Posts Tagged ‘Renu Zaretsky’

Tax Roundup, 3/26/15: Not every project is an “activity,” and why that’s a good thing. And: starting Iowa’s tax law fresh.

Thursday, March 26th, 2015 by Joe Kristan

What’s an activity? The tax law’s “passive loss” rules limit business losses when a taxpayer fails to “materially participate” in an “activity.” Whether an “activity” is “passive” is mostly 20150326-2based on the amount of time spent in the activity by the taxpayer. That can raise a tricky question: just what is an “activity?”

Many businesses do multiple things. Take a CPA firm that does tax and auditing. If those feckless auditors lose money, is that a separate “activity” from the hard-working tax side? Or consider a convenience store owner with two locations; is each a separate activity, or are they one big activity?

The Tax Court addressed this problem yesterday in a case involving a South Florida developer. Greatly simplifying a complex story of real estate backstabbing and inter-family rivalry, the problem was whether an S corporation was the same “activity” as a partnership with the same owners set up for s specific development project. If so, family patriarch Mr. Lamas could cross the basic 500-hour threshold for participation in the combined activity, making his losses deductible.

Judge Buch explains the IRS regulation (1.469-4(c)) governing this issue:

This regulation sets forth five factors that are “given the greatest weight in determining whether activities constitute an appropriate economic unit for the measurement of gain or loss for purposes of section 469″:

(i) Similarities and differences in types of trades or businesses;

(ii) The extent of common control;

(iii) The extent of common ownership;

(iv) Geographical location; and

(v) Interdependencies between or among the activities (for example, the extent to which the activities purchase or sell goods between or among themselves, involve products or services that are normally provided together, have the same customers, have the same employees, or are accounted for with a single set of books and records).

This regulation further instructs that taxpayers can “use any reasonable method of applying the relevant facts and circumstances” to group activities, and that not all of the five factors are “necessary for a taxpayer to treat more than more activity as a single activity”.

Equality in action in the Soviet Union on the Belomor Canal

The judge said that Shoma (the S corporation) and Greens (the partnership) met these requirements, considering they had the same control and both were in the same general business. Also:

Finally, Shoma and Greens were interdependent. Greens operated out of Shoma offices, used Shoma employees, and consolidated its financial reporting with Shoma’s. Greens was formed by Shoma as a condominium conversion project. The shareholders intended that Greens be dissolved after the project was completed and the capital returned to its shareholders.

Because Shoma and Greens meet these five factors, we find that they are an appropriate economic unit and should be grouped as a single activity.

The taxpayer was able to satisfy the court through witness testimony and phone records that he met the 500-hour requirement.

This case is good news for developers, as this structure is common in that business: a permanent S corporation sets up new LLCs for each development project. This case correctly concludes that they are all part of the same development business.

Cite: Lamas, T.C. Memo 2015-59.

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Me, What an Iowa income tax might look like with a fresh start. My new post at IowaBiz.com, the Des Moines Business Record Business Professionals’ Blog, on what Iowa’s tax system might look like if we could start over. A taste:

A system designed from scratch would apply the ultimate simplification to Iowa’s corporation income tax: it wouldn’t have one. Iowa’s corporation income tax is rated the very worst, with extreme complexity and the highest rate of any state. 
 
Eliminating the corporation income tax would eliminate the justification for almost all of the various state incentive tax credits, all of which violate the principles of neutrality and simplicity in the first place. For its astronomical rates and complexity, it generates a paltry portion of the state’s revenue, typically 4-7 percent of state receipts.
 
For S corporations, a from-the-ground-up tax reform might tax Iowa resident shareholders only on the greater of distributions of S corporation income, or interest, dividends, and other investment income earned by the S corporations. The investment income provision would prevent the use of an S corporation as a tax-deferred investment. The effect would be to put S corporations on about the same footing as C corporations.

I have little hope in the legislature actually doing something sensible, but we have to start somewhere. I’d love to hear any thoughts readers may have.

 

 

Roger McEowen addresses the Tax Consequences When Debt is Discharged (ISU-CALT): “There are several relief provisions that a debtor may be able to use to avoid the general rule that discharge of indebtedness amounts are income, but a big one for farmers is the rule for ‘qualified farm indebtedness.'”

Russ Fox, A Break in my Hiatus: Poker Chips and Tax Evasion. Russ lifts his head from his tax returns to tell of the tax problems of a poker chip maker that he has personal experience with. “A helpful hint to anyone wanting to emulate Mr. Kendall: Just pay employees in the normal way, on the books, and send the withholding where it belongs.”

TaxGrrrl, Taxes From A To Z (2015): N Is For Nonrefundable Tax Credits

Robert Wood, Tax Fraud Draws 6 1/2 Year Prison Term Despite Alzheimer’s. Specifically, a dubious claim of Alzheimer’s.

Peter Reilly, Did Andie MacDowell’s Mountain Hideaway Require Tax Incentives? To listen to some people, you’d believe nothing good ever happened until tax credits were invented.

 

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Jason Dinesen, Financing a Small Business, Part 5 of 5: Know When to Keep Quiet With the Banker. “Here are a couple of real-world examples I’ve seen where business owners got hung up with the bank because the owner wouldn’t stop talking.”

This also has lessons for IRS exams, too.

Kay Bell, Obamacare, bitcoin add twists to 2014 tax filing checklist

Annette Nellen, Another Affordable Care Act Oddity. “Perhaps the problem is more tied to the “cliff” in the PTC that causes someone to completely lose the subsidy once their income crosses the 400% of the FPL (more on that here).”

William Perez, How Much Can You Deduct by Contributing to a Traditional IRA?

 

Alan Cole, Richard Borean, Tom VanAntwerpWhich Places Benefit Most from State and Local Tax Deductions? (Tax Policy Blog):

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The short answer? Places with high state tax rates and high-income earners. Note the purple spot right in the middle of Iowa.

 

TaxProf, The IRS Scandal, Day 686

Renu Zaretsky, Sense and Sensibilities. Today’s TaxVox headline roundup covers the House GOP budget, a Texas tax cut, and tax-delinquent federal employees.

 

Richard Phillips, How Presidential Candidate Ted Cruz Would Radically Increase Taxes on Everyone But the Rich (Tax Justice Blog). A taste:

On the flat tax, Cruz has not yet spelled out a specific plan that he would like to see enacted, but it’s unlikely that any plan he proposed will be significantly better than the extremely regressive flat tax proposals that have been offered in the past.

Or, “we don’t know what he will do, but it will be terrible!”

 

Caleb Newquist, Big 4 Gunning for Big Law. To steal a cheap line: who wins if the Big 4 and Big Law fight to the death? Everybody!

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Tax Roundup, 3/25/15: Why the casino may not be the place to invest those millions from that Chinese guy.

Wednesday, March 25th, 2015 by Joe Kristan

In the movies, an American who is entrusted with millions from a Chinese shipping magnate, but blows it at casinos, would face unimaginably dire consequences. In real life, he faces the IRS.

20120511-2That’s the story in a weird Tax Court case decided yesterday. The shipping magnate, a Mr Cheung, had fared poorly as an investor. He met a Mr. Sun from Texas and decided that he might be better at investing. He shipped the money to a C corporation and an e-Trade account owned by Mr. Sun, under a handshake deal with fuzzy terms. Judge Paris explains:

The only part of the arrangement that both Mr. Cheung and Mr. Sun consistently agreed on was the general structure of the investment. Mr. Cheung would transfer sums of money through his shipping companies’ bank accounts to Mr. Sun, who would then invest the money in the United States. Mr. Cheung would decide how much money he wished to send, and Mr. Sun had discretion on which investments to pursue with Mr. Cheung’s money.

The remaining terms of the verbal agreement were not memorialized and are unclear. Specifically, Mr. Sun and Mr. Cheung inconsistently described the investment term, the expected return, and enforcement provisions. Mr. Sun believed the term was a minimum of 5 years and did not give a maximum period, whereas Mr. Cheung believed the term was 7 to 10 years. The expected return is also unclear; Mr. Sun believed the return on investment would be a 50-50 split of the net profit with a minimum 10% gain annually, but the return might not be paid annually. Mr. Cheung believed the return would be 10% to 15%, but was uncertain whether that return was annual or total.

Not the sort of investment arrangement Suze Orman or Dave Ramsey would embrace. Nor would they embrace some of the “investments” described in the Tax Court case.

The funds sent to Mr. Sun’s C corporation went into an “officer loan account” for Mr. Sun. And then… well, again from Judge Paris (emphasis mine):

Mr. Sun would either pay his personal expenses directly from the officer loan account or he would remove money and use it at his discretion. For example, in 2008 Minchem paid $135,874.43 for home automation, $158,517.80 for a new Mercedes Benz, and $49,598.81 for personal real estate tax. In total, Minchem’s officer loan account was debited $4,116,414.43 in 2008 and $1,811,127.65 in 2009 for expenses that Mr. Sun identified as personal during his trial testimony.

Some of the personal expenditures included gambling expenses. In 2008 $4,800,100 was transferred to casinos from the officer loan account and $2,394,550 was returned. In 2009 $1 million was transferred to casinos and $1,300,000 was returned. Thus between 2008 and 2009 Mr. Sun transferred $5,800,100 from the officer loan account to casinos and received back $3,694,550; i.e., over the two years in issue Mr. Sun lost $2,105,550 from gambling from the officer loan account.

20120801-2Judge Paris said that the funds never belonged to the C corporation because it was a mere conduit for the cash; that meant the corporation was not taxable on the amounts.

Mr. Sun didn’t get off so easy. Judge Paris said that the funds became income to Mr. Sun when he began spending them for his own purposes (citations omitted):

Whether funds have been misappropriated is a question of fact, but facts beyond “dominion and control” must be considered. More specifically, an individual misappropriates funds when money has been entrusted to the individual for the sole purpose of investing and the individual instead uses the money for personal activities.

Mr. Sun undisputedly treated as his own money held for Mr. Cheung’s benefit and specifically earmarked for investment purposes. For example, Mr. Sun used some of the funds to purchase a personal automobile and a home automation system. Perhaps the most obvious example of Mr. Sun’s misappropriation of the funds is his gambling activities.

The opinion dismissed the idea that the funds were loans because there was no documentation of any sort of loan agreement or terms. The court said that the amounts weren’t gifts because no Form 3520, where U.S.  taxpayers report large foreign gifts, was filed, and because there was no evidence of an intent to make a gift.

While the Tax Court ruled that Mr. Sun misappropriated the money, it ruled that the IRS failed to prove fraud. That meant the penalties were only 25% of the roughly $4.7 million of additional tax, rather than the 75% under the civil fraud rules.

The Moral? Hard to say. Don’t squander millions of dollars entrusted to you for investment at casinos? You didn’t need the Tax Court to tell you that. Maybe it’s a handy reminder to file Form 3520 if you receive large foreign gifts, lest the IRS get the wrong idea (and lest they hit you with a $10,000 penalty for not filing it). And if you have had bad luck with your investments, maybe index funds are a better way to go than a handshake deal with some guy in Texas.

Cite: Minchem International, Inc., et. al., T.C. Memo 2015-56.

 

Kyle Pomerleau, U.S. Taxpayers Face the 6th Highest Top Marginal Capital Gains Tax Rate in the OECD (Tax Policy Blog):

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The United States currently places a heavy tax burden on saving and investment with its capital gains tax. The U.S.’s top marginal tax rate on capital gains, combined with state rates, far exceeds the average rates faced throughout the industrialized world. Increasing taxes on capital income, as suggested in the president’s recent budget proposal, would further the bias against saving, leading to lower levels of investment and slower economic growth. Lowering taxes on capital gains would have the reverse effect, increasing investment and leading to greater economic growth.

But, but, the rich!

 

IMG_1388William Perez covers Various Types of Individual Retirement Accounts.

Paul Neiffer, Tax Court Allows $11 Million Horse Loss to Stand. “Now, though this is a victory for the taxpayer in Tax Court, they are still out over $11 million in losses (or more).  I am not sure if it really is an overall win for the taxpayers.”

TaxGrrrl, Taxes From A To Z (2015): M Is For Municipal Bonds.

Jason Dinesen discusses Recordkeeping Considerations for a Startup Business.

Roger McEowen, USDA Releases Proposed Definition of “Actively Engaged in Farming” That Would Have Little Practical Application. Sounds useful.

