Posts Tagged ‘Public Choice Theory’

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, 2/3/14: The Fable of the Wife’s Purse and your legislature. And: start with the right name!

Monday, February 3rd, 2014 by Joe Kristan

20120906-1Why do state legislators enact such dumb laws?  After speaking to a group of State Senate Presidents, David Brunori has some thoughts ($link, unfortunately) on why they persist in enacting special incentive breaks for their special friends:

I said that tax incentives are largely unnecessary because business location decisions are mainly determined by labor costs and access to markets (Boeing proved that to some extent). But several senators quickly asked about industries such as filmmaking or high-tech, in which labor costs and market access aren’t nearly as important: Taxes would matter more, yes? I had to fall back on the “government still shouldn’t be picking winners and losers” argument, which I think is a powerful one. But it doesn’t resonate well with those who pick winners and losers all the time — in all aspects of public policy.

My response would be giving tax breaks to one business or industry means screwing all of your other constituents to pay for it.  It’s like taking your wife’s purse to the bar to buy drinks for the girls — yes, there are winners, but somebody loses too, and even the winners don’t respect you.

I like this “destroy the village to save it” argument:

 One senator asked whether widespread use of tax incentives would eventually make the corporate tax so irrelevant that its repeal would be easy. Again, indignantly, I explained all that is wrong with incentives. The senator said he agreed and was merely pointing out that the widespread use of incentives was a sure way to eliminate the corporate tax.

If that were true, I think we’d have seen at least one corporate tax collapse under the weight of its loopholes.  If any state corporation tax were ripe for collapse, it would be Iowa’s.  It has the highest rate in the nation, but its loopholes and credits make it pretty much useless, raising less than 5% of Iowa’s tax revenue.  Yet it still is going strong.

The best explanation for our bad tax policies are found in the “Public Choice” analysis of public policy pioneered by Gordon Tullock and James Buchanan.  They say that public officials, like everyone else, respond to incentives.  The incentives for legislators and their executive-branch enablers are to give money to well-connected constituents who will reward them with campaign cash.  They understand and appreciate the largesse, and the taxpayers whose pockets are being picked don’t notice the little larcenies that make the largesse possible.

Or, in my Fable of the Wife’s Purse, the girls at the bar know who’s buying, but the wife doesn’t, so the incentives are all in favor of the bar girls.

 

taxanalystslogoChristopher Bergin, The State of Our Union: My, My, My (Tax Analysts Blog):

The only thing new about the myRA is that it’s being done by executive fiat, which makes it lamer still. That leads me to a question: Shouldn’t we have the Treasury Department working on reforming our tax code instead of running around placing fig leaves over tough truths, such as the fact that many of us don’t save enough for retirement? A suggested starting point: Treasury should study why the myriad provisions already in the tax code that are designed to provide incentives to save for retirement aren’t working.

Oh, I’m sure the next tax code change will work so much better than all of them so far.

 

20111040logoWilliam Perez, Getting Your Name Right on the Tax Return:

If a person changed their name last year, now is a good time to check their Social Security card. The name shown on a person’s Social Security card is the name the IRS expects to see on the tax return. If a person’s name has changed, the person will first need to update their name with Social Security before using their new name on their tax return.

This problem comes up every year.  If you get married, or divorced, and you change your name, you need to file under the name that Social Security has if you e-file.  Even if you paper-file, using the “wrong” name can delay your refund.

 

Jason Dinesen,Life After DOMA: Gift Tax

Russ Fox, Tax “Professionals” Behaving Badly.  Russ recaps tax pros gone off the rails.

Annette Nellen passes on Tax mistakes to avoid – WSJ article.  I wonder if the WSJ will follow up with “Tax mistakes to seek.”

Kay Bell, Married couples filing joint returns share all tax liability, too.

 

Scott Drenkard, Indiana House and Senate Pass Business Personal Property Tax Reform.  “Taxes on business personal property are more distortive than other means of collecting revenue.”

Ben Harris, Variation in EITC Take-up, County by County:

The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South.

Half?  Wow.

 

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TaxGrrrl, Ads Score Big At Super Bowl And At Tax Time, Too   

Peter Reilly, Flap About NFL Tax Exemption Seems Silly.  Not as silly as Denver’s first play from scrimmage yesterday.

Tony Nitti, Super Bowl Tax Tale Of The Tape: Who Ya’ Got?  “When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious ‘busy season’ work week, this one with a bit of a hangover.”

