Posts Tagged ‘Peter Reilly’

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

Monday, January 6th, 2014 by Joe Kristan

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

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

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

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  If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs.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

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

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

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

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

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

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

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

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

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

 

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

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

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

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

Paul Neiffer, Remember Your Simplified Home Office Deduction

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

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

 

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

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

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

 

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

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

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

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

Annette Nellen, Continued bonus depreciation or tax reform?

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

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

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

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

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

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

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

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

 

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Tax Roundup, 12/27/2013: Should you prepay your taxes for the deduction?

Friday, December 27th, 2013 by Joe Kristan

20111040logoIs it worth paying taxes early to get a deduction early?   Many more taxpayers will have to ask that question this year for the unfortunate reason that the increase in the top regular rate to 39.6% makes their regular tax higher than the alternative minimum tax.  While it’s cold consolation, you can use your deduction for state tax payments when you aren’t subject to AMT.

First you have to make sure you can use the deduction at all.  You can’t use a deduction for taxes paid on your federal return if you don’t itemize, or if you are subject to AMT.  If you pass these tests, then you should ponder if you are going to be in a much higher bracket next year.  Assuming that you are in the same bracket for both years, and that no change in the tax law will affect your deduction, it’s a time-value-of-money question.

The charts below show the tax benefit of prepaying $1,000 of state and local taxes at the federal tax brackets. The first bracket shown is the top Iowa rate, to enable Iowans to determine the value of prepaying federal taxes.  It shows the present value at several key payment dates:

 

January 15: Federal fourth quarter 2013 payments are due

January 31: due date of Iowa fourth quarter estimated taxes.

March 1: due date of first Iowa property tax installment.

April 15: due date of most state individual tax returns.

April 30: due date of Iowa individual tax returns.

September 1: due date of second Iowa property tax installment.

pv tax prepayment3

If the benefit is in green, prepayment makes sense.  If it is red, the time value lost by paying early exceeds the benefit of accelerating the deduction by a year, assuming that the benefit will arrive on April 15.

This chart is only accurate assuming all of its underlying assumptions are met, so use it with caution.   It does illustrate that prepaying January taxes usually makes sense, but prepaying September taxes seldom does.

Come back tomorrow for another installment of our 2013 year-end tax tips series!

 

Howard Gleckman, Finance Chairman In-Waiting Ron Wyden Is A Tax Reformer (TaxVox):

The 64-year-old Wyden, who has a history of proposing creative, ambitious, and sometimes controversial ideas, initially sponsored a tax code overhaul in 2010 with former GOP senator Judd Gregg of New Hampshire. After Gregg retired, Wyden found another GOP cosponsor in Dan Coates of Indiana. Wyden-Coates follows the broad outline of the original Wyden-Gregg plan.

For individuals, it would set three rates—15-25-35. The top bracket would kick in at $140,000 for couples filing jointly. It would repeal the Alternative Minimum Tax, nearly triple the standard deduction, and create a 35 percent exclusion for long-term capital gains and dividends (equal to a rate of 22.75 percent for top-bracket taxpayers). It would eliminate the tax advantages of many employee benefits–but not employer-sponsored health insurance–and simplify tax-preferred savings.

While the plan would preserve most other individual tax preferences, the very large standard deduction would sharply limit the number of taxpayers who take them (even today, fewer than one-third itemize).

Wyden-Coates would cut the corporate rate to 24 percent from 35 percent.

I can think of a better tax reform, but Wyden-Coates would be a huge improvement over what we have.

 

taxanalystslogoCara Griffith, Enabling an Informed Debate (Tax Analysts Blog):

A transparent tax system, in which there are no “secret tax laws,” is a better tax system in that taxpayers more clearly understand the laws they are required to comply with, tax officials can more easily administer the law, and both sides can engage in a more informed debate about tax policy.

I would add that the transparency should extend to subsidies, like Economic development tax credits, that are run through state tax returns.

 

Jason Dinesen, Capital Losses and Tax Planning 

Kay Bell,  Valuing your tax-deductible donations of household goods

Jim Maule, How to Lose a Charitable Contribution Deduction.  If you leave an anonymous gold coin or jewelry piece in a Salvation Army kettle, it does no good on your 1040.

TaxGrrrl, 12 Days Of Charitable Giving: Ride For Reading   “Our featured charity, Ride for Reading, delivers books to children in underserved communities… by bicycle!”

 

 

TaxProf, Court: Home Depot Cannot Use Out-of-State IP Affiliate to Shift Income From Arizona,  Don’t expect state courts to uphold tricks that reduce state revenue.

Arnold Kling describes Two Views of Obamacare, and explains how it is far from a “market approach.”

 

20120514-1The flip side of the “Facebook stock option loophole”: Mark Zuckerberg’s $2 Billion Tax Bill (TaxProf).  People who complain about the deduction for stock option compensation never mention that the same amount is income to the option holders, usually at higher rates.

 

 

Memory Lane beckons at Robert D. Flach’s place with 2013: THE YEAR IN TAXES – PART ONE:

Perhaps tied for the top tax story of the year (with the death of DOMA, which I will discuss later) is the David-versus-Goliath victory of three independent tax return preparers who felt the cost of the IRS mandatory RTRP tax preparer regulation regime, especially the annual CPE requirement, was “prohibitive” for their small practices and joined with the Institute for Justice to challenge the licensing program in federal court in Loving v IRS.

Go, David!

 

The Critical Question: Did Tenth Circuit Help KPMG Weasel Out Of Liability To Buy.com Founder?  (Peter Reilly)

 

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

Thursday, December 26th, 2013 by Joe Kristan


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

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

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

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

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

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

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

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

 

Paul Neiffer offers Some Quick Year-End Tax Tips

 

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

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

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

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

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

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

 

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

 

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

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

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

 

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

 

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

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

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

 

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

Kay Bell, The Christmas tax story

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

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

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

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

 

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

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

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

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

 

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Tax Roundup, 12/20/2013: S corporation built-in gain window closing? And more!

Friday, December 20th, 2013 by Joe Kristan

S-SidewalkThe S corporation Built-in gain window is closing.  The main benefit of S corporations since 1986 is that their income is only taxed once — when it is earned, on the tax returns of its owners.  After-tax earnings may be distributed to owners without another tax; undistributed earnings increase the basis of the owners’ stock, reducing gains when the stock is sold.

C corporations, in contrast pay a tax on their own income.  C corporation shareholders pay a second tax when the after-tax earnings are distributed; they don’t get a basis step-up for undistributed earnings, so they pay the second tax on undistributed earnings as part of their gain when they sell their shares.

To keep C corporations from becoming S corporations and liquidating the next day, Congress enacted the Built-in Gains Tax in the 1986 tax reforms.  This tax applies to any C corporation that makes an S corporation election.  It hits all “built-in gains” recognized during the “recognition period” following the election at 35%; the after-tax built-in gains are then also taxed on shareholder returns.

“Built-in gains” are any income items accrued as a C corporation as of the day of the S election.  For example, if the corporation owns land with a cost of $10,000 and a value of $15,000 as of the date of the S election, it has a $5,000 built-in gain.  If it sells the land during the “recognition period,” it pays the tax on the lesser of the actual gain or the $5,000 built-in gain.

The recognition period was 10 years when the tax was enacted.  It has been reduced to 5 years by temporary legislation, but absent new legislation it will revert to 10 years starting January 1.  That means S corporations that made elections taking effect in 2004-2007 can sell built-in gain assets before December 31 without the tax, but the same gain will be subject to the tax starting January 1.   That has obvious year-end planning implications.   If you are going to sell soon, it may be best to sell right now, as two weeks from now may be too late.

Yes, it is possible that the five-year period will get extended again, but who wants to count on Congress?

More 2013 year-end tax tips every day through December 31 at the Tax Update!

 

Why the IRS shouldn’t get political.  People who don’t think the IRS Tea Party scandal is serious need to consider how other places use the tax law.  France24 reports: Putin to pardon jailed tycoon Mikhail Khodorkovsky.

Mr. Khordorkovsky was imprisoned for 10 years on tax evasion charges.  His real offense was opposing Vladimir Putin while wealthy.  The message was surely heard by other wealthy Russians with the means to oppose the regime.

As complicated as the tax law is, it would be easy work for a politicized IRS to make trouble for disfavored opponents.  That’s why the Tea Party scandal is so serious, and why the new proposals to regulate 501(c)(4) outfits are so outrageous.  And yes, it could happen here.  It did.

 

Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

If it needs a subsidy to happen, it probably shouldn’t happen.  Tax break for wind power is up in the air, advocates say (Des Moines Register)

The wind provision is one of about 50 tax credits that are expected to expire at the end of 2013. U.S. Sen. Chuck Grassley, R-Ia., said the tax credits, which are usually dealt with together, failed to get a vote in Congress this year because key lawmakers thought they could include them as part of a major tax-reform bill.

Grassley told reporters that passage of a more sweeping tax overhaul appears unlikely. Senate Finance Chairman Max Baucus, D-Mont., told him last week that Congress expects to deal with wind and the other tax credits in 2014. “He wasn’t specific on when it would happen, but he said we are going to have to do (extensions of the tax credits) next year,” Grassley told reporters.

These things are passed one year at a time to pretend that they are much less expensive than they are under Congressional budget rules.   A felony in the private sector, business as usual in Congress.

 

Alan Cole,  Party in the UK (Tax Policy Blog)

Critically, the UK has improved its tax system substantially. It is moving towards a more competitive, more neutral tax base that treats all sorts of economic activity equally. While they have been willing to increase sales taxes – a neutral, simple tax – they are also reducing the costly corporate tax. Corporate taxes tend to substantially reduce the welfare of everyone – both the owners of corporate stock and the workers who depend on heavy capital investments. They have also abolished crippling financial transaction taxes.

Crippling financial transaction taxes like the one supported by Iowa Senator Harkin and his would-be successor Bruce Braley.

 

Jason Dinesen, Death Master File Changes Coming — Finally!  “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

William Perez,  Using a Donor-Advised Fund to Donate to Charity at Year End

Howard Gleckman,  A New Look at Who Benefits from Tax Expenditures.  “There is a tax expenditure under the holiday tree for just about everyone.”

Speaking of trees.  O Christmas Tree, O Christmas Tree, Please Congress don’t tax our Christmas Trees (Kay Bell)

TaxGrrrl,  12 Days Of Charitable Giving 2013: Helping Hands Center For Special Needs   

 

TaxProf, The IRS Scandal, Day 225

Tax Justice Blog,  State News Quick Hits in Wisconsin, Illinois, Kentucky and Oklahoma

News from the Profession.  Short Sellers, Moms, Son of God, all Credited with Encouraging PwC’s Vigorous Audit of Herbalife (Going Concern)

Get your Friday Buzz from Robert D. Flach!

 

IrwinIrwinirwin.jpgQuotable me.  From Peter Reilly, Andrew Schiff Does Not Recommend That You Imitate His Father Irwin:

When I asked Joe Kristan for his thoughts on the matter he summed up the realist perspective pretty well:

“Oh, my.