Kay Bell, $42 million Montana mansion owner loses property tax fight. Looks like a nice place.

Jim Maule, When Social Security Benefits Aren’t Social Security Benefits: When They Meet Tax. “By reducing social security benefits on account of the state retirement system benefit payments, the Congress causes the portion of the taxpayer’s overall retirement receipts that is treated as taxable pension payments to increase, which in turn not only increases gross income on its own account but generates gross income from a portion of the social security benefits.”

Joni Larson, Proposal to Amend Section 7453 to Provide that the Tax Court Apply the Federal Rules of Evidence (Procedurally Taxing)

 

Tony Nitti, Ted Cruz To Run For President: Why His Plan For A Flat Tax May Doom His Candidacy:

Whether a move to a much more regressive system than the one currently in place is ultimately in the best interest of the economy and country is irrelevant; the Democrats will seize on the shift in the tax burden and continue to paint Republican candidates as seeking only to placate the rich.

I think Hillary Clinton, or whoever the nominee is, will do that to any Republican opponent, regardless of any actual policy positions. The question is whether they will be able to more successfully deal with the issue than Mr. Romney.

Robert Wood, Taxing Stephen King, Taylor Swift And Phil Mickelson

 

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Renu Zaretsky, Tax Struggles and Tax Sneaks. Today’s TaxVox headline roundup has stories about how Orrin Hatch wants tax reform and John Koskinen wants more money.

David Brunori, Louisiana Tax Reform: Some Smart Guys Worth Listening To (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 685.  Today’s post features Media Matters, living proof that the IRS concern over political activity was rather selective.

 

Career Corner. Confirmed: Golf More Difficult Than CPA Exam (Caleb Newquist, Going Concern). But almost as much fun!

 

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Tax Roundup, 3/23/15: ACA is five years old today. How’s that working out?

Monday, March 23rd, 2015 by Joe Kristan

Productivity wins! All three Iowa teams are out of the men’s NCAA basketball tournament. Back to those 1040s, fans!

 

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President Obama signs the Affordable Care Act. Image via wikimedia.org

Five years. The Affordable Care Act, or Obamacare, was signed into law five years ago today. Thanks to many delays — some part of the original law, others done in spite of the law to get past the elections — taxpayers and preparers are just beginning to cope with key portions of the law.

This is the first year for returns with the individual mandate — officially, and creepily, the “Individual Shared Responsibility Provision.” While many taxpayers thought this would only amount to $95, taxpayers hit with the penalty are learning that their refunds will get dinged for up to 1% of their AGI over a relatively low threshold.

This is also the first year that taxpayers have to true up overpayments of the advance premium tax credit.  Many taxpayers who bought policies on the ACA exchanges had their monthly premiums reduced based on their estimates of 2014 earnings. This subsidy is actually a tax credit, and it has to be reconciled at year end with the actual earnings.  Taxpayers with earnings in excess of what they estimated are now learning from their preparers that they need to write checks.

20121120-2The premium tax credit is horribly designed, with a stepped, rather than gradual, phaseout. One additional dollar in income can result in a loss of thousands of dollars in premium tax credits, which then have to be repaid with the tax return. H&R Block reports that most taxpayers who claimed the credit have to repay an average of $530. The IRS has tried to patch over some of the unpleasantness, unilaterally waiving penalties this year for taxpayers who have to repay the credits.

Here in Iowa, smaller employers who want to offer ACA-approved health insurance can’t, in the wake of the failure of the heavily-subsidized CoOportunity health insurance carrier. The IRS will still allow Iowa businesses to claim the convoluted credit for small employers for 2015. It required carriers who had signed up with CoOportunity to scramble to find new coverage, and it required many families who had already reached their out-of-pocket limits to start them over with a new carrier.

 

Looming over all this is the Supreme Court’s impending decision in King v. Burwell. The IRS decided to allow the premium tax credit in the 34 states using federal exchanges, in spite of statutory language limiting the credits to exchanges created “by the states.” If the court goes with the way the law is drafted, the premium tax credit will be gone for those 34 states, including Iowa. Employers in those states will be suddenly exempt from the “employer mandate” that begins to take effect in 2015. Millions of taxpayers will also be free of the individual mandate penalty because their insurance will no longer be “affordable.”

If you want to celebrate, head over to Insureblog, where they are always updating the latest developments and unintended consequences of the ACA.

 

 

20150312-1William Perez, Did You Pay Interest on Student Loans? It May be Tax Deductible

TaxGrrrl, Understanding Your Forms: 1098-T, Tuition Statement

Roger McEowen, Are Payments Made to Settle Patent Violations Deductible? (ISU-CALT)

Kay Bell, Tax returns on hold while IRS asks ‘Who Are You?’

Peter Reilly, Ninth Circuit Rules Against War Tax Resister

Jim Maule, Tax Credit for Purchasing a Residence Requires a Purchase. “Nothing in the opinion explains why the taxpayer thought she had purchased the residence. Nor does it explain why the taxpayer, if not thinking that she had purchased the residence, would claim that she did.”

Peter Hardy, Carolyn Kendall, Between the National Taxpayer Advocate and the Courts: Steering a Middle Course to Define “Willfulness” in Civil Offshore Account Enforcement Cases Part 1 (Procedurally Taxing). “The OVD programs have netted many people who may have inadvertently failed to file FBARs, and who are not wealthy people with substantial accounts.”

In other words, shooting jaywalkers while giving international money launderers a good deal.

 

Robert Goulder, When All Else Fails, Blame a Tax Pro (Tax Analysts Blog) “OK, the tax code is a disgrace. I get it. But a member of Congress is blaming tax professionals? Really?”

Congress is sort of like the guy who leaves his food plate on the floor, falls asleep, and then blames the dog for eating it.

 

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Joseph Henchman, 10 Remaining States Provide Tax Filing Guidance to Same-Sex Married Taxpayers. “After the IRS decision to allow gay and lesbian married couples to file joint federal tax returns, we noted that a number of states would have to provide guidance because they require two contradictory things: (1) if you file a joint federal return, you must file a joint state return, and (2) same-sex married couples cannot file jointly.”

Renu Zaretsky, Budget Battles and Filing Follies: The Sagas Continue. Today’s TaxVox headline roundup tells of abundant ACA tax filing headaches and more tax nonsense from the only avowedly-socialist senator, Bernie Sanders.

TaxProf, The IRS Scandal, Day 683Day 682Day 681. “Commissioner John Koskinen, testifying before the House Appropriations subcommittee this week, admitted that nearly a dozen grassroots conservative groups seeking tax-exempt status are still awaiting determination.”

Robert Wood, Report Says Former IRS Employees–Think Lois Lerner–Can Still Peruse Your Tax Returns. Well, that’s reassuring.

 

Career Corner. Going Concern March Madness: More #BusySeasonProblems (Caleb Newquist, Going Concern). Brackets asking important work life questions like Which is the bigger busy season problem? Working Saturdays (#1 seed), or Colleagues who heat up smelly leftovers (16 seed).”

I’ll take the underdog.

 

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Tax Roundup, 3/6/15: Crime Watch Edition. Rashia, still 21.

Friday, March 6th, 2015 by Joe Kristan

It’s the time of the year when exasperated taxpayers and preparers are tempted to say, “bugger all this, I’m going to go for the gusto and cheat on my taxes!” That’s when it’s useful to look in on an old friend of the Tax Update to see how well that’s going.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

Let’s look in on Rashia Wilson, who proclaimed herself (on Facebook!) the “Queen of IRS Tax Fraud.” Her reign was cut short by federal identity theft tax refund charges, resulting in a 21-year sentence. And with federal sentences, you have to serve at least 90% of the time.

Ms. Wilson naturally was unhappy with this judicial lèse-majesté, so she appealed, citing procedural irregularities. The trial judge was ordered to reconsider. On further review, the call on the field stands. 21 years.  Robert Wood has more.

Iowa has tax ID fraud too. While South Florida may be the kingdom of tax refund fraud, it has colonies everywhere. Even in Iowa: Cedar Rapids woman charged with filing false tax returns (KWWL.com):

The United States Department of Justice says 33-year-old Gwendolyn Murray is charged with twelve counts of filing false claims for tax refunds, seven counts of theft of government property, and two counts of aggravated identity theft.­ The indictment containing the charges was unsealed on Tuesday.

It is alleged that Murray filed 12 fraudulent tax returns in 2012 and 2013 using other people’s names. She received refunds on seven of those tax returns. The court also alleges that Murray stole the identities of two people.

It’s good to prosecute ID thieves, but it’s far better to keep them from thieving. It’s eye-opening that 7 of the 12 alleged attempts allegedly succeeded. Criminals aren’t known for their impulse control or their ability to anticipate long-term consequences. If they see somebody get a bunch of cash just from keying in some numbers on a computer, they’re going to want some of that bling themselves, and they aren’t going to ponder the likelihood of a prison sentence first.  The IRS is pretty much leaving the door unlocked and the cash register open.

 

Megan McArdle says the culture of “getting a big refund” is part of the problem in Fewer Tax Refunds, Fewer Scams:

If all returns were submitted at the same time, and refunds were held until they could be cross-checked against the IRS’s copies of W-2s and 1099s, then this sort of fraud wouldn’t work very well; the IRS would know it had two returns and could start the process of figuring out which one was fraudulent before it mailed the check. But we love our early refunds, and people often count on getting that check as early as possible.

She offers wise advice:

However, there’s one thing you personally can do to fight tax fraud, and that’s make sure that you don’t give the government more money than you have to. You should never get excited about a tax refund; all it means is that you gave the government a substantial interest-free loan by withholding too much tax throughout the year. You should aim for your refund to be as small as possible — ideally, zero.

A system that sends $21 billion annually to fraudsters — and that number is rising rapidly — can’t continue forever. Part of this will be a technological fix.  My wife can’t buy a dress at Nordstrom in Chicago without triggering phone calls from two credit card companies.  Meanwhile, the IRS happily wires wads of cash to Rashia. One would hope the IRS could learn something from Visa and Discover.

But the IRS is bad at technology, so part of the fix will have to be slower (and ideally, smaller) refunds. This could include lower penalty thresholds for underpayments so that taxpayers will be more willing to risk owing a bit on April 15 — perhaps combined with withholding tables that leave taxpayers owing a bit, rather than getting refunds.

 

What else can you do to protect yourself? 

  • Be careful with your tax information. Never divulge your bank account or credit card info to strangers over the phone.
  • Assume any unexpected call from a tax agency is a scam.
  • Don’t send copies of 1099s and W-2s as e-mail attachments to your preparer, and don’t email a pdf of your 1040 to a loan officer. That leaves your information exposed.
  • When you transmit confidential information, use strong encryption, or better yet upload it via a secure file transfer site, like the FileDrop system we use at Roth & Company.

 

 

20150105-2Peter Reilly, IRS Grossly Unqualified To Make Determinations About Software Related Exempt Applications. The IRS is grossly unqualified for any number of things that Congress gives it to do. Just a very few that come immediately to mind:

– Determining what is “qualified research” for the research credit.

– Determining the energy properties of “green fuels” for the biofuel subsidies.

– Running the nation’s healthcare insurance finance system.

– Policing political speech by tax-exempt organizations.

An outfit that can’t keep two-bit grifters from cashing in billions in tax refunds annually shouldn’t be looking for new things to do.

 

Kay Bell, Tax identity thief mistakenly sends fake refund to real filer. The police don’t spend their days chasing geniuses.

Jack Townsend, More on Light Sentencing for Offshore Account Tax Crimes.

 

Russ Fox provides a valuable service with Online Gambling Addresses Updated for 2015. Taxpayers with offshore online gambling accounts are required to report them on the “FBAR” report of foreign financial accounts (Form 114). The FBAR requires a street address for the account, and these can be hard to find for gambling websites.

William Perez offers advice on how to Communicate Effectively with Your Tax Preparer. We aren’t always the best company this time of year. Come prepared, be efficient, and you can leave our office before we do something bizarre. Other than what we do for a living, of course.

Jason Dinesen, Marriage in the Tax Code, Part 3: Big Changes in 1917

Jim Maule, The IRS and the Taxpayer: Both Wrong. “The taxpayer argued that because the distribution from the IRA was less than the his investment in the IRA, it should be treated as a return of investment. The IRS argued that the entire distribution should be included in the taxpayer’s gross income. The Tax Court concluded that both the taxpayer and the IRS were wrong.”

