Posts Tagged ‘preparer regulation’

Tax Roundup, 2/11/16: C corporation law firm hammered for bonusing all income. And: PTIN class action certified.

Thursday, February 11th, 2016 by Joe Kristan

20150403-3Incorporated professional businesses are darned if they do, darned if they don’t. If they do elect S corporation treatment, the IRS pushes them to treat as much of the business income as possible as salaries, to maximize employment tax receipts. If they don’t, and operate as C corporations, the IRS likes to argue that the salaries are excessive, triggering tax on the “excessive” part at the highest corporation tax rate.

A Tax Court case yesterday reminds us that of these risks, the C corporation has the most to lose. A big Chicago intellectual property firm routinely paid its year-end earnings as bonuses, running its income down to zero. Professional C corporations like to do this because the “personal service corporation” rules deny professional corporations the benefit of the lower corporate tax rates; they pay a flat 35% on dollar one. Any dividends paid are non-deductible and are taxed again at a 20% individual rate.

S corporations typically make the reasonable argument that some of their income is from invested capital and accumulated goodwill, and therefore can properly be treated as corporate distributable earnings – which, incidentally, aren’t subject to FICA or Medicare taxes. The IRS turned this argument against the Chicago firm, arguing that a C corporation law firm with 65 shareholders and 150 attorneys would have such earnings not strictly attributable to the shareholder wage compensation.

The law firm conceded the tax, but argued that it shouldn’t have to pay penalties because it had “substantial authority” for bonusing out all the income. The court found otherwise:

We do not doubt the critical value of the services provided by employees of a professional services firm. Indeed, the employees’ services may be far more important, as a factor of production, than the capital contributed by the firm’s owners. Recognition of those basic economic realities might justify the payment of compensation that constitutes the vast majority of the firm’s profits, after payment of other expenses — as long as the remaining net income still provides an adequate return on invested capital. But petitioner did not have substantial authority for the deduction of amounts paid as compensation that completely eliminated its income and left its shareholder attorneys with no return on their invested capital.

The Moral? Professional corporations should usually be S corporations. The few additional fringe benefits available to C corporations don’t pay for the chance that you will get hit with 35% tax on a big chunk of corporate income.

Cite: Brinks Gilson & Lione A Professional Corporation,  T.C. Memo. 2016-20

 

IRS certifies class action for suit on excessive PTIN fees. Text here. Still pushing back on the IRS preparer regulation power grab.

 

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Is there anything they can’t do? Tax credit could spur biochemical revolution (Sen. Rita Hart, Rep. Mary Ann Hanusa, Des Moines Register). Presumably just like they spurred the Iowa film industry revolution. And who better than statehouse politicians to pick  the next great industry? My thoughts here.

 

Tony Nitti, Just Three Years Later, President Seeks To Expand Obamacare Tax On Business Owners. It’s going nowhere for now, but Tony cautions: “As a reminder, Hillary Clinton has not offered much of a tax plan of her own, and has shown a willingness to leverage off of proposals posited by the President. Which means this might not be the last we see of a mulligan on the net investment income tax.”

Jason Dinesen, Can Married Same-Sex Couples Claim Their Spouse as a Dependent?

TaxGrrrl, Understanding Your Tax Forms 2016: Form 1099-C, Cancellation of Debt

Robert Wood, Lawyer Fees Soar To $1,500 An Hour, But Tax Write-Offs Cut It To $900

Kay Bell, Hackers try, but fail, to get into IRS e-filing PIN system

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David Brunori, Base-Broadening and Rate-Lowering Remains a Good Idea (Tax Analysts Blog). “Whether you’re a liberal, a conservative, or a Martian, you must admit that net worth taxes are horrible tax policy.”

Scott Greenberg, More Americans than Ever are Renouncing Their Citizenship, and Taxes are to Blame (Tax Policy Blog)

Howard Gleckman, The White House Quietly Rolls Out Its Last Tax and Budget Plan (TaxVox).

TaxProf, The IRS Scandal, Day 1008

 

Career Corner. Reminder: Don’t Let Inside Information Turn Into a Career Limiting Move (Leona May, Going Concern). “Regardless of how you learn the inside information, don’t trade on it. Regardless of whether or not you’ll explicitly benefit, Don’t share the information -– especially not with your greedy brother-in-law.”

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Tax Roundup, 1/7/16: Taxpayer Advocate report describes IRS “pay to play” plans. And: IRS nixes plan to make charities collect tax ID numbers.

Thursday, January 7th, 2016 by Joe Kristan

20150107-2Have you heard about the IRS “Future State Plan?” Or “CONOPS?” Me neither.

The latest annual Taxpayer Advocate Report to Congress is the first I’ve heard about this mostly-secret IRS initiative. The report explains (my emphasis):

During the past year-and-a-half, the IRS has devoted significant resources to creating a “future state” plan that details how the agency will operate in five years. The plan is explained and developed in a document known as a Concept of Operations (CONOPS). There are many positive components of the plan, including the goal of creating online taxpayer accounts through which taxpayers will be able to obtain information and interact with the IRS.

However, the CONOPS also raise significant questions and concerns. Implicit in the plan — and explicit in internal discussion — is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers. The IRS is hoping that taxpayer interactions with the IRS through online accounts will address a high percentage of taxpayer needs. It is also developing plans to enable third parties like tax return preparers and tax software companies to do more to assist taxpayers for whom online accounts are insufficient — an approach that will increase compliance costs for millions of taxpayers.

Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

The IRS, as usual, is cooking this all up in secret, with only well-connected insiders in on the plan. Tax Analysts describes the report ($link):

A major concern is the aura of secrecy around the CONOPS documents. Despite the fact that the IRS is conducting internal discussions about its “future state” plans, Olson’s report says the Service has repeatedly declared CONOPS data elements and documents “official use only” and not for public dissemination. “Never before has the IRS made this assertion in so many instances,” the TAS report says. One area where the IRS has shared its CONOPS plans — the Large Business and International Division — caters to a group of taxpayers that can afford to “pay to play,” the TAS said, while future service plans remain under wraps for the roughly 150 million individual taxpayers and 54 million small business taxpayers.

If you look at it from the viewpoint of most taxpayers, this plan seems incomprehensible. But if you believe that the IRS is really trying to serve the interests of the national tax prep franchise outfits, national accounting firms, and the biggest law firms, it completely makes sense.  It actually fits in well with the IRS preparer regulation efforts to eliminate competition for the national tax prep firms — a regulation effort that the Taxpayer Advocate still regrettably and unwisely supports. Those who are drafting the new taxpayer service labyrinth can be expected get nice raises by going out into the tax industry to help their new employers navigate through it.

Related: Leslie Book, The National Taxpayer Releases Annual Report to Congress (Procedurally Taxing); Accounting Today, Taxpayer Advocate Concerned about IRS Plans for ‘Pay to Play’ Taxpayer Service,

 

Another IRS screw-up averted. I just received a Tax Analysts breaking news email saying:

The IRS has withdrawn proposed regulations that would implement the statutory exception to the contemporaneous written acknowledgement requirement for substantiating charitable contribution deductions of $250 or more.

These rules would have required donors to provide charities with their social security numbers — a horrible idea in the identity theft era. Expect the IRS to try to sneak them back in when they think people aren’t looking.

 

Nicole Kaeding, American Migration in 2015 (Tax Policy Blog).
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Four of the ten states with the most inbound migration have no personal income tax. Most of the states where the population is fleeing have very hign income taxes, including Illlinois, Connecticut, New York and New Jersey. To be fair, high-tax Vermont seems to be attracting people, probably from dysfunctional New York.

This won’t help inbound migration. Illinois Announces Plans To Delay Tax Refunds Through March (TaxGrrrl)

Kay Bell, Delayed state tax refunds in Illinois, Louisiana & Utah because of tougher tax identity theft procedures. And because Illinois is broke.

Robert Wood, Obama Executive Action? Tax Hikes Could Be Next. “President Obama has stretched executive authority with immigration and gun law changes. And he is “very interested” in executive action on taxes too.”

Jack Townsend, Government Asserts Wylys’ Fraud in Bankruptcy Court. It’s a multibillion dollar tax case involving offshore trusts and a “blame the tax pro” defense. Mr. Townsend goes deep on the cases being made by both sides.

Paul Neiffer, “BIG” Might Not Be a Problem. Paul discusses the now-permanent five year “recognition period” for S corporation built-in gains.

William Perez lists Tax Deadlines for 2016

Robert D. Flach posts MY ANNUAL POST FOR JOURNALISTS AND BLOGGERS, reminding us all that he doesn’t care for conflating “tax professional” with “CPA.”

Peter Reilly, No Foreign Income Tax Exclusion For Army Civilian In Afghanistan

Tony Nitti, Love In The 21st Century: Bad Breakup Leads To Form 1099, Lawsuit. I’m not a trained relationship professional, but I think its safe to observe that issuing a 1099 to your ex-girlfriend burns all the bridges.

 

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Megan McArdle, Closing Tax ‘Loopholes’ Would Choke the Middle Class. “If you want to pay for any major new program by “closing the loopholes,” it is these loopholes that you will need to close, because the amount of revenue raised by, say, doing away with carried interest treatment of sweat equity partnership stakes works out to a rounding error on the federal budget.”

David Brunori, Taxing Guns Is Just Wrong (Tax Analysts Blog). “The fact is that a gun tax will have no effect on gun violence.”

TaxProf, The IRS Scandal, Day 973. A dispatch from the denialist front.

 

News from the Profession. #BusySeason Has Arrived (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/23/15: The wisdom, or not, of paying taxes by year-end. And: Deep thoughts at Think Progress.

Wednesday, December 23rd, 2015 by Joe Kristan

dimeIs it wise to prepay deductible taxes? Paying 4th quarter estimated taxes before December 31 is a standard piece of the year-end tax planning toolkit. Sometimes taxpayers go further and pay in December all of their taxes that would be due in the following April. Is it wise to pay all of your taxes 3 1/2 months early to move a deduction up a year?

The first question you have to answer, with regard to payments of state and local taxes deductible on your federal return, is whether you will be paying alternative minimum tax this year or next year. For example, a taxpayer with an unusual lump of income this year who waits until next year to pay state taxes may trigger AMT next year, wasting those state tax deductions. On the other side of the coin, taxpayers who are in AMT this year get no value from prepaying deductible taxes, so they might as well put the money to work until the taxes are due.

If the taxes are just as deductible in either year, it’s a time value of money question. What is the present value of spending a dollar now to get a fraction of that back as a tax benefit a year earlier? I’ve run some numbers, using the top Iowa marginal tax rate and the rates at the different federal brackets:

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This shows a benefit at all brackets from prepaying estimates due in January, but prepaying taxes due in April only makes sense at higher brackets, and it never works to prepay September property taxes in the prior year if AMT is not a factor.

This is another installment of our 2015 year-end planning tips series

 

Think Progress is an openly partisan agitation outfit, so we shouldn’t expect it to know much about taxes. Still, it is a regular source of talking points for a certain breed of politicians who promise to spend everything on everyone, all to be paid for by someone else. That makes it worthwhile to occasionally correct it for saying something half-baked like this (my emphasis):

There may be some truth to the, as no one has accused Apple of doing anything illegal. But while Cook has advocated for lowering the corporate tax rate and closing loopholes, corporate taxes are already a shrinking portion of the government’s revenue, getting replaced instead by payroll taxes paid by working people.

Yes, corporate taxes are a shrinking portion of government revenue. But it’s not because the corporate tax law has suddenly become lax. It’s because most businesses are no longer taxable as corporations in the first place.

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Source: Tax Foundation

The 1986 tax reforms made it sensible for most closely-held businesses to be partnerships or S corporations. Unlike C corporations, which pay corporation taxes, these “pass-through entities” don’t pay taxes; instead, the income is reported on their owners’ 1040s.

Think Progress says the C corporation taxes are being replaced by “payroll taxes on working people.” That’s demonstrably wrong. C corporation taxes are being supplanted by business taxes paid on 1040s, which are generally paid at high tax brackets. Perhaps Think Progress has developed a strange new respect for hard-working high-bracket individuals.

