serve Time (Caleb Newquist, Going Concern)

 

There will be no leftovers at the putlucks. Indiana Marijuana Church Granted Tax-Exempt Status, Plans ‘Call To Worship’ When Members Will Light Up (TaxProf).

 

Share

Tax Roundup, 5/28/15: Tax Court doesn’t let auto dealer undo LIFO termination seven years later. And more!

Thursday, May 28th, 2015 by Joe Kristan

 

No Walnut STYou messed up, but you’re stuck with it. A California auto dealer decided to get off LIFO inventory. “Last-in, First-out” inventory accounting generally reduces current income by capitalizing smaller amounts in inventory over time. If you sell your business, however, it catches up with you — those savings all come into income at once.

The auto dealership operated as an S corporation. The owner decided that because he might be selling soon, he would go off LIFO using the automatic method change procedure then offered by the IRS. That procedure, Rev. Proc. 97-37, allowed him to spread the additional income over four years.

Something went wrong. The taxpayer represented on the Form 3115 filed under the IRS procedure that it would value all inventory under the lower of (FIFO) cost or market, but instead it valued its new cars, used cars and parts three different ways. This went unnoticed and unchallenged for a number of years, starting in 2001. Needless to say, the contemplated sale of the dealership did not occur in the meantime.

At some point, the dealership’s tax preparer concluded the different methods might be a problem after attending a seminar. In 2009, they filed amended returns for 2002 through 2007 that said the LIFO termination was ineffective and that as a result the taxable income for those years was overstated – by about $875,000 for 2002 and 2003 alone.

This led to a strange argument, where the taxpayer argued that their failure to properly follow Rev. Proc. 97-37 meant their LIFO termination was never effective. The IRS said the taxpayer’s inadequate compliance was good enough, and the taxpayer is stuck with the no-longer-desired LIFO termination.

Tax Court Judge Wherry decided that the automatic change failed — siding with the taxpayer — but that didn’t settle the issue:

First, we must decide whether, notwithstanding its failure to secure respondent’s automatic consent in 2001, JHH’s filing of its 2001 through 2007 tax returns in accordance with a new method of accounting was a change in method of accounting. If so, second, we must ascertain whether the amended returns reflect a further change in method of accounting for which respondent’s consent is again required. If it is, then because respondent has not consented to the change, JHH may not revert to the LIFO method simply by filing amended returns.

The court decided that the filing of on-LIFO returns for 2001 through 2007 by the taxpayer — referred to as “JHH” —  effected an accounting method change, even though the automatic change was ineffective (citations omitted):

…”a short-lived deviation from an already established method of accounting need not be viewed as a establishing a new method of accounting.” And in that case, “neither the deviation from, nor the subsequent adherence to, the method of accounting would be a change in method of accounting.” 

As we observed in Huffman: “The question, of course, is what is short-lived.”

Seven years wasn’t short enough, to the court:

Regardless of the upper temporal boundary of a “short-lived deviation”, we think that seven years lies beyond it. JHH’s “consistent treatment of an item involving a question of timing * * * establishes such treatment as a method of accounting.”  Notwithstanding its failure to secure respondent’s automatic consent, JHH changed its method of accounting from LIFO by accounting for its vehicles inventory on the specific identification method on its 2001 through 2007 tax returns.

20121212-1The court said the IRS has two choices when confronted with such an unauthorized method change: force the taxpayer to change to the old method, or accept the unauthorized change, imposing any adjustments necessary to avoid double-counting. The IRS chose to accept the change.

That meant the attempt to go back on LIFO was another method change, again requiring IRS consent. The IRS wasn’t going along, and the taxpayer was stuck with FIFO.

The moral? Many taxpayers filed automatic accounting method changes for 2014 under the “repair reg” rules. This case shows that the IRS can enforce the automatic method change conditions and deny benefits to taxpayers who don’t dot all of their “i”s.

It also shows reminds us that if you are doing something wrong for a number of years, it becomes “right,” in that it becomes an accounting method. It might be an improper method, but you still need IRS consent to change it. Many improper methods can be changed automatically, but sometimes advanced IRS permission is required. If you don’t do it “right,” the IRS holds all the cards.

Cite: Hawse, T.C. Memo. 2015-99; No. 8267-12

 

20150528-1

 

Tom VanAntwerp, How Hackers Breached the IRS and Stole $50 Million (Tax Policy Blog):

Nicholas Weaver, a researcher at the University of California, Berkeley, previously tried to access his own transcripts without resorting to personal knowledge. Using the real estate website Zillow and personal information site Spokeo, he was able to successfully find answers to the personal questions that only he should have known.

Cybercriminals who specialize in stealing and processing this personal data en masse were able to answer these identifying questions at scale. Much of the information used by the IRS to verify identity is either publicly available or for sale to underground cybercriminals. Hackers can buy access to stolen consumer or financial data, and then write a program to plug answers into the questions asked by the IRS. Once hackers successfully claim an identity, they can use the information from previous years’ tax returns to file new, fraudulent returns and steal tax refunds.

That’s… not comforting.

 

Our friends the Russians. AP sources: IRS believes identity thieves from Russia (KWWL.com)

TaxProf, GAO, TIGTA Warned Of IRS’s Lax Computer Security For Years Before Hack Of 100,000 Taxpayer Accounts On IRS Website.

William Perez, What Can We Do Differently in Light of the IRS Data Breach. Some suggestions for protecting your personal data.

 

20150528-2

 

Robert D. Flach, WHAT A DISRUPTIVE DEVELOPMENT THIS IS!. Robert refers to the late arrival of corrected 1099s. “Clients who would normally send me their “stuff” in early or mid-February – allowing for a much smoother work flow during the season – now must wait until mid-March because of the need to “wait and see” if corrected brokerage reports arrive.”

Russ Fox, Surprise! You Heard About that May 29th Filing Deadline, Right?.

TaxGrrrl, Taxpayers Have More Time To File In 2016. “Three more days!”

Robert Wood, Man Gets Prison For Inventing His Own Church, And It’s Not Scientology. Technically, his prison time isn’t for starting a new church — that’s legal — but for using it to evade taxes.

Peter Reilly, Limits Of Hobby Lobby – Priests For Life Denied Rehearing On Contraception Mandate.

Kay Bell, Italy charges Bulgari luxury jewelry heirs with tax evasion

 

Len Burman, The Trouble with the FairTax (TaxVox). Mr. Burman concentrates on its distribution among income classes, rather than its overall implausibility.

TaxProf, The IRS Scandal, Day 749

Career Corner. Reminder: Robots Are Coming For Your Accounting Jobs (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 5/22/15: IRS to refund RTRP test fees. And: Memorial Day!

Friday, May 22nd, 2015 by Joe Kristan

 

Memorial Day weekend!. As most offices will be deserted by 3 p.m., let’s get started. And while you are getting ready for the long weekend, remember that late this afternoon is a great time to get embarrassing news out, while nobody’s watching. The politicians know this.

20130121-2IRS to refund RTRP test fees. From an IRS announcement:

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

Mighty nice of them. But they have an ominous warning:

The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training.

In other words, they will continue to try to sneak preparer regulation through the back door. When the people who pass the tax laws have to pass a test of minimal competency, come back to me with your time-wasting paperwork, IRS.

 

buzz20140923Robert D. Flach rounds up tax happenings in his Friday Buzz!

Mitch Maahs, Tapping into Beer Tax Reform (Davis Brown Tax Law Blog):

As the craft beer industry continues to boom, the margins of many craft breweries have continued to tighten. Representatives of the industry have taken to Congress to seek tax breaks for these small brewers, but the large, multinational beer giants also want a pour from the tax-break tap.

Currently, all brewers pay a federal excise tax, per 31-gallon barrel (about 248 pints), based on the volume the brewer produces or imports. On its first 60,000 barrels brewed or imported, breweries pay $7.00 per barrel. The tax increases to $18.00 for each additional barrel above 60,000.

Excise taxes should work like user fees, paying for costs generated by the beer consumers. That’s not what this tax does.

Let’s shop! Memorial Day sales tax holidays for Texas, Virginia shoppers (Kay Bell)

William Perez talks about 3 Types of Tax Form 5498 (and Why You Got One): “Essentially, Form 5498 provides independent confirmation to the IRS of the amounts you contributed to IRAs and other tax-preferred savings accounts.”

 

 

20140527-1

 

Jack Townsend, GE Gets Slapped Down Again for its B*****t Tax Shelter.

Peter Reilly, Kent Hovind To Be Free In August – Maybe Sooner. His pet velociraptor will be glad to see him.

Kyle Pomerleau, Bernie Sanders’s Financial Transaction Tax Won’t Raise as Much Revenue as He Thinks (Tax Policy Blog):

In the 1980s, Sweden introduced a financial transactions tax. As expected, the tax reduced trade volume: “when the 2% tax was introduced in 1986, 60% of the trading volume of the 11 most actively traded Swedish share classes migrated to London to avoid taxes.”

Of course, the Sanders response to such failure would be to “crack down.”

 

20150505-2

 

Renu Zaretsky, Robbing Peter to Pay Paul. Today’s TaxVox headline roundup talks about a push to make bike riders pay for their bike trails, as well as the continuing fiscal turmoil in Kansas.

TaxProf, The IRS Scandal, Day 743

News from the Profession. 34-Count Indictment Won’t Stop Accountant from Serving His Clients: Lawyer. (Caleb Newquist, Going Concern). If he’s convicted, though, that just might stop him.

 

Share

Tax Roundup, 5/21/15: Credits targeting what you would do anyway! And: minimum wage, ACA, and lots more.

Thursday, May 21st, 2015 by Joe Kristan

 

IMG_0603Paying people to do what they would do anyway. Rhode Island is proposing a new credit for “job creators,” reports David Brunori:

It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that’s why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what’s expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

This is true of all “job creation” credits. As David points out: “No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.”