 

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Kyle Pomerleau, The Rubio-Lee Plan Would be Good for Everyone, Especially Low Income Earners (Tax Policy Blog):

If you take all the pieces of the Rubio-Lee tax plan together, it actually produces the largest increase in after-tax income for the lowest income earners, not the highest.

According to our analysis, the bottom decile of taxpayers will see an increase in after-tax income of 44.2 percent, a percentage increase in income nearly four times larger than the top 1 percent’s increase in after-tax income. But the plan doesn’t just increase the after-tax income of the top and the bottom. All taxpayers will see higher after-tax incomes due to this plan.

The Rubio-Lee plan, with its elimination of the double corporate tax and its business rate reductions, is the most promising tax reform plan to surface in a long time. But its opponents can never see wisdom in anything that benefits “the rich,” even when it benefits everyone else.

 

Renu Zaretsky, Expensive Plans, ACA Developments, and Exercises in Futility. Today’s TaxVox roundup has links to folks hating on Rubio-Lee, Spanish film tax credits, and more.

Patrick Smith, Supreme Court’s Direct Marketing Case May Have Great Significance in Anti-Injunction Act Cases (Procedurally Taxing)

 

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Spring will come!

 

 

Cara Griffith, The Use of Big Data in Auditing (Tax Analysts Blog). “For state auditors, big data (like other types of data) could be used to better evaluate and select taxpayers for audit.”

TaxProf, The IRS Scandal, 666

 

Why would he want a job with less power? Former IRS Commissioner Mark Everson To Run For President. Yes, Of The United States (Tony Nitti)

Culture Corner. A Tax Shelter Board Game Is a Thing That Exists (Caleb Newquist, Going Concern).

 

 

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Tax Roundup, 2/27/15: Bartender beats barrister in Tax Court. And more!

Friday, February 27th, 2015 by Joe Kristan

20120511-2Bartender or barrister, you need to keep good records.  A Nevada bartender, arguing his own case against an IRS attorney, defeated the IRS in Tax Court yesterday. He did it by keeping records.

The IRS said the taxpayer understated his tip income, and it used a generic tip model to assess additional tax. The bartender argued that the IRS model didn’t reflect what happened at the casino where he worked, and that he had the records to prove it:

Petitioner testified about how his bar was set up and what a shift was like during the years at issue. He stated that his bar had only six stools and that customers would often sit at the stools playing poker for several hours and receive several comped drinks as a result. He testified that the only time his bar would be busy was when there was a big convention and then most of the drink sales tips would be on company credit cards rather than cash. He described the difficult [*15] economic times that Las Vegas faced during the years at issue and how his business had decreased as a result.

Petitioner also testified about the typical tipping behavior of his patrons. Most of his drinks served were comps, and he testified that customers rarely tipped on comp drinks and that if they did they might “throw [him] a buck or two” after several hours of sitting at his bar receiving the comped drinks. Petitioner additionally testified that college kids and foreigners rarely tipped.

And the records:

Petitioner argues that he has met his burden because he complied with the recordkeeping requirements of section 6001 and section 31.6053-4(a)(1), Employment Tax Regs., having kept detailed, contemporaneous daily logs which are substantially accurate. Petitioner routinely recorded the amounts of his cash and charge tips on slips of paper at the end of each shift. Petitioner kept these logs and produced them to respondent and at trial.

20130903-1The IRS tried to nit-pick the records, but Judge Kerrigan was satisfied:

Respondent argues that petitioner was not tipped in exact dollar amounts. Petitioner testified credibly that when he was tipped with change he would put the change in a glass jar to be mixed in with the other tips. When he would periodically cash out the change jar, he would give the change to the cashiers who cashed him out at the end of the shift. He also testified that when he cashed out daily his charged tips receipt, he would give the cashiers any change that was generated by those tips. We find petitioner’s explanation credible and do not find the logs inadequate merely because the amounts are recorded in whole numbers.

I think the important lesson here is that he generated the records every day, and that he was able to produce them to the judge. Contrast that with a recent decision involving a Mrs. Hall, an attorney deducting travel expenses:

Mrs. Hall did not maintain a contemporaneous mileage log. Mr. Katz testified that he based the number of miles driven on discussions with Mrs. Hall. Mr. Katz claimed that he reviewed documentation in order to determine the number of miles driven. The documentation that Mr. Hall and Mrs. Hall offered into evidence to substantiate the number of miles driven consisted of seven parking receipts, an equipment lease, a help wanted advertisement, a phone message slip, and a few other documents. The evidence they submitted does not demonstrate that Mrs. Hall incurred mileage expenses in amounts greater than those respondent allowed in the notice of deficiency.

Citations:

Sabolic, T.C. Memo 2015-32

Hall, T.C. Memo 2014-171

 

TaxGrrrl, Opting Out Of The Obamacare Tax: What Happens If You Don’t Pay?. Oddly, the IRS can’t use most of its collection tools to collect the individual mandate. The advance premium clawback is a different story.

Russ Fox, 10 = 2500 ?. “On Monday, I mailed a Tax Organizer to a client here in Las Vegas; she’s about ten miles from where I am. I also mailed a completed tax return to a client in South Carolina. Both will be received today.”

Annette Nellen talks about Taxes Around the World.

Kay Bell, Survey says tax refunds going into savings, paying off debt

Jack Townsend covers Key points of Article on ABA Webcast on Offshore Accounts

 

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Robert Wood, New IRS Scandal Hearings Reveal 32,000 More Emails, Possible Criminal Activity:

But in what was the most disturbing revelation, House Member attendees were told that the IRS had not even asked for the backup tapes when the ‘hard drive crash’ excuse was first used. That contradicted the prior testimony of IRS Commissioner John Koskinen. He had testified to the effect that recovery efforts had been thorough, and that the tapes couldn’t be accessed.

Do you believe the Commissioner when he says he needs more money?

TaxProf, The IRS Scandal, Day 659.

 

Don Boudreaux links: Dick Carpenter and Larry Salzman, in this new publication from the Institute for Justice, explain how the I.R.S. helps to fuel in the U.S. the uncivilized banana-republic terror that is civil asset forfeiture. (Cafe Hayek)

Jim Maule, Testing Tax Knowledge.

According to a report on a recent NerdWallet survey, “[m]ost American adults get an ‘F’ in understanding income tax basics.”

It would be fun to require members of Congress and candidates for that office to take this survey, or one like it. I cannot imagine the outcome would be any better than that achieved by the 1,015 survey takers.

Nor can I.

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Andrew Lundeen, Corporate Tax Cuts Increase Federal Revenue in the Long Run (Tax Policy Blog):

It’s important to note that this increase in revenue would be in the long run, after the economy has fully adjusted (probably about 10 years in the future). In the early years, federal revenue would fall before investment and growth pick up fully as the economy adjusts to a better tax system.

However, tax policy—all public policy, in fact—should be made with a focus on the long-term.

Unfortunately, politicians buy our votes with our money in the short-term.

 

Joseph Thorndike, Hey, It Could Happen! The Optimist’s Case for Tax Reform (Tax Analysts Blog). ” It will result from a transparent, flexible, and bipartisan bill drafting process; from strategic use of congressional staff to test the waters of controversial proposals; from skillful deployment of transition rules and other minor bill changes to win support from rank-and-file members of Congress; and from streamlined or fast-track debate procedures.”

 

Renu Zaretsky, The Internet, Drug Profits, and Sacrifice. The TaxVox headline roundup covers the uncertain tax effects of the “net neutrality” power grab.

Kristine Tidgren, Iowa Fuel Excise Tax Set to Increase 10 Cents on Sunday (ISU-CALT)

Matt Gardner, Is the Starz Network Series “Spartacus” a Jobs Creator? (Tax Justice Blog). I’m sure it helped create lots of work for film tax credit middlemen and fixers.

 

I bet the judge gave him a stern talking-to. Bow Man Sentenced for Fraud, Tax Evasion.(Concord Patch).

Caleb Newquist, Actually, Everyone Knows That Having Two Monitors Is Super Boss. (Going Concern).

Only two?

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Tax Roundup, 2/16/15: Titanic saved! Well, except for the iceberg thing. Or, the regs are dead, long live the repair regs!

Monday, February 16th, 2015 by Joe Kristan

20140925-2So is the tax season saved? The IRS gave us a big “never mind” Friday afternoon with the issuance of Rev. Proc. 2015-20, letting taxpayers of the hook for countless Forms 3115 under the “repair regs.”

The main points:

“Small” trades or businesses — those with either average 3-year gross receipts under $10 million or assets under $10 million — can adopt the most common methods under the repair regulations without having to file an accounting method change. In fact, the Rev. Proc. requires no special statement or disclosure to adopt the new methods.

The “Small” tests are based on the size of the “trade or business,” not the size of the taxpayer. This means taxpayers who exceed these limits may still qualify if their component “trades or businesses” qualify.

Taxpayers may pay a price for not filing a 3115. If you skip the 3115 for the common method changes, you aren’t allowed to get the most lucrative one – the “late partial disposition election” for real estate and machinery improvements. This is the one Peter Reilly notes as having the potential to generate “biblical” deductions. That means if you want to claim this biblical deductions for any trade or business, you need to file the most common method changes for all of them, regardless of whether they qualify otherwise under Rev. Proc. 2015-20

For the details of the new rules, I have two dedicated posts:

IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules, and

List of Rev. Proc. 2015-20 method changes.

No Walnut STPeter Reilly says John Koskinen Saves Tax Season With Form 3115 Relief For Small Business. Well sure.  Except maybe for the entirely out-of-control epidemic of identity theft refund fraud, the continuing confusion and almost certain widespread inicidence of the new individual mandate penalty, the sticker shock that millions will face when they recompute their ACA exchange plan tax credits, and the financial disaster looming for small businesses for the horrible crime of reimbursing employee health insurance. But other than that, yes, it’s all hunky-dory.

Other Coverage: 

Russ Fox, IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Tony Nitti, Repair Regulation Relief: What Does It Really Mean? (Not As Much As You Think):

You don’t have to file a Form 3115. But remember, the three safe harbors that we started with 4,000 words ago — the $5,000/$500 de minimus, small building, and routine maintenance exceptions — are annual elections that apply only on a go forward basis. These still must be attached to the returns.

Paul Neiffer, You Don’t Need to File Those Form 3115s After All

 

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William Perez has Your Helpful Guide to Capital Gains Tax Rates and Losses

Jason Dinesen, Handling Franchise Fees on a Tax Return. He gives an example involving a $5,000 franchise fee: “The $5,000 franchise fee is considered an asset. The $5,000 is deducted over 180 months (15 years). This is true even though the franchise agreement is only 5 years long.”

Annette Nellen, Taxable income of a marijuana business. That’s pretty much the same as gross income.

Jana Luttenegger Weiler, Facebook Allows Users to Designate “Legacy Contact”

Kay Bell, 5 things to check when hiring a tax preparer

Stephen Olsen has his newest Summary Opinions, rounding up recent developments in tax procedure (Procedurally Taxing).

"Boris Johnson -opening bell at NASDAQ-14Sept2009-3c cropped" by Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg: *Boris Johnson -opening bell at NASDAQ-14Sept2009.jpg: Think Londonderivative work: Snowmanradio (talk)derivative work: Off2riorob (talk) - Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg. Licensed under CC BY 2.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg#mediaviewer/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg

Via Wikipedia.

Robert Wood, Savvy London Mayor Boris Johnson Paid IRS, Is Now Renouncing U.S. Citizenship. Considering what it costs him, it’s not surprising.

TaxGrrrl, Filing As Single Or Married: When ‘It’s Complicated’ Isn’t A Choice On Your Tax Return. As a filing status, that is.

 

TaxProf, The IRS Scandal, Day 648

Renu Zaretsky, No Hitting the Brakes for Tax Breaks… Today’s TaxVox headline roundup covers early movement on extending the “expiring tax provisions.”  Remember, they only got extended through the end of last year. Also links to discussions on Section 529 deductions, tax reform, and the romantic side of spreadsheets.

 

News from the Profession. Nearly Half of Accountants Surveyed Hooked Up With a Colleague (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 2/11/15: Iowa Code Conformity, America’s more selective appeal, and your tax dollars at work in the $1 DVD bin.