Tax foundation Distribution of Federal Taxes in 2014

Chart Courtesy Tax Foundation

Cracking down on C corporations, as Think Progress advocates, will do nothing but confirm the trend away from C corporation taxation. I suppose then they’ll just continue the beatings until morale improves.

Related: Individual Tax Rates Also Impact Business Activity Due to High Number of Pass-Throughs (Scott Hodge, Alex Raut)

 

WOWT.com, Former Omaha IRS Agent Arrested for Tax Fraud Scheme. And yet we are told that these people need to regulate preparers to stop tax fraud.

 

Jared Walczak, States Lag Behind Federal Government on Small Business Expensing (Tax Policy Blog). “Forty-five states and the District of Columbia allow first-year expensing of small business capital investment under Section 179. Of those, thirty-four states are in conformity with the now-permanent $500,000 federal expensing level.”

William Perez, How Do You Claim a Sales Tax Deduction on Your Federal Taxes?

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #3. Thoughts on the Quill decision.

Kay Bell, Home energy tax breaks are extended, just in time for the arrival of, for many, an unusually warm winter

Jack Townsend, U.S. Taxpayer Seeks Declaratory Judgment that Goevernment Must Prove Willfulness for the FBAR Willful Penalty by Clear and Convincing Evidence. Given the stakes, it seems only fair, but the IRS prefers to be able to cause financial ruin with cloudy and unconvincing evidence.

 

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Jason Dinesen, From the Archives: Taxpayer Identity Theft, Part 2

Jim Maule asks Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit? I say its a revenue grab combined with moral preening.

Stephen Olsen, Summary Opinions for November (Procedurally Taxing). A roundup of tax procedure headlines.

Robert Wood, 5 Things To Know About Year-End’s Massive Tax Bill

TaxGrrrl, Real Housewife Teresa Giudice Released From Federal Prison

Tony Nitti, Moving? Don’t Forget The Tax Deduction. “At 23 years old I packed up my life, and in a move made popular by members of the witness protection program, fled New Jersey for the quiet of the Colorado mountains.”

Robert D. Flach talks about priorities in A YEAR-END TAX QUESTION FROM A CLIENT

 

Cheer up! Social Security is Still Going Broke (Arnold Kling)

TaxProf, The IRS Scandal, Day 958

Howard Gleckman, Trump Would Slash Taxes for the Top 0.1 Percent By An Average of $1.3 Million, Add Nearly $10 Trillion to the Debt (TaxVox)

 

Thanks a bunch, Prof. Avi-Yonah. CBS News:  Vanguard Investors, Your Fund Fees Could Quadruple If Michigan Tax Prof Reuven Avi-Yonah Is Right (TaxProf). A great example of how with a little corporation-bashing, busybody do-gooders would screw millions of small investors.

 

Holiday Giving News from the Profession. This Flask-Calculator Is the Perfect Gift for the Accountant Who Drinks Everything (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 12/8/15: Extenders, fourth and long. Also: No Iowa tax reform expected in 2016. And: Finland!

Tuesday, December 8th, 2015 by Joe Kristan

20150811-1Time to punt? Congressional taxwriters may be on the verge of giving up on passing any permanent extensions of the perpetually-expiring tax provisions this year. It is reported they may go for a two-year extension this week. Tax Analysts reports on comments from House Ways and Means Chairman Kevin Brady ($link):

House Ways and Means Republicans are expected to introduce a two-year tax extenders bill as talks continue on a permanent extenders package without a clear solution, committee Chair Kevin Brady, R-Texas, told reporters on December 7.

“The clock is ticking. We are not going to let the extenders fail before we leave town,” Brady said. Republicans want to make sure they are ready this week with a “fallback” if an agreement isn’t reached between the parties, he said earlier.

They are scheduled to adjourn and leave town Friday, so things will need to happen quickly. The story reports that Senate Finance Committee Chairman Orrin Hatch expects the House to pass a two-year extension.

They had been working to permanently extend at least the research credit and the $500,000 Section 179 deduction, but the Democratic negotiators insistence on expansion of the earned income credit as part of any deal may doom the permanent effort.

Some of the Lazarus provisions that died at the end of 2014 and need to be extended to be available for 2015 filings include:

-The $500,000 limit for Section 179 deductions for otherwise capitalized capital expenditures. The limit will otherwise be $25,000.

-The research credit.

-Bonus depreciation

-The ability to roll up to $100,000 from an IRA directly to charity without it going through the 1040 first.

The full list is here.

Failure, of course, remains an option. The pre-recess crush makes getting anything done uncertain. House Majority Leader McCarthy is quoted as saying that he has a “fear” that the extenders won’t pass. In that case, we may have a retroactive package passed in January, delaying filing season, or no extender bill at all.

Related: Kay Bell, Uncle Sam faces another shutdown if Congress doesn’t reach spending agreement by Dec. 11

 

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No Iowa Tax Reform again this year. That’s the word from the Iowa Taxpayers Association annual legislative forum, reports the Waterloo-Cedar Falls Courier:

At the Iowa Taxpayers Association’s annual legislative leadership forum, held Friday at Prairie Meadows in Altoona, Democratic and Republican leaders said there is not sufficient state revenue to support new tax breaks or policy changes that would remove money from the budget pie.

“Obviously, when you’re working on tight budget margins, the opportunity for tax reform becomes increasingly difficult,” said Rep. Chris Hagenow, R-Windsor Heights, the new House Majority Leader.

“I’m just going to be very frank: I don’t see this session producing any tax policy changes,” Jochum said. “In terms of any big, new policy changes in taxes … I truly do not see any of that happening.”

That’s no surprise. The continuing split of control between the parties, the resulting ability of either side to veto any tax reform efforts, and seemingly irreconcilable views on tax policy would probably doom any tax reform effort regardless of the budget numbers. The best we can hope is that work continues behind the scenes for when the political climate for tax reform improves. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready whenever they are.

 

buzz20150804Robert D. Flach has fresh Tuesday Buzz, with links including discussion of the futility of regulating the law-abiding to stop the crooks, a lesson with broad application.

Paul Neiffer, Additional De-Minimis Election Update. “Therefore, if a sole proprietor farmer or rancher purchases a large amount of assets that individually cost less than $2,500 AND these assets are likely to appreciate in value, it may be better to not make the de-minimis election for that year.”

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #5- The Role Partnership Liabilities In Foreclosures,

Robert Wood, IRS Private Debt Collectors Are Now Legal: 10 Things You Should Know

TaxGrrrl, Wal-Mart Sues Puerto Rico Over ‘Astonishing And Unsustainable’ Tax Increase. To go with astonishing and unsustainable government spending.

Leslie Book, Summons Enforcement For Undisclosed Offshore Accounts: The I Don’t Have Em Defense Is Not an Easy One to Win

Jack Townsend, New Transportion Bill, FAST, Adds Some Tax Provisions

Of course it does. State Wants Its Share Of The Sharing Economy (Peter Reilly) “This appears to be one of the rare instances where I am providing you breaking news on a matter otherwise neglected by the tax blogosphere.” Au contraire, Pierre Peter!

 

20150731-1Finland is considering replacing its vaunted welfare regime with a guaranteed annual income;

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out €800 ($870) per month—to everyone.

This would deal with the problem of high implicit marginal tax rates that make it too expensive for low-income Finns to go to work — a problem that also exists in the U.S., as Arnold Kling and others have noted.

It may sound counterintuitive, but the proposal is meant to tackle unemployment. Finland’s unemployment rate is at a 15-year high, at 9.53% and a basic income would allow people to take on low-paying jobs without personal cost. At the moment, a temporary job results in lower welfare benefits, which can lead to an overall drop in income.

Related: Tyler Cowen, A guaranteed annual income for Finland?Arnold Kling, Libertarian Scandinavian Welfare State?

 

TaxProf, The IRS Scandal, Day 943. Paul Caron telegraphs an end to this important series. Even when the Tax Prof’s daily coverage ends, the scandal remains unresolved, and Commissioner Koskinen and the administration continue to run out the clock, to the continuing damage of the IRS and to taxpayer service.

Scott Greenberg, A Lesson of Hanukkah: It’s Difficult to Determine Asset Lives: “To spell out the lesson of the story more slowly – the Maccabees came into possession of an asset (a jar of oil). They thought it would lose its value over a certain time period (a single day). However, the asset actually took much longer to depreciate (eight days).”

 

Stop the presses. Donald Trump Tweeted Something About Tax Shelters (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/2/15: A defender of tax credits makes his case. Also: escalating the war on offshore taxpayers.

Wednesday, December 2nd, 2015 by Joe Kristan

 

20120906-1Bribe them and they will come. The Atlantic asks Why Are There So Many Data Centers in Iowa?. “When I’ve asked data center operations managers, the answer has varied from approximately forty characteristics to a blunt four: ‘Networks, land, power, and taxes'” By “taxes,” that generally means “tax incentives,” or special breaks unavailable to the rest of us.

In a post at IowaBiz.com, Brent Willett makes an unabashed argument for more of the same in Economic development has an image problem (IowaBiz.com). It’s an interesting piece. Its premise is that people think that special tax deals to lure companies are shady, but that we would feel otherwise if incentive boosters just made a better case.

For an attempt to make the case that incentives are a good thing, the post is  short of actual evidence. It instead makes flat assertions that incentives are necessary and proper, and are obviously good because everybody does them. For example (emphasis in original):

Incentives play a fundamental role in securing job- and wealth-creation projects for communities in every corner of this country and in many countries of the world. This is pure, unadulterated fact.

If it were pure unadulterated fact, you might think that it would be easy to marshal some data that says so. Yet in the only attempt ever made by Iowa to quantify the value of its dozens of tax credit giveaways, by a blue-ribbon committee appointed in the wake of the Iowa Film Tax Credit fiasco, failed to identify a single tax credit that clearly was worth more than it cost.

The two magic words omitted by defenders of tax credits are “opportunity cost.” They point to projects that receive tax credits, assert they would not have happened anyway, and ignore the idea that the money used for the credits would have been used elsewhere. They also ignore the cost to all businesses of the tax law complexity and high rates that inevitably accompany special interest tax breaks.

It’s not just accidental that tax incentives have a bad image. They are like a guy who takes his wife’s purse to the bar to buy drinks for the girls. The girls might accept the free drinks (development success!), but it doesn’t help the person who foots the bill. Nor is it impressive, and any of the girls won over by this tactic aren’t likely to be real prizes. In any case, his image is unlikely to be helped by a better explanation when his wife finds out.

Related: Local CPA Firm vows to swallow pride, accept $28 million

 

Best done by not giving them in the first place. States Can Avoid the Fiscal Risks Tax Incentives Create, Pew Report Says (LexisNexis Legal Newsroom).

Jim Maule, Tax Credit Giveaways Don’t Deserve Credit, “If the Michigan tax credit had done what it was promised to do, the increased tax revenues should have more than offset the cost of the credit. But that hasn’t happened, as evidenced by the budget deficits that were spiraling out of control on account of the tax credit giveaway.”

 

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Andrew Mitchel, The Escalation of Offshore Penalties Over the Last 20 Years. An excellent summary of the unconscionable increase in foot-fault penalties for paperwork violations of foreign reporting rules. He describes the same “violations” taking place in 1995 and now.

In 1995, the individual was only required to file two forms (the FBAR and Form 5471) and would be subject to penalties totaling $2,000. In 2011, the same individual was required to file six forms (the FBAR, Forms 3520, 3520-A, 5471, 8865, 8938) and would be subject to penalties totaling $70,000.

Read the whole thing.

Peter Reilly, IRS Trying To Make It Harder To Qualify As Real Estate Pro. An excellent, in-depth discussion of a taxpayer victory in the eternal IRS war against deducting real estate losses.

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return

Kay Bell, Charitable donation tax deduction rules apply on Giving Tuesday and year-round. A good summary of rules on year-end charitable giving.

Amanda Klopp, A Snow Holiday? Not if the IRS Can Help It. (Procedurally Taaxing).

TaxGrrrl, Congress Moves Towards Granting IRS Authority To License Tax Preparers. “Representatives Diane Black (R-TN) and Pat Meehan (R-PA) have introduced H.R. 4141, the Tax Return Preparer Competency Act.”  When taxwriters demonstrate competency, then they can complain about preparers.