“I don’t care to go down the rabbit hole on the tax protester arguments. However convincing they may seem to adherents, they just don’t work. Given the choice between Irwin Schiff’s theories and all the federal judges that have ruled on these arguments – and they’ve been put before the courts countless times – a wise taxpayer goes with what the judges say. Every time. You can believe there is no income tax, but if the IRS agent, the federal judge, the federal marshals, and the Bureau of Prisons say otherwise, for all practical purposes there is an income tax.”

Yep, I said that.  Thanks, Peter!

 

Mom can’t share everything.  Mothers are famous for sharing all with their kids, but sometimes it doesn’t work out.  From STLtoday.com:

A Creve Coeur venture capitalist was sentenced to five years in federal prison Thursday on a tax evasion charge for dodging millions of dollars in taxes from 2006-2009, the U.S. Attorney’s office said.

Burton Douglas Morriss, 50, should have paid $5.5 million, prosecutors said, but used $18 million in tax losses in 2007 alone to reduce the amount he claimed to owe. The companies that incurred the losses “were established as single member limited liability companies for Morriss’s mother” and she had already claimed those losses in past returns, prosecutors said.

Five years is the maximum sentence for a one-count tax evasion plea.   It’s not nice to steal Momma’s tax losses.

 

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Tax Roundup, 12/18/2013: Have you made your College Savings Iowa gift? And: la loi, c’est IRS!

Wednesday, December 18th, 2013 by Joe Kristan


csi logo
Year-end is sneaking up on us.
 So it doesn’t catch us completely unawares, the Tax Update will provide a year-end idea each day through December 31.  Today we pass on a reminder that Iowans can deduct contributions to College Savings Iowa, the state’s Section 529 college savings plan, on their Iowa 1040s — but only if they fund their contributions before year-end.  From the State Treasurer:

Contributions to College Savings Iowa must be made by the end of the year to qualify for the 2013 Iowa state tax deduction. Account holders can deduct up to $3,045 for each open account and can contribute online at www.collegesavingsiowa.com.* Contributions sent by mail must postmark checks by December 31, 2013.

College Savings Iowa lets anyone – parents, grandparents, friends and relatives – invest for college on behalf of a child.  Investors do not need to be a state resident and can withdraw their investments tax-free to pay for qualified higher education expenses including tuition, books, supplies and room and board at any eligible college, university, community college or accredited technical training school in the United Sates or abroad.

It’s a great way to help your kids start out in life without a big student loan.

William Perez is doing yeoman’s work on year-end planning at his place; today he has Donating Cash to Charity at Year-End.  

Kay Bell offers Donating appreciated assets to your favorite charity

 

45R credit chartLa Loi, C’est IRS.  It’s not surprising that the IRS would disregard mere vendor rules when it believes it can pass out tax credits to taxpayers who clearly don’t qualify.  That’s exactly what they did yesterday when they announced that it will allow the (ridiculously complex) Sec. 45R small employer health insurance credit in Washington and Wisconsin in 2014, even though those states won’t have the required “Small Business Health Options Program” exchange in place.

The Code clearly requires allows the credit only to employers buying through the exchange starting in 2014, but the IRS has granted “transition relief” waiving that requirement.  Heck, why not just grant the credit to anybody who just has “health” next year.  You know, as a transition rule.

 

No.  Is Obamacare Really an Improvement on the Status Quo?  (Megan McArdle).  “Bob Laszewski, an insurance industry expert who has become the go-to guy for the news media on the rollout of the Patient Protection and Affordable Care Act (because the insurance industry is extremely reluctant to talk), tells the Weekly Standard that he thinks come Jan. 1, more people will have lost private insurance than gained it…”

 

William McBride, Economists Find Eliminating the Corporate Tax Would Raise Welfare (Tax Policy Blog).  That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan does just that.

 

 

TIGTALeft hand, meet right hand.   The Treasury Inspector General for Tax Administration reports “IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt“:

Federal law generally prohibits agencies from contracting with businesses that have unpaid Federal tax liabilities.

TIGTA reviewed the IRS’s controls over the integrity and validity of vendors receiving payments from the IRS, including the vendor’s tax compliance and suspension and debarment status. TIGTA also reviewed controls over the IRS’s Vendor Master File (VMF), which contains information about vendors that enables them to do business with the IRS.

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 IRS vendors (7 percent) had a combined $589 million of Federal tax debt as of July 2012, the most recent data for which information was available at the time TIGTA conducted the review. Few of the vendors had a current tax payment plan.

That means the IRS breaks its own rules in dealing with about one out of 15 of its vendors — another instance where the IRS breaks the rules with no consequence.  A “Sauce for the Gander” rule, one that would penalize IRS personnel who break rules just like they do for taxpayers, might help here.

 

Sometimes the IRS gets it right.  IRS Provided Some Good Tips this Morning (Russ Fox)

 

Tony Nitti, Tax Geek Tuesday: Profits Interests, Capital Interests, And Restricted Property:

 

In Crescent Holdings v. Commissioner 141 T.C. 15 (2013), the Tax Court doled out three lessons every tax advisor con learn from:

 

  1. How to differentiate between a profits interest and a capital interest in a partnership.

  2. Section 83 applies to the grant of a capital interest,

  3. If a capital interested in a partnership has not yet vested under the meaning of Section 83, the recipient should not be allocated any undistributed income from the partnership.

  4. The income allocable to an unvested capital interest granted by a partnership must be allocated to the remaining partners of the partnership.

Good stuff.

 

TaxProf, Billionaires’ Use of Zeroed-Out GRATs Blows $100 Billion Hole in Estate Tax.  Paul Caron quotes a Forbes article.

Jack Townsend, Raoul Weil Has First U.S. Court Appearance

TaxGrrrl, 12 Days Of Charitable Giving 2013: Sow Much Good

 

 

Robert D. FlachWOULDN’T IT BE NICE.  He discusses the new IRS Commissioner nominee and asks,  “Wouldn’t it be great to have a person who had actually prepared tax returns for a living in the position?”  What, and have somebody who actually knows something?

20131211-1Robert has a thing about the Tea Party, but I suspect even he would Follow the Tea Party on Stadium Financing Issues (David Brunori, Tax Analysts Blog):

The Atlanta Braves are planning to move their stadium to the suburbs. The Braves blackmailed, threatened, and coerced the backboneless politicians in Cobb County, Ga., to pay for the stadium… As far as I can tell, the only organization to have put up any fight against this insane corporate welfare is the Atlanta Tea Party.”

When the Tea Party movement sticks to the fight for smaller government, there’s a lot to like there.

 

 

Tax Justice Blog, Income Tax Deductions for Sales Taxes: A Step Away from Tax Fairness

Joseph Thorndike, When Is a “Fee” Actually a Tax? When Politicians Say It Isn’t (Tax Analysts Blog)

Peter Reilly,  How To Tax Kody Brown And The Sister Wives And Other Polygamous Families?  He quotes my Twitter feed.  If Peter follows @joebwan, maybe you should too!

 

News From the Profession.  There’s a Hidden Deloitte Auditor in the Airport Cell Phone Crasher Video Making the Rounds (Going Concern)

 

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Tax Roundup, 12/16/2013: Ames! And: if you’re explaining, you’re losing.

Monday, December 16th, 2013 by Joe Kristan

It’s a cold day In Ames, Iowa, but it’s toasty warm with 315 or so eager participants in the last session of this year’s ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools!  

20131216-1

The Ames Crowd!

It’s a fun school, with lots of good attendees with great, challenging questions.  I’ve enjoyed working on the Day 1 panel with emcee Roger McEowen and IRS Taxpayer Liason Kristy Maitre

 

20120906-1“In economic development, if you’re explaining, you’re losing.”  An article at WCFcourier.com makes an often-overlooked point about how economic development spiffs that complicate the tax law end up backfiring:

A simpler tax system may top all other requests from the business groups, said Steve Firman, director of government relations for the Greater Cedar Valley Alliance and Chamber.

Firman pointed out that Iowa ranked 40th among states in the Tax Foundation’s 2014 tax climate comparisons because it is tough to explain the complexity of federal deductibility that blurs Iowa’s true tax picture.

Firman, explaining his position, pulled out a line he said he likes to use:

“In economic development, if you’re explaining, you’re losing,” he said.

Iowa’s byzantine tax system, with its dozens of special breaks, requires a lot of explaining.  The Tax Update’s Quick and Dirty Tax Reform Plan, with low individual rates and no corporate tax, would be a much better sell.

 

William Gale,  The Year in Taxes: From the Fiscal Cliff to Tax Reform Talks (TaxVox):

Although Camp and Baucus do not appear to have reached agreement on how much revenue should be raised or on how to raise it, the two leaders have nonetheless raised some interesting ideas. But the sorry state of tax reform can probably best be summed up by a small business owner who attended the New Jersey stop of a listening tour that the two chairmen held last summer. She urged the two leaders to “get rid of the deductions that don’t affect me.” As long as that attitude prevails, meaningful tax reform will not happen.

The same dynamic is at work in Iowa.

 

TaxGrrrl, Budget Faces Challenge From Senators Wary Of Spending, User Fees To Taxpayers   

William Perez, Use Fundsin a Health Care Flexible Spending Account (Year-End Tax Tips)

Kay Bell, Tax deductible mileage rate drops a half-cent in 2014

Annette Nellen, What’s My Rate? Challenges of Understanding 2013 Federal Taxes

Paul Neiffer, How Many 2013 Tax Brackets

 

IrwinIrwinIrwinirwin.jpgPeter Reilly, Euro Pacific Capital’s Peter Schiff Defends His Tax Protesting Father Irwin Schiff   Peter has a lot of interesting background on tax protester Irwin and his controversial, but much more prudent, son. And: “I can’t blame Peter Schiff for sticking up for his dad.  I would too, if I still had one.”

 

 

Irwin

TaxProf, The IRS Scandal, Day 221

Jack Townsend, Article on New Sentencing Guidelines on Unclaimed Deductions and Credits

 

Robert Rizzo

Robert Rizzo

Russ Fox, Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems:

 In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.ta

Just a humble public servant.

 

News from the Professon:  Grant Thornton Employees Break Out Dynamic Christmas Sweaters for Holiday Party

Jason Dinesen,  North Dakota Taxes, Same-Sex Marriage, And a Really Bizarre Twist 

The party’s over.  Unemployed German couple accused of tax fraud after caught hosting sex parties.   They had a $250, er, cover charge.

 

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Tax Roundup, 12/2/2013: Remember the January 15 property tax credit deadline! And: final 3.8% tax regs.

Monday, December 2nd, 2013 by Joe Kristan

20130117-1There’s a new deadline this year for Iowa business owners with real property.   Iowa business owners have a January 15, 2014 deadline to apply for the business property tax credit enacted in this year’s legislative session.  Many have yet to apply, reports gazette.com:

Commercial property owners have been slow to apply for a new property tax credit designed to give a little boost to small businesses.

Most business owners who own the property in which the business operates are eligible for the Iowa Business Property Tax Credit.

A $50 million pool of money is available for the first year of the new tax credit. The state legislature included the credit in an historic property tax relief bill signed into law on June 12.

“It is important they get them in now so we can process them,” said Cedar Rapids City Assessor Scott Labus.

Businesses can find the form online here.  It should be filed with the local county assessor’s office. The gazette.com article says the maximum credit for the coming assessment year is $523.