Wednesday, February 11th, 2015 by Joe Kristan

IMG_1284The Iowa Code Conformity bill goes to the Governor. The Iowa House yesterday approved the Senate-passed bill, SF 126, to update Iowa’s 2014 tax law for the federal “Extender” legislation approved in December. Iowa will conform to the federal legislation, including the $500,000 Section 179 limit, but will not adopt the federal bonus depreciation.

The Governor is expected to sign the bill.

 

Our appeal is just getting more selective. 2014 – More Expatriations Than Ever (Andrew Mitchel):

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2014. 

The number of published expatriates for the quarter was 1,062 (second highest quarter ever), bringing the total number of published expatriates in 2014 to 3,415.  The total for the year breaks last year’s record number of 2,999 published expatriates. The number of expatriates for 2014 is a 14% increase over 2013.  

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

Expatriation is often an inconvenient and expensive process. The willingness of so many to go through the hassle is disgraceful evidence of the burden the “shoot the jaywalker” penalties of the foreign account reporting rules and FATCA impose — on top of America’s unique worldwide taxation regime.

Related: Thousands Renounce U.S. Citizenship Hitting New Record, Not Just Over Taxes (Robert Wood)

 

haroldYour tax dollars at work in HollywoodWhen Sony’s emails were hacked, the companies executives were embarrassed by the emails complaining about “spoiled brat” starlets and other insider dish that was exposed. But Tax Analysts’ Brian Bardwell shows that the state legislators who have approved taxpayer funding around the country for filmmakers also have plenty to be embarrassed about. From the subscriber-only story:

While the broader topic of film incentives comes up daily, it appears that top executives — at Sony, at least — are not usually involved in finding credits for individual projects, but when they are, it may be because the film is unlikely to bring in enough money to justify producing it without a government subsidy.

In other words, taxpayers are financing the marginal direct-to-DVD projects for Hollywood. That comes as no surprise to those of us who followed Iowa’s disastrous Film Tax Credit story. In a story line right out of “The Producers,” inflated expense claims allowed awful films to be made without the need to ever get a paying customer — the sale of the resulting transferable tax credits covered the expenses and generated a profit — not counting the attorney fees and jail time, of course.

 

Kay Bell, Tax fraud concerns in Minnesota, Connecticut & now Florida:

“The personally identifiable information apparently hacked at Anthem is exactly what tax fraud thieves use to make false refund claims that appear to be legitimate,” said Department of Revenue Services Commissioner Kevin Sullivan. Sullivan is suggesting that residents beat tax ID thieves to the punch.

Great.

 

Peter Reilly, Breaking – Repair Regs – AICPA Says Help On The Way – Maybe. “The only thing that I find really encouraging about the AICPA announcement is that I can show it to my partners and justify my wait and see approach, which now apparently has the imprimatur of the AICPA.”

TaxGrrrl, UNRETIREMENT. “The Social Security and tax laws hold hidden traps and rewards for the growing army of well-off folks who just keep on working.”

Leslie Book, Congress Considering Procedural Legislation (Procedurally Taxing).

Jack Towensend, Judge Jed Rakoff Reviews Brandon Garrett’s Book on Too Big to Jail: How Prosecutors Compromise with Corporations

 

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David Brunori, It’s Time to End Property Tax Exemptions — for Everyone (Tax Analysts Blog).

City governments are usually looking for payments in lieu of taxes rather than ending exemptions. And the nonprofits — particularly universities and hospitals — tenaciously oppose paying. To be sure, some municipalities and exempt organizations have reached a compromise on payments in lieu of taxes, particularly in Boston. But in the vast majority of the nation, universities, nonprofit hospitals, and property owned by religious organizations are exempt from tax.

I propose we end those exemptions. First, let’s be honest — if you narrow the tax base by exempting some property, everyone else pays more. So in Brunswick, Maine, people and businesses pay more property taxes because Bowdoin College doesn’t. And sometimes they pay a lot more.

Sometimes it can be confusing. Des Moines officials will freely complain about the big hospitals not paying property taxes, but they lacked enthusiasm when the two big non-profit hospitals in town opened new hospitals in the suburbs.

 

Scott Drenkard, Richard Borean, How Many Cigarettes Are Smuggled Into Your State Each Year? (Tax Policy Blog). A lot more since they jacked up the cigarette tax a few years ago.

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The threat of lost cigarette revenue is the real reason state officials are so horrified by the vaporous health risks of e-cigarettes.

 

Renu Zaretsky, Tax Preferences, Investigations, and Settlements. Today’s TaxVox headline roundup covers Senator Hatch on tax reform, financial supergenius Bernie Sanders on Social Security, and more Swiss bank tax troubles.

Sebastian Johnson, State Rundown 2/10: Semi-Encouraging News (Tax Justice Blog)

Joseph Thorndike, When It Comes to Tax Reform, History Tells Us What Might Happen – And Why It Probably Won’t (Tax Analysts Blog). “The 1986 reform happened not because it was wise and prudent and necessary, but because it worked politically. And even then, only barely.”

TaxProf, The IRS Scandal, Day 643

 

News from the Profession. The Annual Close: The Year in Adverse Accounting Jokes (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/12/15: They’re back! Gas tax boost, maybe; tax reform, not likely as 86th Iowa General Assembly convenes

Monday, January 12th, 2015 by Joe Kristan

20130117-1Same Governor. Same split party control in the legislature. So why would we expect different results? I expect no big tax cuts, tax increases or tax reforms. When you mix the same ingredients and put them in the same oven, expect the same thing to come out of the oven.

They will be legislating for the next few months, so they will talk, and who knows? Something might happen. But that’s not the way to bet.

The Des Moines Register today covers 10 key issues facing Iowa Legislature in 2015. Six of them are tax items. I think only one of them is likely to result in legislation. Let’s go down the list.

ROAD FUNDING/GAS TAX. The state gas tax isn’t inflation adjusted, and the Department of Transportation says it needs more money. As gas taxes are close to a fee on road use, you can make a policy case for an increase. It’s a lot harder to make a political case, which is why the Governor and the legislature are so deferential to one another in this area. The fracking-induced fall in gas prices may give them the legislature the excuse they need to do what they clearly want to do — raise the 10 21-cent per gallon tax. The governor may push it through if he has decided this is his last term. But most likely they’ll be saying “after you” right through adjournment.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

INCOME TAX CUTS.  The Register conflates tax cuts with tax reform here. They aren’t necessarily the same thing. Iowa’s income tax could bring in the same amount of revenue without the highest corporation rate in the developed world by eliminating the dozens of special interest tax credits and carveouts and tax credits for the well-connected. As long as Michael Gronstal remains in control of the flow of legislation in the Iowa Senate, anything that cuts rates for “the rich” goes nowhere. In any case, the Governor doesn’t seem to mind a tax credit system that gets him invited to all the cool ribbon cuttings.

That’s too bad. Iowa has a bottom-ten business tax climate that favors those with good lobbyists while making South Dakota look attractive for everyone else. Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would wipe out the corporate tax, cut individual rates, and get rid of Iowa’s byzantine maze of special breaks, is long overdue.

20120906-1BROADBAND EXPANSION. This is the sort of small-ball legislation that has passed in recent years, and this seems like the most likely to get through, probably as a tax credit. Of course, every new tax credit means a puppy dies Iowa’s tax law is just a little worse and a little harder to fix. Never mind that the real obstacle to broadband expansion is in Washington, not Des Moines.

LOCAL OPTION SALES TAXES. The municipalities want to be able to drive out businesses by increasing sales tax without help from surrounding communities. Same ingredients, same cake.

BANNING TRAFFIC CAMERAS. It’s about the money, and Senator Gronstal will prevent any anti revenue camera legislation from advancing.

SALES TAX INCREASE. This proposal to increase sales taxes for natural resource funding died in the Senate last year. If you can’t get a tax increase out of the Iowa Senate, you sure aren’t getting one out of the GOP House.

Other coverage: Sioux City Journal, Iowa Legislators see limited budget room for tax cuts this session

Related: Tax States of the States: Mixed, Murky and Sometimes Mercurial (Renu Zaretsky, TaxVox)

 

IMG_0923Russ Fox, FTC Sponsors Tax Identity Theft Awareness Week

Tony Nitti, Four Things Sure To Destroy Your Tax Season. Three of them stem from Obamacare.

 

William Perez, What You Need to Know about Reporting Payments Using Form 1099-MISC

Annette Nellen, HR 30 – Defining full-time worker for ACA has costs. A story of unintended consequences.

Peter Reilly, Dressage Riding Physician Convinces IRS On Hobby Loss Audit But Loses To Massachusetts

Keith Fogg, Tenth Circuit Ups the Ante on Late Filed Returns (Procedurally Taxing)

Robert Wood, Bill Gives IRS Power Over Tax Prep, But Should It? No.

Kay Bell, St. Louis says no added taxes for new NFL Rams stadium. But the one they have is 20 years old, darn it!

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Kyle Pomerleau, Government Cost $4.5 Trillion in 2014 and We All Paid Part of It (Tax Policy Blog).

Robert Goulder, China’s Fiscal Roadmap: Tax Like America (Tax Policy Blog). If you are worried about China achieving economic domination, you can rest easy now.

TaxProf, The IRS Scandal, Day 613

News from the Profession. Judging By This List, Accountants Aren’t Marriage Material (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/29/14: Why AMT matters in year-end planning. And: Laffering it up.

Monday, December 29th, 2014 by Joe Kristan

Accounting Today visitors! Click here to find the capital gains planning item from “In the Blogs.”

IMG_1944How AMT can make prepaying state and local taxes a false move. Prepaying state and local taxes is a venerable year-end tax planning move. It can also be a costly one, thanks to the Alternative Minimum Tax. If you are in AMT this year — perhaps thanks to a big non-recurring capital gain — but you won’t be next year, prepaying your state and local taxes might result in your taxes actually being much higher over the two-year period.

An example involving a fictional Iowa married couple shows how this works. The couple has one earner with $150,000 in self-employment earnings in 2014 and 2015. In 2014 the couple generates $300,000 in a one-time capital gain.

If the couple prepays their 2014 state tax on the capital gain, they get a federal tax benefit of precisely zero in 2014; the capital gain causes them to be in AMT whatever they do because the capital gain rates are the same for AMT and regular tax.

In 2015, the couple has no AMT on their $150,000 of self-employment income. Nor do they have AMT even after paying both their 2014 Iowa balance due and their 2015 Iowa estimates. My projection software comes up with these numbers (yes, oversimplified, but the concepts hold):

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This shows that prepaying the taxes would be a $6,043 mistake for the couple.

There are cases where prepaying state taxes makes sense. There are also cases where AMT makes doing so a blunder. Make sure you run the numbers before you mail that check.

 

In case you missed it over the holidays, central Iowa’s only SHOP marketplace insurance provider was taken over by Iowa’s insurance regulators last week.  Read about it here.

 

Younkers ruins 20140610William Perez offers A First Look at ABLE Savings Accounts. These accounts, included in this month’s “extender” bill, allow Section 529-like benefits for accounts set up to pay disability costs.

Robert D. Flach, THE CLOCK IS TICKING. For 2014 Qualified Charitable Distributions from IRAs.

Mitch Maahs, Summary of the Tax Extenders in the Tax Increase Prevention Act (Davis Brown Tax Law Blog)

Kay Bell, Look out for phishing scam from fake Treasury Secretary

Jack Townsend, Tax Return Preparers Convicted of Conspiracy and Failure to File FBARs. They chose badly.

Cara Griffith, Crowdfunding and State Taxation (Tax Analysts Blog). Is Kickstarter funding taxable income or taxable sales?

Tim Todd, 4th Cir. Rejects Conservation Easement with Substitution Provision

Peter Reilly, Phantom Mares And Real Trucks Don’t Make For A Winning Horse Loss Tax Case. Plus, it’s really hard to find good phantom breeding studs.

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Renu Zaretsky, Will Tax Reforming Be Forgot and Never Brought to Mind? This TaxVox headline roundup covers the Kansas struggles with careless tax reform, among other things.

TaxProf, The IRS Scandal, Day 599

 

Stephen MooreThe Laffer Curve turns 40: the legacy of a controversial idea:

To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve”…

Laffer Curve, via Wikipedia

Laffer Curve, via Wikipedia

The idea that tax rates can become so high that they actually reduce net revenue shouldn’t be controversial. If you have a 100% tax rate on an activity, you will avoid that activity, or at least letting the government know about it. Of course, a zero rate will also generate no tax revenue. The revenue-maximizing rate is somewhere in between.