Russ Fox, My Love/Hate Relationship with the FTB. “Yet for all the excellence in how the FTB communicates some of the FTB’s practices leave a lot to be desired.”

Robert D. Flach, NEW JERSEY LLC FAQ

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #6 – More Bad News For The Marijuana Industry.

 

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Jeremy Scott, Congress Gives Up on Paying for Extenders . . . And That’s Fine (Tax Analysts Blog). “Taking a few of the most popular extenders off the table by making them permanent would only help with a limited legislative calendar, which could give some juice to tax reform efforts or at least end the silly end-of-the-year, Mock Turtle-like dance Congress has performed for most of the last 30 years.”

Renu Zaretsky, The Case of the Mislabeled ABLE Account (TaxVox). “Here’s the catch: There’s a good chance that by the time she reaches 18 the value of her account will exceed $102,000. If her nest egg tops that amount, the state would suspend her SSI benefits until her account fell below that threshold.”

TaxProf, The IRS Scandal, Day 937.

Richard Phillips, Congress Should Embrace the International Consensus to Crack Down on Corporate Tax Avoidance (Tax Justice Blog). Um, no.

News from the Profession. Tax Nerds Set Record Straight on Tax Code vs. NFL Rulebook Complexity (Caleb Newquist, Going Concern).

 

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Tax Roundup, 11/3/15: Work in Illinois, live in Iowa, pay quarterly. And: fun with FATCA!

Tuesday, November 3rd, 2015 by Joe Kristan

Illinois sealReciprocity = no state wage withholding. A newly-released policy letter from the Iowa Department of Revenue explains how the Iowa-Illinois tax reciprocity agreement works for an Iowan working in Illinois for a non-Iowa company. The letter is addressed to the employer:

Your employee is an Iowa resident, earning income in Illinois, and therefore is exempt from paying Illinois income tax on income earned from salaries, wages, and other compensation. For your employee to pay Iowa income taxes, the employee should make estimated payments by completing Form 1040ES – Estimated Income Tax for Individuals. The employee may also need to file an Illinois form showing that they are an Iowa resident not subject to Illinois withholding under the agreement.

While in theory it should make no economic difference whether you pay taxes through quarterly estimates or withholding, many taxpayers prefer withholding. It just seems less painful to have the money taken out before you see it, and you don’t have to remember to write those estimates. I wonder if the employee really feels better off.

The letter adds:

It is also possible for your business to register for an Iowa Withholding Tax Permit on the Department’s website (https://www.idr.iowa.gov/CBA/start.asp). In that case your Iowa resident employees could have those employees fill out an IA W-4 (available at https://tax.iowa.gov/form-types/withholding-tax) and you as the employer could withhold Iowa tax from their paychecks.

Illinois is the only state with which Iowa has a reciprocity agreement. Other states withhold (if they have an income tax) on Iowa employees, and the Iowans claim a credit for taxes paid in other states on their Iowa 1040s.  That sort of works out like Iowa wage withholding in a way for Iowans working in Wisconsin, Missouri, Nebraska and Minnesota — except with the hassle of completing two full state tax returns. For those crossing the border to South Dakota, which has no income tax, the compliance problem is the same as for the Illinois taxpayer in this policy letter.

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Wall Street Journal, American Tax Refugees: Why So Many Yanks Are Renouncing Their U.S. Citizenship  (may be subscriber only link):

Fatca requires that foreign banks, brokers, insurers and other financial institutions give the U.S. Internal Revenue Service detailed asset and transaction records for any accounts held by Americans, including corporate accounts controlled by American employees. If a firm fails to comply, the IRS can slap it with a 30% withholding tax on transactions originating in the U.S. Facing such risks and compliance costs, many foreign firms have decided it’s easier to dump their American clients.

So Americans overseas are becoming increasingly unbankable. Not the wealthiest ones, of course, those “fat cat” potential tax evaders whom Democrats rail against. Much more vulnerable are sales reps, English teachers, lawyers, retirees—the overwhelming majority of American expatriates—whose modest finances make them unappealing clients amid Fatca’s compliance costs.

To get a few press releases, politicians have to break a few citizens eggs.

 

Robert Wood, U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA. As long as the U.S. intrudes on other countries’ banks, the other countries will want to reciprocate.

Jack Townsend, National Taxpayer Advocate Nina Olsen Comments on FATCA and OVDP. Quoting the Taxpayer Advocate: “The problem with FATCA is that it imposes burdens on taxpayers at all sorts of levels, and it’s not clear what benefits we’re really going to get from it or what we’ll be able to do.” It’s not about “we,” unless we are a politician looking for a cheap headline.

 

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Robert D. Flach comes through with more Tuesday Buzz, with links to posts on minimum IRA distributions and small business money mistakes, among other things.

Kristine Tidgren, Tax Court Says 1972 Settlement Transfer Was Not a Gift (The Ag Docket). “One takeaway of this case for those outside of the Redstone family is recognition of the cold, hard fact that no statute of limitations applied to prevent the IRS from collecting taxes on this alleged 1972 gift.”

TaxGrrrl, Court Switches Gears, Says AICPA Can Sue IRS Over Tax Preparer Credentials. The IRS “voluntary” preparer regulation scheme hits a bump.

 

Russ Fox, I’m Sure Their Vacation in Arizona Will Impress the Sentencing Judge. “Mr. Joling wanted to be on “biblical safe ground” (he was a pastor) so he didn’t pay taxes.” Biblically safe, perhaps, but not legally, for sure.

Peter Reilly, Democratic Presidential Candidate Drops Out Without Releasing Tax Plan. And almost without anyone noticing.

Leslie Book, Halloween Special: Third Circuit Case Affirms Preparer’s Conviction For Aiding in Preparing False Tax Returns (Procedurally Taxing). “Despite the promise of oversight and its enhancing greater visibility, prosecuting bad apple preparers is an important after the fact way of ensuring that those who abuse the system know that their actions have consequences beyond bringing in fees for raiding the fisc.”

Jason Dinesen, Glossary: Gross Income/Gross Profit

William Perez discusses the new 401(k) Contribution Limits.

 

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Joseph Henchman, Voters in Five States Consider Tax-Related Initiatives (Tax Policy Blog). Colorado ponders its marijuana tax windfall, Ohio considers approving one for itself.

Jonathan Ackerman, Rosanne Altshuler, Jeffrey Kupfer Bipartisan tax reform is possible: Lessons learned from President Bush’s reform panel (TaxVox). “Our antiquated business tax system has failed to keep up with an economy that has changed dramatically as a result of globalism, technology, and new capital flows.”
Scott Greenberg, The Bush Tax Reform Panel, Ten Years Later (Tax Policy Blog). “The Bush Panel was an important moment in recent tax policy history, because it provided one possible roadmap for a bipartisan tax reform agreement in the future.”

Matt Gardner, Apple Shifts a Record $50 Billion Overseas, Admits It Has Paid Miniscule to No Tax on Offshore Cash (Tax Justice Blog). Showing once again that Apple management isn’t stupid.

 

Career Corner. Accounting Firms Need To Have More Transparent Conversations With Employees About Compensation (Caleb Newquist, Going Concern)

 

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Tax Roundup, 10/15/2015: How to do that last-minute filing right. And: C.R. ID thief sentenced, Iowa sales tax rule delayed.

Thursday, October 15th, 2015 by Joe Kristan

certifiedFile! Today is the last, final, immutable deadline for filing an extended 2014 1040.* What are the stakes for getting that return in today?

  • If you owe federal taxes, it’s the difference between a late payment penalty of 3% (1/2% per month since April 15) and a late filing penalty of 25% (5% per month, capped at 25%).
  • It’s the last chance to make a free grouping election of your activities for the ne investment income tax and passive loss rules.
  • If you have an international reporting form on your return — a 5471, 8865, 3520, 8938, or 8891, for example — it’s the only way to avoid an automatic $10,000 late penalty on your filing. These forms may be due if you own an interest in a foreign corporation, partnership or trust; if you received a foreign gift or inheritance; if you have foreign financial assets, like a loan to an overseas person; or if you have an interest in a Canadian retirement plan.

So how to file? If you haven’t started yet (ugh), Russ Fox has some tips. If your return is done and you just need to file, e-file if at all possible. That gives you the assurance that your return has arrived on time and saves you the hassle of a trip to the post office or the UPS or FedEx store. And I feel safer if my return doesn’t have to be touched by an actual IRS employee.

OK, you ask, why can’t I just drop it in the mail or use the office postage meter? After all, the Mailbox Rule says “timely mailed, timely filed.”

Because then you have no proof that you filed on time. If the letter gets lost, or delayed, the IRS can call it “late” and you have no way to prove otherwise. If you have anything at stake with a timely-filing, it’s foolish to rely on the competence of the postal service and the goodwill of someone at the IRS service center.

If you aren’t e-filing, the best thing to do is to go to the post office, spring for Certified Mail, Return Receipt Requested, and get a hand-stamped postmark. Save it and keep it with the return receipt when that comes back. That will ward off late-filing vampires. Filling out the certified mail slip and running it through the office postage meter or using a Stamps.com postmark doesn’t work.

If you can’t make it to the post office before they close, then you can go to the FedEx Store or UPS store and use a “designated private delivery service.” This is trickier. You have to use one of the delivery methods specified by IRS Rev. Proc. . For example, “UPS Ground” doesn’t work, but “UPS 2nd Day Air” does work. Make sure the shipping paperwork shows today’s date. Be sure to use the proper IRS service center street address, because the private services can’t use the IRS post office box addresses.

*Unless you are a South Carolina flood victim, a war zone resident, or a non-resident alien.

Related: CERTIFIED MAIL: THE HIDE YOU SAVE MAY BE YOUR OWN

 

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Five years for Cedar Rapids ID ThiefKWWL.com reports an Iowa woman will go away for 61 months after pleading guilty to one count of ID theft. The Government’s sentencing memorandum says Gwendolyn Murray prepared “at least 136 false and fraudulent returns.” Ninety-four of them were processed, netting over $380,000 in refunds.

And that’s the real crime. The IRS has such poor controls that an amateur, probably using an off-the-shelf tax prep software package, could help herself to that much taxpayer money before getting caught. The chances of getting that back are about the same as my chances of a pro baseball career. And yet the IRS says the real problem is that honest preparers don’t have to take a compentency literacy test and submit a fee and paperwork.

Related: TIGTA: 1,300 IRS Computers, 50% Of IRS Servers Are Running Outdated Operating Systems, Putting Taxpayer Data At Risk (TaxProf)

 

Iowa Sales Tax Rule for Manufacturing Supplies to be delayed six months. It will now take effect July 1, 2016, reports AP.

 

Gretchen Tegeler, Ask questions about your property taxes (IowaBiz.com):

You may not realize you are supporting not only your city, county and school district, but also Broadlawns Medical Center, Des Moines Area Regional Transit (DART) and the Des Moines Area Community College (DMACC).

For instance, 8.6 percent of the property taxes my husband and I pay on our home are going to Broadlawns. The single largest percentage increase in our property taxes (and this would be the case for most everyone in Polk County) is for DART, a whopping 10.4 percent!  

I’m sure it’s worth every penny…

 

Roger McEowen, Obamacare; Reimbursement of Health Insurance Premiums; and Limited (and Inconsistent) Transitional Relief (AgDocket). On the incomplete and confusing relief for “Section 105 plans” being clobbered by insane ACA regulations.

 

Paul Neiffer, What about Partnerships?:

The ACA mandates an $100 per day per employee penalty for providing non-qualified health insurance to more than one employee.  Many of our farm operations operate as S corporations and partnerships.  There is specific IRS guidance that allows shareholders and partners to deduct these health insurance premiums for owners and since this guidance did not line up with the guidance on the imposition of the $100 per day penalty, the IRS issued a notice earlier this year that indicated S corporations could continue to file their returns the same way until the end of this year.

However, this notice appeared to be silent on the treatment for partnerships and partners. 

They had to pass it for us to find out what was in it.

 

Peter Reilly, Santorum 20/20 Flat Tax Might Be Hard On Many Small Businesses. “I don’t understand why there does not seem to be more excitement about the elimination of business interest deductions.” Maybe because it’s Rick Santorum.

Robert WoodU.S. Tax 35%, Ireland 12.5%, New Irish Tech Rate 6.25%, Any Questions?