An Illinois representative has proposed a “Patriot Employer Tax Credit Act,” (Tax Analysts, $link) with a tax credit of up to $1,500 for employers who:

-Invest in American Jobs: Does not move its headquarters overseas or reduce the number or percentage of U.S.-based workers in comparison to workers overseas.

-Pay Fair Wages: Pay 90% or more of U.S. workers an hourly wage of at least $15 per hour.

-Provide Quality Health Insurance: Offer ACA-compliant healthcare to employees.

-Prepare Workers for Retirement: Provide 90% of non-highly compensated U.S. employees a defined benefit plan OR a defined contribution plan and contribute at least 5% of worker compensation.

-Support Our Troops and Veterans: Pay the difference between regular salary and military compensation for all National Guard and Reserve employees called for active duty and have a plan in place to recruit veterans.

-Create a Diverse Workforce: Have a plan in place to recruit employees with disabilities.

By claiming the word “patriot,” it wraps bad economics in the flag. Because nothing says “I love my country” like tax credits.

 

20150423-1Jana Luttenegger Weiler, Health Savings Accounts: Beneficiaries and Taxes (Davis Brown Tax Law Blog). “As HSAs become more common, it is important to consider the HSA in various capacities, including in premarital agreements, death, and divorce.”

Tony Nitti, Tax Court: In Order To Convert A Home To A Rental, You Should Probably Rent It

Jason Dinesen, Glossary of Tax Terms: AMT.

TaxGrrrl, Taxpayer’s Call To IRS Accidentally Broadcast On Howard Stern’s Radio Show. I’m just amazed the caller reached an actual IRS agent.

Peter Reilly, Tax Girl Challenges Homeownership And You Should Really Listen To Her. “To many of us homeownership is a necessary step in becoming a full-fledged adult and a house that is rented can never be a home.  This book might help you rethink that attitude.”

Jim Maule, The Dependency Exemption Parental Tie-Breaker Rule. “Under the parental tie breaker rule in section 152(c)(4)(B), if the parents claiming a dependency exemption deduction for a qualifying child do not file a joint return, the child is treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during the taxable year, the child is treated as the qualifying child of the parent with the highest adjusted gross income.”

Paul Neiffer, April 18 (or 19), 2016 is Due Date for 2015 tax returns

Jack Townsend, Remaining Swiss Bank Criminal Investigations Likely to Go Into 2016

Robert Wood, Appalling $187 Million Cancer Charity Fraud Case Settles — When 97% Of Money Isn’t For Charity

Keith Fogg, Argument Over Furlough of National Taxpayer Advocate Set for June 2 Before the Federal Circuit (Procedurally Taxing)

 

 

20140401-1

 

Cara Griffith, Tax Reform Laboratories (Tax Analysts Blog). “Federal lawmakers could learn a lot from an examination of what has worked and what hasn’t across the nation.”

 

Insureblog, Dear HHS, Will You Share My ACA Success Story?:

  So how has this Obamacare thingy helped my small company:-We have seen an overall decrease in benefits since 2010.
-From November 2010 to our current plan year premiums have increased 58.7%.
-If we would have been forced to an Obamacare compliant plan the increase would have been 116.7%

Tom Vander Well, Placing customers on hold without diminishing satisfaction (IowaBiz.com). The suggestions do not endorse the IRS practice of “courtesy disconnects.”

 

Carl Davis, Sweet Sixteen: States Continue to Take On Gas Tax Reform (Tax Justice Blog). To the Tax Justice folks, tax reform = tax increase.

 

Joseph Thorndike, Republicans Should Embrace the Gas Tax – After All, They Invented It (Tax Analysts Blog). Everyone loves being told what they “should” like.

 

Kay Bell, Will Congress OK highway money before it hits the road?

 

Elaine Maag, A Redesigned Earned Income Tax Credit Could Encourage Work by Childless Adults. (TaxVox). Only if they can re-design it so that it doesn’t squander 25% of the cost on improper payments.

 

IMG_1218

 

Megan McArdle, $15 Minimum Wage Will Hurt Workers. A well-explained post explaining what should be obvious:

When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.

These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour.

Most people who insist that minimum wage increases are harmless snicker at those who believe in “intelligent design.” Yet they are themselves trying to impose their own design on an eveolutionary system. At least creationists don’t claim to be designing species.

 

TaxProf, The IRS Scandal, Day 742

 

News from the Profession. Accountants Lack Some Skills (Caleb Newquist, Going Concern). “But it’s foolish to expect accounting graduates to have skills for corporate accounting. They don’t have them because they don’t learn them in school and they don’t learn them in public accounting.”

 

Share

Tax Roundup, 5/19/15: Is yesterday’s U.S. Supreme Court decision an Iowa refund opportunity? And AICPA looks for love!

Tuesday, May 19th, 2015 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

Time for Iowans to claim refunds for local income taxes paid out-of-state? The U.S. Supreme Court yesterday ruled that Maryland was required to allow its residents credit for taxes paid in other states.

State tax systems normally tax resident individuals on 100% of their taxable income. They tax non-residents on only the share of income apportioned or allocated to the state. In order to keep their residents from being clobbered by multiple state income taxes, the states typically allow them a “credit for taxes paid in other states.” This is, roughly, the lesser of the tax paid to the other state or the resident state tax computed on the out-of-state income.

Maryland failed to allow a credit for taxes paid in other states for the “county” portion of its individual income tax. The U.S. Supreme court ordered Maryland to issue such a credit to the plaintiffs, who had out-of-state S corporation income.

Iowa allows a credit for taxes paid in other states, but does not allow such a credit for taxes paid in municipalities or counties. These taxes can be significant. Many Iowans pay taxes in New York City, Kansas City, St. Louis, or Washington, D.C., for example. Many Ohio municipalities also impose income taxes. While the Supreme Court decision doesn’t specifically address such taxes, the court’s logic that double-taxes discriminate against interstate commerce would seem to apply here. A Tax Analysts article ($link) on the decision notes (my emphasis):

Local governments filed an amicus brief  saying Wynne may have implications and that there are many states with long-established tax programs like Maryland’s that do not afford dollar-for-dollar credits to residents for all out-of-state income taxes paid.

That brief identified Wisconsin and North Carolina as states that do not allow a credit against local income taxes, as well as a number of local governments that fail to provide a credit for state taxes paid against local taxes, including Philadelphia; Cleveland; Detroit; Indiana’s counties; Kansas City, Missouri; St. Louis; and Wilmington, Delaware.

I have emailed an Iowa Department of Revenue representative asking how they will respond to the case, and will report whatever I may hear back from them. Meanwhile, taxpayers who extended their 2011 Iowa returns and paid municipal taxes elsewhere should consider filing protective refund claims while their statutue of limitations remains open.

The TaxProf has a roundup of coverage.

Cite: COMPTROLLER OF THE TREASURY OF MARYLAND v. WYNNE ET UX. No 13-485.

supreme courtMore coverage:

Joseph Henchman, A Victory for Taxpayers: SCOTUS Strikes down Maryland Tax Law (Tax Policy Blog). “This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another.”

Howard Gleckman, A Divided Supreme Court Rejects Maryland’s Tax On Out-Of-State Income (TaxVox). “But given the closeness of the decision and the wide gulf between the majority and the minority, today’s ruling may not be the last word in the argument over whether, and how, states can tax out-of-state income.”

Russ Fox, A Wynne for the Dormant Commerce Clause. “This case also highlights the difficulties facing a taxpayer without deep pockets.”

TaxGrrrl, In Landmark Case, Supreme Court Finds Maryland’s Tax Scheme Unconstitutional. “In the end, it all came down to this: “the total tax burden on interstate commerce is higher” under Maryland’s current tax scheme. That double taxation scheme, the Court found, is unconstitutional.”

Kay Bell, Supreme Court tax ruling could cost Maryland $200+ million. Wheneer a taxing authority gets caught imposing an illegal tax, they always moan about how terrible it will be to repay their ill-gotten gains. I’ll give them the same sympathy they typically give a taxpayer who loses a fight with them.

 

20140505-1

 

 

Bloomberg, Iowa Spent $50 Million to Lure IBM. Then the Firings Started. That was $50 million paid by other Iowa businesses and their employees, money they could have used to grow businesses that might not have fled.

 

Jason Dinesen, Why Make Estimated Tax Payments, Part 2. “Here’s the reason: if you’re fully self-employed, you don’t draw a paycheck in the traditional sense.

Paul Neiffer, What Runs Through the Estate! “In many cases, the heirs will use the cost basis from grandpa and not pick up the extra cost from mom and dad.”

Robert D. Flach comes through with fresh Tueesday Buzz, including thoughts on the use of the tax law as a welfare program.

William Perez, 10 Emerging Financial Technology Apps with a Tax-Angle

 

20140307-1

 

Peter ReillyFree Kent Hovind Movement Has Big Win. ” Judge Margaret Casey Rodgers has granted Kent Hovind’s motion for a judgment of acquittal on the contempt of court charge that he was convicted of in March.”

Robert Wood, U2’s Bono Sounds Increasingly Like Warren Buffett. That’s OK, pitch correction software can do amazing things.

Andy Grewal, The Un-Precedented Tax Court: Bench Opinions (Procedurally Taxing). “Opinions can’t cause a lot of confusion if no one can find them.”

 

Martin Sullivan, As in Florida, Rubio Pursues ‘Big, Hairy’ Goals in the U.S. Senate (Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 740. Today’s post is a useful corrective to the persistent scandal denialists.

Not that there’s anything wrong with that. AICPA Wants CGMA Love From the C-Suite (Caleb Newquist, Going Concern).

Share

Tax Roundup, 5/13/15: Des Moines tries to speed through a red light. And: Tax Expert, heal thyself.