Unfortunately, some people on the right have taken this point and jumped to the conclusion that tax cuts will always cause such increased taxable activity that tax revenues will increase. That’s as much a fallacy as left-side assumptions that increasing taxes can never be economically-harmful or revenue-reducing.

The real issues should be identifying the point at which the harms to economic activity and to revenues occur. It seems likely that the economically-damaging rate is lower than the revenue-maximizing rate, as Megan McArdle discusses here. These points have to differ for different kinds of tax. A 30% income tax rate might not be very destructive to economic activity, but a 30% sales tax would hurt, and a 30% gross receipts tax would be ruinous. The results also differ for state and federal taxes, given how much easier it is for activity to to move between states than between countries.

All this, of course, ignores the obvious question of how much revenue the government needs in the first place. I would argue that a well-run government limited to its proper sphere wouldn’t have to ask these questions all the time.

 

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Tax Roundup, 12/18/14: Year-end planning and relatives. And: when will the President sign the extenders?

Thursday, December 18th, 2014 by Joe Kristan

When will he sign? Now that Congress has finally sent the extender Bill, HR 5771, to the President, the “expired provisions” require only his signature. When will that happen? I have no idea. There is nothing at Whitehouse.gov about it. But everyone says he’ll sign. It would be the practical joke of the year if he didn’t.

 


IMG_1944Beware t
he relative! The tax law generally assumes that when related parties do business together, they’re up to no good somehow. That’s why the law has so many provisions that deny or delay tax benefits when relatives are involved.

For example, Code Section 267 only allows a deduction to a related party “as of the day as of which such amount is includible in the gross income of the person to whom the payment is made.” That’s no problem if the “related party” is on the accrual method, because they will be accruing the income at the same time you accrue the expense. But if the related party is a cash-basis taxpayer, you have to pay this year to get a deduction this year.

But who is related? It’s more complicated than you might think. For purposes of year-end deductions,  owners of more than 50% of C corporation stock, and their families (siblings, spouses, ancestors and descendants) are related.  Families are usually considered as a single owner for the 50% test.

For pass-through entities — partnerships and S corporations — any owner is a related party, along with members of owners families and anybody related to the family members.

 

Seventh Avenue, Des Moines, this morning.William Perez, Tax Increase Prevention Act of 2014. “A quick summary of the tax changes included in the Tax Increase Prevention Act of 2014.”

Kay Bell, Tax filing projections for the 2015 season and beyond

Peter Reilly looks back on his idiosyncratic tax coverage this year. Everything from atheist parsonages to Dr. Dino. Peter covers a lot of stuff that I wish I did, in a lot more depth than I could.

Jason Dinesen, A Brief History of Marriage in the Tax Code: Part 1, In the Beginning

Robert D. Flach, THERE ARE A LOT MORE THAN 20 REALLY STUPID THINGS IN THE US TAX CODE! “The one and only purpose of the federal income tax is to raise the money necessary to run the government. Period.”

Me, Year-end business deductions: the two-minute drill. My new post at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog. “While you add up the score in April, December is when you run the two-minute drill.”

 

20130419-1Robert Wood, 8 Savvy Tax Tips & Extenders For Year-End

Tim Todd, 5th Cir. Affirms IRS’s Adjustment Outside Limitations Period for Improper Installment Sale of Partnership Interest.

Keith Fogg, Collection Due Process Determination and Decision Letters Redux (Procedurally Taxing)

Jack Townsend, Plea in Corporate Corruption Case with Tax Charge. Kickbacks kick back.

Gavin Ekins, The IRS’s Long Reach Doesn’t Just Apply to Corporations (Tax Policy Blog). The post describes some of the ridiculous hoops Americans abroad have to jump through to comply with the tax law, and observes:

Are Americans alone in this onerous system? Unfortunately, they are. Only one other country taxes its citizens is this manner. Eritrea, the small country on the northern border of Ethiopia, is the only other country which taxes its citizens who live and work abroad, but unlike the U.S., they have a reduced flat rate for those citizens and none of the reporting burden.  

The results range from annoyance to financial disaster for the absurd crime of committing personal finance while abroad.

Renu Zaretsky, They Saved the Must-Pass for Last. The TaxVox headline roundup provides a good summary of the passage of the extender bill; it also talks about state gas tax moves.

 

TaxProf, The IRS Scandal, Day 588

 

20141218-1Cara Griffith, A Champion for Tax Reform (Tax Analysts Blog). “New York enacted a comprehensive tax reform package designed to improve the competitiveness of the state’s tax code by merging the bank tax into the corporate franchise tax, adopting single-sales-factor apportionment with market-based sourcing, broadening the corporate tax base, and lowering the rate.”

Sebastian Johnson, State Rundown 12/10: The Best Laid Plans (and Reports) (Tax Justice Blog)

 

Daniel Shaviro,  Evaluating the Case for 1986-Style Corporate Tax Reform, (TaxAnalysts, available via the TaxProf)

 

Career Corner. My Firm Holiday Party is a Teaching Moment For What Not to Do at a Firm Holiday Party (Leona May, Going Concern)

 

News from the Profession. Former Stillwater mayor charged with aiding tax fraud (MPRnews.org):

A former mayor of Stillwater was charged in federal court Wednesday with helping two Minnesota brothers keep millions of dollars in taxes from the state and federal governments.

Ken Harycki, a certified public accountant, knowingly prepared false tax forms for twin brothers Thurlee and Roylee Belfrey and their health care companies, according to charges filed in U.S. District Court.

CPAs, you must only use your powers for good.

 

 

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Tax Roundup, 11/17/14: Sundog weather is shorts weather!

Monday, November 17th, 2014 by Joe Kristan

It’s 7F outside here in Mason City, Iowa. Warm enough for shorts, it seems.

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This gentleman was scraping his windows outside North Iowa Area Community College, where I am part of the Day 1 panel of the  Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I wonder what this guy wears in the summer.

It’s cozy and warm here in the conference room, where 165 attendees are beginning two days of the finest continuing education available today in Cerro Gordo County. There are two sessions left after today, in Denison and Ames; the Ames school will be webcast.  Register today!

 

Just links today.

Russ Fox, The Horrible, No Good, Very Bad Upcoming Tax Season:

If you’re a tax professional here’s a warning: The 2015 Tax Season will be one you’re almost certain to remember for all the wrong reasons. If you’re a client of a tax professional be forewarned: Your tax professional will be even more grouchy than usual next year. Why? The upcoming tax season will likely be the worst in 30 years.

There are four reasons for this: tax extenders, budget issues the IRS faces, the Affordable Care Act (aka ObamaCare), and the new property capitalization/repair regulations.

Are we excited yet?

 

Mason City Sundog Morning. It's cold here today.

Mason City Sundog Morning. It’s cold here today.

Robert D. Flach, IT AIN’T FAIR – SELECTIVE INFLATION ADJUSTMENTS. “If it is appropriate to index some tax items for inflation why shouldn’t ALL deductions, credits, thresholds, etc. be indexed for inflation?”

Paul Neiffer, Direct Deposit Limits. “In an effort to combat fraud and identity theft, new IRS procedures effective January 2015 will limit the number of refunds electronically deposited into a single financial account or pre-paid debit card to three.”

Jim Maule, Soda Sales Shifting? “Does anyone seriously think that the soda tax will reduce the number of obese people in Berkeley, or raise enough revenue to make the cost of administering and complying with the tax worthwhile?”

I’ll believe it’s about health when these people tax their own “unhealthy” habits, like double caramel lattes.

Kay Bell, Navajo lawmakers approve 2% sales tax on snacks, sodas

TaxGrrrl, NFL Flagged With Another Challenge To Tax-Exempt Status Because Of Redskins

Annette Nellen, The Election, 114th Congress and Fate of Tax Reform

Keith Fogg, TIGTA Report on ACS Details the Impact of Shrinking Budget on Tax Collection Efforts (Procedurally Taxing)

 

20131112TaxProf, The IRS Scandal, Day 557

Robert Goulder, The Ghost of Captain Renault (Tax Analysts Blog). “What? There’s corporate tax avoidance going on in Luxembourg? You don’t say?”

Sebastian Johnson, State Rundown 11/14: Here Comes the Judge (Tax Justice Blog). Kansas school funding and Maryland’s attempted double-taxation are on the docket.

Stephen Entin, Tax Policy Is Child’s Play (Tax Policy Blog). “The enactment of tax reductions or regulatory changes that make it possible to profitably employ more capital is like landing on a ladder… Enacting adverse policies that force a reduction in the amount of capital that people are willing to maintain is like hitting a chute.”

Renu Zaretsky asks How Quickly Can Lame Ducks Move Before the Holidays?  The Tax Vox headline roundup is heavy on gas tax talk and extenders.

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Tax Roundup, 11/11/14: Veterans Day in Red Oak. And: open season on Iowa Snowbirds.

Tuesday, November 11th, 2014 by Joe Kristan
John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

Red Oak, Iowa seems as good a place to be on Veterans Day as any.  I’m here today as part of the ISU-CALT Farm and Urban Tax School Day 1 team. Red Oak was hit hard early in World War II when the 168th Infantry, recruited in Southwest Iowa, was crushed in the Battle of Kasserine Pass. From Wikipedia:

In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed. At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action. In recognition of Red Oak’s extraordinary sacrifice, the city’s name was given to a “victory ship“. The SS Red Oak Victory has become a floating museum in the shipyard where it was built, in Richmond, California.

It’s hard to imagine going from this little town to the desert, but they’re still doing it — most famously, Iowa’s new senator-elect.

There aren’t many survivors of World War II left. Appreciate them while you can.

Related: 42-78127.blogspot.com, on my Dad’s WWII experience.

 

With the sudden change of weather to bitter cold, Iowa’s snowbirds begin their annual migration south. When they get to Texas or Florida, they often decide that the tax climate sunnier year-round and ponder changing their residency from Iowa. Doing so avoids Iowa tax on all income other than business and rental income sourced to Iowa.

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Today in Red Oak, Iowa.

A recently-released protest response by the Department of Revenue points out some of the pitfalls faced by taxpayers trying to change their residence:

 Once an individual is domiciled in Iowa, that status is retained until such time as the individual takes positive action to become domiciled in another state or country, relinquishes the rights and privileges of residency in Iowa, and meets the criteria set forth in Julson v. Julson, 255 Iowa 301, 122 N.W.2d, 329, 331 (1963).

In reviewing the information you provided to departmental staff and included with your protest, the Review Unit has determined that you are an Iowa resident. This determination is based upon the following facts:

· You have renewed your Iowa driver’s license.

· You have and are still registering vehicles in Iowa.

· You have returned to Iowa to receive medical care.

· You filed federal income tax returns using an Iowa address.

These factors indicate to the Review Unit that you have not abandoned your Iowa domicile. Consequently, the Review Unit takes the position that you are still a resident of Iowa and all of the income you receive is taxable to the state.

This taxpayer made some pretty basic errors. If you vote in Iowa and keep an Iowa drivers license, you make it pretty easy for Iowa to find you. If you file your returns with an Iowa address, you almost guarantee Iowa will wonder why you aren’t filing an Iowa return. Citing the use of Iowa medical care in Iowa seems like piling on; I don’t think is a decisive factor given the other facts.

The Moral? If you want to move your tax home to another state, you need to act like you mean it. If you continue to use an Iowa address on your return, Iowa will not be easily convinced that you are a Texan at heart.

 

buzz20140909TaxProf, The IRS Scandal, Day 551.

Kristy Maitre, Kristine Tidgren, ACA’s Thorny Impact On More-Than-2% S Corporation Shareholders

William PerezThe Basics of the Medicare Tax

Robert D. Flach comes through with a “meaty” Buzz.  He says:

I continue to worry that the anticipated bi-partisan “cooperation” on tax reform in 2015 will be limited to corporate tax reform – with only some minor token, if any, 1040 tax reform instituted – and not the total rewriting of the entire US Tax Code that is needed.

I think we’ll be lucky to get even the corporate reform.

Stephen Olsen has the latest Summary Opinions at Procedurally Taxing, rounding up recent developments in tax procedure.  He points out a great comments thread in a post about IRS cash seizures by an Institute for Justice attorney.

