Posts Tagged ‘Richard Morrison’

Tax Roundup, 7/31/2013: Cross-agency co-operation edition. And a new look for the TaxProf!

Wednesday, July 31st, 2013 by Joe Kristan

Nothing to see here, phoney scandal.  E-mails Suggest Collusion Between FEC, IRS to Target Conservative Groups (Eliana Johnson, The Corner):

Embattled Internal Revenue Service official Lois Lerner and an attorney in the Federal Election Commission’s general counsel’s office appear to have twice colluded to influence the record before the FEC’s vote in the case of a conservative non-profit organization, according to e-mails unearthed by the House Ways and Means Committee and obtained exclusively by National Review Online.  The correspondence suggests the discrimination of conservative groups extended beyond the IRS and into the FEC, where an attorney from the agency’s enforcement division in at least one case sought and received tax information about the status of a conservative group, the American Future Fund, before recommending that the commission prosecute it for violations of campaign-finance law.

Remember, Ms. Lerner used to work at the FEC.

 

Check out the new look at the TaxProf’s place.  It’s worth the trip for many reasons, including The IRS Scandal, Day 83

 

Tony Nitti,  President Obama’s Plan For Corporate Tax Reform: A ‘Grand Bargain’ Or Simply Another Name For An Old Proposal?

Howard Gleckman, Obama’s New Corporate Tax Offer is Another Dead End

Richard Morrison, Obama Corporate Tax Proposal Limits Potential Economic Growth (Tax Policy Blog)

TaxGrrrl, Baucus & Camp Talk Reform As Tax Road Show Rolls On

Tax Justice Blog, Best and Worst Ideas for “Blank Slate” Tax Reform

Me, Grand bargains and other mistakes

 

Clint Stretch,  In the Trade or Business of Generating Capital Gains? (Tax Analysts Blog)

Kay Bell, Werfel makes IRS budget case at Texas tax preparers meeting.   Good luck with that.

 

David Brunori, Sales Tax Holidays and the Planet of the Apes (Tax Analysts Blog):

Touted as a middle class break for “hard working families,” the holidays only encourage retailers to raise prices. Because rational people change the days they shop during the holiday (rather then spend more), consumers pay more, the government loses revenue, and the retailers get a small windfall. That is why retailers lobby hard for the holiday.   

Trish McIntire,  Kansas Taxes – Even More Changes

From Robert D. Flach, SOME SHAMELESS SELF-PROMOTION.

 

Can’t we all just get along? The War Against the Billable Hour Goes Mainstream (Going Concern)

 

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Tax Roundup, 3/25/2013. Three weeks to go. And Cargo Cults!

Monday, March 25th, 2013 by Joe Kristan
Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)

Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)

Heresies of the Cargo Cult.  When some remote societies encountered the industrial world in World War II, they had trouble grasping what they were seeing.  Wikipedia explains:

Cargo cult activity in the Pacific region increased significantly during and immediately after World War II, when the residents of these regions observed the Japanese and American combatants bringing in large amounts of matériel.   When the war ended, the military bases closed and the flow of goods and materials ceased. In an attempt to attract further deliveries of goods, followers of the cults engaged in ritualistic practices such as building crude imitation landing strips, aircraft and faux radio equipment out of bamboo or whatever materials they had at hand, and mimicking the behavior that they had observed of the military personnel operating there.

While it’s easy to mock an islander for building a refrigerator-like box in hopes of conjuring up an icy six-pack, cargo cult behavior also occurs in modern societies.   Without describing it as such, tax historian Joseph Thorndike writes about the cargo cult of the 1950s, where modern policy wonks try to conjure up 1950s-style growth through a ritualistic process of duplicating tailfin-era totems.  For example, Timothy Noah thinks the crushing stated top marginal rates of that era might help generate those Happy Days results.  Mr. Thorndike sees problems with that approach:

We still don’t know if high statutory rates and (relatively) high average rates were a drag on growth. And we can’t know, because we also can’t know what growth might have been in a different tax climate.