Kay Bell, Be like Trump: Pay as little tax as possible

 

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David Brunori, Getting Taxpayers to Rat on Each Other: Uncool (Tax Analysts Blog):

Private citizens should not be in the business of administering or enforcing the tax laws. The most obvious reason is that they do not have the expertise or the context to judge whether taxes are being evaded rather than, say, avoided. It is hard enough for trained tax professionals to ascertain the difference between tax fraud and very aggressive tax planning. That task should be left to the professionals.

Not to mention the free play it gives to bitter ex-lovers or spouses, shakedown artists, and parasites in general.

 

TaxProf, The IRS Scandal, Day 889

 

A big thank you to Gretchen Tegeler and the Taxpayers Association of Central Iowa for inviting me to be on a panel last night on small business tax and regulation last night. I wish I could have lingered to chat longer, and enjoy some of that delicious Lucca food, but it being October 14 and all, I couldn’t stick around. It was a good session with lots fo great discussion.

 

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Tax Roundup, 10/12/15: Broken Arrow (Trucking) nets CEO 7 1/2 years. And: Last week of tax season!

Monday, October 12th, 2015 by Joe Kristan

Accounting Today visitors, click here to go to the YMCA story.

Last Week! Extended 2014 1040s are due Thursday. That’s it, no more extensions are available.  It should be all over by now, but it’s not. Don’t put your preparer off until Thursday because there might be a $25 charitable contribution you missed, and you are just too darned busy to find it today.

 

ice truckWrecked. A weird and strange payroll tax crime case wrapped up last week when James Douglas Pielsticker was sentenced to 7 1/2 years in prison.

Mr. Pielsticker was CEO of Arrow Trucking when it failed spectacularly, leaving hundreds of its drivers stranded:

December 24, 2009

Hundreds of truckers nationwide are stranded and trying to get home before Christmas after their company shut down operations with little notice.

Arrow Trucking, based in Tulsa, suspended operations and laid off employees. Arrow is among the largest trucking companies in the nation.

About 900 truckers were left stranded across the country. Many drivers learned that the company had folded only after filling up their rigs and discovering the company’s fuel credit cards would not work.

There was no money to get the drivers home because Mr. Pielsticker was using it for… other things. From the Department of Justice press release (my emphasis):

According to the plea agreement and other court records, in 2009, Pielsticker and others conspired to defraud the United States by failing to account for and pay federal withholding taxes on behalf of Arrow Trucking Company and by making payments to Pielsticker outside the payroll system.  Pielsticker and others withheld Arrow Trucking Company employees’ federal income tax withholdings, Medicare and social security taxes, but did not report or pay over these taxes to the IRS, despite knowing they had a duty to do so. 

The conspirators paid for Pielsticker’s personal expenses with money from Arrow Trucking Company and submitted fraudulent invoices to TAB to induce the bank to pay funds to Arrow Trucking Company that were not warranted.  In total, the conspiracy caused a loss to the United States totaling more than $9.562 million.

What sort of personal expenses? According to the government’s sentencing memorandum, they included:

…expenses related to his Bentley and Maserati automobiles, and trips on private jets…  In 2007, Arrow paid at least approximately $361,000 for Pielsticker’s benefit; in 2008, it was at least approximately $753,000; and in 2009, Arrow paid approximately $1,300,000 for Pielsticker’s benefit in addition to his normal salary. 

The company collapsed under the weight of the looting, and the drivers were left hanging. Fortunately, other drivers and industry players came to their rescue to get them home, showing a lot more consideration than Mr. Pielsticker.

Employment tax fraud is a very stupid crime (not that there are a lot of smart ones). Jack Townsend reports that the government has recently updated its procedures for prosecuting payroll tax fraud, a sign that this is an enforcement priority. Don’t fail to remit withheld taxes. It’s not just a bad financial move; it could get you in criminal trouble.

Related:

Pielsticker Criminal Information Document

CEO Gets 7 1/2 Years Prison Over Employment Taxes, Owes $21M In Restitution (Robert Wood)

 

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Call me when you start using the tools you have. We keep hearing how “common sense” preparer regulation is needed to keep us tax pros in line. Yet the IRS Return Preparer Office isn’t even using the authority it actually has, according to a report by the Treasury Inspector General for Tax Administration:

However, the RPO does not revoke PTINs from tax return preparers who are not compliant with their tax filing and payment obligations. In January 2015, the RPO identified 19,496 preparers with PTINs who were potentially noncompliant with these obligations. These preparers had over $367 million in tax due as of January 26, 2015. In addition, the RPO identified 3,055 preparers who failed to file required tax returns for one or more tax years and eight tax return preparers who failed to file required tax returns for five years.

Our review of PTIN holders as of September 30, 2014, identified 3,001 preparers who self reported a felony conviction on their application; 87 reported a crime related to Federal tax matters. Lastly, processes do not ensure that PTINs assigned to prisoners or individuals barred from preparing tax returns are revoked. Specifically, the RPO did not revoke the PTINs assigned to 65 of 445 confirmed prisoners and 15 of 87 individuals who the IRS identified as barred from preparing tax returns.

This supports the case that preparer regulation is more about driving out competitors of the big national tax franchises than it is about promoting quality tax compliance.

 

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Russ Fox, Gilbert Hyatt Goes to Washington…Again:

Back in 2002, the Supreme Court ruled that Gilbert Hyatt could sue the Franchise Tax Board in Nevada. That was after the FTB rummaged through his trash. The FTB was then hit with over $400 million in damages. However, the Nevada Supreme Court threw out much of the decision, though the court upheld that the FTB committed fraud against Mr. Hyatt.

Sauce for the Gander is excellent tax policy. We should get to assess the same penalties against the government that they assess against us.

Mitch Maas, Netting Tax Savings Found to be a Goal of Many NHL Free Agents (Davis Brown Tax Law Blog).

Kay Bell, Computer scientists’ tax code algorithm could make it easier for IRS to catch partnership tax cheats. If nothing else, visit Kay to check out her slick new site design.

Paul Neiffer, How Much Does Section 179 Cost the Government? Or, how much does it save the taxpayer?

Jason Dinesen, Iowa Taxation of Retirement Income

Jim Maule, A Federal Income Tax on Everybody? How Would That Work?

Peter Reilly, Jindal Tax Plan Creates A Wonderland Of Dodging

 

 

Scott Hodge, Biggest Challenge To Tax Reformers: Overcoming Our Progressive Tax Code. “But as many of the presidential candidates have found in crafting their tax reform plans, the extreme progressivity of the individual tax code makes broadening the base and lowering the rate an exercise in raising taxes on the poor and cutting taxes on the rich—hardly a winning political message.”

This chart says a lot:

20151011 effective rate chart tax foundation

 

It’s hard to have an income tax reform that doesn’t disproportionately benefit the folks who pay the tax in the first place.

 

TaxProf, The IRS Scandal, Day 884Day 885Day 886. The votes are in:

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Richard Auxier, Taxes penalize hockey teams? That’s a bad call, eh?

Career Corner, Would You Work for Revenue Share? (Chris Hooper, Going Concern). Well, I sort of do.

 

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Tax Roundup, 10/8/15: Your tax preparer has to protect your confidential info. IRS, not so much. And more!

Thursday, October 8th, 2015 by Joe Kristan

TIGTAIRS Basically Plastering Your Social Security Numbers on Billboards Now, Because Why Not? (Peter Suderman, Reason.com):

The IRS continues to recklessly print Social Security Numbers (SSNs) on hundreds of millions of notices and letters, despite warnings that this practice dangerously exposes sensitive personal information, and years of pressure to reduce the use of SSNs on documentation.

In fact, the tax agency doesn’t even have procedures in place to fully track its use of SSNs, according to a report by the Treasury Inspector General for Tax Administration (TIGTA), a tax agency watchdog.

This is a problem because of the identity theft epidemic. Every document from IRS sitting untended in your mailbox that has your Social Security number is an ID theft vulnerability. Private parties have changed their practices to protect ID numbers. One example is the adoption of secure password-protected web portals to send anything with an SSN. Another is the decline of the practice of identifying tax returns on the outside of mailing envelopes. The increased risk of attracting an ID thief outweighs the risk a taxpayer might not bother opening an unmarked envelope.

Yet TIGTA says IRS is behind the curve. From their press release:

TIGTA found that as of January 2015, the IRS estimates that it has removed SSNs from 58 (2 percent) of the 2,749 types of letters and 93 (48 percent) of the 195 types of notices it issues.

“A person’s Social Security Number is the most valuable piece of personal data identity thieves can obtain.” said J. Russell George, Treasury Inspector General for Tax Administration. “The fact that the IRS does not have processes and procedures to accurately identify all correspondence that contain Social Security Numbers remains a concern.”

Businesses have to be careful with taxpayer information because we could lose business, or be sued, or worse. The IRS doesn’t have that motivation, and it shows.

 

20151008 tax incidenceTaxProf, Who Benefits From State Corporate Tax Cuts? Firm Owners (40%), Workers (35%), Landowners (25%). The Prof links to a study of “tax incidence,” or who “really” bears the burden of the corporation tax. While politicians and activists like to talk about corporations as tax-avoiding fat cats, it’s a fact that corporations ultimately don’t pay any tax; it comes out of the pocket of an actual human somewhere. Economists will endlessly debate whether its owners, customers or workers who bear the burden. Whoever it is, it’s not a free lunch for the tax man.

 

Russ Fox, Tax Relief for South Carolinians. “Note that the relief is automatic; impacted taxpayers need not do anything.”

Robert Wood, Skimming Cash — Even From Yourself — Can Mean Prison For Tax Fraud:

Prosecutors said the Horners owned Topcat Towing and Recovery Inc., a towing business in Georgia. Between 2005 and 2008, they skimmed $1.5 million in cash from the businesses, depositing into their personal bank account without disclosing the income on their corporate or personal tax returns filed with the IRS. They tried to conceal their cash deposits from the government by “structuring,” splitting up cash deposits that exceed $10,000.

Unwise. Banks have great incentive to report “structuring,” and they do.

 

Jason Dinesen, Glossary: Audit (Of Financials)

Leslie Book, Senate Again Takes Aim at Improper Payments in Federal Programs. The government wants to use the IRS inability to stop issuing fraudulent payments as an excuse to regulate preparers.

Jack Townsend, U.S. Senators on Senate Finance Committee Probe the Tax Aspects of the Volkswagen Debacle. “As often in tax-related and other potential criminal settings, the prosecutor has a panoply of provisions to choose from.”

Kay Bell, NHL players’ goal: Play in low or no income tax states

 

Jared Walczak, How Much Does Your State Collect in Taxes Per Capita? (Tax Policy Blog).

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Iowa is #20.

 

Cara Griffith, Why Is It So Hard to Fund Schools? (Tax Analysts Blog). This article actually highlights the dangers when judges meddle in the appropriation process.

Renu Zaretsky, Questions, Subsidies, Deductions, and Profits. Today’s TaxVox headline roundup has stories on whether Volkswagen’s emission test rigging got them clean air tax credits, questions on the need to subsidize wind turbines, and much more.

 

TaxProf, The IRS Scandal, Day 882

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Conclusion. “I fear that the series which serves as a great resource is in danger of having its quality diluted.” I worry that the administration will succeed in running out the clock on the outrageous IRS misconduct.

Tax Justice Blog, New CTJ Report: 358 or 72% of Fortune 500 Companies Used Tax Havens in 2014, Alternate headline: 72% of Fortune 500 Companies try not to squander shareholder value.

 

Finally: Arrieta, Cubs ace Wild Card test vs. Bucs

Not tax related? Oops.

 

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Tax Roundup, 9/22/15: A resounding call to document your mileage. And: preparer regulation, IRS service, lots more!

Tuesday, September 22nd, 2015 by Joe Kristan

 

No Walnut STYou know you’re having a bad day in Tax Court when:

After concessions, the remaining issue relating to deductions claimed on petitioner’s Schedule A is whether she is entitled to deduct an additional $1,616 of mileage expense that she claimed as part of her unreimbursed employee business expense deduction. The answer is a resounding no.

I’m pretty sure that the Tax Court judges never read their opinions out loud, so I don’t think it was literally resounding. Still, it’s fun to imagine Judge Marvel calling the court into session, calling out a booming “NO!” and then adjourning.