Jason Dinesen, A Little Bit About Sole Proprietorships, Part 2:

Here are some of the advantages of operating as a sole proprietor:

  • They are easy to get into. There’s no real paperwork to fill out. You just start conducting business.
  • They are simpler to administer and therefore your accounting and legal fees will generally be lower.
  • As your business grows you can always convert to something else. As you go up the ladder from sole proprietor to corporation, it’s easy. But it’s hard to go down the ladder from a corporation to a sole proprietorship.

There are also plenty of disadvantages…

Jack Townsend, IRS on Quiet Filings for Offshore Account Delinquencies or Underreporting

Kay Bell, 2015 inflation adjustments for exemptions, deductions, more!

Annette Nellen, Premium Tax Credit Saga – New Developments and Dilemmas

 

 

roses in the snowKyle Pomerleau, How Corporate Integration Increases Transparency and Eliminates Double-Taxation (Tax Policy Blog).  “Under our current system of double-taxation, a corporation that earns $100 needs to pay the corporate income tax (for this example let’s assume a 25 percent corporate tax rate). The after-tax income ($75) is then passed to shareholders and taxed again. The result is a 46.53% tax burden on corporate income.”

Martin Sullivan, Your Quick Guide to Dynamic Scoring in the Next Congress (Tax Analysts Blog)

Renu Zaretsky, ACA Tax Provisions Still Under Fire. This TaxVox headline roundup covers the latest in ACA battles, including a brief filed by some states (including Iowa’s Attorney General Miller) saying they thought they thought being on a federal exchange wouldn’t threaten tax credits for their residents.

 

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Tax Roundup, 11/6/14: You pretend to complete the form, we’ll pretend to care. And: election mania!

Thursday, November 6th, 2014 by Joe Kristan

Accounting Today visitorsthe godawful link you seek is here.

 

20120905-1Don’t worry about getting it right, just make it look good. IRS personnel trying to appease angry practitioners at an AICPA Tax Division gathering had some strange and annoying things to say yesterday.

Practitioners are upset at the IRS insistence on Form 3115 accounting method change applications with 2014 returns from everyone moving into compliance with the new rules on repair and capitalization costs.  Tax Analysts reports ($link):

Participants in the tax methods and periods panel at the American Institute of Certified Public Accountants fall Tax Division meeting in Washington said that some taxpayers don’t want to pay the high costs associated with going through years’ worth of records to calculate a precise section 481(a) adjustment required under the final regulations (T.D. 9636). The cost of that level of compliance could be more than the entire cost of preparing their returns, practitioners said, adding that the taxpayers are considering filing their method changes with corresponding section 481(a) adjustments of zero.

The piece cites Scott Dinwiddie, special counsel, IRS Office of Associate Chief Counsel (Income Tax and Accounting):

Taxpayers were taking aggressive positions, so the government didn’t want to provide an across-the-board cutoff in the final regulations, he said. Instead, it required 481(a) adjustments as a way to allow field agents to examine taxpayers’ aggressive positions, he said.

So because some taxpayers were taking positions you didn’t like, you want to require everyone to do a bunch of wasteful and meaningless busy work during our busiest time of the year. Got it.

Dinwiddie said that, barring a situation in which the taxpayer has taken aggressive positions in the past or has in no way applied a proper capitalization method, the IRS is unlikely to have much interest in examining a taxpayer’s section 481(a) adjustment now.

So we pretend to file an accurate Form 3115, and they pretend to care. Well, you have to admit that considering the budget and enforcement restraints on the IRS, this approach is… absolutely insane. Taxpayers have to pay for a bunch of nonsense compliance, and the IRS doesn’t care whether it’s right. The IRS still has to incur processing costs. I’d love to see the IRS cost-benefit worksheets on this one.

 

20120810-1The TaxProf has a roundup of observations on the whether tax reform can happen in the new Congress, including this from William Gale:

It is a good bet that the new Republican Congress will continue to talk about tax reform. That is safe ground for Republicans generally. And, of course, seemingly impossible things do sometimes happen. But I wouldn’t bet on tax reform. 

A wise non-bet.

 

TaxGrrrl, What Matters Most When It Comes To Tax Reform? Hint: It’s Not Control Of Congress:

What is interesting, however, is that most of the significant tax policy changes in the modern era are more closely tied to the length of presidential terms. Every president has a budget – and an agenda – but real shifts in rates and policies tend to happen during a second term (or en route to a second term) no matter which party is in control. 

I don’t expect it to happen this time.

 

Scott Drenkard, What Do the 2014 Midterm Election Results Mean for State Tax Policy? “My prediction is that this means that taxes will be one of the biggest, if not the biggest issue in state policy next legislative session, and that tax reform will become even more of a bipartisan issue.”  I’m afraid that’s not true here in Iowa.

Russ Fox, Nevada Goes Deep Red. “Do you remember 1928? Well, that was the last time Nevada had a Republican governor, a Republican State Assembly, a Republican State Senate, and Republicans holding all major statewide offices.”

Paul Neiffer, A Christmas Present?! “They will meet over the next six weeks or so and around Christmas time we will get the final tax package.”

 

 

20120702-2Arnold Kling’s characteristically wise observation on the election results:

Conventional wisdom is that, relatively speaking, Democrats have a structural advantage in Presidential elections, because those elections attract more turnout. In other words, they do much better among disengaged voters. One could spin this positively for the Democrats, saying that they get support from the weaker segments of society. One could spin this negatively and say that they rely on a segment of the electorate that is poorly informed and easily bamboozled, which I believe is the case. The counter to that would be that Republicans also rely on a segment of the electorate that is poorly informed and easily bamboozled, which I also believe is the case.

While I don’t agree with all of what he says, the whole post is brief and well worth reading. So is this from Don Boudreaux:

I advise freedom-loving and free-market-appreciating Americans (of which I am unashamedly one) to be good Tullockians about the results of yesterday’s landslide wins for the G.O.P.  The Republicans who won those elections are, after all, politicians – and it is the rare politician, of whatever party, who reliably puts principle above personal interest.  As a rule, politicians are untrustworthy, duplicitous, and cowardly; they are people who have an unusually powerful craving for power and fame; and the successful among them typically posses an unusual talent for camouflaging their craving for power and fame as a saintly calling to ‘serve the people.’

Pretty much. But some are less bad than others, enough so that I do bother to vote.

Renu Zaretsky, Don’t Call It a Comeback… Yet.  The TaxVox headline roundup is full of post-election links, including news of Berkeley, California, passing an idiotic soda tax. When they start taxing mocha lattes, I’ll believe they’re such taxes are about public health than moral vanity.

 

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And some folks are actually talking about things other than the election:

Jana Luttenegger, Even Startups Need to Have the Conversation (Davis Brown Tax Law Blog).

Jason Dinesen tells us A Little Bit About Sole Proprietorships, Part 1

William Perez, Dividends: Taxes and Reporting

Robert D. Flach recounts EXPLAINING MORTGAGE INTEREST AND INVESTMENT INTEREST FOR A CLIENT

Jim Maule discusses how Mortgage Loan Modification Can Imperil Interest Deduction

Stephen Olsen at Procedurally Taxing as a new round of Summary Opinions., with links to news from the world of tax procedure.

Jack Townsend, The Honorable Jed Rakoff on Why Innocent People Plead Guilty. He quotes Judge Rakoff: “…the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains.”

Kay Bell, 5 tax record keeping questions … and answers!

TaxProf, The IRS Scandal, Day 546

News from the Profession. McGladrey Reminds Audit Staff to Stay Billable This Busy Season (Caleb Newquist, Going Concern)

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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Tax Roundup, 9/29/14: Obamacare fines can hit $12,000 for a family for 2014. And: tax-evading Congressman beamed up.

Monday, September 29th, 2014 by Joe Kristan

20121120-2Laura Saunders, Penalty for Not Having Health Coverage Can Be Thousands of Dollars; The ACA Penalty Can Top $12,000 for a High-Income Family of Five:

For a family of five, the penalty could be as high as $12,240 for the 2014 tax year, experts say. And for many people, the penalty will rise sharply in 2015 and 2016.

The massive health-care changes passed in 2010 are phasing in, and this is the first year most Americans must have approved health insurance. Those who don’t will owe a penalty under the Individual Shared Responsibility Provision. It’s due with your income taxes, payable by April 15, 2015.

For your own good, of course.  And even if you get the coverage, you can get surprised by a tax bill at year-end if you mis-estimated your income for the year.  (Via the TaxProf). 

 

TraficantBeamed up. When Congresscritters are called “colorful,” it implies they are harmless and almost cute. James Traficant was often described as a “colorful” Congresscritter.  He would give speeches with the tag line “beam me up.”  Russ Fox reports that his request has been granted; the former Congressman died last week.

His colorful career came to a bad end with seven years in prison for tax evasion and other charges. He was accused of accepting bribes and not paying taxes as a sheriff before he made it to Congress; his defense was that he was conducting a secret undercover investigation of the bribe-givers.  He was convicted and expelled from the House. You have to achieve a pretty high standard of low to be expelled from that wretched hive of scum and villainy.

As his release date neared, a minor league baseball team prepared to celebrate with a “Traficant Release Night” promotion, until they got cold feet and cancelled.

It’s fun to laugh at these antics, and it’s healthy to mock politicians. Yet even an ineffective Congresscritter wields an enormous amount of power, with a 1/535 say in a trillion-dollar federal budget. The real laugh is on the taxpayers who put such power in such hands.

Update: Peter Reilly has a detailed history of Mr. Traficant’s tax troubles: James Traficant Jr. And The Taxpayer’s Burden

 

Russ Fox, California Mandates E-Filing of Business Returns:

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

Impossibility has never been an excuse with California.

 

TaxGrrrl, Back To School 2014: Saving & The Kiddie Tax.

Kay BellLying to your tax pro could result in a bad tax situation. Shockingly, this appears to be an issue with the Jersey Shore guy’s tax problems. I mean, if you can’t trust a guy from Jersey Shore, what’s left to trust?

William Perez, Investing in a 401(k)? Learn Your Yearly Maximum Contribution Amounts

Peter Reilly, Scholarships Do Not Make Beauty Pageant A Charity.  No, but 501(c)(3) also exempts “educational” institutions, and without the Miss U.S.A. pageant, I would have never been educated on the use of red cups as musical instruments.

 

Phil Hodgen, Your expatriation tax return when U.S. income is zero. It’s sad that our insane and abusive treatment of offshore Americans is making this a common issue.

Jack Townsend, Wylys Ordered to Disgorge Hundreds of Millions of Tax Benefits With Interest

Jason Dinesen, The IRS Says I’m Not Authorized to Speak On My Own Behalf:

So to recap:

  1. The IRS says I am not my own authorized representative so they can’t make the changes I requested

  2. The IRS sent me a duplicate copy of their letter because I am my authorized representative

But I’m sure preparer regulation would go smoothly…

 

20140929-1Kyle Pomerleau, Always Be Careful with IRS Income Data (Tax Policy Blog):

The U.S. tax code only accounts for capital income (capital gains, specifically) when it is realized. This means that someone may have been accumulating capital gains for 40 years in an investment portfolio, but the IRS only sees the final (sometimes massive) realization. Suppose an individual invested in stock. Each year, the gains were small, but in the 41st year, he realized all of the past years’ gains and earned $1 million in income. IRS data would show that this taxpayer was a millionaire one year (and part of the 1 percent).

And he’d be the Devil, for one year.

 

Renu Zaretsky, Pressure, Power, and a New View on Cuts. Today’s TaxVox headline roundup covers unintended consequences of the new inversion rules and the changing politics of tax cuts.

 

TaxProf, The IRS Scandal, Day 508. Speculation on whether there is a link between the IRS scandal and the Holder resignation.

 

Department of Unfortunate Examples.  Econlog’s Scott Sumner has an interesting post addressing why pay disparities that seem puzzling on the surface might make sense: Don’t jump to conclusions (markets are smarter than you or I)

It’s a wise post, but I wish he’d have found a different example:

You might think that a secretary is a secretary and a janitor is a janitor. Not so, they vary quite a bit in competence. Goldman Sachs has much more to lose from an incompetent secretary than does a small accounting firm in Des Moines.