 

Paul Neiffer,  Final Net Investment Income Regs Have Good News For Farmers:

In Final Regulations issued earlier this week, the IRS changed their interpretation of this rule and have now indicated that any self-rented real estate or rental real estate that has been properly grouped with a material participation entity will not be subject to the tax.  In even better news, any gain from selling this type of property will also be exempt from the tax.

Good news not just for farmers, but for any business where the owners rent property to a corporation they control.

 

Tony Nitti, IRS Issues Final Net Investment Income Tax Regulations: A First Look And More   It was a dirty trick to issue them over Thanksgiving, when I wasn’t watching.   I will be posting on some key issues.

 

20130419-1Illinois storm victims get filing relief (IRS news release):

The President has declared the counties of Champaign, Douglas, Fayette, Grundy, Jasper, La Salle, Massac, Pope, Tazewell, Vermilion, Wabash, Washington, Wayne, Will and Woodford a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Nov. 17, and on or before Feb. 28, 2014, have been postponed to Feb. 28, 2014.

The IRS is also waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Nov. 17, and on or before Dec. 2, as long as the deposits are made by Dec. 2, 2013.

You don’t have to be damaged to qualify, you just have to be located in the affected area.

 

No, that’s not the real threat.  The Muscatine Journal mistakes the painkiller for the ailment:

Tax breaks for wind-power producers are set to expire in a little more than a month, threatening hundreds of manufacturing and energy jobs in the state if nothing is done.

In Iowa, much of the attention has focused on the federal Renewable Fuel Standard in which the federal government guarantees a market for biofuels. But for Iowa’s turbine manufacturers and power companies, it’s the federal production tax credit that takes precedence.

It’s not the loss of the tax credits that threatens these industries.  It’s their inability to survive without subsidies or, in the case of ethanol makers, their inability to sell their product unless people are forced by law to buy it.  The subsidies only dull the recipients awareness of their real ailment.

 

David Brunori, Confusing Tax Cuts with Tax Reform (Tax Analysts Blog):

But increasing or decreasing tax burdens should not be confused with tax reform. Tax reform should mean something. I define tax reform as meaningful changes to the tax system that comport with the general notions of sound tax policy. The goal should be to make the system fairer, neutral, more efficient, and more stable. The changes should also increase economic development and job growth. And they should ensure that the government raises enough revenue to meet the public service demands of the citizenry. Changing the rates or tinkering at the margins is not reform.

Nor is giving tax spiffs to influential or sympathetic constituencies, but that’s been the Iowa way for some time now.

 

20120529-2Lyman Stone, Missouri Considering “Massive” Incentives for Boeing (Tax Policy Blog):

This is bad tax policy in spades. Governor Nixon rejected a flawed, but still broad, tax cut on the grounds that taxes don’t matter much for businesses, but government services do. Now Missouri policymakers may try to attract one specific company with a “massive” and narrowly-targeted tax break, despite lack of evidence that incentives lead to economic growth, and ample evidence that they create problems.

It’s all about directing funds to insiders with good lobbyists.

 

Cara Griffith, A Change of Culture (Tax Analysts Blog).  She talks about the natural tendency of tax authorities to conceal information and make tax practice an insiders’ game.  She notes that North Carolina doesn’t release private rulings and hasn’t updated public corporate directives since April 2012.  Iowa is better, but they haven’t updated their “What’s new” website since August.

 

William Perez, Updated Form W-9.  With the additional rules of FATCA piled on top of existing foreign withholding rules, you should make sure to get a W-9 from your vendors, depositors and ownership groups.

 

Jason Dinesen reminds us of the Iowa Insurance Premium Deduction

Trish McIntire reminds us that Refund Advances are really expensive loans.

Robert D. Flach, TO PER DIEM OR NOT TO PER DIEM – THAT IS THE QUESTION.

 

Kay Bell offers some Tax-saving moves to make by Dec. 31, 2013

Howard Gleckman,  Obama Will Try to Clarify the Role of Tax-Exempt Groups in Politics.  Your new role in furthering public debate?  Shut up!

TaxProf, The IRS Scandal, Day 207

Tax Justice Blog: This Holiday, The Tax Justice Team Is Thankful For…  In other words, watch your wallets, folks.

The Critical Question: Do We Need A Clergy Tax Simplification Act Of 2014?    (Peter Reilly)

Going Concern, 10 Things Accounting Professionals Should Be Thankful For This Year

TaxGrrrl, This Man’s Nuts: Plan To Sell Testicle For New Car Is Taxable   As if there weren’t enough non-tax arguments against this plan.

 

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Tax Roundup, 11/25/13: Burning down the parsonage (allowance). And: Red Oak!

Monday, November 25th, 2013 by Joe Kristan

The Tax Update comes from beautiful Red Oak, Iowa, in the Southwest part of the state.  This is the sixth stop in the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School tour for 2013.  Register now if you want a seat in one of the final schools in Denison and Ames!

Flickr image courtesy dvs under Creative Commons license

Flickr image courtesy dvs under Creative Commons license

Sorry, Parson.   A U.S. District Court in Wisconsin ruled Friday that the Sec. 107 parsonage allowance exclusion violates the Establishment Clause of the constitution.  The allowance gives “ministers of the gospel” a much broader tax exemption for housing than is available to other employees.  The “parsonage allowance” even allows tax-free treatment for cash payments when no parsonage is supplied.

Sec. 107 reads in full:

In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The decision overturns the cash allowance exclusion, but does not affect the exclusion when an actual parsonage is supplied.  That would leave ministers a more generous exclusion than is otherwise provided under Sec. 119, which only allows employees to exclude housing from income if it is provided “for the convenience of the employer” and “on the business premises of his employer as a condition of his employment.”  Many parsonage are not attached to the church, so that’s an important difference.

The decision “shall take effect at the conclusion of any appeals… or the expiration of [the] deadline for filing an appeal,” so for now there is no effect.   But it’s not clear what happens next.  As the losing defendant, there’s no requirement for the Treasury to file an appeal.  Presumably they would at least file an appeal, if only to not disrupt the upcoming filing season, but then they could drop it.  We should know soon whether an appeal will be pursued.

Cite: Freedom From Religion Foundation v. Lew (W.D. Wisc. Nov. 22, 2013)

Peter Reilly provides background, and the TaxProf has a roundup.

 

EFTPSDo you know whether your payroll taxes are up to date?  Some Texas businesses learned the hard way they are not.  Courthouse News Service reports:

A Texas businessman admitted his role in a $133 million payroll scam that prosecutors called the largest fraud in San Antonio history.

Charles Pircher, 61, pleaded guilty Thursday to tax fraud conspiracy and mail fraud conspiracy. He faces up to 20 years in federal prison on the tax charge and up to 5 years for mail fraud…

Pircher managed several San Antonio-based professional employer organizations. From 2002 to 2008 they entered into staff leasing agreements with client companies to manage payroll and insurance programs.

If you use a “professional employer organization” for your payroll service, you may not be able to be sure.  PEOs typically operate as the nominal “employer” of their clients’ employees, so all employees are reported under the PEO’s number.  That makes it impossible for clients to go online on EFTPS, the Electronic Federal Tax Payment System, to check that their payroll taxes are being paid.  PEO clients need to find other ways to be sure their tax payments are getting made, as the IRS will still want their money from the “real” employer if the PEO pockets funds provided to make the payments.

 

Jana Luttenegger, IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog)

TaxProf, The IRS Scandal, Day 200

Kay Bell, Senate Finance chair wants to hear your tax reform thoughts

Paul Neiffer, Senate “Pool” Process to Increase SE Taxes? Sales of equipment would no longer be exempt.

Annette Nellen, California advertising its use tax

Scott Drenkard,  The Tax Bite on Thanksgiving Travel (Tax Policy Blog)

Tony Nitti,  As New Jersey Prepares To Launch Internet Gambling, Congress Has Plan To Tax The Industry

 

Russ Fox wisely advises us Don’t Try This at Home.  He quotes from a Department of Justice Press Release:

If clients were audited by the IRS, THORNDIKE would provide them with blank Goodwill receipts as well as instructions as to how they should create a list of charitable donations that would correspond with the donation value THORNDIKE had entered on their returns. He also would direct his clients to create mileage logs that would support deductions he had entered for employment-related travel.

You need to prepare the return based on the documentation, not the other way around.

 

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Tax Roundup, 11/20/13: Are reports of the death of Instant Tax Service premature? And: film credits = bait car?

Wednesday, November 20th, 2013 by Joe Kristan
"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Is Instant Tax Service still dead?  Maybe not, reports TaxGrrrl: In Apparent Defiance Of Court Order, Fourth Largest Tax Biz In Country Preps For Sale :

Within a week of the Order, [founder "Fez"] Ogbazion was said to be engaged in discussions relating to the sale of the company, an activity that would appear to be barred under the injunction. Todd Bryant, General Counsel for ITS Financial, confirmed via email that “[a]n asset sale is being considered.”

It was a puzzle, though, as to who might be interested in purchasing the beleaguered company.

An insider, it turns out.  TaxGrrrl questions whether that will work, given that the court order seems designed to destroy the company and salt the earth so it can never return.  Judge for yourself (my emphasis):

Based on the foregoing, IT IS HEREBY ORDERED pursuant to I.R.C. §§ 7402 and 7408 that Defendants ITS Financial, LLC, TCA Financial, LLC, Tax Tree, LLC, and Fesum Ogbazion, and their representatives, agents, employees, attorneys, and/or any person or entity acting in active concert or participation with them, are PERMANENTLY ENJOINED from directly or indirectly, by use of any means:

A. Operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns; and, accordingly, Defendants ITS Financial, LLC, TCA Financial, LLC, and Tax Tree, LLC shall cease to operate; and Defendant Fesum Ogbazion shall cease operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns;

B. Acting as tax return preparers; and/or acting or operating as a franchisor of businesses relating in any way to preparation of tax returns;

C. Supervising or managing or assisting tax return preparers; and/or owning, operating, or engaging in work or a business relating in any way to preparation of tax returns;

D. Assisting with or directing the preparation or filing of tax returns, amended returns, claims for refund, or other related documents;

E. Representing before the Internal Revenue Service any person or organization whose tax liabilities are under examination or investigation by the IRS;

F. Organizing, promoting, providing, advising or selling any business or work of tax services;

They seem to be looking for a loophole here by selling assets, rather than stock, though the injunction against “selling any business” would seem to cover that.  I suspect the judge will make things clear in the coming days.

Prior coverage: Judge shuts down Instant Tax Service.

 

Instant Tax, meet Mo’ Money.  Owner of St. Louis tax prep franchise gets 20 months for 20130919-2fraud (stltoday.com):

The owner of a Mo’ Money tax preparation franchise in St. Louis was sentenced to 20 months in federal prison on Tuesday after pleading guilty in July to conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns.

Jimi Clark, 57, of Memphis, Tenn., and four employees were arrested and indicted in October 2012 on one felony count each of conspiracy to commit tax fraud. All were accused of falsely claiming educational tax credits on at least 47 tax returns for 2009.

Refundable credits like the American Opportunity Credit and the Earned Income Credit are the fuel for the fraudulent return industry.