Wednesday, May 13th, 2015 by Joe Kristan

DNo Walnut STes Moines plans to sue to keep revenue camera revenue flowing. The Des Moines tax on unwary out-of-town motorists driving past Waveland Golf Course lost another battle yesterday.  The Iowa Department of Transportation turned down the city’s appeal of the Departments order to shut down the city’s freeway speed cameras (Des Moines Register)

As seems to be the practice when it imposes an illegal tax, the City now plans to blow a bunch of money on lawyers rather than obey the law, reports the Register:

Des Moines will appeal the ruling to district court, officials said.

Iowa is the only state in the United States that has permanent speed enforcement cameras on its interstate highways, according to the DOT, which in late 2013 adopted new rules governing the use of the devices on or next to state highways.

A few years ago Des Moines was caught imposing an illegal franchise tax on its residents’ utility bills. Rather than apologizing abjectly and refunding the ill-gotten gains, it appealed all the way to the U.S. Supreme Court, losing every step of the way. In the end it had to repay the tax, the city lawyers, and the taxpayer lawyers for a bunch of pointless litigation. The city still seems to favor that approach.

 

Flickr image by Ano Lobb under Creative Commons license.

Flickr image by Ano Lobb under Creative Commons license.

The cobbler’s children go barefoot. Mr. Hughes, a U.S. Citizen, had a successful career at one of international accounting firm KPMG. Tax Court Judge Wherry tells of an impressive career arc (my emphasis):

During his tenure at KPMG Mr. Hughes rose through the ranks and moved among KPMG’s international offices. Between September 1979 and 1994 he worked in the firm’s international tax group in Houston, Chicago, and Toronto, earning promotions from staff accountant to manager, from manager to senior manager, and finally, in 1986, to partner. During this period his duties shifted from preparing corporate and partnership Federal income tax returns to advising clients, particularly publicly traded corporations. Mr. Hughes also began to specialize in the international aspects of subchapter C of the Code and cross-border transactions, particularly mergers and acquisitions (M&A). He returned to the Chicago office and continued with his transactional work for publicly traded corporations.

A key aspect of M&A work is gain recognition and the basis consequences of transactions.  Transactions like this:

During 1999 KPMG spun off its consulting business to a newly formed corporation, KCI. The firm retained a direct equity stake of approximately 20% of KCI’s outstanding shares, and these shares were specially allocated among KPMG’s partners, including Mr. Hughes (K-1 shares), in January 2000. KPMG caused KCI to issue shares representing the remaining 80% of its equity to KPMG’s partners, including Mr. Hughes, who received 95,467 shares of KCI stock (founders’ shares) on January 31, 2000. Mr. Hughes did not contribute funds to KPMG in connection with KCI’s formation. He took zero bases in the founders’ shares.

So far, so good. Mr. Hughes along the way married a U.K. national and gave shares to his wife. There things begin to get a little foggy. The shares were sold at a time the couple resided in the U.S. , and the taxpayers did not claim full proceeds in income, on the grounds that the recipient spouse received a tax-free step-up in basis when she received the shares in the U.K. After clearing away some fog, the Judge lays out the remaining issues:

The first two are: (1) whether Mr. Hughes transferred ownership of the KCI shares to Mrs. Hughes, and (2) if so, whether Mrs. Hughes took bases greater than zero in the KCI shares. For petitioners to prevail, we must answer both questions affirmatively.

20120511-2When you give shares, or anything else, to a spouse who is a U.S. citizen, Sec. 1041 applies to provide that no gain is recognized and basis carries over. Sec. 1041 doesn’t apply to non-U.S. spouses. The Tax Court explains what happens:

Where, as here, an interspousal property transfer takes the form of a gift, no gain is realized, so regardless of whether section 1041(a) applies, there is no gain to be recognized…

The donee, on the other hand, realizes an economic gain upon receipt of a gift. His or her wealth increases by the value of the gift. But for tax purposes section 102(a) excludes this gain from the donee’s gross income. To preserve the U.S.’ ability to tax any unrecognized gain in property that is the subject of the gift, section 1015(a) sets the donee’s basis in the property equal to the lesser of the donor’s basis (or that of “the last preceding owner by whom it was not acquired by gift”) or if there is unrecognized loss, then for loss purposes, the property’s fair market value.

The taxpayer, who doubtless guided many clients through harrowing cross-border M&A deals unscathed, failed to achieve that on his own return. The court ruled that not only did he owe additional tax, but also a 40% “gross valuation misstatement penalty”:

Given his extensive knowledge of and experience with U.S. tax law, Mr. Hughes should have realized that the conclusion he reached — that the KCI shares’ bases would be stepped up to fair market value, such that the built-in gain in those shares would never be subject to tax in either the United States or the United Kingdom — was too good to be true.

Ouch.

Cite: Hughes, T.C. Memo 2014-89

 

Locust Street, Des Moines

Locust Street, Des Moines

 

Paul Neiffer, “Cost don’t Matter, Except When it Does”

Jason Dinesen, Marriage in the Tax Code, Part 8: 1920s Court Battles

TaxGrrrl, 11 Reasons Why I Never Want To Own A House Again

Calling Baton Rouge. Baton Rouge producer pleads guilty to film tax credit fraud (WAFB.com):

Baton Rouge producer pleads guilty to film tax credit fraud:

“Louisiana’s film tax credit program cannot function as intended when people are constantly defrauding it,” said Louisiana Inspector General Stephen Street. “We are continuing to do everything we can to make sure there are criminal consequences when that happens, and today’s guilty plea is the latest example of that.”

Au contraire, as the Cajuns might say. I think that’s pretty much exactly how these things are intended to function.

Kay Bell, Duck Dynasty’s Louisiana state tax credits could be winged

 

David Brunori, A Flat Income Tax is a Good Thing (Tax Analysts Blog). “Every — and I mean every — tax commission that has ever opined on good tax policy has called for a tax system built on a broad base and low rates.”

 

IMG_1581

 

Howard Gleckman, Is the GOP’s Enthusiasm for Tax Cuts Going the Way of American Idol? A question answered “no” since at least 1981.

Andy Grewal, The Un-Precedented Tax Court: Part I (Procedurally Taxing) ” Although the court purportedly exercises the judicial power (more on that in a later post), most of its work product is not judge-like.  That is, the Tax Court decides most of its cases as an administrative office would, without setting precedent.”

 

TaxProf, The IRS Scandal, Day 734, featuring Peter Reilly’s IRS Not Grossly Negligent In Disclosure Of Exempt Application. High standards, not.

 

Jeremy Scott, Unexpected Tory Victory Has Major Ramifications for Europe (Tax Analysts Blog). “Defying polls, pollsters, and the specter of a hopelessly fractured Parliament, the Conservatives won a resounding victory in the U.K. election last week.” Just note that I arrived in Scotland with Labour leading the Tories 41-1 in Scotland. By the time I landed in Des Moines, the Tories held the same number of Scottish seats as Labour. No wonder I felt so tired.

20150512-1

Graphic from BBC

 

News from the Profession. Grant Thornton Not Gonna Let Some Rich Guy Drag Its Good Name Through the Mud and Get Away With It (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 5/11/15: Returned, recovering, and ranting! Sales taxes, tax credits for special friends pondered by Iowa legislature.

Monday, May 11th, 2015 by Joe Kristan

 

IMG_0983I am back from overseas, and somewhat recovered from a nasty bug that hit me just before it was time to come home. So much to catch up on — if I don’t link your post today, I might get it later this week, as I dig out.

I was saddened to learn that the Iowa legislature is still in session. David Brunori reports ($link) on a proposal to allow Des Moines to vote on increasing its own sales tax without participation of its neighbors:

Iowa Rep. Tom Sands (R), chair of the House Ways and Means Committee, has introduced legislation that would allow greater Des Moines communities to ask voters to approve a 1 percent local option sales tax. I have written about this issue a lot over the years. The reality is that while there are sound reasons for imposing a local option sales tax, the problems far outweigh the benefits.

When Des Moines adopts this tax, the folks who shop in the city will pay. But many of them don’t live within the city limits. It will be people in the surrounding suburbs and rural areas who pay some of the tax. That’s great for Des Moines, but not so good for other jurisdictions. I am unsure why a legislator from a rural area — or even an area without significant retail — would support this measure. Their citizens will pay but won’t see the benefits.

Well, it’s just another example of the delight Des Moines politicians take in picking the pockets of non-voters (Exhibit A: freeway speed cameras). But remembering the result of the last sales tax increase vote in the area — crushed by a 85% “no” vote — I don’t think the municipal highwaymen should count their sales tax loot just yet.

 

Politicians call for more subsidies for their well-connected friends, from your pockets. Iowa leaders call for biochemical tax credits for ethanol, biodiesel (Sioux City Journal).

 

Andrew Lundeen, Pass-through Businesses Employ Most of the Private Sector Workforce (Tax Policy Blog).

20150511-1

 

“Pass-though” businesses are those taxed on owner 1040s. When you tax high income individuals, there is no escaping that you are reducing funds available for the nations principal employers to hire and expand.

 

William Perez, Your Guide to the 6 Types of Business for Federal Tax Purposes. “Entrepreneurs can set up their small business as a sole proprietorship, corporation, S-corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability Partnership, and in some states a Professional Limited Liability Company/Partnership.”

Jason Dinesen, Why Make Estimated Tax Payments, Part 1. “People who are new to self-employment are often confused about what estimated tax payments are and why they might need to make these payments.”

Kay Bell, A Mother’s Day tax gift: 10 child care tax credit tips

TaxGrrrl, 11 Things I’ve Learned About Tax From My Mom

Leslie Book, On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

Paul Neiffer, Don’t Get Too Greedy! And however greedy you get, you need to follow the appraisal rules if you want to deduct a property donation.