I prefer to think that our “small accounting firm in Des Moines” doesn’t have to pay as much as Goldman Sachs because people here don’t have to work with people from Goldman Sachs.

 

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Tax Roundup, 9/19/14: Brutal Assault on Reason Season Edition. Arrggh!

Friday, September 19th, 2014 by Joe Kristan

20121006-1Brutal Assault on Reason Season is underway. Elections depress me. Arnold Kling sums up my feelings:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

Very few of us are in a position to have more than intuitions on the great issues of the day. Rarely are voters health-care economists, trade experts, military or foreign policy specialists, etc., and most of us have little basis to tell when the politicians are lying about these issues (though that is a good default assumption). Doing taxes for a living, though, I feel competent to identify bogus tax claims by politicians. William McBride does so in a Tax Policy Blog Post,  U.S. Corporate Tax Revenue is Low Because High Taxes Have Shrunk the Corporate Sector.

He quotes the U.S. Senate’s only unabashed socialist, Bernie Sanders:

“Want to better understand why we have a federal deficit? In 1952, the corporate income tax accounted for 33 percent of all federal tax revenue. Today, despite record-breaking profits, corporate taxes bring in less than 9 percent. It’s time for real tax reform.”

There is a truly brutal assault on reason, and Mr. McBride fights back:

The share of U.S. business profits attributable to pass-through businesses has grown dramatically as well, as they now represent more than 60 percent of all U.S. business profits. The second chart below shows that C corporation profits, while extremely volatile, have generally trended downward in recent decades, while the profits of S corporations and partnerships have trended upwards. In the 1960s and 1970s, C corporation profits were about 8 percent of GDP, while partnership profits were about 1 percent and S corporation profits were virtually nil. Now C corporation profits hover around 4 percent of GDP (4.7 percent in 2011), while partnership profits are almost at the same level (3.7 percent in 2011) and S corporation profits are not far behind (2.4 percent in 2011). Partnership and S corporation profits are growing such that they will each exceed C corporation profits in the near future if not already. When commentators claim that “corporate profits are at an all-time high”, they are referring to Bureau of Economic Analysis data that combines C corporations and pass-through businesses, whether they know it or not.

In sum, the Senator’s statement is flat out false. It is completely misleading to claim that corporate profits are up while corporate tax revenues are down, essentially implying there is some mischief going on via “loopholes”, etc. The truth is corporate tax revenue has been falling for decades because the corporate sector has been shrinking, and not just by corporate inversions. The most likely culprit is our extremely uncompetitive corporate tax regime.

In other words, high rates are driving businesses out of the corporate form and to pass-throughs of one sort or another.

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As we head into election season, expect the brutal assaults to continue. Here are a few phrases commonly seen in assaults on reason when taxes are involved, enabling you to spot them even if you don’t know a 1040 from a hole in the ground:

“Politician X voted for tax breaks to ship jobs overseas.”

“This tax cut will pay for itself.”

“I believe in free markets, but tax credit X is needed to level the playing field.”

“I don’t want to punish success; I want X to pay his fair share.”

“This tax credit created X jobs”

I know I’m missing many. If you point out more in the comments, I’ll be happy to talk about them.

 

It’s Talk Like a Pirate Day, so Kay Bell comes through with Avast, me hearties! The IRS wants its cut of your illegal income, be it pirated or otherwise criminally obtained.

 

Peter Reilly, Professional C Corp Denied Deduction For Uncashed Salary Check To Owner.  He covers a story I covered earlier this week where a professional corporation deducted a year-end bonus “paid” through an NSF check that was “loaned” back to the corporation.  His take: “I’m not sure that the Tax Court was right to deny any of  deduction, but I really question whether the whole deduction should be denied.”

 

TaxGrrrl, Back To School 2014: Deducting Student Loan Interest (Even If You Don’t Pay It)

20140826-1Robert D. Flach has fresh Friday Buzz, including links on the cost of tax compliance and “7 deadly tax sins.”

William Perez, When are State Refunds Taxed on Your Federal Return?

Jason Dinesen, IRS Says Online Sorority Is Not Tax Exempt. Social media apparently isn’t social enough for them.

Jim Maule, An Epidemic of Tax Ignorance. He covers one of my pet peeves — people who use the term “the IRS code” for the Internal Revenue Code. It’s Congress that came up with that thing, not the IRS.

Russ Fox, Hyatt Decision a Win for FTB as Far as Damages, but Decision Upheld that FTB Committed Fraud. FTB is the California Franchise Tax Board. Tax authorities should get in trouble for fraud to the same extent they hold taxpayers responsible for fraud.

 

A. Levar Taylor, What Constitutes An Attempt To Evade Or Defeat Taxes For Purposes Of Section 523(a)(1)(C) Of The Bankruptcy Code: The Ninth Circuit Parts Company With Other Circuits (Part 1) and (Part 2).

 

20140801-2Joseph Thorndike, Should We Tax Away Huge Fortunes? (Tax Analysts Blog). “In other words, if you like the estate tax, talk more about revenue and less about dynasties.”

Richard Philips, House GOP Bill Combines Worst Tax Break Ideas of 2014 for Half-a-Trillion Dollar Giveaway. (Tax Justice Blog). When they know that the Senate will ignore whatever they do, it’s easy to accommodate anyone lobbying for a tax break.

Renu Zaretsky, Will Tax Reform See Light at the End of the Next Tunnel? This TaxVox headline roundup covers Tax Reform, Treasury’s plans on inversions, and the continuing resolution passed before the congresscritters left D.C. to assault reason some more.

TaxProf, The IRS Scandal, Day 498

Me, IRS issues Applicable Federal Rates (AFR) for October 2014

News from the Profession. Grant Thornton Has a Fight Song and It’s As Awful As You Might Expect (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 9/18/14: The $14.8 million suitcase squeeze. And: Koskinen visits the Hill.

Thursday, September 18th, 2014 by Joe Kristan
Flickr image courtesy Sascha Kohlmann under Creative Commons license

Flickr image courtesy Sascha Kohlmann under Creative Commons license

Accounting Today visitors: click here for the item from the September 17 “In the Blogs.”

When tax-free merger isn’t. Working with family-owned businesses, a common misunderstanding arises: if a deal is tax-free, like an “A” merger or a partnership contribution, there can’t be gift tax, right?  Very wrong, as a New Hampshire couple’s experience in Tax Court shows.

The parents, Mr. and Mrs Cavallero, had a successful S corporation known as Knight Tool Co. Their son Ken set up another business to make liquid dispensing machines, Camelot.  As part of their estate planning, the two companies merged in an income tax-free deal.  From the Tax Court summary:

Ps and their sons merged Knight and Camelot in 1995, and Camelot was the surviving entity. Valuing the two companies in accordance with the advice their professionals had given, Ps accepted a disproportionately low number of shares in the new company and their sons received a disproportionately high number of shares.

It turns out that the estate planners “postulated” a technology transfer earlier in the lives of the companies that would have resulted in most of the value already being in the second generation. One planner explained to a skeptical attorney that “History does not formulate itself, the historian has to give it form without being discouraged by having to squeeze a few embarrassing facts into the suitcase by force.”

The trouble with doing that is that when the latches break, the suitcase spills all over the place. But the planners persisted.  From the Tax Court decision:

As a result of Mr. Hamel’s correspondence campaign, however, the previously separate tracks of advice — one from the accountants at E&Y and Mr. McGillivray, and the other from the attorneys at Hale & Dorr — now came together for the first time. The contradiction was evident to all the professionals: The accountants had assumed no 1987 transfer (and thus believed there was a need for a means to transmit value to the next generation), but the attorneys postulated a 1987 transfer (and subsequent transfers) pursuant to which that value had already been placed in the hands of the next generation. The attorneys eventually prevailed, however, and the accountants acquiesced. Eventually all of the advisers lined up behind Mr. Hamel’s suggestion that a 1987 transfer be memorialized in the affidavits and the confirmatory bill of sale. They provided a draft of the documents, which Mrs. Cavallaro read aloud to Mr. Cavallaro. After they reported a few typographical errors, the attorneys prepared final versions, which Mr. Cavallaro and Ken Cavallaro executed on May 23, 1995.

So in 1995 they executed documents for a 1987 transaction.  What could go wrong? Well, perhaps the IRS could come in and assess $27.7 million in gift taxes, plus fraud penalties.  And they did. The dispute ended up in Tax Court.  The IRS won the main issue — its argument that the valuable technology was not in fact transferred in 1987 — and with that win, predictably also won the battle of appraisers.  The IRS appraiser at trail asserted a $29.6 million gift, which would result in a gift tax of about $14.8 million at 1995 rates. Because of the involvement of the outside experts, the Tax Court declined to uphold penalties.

This shows how important valuation can be even in a “tax-free” deal.  When doing business among family members at different generations in estate planning, you don’t have the conflicting interests that unrelated buyers and sellers have, so you have the possibility of creating a taxable gift if you are careless. It’s natural for family members to believe numbers that help their estate planning, so it’s wise to get an independent appraiser in to provide a reality check.  And if the facts, or values, don’t fit into the suitcase, don’t squeeze; get a bigger suitcase.

Cite: Cavallero, T.C. Memo 2014-189

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Instapundit, IRS COMMISSIONER: Our Story On The IRS Scandal Isn’t Changing. It’s Just, You Know, Evolving Now And Then.  “I’ve taken a dislike to this Koskinen fellow. He seems sleazy even by DC standards.”

TaxProf, The IRS Scandal, Day 497. Mostly coverage of another slippery appearance by Commissioner Koskinen before House investigators.

 

TaxGrrrl, Back To School 2014: American Opportunity Credit

Kay Bell, Private and often untaxed home rentals under fire

Peter Reilly, Need To Show Rental Effort To Deduct Expenses. “I think the way I would put it is ‘If at first and second and third you don’t succeed, try something different.  Otherwise forget about deducting losses.'”

 

David Brunori, Fairness and the Reality of State Tax Systems (Tax Analysts Blog) “etc. This week WalletHub released a rating of the fairest state and local tax systems… I am not doubting the accuracy of WalletHub’s survey. But the results don’t align with political reality.”

Cara Griffith, Single Sales Factor May Be Inevitable, but Is It Fair? (Tax Analysts):

In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining (or returning to) the three factor apportionment method and focus on a less burdensome corporate tax system overall. In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining (or returning to) the three factor apportionment method and focus on a less burdensome corporate tax system overall.

No, they are concerned with ribbon cuttings, press releases, and campaign contributions from those seeing tax credits and carveouts.

 

 

20140805-2Renu Zaretsky, A Hail Mary or Two on the Hill.  The TaxVox tax headline roundup covers inflation adjustments and beating up on the NFL with the tax code, among other things.

Alan Cole, Why do I have Four Different Retirement Accounts? (Tax Policy Blog) “Give us one unlimited saving account, tax it properly, like an IRA, and let us use it how we will.”

Russ Fox, Zuckermans Sentenced; No Word on Fido & Lulu “Unfortunately, members of a board of directors must be human: Fido and Lulu don’t qualify.”

Adrienne Gonzalez, Mad Scientist Gets Prison Time for Using His Dog and Cat in a Tax Avoidance Scheme (Going Concern). PETA couldn’t be reached for comment.

 

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Tax Roundup, 9/15/14: Extended business returns are due today. And: the great Czech Toilet Paper Caper!

Monday, September 15th, 2014 by Joe Kristan

20130415-1Extended calendar-year 2013 business returns are due today. No more extensions. If you have a 1040, 1065, 1120, or 1120-S filing for 2013, be sure you get it done today.  E-filing is the best. If you want to go the old-fashioned way, get to the post office and send it “Certified Mail, Return Receipt Requested.”  Keep the postmark.

If you can’t get to the post office before it closes, you can still head to a UPS Store, Fed-Ex Kinko’s, or similar place and use a designated private delivery service; be sure to use one of the qualifying services, and make sure your receipt has a time and date designation with today’s date to prove timely filing.

Why does it matter? The penalties are $195 per K-1 per month, so a late S corporation with 10 shareholders overdue six months racks up a late-filing penalty of $11,700 — no matter how little income is reportable on the return.

 

TaxGrrrl, Back To School 2014: Casualty Loss And Theft Deduction.  Also: a chance to win a protective phone case!

Russ Fox, From Owning a Party Mansion to Partying at ClubFed. ” Mr. Verbal and his employees offered customers a unique bonus system: If the return was falsified and the client paid cash, he would get a much larger refund.”