 

haroldLyman Stone,  California Film Tax Credit Faces Controversy, Delay (Tax Policy Blog):

 A recent FBI sting in California revealed that state Senator Ron Calderon may have taken up to $60,000 in exchange for pushing to lower eligibility requirements for California’s $100-million-a-year film tax incentive program. This isn’t the first time film incentives have been connected to corruption and scandal. Indeed, a scandal about misallocation of film tax credits ultimately led to the demise of Iowa’s program over the last few years.

Sometimes I think that Iowa’s Film Credit Program was just an elaborate “Bait Car” episode that ultimately didn’t run because the stealing was too easy.

 

Elizabeth MalmMaryland Governor Touts Benefits of Film Tax Credits, Despite Evidence to the Contrary  (Tax Policy Bl0g).  Iowa has stopped giving filmmakers money and is instead giving them time, with no apparent bad economic effects.

Kay Bell, Coast-to-coast concerns about film and TV tax credits

 

David Henderson, Saez You: Income Distribution without Key Components of Income.  It turns out one of the most-cited articles on income inequality leaves out a lot of income, particularly government transfers and welfare benefits.  He notes notes, increased transfers are always advocated as a cure for inequality, and yet by the measuring stick used, it can never “help.”

 

Clint Stretch, Turning Down the Heat on Energy Tax Policy  (Tax Analysts Blog).  He notes the new oil and gas boom, and that “Oil and gas tax incentives are not responsible.”

 

TaxProf, The IRS Scandal, Day 195

Source: The Tax Foundation

Source: The Tax Foundation

Howard Gleckman, Baucus Proposes International Tax Reform But Future Action Remains Uncertain (TaxVox)

According to the plan, passive income from overseas activities would continue to be taxed at U.S. rates. Most income from the sale of goods and services overseas would also be taxed at full U.S. rates. The draft would end the practice of deferral that allows firms to avoid U.S. tax on foreign earnings until they bring those profits home. However, income that is currently parked overseas would be taxed at a 20 percent rate payable over 8 years.

Baucus would move the U.S. closer to a territorial system favored by many multinationals and GOP lawmakers. Under such a system, income is taxed in the jurisdiction where it is earned rather than by the firm’s home country. While the plan does not fix a specific tax rate, staffers say Baucus is aiming to reduce the corporate rate from 35 percent to about 30 percent.

But in the Baucus plan, this shift closer to a territorial tax comes at a price. To limit the ability of multinationals to game the system, the plan would impose a stiff minimum tax on income earned overseas by foreign affiliates of U.S. parent companies.

Reducing the corporate rate is fine, but remember that most business income is taxed on 1040s anymore.

 

Tax Justice Blog,  Statement from CTJ Director Robert McIntyre: Is the Baucus Plan for Multinational Corporations a Prelude to a Middle-Class Tax Increase?

 

Peter Reilly has been playing hooky at the commemoration of yesterday’s 150th anniversary of the Gettysburg Address.  I’m jealous.

The Critical Question: Hasn’t the Government Done Enough to Mess Up Higher Education Finance? (David Brunori, Tax Analysts Blog)  Well, I’m sure they can always mess it up even more.

News from the Profession. Non-Traditional Holiday Celebrations at Accounting Firms, Care To Add Yours?

 

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Tax Roundup, 11/19/13: Sub-zero edition! And the dark side of non-recourse debt forgiveness.

Tuesday, November 19th, 2013 by Joe Kristan

20120511-2

Tax Court says you can’t go below zero.  At least not in computing penalties.

A taxpayer filed a return showing no tax, but claiming refundable tax credits that generated a refund of $7,327.  That’s why refundable credits are such a sweet deal — you can get a refund of taxes without ever paying them through withholding or estimated taxes.  They are really a form of welfare.

The IRS issued the refund as claimed, but then thought better of it.  The IRS recomputation was that the taxpayer should have showed a positive tax balance of $144.  That meant the taxpayer was supposed to repay the $7,327 refundable credit plus the $144 tax due, for a total of $7,471.  The IRS assessed the difference, plus a 20% penalty on the $7,471 “underpayment.”  The taxpayer didn’t think refunding the refundable credit counted as an “underpayment, and the case went to Tax Court.

The tax imposes an “accuracy related” penalty on deficiencies, based on how much the taxpayer underpays the “tax required to be shown on the return.”  The IRS said the underpayment was the whole $7,471.  The Tax Court said that refundable credits can’t take the tax below zero for this purpose, so the “underpayment” is only $144 for computing the penalty.

 

This seems wrong.  Refundable credit fraud — especially Earned Income Tax fraud — is a multi-billion-dollar problem.  If there is no monetary penalty for claiming bogus credits, the only deterrent for gaming the system is criminal penalties, and given the limits on the IRS ability to prosecute EITC fraud, it’s an empty threat.

The Tax Court seems to agree:

We note that our conclusion breaks the historical link between the definitions of a deficiency and an underpayment; however, it was Congress that made that break.

If the case holds up on appeal, Congressional action is all that can fix it.

Cite: Rand, 141 T.C. No. 12.

 

Peter Reilly, IRS Letter To Senator Boxer On Short Sales Not Good News For Everybody

I hate to spoil a nice celebration, but I am going to risk it.  The position that the IRS outlined in the ruling is probably good news for most people affected by it.  It may not be good news for everybody, though.  In order to understand why you have to understand the IRS reasoning.  Here is the deal.  When debt is secured by property, it is either recourse or non-recourse…

The effect of that section is to make just about all California home mortgages non-recourse…  There are various exceptions to recognizing debt discharge income, such as the insolvency exception.  These will no longer be available.  

When you give up a house for non-recourse debt, you are considered to sell it for that amount.  That can be a bad thing.   If you don’t qualify for the residential gain exclusion — say, because you haven’t used it as a residence long enough to qualify, or you bought the house to rent — you can have taxable gain, no cash, and no available debt forgiveness exclusion.

 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

 

Alan Cole, High Implicit Marginal Tax Rates Make Life Difficult for the Poor (Tax Policy Blog):

The CBO did a great study on this a year ago. It found that the implicit marginal tax rates on some poor folk are frequently above 50%, and sometimes above 80%. That is to say, that when they figure out how to increase their income by a $100, they lose $50 or more in new taxes or lost benefits. 

That’s exactly the sort perverse effect that results from the increase in Iowa’s earned income tax credit, which by itself can put low income taxpayers in a 50%+ bracket.  Take away other benefits and you can see how it could get to 80% or more.

 

Sioux City Journal, Branstad declines to issue a gas tax veto threat.  Probably because he’d like a higher gas tax, even though he likes being re-elected too much to push for one.

 

Ben Harris,  Sorting Through The Property Tax Burden (TaxVox):

Using self-reported American Community Survey data, we find that residential property taxes tend to be close to $1,000 per year, with a small share of households paying substantially more, especially in Connecticut, New Jersey, New York and New Hampshire. In recent years, 48 percent of homeowners paid between $750 and $1,750 in property taxes. About one-third—31 percent—paid less than $750 and 21 percent paid more than $1,750.  Just 3 percent paid more than $4,000, with a miniscule share of homeowners (0.2 percent) paying more than $8,000. 

That seems low, but my clients probably aren’t a representative sample.

 

Jason Dinesen, Missouri Guidance on Same-Sex Marriage

 

Kay Bell, Missouri recognizes same-sex marriages for tax filing only20130121-2TaxGrrrl, Black Market Tax Preparers Continue To Defy IRS :

The solution for tax preparers who didn’t want to register and pay the fee? They simply don’t sign the returns.

And yes, that’s against the rules. But a number of paid tax preparers do it anyway. They are referred to in the business as “black market preparers” or sometimes, “ghost” tax preparers.

And that will happen no matter what regulations the IRS imposes on honest preparers.

 

William Perez, Tax Provisions Expiring at the End of 2013

Tony Nitti, House Republicans Put Tax Reform On Hold To Revel In Obamacare Struggles

I really don’t expect to receive tips from clients–it’s not the norm for tax preparation. I definitely don’t expect to receive $1,458,905 in such gratuities.  

I can’t say I expect that either.  But I would be OK with it!

TaxProf, The IRS Scandal, Day 194

Robert D. Flach brings the Tuesday Buzz!

 

The Critical Question: Are Jamaican Credit Unions The Next Tax Haven?  (Brian Mahany)

AOL? Prodigy? Attorney’s License to Practice Law Is Suspended for Failing to Maintain an Email Account  (TaxProf)

 

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Tax Roundup, 11/18/13: Waterloo day! And Iowa’s new $54 individual credit.

Monday, November 18th, 2013 by Joe Kristan

The ISU Farm and Urban Tax School is in Waterloo, Iowa today for another sold-out session.   Only Red Oak, Denison and Ames after this, so register now!  Then I drive to Cedar Rapids to talk about the Net Investment Income Tax and how it affects trusts before heading home tonight.  Coffee vendors all over Iowa will have a good day today.

20131118-2

Today seems like a different kind of Waterloo for IRS — their web site is down this morning.

20131118-1

 

Iowa “Trust fund” tax credit $54 for 2013.  The Department of Revenue has announced the new individual income tax  credit enacted last session as part of the property tax reforms:

In order to claim the Credit, a 2013 Return must be filed by October 31, 2014, which is the extended due date.  To avoid penalty, Iowa income tax returns normally must be filed by and 90% of any tax owed must be paid by April 30. The Credit will be applied to the computed Iowa tax after first applying any other refundable and nonrefundable tax credits.  Any amount of the Credit that is in excess of the tax due is not refundable and cannot be carried back or carried forward to another tax year.

The $54 Credit amount and additional information will be reflected in the IA 1040 instructions for the 2013 tax year. 

I won’t turn down the $54, but it’s not anything like real tax reform.  That would be the Tax Update’s Quick and Dirty Iowa Tax Reform.


Paul Neiffer, CPR for Section 179:

For all farms since 2007, the percentage of Section 179 to total depreciation averaged about 70% and in 2012 the number was slightly over 75%.  For purchases over $100,000 the percentages has been even higher.  Based on this table, it appears that most farmers have just about fully depreciated their farm equipment purchases over the last few years using Section 179. 

Section 179 limits are slated by law to fall to $25,000 next year.  I think it’s likely that Congress will eventually extend the $500,000 limit currently in effect to 2014, but it will make a big difference if they don’t.

 

tax fairyPeter Reilly, Charitable Foundation Haunted By 1999 Corporate Tax Assessment:

It turns out that the “Midco” intermediaries were relying on variations of what Joe Kristan calls the Tax Fairy - the magical sprite that can make your taxes go away with fancy tax footwork.  Of course as someone who just sold their corporation to someone, that’s not your problem – or so you would like to think.  The IRS has been thinking otherwise.  Since the corporations that have been sold are dry husks by the time taxes are assessed the IRS has been asserting transferee liability against selling shareholders.  Results have been mixed.

There is no Tax Fairy.

 

Jeffrey Dorfman, Obamacare Will Lift Tax Fraud To A Whole New Level.  That’s just what we need, a better class of tax fraud.

Annette Nellen, Affiliate nexus legislation – everyone loses

Jack Townsend,  Watch the Refund Statute of Limitations on OVDP Payments Related to Income Tax 

Phil Hodgen has a New tax ebook for nonresident freelancers.

Paul Caron, The IRS Scandal, Day 193

 

Crisis!  U.S. MexiCoke fans fear effect of Mexico’s new soda tax.  (Kay Bell)

 

bureauofprisons

How could they be so frivolous?  The Department of Justice announces that a California couple has

been indicted for, among other things, filing liens against the IRS Commissioner.  Everyone knows that you can’t just file baseless liens.