Jack Townsend discusses a Sentencing for Failure to Pay Over Trust Fund Taxes. If you don’t remit withheld payroll taxes, thinking that you are just “borrowing” it, your “interest” might include prison time.

Peter Reilly, Home Schooling Contingency Does Not Kill Alimony Deduction

Robert D. Flach, WHAT TO EXPECT WHEN WRITING TO THE IRS. Not a speedy resolution.

 

 

Andrew Mitchel, The Exodus Continues (2015 1st Quarter Published Expatriates).

We began tracking expatriations in late 2009 because we anticipated that the number of expatriations would increase as a result of changes in U.S. tax laws and due to “saber rattling” by the IRS about the imposition of potential penalties in the wake of the UBS scandal.  Our prediction has been accurate.

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

 

Robert Wood, New Un-American Record: Renouncing U.S. Citizenship

Me, An obscure tax deadline that could cost you big. A discussion of the looming FBAR deadline.

 

 

Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (ISU-CALT Ag Docket)

Hank Stern at Insureblog notes that May is Disability Insurance Awareness Month. Given the stakes, and the relatively low price, it’s shocking that 57% of working adults have no coverage.

Annette Nellen, Narrow exemptions cause inefficiency, inequity and complexity – HR 867 and S. 1179. But they are such a great way to get lobbyists to come to your summer golf fund-raisers.

 

IMG_0991

 

TaxProf, The IRS Scandal, Day 732. “Every time we turn around we get more emails.” Two years, and Commissioner Koskinen is still tired of your complaining.

Russ Fox,730:

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

The day Commissioner Koskinen resigns is the first day the IRS might start to figure it out.

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog)

Howard Gleckman, Congress Has Not Passed A 2016 Budget. It Has Only Begun The Process.

 

Career Corner. The Monthly Close: White Collar Crime Should Be a Fun and Scary Surprise (Going Concern)

 

Share

Tax Roundup, 4/28/15: Iowa flunks another business tax study. And: on to Belfast and Edinburgh.

Tuesday, April 28th, 2015 by Joe Kristan

20121226-1Programming note. I will be riding the magic flying chair across the ocean tomorrow on my way to the TIAG Spring Conference in Edinburgh, U.K. It will be the first conference since Roth & Company became a member of the TIAG worldwide alliance of independent accounting firms, and I am excited to meet representatives of our sister firms from Canada, China, the U.K. and elsewhere.

I will first stop off in Belfast to attempt to extend the family tree by a branch or two, and to do some sightseeing in County Tyrone, where my mom’s ancestors lived before heading to Ontario, and then to Illinois, in the mid 19th century. Any tips for using the facilities of the Public Records Office of Northern Ireland are welcome and appreciated.

With the travel, posting here will be variable based on time, internet connections, computer functionality, and jet lag. But there will be posts, and there will be pictures, so stop by. Full posting should resume May 8 or so.

 

20130117-1Iowa does it again! Our fair land between the rivers shows up near the bottom of another survey of state business tax systems — this time in 45th place in the Small Business & Entrepreneurship Council Best to Worst State Tax Systems for Entrepreneurship and Small Business. Iowa scores especially poorly for its high corporation tax rate and corporate capital gain rates.

Worse, neighboring South Dakota ranks #1. They have no corporation income tax at all. Repeal of the corporation income tax is a key part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan. Right now Iowa relies on the highest corporation tax rate in the country, along with 31 (and counting) special interest tax credits, to grow businesses. I think South Dakota’s idea makes more sense.

Related: What an Iowa income tax might look like with a fresh start.

Liz Malm, North Dakota Cuts Income Taxes Again (Tax Policy Blog). They were 15th on the SBE survey before this.

 

Meanwhile, Iowa’s General Assembly ponders a sales tax increase, reports the Des Moines Register:

A late-session bid to raise Iowa’s sales tax by three-eighths of 1 percent to generate $150 million annually for natural resources and outdoor recreation programs has gained some traction in the Iowa Legislature, but it remains a long shot.

Cash is fungible, and like highway “trust fund” dollars, the politicians will divert “targeted” revenues to their pet projects sooner or later.

IMG_1589

Roger McEowen, It Ain’t Over Until the FBAR Report is Filed (ISU-Calt Ag Docket): “You trigger a filing requirement whenever you have a an interest in or signatory authority over a foreign financial account with a value over $10,000 at any time during the calendar year.”

William Perez, How to Get Your Tax Withholding Just Right

Kay Bell, Wrong tax refund amount? What now?

Andrew Mitchel, Recognition of Losses on Dispositions of PFICs

 

20140826-1The Buzz is Back! The Wandering Tax Pro, Robert D. Flach, comes back from another tax season with a fresh roundup of tax blog posts presented with his hand-crafted perspective.

‘Moose’ declined comment. ‘Squirrel’ Threatens To Bomb IRS Building (TaxGrrrl)

Robert Wood, Ten Facts About Fighting IRS Tax Bills.

Peter Reilly, Is IRS Targeting Drunkards? Well, somebody has to work there.

Jack Townsend, The Stored Communications Act and Emails: An Overview

 

IMG_1583

 

TaxProf, The IRS Scandal, Day 719 “IRS Attacks Conservative Groups But Silent on Clinton Foundation.” And Media Matters, and…

Howard Gleckman, A Small But Important Change in Retirement Savings Rules (TaxVox). “The proposal would exempt those who have $100,000 or less in retirement savings from having to take required taxable distributions from 401(k)s, IRAs, and the like starting at age 70 ½.”

 

Government is just the name for things we do together. IRS Seeks To Tax $50k Raised From GoFundMe For Cancer Treatment For Car Crash Victim (TaxProf).

 

 

Share

Tax Roundup, 4/20/15: Cheer up, it could have been even worse!

Monday, April 20th, 2015 by Joe Kristan

20140929-1Tax Season is over. For me, the end is officially the moment I transmit my e-file extension to the IRS. Now it’s time to pick up the threads of the life and tax practice that are put aside in the final three-week frantic trudge.

Tax Season has become, for me, all about the last three weeks. That’s when everybody finally has their corrected 1099s, most of the public partnership K-1s are in, and the pass-through closely-held businesses are mostly done. No matter how well I keep up until then, suddenly I am a week behind and working frantically to catch up. Inevitably something unexpected snarls the works — maybe an unexpected client crisis, or a business transaction unhappily timed to coincide with filing season. As the tax law gets more complex every year, it compresses the filing season for many clients to a narrower period beginning closer to April 15 every year.

Robert D. Flach has posted his paper-filed thoughts on the recent filing season: “It certainly wasn’t the worst, or the best, in my 44 years.”

It wasn’t the worst I’ve seen. That was the one two years ago, when a January 1, 2013 tax law changed the rules for 2012, and Iowa dawdled in updating its code references to incorporate the federal changes — leading to filing season chaos.

Our worst fears of tax season weren’t realized, thanks to last-minute filing relief for ACA victims participants owing money, a one-year waiver of the deadly penalties for ACA non-compliance by small-employer insurance reimbursement arrangements, and an 11th-hour waiver of the “repair regs” accounting method change filing for smaller businesses.

Still, it was pretty bad. Probably the worst part of this season was the exponential increase in identity theft. The continuing failure of the IRS to deal with this problem is disgraceful. The failure of Congress to address it is nearly as bad.

No, the solution isn’t to give Commissioner Koskinen all the money he wants. It’s a systems and controls problem, and the last time the IRS got a blank check for systems upgrades, they boggled it entirely. And nothing Mr. Koskinen has done gives any confidence that he can be trusted with it.

20140910-1The solution starts with a new commissioner. It will include slower refunds. It will include system upgrades that will, for example, reject e-filings claiming earned-income credits for somebody who habitually files returns with adjusted gross income in the millions (We had multiple ID thefts of six and seven-figure filers this year). It will include a long-term system upgrade, with long-term funding to be released only in steps as progress is made. And maybe the solution includes changing the culture that thinks tax refunds are a good thing.

Related: Fix The Tax Code Friday: Delaying Tax Refunds To Stop Fraud (TaxGrrrl). “Would you be willing to wait a few more weeks for your refund to allow for forms matching if it slowed down the incidents of tax fraud?”

 

Tony Nitti, How (Not) To Spend Your Tax Refund. “The goal with sound tax planning should never be to generate the largest refund; after all, the bigger the refund, the more of your hard-earned money you loaned, interest-free, to the IRS for a period of months.”

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 1

William Perez, What To Do if You Missed the Tax Deadline. “There were the usual issues here and there with getting info from clients, and a few clients were surly or price-sensitive. But it wasn’t too bad overall.”

Kay Bell, Missed April 15 tax deadline? Got an extension? Now what?

Robert Wood, You Just Filed Your Taxes, Is It Too Early To Amend?

Peter Reilly, Heir Of Honduran Timber Fortune Wins Large Refund In Tax Court. “Using the IRS as a weapon in a business dispute is, well, not good business.”

 

20150420-1

 

While I took a break, the IRS Tea Party Scandal rolled on. The TaxProf continued his IRS Scandal Series: The IRS Scandal, Day 711Day 710Day 709Day 708Day 707.

 

David Brunori, The Arrogant and the Greedy Team Up to Take Your Money (Tax Analysts Blog). David explains (my emphasis)  the real reason why certain people have their dresses over their heads about the menace of e-cigarettes:

E-cigarette taxation best illustrates the confluence of arrogance and avarice. Those who cannot keep themselves from playing nanny have already begun to bar e-cigarettes from public places (to prevent the dreaded secondhand water vapor). And of course we have the obligatory restrictions on their use by kids. But the tobacco abolitionists would like to tax e-cigarettes with the knowledge that if you tax something, you get less of it. Don’t be fooled. These people do not care about your health. They care about lording over you.