Moreover, a range of nontax factors were probably more important in shaping growth patterns in the 1950s. In particular, the economic disruptions of World War II had left the United States in a uniquely dominant position; by one estimate, U.S. manufacturing output constituted 60 percent of the world’s total in 1950.

In other words, it takes more than a bamboo box to conjure up that beer.

After all, the tax system of the Eisenhower era was not a very good one: It paired notionally sky-high rates with a deeply flawed tax base and created distortions both coming and going.

I understand that progressives like Noah are fighting a different battle: They are trying to beat back the rate-cutting mania that often serves as a definition of tax reform these days. But I think we might take a lesson from the tax experts of the 1950s, who understood the problems bedeviling their own tax system. As economist Harold Groves said at the time, “The impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that makes these rates specious.”

Mr. Thorndike is more sympathetic to high rates than I ever will be.  Doing taxes for a living, I see first-hand how high rates affect behavior, and I have no patience for academics who say otherwise.  But he wisely notes that simply trying to recreate the totems of the 1950s, like high tax rates, misses all of the other things that put cold beer in the refrigerator.  Same thing goes for other 1950s fetishes like tail fins, industrial unionism and defined benefit pension plans.

 

 

To serve and protect.  Former Pittsburgh Police Chief Charged with Conspiracy, Failure to File Federal Tax Returns (FBI Press Release):

Former Pittsburgh Police Chief Nathan E. Harper has been indicted by a federal grand jury in Pittsburgh on charges of conspiracy and willful failure to file income tax returns, U.S. Attorney David J. Hickton announced today.

The five-count indictment named Harper, 60, of Pittsburgh.

According to the indictment, Harper was the chief of the city of Pittsburgh Police Department. From 2009 to 2012, he caused at least $70,628.92 in checks and cash received by the special events office of the department to be diverted to two accounts at the Greater Pittsburgh Police Federal Credit Union. Using Visa debit cards, Harper obtained more than $31,000 in ATM withdrawals and debit purchases, all for his personal benefit. Harper also failed to file federal tax returns for the years 2008 through 2011.

If he’s convicted, maybe the special events office can throw a little party for the occasion.

 

What could possibly go wrong?  James Timothy Turner was convicted last week of masterminding a cunning plan.  DothanEagle.com reports:

According to a U.S. Department of Justice press release, Turner was convicted of conspiracy to defraud the U.S., attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service, failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding.                           

The FBI began investigating Turner in 2010 after he and three other people sent packages to all 50 governors demanding they leave office.                           

Turner is the president of a group of what prosecutors called “sovereign citizens” known as the “Republic for the united States of America.”

Send “packages” to all of the governors telling them to resign?  Well, at least they weren’t trying to hide what they were doing.

Turner toured the country in 2008 and 2009 teaching seminars that instructed attendees how to submit bonds to pay off tax debt.                           

According to prosecutors, these bonds were completely fictitious and often written for amounts in excess of $1 billion.

Silly man.  Only the Federal Reserve can do that.  Unless we’re talking about the $1 trillion magic coin

 

Every theater needs a dirctor, including economic development theater.  Economic development director accuses senator of engaging in “political theater” over Orascom deal (O. Kay Henderson, via TheBeanwalker)

 

William Perez,  Penalty Relief Available for Some 2012 Federal Tax Returns

Jack Townsend,  Ethicist Question About Tax Professionals Exploiting Loopholes:

So, for those tax professionals engaging in such transactions that they know violated a known legal duty, their conduct is illegal and unethical.  For those transactions engaging in such transactions where they don’t know (perhaps are willfully ignorant) that the conduct is illegal (ultimately most of the b—-t tax shelters are found to be
illegal), then at least the ethical issues arise.  These are smart professionals, paid (supposedly) to predict what a court will do with the b—–t tax shelter.  Yet, in the prominent civil cases that swat down b—–t tax shelters, they fail miserably in their predictions.