 

TaxProf, The IRS Scandal, Day 270

Jack Townsend, Administration Insists that FATCA Will Not Be Further Delayed.  We must make personal finance a huge hassle for Americans abroad as quickly as possible.

 

On Friday Going Concern wished you a Happy First Day of the Tax Filing Season!

 

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Tax Roundup, 9/5/2012: Laying it on thick for the fertilizer plant. Math is hard. So is tax, even with TurboTax.

Wednesday, September 5th, 2012 by Joe Kristan

Governor Branstad’s administration is making a big push to promote STEM education: Science, Technology, Engineering and Math.  This headline in the Des Moines Register today shows how badly we need math education, especially in Iowa’s “Economic Development” bureaucracy:

165 jobs, $110 million in aid

Officials mull boosting incentives to keep $1.3 billion fertilizer plant project in Iowa

This is the worst kind of smokestack chasing, which is always the preferred approach of “economic development officials.”  Never mind that Iowa already has competing fertilizer plants — as Sioux Citian Debi Durham, Iowa chief official economic developer, surely knows.    Never mind that Iowa and Illinois are getting played shamelessly by Orascom, the fertilizer company.  Never mind that the money comes from taxes paid by existing competitors, and by thousands of unsubsidized businesses like ours, and our employees.  Never mind all that — it’s about buying a ribbon-cutting, not about making the state a good place for everyone to do business Unless, of course, Roth & Company gets a nice state check for $21.3 million for the jobs we have already created.

At least some folks are catching on to the game.  From the article:

Orascom has attracted a diverse group of opponents, from parents, environmentalists and liberal groups such as Iowa Citizens for Community Improvement and Iowa Policy Project, to conservative groups such as Public Interest Group, Lee County Tea Party and Americans for Tax Reform.

So there’s agreement from left to right that it’s a bad idea for the state.  But if politicians think it’s a good idea for them, it will go through.

Related: Taking your wife’s purse to buy drinks for the girls and  LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Who catches the identity thieves?  Hint: it’s not Doug Shulman’s IRS.  From the Bradenton (Florida) Patch:

Det. B. Pieper from the police department’s gang unit put together the case by paying close attention during a routine drug bust…

Pieper was one of several detectives watching traffic coming to and from a house where police suspected drugs were sold. He said he and his partner watched a car leave the house and then run a stop sign. When they pulled over the car Brydson was in the passenger seat with a laptop and a bag of marijuana on her lap.

Brydson quickly closed the laptop, which made Pieper suspicious. When he searched her purse, he said he found several TurboTax debit cards with different names on them. He also noticed a 60-step instruction sheet on how to perform tax fraud through TurboTax.

So local cops have to do the IRS’s job of stopping the thieves who take $5 billion of our taxes annually while the IRS is busy building a new preparer regulation bureaucracy at the behest of the national tax prep firms.  Priorities!

 

 Courtney A. Strutt Todd: Congratulations on Your Scholarship. Don’t Forget to Pay Uncle Sam (Davis Brown Tax Law Blog)

TaxProf, Tax Planks in Democratic Party Platform

Andrew Mitchel, Partnership Definition

Martin Sullivan, The Effects of Interest Allocation Rules in a Territorial System (Tax.com)

Linda Beale, Romney and Private Equity’s Questionable Schemes for Paying Very Little Tax

Kay Bell, Tax moves to make in September 2012

Robert D. Flach has a new Buzz roundup of tax blog posts.

Jim Maule offers A Peek at the Production of Tax Ignorance.  It’s booming.

I think spending less than you earn works even betterDo Mandates or Tax Subsidies Do a Better Job of Boosting Savings?

Have a nice dayCBO: Federal Healthcare Spending Will Exceed Discretionary Spending by 2016 (William McBride, Tax Policy Blog)

GIGO: it’s Tax Court Doctrine!  From a case rejecting a taxpayer’s use of TurboTax as an excuse for a bad return:

It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program. See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). Simply put: garbage in, garbage out.

Tim Geithner, call your office.

Cite:  Bartlett, T.C. Memo 2012-254.

Related:  Reason #17 to Hire Me: Blaming Turbo Tax Can Not Protect You From Penalties (Anthony Nitti)

 

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Preparer regulation: it works by making you pay more for me

Tuesday, March 30th, 2010 by Joe Kristan

I don’t believe additional preparer regulation is necessary. It will raise costs to taxpayers without increasing the quality of the service enough to make it worthwhile.
Peter Pappas finds the price increase a feature, not a bug:

The truth is, tax return preparation prices have historically been too low because of the lack of even a single barrier to entry into the profession.

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