But there are others (like Bowser) who cast a covetous eye on electronic smokes. Two factors drive that thinking. If people smoke real cigarettes less, the states will lose tens of millions of dollars. E-cigarettes need to be taxed to replace that revenue (because it really isn’t about your health). Since a lot of tobacco tax revenue is earmarked for schools, taxing e-cigarettes is all about the kids. Raising real taxes to pay for public services is hard. Teaming up with the prohibitionists is much easier.

It’s Baptists and bootleggers all the way down.

 

20150420-2

 

Gretchen Tegeler, There’s more to the story than tax rates (IowaBiz.com). “Property taxes are a combination of the property tax rate, applied to the portion of a property’s assessed value that is taxable. Even if a city keeps a constant rate, it may be collecting a lot more property tax revenue (with property owners paying a lot more, too), if there’s more valuation to tax.”

Career Corner. What Did You Learn This Busy Season? (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 4/15/15: So here we are. Your last-minute tax list!

Wednesday, April 15th, 2015 by Joe Kristan


pay phoneIt’s April 15. 
That means your taxes should be done, or extended, or ready to be filed today or extended. If they aren’t done, do yourself a favor and extend. I will!

E-filing is the way to go.  Whether you file or extend today, electronic filing is the best way to make sure that you get in under the wire. You get same-day notification that the return or extension is accepted, and off you go. But don’t wait until the last-minute. All you need is a spring storm power outage running from, oh, 10 p.m. to midnight, to wreck your whole tax season.

– If you don’t e-file, document your paper filing. Certified Mail, Return Receipt Requested, is the tried-and-true way to prove you filed your returns on time. It saved my job at least once. $3.30 isn’t too much for that. Be sure to take it to the post office and retain your hand-stamped postmark in a safe place. And don’t expect the post office to stay open late for you. Midnight hours there on April 15 have gone the way of the pay phone.

– If you can’t make it to the post office on time, you can use FedEx or UPS. The timely-mailed, timely-filed rule applies there, but only if you use certain delivery options from one of the “designated” private delivery services. For example, “UPS Next Day Air” qualifies, but “UPS Ground” does not. If you use the wrong shipping option, your filing fails. You will need to use the proper IRS street address, as the private delivery services cannot deliver to the IRS service center post office boxes. Make sure your shipping documents show timely filing when you drop the package off, and retain them.

And you might want to scan down the rest of our 2015 Filing Season Tips, of which this is the last one! In reverse order:

4/14/15: Some things extend, some things don’t.

4/13/15: Tips for those caught cash-short for April 15.

Sunday reading tax tip: read that return!

Last Saturday tip: Maybe a SEP.

The Iowa tax credit that breaks hearts. 

4/9/15: April 15 is also a day-trader deadline

4/8/15: It’s all due a week from today. The case for extensions.

4/7/15: Dealing with that long-awaited K-1. 

4/6/15: I don’t have my K-1 yet. Is that illegal? Or, why K-1s are slower.

Sunday Filing Season Tip: A Roth IRA for your student.

Saturday Filing Season Tip: Savers Credit

4/3/15: The no appraisal, no deduction rule for big donations. 

4/2/15: For gift deductions, it’s not just the thought that counts. It’s the paperwork. 

4/1/15: No fooling – if you reached 70 1/2 last year, take a distribution by today. 

 

20141016-1

 

TaxGrrrl, 9 Things Not To Do On Tax Day

Willliam Perez, The 8 Fastest Ways to File a Tax Extension

Kay Bell, 5 tips to make sure your snail mailed tax return gets to the IRS

Peter Reilly, Do Not Be Pressured Into Signing Last Minute Joint Return

Jason Dinesen, Basic Overview of Iowa Sales Tax for New Business Owners

Robert Wood, 23 Sobering Tax Evasion Jail Terms On Tax Day

Robert D. Flach, THANK GOD IT’S OVER!

 

20140508-1

 

TaxProf, The IRS Scandal, Day 706

Career Corner. #BusySeasonProblems: Happy Tax Season Birthday; An Unnecessary Brown Bag Lunch; The Final Countdown (Caleb Newquist, Going Concern).

 

Every tax season a new musical theme seems to emerge from my Ipod.  It wasn’t happening this year, until So Here We Are off of Jerry Douglas’s Traveler came up.

If that’s not your thing, I’m sorry, but it works for me. Last year was Hayloft year.

 

There will be no Tax Update for the rest of the week, barring earth-shattering tax news. I am taking the rest of the week off to celebrate tomorrow’s Iowa Tax Freedom Day, as calculated by the Tax Foundation. Because one day just isn’t enough for that kind of holiday.

Have a great tax day, see you Monday!

 

Share

Tax Roundup, 4/13/15: Tips for those caught cash-short for April 15. And: bad tax policy, the busybody’s friend!

Monday, April 13th, 2015 by Joe Kristan

dimeI owe how much? As April 15 approaches, more taxpayers than usual are finding that not only is no refund on its way, but they are supposed to send the IRS more money. For many, it’s because they are required to repay the advance premium credit on their Obamacare policies. For others, they just didn’t have enough withheld from their taxes. Whatever the cause, it’s a cash problem they can’t solve over the next three days. What to do?

First, make sure you either file or extend by Wednesday. The problem of owing the IRS money doesn’t go away by ignoring it. In fact, it can get a lot worse.

If you file a return (or extension) and don’t pay at least 90% of the tax owing, the penalty is 1/2% per month, plus interest, on the amount due — the “failure to pay” penalty. But if you don’t file or extend, then you get the 5% per month “failure to file” penalty, plus interest, on the underpayment, maxing out at 25%. That can make a big difference.

Also, if your underpayment is solely the result of repayment of the premium tax credit, the IRS is waiving the failure to pay penalty, as long as you file or extend timely.

Pay what you can. If you can pay 90% of what you owe, then you only pay interest on the balance at the IRS underpayment rate, currently 3% annually. That’s significantly better than the approximately 8% combined interest rate and underpayment penalty.

Consider borrowing. If you have a home equity line, that can be a good deal. The rates will likely be competitive with the IRS rates, especially taking penalties into account — and unlike IRS debt, you can deduct interest on most home equity loan payments.

Watch your rates. While you want to pay the IRS down, there are worse creditors. You don’t want to take a credit card cash advance or car title loan at 18% to pay off the IRS at 3-8%. But if that is competitive with what your credit card charges, use the card. Credit card companies are easier to deal with than IRS collections. The can be reached by phone, for one thing.

20140321-4Take advantage of a 120-day grace period the IRS offers. There is a toll-free number (800-829-1040), but you are likely to have better luck using the IRS Online Payment Agreement Application.

Consider an IRS “installment agreement.” If you owe under $50,000, you can fill out the request online and get a monthly payment plan going. There is a $120 user fee. Once you get on the plan, be prepared to stick with it, as they can get unpleasant if you default. If you owe more than $50,000, you probably need a tax pro. You don’t think you need one? Come on, you owe more than $50,000, that should tell you that you aren’t doing a great job of tax planning on your own.

Fix the problem for 2015. Many two-earner couples chronically under-withhold. If you and your spouse each have six figure incomes and you are both withholding at 15% or less, you shouldn’t be surprised that you are paying on April 15.

IRS resources:

Tips for Taxpayers Who Can’t Pay Their Taxes on Time.

Ways to Pay Your Federal Income Tax

Three days left – that means after today there are only two more Tax Update . Don’t miss a one!

 

 

20140321-3Russ Fox, Bozo Tax Tip #1: Let Your IRS Notice Age Like Fine Wine!. Like I said, ignoring them won’t make them go away.

William Perez, 8 Reasons to Ask the IRS for a Tax Extension. Good reasons.

TaxGrrrl, 5 Things Taxpayers Are Irrationally Afraid Of – And Shouldn’t Be

Tony Nitti, IRS To Waive Penalties For Taxpayers With Delayed Or Inaccurate Obamacare Insurance Information. Again, this releif is only available if you file or extend on time.

 

Kay Bell, Obamacare, NYPD donations offer new tax considerations

Annette Nellen, Challenges of taxing gambling winnings. Winnings above the line, losses are itemized deductions. What’s wrong with this picture?

Jason Dinesen offers Tips for Choosing Bookkeeping Software

Peter Reilly, Tax Court Allows Multimillion Multiyear Arabian Horse Losses

Robert Wood, 10 Notorious Tax Cheats: Real Housewives Stars Teresa And Joe Giudice Faced A Staggering 50 Years

 

Jack Townsend, Taxpayer Right to Be Present at Interview of Federally Authorized Practitioner. “Therefore, the Court concludes that a taxpayer does not have an absolute right to be present at a third party IRS summons proceeding concerning the taxpayer’s liabilities.”

7-30 fountain

 

TaxProf, The IRS Scandal, Day 702Day 703Day 704. From Day 704: “Lois Lerner, former director of the Exempt Organizations Unit at the Internal Revenue Service (IRS), warned other IRS officials that lower-level employees ‘are not as sensitive as we are to the fact that anything we write can be public–or at least be seen by Congress,’ according to documents obtained by Judicial Watch and released on Thursday.” Because she had nothing to hide, of course.

 

Alan Cole, Taxes Are Not Handouts (Tax Policy Blog):

At times I really struggle to understand the way taxes are covered on Wonkblog, but a post yesterday, listing government handouts for the rich, reached a new level.

Some of the items listed seem like poor examples. (Do rich people really take lots of deductions for their gambling losses?) But the one that really threw me for a loop was the estate tax, a tax levied on only the most valuable estates. It is literally the opposite of a handout for the rich.

When start from the premise that everything is a handout for the rich, then you can believe just about anything. Like this next guy:

Richard Phillips, What We Know About Hillary Clinton’s Positions on Tax Issues (Tax Justice Blog) “Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.” Of course, the the “tax justice” crowd, “fairness” is just another word for taking your money.