The “no” may hae been resounding because of a little error the Judge detected in the taxpayer’s evidence. The taxpayer claimed mileage deductions for going between work locations. Travel expenses have to meet the special substantiation requirements of Sec. 274(d), where the taxpayer maintains evidence, such as calendars or mileage logs, to prove the deduction. This taxpayer went through a lot of effort generating a log from her work history. However…

Petitioner testified at length regarding how she prepared the reconstructed log. She testified under oath that she had worked for both ATC and MSN throughout 2007 and carefully explained her work assignments for each employer, including her work assignments for ATC from January through September 2007. Unfortunately for petitioner, the document that ATC provided to her summarizing her work history with ATC shows that she did not start her employment at ATC until October 2007. That document demolished any credibility that petitioner’s reconstructed log and her sworn testimony might otherwise have had. [emphasis added]

The Moral? No matter how much effort goes into reconstructing your unreimbursed work mileage, it doesn’t help you if you didn’t actually have the job.

Cite: Spjute, T.C. Summ. Op. 2015-58

 

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Bryan Camp has a long piece in Tax Notes today ($link) arguing that the IRS can and should “cut and paste” its way into a new preparer regulation regime. I won’t argue the legalisms, though I think if the IRS thought it plausible, it would have tried it already.

I will point out that in an article with 101 footnotes, there is no discussion of additional costs to the taxpayers, or whether the benefits exceed those costs. He discusses evidence that “unregulated” preparers make more errors, and he assumes that regulation will fix the problem. That’s not necessarily so. It’s hard to imagine the perfunctory examination and CPE requirements of the old RTRP program would improved preparation. You can make somebody take a test, but you can’t make them competent.

Mr. Camp also ignores the unintended but predictable effects of the inevitably-increased price of preparation on the quality of tax returns received by IRS. If prep price goes up, more taxpayers will do their own returns, almost certainly at a higher error rate than from paid-for preparation. Other taxpayers will drop out of the system rather than pay higher prep costs.

In short, regulation advocates assume regulation will solve the problems of inaccurate returns. That’s unproven but unlikely. It is likely, though, that it will increase taxpayer costs and push customers away from paid preparers, which creates a new set of problems.

Related: Leslie Book, AICPA Defends CPA Turf and Challenges IRS Efforts to Regulate Unenrolled Preparers (Procedurally Taxing)

 

buzz20140909Robert D. Flach has fresh Buzz today, with links ranging from silly tax proposals to silly home office deductions.

Paul Neiffer, What About Those AFRs? “Periodically I will get a question from a client asking me ‘How much interest they have to charge on a loan to their child or some other related party?’. ”

Kay Bell, Meet Obamacare deadlines or pay the higher tax price. “If you don’t file last year’s return, you won’t be able to claim an advance premium tax credit to help you pay for your 2016 Obamacare coverage.”

William Perez, What Tax Documents to Bring to Your Accountant?

 

Tony Nitti, Tax Geek Tuesday: Making Sense Of Partnership Book-Ups. A primer on adjusting capital accounts to reflect the price paid when partners enter or leave a partnership.

Russ Fox, We Don’t Need No Stinkin’ Phone Calls.

So let’s translate this into reality. In the 2013 fiscal year, 22,363,345 phone calls were attempted to various IRS toll-free lines; 15,609,615 were answered (69.8%). In the 2015 fiscal year, 22,013,468 phone calls were attempted to various IRS toll-free lines; 8,277,064 were answered (37.6%). As for the time on hold allegedly decreasing to 23.5 minutes, perhaps that’s after excluding all the time some of the 7 million people who called but whose calls were dropped or who hung up spent on the phone.

I think the IRS cuts in customer service are a sort of “Washington Monument Strategy” of cutting the most visible and useful aspects of taxpayer service to pressure Congress into providing more funds. I’ll believe the IRS is serious about its customer service issues when the IRS takes its 200 employees who spend all of their time doing Treasury Employee Union work and puts them on the phones.

Robert Wood, Let’s Tax Churches. I’m sure that won’t be controversial…

Peter Reilly, The Tax Code Explained & Why It Matters In This Presidential Race (No, It’s Not 70K Pages)

Jack Townsend, Wyly Brothers Seek Bankruptcy Relief from Disgorgement Order from Offshore Shenanigans

 

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TaxProf, The IRS Scandal, Day 866

Martin Sullivan, Donald Buffett? (Tax Analysts Blog). Looking for tax wisdom in all the wrong places.

Renu Zaretsky, Inversions, Schools, and Supermarkets. Today’s TaxVox roundup covers the ground from tax increases in Chicago to tax favors for supermarkets in Baltimore.

 

Sebastian Johnson, Progressive Era Reform Can Be Anything But Progressive (Tax Justice Blog). “Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states.”

The point isn’t the well being of the state; it’s the well-being of the citizens.

 

News from the Profession. Accountant Hiding on the Appalachian Trail Has the Mugshot to Prove It (Caleb Newquist, Going Concern). “If you were an accountant accused of making off with about $9 million of your employer’s money, I can think of few places better to hide than the wilderness.”

 

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Tax Roundup, 9/17/15: Senators say preparer reg provision killed ID-theft markup. And: Transporation industry per-diem rates issued.

Thursday, September 17th, 2015 by Joe Kristan

20150917-1And we’d have gotten away with it, if it hadn’t been for those meddling kids! Tax Notes comes through this morning with confirmation ($ link) that opposition to the preparer regulation provision caused the Senate Finance Committee leadership to postpone the markup of the ID-theft bill scheduled for yesterday.

“I think there’s probably a way in which that [bill] could get back on track,” said Senate Finance Committee member John Thune, R-S.D. The pending legislation’s proposal to grant Treasury and the IRS authority to regulate paid tax return preparers “was probably the principal concern” of some senators, Thune said.

“I think more of it, the whole issue, was whether or not to give the IRS more authority — more power, more people, more resources, all that,” Thune added.

20130121-2Apparently both Chairman Hatch and ranking minority member Wyden favor reviving the preparer regulation power grab, derailed by the courts in 2013. So does the head of the National Association of Enrolled Agents. A petulant Senate staffer blames the CPAs:

A Senate staff member, speaking on condition of anonymity, told Tax Analysts that the “AICPA once supported common-sense efforts to regulate unenrolled paid preparers — an important effort, given that unregulated tax preparers are largely responsible for a wide range of tax filing mistakes that occur at the expense of taxpayers.”

“But now,” the staffer continued, “it seems the group has now lobbied hard in opposition to the bill, ostensibly on the grounds that the bill should be changed to impose limitations on IRS’s authority to require preparers to obtain” preparer tax identification numbers.

I would argue that the AICPA is serving the interests of its members and the general public. I would  also say they are serving the EA’s interest better than their own organization. I think another IRS-approved preparer designation could be fatal to the already-struggling Enrolled Agent brand.

I also hate when people invoke “common sense” when pushing through a bad idea. It’s another way of saying “shut up, peasant.” Unless, of course, it’s “common sense” to give an IRS that is failing at its job while abusing its power more to do.

 

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IRS issues special per-diem rates for the year starting 10/1/15 (Notice 2015-65). The rates include the special transportation industry per-diems the incdental expenses-only rate, and the rates and lists of “high-low” localities.

Andrew Mitchel, Is the IRS Missing Names From Its Quarterly Publication of Expatriates? “It is possible that the IRS is only including the names of individuals who have renounced their U.S. citizenship. Perhaps the IRS is not including the names of individuals who have relinquished and not including the names of former long-term green card holders.”

Robert Wood, IRS Hunts Belize Accounts, Issues John Doe Summons To Citibank, BofA. If you’re tax planning is based on offshore bank secrecy, you should rethink your plans.

 

Robert D. Flach has issued his 2015 YEAR END TAX PLANNING GUIDE. $3 for pdf, $4.50 in print.

TaxGrrrl, 2016 Tax Rates, Brackets & Exemption Amounts May Result In Lower Bills

Scott Schumacher, Getting to Yes, Sooner (Procedurally Taxing). “Whatever the [Tax] Court can do to encourage pro se petitioners to participate in a settlement conference as early as possible will benefit all parties involved.”

Kay Bell, Ways & Means considers more tax extenders, health care bills

 

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TaxProf, The IRS Scandal, Day 861

Roberton Williams, Despite Promises, Jeb Bush’s Tax Plan Wouldn’t Eliminate Marriage Penalties (TaxVox).

How many auditors does the Pope have? Pope Francis Weighs In on Tax Policy (Scott Greenberg, Tax Policy Blog).

Now, Pope Francis has also made a foray into tax policy, calling for churches and religious orders that conduct regular business activities to pay taxes on their income…

However, in the United States, a church that operated a hotel would likely be subject to the Unrelated Business Income Tax, which applies to tax-exempt organizations that conduct business operations that are unrelated to their tax-exempt purpose. So, the Pope would likely be satisfied with current U.S. law, which requires church-operated businesses to pay taxes on their profits (with a few notable exceptions).

Blessed be the 990-T. 

 

Bob McIntyre, Congress Is Working to Revive Rules That Make Corporate Tax Avoidance Easier (Tax Justice Blog). That’s Tax Justice talk for “working on extender legislation.”

Career Corner. Do Millennial Accountants Golf? (Caleb Newquist, Going Concern).

 

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Tax Roundup, 9/15/15: Today is a big due date. Also: more on preparer regulation, and Outlaw outlawry!

Tuesday, September 15th, 2015 by Joe Kristan

e-file logoExtended corporation, partnership and trust returns are due today! E-file is the best way to be sure to timely file. If you can’t, or won’t, e-file, Certified Mail, Return Receipt Requested, does the trick; save the postmark.

If you don’t get to the post office before they take their last smoke break for the day, you can go to the Fed-Ex or UPS store and use a designated private delivery service; be sure the shipping method you select is one of the “designated” ones at the link. Make sure the shipping bill shows that you dropped it off today, and make sure it is addressed to the proper IRS service center street address, as the private services can’t use the P.O. box service center addresses.

Third quarter estimated tax payments are also due today for calendar year filers.

Related: Paul Neiffer, September 15 is Worse Than April 15, “Most people who wait to file on September 15 or October 15 are, shall we say, not quite so efficient with their record keeping and thus, it is much tougher for us to get information and to get the tax return done.” Paul is absolutely right.

 

20130121-2Russ Fox, The NAEA Won’t Like This Post:

I’m a member of the National Association of Enrolled Agents. Generally, I’m supportive of their policies. However, I am not a fan of mandatory preparer regulation. Other than giving the IRS more money and getting rid of the lowest hanging of the bad preparers, preparer regulation won’t accomplish many positives for the general public.

The NAEA’s support of preparer regulation is baffling. The idea of the IRS certifying all preparers strikes me as a deadly threat to the Enrolled Agent brand.

Right now, EAs are the only professionals who have to pass an IRS administered test, one much more rigorous than the one in the abortive Registered Tax Return Preparer plan under the defunct preparer regulations. EAs also have much more serious continuing education rules.

For all this the EA designation is not nearly as well-known as the CPA designation, which isn’t even a tax-specific credential. The RTRP designation threatens to further obscure the EA brand.  Both EAs and RTRPs will be “IRS approved,” and given their failure to establish the EA brand so far, it’s likely to be impossible to get clients to appreciate the superior EA credential.

 

buzz20150804Buzz! With Robert D. Flach, a fresh tax blog roundup with Robert’s own inimitable style. Topics include this year’s slow-walk of the extenders legislation and the Senate push to regulate preparers.

 

TaxGrrrl, Congress May Give IRS Authority To Regulate Tax Preparers:

It’s my feeling that the bad guys are the bad guys: forcing you to take ethics courses doesn’t change that. Incompetent and lazy preparers are incompetent and lazy: forcing someone to sit through continuing education courses (likely while text messaging, trust me, I’ve been a speaker at these things) doesn’t make that person smarter or more conscientious. 

It’s another “bootleggers and Baptists” play. Prohibition was supported by do-gooders who naively thought they were making the world a better place, and by bootleggers, who profited from prohibition. Here the Baptist elder is Taxpayer Advocate Nina Olsen, and the bootleggers are the big national tax prep franchise outfits.