 

Kay Bell,  A tax lawyer has ethical problems with tax loopholes

Janet Novack,  How Much Tax Will You Owe On A $320 Million Powerball Jackpot? A Lot More Than In 2012 .  I knew I should have arranged to win that Powerball last year.

Jim Maule,  Tax Meets the Chicken and the Egg

Trish McIntire,  Extensions

Patrick Temple-West,  Athletes’ tough tax bills, and more

TaxGrrrl,  Senate Passes Budget, Calls For Nearly $1 Trillion In Tax Increases

You are required to go to the party.  The Affordable Care Act Turns 3 (Richard Morrison, TaxVox).

 

The Critical Question: Who Will Play Margaret Fuller When The Movie Comes Out ?  (Peter Reilly)

Tony Nitti, IRS Employees’ Star Trek Parody Is As Wonderfully Awful As It Sounds

Russ Fox,  To Boldly Go Where No IRS Employee Has Gone Before…

You mean it’s not a documentary?  IRS Releases Gilligan’s Island Parody Training Video (TaxProf).

Frankly, they don’t give a dam. Beavers defiant after convicted of tax evasion (Chicago Tribune)

 

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Tax Roundup, 2/27/2013: Snow surprise edition. And is tax migration a myth?

Wednesday, February 27th, 2013 by Joe Kristan

Well, that commute was fun.

Seventh Avenue, Des Moines, this morning.

Seventh Avenue, Des Moines, this morning.

They said we wouldn’t get snow.  It hasn’t really stopped since 7 am yesterday.

 

Kyle Pomerleau,  Is Tax Migration a Myth? (Tax Foundation).  Short answer: no.  He comments on a much-noted article by James B. Stewart claiming otherwise:

Mr. Stewart is off the mark if he believes he has uncovered a myth. Besides the posturing of celebrities, no one claims that at the very moment someone whispers “tax increase” one thousand millionaires head to the border. What really happens is that these higher tax burdens cause wealth and income to flee to states and countries with lower burdens and  higher economic growth over time. High-tax states such as Vermont, Michigan and Missouri have not been magnets for jobs over the long run. Look over at Europe which is once again scaring investors. It is a continent with excellent climate, culture and an educated workforce, but its high taxes and spending have stalled population and economic growth for a decade or more. America will go that way if we continue down the same path, driving out investment, businesses, and jobs.

Over the years I have seen people move out of Iowa for tax reasons.  Back in the 1980s, when Illinois was a low-tax state, I saw an S corporation owner pay for a fancy new house in East Dubuque in one year by the simple expedient of moving across the river from Dubuque.  Tax isn’t always the decisive factor, but to say it’s not a factor at all ignores the most basic tenet of economics: incentives matter.

 

 

Their hopes are fulfilled. At least that second one.  Wave the jazz hands and hope for the best-Politicians hope that voters are clueless about tax, writes Tim Harford

Richard Morrison,  Happy Birthday to the Kennedy Tax Cuts (Tax Foundation)

Congress took up Johnson’s suggestion and passed what became the Revenue  Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from  $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.

Clearly the old rates were on the far side of the Laffer Curve.

 

Jana Luttenegger,  Unfortunate Reminder of the Need for Powers of Attorney (Davis Brown Tax Law Blog):

A recent news story in the Des Moines area  covered a family looking for assistance to cover legal bills for a family member who is in a coma following a car accident. The family is unable to get access to bank accounts or insurance information, and unable to pay her bills (or even know what bills exist) as they come due. The only way for family members to get access to this information is to go through the court system and have the court appoint someone to take care of those matters.

This sort of planning isn’t just for rich people.

 

Paul Neiffer,  How Step-Up In Basis Works.  On the resetting of basis at date-of-death value when a farmer dies.

Jason Dinesen,  A “Standard Deduction” for Sole Proprietors?