 

David Wessel, How much does the tax code reduce inequality? (TaxVox). “n other words, the U.S. tax system does reduce inequality, but there’s still a lot of it left after taxes.”

Poverty is a problem. Inequality isn’t the same thing, and if you are more worried about inequality, your priorities are misplaced.

 

20150413-1

 

David Brunori is my favorite tax policy commentator ($link):

There is a theory that says the tax laws should be used to do one thing — raise revenue to pay for public services. Taxes should not be used to engineer society, promote social agendas, foster economic development, or help anyone in particular. This theory has merit. Adherence would lead to less cronyism, fewer economic distortions, and less regulation through the tax code. State governments, of course, violate these principles all the time.

Who are the perpetrators? Those striving for bad tax policy represent an odd coalition of people who want to run your life, and people who simply want your money.

Extra points to David for correctly distinguishing a “blog” from a “blog post.” A blog contains posts, and a single post isn’t a “blog.” Now get off my lawn.

 

Career Corner. Long Hours Are the Root of All Your Busy Season Problems (Caleb Newquist, Going Concern). If you think you have a problem working long hours, try getting these things done without working long hours.

 

Share

Tax Roundup, 4/9/15: April 15 is also a day-trader deadline. And: Grant 1, Lee 0.

Thursday, April 9th, 2015 by Joe Kristan

daydrinkersTechnology has made made sophisticated stock trading tools that exchange floor pros once could only dream of available to every home. It has democratized the ability to make, and lose, money playing the markets.

It can be tempting to chuck the desk job and run off with Maria Bartiromo and TD Ameritrade. Sadly, more than one trader has emerged from the relationship with nothing to show for it but a lifetime of capital loss carryforwards.

That’s where today’s filing season tip comes in. If you qualify as a “trader,” April 15 is your deadline for choosing whether to make the “mark-to-market election” on your trading positions for 2015. If you don’t qualify as a trader, you can’t make the election.

If you make the mark-to-market election, you are required to recognize all of your open positions at year-end on your tax return as if you had cashed them out. More importantly, all of your gains and losses are ordinary, rather than capital.

That may seem like an inherently bad idea. Aren’t capital gains taxed at a lower rate? Yes, they are, but only if they are long-term, on assets held for over one year. That’s not the kind of gain day-traders are going for. Short-term gains are taxed at the same rates as ordinary income.

Ordinary losses, on the other hand, are a good thing. Well, on your tax return, anyway, if not in any other way. While individual capital losses are deductible only against capital gains, plus $3,000 per year, ordinary losses are fully deductible, and can even generate loss carrybacks.

That makes the mark-to-market election useful for day traders. They give up capital gain treatment that they can’t use anyway, and if they have a bad year — and many beginners do — they at least get to deduct all of their losses. For example, a famous trial lawyer who left the bar for day trading used the mark-to-market election to deduct $25 million in losses.

It’s already too late to make the election, also known as the “Section 475(f) election, for 2014. But you have until April 15 to make the election for 2015. You make the election either with either an unextended 2014 1040 or with the Form 4868 extension for the 2014 return. You may not make the election on an extended 1040.

The election is made on a statement with the following information:

  1. That you are making an election under section 475(f);
  2. The first tax year for which the election is effective; and
  3. The trade or business for which you are making the election.

So if you are spending your days with CNBC and your trading program, you might want to hedge your tax risks by making a 2015 475(f) election by April 15.

Related: The lure of a Sec. 475 election (Journal of Accountancy)

This is another of our series of 2015 Filing Season Tips — one daily through April 15!

 

Russ Fox, Bozo Tax Tip #3: Just Don’t File

 

Flickr image courtesy Easa Shamih under Creative Commons license

Flickr image courtesy Easa Shamih under Creative Commons license

Tax Court judges can do math too.We talked last week about the need to properly document charitable deductions.  The Tax Court talked about it yesterday, disallowing claimed deductions of $37,315 for lack of substantiation — most of it for purported contributions of household goods. From the decision:

Petitioners did not provide to the IRS or the Court a “contemporaneous written acknowledgment” from any of the four charitable organizations. Petitioners produced no acknowledgment of any kind from the Church or Goodwill. And the doorknob hangers left by the truck drivers from Vietnam Veterans and Purple Heart clearly do not satisfy the regulatory requirements. These doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.

So if you claim property deductions for gifts of $250 or more, you need to have something from the charity that, even if it doesn’t show the value, shows what you gave. So why not claim you just gave only gifts under $250? From the Tax Court (my emphasis):

Petitioners contend that they did not need to get written acknowledgments because they made all of their contributions in batches worth less than $250. We did not find this testimony credible. Petitioners allegedly donated property worth $13,115 to the Church; this donation occurred in conjunction with a single event, the Church’s annual flea market. Petitioners’ testimony that they intentionally made all other contributions in batches worth less than $250 requires the assumption that they made these donations, with an alleged value of $24,200, on 97 distinct occasions. This assumption is implausible and has no support in the record.

Hey, I drive a Smart car, it takes a lot of trips!

Cite: Kunkel, T.C. Memo 2015-71.

 

20140401-1Jana Luttenegger Weiler, Special Tax Deduction for Contributions to Support Families of Slain NY Officers. (Davis Brown Tax Law Blog). A 2014 deduction that you can still fund today.

TaxGrrrl, Taxes From A To Z (2015): Z Is For Zloty. On paying taxes while abroad and you need to use a foreign currency.

Robert Wood, Newest Tax Fraud Threat? Your Payroll Tax. A good reminder of the need to use EFTPS to monitor your payroll tax service, to make sure your company payroll taxes are getting deposited with the government.

Jason Dinesen, Marriage in the Tax Code, Part 6: Community Property Laws

Kay Bell, IRS headquarters hit by brief Washington, D.C., power outage. A reminder that even if you e-file, you don’t want to wait until the very last minute.

William Perez, Requesting Additional Time to File a State Tax Return

Jack Townsend, Tax Shelter Salesman Avoids Fraud Finding for Investment in Tax Shelter. You’ll have to follow the link for the more accurate, but less printable, version of the headline.

 

David Brunori, Greed, Piracy, and Cowardice (Tax Analsyts Blog):

I have written about 100 articles on tax incentives, all of them critical. I don’t blame the “greedy” corporations. State and local taxes are a relatively small part of the cost of doing business. Corporations are handed opportunities to minimize their tax burdens — legally. And rationally, they take advantage of those opportunities. The biggest factors in deciding where to invest are labor costs and broad access to markets. If we ended all tax incentives tomorrow, there would be virtually no effect on the economy. Corporations would still be investing where they are investing.

It’s politicians responding to the incentives. Those of us who want better tax policy, broad tax bases, and low rates for all don’t show up at the legislator’s golf fund raisers. Those looking for a special deal for their company or their industry have low handicaps for a reason.

 

TaxProf, The IRS Scandal, Day 700. 700 days, no scandal here, move along.

 

Bloomberg, An Emotional Audit: IRS Workers Are Miserable and Overwhelmed. A visit to one of the few places where they still offer on-site service. (Via the TaxProf)

 

20150409-1

 

History alert. General Lee surrended to General Grant 150 years ago today at Appomatox Court House, Virginia. Fellow tax blogger Peter Reilly is there, and I am insanely jealous.  I am contenting myself by re-reading Lee’s Last Retreatthe best book I’ve seen about the last frantic days of the Army of Northern Virginia. It makes you feel like you are there with the crumbling confederate army as it tried to escape after shattering defeats around Richmond. It also punctures a lot of romantic myths around those events.

After tax season, I will be happy to bore you with my thoughts on why Grant is grievously underrated for his Civil War achievements, and why he is also an underappreciated president. Next week.

 

News from the Profession: CPA Firm Managing Partner Charged in Embezzlement Scheme (Accounting Today):

Patrick H. Oki, managing partner at the Honolulu-based firm was charged Monday with theft in the first degree, money laundering, use of a computer in the commission of a separate crime, and forgery in the second degree, according to the office of Prosecuting Attorney Keith M. Kaneshiro.

Mr. Oki is reported to be both a CPA and a Certified Fraud Examiner. I can only imagine the awkwardness at the next partner meeting.

 

Share

Tax Roundup, 4/7/15: Dealing with that long-awaited K-1. And: IRS, beacon for Millenials?

Tuesday, April 7th, 2015 by Joe Kristan

My K-1 finally showed up. Now what? Many Tax Update visitors arrive here when they ask their search engines something like “understanding K-1s” or “deducting K-1 losses on 1040.” As more business income is now reported on 1040s via K-1s than on corporation returns, these aren’t trivial questions.

k1corner2014It helps to understand what a K-1 does. “Pass-through” entities — partnerships, S corporations, and trusts that distribute their income to beneficiaries — generally don’t pay tax on their income. The owners pay. The tax returns of the pass-throughs gather the information the owners need to report the pass-through’s tax results properly. Because many different tax items are required to be reported differently on 1040s, the income, deductions and credits of the business have to be broken out on the K-1. That’s why there are so many boxes and so many identification codes on the K-1.

The challenge for the return preparer is to take the information off the K-1 and to report it properly on the 1040. It can get especially complicated when losses are involved.

While anything short of a full seminar will oversimplify the treatment of pass-through items, there are three main hurdles a loss deduction has to clear. They are, in order (follow the links for more detail):

You have to have basis in the pass-through to take losses. Basis starts with your investment in the entity. It includes direct loans to the entity. If you have a partnership, it includes your share of partnership third-party debt. It is increased by earnings and capital contributions and reduced by losses and distributions. If you don’t have basis, the loss is deferred until a year in which you get basis.

There is no official IRS form to track basis, but many pass-throughs track basis for their owners. Check your K-1 package to see if includes a basis schedule.

Flickr image courtesy  Grzegorz Jereczek under Creative Commons license.