 

Robert Wood, IRS Offshore Account Penalties Expand, More Banks Sign.

Jim Maule, A New Tax Specialty: Porn:

 According to this report, the Alabama House Ways and Means Committee, trying to deal with a budget shortfall, has approved legislation imposing a 40 percent excise tax on, well, it depends on whose explanation is accepted. Some are calling it a tax on porn.

Well, at least they won’t have trouble recruiting auditors.

Jack Townsend, Another B   S   Tax Shelter Bites the Dust. Fill in the blanks.

Kay Bell, 3 ways to navigate estimated tax penalty safe harbors

 

TaxProf, The IRS Scandal, Day 859

Huaqun Li, Stephen J. Entin, China to Remove Dividend Tax for Long-Term Shareholders (Tax Policy Blog)

 

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Well, they were called the “Outlaws.” David Allen Coe was part of the “Outlaw” country music movement led by Waylon Jennings, Willie Nelson, Johnny Cash, and Hank Williams Jr. Now, like Willie, Mr. Coe has some tax problems. TasteOfCountry.com reports:

Country singer David Allan Coe owes the IRS nearly a half-million dollars for taxes due as far back as 1993. The singer pleaded guilty to one count of obstructing the due administration of the IRS on Monday (Sept. 14) and could face three years in prison plus a $250,000 fine.

Coe, known for his hit “Take This Job and Shove It,” owes more than $466,000, according to the Cincinnati Enquirer. This includes taxes from 2008 to 2013 when he either failed to file income tax returns or didn’t pay taxes owned. Interest and penalties are part of the figure.

Mr. Coe had a little run-in with the law at a Des Moines area casino a few years back (arrest video here), but the disorderly conduct charges were dismissed. This outlawry promises to be a little more troublesome, but now all he needs is mom, pickup trucks, trains and a drink for a perfect country and western song.

 

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Tax Roundup, 9/14/15: Hatch, Wyden sneak preparer regulation into ID theft bill. And more!

Monday, September 14th, 2015 by Joe Kristan

No Walnut ST“Bipartisanship” means they’re ganging up on you. UtahPolicy reports: Hatch, Wyden Announce Markup of Bipartisan Bill to Prevent Identity Theft and Tax Refund Fraud. In the 20-item summary of the “Chairman’s Mark,” this is buried as item 15 (my emphasis):

In June 2011, the IRS issued final regulations that established a new class of tax practitioners known as “registered tax return preparers” that it sought to regulate for the prepared by these now unregulated tax return preparers. There is substantial evidence indicating that incompetent and unethical tax return preparers are harming both their clients and the government. Most of the tax returns that involve refundable tax credits are prepared by unregulated tax return preparers.

Since 2011, the D.C. District Court (and the D.C. Circuit affirming on appeal) has prevented the IRS from enforcing these regulations on the grounds that the IRS’ authority to regulate practitioners is insufficient to permit regulation of tax return preparers who do not practice or represent taxpayers before an office of the Treasury Department.

The provision provides the Treasury Department and the IRS with the authority to regulate all aspects of Federal tax practice, including paid tax return preparers, and overrides the court decisions described above.

Preparer regulation wouldn't have bothered Rashia.

Preparer regulation wouldn’t have bothered Rashia.

Of course, increasing preparer regulation does absolutely nothing to fight identity theft.  People don’t go to unregulated preparers to arrange to have their identities stolen. Paid preparers aren’t the people who steal identities. That nasty work is done by others. It’s done by organized crime gangs in the old Soviet Union. It’s done by semi-literate street grifters in Florida. It’s done by street gangs. It’s even done by IRS agents.

Fighting ID theft by regulating preparers is like fighting pickpockets by regulating laundromats. Making tax preparers take a competency literacy test won’t touch the ID theft problem. Nor will crooks stop claiming bad refunds because the IRS wants them to take a test.

Fortunately, a powerful senator makes an impassioned argument against giving the IRS more power over preparers:

“Protecting the private information of taxpayers at the Internal Revenue Service should be of highest importance to the agency and Congress. Unfortunately, as we learned this year, highly valuable information housed at the agency is susceptible to cybercriminals.  Since this threat will not end, Congress should take appropriate bipartisan action to implement needed legislative policies that will better protect taxpayers and shield taxpayer dollars from thieves.”

Oh, I’m sorry, that’s Senator Hatch arguing that this incompetent agency should get more power over preparers. Does he even read his own stuff?

The IRS already has tools to deal with bad preparers, as the weekly parade of injunctions and indictments of preparers attests. What the IRS wants is more power and less of that annoying due-process stuff. It’s supported in this by the large tax prep franchise outfits, one of whose executives wrote the rules that the courts struck down. The big tax prep outfits want to increase barriers to entry to grow their own market share. Big companies can spread the cost of regulatory compliance over a large base of business; a sole practitioner has to absorb the cost alone. An IRS paperwork glitch that can ruin a single preparer does nothing to H&R Block. Regulation always favors the big.

The President’s recent report on excessive occupational licensing notes:

There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing.

They certainly aren’t doing so here. They plan to mark up the bill Wednesday morning. Contact your senator and representative to oppose this IRS power grab on behalf of its friends Henry and Richard.

 

TaxProf, The IRS Scandal, Day 856Day 857Day 858. Yes, let’s give these people more power over preparers, they’ve shown we can trust them.

 

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Kay Bell, Congress faces a crowded year-end legislative schedule. Not too crowded to find time to help out Henry and Richard.

William Perez, 5 Tips for the 3rd Estimated Tax Payment of 2015. It’s due tomorrow!

Robert D. Flach, MAKE YOUR LIFE EASIER AT TAX TIME BY SAVING ALL COLLEGE INFO NOW. “FYI – beginning with tax year 2016 (for returns to be prepared in 2017) you must have a Form 1098-T in order to claim an education credit or deduction on your Form 1040 (or 1040A).”

Russ Fox, Defalcations Send Randolph Scott to ClubFed. An estate tax attorney decides he needs the money more than the IRS does.

Jason Dinesen, Iowa Society of EAs to Host CPE Extravaganza. October 19 and 20, West Des Moines. “This seminar is open to any tax pro who needs CPE, so CPAs and attorneys are welcome to attend.”

Annette Nellen, Tell me – hot state tax issue of 2015?

Peter Reilly, Jeb Bush Tax Plan Could Disrupt Real Estate And Small Business. “Bush tax plan calls for elimination of business interest deductions.”

Robert Wood, Marijuana Taxes Go Up In Smoke For One Day In Colorado. Isn’t that the point?

 

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Scott Greenberg, Yahoo Spinoff of Alibaba Sheds Light on Problems with the Corporate Tax System (Tax Policy Blog):

These three obstacles – double taxation, legal complexity, and regulatory uncertainty – are present in many areas of corporate tax law, not just Yahoo’s spinoff of Alibaba. And all three significantly hinder American business operations, slowing down economic growth. The ongoing saga of Yahoo is one more example of why fixing the corporate tax code must be a priority of the federal government.  

I would add that Yahoo also ran into a politicized IRS that was under pressure to kill the deal.

Elaine Maag, Tax Subsidies for Childcare Expenses Target Middle-Income Families, Missing Many Poor Parents. (TaxVox)

 

News from the Profession. This CPA’s Mugshot Will Haunt Your Dreams. (Caleb Newquist, Going Concern).

 

 

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Tax Roundup, 6/15/15: IRS declines to make estate tax easy for surviving spouses. And: New ID theft measures!

Monday, June 15th, 2015 by Joe Kristan

Due Today: Second Quarter estimated tax payments; returns for U.S. citizens living abroad.

 

Funeral home signIRS declines to make the estate tax portability election easy. There’s no such thing as a joint estate tax return. That means if one spouse has all of the assets, the other spouse’s lifetime estate tax exemption — $5,430,000 for 2015 deaths — can be lost.

Congress changed the tax law to allow a surviving spouse to inherit the deceased spouse’s unused estate tax exemption, for use on when the surviving spouse files an estate tax return. unfortunately, this treatment is not automatic. It is only available if a Form 706 estate tax return is filed for the first spouse to die. The IRS on Friday issued final regulations rejecting any short-cuts in this process.

There are many problems with this approach. The most obvious is the lottery winner problem. A couple might be living in a trailer, and when the first spouse dies, there seems to be no point in filing an estate tax return when their combined assets are a small fraction of the amount triggering estate tax. Then the surviving spouse wins the Powerball, and suddenly the first spouse’s estate tax exemption becomes very valuable — but it’s lost, because no return was filed.

The IRS rejected allowing any pro-forma or short-cut estate tax returns for such situations:

The Treasury Department and the IRS have concluded that, on balance, a timely filed, complete, and properly prepared estate tax return affords the most efficient and administrable method of obtaining the information necessary to compute and verify the DSUE amount, and the alleged benefits to taxpayers from an abbreviated form is far outweighed by the anticipated administrative difficulties in administering the estate tax. In

The IRS did say it would be generous in allowing “Section 9100” late-filing relief for taxpayers who die with assets below the exclusion amount, but they did not provide any sort of automatic election. The result is a trap for the unwary executors of small estates.

Cite: TD 9725

 

20130419-1IRS announces ID-theft refund fraud measuresThe IRS last week announced (IR-2015-87) steps it promised in March to fight refund fraud in cooperation with tax preparers and software makers:

The agreement — reached after the project was originally announced March 19 — includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. And there will be continued collaborative efforts going forward.

The most promising of the steps:

Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:

-Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.

-Reviewing computer device identification data tied to the return’s origin.

-Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.

-Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

These are important because they might actually prevent fraudulent refunds from being issued. Measures to help identify fraud after it happens don’t do much, especially when the fraud occurs abroad. Catching the fraudulent returns before the refunds are issued is the only way to really deal with the problem, and the only way to keep innocent taxpayers whose identification has been stolen from having to go through the annoying and sometimes lengthy process of recovering their overpayments.

The sad thing – I see nothing here that couldn’t have been done five years ago, when ID theft refund fraud was already becoming a problem. But the Worst Commissioner Ever was too busy trying to impose preparer regulations on behalf of the big franchise tax prep outfits to pay attention. Priorities.

 

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Bob Vineyard, Best Kept Secrets About Obamacare (Insureblog). “About half of those living in Kentucky and classified as poor were not aware of the basics of Obamacare.”

TaxGrrrl, Spain’s King Felipe Strips Sister Of Royal Title As Tax Evasion Charges Proceed. What good is being regal if things like this happen?

Annette Nellen, Tax reform for 2015? Seems unlikely

Kay Bell, Lessons learned from being tax Peeping Toms

Jason Dinesen, Marriage in the Tax Code, Part 10: Filing Statuses Arrive in 1948

Peter Reilly, Why Is Multi-State Tax Compliance So Hard? “Don’t get me wrong.  I believe that the prudent thing is to try to be in pretty good, if not perfect, compliance.  Just don’t expect anybody to make it really easy any time soon.”

Robert Wood, Beware Tax Cops At Farmers’ Markets

 

20120816-1Joseph Henchman, State of the States: Special Session Edition and Kansas Approves Tax Increase Package, Likely Will Be Back for More (Tax Policy Blog). Mr. Henchman rounds up end-of-session tax moves from around the country. Kansas may have made the biggest changes, including a small retreat from its exemption of pass-throughs from the income tax:

Kansas in 2012 completely exempted the income from such individuals, who now total over 330,000 exempt entities. Efforts to repeal this unusual and non-neutral total exclusion of pass-through income earned a veto threat from Governor Brownback. The guaranteed payments provision is estimated to generate approximately $20 million per year.

Taxing guaranteed payments will hardly plug the fiscal hole created by the blanket pass-through exemption. Joseph concludes: “But overall, it is a grab bag of ideas that does little to address the problems underlying Kansas’s tax and budgetary instability. Absent more fundamental changes, legislators will likely have to return in coming years to address budget gaps.”

 

Norton Francis, How Would the Kansas Senate Close the State’s Budget Gap? Mostly by Taxing Poor People (TaxVox)

 

TaxProf, The IRS Scandal, Day 765The IRS Scandal, Day 766The IRS Scandal, Day 767

 

Career Corner. Reminder: Parents Meddling in Your Careers Will Not Help You (Caleb Newquist, Going Concern)

 

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Tax Roundup, 6/4/15: Iowa session-end frenzy: What if a young farmer drives his ATV to the laundromat?