Only they can do that.

TaxGrrrl reports on a Michigan couple whose bank account was emptied by the IRS when they suspected they were “structuring” bank deposits to stay below the $10,000 disclosure limit.  She takes up the story:

Instead, they insist that the deposits were generally less than $10,000 because their insurance policy covers the theft of cash only up to that sum. As a result, they do not let their employees carry more than that amount at any time, including walking deposits to the local bank.

That didn’t stop the feds from seizing the Dehkos’ remaining funds. Using a process called civil forfeiture, the federal government can seize assets on the basis of suspicion: there is no requirement for firm evidence nor are the property owners entitled to notice. The government didn’t ask the Dehkos about their deposits or they would have found out about the insurance policy.

Months after the seizure, prosecutors had never offered any evidence to prove that the Dehkos were engaged in money laundering or that they were avoiding income tax. In fact, a Bank Secrecy Act examination from last year resulted in a notice stating that “no violations were identified.”

Fortunately, the Institute for Justice stepped up and financed court action by the Dehkos, who run a grocery store in Michigan.   The IRS has said it will return their funds.  But unlike the California couple who went after the Commissioner, nobody at the IRS will ever be disciplined for slapping a lien on the Michigan grocers and seizing their cash, with no due process and, admittedly, for nothing.   This sort of thing will continue until there is a Sauce for the Gander Rule, where taxpayers can sue IRS officials who make baseless filings on the same basis the IRS can sue taxpayers.

 

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Tax Roundup, 11/11/13: Sheldon edition. And: masterminds!

Monday, November 11th, 2013 by Joe Kristan

 

Greetings to our Veteran readers for Veteran’s day!  Though perhaps “greetings” doesn’t summon the best memories.

The Tax Update comes to you today from sunny Sheldon, Iowa:

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Well, it’s sunny indoors at Northwest Iowa Community College, where I am participating in the Sheldon Session of the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School.  I’m the “urban” part.  Seats at the remaining schools are going fast, so register today!

 

Joseph Henchman, FBI Says California State Senator Accepted Bribes to Support Film Tax Credits (Tax Policy Blog).  He cites the LA Times:

 According to the affidavit, posted on Al Jazeera’s website, [State Senator Ronald] Calderon [D-Montebello] allegedly accepted $60,000 in bribes from an undercover FBI agent posing as a movie executive and $28,000 more from a medical company owner in exchange for efforts to affect legislation on tax credits for the film industry and on workers’ compensation claims.

That tells you that California is a little more sophisticated than Iowa.  The California guy (allegedly) required money to deliver the keys to the treasury to the film industry.  All the Iowa legislature required was a few autographs and photo-ops with starlets.  Iowa has learned from its mistakes, a little, and now favors jailing filmmakers to subsidizing them.

More from Russ Fox, Another Film Tax Credit Scandal

 

"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbasion, Instant Tax Service CEO.

TaxGrrrl, Fourth Largest Tax Prep Business In The Country Shut Down By Feds  “U.S. District Judge Timothy S. Black found that ITS had a culture of “fraud and deception.”

My coverage of Instant Tax Service here.

 

Phil Hodgen,  Distributions from foreign grantor trusts and U.S. paperwork.  “This is a Form 3520 “research in a box” blog post for you, BP. Because you asked.”

William Perez, Social Security Wage Base Increases for 2014

Kay Bell, 12 charitable groups that would love to take your tax-deductible Typhoon Haiyan relief donations

Fiduciary Income Tax Blog, Federal Unified Credit for 2014.  $5,340,000.

Jack Townsend, Swiss Bankers Expect to Share Data for Tax Purposes

Robert W. Wood, Lawyer For NFL Players Sidelined Permanently…True Chicago Style?

Annette Nellen, Growing support for lower corporate rate and territorial system.  Good, but remember that the corporate rate doesn’t even cover most business income.

Tax Justice Blog, GE-Sponsored “Territorial” Study Promotes Agenda of Tax Avoidance

Stephen Olsen, Summary Opinions aka Procedure Roundup for 11/08/13.  Excellent roundup for procedure fans.

 

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Robert D. Flach, I HATE K-1s!  Robert adds what I will call Flach’s Iron Law: “All K-1s usually arrive late.”  He then proceeds into a fine rant:

While I have not done any specific calculations, I firmly believe that often the additional costs to properly prepare the federal and state income tax returns for taxpayers with K-1 investments is as much as or more than the actual income, or tax benefits if any, generated from the investment.  If the money invested in these limited partnerships were instead invested in related mutual funds I expect the investor would do better.  His/her tax preparation costs would certainly be less.
 
Of course brokers never tell their clients this when selling them the investment.

While K-1s from closely-held businesses are normal and healthy, Robert is exactly right about the kinds of K-1s often seen in investment accounts.

 

Nicotine withdrawal.  Iowa tobacco tax revenue has declined, report says (KTIV.com)

 

Great moments in economic development.  Miami Replaces Tampa As IRS Tax Fraud Capital

 

The Critical Question.  An Isley Brother In Tax Court – Does Tax Crime Pay?  (Peter Reilly).

 

“Mastermind”?  I think the term is overused.  Example: “Mastermind of tax fraud scheme pleads guilty” (Examiner.net).  How did the prosecutor describe the diabolically clever scheme at issue?

“This scheme was based on a nonsensical formula that any honest person would instantly recognize was patently absurd and fraudulent,” U.S. Attorney Tammy Dickinson said in a statement. “Fortunately, the vast majority of these refund claims were detected by the IRS and denied.”

They need a new term for somebody who organizes a really dumb crime.  Disastermaster? Blunderbrain?  Any ideas are welcome in the comments.

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Tax Roundup, 11/8/13: Kyle Orton gets the bad news about the Tax Fairy. And: how many Lithuanians can you fit into a mailbox?

Friday, November 8th, 2013 by Joe Kristan

tax fairyKyle Orton’s old lawyer fails to find the Tax Fairy, departs the tax business.  From a Department of Justice press release:

A federal court has permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns, the Justice Department announced today.  The civil injunction order, to which Stern consented without admitting the allegations against him, was entered by Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois.  The order permanently bars Stern from preparing various types of tax returns for individuals, estates and trusts, partnerships or corporations (IRS Forms 1040, 1041, 1065, and 1120), among others. 

According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million.  Stern allegedly promoted the schemes to customers, colleagues, and business associates.  The complaint alleges that his customers included lawyers, entrepreneurs and professional football players, and some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty and professional malpractice. 

Mr. Stern seems to have led his clients on a merry chase after the Tax Fairy, the legendary sprite who can wave her wand and make your taxes disappear.  Kyle Orton is a graduate of Southeast Polk High School near Des Moines, where the truth about the Tax Fairy apparently was not in the syllabus.

Related: Jack Townsend, Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes 

 

20131108-1Maybe Lithuanian apartments are crowded?  USA Today reports:

The Internal Revenue Service sent 655 tax refunds to a single address in Kaunas, Lithuania — failing to recognize that the refunds were likely part of an identity theft scheme. Another 343 tax refunds went to a single address in Shanghai, China.

Thousands more potentially fraudulent refunds — totaling millions of dollars — went to places in Bulgaria, Ireland and Canada in 2011.

In all, a report from the Treasury Inspector General for Tax Administration today found 1.5 million potentially fraudulent tax returns that went undetected by the IRS, costing taxpayers $3.2 billion.

When your controls don’t notice something like that, you have a lot more urgent problems than regulating preparers.   Yet Congress and the Administration think the IRS is ready to take on overseeing your health insurance purchases.  What could go wrong?

Tony Nitti is moved to offer the IRS a proposition:

MR. IRS,

REQUEST FOR URGENT BUSINESS RELATIONSHIP

FIRST, I MUST SOLICIT YOUR STRICTEST CONFIDENCE IN THIS TRANSACTION. THIS IS BY VIRTUE OF ITS NATURE AS BEING UTTERLY CONFIDENTIAL AND ‘TOP SECRET’.

Heh.

 

 

S-SidewalkCosting taxpayers by not taking their money.  Tax Analysts reports ($link):

Democrats seeking to raise revenue in ongoing budget talks have circulated a list of tax preferences they would like to see eliminated, including a provision that allows some wealthy individuals to avoid large payroll taxes, the carried interest preference, and the tax break for expenses businesses incur when moving operations overseas. 

The “provision that allows some wealthy individuals to avoid large payroll taxes” is called Subchapter S.  Form 1120-S K-1 income has never been subject to payroll or self-employment tax.  This bothers the congresscritters (my emphasis):

Commonly known as the “Newt Gingrich/John Edwards” loophole, it is most often used by owners of Subchapter S corporations to avoid the 3.9% Medicare tax on earnings, which costs taxpayers hundreds of millions of dollars every year.  Many S corporation shareholders receive both wages from the S corporation and a share of the S corporation’s profits, but they pay payroll tax only on their wages.

“Costs” taxpayers?  From my point of view, and from that of my S corporation clients, it saves taxpayers hundreds of millions of dollars every year — but keeps it out of the hands of grasping politicians, so it’s perceived as a bad thing, by grasping politicians.

The versions of this “loophole closer” proposed in the past have been lame.  When all they have to offer on tax policy is warmed over lameness like these, they aren’t serious.

 

 

TaxProf, Brunson: Preventing IRS Abuse of the Tax System.  The TaxProf quotes a new article by Samuel D. Brunson:

The IRS can act in ways that violate both the letter and the intent of the tax law. Where such violations either provide benefits to select groups of taxpayers without directly harming others, or where the harm to taxpayers is de minimis, nobody has the ability or incentive to challenge the IRS and require it to enforce the tax law as written.

Congress could control the IRS’s abuse of the tax law. Using insights from the literature of administrative oversight, this Article proposes that Congress provide standing on third parties to challenge IRS actions. If properly designed and implemented, such “fire-alarm oversight” would permit oversight at a significantly lower cost than creating another oversight board. At the same time, it would be more effective at finding and responding to IRS abuse of the tax system and would generally preserve the IRS’s administrative discretion in deciding how to enforce the tax law.

Right now the IRS — and by extension the administration in power — can pick and choose what parts of the law it wants to apply.  For example, the current administration has chosen to allow tax credits for participants in federal insurance exchanges, which the law does not authorize, while unilaterally delaying the employer insurance mandate but not the individual mandate.  Somebody should be able to challenge this sort of fiat government.

 

More on the shutdown of Instant Tax Service, a story we covered yesterday:Irwin

Department of Justice press release: Federal Court in Ohio Shuts Down Nation’s Fourth-Largest Tax-Preparation Firm and Bars CEO from Tax-Preparation Business

 

Irwinirwin.jpgPeter Reilly, Ninth Circuit Rules Against Irwin Schiff Sentence Appeal:

Irwin Schiff is probably one of the more famous alternate tax thinkers.  His seminal work “How Anyone Can Stop Paying Income Taxes” is available in hardcover on Amazon for one cent.

Mr. Schiff appealed his sentence on tax crimes on the basis that his attorney failed to raise a “bipolar disorder” defense and what an attorney I know calls the “good faith fraud” defense — the Cheek argument that you really thought the wacky stuff you were saying is true.  Peter wisely notes:

The problem with the Cheek defense is that you have to be smart to raise it, but if you show that you are too smart, then it does not work.