Flickr image courtesy Grzegorz Jereczek
under Creative Commons license.

Your basis has to be “at-risk” to enable you to deduct losses. While the at-risk rules are a very complex and archaic response to 1970s-era tax shelters, the basic idea is that you have to be on the hook for your basis, especially basis attributable to borrowings, to be able to deduct losses against that basis. Special exclusions exist for “qualified non-recourse liabilities” arising from third-party real estate loans. Losses that aren’t “at-risk” are deferred until there is income or new “at-risk” basis. At risk losses are computed and tracked on Form 6198.

You can only deduct “passive losses” to the extent of your “passive” income. A loss is “passive” if you fail to “materially participate” in the business. Material participation is primarily determined by the amount of time you spend on the business activity. Real estate rental losses are automatically passive unless you are a “real estate professional.”

Passive losses are normally deductible only to the extent of passive income. The non-deductible losses carry forward until a year in which there is passive income, or until the activity is disposed of to a non-related party in a taxable transaction. You compute your passive losses allowance on Form 8582.

Even if you have income, instead of losses, be sure to use any carryforward losses you might have against it. And consider visiting a tax pro if you find the whole process perplexing.

This is another of our 2015 Filing Season Tips. There will be a new one every day here through April 15!

20150407-2

 

Russ Fox, Bozo Tax Tip #5: Ignoring California

TaxGrrrl, Taxes From A To Z (2015): Y Is For Years Certain Annuity

William Perez, Opportunity to Increase Charitable Donations for 2014 under a New Tax Law. “Individuals who donate cash by April 15, 2015, to certain charities providing relief to families of slain New York City police officers can deduct those donate on their 2014 tax return.”

Robert Wood, Beware Tax Mistakes IRS Calls Willful. “Even a smidgen of fraud or intentional misstatements can land you in jail.”

Have a nice day.

I’m from the IRS, and I’m here to help! IRS Agent Causes Grief For Taxpayer’s Spouse By Being Helpful (Peter Reilly)

Kay Bell, Don’t bet on fooling IRS with bought losing lottery tickets.

Leslie Book, District Court FBAR Penalty Opinion Raises Important Administrative and Constitutional Law Issues. “Taxpayers should not be forced to sue in federal court to get an explanation as to the agency’s rationale or the evidence it considered in making its decision.”

Jason Dinesen, It’s Pointless for EAs to Attack CPAs. And vice-versa.

20150407-3

 

TaxProf, The IRS Scandal, Day 698

Roger McEowen, Rough Economic Times Elevate Bankruptcy Legal Issues (ISU-CALT)

Martin Sullivan, How Much Did Jeb Bush Cut Taxes In Florida? (Tax Analysts Blog). “So was Jeb Bush a pedal-to-the-metal tax slasher in Florida?”

Renu Zaretsky, It’s Spring Break, and “Everything’s Coming Up Taxes…” (No Daffodils). The TaxVox headline roundup covers IRS budget cuts, reefer madness, and online sales taxes in Washington State today.

 

Career Corner. Do Any Millennials Want to Work at the IRS Non-ironically? (Caleb Newquist, Going Concern). Not very hipster.

 

Share

Tax Roundup, 4/3/15: The no appraisal, no deduction rule for big donations. And: Iowa to reconsider forfeiture?

Friday, April 3rd, 2015 by Joe Kristan

Who is going to appraise those bags of clothes? If you’ve prepared tax returns for a long time, you have probably seen something like this in client tax information:

20150402-1Donation, used clothes, Goodwill: $12,000.

In addition to (probably) failing the charitable documentation requirements we discussed yesterday, another shortcoming would be fatal for the deduction: the lack of a “qualified appraisal.” When you make a non-cash donation exceeding $5,000, the tax law requires the filing of Form 8283 supported by a qualified appraisal for the property. Only a few items, including publicly-traded securities, are exempt from this requirement (details here). Otherwise, it’s no appraisal, no deduction. 

The tax law sets strict requirements for a qualified appraisal.  Some relate to the contents and timing of the appraisal report. For example, an appraisal made more than 60 days before the contribution doesn’t work, and the appraisal can’t be received after the due date of the return, including any extensions received. That means you can’t wait for the IRS to audit you to get the appraisal.

The tax law also doesn’t let just anyone do the appraisal. The appraiser must meet minimum credential requirements and regularly appraise the property type at issue. The appraiser also cannot be:

The donor of the property, or the taxpayer who claims the deduction.

The donee of the property.

A party to the transaction in which the donor acquired the property being appraised, unless the property is donated within 2 months of the date of acquisition and its appraised value is not more than its acquisition price. This applies to the person who sold, exchanged, or gave the property to the donor, or any person who acted as an agent for the transferor or donor in the transaction.

Any person employed by any of the above persons. For example, if the donor acquired a painting from an art dealer, neither the dealer nor persons employed by the dealer can be qualified appraisers for that painting.

Any person related under section 267(b) of the Internal Revenue Code to any of the above persons or married to a person related under section 267(b) to any of the above persons.

 

20150403-1Going back to our clothing donation, good luck getting that stuff you dropped off after last year’s spring cleaning appraised now.  But, you say, that wasn’t one $12,000 donation! There were at least 20 garbage bags of stuff. That’s 20 $600 donations. No problem!

Problem. The Treasury Regulations determine whether the $5,000 limit is met using (my emphasis):

the aggregate amount claimed or reported as a deduction for a charitable contribution… for such items of property and all similar items of property… by the same donor for the same taxable year (whether or not donated to the same donee).

So 20 bags of clothes are still one donation.

The IRS, and the courts, are strict about the appraisal requirement. If you’ve donated something worth more than $5,000 to charity and you don’t have the appraisal, extend your return and get one before it’s too late. Remember, no appraisal, no deduction. 

Related: A gold mine, or just a pile of old clothes? 

Come back every day through April 15 for another 2015 filing season tip!

 

Des Moines RegisterCivil forfeiture gets statehouse attention:

The House Government Oversight Committee plans to hold a public hearing regarding Iowa’s civil forfeiture laws as a result of a series of articles published by The Des Moines Register.

Rep. Bobby Kaufmann, R-Wilton, who chairs the committee, said the panel was discussing future speakers at its Thursday meeting when representatives brought up the articles and expressed interest in the issue.

20150403-3It’s good that they’re looking at it, but Mr. Kaufmann may not have fully grasped the nature of the problem:

“After talking with several members of law enforcement, I feel a supermajority of law enforcement are conducting themselves in the best manner possible and I believe they’re following Iowa’s civil asset forfeiture law,” he said. “But there are outlier cases where there should maybe be a higher standard for when people’s cash can be seized.”

I’m not sure that talking with the beneficiaries of the system is really the way to determine whether it’s unjust. I suspect a poll of Vikings loading their longboats with loot and captives would also find a supermajority feeling they were conducting themselves “in the best manner possible.” It’s also not helpful that they are “following Iowa’s civil asset forfeiture law” if the law is a license to steal.

It’s a matter of due process. Civil forfeiture imposes what amounts to outlandish fines without conviction, or even arrest, and it puts the burden of proof on the citizen, whose resources to fight the forfeiture have, conveniently, been seized by the state.

It’s also a matter of incentives. If a law enforcement agency gets to keep what it seizes, and faces no punishment for seizing items unjustly, their incentive is to take stuff unjustly. And that’s what happens.

 

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

Kay Bell, Tax tips for the self-employed small business owner

TaxGrrrl, Taxes From A To Z (2015): V Is For Veterans’ Benefits

 

Jason Dinesen, Should a Business Owner Keep Their Own Books?

 

Peter Reilly, Another Proof That S Corp Can Be Best Choice For Professional Practices:

If you viewed the Tax Court decision in the case of Midwest Eye Center as a wake-up call for people who have highly profitable professional practices inside C corporations, I think you would be mistaken.  The wake-up call was in 1986.  This decision is hitting them over the head with a two by four, particularly coming on top of the Vanney Associates, Inc decision late last summer.

Peter is discussing the case I discussed here.

 

20150403-2

 

Stephen Olsen, Summary Opinions for the weeks of 3/06/15 through 3/20/15 (Procedurally Taxing), rounding up courtroom and administrative tax procedure happenings.

Robert Wood, Real ‘Mystic Pizza’ Owner Pleads Guilty To Tax Evasion, Could Face 15 Years. It’s the time of year when tax prosecutors get busy, to motivate the rest of us.

Liz Malm, Michigan House Lawmakers Pass Bill Ending Film Incentive Program (Tax Policy Blog). Unfortunately for Michigan, the bill may not pass.

Howard Gleckman, For Most Households, It’s About the Payroll Tax, Not the Income Tax (TaxVox)

TaxProf, The IRS Scandal, Day 694

 

Career Corner: Going Concern March Madness: The #BusySeasonProblems Championship — Deteriorating Mental Health vs. That Voice Inside Your Head (Caleb Newquist, Going Concern)

 

Share

Tax Roundup, 3/31/15: Stopping travelers in Iowa for fun and profit. And: more tax credits!

Tuesday, March 31st, 2015 by Joe Kristan

20120703-2Highwaymen with badges. The Des Moines Register is running an excellent series describing the worst public finance innovation in recent decades — civil asset forfeiture. That’s a fancy name for police stealing money from travelers and using the proceeds to fund their own operations, on mere suspicion of wrongdoing by the travelers. The victims have to sue to get it back, and they have to prove they aren’t criminals — turning the normal burdens of proof upside down. That’s expensive and difficult. The result is a terribly-designed tax on the unlucky and the intimidated.

This creates a horrible incentive system. Police can always gin up an excuse to confiscate some traveler’s cash to buy new toys (“scented candles, mulch and tropical fish“) for the department. They then send the travelers on their way, a dead giveaway that they aren’t really fighting crime. Most travelers will be intimidated and drive away without fighting. Even if the traveler wins, nobody is punished for the unjustified seizure.