Tony Nitti, Client Sues Tax Advisor For Bad Advice: Is The Settlement Payment Tax-Free?

Annette Nellen, Truncating Taxpayer Identification Numbers – Enough?. “It does nothing about the trillions of documents of all sorts that exist that have people’s SSNs on them.”

Jason Dinesen, Putting Profit First While Planning for Expenses

Kay Bell, What do workers want? At some offices, it’s tax-free lunches

Keith Fogg, A Proposal to Amend Flora or Collection Due Process for Individuals Examined by Correspondence Who Do Not Pick Up or Process Their Mail. (Procedurally Taxing). “When the current procedures for tax administration were built, the rich or upper middle class were the ones interfacing with the tax system.”

lizard20140826Jack Townsend, More on [BS] Corporate Tax Shelters (with Some Rantings):

The large(r) Accounting firms developed substantial practice groups that, overtime (over time also), became an echo chamber that caused or contributed to individuals doing things that they would not do individually.  (For background, this is a major reason that conspiracy is a separate crime.)  Because individuals in these groups were in a echo chamber, they slowly begin to believe the bull shit of the echo chamber.  Had they not been in the echo chamber, they likely would not have done what they did.  But they were in the echo chamber; conduct become less evil or illegal or morally wrong because all these smart people and honorable people were participating in the venture.  Of course, the views of those at senior and more experienced levels were often substantially influenced by the extravagant money that could be made by participating.

It’s hard to see straight through a big pile of cash.

 

Joshua D. McCaherty, The Cost of Tax Compliance (Tax Policy Blog). “All said, Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012.”

TaxProf, The IRS Scandal, Day 494. “So I’m thinking maybe Anthony Weiner should put his selfie in Lois Lerner’s emails.”

Ajay Gupta, Burning the Inversions Fuse at Both Ends (Tax Analysts Blog). “Here is the ultimate irony in the story: Investment bankers hired by a foreign multinational confronting acquisition by a U.S. corporation alerted the administration, the politicians, and the country to the imperatives of ‘economic patriotism.'”

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Ohio Edition (Tax Justice Blog)

Renu Zaretsky, Taxes Take Center Stage This Week—At Least on the House Floor.  Today’s TaxVox headline roundup covers Nevada’s corporate welfare for Tesla, hearings on retirement savings, and another futile extenders vote coming up this week.

A special Monday Buzz! from Robert D. Flach. Among the topics is an often-overlooked price of “backdoor” Roth IRAs.

 

20140915-1We’ll get to the bottom of this.  Czech special police team flushes out corruption after it seizes millions of toilet paper rolls:

The Czech special police squad Kobra revealed tax evasion estimated at at least 25 million Kč in business involving toilet paper and tissues, representatives of the police and customs officers has told journalists.

The police seized 3.7 million toilet paper rolls from a businessman.

Czech Financial General Directorate Deputy Director Jiří Zezulka said the toilet paper circulated among firms in the European Union while only serving as “the carrier of tax fraud” and was not produced for any final customer.

No word on whether it had special absorbency to carry tax fraud.  I love that the toilet paper caper was uncovered by “Kobra.”
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Tax Roundup, 9/8/14: One week left for procrastinators. And: there were no abuses, because they abused everyone!

Monday, September 8th, 2014 by Joe Kristan

7004cornerYour extended 2013 corporation, partnership and trust returns are due a week from today.  If you have a pass-through entity and you file late, you have a $195 per month, per K-1 penalty going back to April if you don’t make the extension deadline.

 

TaxProf, The IRS Scandal, Day 487.  Among the links today is one from the Washington Post, Why Did the IRS Clean Out Lois Lerner’s Blackberry as Probes Began? It also quotes this from Russ Fox:

Let’s assume you’re under a court order to find some emails. Your hard drive crashed, but you think that some of them are saved on your Blackberry. Would you:

(a) Try to find them on the Blackberry,
(b) Do nothing, or
(c) Erase the Blackberry.

If you’re the IRS, the answer is (c)

For an agency that insists it has nothing to hide, the IRS sure acts like it is hiding something.  Just to ice the cake, IRS Says It Has Lost Emails From 5 More Employees. Can dogs eat emails?

Meanwhile, Democratic Senators released a report insisting the IRS picked on left-side outfits just as much as right-side ones and slamming Treasury Inspector General Russell George for insisting otherwise.  So let’s go to the stats:

 

targetingstats

No left-side groups have produced evidence of the absurdly-intrusive questioning faced by some right side groups. We can assume that if they existed, they would have come out by now. Mr. George stands by his work.

 

The Iowa Department of Revenue has given its web site a makeover.  Ain’t it pretty?

 

20120703-2Tyler Cowen, Civil forfeiture cash seizures:

Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.

Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

Civil forfeiture rules in the U.S. allow outrages every day.  It’s very third-world, inherently corrupt, and way overdue for reform.

Phil Hodgen, Renunciation Interviews Not So Intense.  “The State Department justifies the new $2,350 user fee for renunciation by saying ‘Hey, it’s a lotta work. It’s intense. You have to pay me more.'” It looks a lot like civil forfeiture, where the government takes the money because they’re bigger than you, and they can.

 

20140521-2William Perez, How to Adjust Withholding in the Middle of the Year in 9 Steps

Paul Neiffer, A Deduction of Zero is Still Zero:

If the calf was born on the ranch and raised there, the tax deduction due to a death loss is zero.  Since the ranch is allowed to deduct all of the feed and other costs associated with raising the calf, the rancher has a tax basis in the calf of exactly zero.  Therefore, the rancher can deduct zero which is still zero.

It’s the same reason you can’t deduct wages you never received; you never pick them up in income to start with.

Russ Fox, Lies, Deceit, and Nefarious Schemes.  He addresses a VEBA scam:

His plans allowed you to both get the tax deduction and, “then later access the full cash value of their plan contributions by taking out loans against the life insurance policies purchased with plan contributions.” That’s not allowed.

Remember, if it sounds too good to be true, it probably is.

 

nfl logoKay Bell, NFL 2014 season underway, along with the taxable betting.  Kay also has a great map of NFL team affinities by county.  Oddly, it appears central Iowa is Packer Country.

Jack Townsend, Offshore Enabler Nabbed in Sting Operation Sentenced

Peter Reilly, New Hampshire Supreme Court Declines More Power In Tuition Credit Case. The New Hampshire court refused to stop tax credits for contributions to private schools.  Iowa and many other states have instituted such credits.  An athiest group said the credits amounted to an “establishment” of religion. If New Hampshire disallow the credits to the Richard Dawkins Country Day School, they’ll have a better case.

Annette Nellen, Is disclosure of corporate tax information a good idea?  Professor Nellen doesn’t care for proposals to require disclosure of public company returns.

 

 

Ajay Gupta, How Not to Stop an Inversion (Tax Analysts Blog).  “All those proposals focus on the inverting corporate entity—a wonderfully inanimate piñata-like container that can be repeatedly hit for enjoyment and will occasionally yield the candy of additional revenue. None targets the individuals at the helm of the corporation, the men and women who stand to make vast amounts of money from their collective decision to execute an inversion.”

Sebastian Johnson, State Rundown, 9/5: Gun Holiday in Mississippi, Shortfall in Wisconsin, and a Showdown in Washington (Tax Justice Blog)

Renu Zaretsky, Business Tax Reform: Will Patience Be a Vice? This TaxVox headline roundup talks business tax reform, Nevada’s corporate welfare plan for Tesla, and how individual tax revenues will grow, but not as fast as the government will spend them.

 

Tony Nitti, The IRS Cares Not For Your Vow Of Poverty.  “Call me conservative, but if I wanted the IRS to take my vow of poverty seriously, I’d probably refrain from cruising around town in a Mercedes.”

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Tax roundup, 8/26/14: Oh, that backup file. You can’t have that one. And lots more!

Tuesday, August 26th, 2014 by Joe Kristan

perryheadOh, that email backup?  From Today’s TaxProf IRA scandal roundup, The IRS Scandal, Day 474, comes this dazer:

Department of Justice attorneys for the Internal Revenue Service told Judicial Watch on Friday that Lois Lerner’s emails, indeed all government computer records, are backed up by the federal government in case of a government-wide catastrophe.  The Obama administration attorneys said that this back-up system would be too onerous to search. 

Tremendous.  After telling the court that there just was no way on earth those emails survived, now they say there is a backup, but it’s just too much of a hassle for them to use it to comply with the court’s orders.  I find it hard to imagine the brashest private-sector lawyer saying something like that, at least more than once.

But wait, there’s more:

The IRS filing in federal Judge Emmet Sullivan’s court reveals shocking new information. The IRS destroyed Lerner’s Blackberry AFTER it knew her computer had crashed and after a Congressional inquiry was well underway. As an IRS official declared under the penalty of perjury, the destroyed Blackberry would have contained the same emails (both sent and received) as Lois Lerner’s hard drive. 

Yet Commissioner Koskinen says we should just stop bugging him about this silly abuse of power stuff and give him money instead.  Because we can trust the IRS.

Related: TaxGrrrl, Judicial Watch Claims IRS Attorneys Admit Lois Lerner’s ‘Missing’ Emails Exist;  Russ Fox, Remember Those Missing IRS Emails? They Appear to Exist….

 

Peter Reilly, Home Sweet RV Does Not Always Produce Best Tax Result.  Peter discusses the recreational vehicle tax Catch-22 we noted recently.

harvestPaul Neiffer, How to Sell Your Land and Pay No Tax – MAYBE.  It involves stretching out the payments and keeping your other income down.

Jason Dinesen, More Commentary About Year-Round Proactive Services to Clients.  “Those of us who are good professionals rarely demand the respect we have earned. And then we wonder why clients seemingly don’t respect us, don’t value us, don’t listen to our advice, or jump ship the moment you breathe about a rate increase.”

Tony Nitti, Tax Geek Tuesday: Computing Earnings and Profits.  “The primary purpose for computing E&P is to determine whether a distribution represents a taxable dividend, a nontaxable return of shareholder capital, or capital gain to the recipient shareholders.”

 

Leslie Book, A Stolen Check, Mistaken Identity and Prisoners (Procedurally Taxing):

This post considers Hill v US, a case from the Court of Federal Claims involving a prisoner named Mark Hill whose $1182 tax refund was stolen and cashed by another prisoner with the same name after the prison system mistakenly delivered an IRS letter relating to the missing refund check to the wrong Mark Hill. With time on his hands, but no check, the right Mark Hill sought justice in the form of a new check. After getting the runaround from the IRS, the right Mark Hill sued the US to force it to issue a new refund check. For good measure, he also wanted interest and punitive damages.

Turns out the IRS doesn’t get any more helpful if you are behind bars.

 

20140826-1Robert D. Flach serves your fresh Tuesday Buzz, with links about smart giving, educational savings options, and what you can earn working tax season at a national return prep franchise.

That’s a long time.  Cobb County man sentenced to 20 years for ID theft, tax fraud (ajc.com).  The guy is also supposed to pay back $5 million he stole.  Good luck on that.  Sure, the guy should go away for a long time, but the real crime is that the IRS let him steal that much from the taxpayers.

Jeremy Scott, Fracking Taxes Help States Now, but What About the Future?  (Tax Analysts Blog)  “North Dakota has been transformed by its rapidly growing energy sector, but it should be cautious about staking too much of its fiscal future on continually increasing severance taxes.”

 

Andrew Lundeen, Solutions on Inversions and Corporate Tax Reform (Tax Policy Blog).

Steve Warnhoff, Will Congress Let Burger King’s Shareholders Have It Their Way?  (Tax Justice Blog).  If it means we get Tim Horton’s donuts, I’m all for the proposed merger.

 

Renu Zaretsky,  Tax Rates: Growth, Competition, and Debt.  The TaxVox headline roundup ponders the effects of individual rate cuts, the badness of corporate rates in the U.S., and film credits in North Carolina, among other things.

lizard20140826Have a nice day.  1.2 Billion Reasons to Worry: Security firm reports Russian crime ring compromised 1.2 billion usernames and passwords (John Lande, Iowa Banking Law Blog)

News from the Profession.  Extra-Marital Affairs Site Claims Accountants are Kings of Romance Because Their Jobs are Boring (Adrienne GonzalezGoing Concern).

 

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