Its a fine line — smart enough to spend “thousands of hours” researching the tax law, but not smart enough to avoid a massive misunderstanding of it.

 

Jana Luttenegger,  IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog): “New IRS rules permit employers to allow participants in a health Flexible Spending Arrangement (FSA) to carry over unused amounts up to $500 from one plan year to the next.”

 

Paul Neiffer, Trusts Get Hit with New 3.8% Tax too. And hard.

Kay Bell, It could be time to harvest capital gains and future tax savings

Rush Nigut,  Careful Planning Necessary When Using Retirement Monies to Fund Startup Business

Brian Strahle, IGNORANCE MAY NOT BE BLISS WHEN IT COMES TO ‘ZAPPERS’  These are software apps designed to hide point-of-sale receipts from the taxman.

Phil Hodgen’s Exit Tax Book: Chapter 9 – Estate and Gift Tax for the Covered Expatriate

Catch your Friday Buzz with Robert D. Flach!

TaxGrrrl,  Former NFL Star Cites Concussions, Receives Prison Sentence For Role In Tax Fraud 

Leslie Book,  TIGTA Report on VITA Errors (Procedurally Taxing)

 

Howard Gleckman,  Can Expiring Tax Provisions Save the Budget Talks? (TaxVox).  “Sadly, it is hard to see how.”

 

Not strictly tax-related, but good reading anyway:  How to Put the Brakes on Consumers’ Debt(Megan McArdle).  Megan points out the wisdom of spending less than you take in, in preference to trying to get the government to cover your shortfalls.

 

News you can use: 3 ways to screw up your next website (Josh Larson at IowaBiz.com)

News from the Profession: Failed PwC Auditor Finds Success in Burning Bridges With This Ridiculous Farewell Email (Going Concern)

 

Quick thinking.  From The Des Moines Register:

A Des Moines man awoke to find a stranger in his living room Thursday afternoon, police said. When the victim confronted the burglar, the suspect reportedly offered to mow the victim’s lawn for $5.

Guy needs to work on his pricing model.

 

 

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Tax Roundup, 11/6/13: Relief for the road warrior? And the futile state corporation income tax

Wednesday, November 6th, 2013 by Joe Kristan
Flickr image courtesy Tom Hilton under Creative Commons license

Flickr image courtesy Tom Hilton under Creative Commons license

Relief for the traveling employee?  Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013″ (S. 1645) was introduced yesterday.  The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days.  From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000.  That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig  – or more likely, saved the need to ignore the filing requirement.

 

Peter Reilly,  Mobile Workforce Act Good Idea But May Need More Limits  “Over the years I have studied the rules for what invokes state income tax withholding requirement.  It varies substantially from state to state.”

 

Elizabeth Malm, Richard Borean, Map: Share of State Tax Revenues from Corporate Income Tax (Tax Policy Blog)

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Notice that it’s a relatively paltry part of Iowa tax receipts, even in a good year, and even with the highest rate in the nation.  Better to repeal it as part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

David Brunori, Feckless Legislators and Corporate Welfare (Tax Analysts Blog)

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

…if once you have paid him the Dane-geld

You never get rid of the Dane.

 

Tax Justice Blog,  Let’s Face It: Delaware and Other U.S. States Are Tax Havens

 

Paul Neiffer, Crop Insurance Deferral Options.  “When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.”  Paul explains what the choices are if the recovery relates to a yield loss.

Tony Nitti, Shareholder Computes Basis In S Corporation Stock Incorrectly, $1.5 Million Loss Becomes $2 Million Gain

 

Jana Luttenegger, Interactive Form to Assist in Applying for 501(c)(3) Status (Davis Brown Tax Law Blog) 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

William Perez, CBO: Marginal Tax Rates Faced by Low- and Moderate-Income Individuals.  Helping the poor stay that way.

Andrew Mitchel, 2014 Inflation Adjustments for Individuals in the International Tax Arena

Roger McEowen, Inflation Adjusted Amounts for 2014

TaxProf,  The IRS Scandal, Day 181

TaxGrrrl, Bayern Munich Keeps Winning Even As Their Chief Faces Trial For Tax Evasion.

 

Brian Mahany,  More Guidance on Taxation of Same Sex Marriages

Jack Townsend,  Should You Opt Out of OVDI/P?.  He examines Robert Wood’s discussion of opting out of the IRS “amnesty”

Phil Hodgen’s Exit Tax Book: Chapter 7 – Taxation of Deferred Compensation 

 

Joseph Thorndike, Forget Carried Interest–It’s All About Taxing Capital Gains (Tax Analysts Blog).   He’s right when he says “The only issue that really matters is how we tax capital gains.”  Then he goes off the rails in so many ways.  Read Joseph, and then read Steve Landsberg.

 

A Wednesday Buzz from Robert D. Flach!

May you have this problem.  The Tax Treatment of Olympic Gold Medals (TaxProf)

News from the Profession.  Recruiting Season: Salaries and Offers for the Public Accounting Class of 2014 (Going Concern)

 

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Tax Roundup, 11/5/13: IRS makes audits even more fun. And: the 400!.

Tuesday, November 5th, 2013 by Joe Kristan

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It’s not the same people every year.  High Income, Low Taxes and Never a Bad Year (James B. Stewart, New York Times, via the TaxProf.  A New York Times columnist comes through with all of the cliches about “the rich” in one column.

 Plenty of people did get hit in 2009, including people at the very top. But all things are relative. The fortunate 400 people with the highest adjusted gross incomes still made, on average, $202 million each in 2009, according to Internal Revenue Service data. And this doesn’t even count income that doesn’t show up as adjusted gross income, such as tax-exempt interest.

Yet the top 400 paid an average federal income tax rate of less than 20 percent, far lower than the top rate of 35 percent then in effect.

They also paid a lower rate than the top 1 percent, which were people with adjusted gross incomes in 2009 of at least $344,000. These affluent but hardly superrich taxpayers paid on average just over 24 percent of their adjusted gross income in federal income tax. Even the top 0.01 percent, people earning at least $1.4 million, paid 24 percent.        

You’d get the impression that this is the same top 400 every year, paying low taxes as they go.  That’s a wrong impression.

Most people who have spectacular incomes do so only once, usually because they sell their business or take it public.  That normally is how you hit that top 400.  Yet the “never a bad year” line implies that they have this kind of income year after year.

That income is capital gains, which are taxed at a lower rate.  That’s no mystery or conspiracy, that’s just math.

Furthermore, those capital gains are often one of two taxes on the income.  C corporation income is taxed twice — first on the corporation tax return, and again when retained earnings are distributed as dividends or recovered as capital gains.  And to the extent the capital gains reflect inflation, they are aren’t a tax on income at all; they are a confiscation of principal.

Mr. Stewart is rehashing numbers from 2009, when the top federal rate on capital gains was 15%.  It was increased for 2013 to 23.8%, nearly a 60% increase.   Yet because ordinary income rates went up too, the Famous 400 will always have lower rates, and Mr. Stewart will be able to write the same lame column five years from now.

Of course, many economists think that capital gain rates were too high even before the rate increase.  But maybe that’s true only unless it really matters.


20130419-1The IRS has figured out a way to make audits even more fun!  Tax Analysts reports ($link) “The IRS Large Business and International Division on November 4 released mandatory, stringent new procedures for enforcing information document requests (IDRs) and issuing summonses, allowing examiners almost no discretion even at the manager level.”

The new procedure requires the IRS to issue a summons on a tight deadline when an “information document request” (IDR) isn’t promptly met:

If the IDR response remains incomplete by the delinquency notice deadline, the examiner is required — again without exception — to issue a pre-summons letter within 14 calendar days of the delinquency notice deadline. The pre-summons letter sets another new deadline, which can’t be more than 10 calendar days away unless the director of field operations grants approval.

Former IRS official Larry Langdon warns:

Taxpayers who may have trouble meeting proposed deadlines in a draft IDR “need to immediately escalate that draft IDR before it goes final, because in effect if it goes final, they’re stuck with those dates,” Langdon said. At that point, he added, no amount of negotiation will stop the new enforcement process from proceeding.

Lovely.  Of course the IRS won’t stop conducting audits during busy season, or during client reporting deadline periods, but that’s just too bad, apparently.

Link: LB&I-04-1113-009.

 

Paul Neiffer,  Everything You Want to Know About Net Investment Income Tax (or Not)

If you have 1,000 acres of good farmland, it only takes $250 per acre cash rent to put you over the threshold.  Then, after a few years of cash renting, the farmer elects to sell his farmland.  In this case, almost all of the gain will be both subject to the 3.8% net investment income tax and the 20% maximum federal tax plus state income taxes.

But that year the farmer will be “rich,” so he’s fair game, right?

 

Jason Dinesen, Nebraska Tax Guidance for Same-Sex Married Couples   

William Perez, Estate and Gift Tax Figures for 2014

 

Russ Fox, The Wrong Kind of Education Leads to ClubFed

 A California tax preparer decided he wanted to increase refunds for his clients. There’s absolutely nothing wrong with that–I want my clients to get the maximum possible refund allowed under the law. It appears that Kenyon Williams forgot those last three words; he was found guilty of two counts of wire fraud and two counts of aggravated identity theft earlier today.

That “under the law” thing gets in the way of so many great ideas…

 

TaxGrrrl, Saying ‘I Do’ To Tax Planning   What the tax-savvy bride is wearing, and when.

Andrew Lundeen, Scott Hodge, Individuals Receive 91 Percent of Tax Expenditures (Tax Policy Blog):

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Tax Justice Blog, More Illinois Companies Trying to Extort Tax Breaks.  Given Illinois’ newly-increased taxes, it’s partly self-defense, but you can bet they’re shaking down Iowa too.

Donald Marron, Time to Fix the Budget Process (TaxVox)

 

tack shelterJeremy Scott, What the Daugerdas Verdict Means for Tax Shelter Promotion (Tax Analysts Blog):

While it might have secured a few convictions, and even jail time, in the KPMG and Daugerdas cases, it also lost face, along with time and resources, for its relatively modest success. Instead of spending many years to secure partial convictions on a few practitioners, perhaps the government’s time would be better spent attacking tax shelter transactions on the front end, at the exam and regulatory drafting levels.

If tax planning and compliance get you prosecuted, you’ll have a hard time getting people to perform tax planning and compliance.

 

Phil Hodgen’s Exit Tax Book: Chapter 6 – Taxation of Specified Tax-Deferred Accounts

Jack Townsend,  India Signs OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.  Bank secrecy isn’t.

 

Peter Reilly,  SPLC Calls Family Research Council Hate Group – Should IRS Take Action?  I think SPLC has done quite enough for the FRC already, thank you.  Peter wisely notes “The IRS teaming up with the FBI to identify hate groups does not sound like a confidence inspiring plan to me.”

Carnival Time at Kay Bell’s Place!  Tax Carnival #122: Return to Standard Tax Time

 

Things you didn’t learn in Geography Class: Ireland Is a Bagel (Martin Sullivan, Tax Analysts Blog)

 

News From the Profession: Guess Which Big 4 Firm Allegedly Just Punked Its Rejectees (Going Concern).  When I was interviewing out of school, I knew one visit went badly when they sent me a bill for my hotel room.