Today’s installment also shows how this system leads to corruption:

Former Dallas County Sheriff Brian Gilbert was convicted of felony theft for taking $120,000 in cash seized during a 2006 traffic stop.

More recently, Altoona resident Vicki Wharton’s car and some of her money was seized in 2012 by Polk County deputies working with the Mid Iowa Narcotics Enforcement team in a case involving her son.

She fought the forfeiture and managed to get both her car and most of her cash back — minus a few hundred dollars that seemingly disappeared.

Some people assume that anybody traveling with large amounts of cash is up to no good, but there are plenty of horror stories of travelers losing their life savings to thieves with badges to show otherwise. Other cases involve seizure of homes or businesses because, for example, a son was arrested for drug use or a customer used a hotel room for a crime.

While asset forfeiture is likely to be more catastrophic for the victim, it is kindred to highway speed cameras as a corrupt use of law enforcement powers for revenue. It is an inherently unethical, unjust, and third-world way to raise revenue. If you aren’t willing to fund your local Sheriff with property taxes, you shouldn’t ask him to fund himself from passers-by.

Other stories in the Des Moines Register series:

Iowa forfeiture: Forfeiture spending questioned in Iowa, elsewhere

Iowa forfeiture: A ‘system of legal thievery?

 

20120906-1Des Moines Register, Branstad: Iowa ‘blessed’ to have Hy-Vee; defends tax credits.

Gov. Terry Branstad is defending the state’s decision to award $7.5 million in state tax credits to Hy-Vee Inc. at the same time one of the grocery company’s chief competitors in the Des Moines market has closed its doors because of bankruptcy.

I shop at Hy-Vee, and I like them just fine. Still, they are a 100% ESOP-owned, presumably through an S corporation, meaning they pay no income taxes. Do they need tax credits, too? Their competitor Dahl’s won’t get this credit — they died. Iowa-based Fareway isn’t getting this sweet subsidy — let alone Price Chopper, Aldi, IGA, Super-Valu, Target, Trader Joe’s, Whole Foods…

 

William Perez, How to Get a Federal Tax Credit for the Cost of Child Care

TaxGrrrl, As Tax Day Nears, Don’t Panic: File For Extension. Far better to extend than to amend.

Robert Wood, Ten Things You Should Know About IRS Form 1099. “Before you file taxes, collect all your IRS Forms 1099 and pay attention to each one. The IRS sure does.”

Peter Reilly, Exelon Subsidiary Denied Tax Breaks On Three Mile Island Purchase.

Jack Townsend, Swiss Bank Enablers Get Unsupervised Probation and Relatively Light Fines. We need to shoot the jaywalkers so we can wrist-slap the real criminals.

20150331-1

 

Kay Bell, It’s clear that all tax exempt categories need to be re-evaluated. Scientology is today’s topic.

Clint Stretch, Who Should Pay for the Mess We’re In? (Tax Analysts Blog)

Renu Zaretsky, Just the Facts, Ma’am: On Filing and Reform. Today’s TaxVox headline roundup covers whether the Rubio-Lee tax plan includes refundable personal credits and the trade-offs of public pension reform.

TaxProf, The IRS Scandal, Day 691. He links to Robert Wood discussing the reflexive strategy of obstruction and lies that has become standard operating procedure in the executive branch.

 

And: Tomorrow we start our run to the end of filing season with our 2015 filing season tax tips. Collect one, collect them all!

Share

Tax Roundup, 3/30/15: A Year After the Fire Edition. And: Can fraud be accidental?

Monday, March 30th, 2015 by Joe Kristan

Friends, if your 1040 information isn’t in by now, you’re getting extended. 

It’s been a year since the old Younkers Building burned down. It was kitty-corner from our office at 7th and Walnut in Des Moines. Here is what it looked like a year ago:

20150329FB-1

 

And here is the site yesterday:

20150329FB-2

 

The remaining portion of the site is called the Wilkins Building. The old Younkers store was actually three buildings built at different times and connected as one store. The part that didn’t burn down was built about 20 years after the part that was obliterated.

The building was being remodeled into apartments, and the work was well along when the fire broke out in the wee hours. The sprinkler system had not been turned on, and the building went up too quickly for the fire department to do more than keep it from spreading.

The developers intend to remodel the remaining portion as apartments, retail and a restaurant. Seventh Avenue is again open, providing easy access to our office, but Walnut remains closed indefinitely.

Related:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

 

20150326-2No, you’re not. Two headlines from my Google news feed: Are you accidentally committing tax fraud? And 5 ways you’re accidentally committing tax fraud.

You don’t commit tax fraud “accidentally.” You don’t have to tell yourself “hey, I’ll commit me some fraud” to be a fraudster. But for something to rise to the level of fraud, it has to be more than an accident.

For example, accidentally leaving a $50 1099 off a return isn’t fraud. “Accidentally” omitting one for $1 million just might be, as it’s harder to accidentally forget you made that much.

 

This may be the most depressing tax case I’ve ever seen. From MyFox8.com:

The Parsons are guilty of accepting benefits from the government – benefits intended for Erica – even though Erica was no longer with them.

Erica had gone missing late in 2011, but her disappearance was not reported for nearly two years.

The adoptive mother received 10 years, and the father 8, from a judge convinced they killed their adoptive daughter after years of abuse and covered up the crime to keep collecting her government benefits — on which they failed to pay taxes.

 


tileTaxGrrrl, 
9 Tournament & Tax Tips On The Road To The Final Four. “Betting on the Final Four? Here are a few tax and tournament tips to keep in mind.”

Kay Bell, Some Final Four teams could suffer under seat tax proposal. A proposal to reduce deductions for contributions that get you good seats at the game.

William Perez, What Is the Alternative Minimum Tax?

Jana Luttenegger Weiler, 529A ABLE Account Guidance (Sort Of….) (Davis Brown Tax Law Blog). “The ABLE Act will amend Section 529 of the Internal Revenue Code to create a tax-free savings account for certain individuals who had significant disabilities before turning age 26.”

Jason Dinesen, Marriage in the Tax Code, Part 5: Examples of Taxes in 1920

 

Peter Reilly, Nay Nay We Won’t Pay – Evaders, Protesters and Resisters Versus IRS. “Deliberately not paying your taxes violates the law, so I don’t want to imply that there is an “official” correct way to do it.”

Bob Nadler, Who Won the Sanchez Case? (Procedurally Taxing). “In Sanchez, the taxpayer sought innocent spouse relief in the Tax Court and lost her case because the Court held no joint return was filed.  But the underlying assessment of a joint tax may have been erroneous.  If the assessment is found to be invalid the taxpayer will probably have no tax liability.”

 

Jack Townsend, Third Circuit Affirms Sentence Based on PSR Calculation of Tax Loss In Excess of Stipulated Tax Loss in Plea Agreement. Just because you admit evading one amount of tax doesn’t mean the judge can’t be convinced you evaded more.

No, it’s not. Next question. FATCA Repeal Efforts Just Failed, But Is It A Good Law? (Robert Wood):

FATCA’s massive and systemic overkill is great and vastly expensive. It is an elephant gun aimed at mosquitoes. And it has damaged the lives of over 7 million Americans abroad. Many can no longer open or maintain bank accounts where they live, get mortgages, or run their local businesses or households without difficulty. Many institutions around the world simple will not–perhaps cannot–open and maintain accounts for Americans, financial pariahs.

Its supporters say that international tax evasion justifies it, but like so many laws claiming good intentions, it has horrendous unintended (but easily foreseeable) consequences. Its complexity makes offenders out of ordinary citizens committing personal finance abroad, and its attempt to export U.S. tax enforcement invites other countries to do the same here.

 

Younkers Tea Room in its last week.

Younkers Tea Room in its last week.

Joseph Henchman, Nevada Governor Attacks Tax Foundation Report:

The proposal replaces Nevada’s current $200-flat business license fee with a tiered gross receipts tax.

Governor Sandoval quickly responded with a statement calling our report “utterly irresponsible, intellectually dishonest, and built on erroneous assumptions.” His ally Senator Michael Roberson added that our report “is nothing more than a disingenuous hatchet-job.”

The disappointing ad hominems from Governor Sandoval and Senator Roberson cloud the serious issues raised in our impartial analysis:

  • The BLF proposal has 67 revenue ranges for each of 27 industry categories, totaling 1,811 possible tax brackets.

  • BLF taxpayers will face absurdly high marginal tax rates, reaching over 13 million percent and likely distorting business decisions.

  • If the BLF tax burden were calculated in terms of a state corporate income tax, rates would range wildly from 0.2 percent to a punitive 77 percent.

  • Tax-motivated business restructuring would harm Nevada business competitiveness, and the punitive rate on the railroad industry likely violates federal law.

  • The tax rates for each industry were calculated using Texas data from a single year, which is not representative of Nevada’s economy.

  • The revenue estimates are probably overstated, which will lead to a revenue scramble when the tax underperforms.

Gross receipts and gross profits taxes have an inherent flaw: you can have large gross receipts or gross margins, but still have a net loss after expenses. Nevada doesn’t have an income tax. The politicians seem to want one in the worst way, and they are trying to get one that way.

 

Younkers elevator

 

TaxProf, The IRS Scandal, Day690The IRS Scandal, Day 689The IRS Scandal, Day 688

Len Burman, Do Senators Lee and Rubio Have a Secret Plan to Help Poor Families?

 

Russ Fox begins his annual listing of bad tax ideas with Bozo Tax Tip #10: Email Your Social Security Number. Please, don’t. And don’t sent tax documents with your identifying information as an email attachment. Identity fraud is easy enough without helping the fraudsters that way.

News from the Profession. Deloitte University Is a Cruise Ship Without Swimsuits (Caleb Newquist, Going Concern).

Share