Thursday, June 4th, 2015 by Joe Kristan

IMG_1291Sound tax policy? What’s that? Three minor tax bills advanced in the Iowa General Assembly yesterday in the pre-adjournment frenzy. They are all examples of the pursuit of tax legislation unmoored from consideration of sound tax policy.

ATVs. Iowa farmers don’t have to pay sales tax on equipment used “directly and primarily” in the production of agricultural products. The Iowa Department of Revenue holds that the exemption doesn’t apply to general-purpose all-terrain vehicles used to get around the farm — say, to check on crops or livestock (or, incidentally, to go to the good pheasant-hunting spots). The Iowa Senate passed SF 512 yesterday to exempt ATVs “used primarily in agricultural production” from sales tax.

Too bad this isn’t part of a broader movement to exempt all business inputs from sales tax. To the extent that ATVs are a business input, exempting them from sales tax is good policy. I suspect, though, that everyteenage farm boy will have an ATV used primarily in agriculture.

Young Farmers. HF 624 makes minor changes in the tax credit available for custom farming contracts with beginning farmers. No amount of tax credits will change the fundamental difficulties involved in getting into farming. It’s a capital-intensive business that has been consolidating for over a century into larger and more expensive units. This bill isn’t that big a deal, but “Young Farmer” tax credits have no more policy justification than “Young Factory Owner” credits or “Young Cold Storage Warehouse Operator” credits.

20140611-2To the cleaners. Probably the worst tax policy to advance yesterday was HF 603, which excludes the use “self-pay” washing machines from sales tax. While business inputs should not be subject to sales tax, all final consumer expenditures should be. A broader base enables lower rates for everyone. O. Kay Henderson reports on this break:

Representative Josh Byrnes, a Republican from Osage, has met with a couple from St. Ansgar who sold their laundromats in Iowa and opened coin-operated laundromats in Minnesota, which does not charge the sales tax.

“The other part of this is just economic development in general,” Byrnes says. “We have a company that manufactures self-pay units in Fairfield, Iowa, called Dexter and actually they’re looking at some expansion and growth of their company I believe that this will help them get over that hump and help to further their business as well.”

You can make the same “economic development” argument for pretty much anything manufactured in Iowa, including the home laundry machines historically made by Iowa manufacturers Maytag and Amana. It takes a leap of faith to think this will sell even one additional washing machine.

 

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Joseph Henchman, Illinois Governor Suspends New Film Tax Credits, Makes Other Spending Cuts (Tax Policy Blog):

With the two sides at a stalemate, Rauner announced that he is issuing administrative orders to cut $400 million in spending wherever he can. Including:

  • Immediate suspension of all future incentive offers to companies for business attraction and retention, including EDGE credits and the film tax credit program. Commitments already made will be honored.

Unilateral disarmament in the incentive wars is actually doing a big favor for Illinois taxpayers. Those credits enable the well-connected to pick the pockets of the rest of the taxpayers. It is excellent public policy. I hope Iowa decides it needs to ditch its crony tax credits to compete with Illinois.

 

Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 2. “HRAs are often — but not always — a good strategy for sole proprietors. Here are some numbers that lay it out.”

Robert Wood, Another Tax-Exempt Marijuana Church—Green Faith Ministry

Kay Bell, IRS working with tax industry, states to upgrade security

 

Dean Zerbe, Tax Court Decision – Good News For Whistleblowers (Procedurally Taxing). “This decision and the actions of the IRS in this case are not going to make administration of the IRS whistleblower program easier – and could have easily been prevented by the IRS.”

Jack Townsend, Whistleblower Case Apparently Involving Wegelin. “Perhaps most interesting for many readers of this blog is that the underlying criminal prosecution and guilty plea appears to involve Wegelin Bank, the Swiss Bank that met its demise for its U.S. tax cheat enabler activities.”

 

 

Renu Zaretsky, There’s Always Room for Improvement. Today’s TaxVox headline roundup covers the IRS data breach, climate-change tax promises, and charitable tax deduction policy, among other things.

Kelly Davis, Kansas Considers Tax Hikes on the Poor to Address Budget Mess (Tax Justice Blog).

 

TaxProf, The IRS Scandal, Day 756

 

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So tell me again how IRS regulation of preparers will fight fraud? IRS Employee Files Hundreds of Fraudulent Tax Returns:

The former IRS worker, 38-year-old Demetria Michele Brown, stole names, birth dates and social security numbers, and provided false information about wages, deductions, addresses and workplaces in order to obtain the refunds.

The documents were filed from her computer and the money returned by the IRS was sent to bank accounts controlled by Brown, St. Louis newspaper reports.

According to prosecutors, the fraudster carried out the activity from 2008 until 2011 and collected $326,000 / €290,000.

I’m sure it wouldn’t have happened if she had to take an ethics exam.

 

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

Friday, May 22nd, 2015 by Joe Kristan

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

 

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

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 743

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

 

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

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

Flickr image by Sage under Creative Commons license

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

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

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

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

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

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

Hah.

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

 


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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

William Perez, Payroll Taxes: A Primer for Employers

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

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

 

 

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

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

TaxProf, The IRS Scandal, Day 530

 

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

 

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Tax Roundup, 9/4/14: IOU? No basis for you! And: IRS may say TANSTAAFL.

Thursday, September 4th, 2014 by Joe Kristan

20120801-2Partner IOUs fail to increase basis.  Just like S corporation shareholders, partners in a partnership can only deduct their share of the entity’s losses to the extent they have basis.  Like S corporation owners, partner basis starts with the basis of property and the amount of cash contributed to the partnership; it is increased by the owner’s share of taxable and tax-exempt income, and is reduced by expenses and distributions.

In a Tax Court case yesterday, partners”contributed” IOU from themselves to the partnership, VisionMonitor Software LLC.; the partners then used the amounts of the IOUs as basis for deducting losses.

Unfortunately for the partners, that doesn’t work.  Judge Holmes explains (minor editing by me):

VisionMonitor argues that the notes in this case, like the assumption of debt in Gefen, were necessary to persuade a third party to kick in more funding to a cash-strapped partnership. But unlike the partner in Gefen, neither Mantor nor Smith were guaranteeing a preexisting partnership debt to a third party. And they did not directly assume any of VisionMonitor’s outside liabilities — these notes are their liability to VisionMonitor, not an assumption or guaranty of VisionMonitor’s debt to a third party…  And there’s also no evidence that Mantor or Smith were personally obliged under the VisionMonitor partnership agreement to contribute a fixed amount for a specific, preexisting partnership liability.

Unlike S corporation shareholders, partners can get basis for debt owed by a partnership to third parties — for example, by providing a guarantee to a third-party lender (watch out for the “at-risk” rules).  But the court held that writing an IOU, by itself, doesn’t rise to the level of creating debt basis for the partner:

 Here… the partners each have no adjusted basis in the notes, and until they are paid, the notes are only a contractual obligation to their partnership. Mantor made a payment under his notes only in 2010, and the record has no evidence that Smith ever did. We therefore find that Mantor’s and Smith’s bases in their promissory notes during the 2007 and 2008 tax years were zero and, accordingly, that VisionMonitor’s basis in the contributed notes was also zero.

As it always does, the IRS tried to stick the partners with a 20% “accuracy-related” penalty. Judge Holmes wisely declined, holding that they relied reasonably on oral advice from their tax man, a Mr. Sympson:

We have little problem in finding that VisionMonitor actually relied on Sympson’s advice — his conclusion that the notes were additions to VisionMonitor’s capital (and the capital accounts of Smith and Mantor) was set out on the company’s returns. And we have little trouble in finding that this reliance was in good faith. In a case like this one — where VisionMonitor secured Smith and Mantor’s promises to increase their personal risk alongside their promise to extend their personal credit to the firm’s vendors — advice from a longtime tax adviser that this increased Smith’s and Mantor’s bases would seem reasonable to Mantor.

This is the sort of standard that the Tax Court should apply.  Taxes are hard — that’s why people hire out their tax work.  If they are open with their tax advisor, and they don’t have reason to think the tax advisor is incompetent, they shouldn’t get hammered with penalties just because the advisor makes a mistake. After all, the IRS makes mistakes too.

The Moral: If you want to get basis in your partnership without putting in cash, you need to get third party debt allocated to you in a way that makes you at-risk.  And: when things get complicated, if you are open with your preparer and follow the advice given, IRS penalties are not automatic.

Cite: VisionMonitor Software LLC, T.C. Memo 2014-182.

Related: How much K-1 loss can I deduct? Start with your basis.

 

TANSTAAFL. (There Aint) No Such Thing As A Free Lunch: IRS Mulls Tax On Employee Meals. (TaxGrrrl)  Just because you can make a theoretical argument that something is taxable doesn’t mean you should tax it.

 

20130121-2So you think regulation of preparers by IRS will stop fraud?  IRS Employee Accused Of Tax Fraud.  If they can’t keep themselves honest, they aren’t likely to prevent preparer cheating. Of course, preparer regulation isn’t about stopping fraud or improving tax compliance. It’s about grabbing power and helping well-placed friends.  Russ Fox has more.

 

Jana Luttenegger, Tax Court Ruling on Frequent Flyer Miles as Income (Davis Brown Tax Law Blog)

Kay Bell, Tax differences between home repairs & home improvements.  It can make a big difference when you sell.

Robert D. Flach tells you WHAT TO ASK A TAX PRO

Jack Townsend, Proof Beyond a Reasonable Doubt – Ramblings

 

David Brunori, Business Pays a Lot of State and Local Taxes (Tax Analysts Blog):

COST recently released its 12th edition of the report. And it continues to influence the state tax debate as much today as it did in 2002. The new report says that businesses paid $671 billion in state and local taxes in 2013, up about 4 percent over the previous year. But business taxes accounted for 45 percent of all state and local taxes.

I note that the amount of tax paid by “business” is deceptive. Businesses do not pay taxes; people pay taxes. And every dime of the $671 billion was paid by some combination of shareholder, owner, employee, customer, or supplier. Those on the left desperately want the burden to fall on shareholders. But there is growing evidence that in a global economy, the burden falls on employees. 

And if it does fall on shareholders, remember that pension funds are also shareholders.

 

20140801-2Lyman Stone, Governor Rick Scott Offers Mixed Bag of Tax Proposals for Florida (Tax Policy Blog). “Governor Scott’s tax proposals offer meaningful improvements in some areas like cell phone and corporate income taxes. But on other issues like the property tax cap, it’s not clear whether or how the plan will work; on sales tax holidays, the proposed “tax cut” would actually make the tax code more complicated and distortionary, while creating little or no economic growth.”

Yes.  Next Question?  Is It Time to Repeal The Corporate Income Tax? (Howard Gleckman, TaxVox) “This view acknowledges that roughly 10 million businesses already have engaged in self-help tax reform by organizing themselves as pass-through firms (where owners at taxed as individuals but bypass the corporate tax entirely).”

 

TaxProf, The IRS Scandal, Day 483

 

News from the Profession.  Ladies Still Need Entire Panels Made Up of Dudes to Talk About Ladies in the Profession (Adrienne Gonzalez, Going Concern)  “Don’t worry, ladies, the guys are ON IT.”

 

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Tax Roundup, 8/11/14: Don’t you dare agree with me edition.

Monday, August 11th, 2014 by Joe Kristan

microsoft-appleDavid Brunori notes ($link) some odd behavior by Good Jobs First, a left-side outfit that has been on the side of the angels by highlighting the baneful effects of corporate welfare tax incentives.  The American Legislative Exchange Council came out with a report blasting cronyist tax incentives, and rather than embracing the report, Good Jobs First ripped it — because the Koch Brothers are the Devil:

Yet, Good Jobs First slams ALEC because many recipients of tax incentives have close ties to ALEC. But so what? The fact that corporations, including those run by the Koch brothers, provide support to ALEC doesn’t diminish the argument that incentives are terrible.