 

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Tax Roundup, 11/4/13: The price of being acquitted. And more on the Hatch Iowa tax plan.

Monday, November 4th, 2013 by Joe Kristan

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Chilling effects.  Tax Analysts story ($link) about last week’s conviction of tax shelter figure Paul Daugerdas, and the acquittal of the former chairman of BDO on related charges, has a sobering final paragraph:

Regarding Field, Edward M. Robbins Jr. of Hochman, Salkin, Rettig, Toscher & Perez PC noted the difficulty in obtaining an acquittal in the face of multiple tax-related conspiracy counts in federal court. “I looked at the . . . docket sheet for the entire case and wondered how much it cost Mr. Field for his acquittal,” Robbins said. “I’d say at least a couple of million dollars. That’s what it takes to beat a case like this at trial.”

It doesn’t help at all when the government freezes your assets before trial, as they did here.  And if justice can only be had for $2 million, what chance does somebody have who lacks the the kind of wealth these defendants have?

TaxProf, Daugerdas (Jenkens & Gilchrist) Convicted, Field (BDO) Acquitted in Tax Shelter Case

Jack Townsend,  On Retrial, Daugerdas Convicted and Field Acquitted

 

Source: The Tax Foundation

Source: The Tax Foundation

Kathie Obradovich:  Hatch tax-cut proposal has winners, losers (Des Moines Register):

The second thorny issue is that Hatch has decided to raise taxes significantly for the highest income groups. For people making between $250,000 and $1 million, the percentage increase is in the range of 33 percent to 45 percent. That’s a major sticker shock for high-income Iowans. That’s less than 5 percent of taxpayers. But even if it were 1 percent or less, Hatch loses the ability to argue that he won’t raise Iowans’ taxes.

Hatch says he’s trying to make Iowa’s income tax fairer, not just lower. The highest wage-earners are paying a lower percentage of their income, he said. His plan also increases the per-child deduction from $40 to $500 and gives married couples who are both employed a credit of $1,000.

That’s attractive, to be sure, but a plan that at least held higher-income Iowans harmless would have broader political appeal. The arguments about the wealthy paying their fair share just don’t resonate the same way during a time of budget surpluses as they do on the national level in the face of enormous debt.

Of course, a tax on “the rich” means a tax on “business.”  A 33 to 45 percent increase on taxes on Iowa businesses doesn’t promise much in the way of either “fairness” or employment growth in Iowa.

It could be a good thing to have Iowa’s horrible income tax system be a big campaign issue.  It would be nice to get a mandate for serious tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  Probably too much to hope for.

 

Andrew Lundeen, Scott HodgeTop One Percent Pays Twice Income Tax Rate of All Taxpayers (Tax Policy Blog):

20131104-1Despite conventional wisdom that the Bush-era tax cuts disproportionately benefited the wealthy, the reality is that the tax burden on the bottom 99 percent has been falling for more than two decades. Indeed, the average tax rate for the bottom 99 percent of taxpayers is now below 10 percent—well below the average for all taxpayers—thanks to years of targeted tax cuts aimed at the middle class. Meanwhile, the top 1 percent of taxpayers still pays an effective tax rate that is roughly twice the average for all taxpayers.

But politicians insist that raising taxes on “the rich” is always somehow “fairness.”

 

#Paul Neiffer,  Some Thoughts on Section 179 & Bonus Depreciation:

Remember that Section 179 is allowed for new AND used equipment, while bonus is only on NEW equipment.  You cannot take Section 179 on trade-in basis of old equipment, but can use it for bonus.  Section 179 applies to farm equipment and single purpose farm structures and land improvements.  Bonus applies to all farm assets including buildings.

I give about a 60% chance of 2013 bonus depreciation being extended into 2014, and about 80% on Sec. 179.  For planning purposes, though, it’s wise to try to get the assets in service in 2013 if you can.

 

Peter Reilly,  When Planning Never Forget The Alternative Minimum Tax:

I’m hoping that I get some commenters who tell me that they keep meticulous track of all AMT carryovers for their clients and do a detailed reconstruction whenever they take on a new client.  I bet they floss regularly too.

Well, yes and yes.

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax   

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TaxGrrrl, 11 Uses For Leftover Halloween Candy (And The Resulting Tax Consequences)

Russ Fox, Bubba Paris Sacked, Pleads Guilty to Not Filing a Tax Return

Robert D Flach, 2014 INFLATION-ADJUSTED NUMBERS.  Also, his Friday Buzz last week went up late, but is always worth the wait!

 

Phil Hodgen’s series on expatriate taxation: Chapter 5 – Mark-To-Market Taxation 

Janet Novack, IRS Says Race Car Driver Juan Pablo Montoya Used Sham To Wrongly Deduct Millions

TaxProf, The IRS Scandal, Day 179

Tax Justice Blog, Paul Ryan Says No to Any Revenue Increase, Again.  Good.

 

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Tax Roundup, 11/1/13: Unhappy Halloween for tax shelter maven. And: clunk!

Friday, November 1st, 2013 by Joe Kristan

 

tax fairyGuilty again.  Former Jenkens and Gilchrist tax shelter wizard Paul Daugerdas was again convicted on tax crime charges yesterday arising out of the great tax shelter frenzy of the Clinton and Bush II years.   A previous conviction was overturned on grounds of juror misconduct.  Bloomberg Businessweek reports that he was convicted on seven of 16 counts.

A co-defendant, former BDO Seidman CEO Denis Field, was acquitted.

Mr. Daugerdas built a fortune around tax shelters with clever names like “HOMER,” “CARDs” and “BLISS.”  The shelters typically involved offsetting investment positions, with losses allocated to shelter customers and gains allocated to tax-indifferent offshore entities.  The shelters have fared poorly on exam and in the courts, with a nearly unbroken record of failure in litigated cases.

Mr. Daugerdas built a fortune around selling access to the Tax Fairy, the magical sprite who waves her wand to make tax problems go away.  The news that there is no tax fairy proved costly to his clients, and probably also to him.

Link: Prior Tax Update Daugerdas coverage.

 

20121212-1Clunk.  Cash for Clunkers was an expensive boondoggle, reports the Brookings Institution.  The study estimates that the program cost $1.4 million per “job created” while destroying thousands of perfectly good vehicles and raising transportation costs for those who rely on used cars.

Related:  Braley: “Cash for Clunkers” phenomenally successful (Radio Iowa)

Kyle Pomerleau,  Cash for Clunkers: Not Much of a Stimulus (Tax Policy Blog)

 

TaxGrrrl, IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More   

 

Paul Neiffer,  Calculating Cost Basis Wrong Can Be Costly!

Peter Reilly,  Actuary In Tax Court Beats Northwestern And IRS On Accuracy Of 1099-R.

Janet Novack, Top Social Security Tax To Rise 2.9% In 2014; Benefits Going Up 1.5%

Tax Trials, IRS Resumes Field Exams & Collections.  The shutdown is truly over.

Phil Hodgen’s  series on the expatriate exit tax continues with Chapter 4 – Are You A Covered Expatriate?

TaxProf,  The IRS Scandal, Day 176

Robert D. Flach is celebrating his 60th birthday with a sale.

 

Howard Gleckman,  As Budget Talks Start, Beware the Bogus Revenue Hikes (TaxVox) “But behind the scenes, Washington’s wink-and-nod crowd thinks it has a solution: Raise new tax revenue—at least on paper—without actually increasing taxes. In fact, some of the gimmicks on the table create even darker Halloween magic.”

Tax Justice Blog, Kansas: Dispatches from a Failing Experiment

 

Going Concern,  Career Conundrum: Is a Master’s Degree Worth It?  It’s all relative.  To me it was, because my it was in Accounting, while my  B.A. was in History — a noble field, but one with grim employment prospects.  If you have an undergrad degree, I’m not so sure it’s worth forgoing a year or two of salary.  If you don’t have a job anyway, it may be the edge you need.

 

Kay Bell, A colorful way to ease IRS notice fears:

Adam Chodorow, however, has an idea of how to ease such tax correspondence induced panic attacks.

Chodorow, a professor at Arizona State’s Sandra Day O’Connor College of Law, suggests color-coding so that taxpayers will immediately know the amount of tax trouble they are in. This, he says, could abate taxpayer stress.

If the IRS could be relied on to issue accurate notices, that would be lovely, but incorrect “red” notices would probably induce a rash of taxpayer heart episodes.

 

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Tax Roundup, 10/28/13: Maquoketa! And the experts in preposterous.

Monday, October 28th, 2013 by Joe Kristan

Today is the first session of the ISU Center for Agricultural Law and Taxation 2013 Farm and Urbane Income Tax Schools.  Once again I am on the Day 1 team with Roger McEowen, the ringleader of the Center, and Kristy Maitre, the Iowa IRS Stakeholder Liaison.

We are starting in Maquoketa this year.  This is our first visit to Maquoketa, the county seat of Jackson County.   This replaces our former Muscatine session; we had to move when the conference center we were using closed.

Most Iowans know Maquoketa for Maquoketa Caves State Park.

Picture by Iowa Department of Natural Resources.

Picture by Iowa Department of Natural Resources.

If the session goes well, we won’t have to hold our next one underground.  If you can’t make it to Maquoketa, register today for one of the seven other farm school sessions!

 

Peter Reilly,  Organizing Junk Mail Does Not Qualify As Manufacturing.  Peter discusses the ADVO case we mentioned last week on the Section 199 “Domestic Production Activities Deduction.”  I like this:

The fact that what was being produced was 90,000 tons of crap, that was going to be quickly thrown away after annoying someone did not seem to be of any significance.  

It’s bad enough that the tax law has to distinguish “production.”  Imagine if the IRS agents had to distinguish crap.

 

Paul NeifferNow Congress is Calling the IRS “Preposterous” (At Least the Delay)!  Well, Congress would know about preposterous.  Paul will be one of the Day 2 speakers at the Farm and Urban Tax Schools in Sheldon, Mason City, Ottumwa and Ames.

 

Kyle Pomerleau, Low and Moderate Income Taxpayers Face High Marginal Tax Rates Too

Yesterday, the CBO released an interesting graphic showing the share of income earners below 450 percent of the federal poverty line. (Incomes up to $87,885 for a family of three).

From a sample of tax returns, they found that nearly 40 percent of those making 450 percent of the FPL and lower face a 30 to 39 percent marginal tax rate.

They also find that a good number of taxpayers face marginal tax rates that are even higher. More than 10 percent face a marginal tax rate between 40 and 49 percent. Some even face rates higher than 80 percent.

 

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This marginal rate is part of the poverty trap caused by the phase-out of means-tested welfare benefits like the Earned Income Tax Credit.  These cause programs touted as helping the poor to punish taxpayers who try to stop being poor.

 

Phil Hodgen,  Expatriate without filing FBARs? Sure thing

Kay Bell, Almost 700 IRS contractors owe $5.4 million in back taxes 

TaxProf, WSJ: States You Shouldn’t Be Caught Dead In

Trish McIntire explains her recent blogging silence.  Get well soon, Trish!

 

Jack Townsend,  Outlier Foreign Account Conviction Affirmed; Making a Witness Unavailable to the Defense.  He discusses prosecutorial success via intimidation.