Weirdly, Good Jobs First primarily blames the recipients of corporate welfare for taking the money, rather than the politicians who give it away:

Moreover, Good Jobs First inexplicably says that ALEC is wrong to blame policymakers rather than the companies that receive incentives. But the blame for those horrible policies rests squarely on the shoulders of lawmakers and governors who perpetuate them. In a world where the government is handing out benefits to anyone who asks, it’s hard to fault the people who line up for the handout. No one has been more critical of tax incentives than I, but I’ve never blamed the corporations. Nor do I blame the army of consultants and lawyers who grease the wheels to make incentives happen. There’s no blame for anyone other than the cowardly politicians from both parties who can’t seem to resist using those nefarious policies.

Precisely correct.  When somebody is handing out free money, it’s hard to turn it down when your competitors are taking all they can.

I have seen smart people I respect do everything short of donning tin-foil hats when talking about the Koch Brothers and their dreadful agenda of influencing the government to leave you alone.  Maybe everyone needs an Emmanuel Goldstein.

Adam Michel, Scott Drenkard, New Report Quantifies “Tax Cronyism” (Tax Policy Blog)

Annette Nellen, What about accountability? California solar energy property.  Green corporate welfare is still corporate welfare.

 

20130121-2Russ Fox, Where Karen Hawkins Disagrees With Me…  The Director of the IRS Office of Preparer Responsibility commented on Russ’ post “The IRS Apparently Thinks They Won the Loving Case.”  Russ replies to the comment:

Ms. Hawkins is technically correct that Judge Boasberg’s order says nothing about the use of an RTRP designation. However, the Order specifically states that the IRS has no authority to create such a regulatory scheme. If there isn’t such a regulation, what’s the use of the designation?

The courts closed the front door to preparer regulation, so the IRS is trying to find an unlocked window.

 

TaxGrrrl, IRS Imposes New Limits On Tax Refunds By Direct Deposit.  “Effective for the 2015 tax season, the IRS will limit the number of refunds electronically deposited into a single financial account (such as a savings or checking account) or prepaid debit card to three.”

This seems like a measure that should have been put in place years ago.  The Worst Commissioner Ever apparently had other priorities.

 

Kay Bell, Actor Robert Redford sues NY tax office over $1.6 million bill.  The actor gets dragged into New York via a pass-through entity in which he had an interest — a topic we mentioned last week.

Renu Zaretsky, August Avoidance: Corporate Taxes and Budget Realities.  The TaxVox headline roundup covers inversions, gridlock, and Kansas.

Peter Reilly, Org Tries Exempt Status Multiple Choice – IRS Answers None Of The Above

 

 

20140811-1Ajay Gupta, The Libertarian Case for BEPS (Tax Analysts Blog)  BEPS stands for “Base Erosion and Profit Shifting.”

Matt Gardiner, Inversions Aside, Don’t Lose Sight of Other Ways Corps. Are Dodging Taxes (Tax Justice Blog).  Don’t worry, Matt.  If I did, my clients would take their business elsewhere.

Robert D. Flach, HEY MR PRESIDENT – DON’T SHOOT THE MESSENGER!  “If there is something wrong with the Tax Code do not blame the accountant or tax professional.  We have a moral and ethical responsibility to bring to our clients’ attention all the legal deductions, credits, loopholes, techniques, and strategies that are available to reduce their federal and state tax liabilities to the least possible amounts.”

 

Roger McEowen, Federal Court, Contrary To U.S. Supreme Court, Says ACA Individual Mandate Not a Tax.

Jack Townsend, U.S. Forfeits Over $480 Million Stolen by Former Nigerian Dictator.  The headline is misleading — the U.S. received the cash in a forfeiture — they seized it, rather than forfeiting it.

 

2140731-3TaxProf, The IRS Scandal, Day 459

Instapundit, GANGSTER GOVERNMENT: Inspectors general say Obama aides obstruct investigations.  The majority of the 78 federal inspectors general took the extraordinary step of writing an open letter saying the Administration is blocking their work as a matter of course.  The IRS stonewalling on the Tea Party scandal is part of the pattern.

 

 

News from the Profession. It’s Completely Understandable Someone Might Sign Over 200 Audit Reports By Mistake (Adrienne Gonzalez, Going Concern)

You mean they didn’t shift to organic carrot juice?  “From Coke to Coors: A Field Study of a Fat Tax and its Unintended Consequences” (Via Maria Koklanaris at Tax Analysts):

Could taxation of calorie-dense foods such as soft drinks be used to reduce obesity? To address this question, a six-month field experiment was conducted in an American city of 62,000 where half of the 113 households recruited into the study faced a 10% tax on calorie-dense foods and beverages and half did not. The tax resulted in a short-term (1-month) decrease in soft drink purchases, but no decrease over a 3-month or 6-month period. Moreover, in beer-purchasing households, this tax led to increased purchases of beer.

I’m sure the politicians who want to run everyone’s diet will angrily demand higher beer taxes in response.

 

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Tax Roundup, 6/27/14: IRS tries preparer regulation through the back door. And: why was Lerner at IRS?

Friday, June 27th, 2014 by Joe Kristan

20130121-2IRS tries “voluntary” end run around the law.  The IRS yesterday announced that it doesn’t need no stinking law (IR-2014-75):

The Annual Filing Season Program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing education (CE), including a course in basic tax filing issues and updates, ethics and other federal tax law courses.

“This voluntary program will be a step to help protect taxpayers during the 2015 filing season,” said IRS Commissioner John Koskinen. “About 60 percent of tax return preparers operate without any type of oversight or education requirements. Our program will give unenrolled return preparers a way to stay to up-to-date on tax laws and changes, which we believe will improve service to taxpayers.”

Tax return preparers who elect to participate in the program and receive a record of completion from the IRS will be included in a database on IRS.gov that will be available by January 2015 to help taxpayers determine return preparer qualifications.

The database will also contain information about practitioners with recognized credentials and higher levels of qualification and practice rights. These include attorneys, certified public accountants (CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

So the Commissioner is keeping a little list of his friends.  And if you aren’t on his list of friends, you are on his list of not-friends.  It’s obvious what is going on here.  Through PR and subtle or non-so-subtle IRS preference for those on the Friends List, they will make life unpleasant for the non-friends, encouraging them to submit to “voluntary” CPE, testing, and ultimately, IRS control.  The IRS is trying to achieve its preparer regulation, ruled illegal by the courts, through other means.  This eagerness to take on a new program that nobody wants must mean the IRS is adequately funded, and its cries for more resources can safely be ignored.

Other coverage:

IRS Offers Voluntary Tax Preparer Education Program (Accounting Today)

Adrienne Gonzalez, IRS Goes Ahead With Voluntary Tax Preparer Program Despite AICPA Objection (Going Concern)

Leslie Book, IRS Announces Voluntary Education Program For Return Preparers (Procedurally Taxing)

Robert D. Flach, IT’S JUST STUPID  “This program will do little to ‘encourage education and filing season readiness’. ”

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Why did Lois Lerner work at the IRS?

This question came to mind in discussing the Lerner emails with a reader, who noted how a Politico piece about the Grassley email chain revealed this week pointed out this high-level IRS leader’s evident lack of tax skills:

Former ex-IRS tax exempt division chief Marcus Owens said the email chain shows Lerner knew very little about tax law, as there would have been nothing wrong with Grassley and his wife attending such an event, so long as the income was reported.

“It is nothing that rises to the level of referral for examination,” Owens said.

It is a mystery.  Her Wikipedia biography shows that she was a cum laude graduate of Northeastern University and the Western New England College of Law.  She worked as a high-level attorney at the Federal Election Commission, but moved to IRS as “Director Rulings and Agreements” in the exempt organizations branch of the IRS.  She rose to Director of Exempt Organizations in 2006.

Her resume, then, is that of a bureaucrat, rather than a tax practitioner or specialist.  She apparently never practiced tax law before moving into her important policy position — important in the tax world, anyway.

This sort of thing may be common in the federal bureaucracy.  It’s likely that she got a raise for the move, or something.  But it seems that while you could take the girl out of the FEC, you couldn’t take the FEC out of the girl.  She took it upon herself to monitor the electoral process with the tools of the tax law.

Megan McArdle explains why that was a bad idea:

This exchange suggests that Lois Lerner not only didn’t have a good, basic grasp of the tax law she was supposed to be administering, but also viewed her job as an extension of her work at the Federal Election Commission.

That’s not what the IRS is for. The IRS is not given power over nonprofit status in order to root out electoral corruption or the appearance of it. It is given power over nonprofit status in order to make sure that the Treasury gets all the revenue to which it’s entitled

Unfortunately, politicians see the tax law as the Swiss Army Knife of public policy, and it’s unsurprising that an IRS bureaucrat would see it the same way.

Moreover, Lerner’s overbroad instincts also seemed to kick into high gear when Republican politicians were involved. Of course, such reports might well be survivor bias — Republicans are complaining about Lerner, while Democrats who also had run-ins with her may be keeping quiet for fear of fueling the fire. At this point, however, the fire is burning merrily on its own. If Democrats who encountered Lerner’s overzealous use of her powers are out there, they’d do well to come forward and tell their stories to reassure Americans that even if her actions were overbroad, they weren’t broadly partisan.

They would have emerged by now.  The stats, as we noted yesterday, demonstrate one-sided enforcement.

It’s unlikely that Ms. Lerner came to the IRS with the idea of using her position to harass the opposition.  She just happened to be in a position to do so when applications from groups she didn’t like — perhaps that she even saw as dangerous and wrong — came across her desk.  It’s possible that she did it entirely on her own.  And that’s the scariest thing — a bureaucracy that moves on its own to squash ungoodthinkers is much more dangerous than a top-down conspiracy.  It may be hard to replace an administration, but it’s almost impossible to replace a bureaucracy.

 

taxanalystslogoChristopher Bergin, The IRS Has Been Set Up (Tax Analysts Blog):

I don’t know if the IRS has been politicized. Until recently that possibility would have been unthinkable. But the potential of the 501(c)(4) rules to be a setup for the politicization of the IRS is enormous. You simply can’t have the tax collector refereeing the people who provide it with its budget. 

Christopher calls for the repeal of 501(c)(4).

TaxProf, The IRS Scandal, Day 414

Johnnie M. Walters, Ex-IRS Chief, Dies at 94 (New York Times):  “Johnnie M. Walters, a commissioner of the Internal Revenue Service under President Richard M. Nixon who left office after refusing to prosecute people on Nixon’s notorious “enemies list,” died on Tuesday at his home in Greenville, S.C. He was 94.”

Funny how nobody is doing that anymore.

 

Jason Dinesen, I Can’t Do Much to Help You Once the Transaction Is Completed.  “The point is: the time to ask for tax advice about something that will generate a massive tax bill is beforehand, not afterwards.”

Russ Fox, FBAR Deadline Is June 30th, but It’s Not a Midnight Deadline.  “My advice is simple: File the FBAR asap–it at all possible by Saturday.”

TaxGrrrl, Kentucky Fried Hoax: What Happens To The Cash?

Peter Reilly, Kuretski – Was Legal Dream Team Really Trying To Help The Taxpayers?

Jack Townsend, False Statements Crime Element of “Knowingly and Willfully” Requires Proving Knowledge that Making False Statement Is Illegal

Robert D. Flach brings the Friday Buzz!

 

This happened in 2008.  It's raining again.

This happened in 2008. It’s raining again.

 

Lyman Stone, Pennsylvania House of Representatives Passes Suspension of Tax Credits (Tax Policy Blog). “Most of these credits amount to narrow carve-outs for favored industries and firms, and thus their elimination would generally be good tax policy as a way to make the tax code more neutral.”

Richard Phillips, Clinton Family Finances Highlight Issues with Taxation of the Wealthy (Tax Justice Blog).

Scott Eastman, Tax Inversions are a Symptom, Corporate Tax Reform is the Cure (Tax Policy Blog).

Howard Gleckman, CRFB’s New Online Budget Simulator (TaxVox).  “Neither Congress nor the White House seem to care much about the budget deficit these days, but if you do, the Committee for a Responsible Federal Budget has created an updated online budget simulator that lets you try to get a handle on fiscal policy.”

 

The new Cavalcade of Risk is up at Worker’s Comp Insider.  Good stuff always at the blog world’s roundup of insurance and risk management — including Hank Stern on a potential diabetes breakthrough.

Oops. U.K. tax system errors mean 3.5 million unexpectedly owe (Kay Bell)

 

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