Quotable.  From a comment by Dan Hanson at Marginal Revolution (via Tyler Cowen):

Failure isn’t rare for government IT projects – it’s the norm. Over 90% of them fail to deliver on time and on budget. But more frighteningly, over 40% of them fail absolutely and are never delivered. This is because the core requirements for a successful project – solid up-front analysis and requirements, tight control over requirements changes, and clear coordination of responsibility with accountability, are all things that government tends to be very poor at.

 

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Tax Roundup, 10/23/2013: The Earned income tax credit thief subsidy feature. And: tax season delayed!

Wednesday, October 23rd, 2013 by Joe Kristan

Some smart people are big fans of the Earned Income Tax Credit. Some see it as a way to help the working poor, and some see it as a less destructive way to achieve the goals of minimum wages.

Yesterday the Treasury Inspector General for Tax Administration reported that from 21% to 25% of the earned income credit was paid improperly for the most recent fiscal year, and that $110 to $130 billion has been “paid improperly” over the past decade. That’s a nice way of saying “stolen.”

 

EITC error chart

Just because there is a lot of theft doesn’t by itself make a program bad — though that kind of loss rate would bankrupt anybody in the private sector.   Most people would send food to starving people in a war zone knowing that local warlords will be plundering some of it. But a program that comes at the cost of sending $11 billion annually to thieves needs to otherwise be a very good thing.   That’s not so clear with the EITC.

The credit does help the working poor — as long as they stay poor. As they work their way out of poverty, it becomes a trap. The phase-out of the credit imposes a punishing unstated, but very real, marginal tax rate.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC is only one program that does this; all “means-tested” welfare programs do this to some degree. It’s not uncommon for this implicit tax rate to exceed 100% at some income levels.

I don’t know what the right answer is (Arnold Kling has some ideas), but increasing the EITC, like Iowa did this year, isn’t it.

 

Oh, Goody. 2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume (IRS Press Release)

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. 

20131023-1It’s funny how programming IRS computers isn’t “essential,” but barricading open-air monuments is.

Other coverage:

William Perez, IRS Expects to Delay the Start of the 2014 Filing Season

Kay Bell, IRS won’t accept 2013 tax returns until Jan. 28, 2014

Russ Fox, Sigh: 2014 Tax Season to be Delayed up to Two Weeks

TaxGrrrl, IRS Announces Delayed Start To 2014 Tax Season   

 

Robert D. Flach, HOW TO DEAL WITH THE IRS AND LIVE TO FIGHT ANOTHER DAY

Paul Neiffer,  Taxpayers Want Their Cake, Frosting and Candles! Live by the low estate-tax value, die by the low estate-tax value.

Jack Townsend, Has the U.S. Aided International Tax Evasion?

Russ Fox,  Coming Attractions: When the IRS Writes New Law When They’re Not Allowed To.  A federal judge has allowed a suit challenging the IRS unilaterally extending the tax credit for insurance purchased on state-sponsored exchanges to policies sold on federally-run exchanges.

TaxProf, The IRS Scandal, Day 167

 

President Reagan signs PL 99-514, the Tax Reform Act of 1986.The Tax Policy Blog takes us on a nostalgia tour in  8 Technological Changes Since the 1986 Tax Reform.  Take a trip back to the days of “car phones.”

 

Clint Stretch, Whom Do Tax Reformers Want to Help? (Tax Analysts Blog):

When congressional leaders start talking about tax reform as if it will benefit everyone, someone should be asking: Whom are you trying to help? The answer may be Americans earning more than around $75,000 who have fewer itemized deductions, fewer kids, fewer healthcare benefits, and lower retirement savings than most.

I’m not convinced that’s the right way to look at it.  Getting rid of complexity and lowering rates helps everybody by eliminating dead weight loss and redirecting resources from tax planning and compliance to more useful pursuits.

Andrew Lundeen, A Lot Has Changed in the 27 Years Since the Last Major Tax Reform (Tax Policy Blog).  “The amount of credits, loopholes, and deductions has increase by 44 percent, from $844 billion (2013 dollars), to over $1.2 trillion (2013 dollars), with much of that growth coming from the expansion of refundable tax credits.”

 

Howard Gleckman, Congress Shouldn’t Forget About Tax Entitlements In Its Search for Deficit Reduction (TaxVox)

 

Tax Justice Blog,  Governor Scott Walker Appropriates State Budget Surplus for Campaign Season Tax Cut.  In Tax Justice World, returning money taken by force of law to the taxpayers is “appropriating” it.

 

David Brunori, Eliminating the Sales Tax Is a Very Good Idea (Tax Analysts Blog) “But ending a tax that preys on the poor and is increasingly difficult to collect may provide the economic boost Rhode Island needs.”

Brian Strahle, BLAMING THE PLAYERS FOR THE RULES.  “Regardless, most taxpayers are simply trying to comply with the maze and complexity of non-uniform multistate tax laws”

Joseph Thorndike, The Gas Tax Doesn’t Work Because Politicians Broke It (Tax Analysts Blog).  By not raising it, apparently.

 

The Critical Question:  JD Salinger – Was January 27 2010 A Good Day To Die ?  (Peter Reilly)

Career Corner.  First Round Interview Tips for This Fall’s Accounting Recruits (Going Concern)

 

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Tax Roundup, 10/21/2013: Obamacare and Iowa small business. And the spiritual side of tax credit fraud!

Monday, October 21st, 2013 by Joe Kristan

Tomorrow is the 27th Anniversary of the Internal Revenue Code of 1986.  I assume many of you will leave work early today to prepare for the festivities.

20121120-2Things may not be going well for Obamacare when the Des Moines Register finds itself  coping with the concept of unintended consequences, in Few small businesses sign up for tax credits:

 The Affordable Care Act offers a tax credit to entice more small businesses to offer health insurance. But few small-business owners have taken advantage of it so far. And the law could have the unintended effect of prompting small businesses to drop coverage, which would make their employees eligible for individual subsidies on the new health insurance exchanges, insurance experts and business owners told The Des Moines Register.

The article gives a surprisingly realistic view of how Obamacare looks to employers, and why the much-touted small employer tax credit doesn’t work for many employers:

Jesse Patton, a West Des Moines insurance broker and president-elect of the Iowa Association of Health Underwriters, said the tax credit’s confusing rules narrow its appeal.

The credit is available for employers that have fewer than 25 employees making an average of less than $50,000.

“But you start to get a reduction in that credit if you’re over 10 employees and over $25,000 income,” he said.

Also, business owners can’t take the credit for any family members, and many small firms include relatives. Patton’s eight employees include himself, his wife, his son and his daughter-in-law.

“That’s typical for a small business,” he said.

And jumping through the hoops isn’t free:

“Unfortunately, when everybody gets through all of that formula, which is complicated, and pay their accountant $600 to do it, they’d be better off to just take the normal tax deduction versus the credit,” Patton said.

When even the Des Moines Register is starting to get the point about the unintended consequences of Obamacare, it’s in trouble.

 

Megan McArdle has an excellent summary of the current state of the Affordable Care Act in Four Things We Think We Know About Obamacare.  It’s worth reading the whole thing, but this tax nugget is important:

The penalty for being uninsured next year is $95. Again, this is partly true. In fact, the penalty for being uninsured next year is $95 or 1 percent of your income, whichever is higher. So if you make $75,000 a year and you decide to go without insurance, the penalty will be $750. There are a number of things you can do to avoid having to pay it, from deliberately getting your utilities shut off to under-withholding taxes from your paycheck so that they don’t have a refund from which to take out the penalty. But that number is what will go on the books at the Internal Revenue Service, not the $95 you’ve probably heard.

If it remains somewhere between difficult and impossible to buy through the exchanges, this poses an obvious problem.

 

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Joseph Henchman, Illinois Supreme Court Strikes Down “Amazon Tax” (Tax Policy Blog):

Most of the legal challenges to these laws have focused on whether the state power exceeds constitutional limits under the Commerce Clause, but the Illinois Supreme Court focused on this disparity between Internet advertisers and traditional advertisers. Ultimately, the court concluded that because the law requires Internet-based performance marketers to collect tax, but does not require that of traditional performance marketers, it is a discriminatory tax on Internet-based commerce in violation of the federal Internet Tax Freedom Act…

Janet Novack, Illinois High Court Shoots Down Amazon Sales Tax Law; Will SCOTUS Step In?   

 

Paul Neiffer, IRS Releases List of Counties Eligible for Another Year of Livestock Deferral

Kay Bell,  IRS is back and asks for patience as it reopens its doors.  Hey, IRS, do unto others…

Jana Luttenegger, IRS Back to Work, What to Expect (Davis Brown Tax Law Blog):

After 16 days of not opening mail, not processing returns, and not answering phone calls, the IRS is expecting it will take some time to get back to “normal” operations. In fact, the IRS issued a statement urging taxpayers with non-urgent matters to wait to call the IRS. I can only imagine what the call traffic will be like after a 16-day shutdown.  

Not to mention whether the answers you get when you call will be any more accurate.

 

Howard Gleckman, One Modest Path to a No-Drama Budget Deal (TaxVox)

Jack Townsend, Swiss Bank Frey to Close

Brian Mahany, FATCA, FBAR and Opt Outs

 

Leslie Book, Larry Gibbs on Loving v IRS.  Shockingly, a former IRS commissioner thinks IRS commissioners should have all the power they want.

Russ Fox,  One Down, One to Go: DOJ Gets an Injunction, Asks for Another.

One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”

They just want to be able to do it by themselves without any of that messy due process stuff.

 

Peter Reilly, Was JD Salinger Facing A Major Estate Tax Problem ? 

TaxGrrrl, How Twitter Hopes To Reduce Its Tax Bill (In 140 Characters Or Less)   
The cobbler’s children always go barefoot.   Attorney Who Claimed Tax Expertise Sentenced to 20 Months in Jail for Understating His Income (TaxProf)

The Critical Question:  Would You Prepare Your Home For A Disaster If It Were Tax Deductible? (Tony Nitti)

 

 

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

The sacred side of earned income tax credit fraud.  A Washington tax preparer found an unusual way to get in touch with the spirit world, reports seattlepi.com.  Cleo Reed is scheduled to be sentenced today for preparing fraudulent returns claiming imaginary earned income credits:

Writing the court, Assistant U.S. Attorney Arlen Storm noted Reed had many of his clients claim income for “household help” while claiming to be self-employed. Reed did so for two undercover IRS agents and three fake clients.

During their encounter, Reed explained he pays his recruiters $500 for each young woman with a new child they bring to him, Storm told the court. Agents identified three recruiters who’d brought Reed dozens of clients.

Investigators later determined Reed filed at least 1,305 fraudulent returns in three years, and that the IRS paid out $4.3 million on those claims, Storm continued.

Refundable tax credits are a magnet for fraud, but they are also a path to holiness, it seems:

Writing the court, Reed has denied paying others to recruit clients and claimed he operated in “an ethical manner.” He went on to claim he was only helping his clients “achieve the American dream.”

“I had a spiritual calling to give aid, support, and guidance to the underemployed, disabled, and veterans of this great land,” Reed said in his letter to the court.

Somehow I think this is one religious belief system that the Bureau of Prisons won’t feel compelled to accommodate.

 

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