TaxGrrrl, 11 Changes You Must Know Before Filing Your Tax Return for 2012

Kay Bell, Tax reform is job 1.  Well, HR 1, anyway.

 

Jim Maule, Special Low Tax Rates Hurt the Economy and Thus the Nation.  He doesn’t like low capital gain and dividend rates.  How about this, professor: lower the top rate to 20% for all income, allow a corporation dividends-paid deduction, and I’m good with getting rid of a capital gain break.  Otherwise you are double-taxing earnings, and to the extent gains result from inflation, you are collecting a tax on treading water.

 

Andrew Lundeen,  Buffet Rule Still Not a Good Solution. (Tax Policy Blog) Never will be:

The low rates we sometimes see from wealthy individuals is because they derive much of their income from investments, which is double taxed anyway. A capital gain or dividend is first taxed at the corporate level, as a corporate profit, then at the shareholder level. The result is a combined average tax rate of 56.7 percent in the United States – higher than every developed country in the world except, France, Denmark, and Italy. This creates a huge disincentive to invest, ultimately slowing economic growth.

 

David Brunori, Capital Gains from Copenhagen to Bakersfield (Tax.com)

Patrick Temple-West,  EU financial transactions tax to go global, and more.  Bad idea, as this New York Times piece explains.

Howard Gleckman,  What if the Outrage over Excessive Welfare Extended to the Tax Code? (TaxVox).

Me from earlier: Hoarders, wreckers and the Accumulated Earnings Tax.  Will the administration use this tax law relic to force corporations to put their cash to work?

From yesterday: IRS issues 2013 vehicle depreciation limits

 

Mo’ Money might lead to Mo’ time in prison.  Mo’ Money Taxes employee pleads guilty to fraud

In case you were wondering. 10 Ways To Become A Victim Of Tax Identity Theft  (Janet Novack)

News you can use.  Jewish law permits informing on tax evaders.  And secular law can make it lucrative.

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Tax Roundup, 2/4/2013: District Court declines to stay decision stopping IRS preparer rules. And ___ Anniversary!

Monday, February 4th, 2013 by Joe Kristan

20130121-2Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order.  The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal.  The judge declined:

As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.

So where do things stand?  The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them.  Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.

More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.

 

You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday.  They had a football game and everything to observe it.  The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official.  And yes, it is official.  While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons.  So, in any way that matters, it’s official.  Still, I can’t bring myself to say “Happy” anniversary.

More from Richard Morrison:  100 Years of the Federal Income Tax (Tax Policy Blog)

 

Iowa’s oldest judge, age 90, steps downRuth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court.   Happy Retirement, Judge Klotz!

 

Paul Neiffer,  Many States Are Delaying Farmer Filing Deadline

Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS

Kay Bell, Tips are taxable income

TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It

Trish McIntire,  Gambling 1099MISCs.  They don’t make your winnings taxable, they just let the IRS in on the secret.

Patrick Temple-West,  Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)

Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com).  Strange question.  If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?

Rudy Penner,  The Risks of Dumbing Down Fiscal Goals (TaxVox).  It’s hard to think they could get any dumber than they are now.

 

Jim Maule,  Looking Again at Tax and Political Ignorance:

The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.

Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.

Linda Beale,  Red state tax “reform” and “economic growth”

Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE

 

The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).

What this country needs is a good 25-cent sneaker.  Illinois Proposes 25-Cent Sneaker Tax (TaxProf)

It’s the little things.  The mark of a true craftsman is attention to detail.  Two Ohioans’ alleged failure to mind the details has led to trouble.  From the Columbus Dispatch:

Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.

But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.

So did misspelling some of the occupations they listed on the phony tax returns.

I bet they thought those spelling drills in grade school were pointless.

 

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Tax Roundup, 1/21/2013: Preparer regs struck down. What’s next?

Monday, January 21st, 2013 by Joe Kristan

20130121-2After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers.  U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.

So now what?

I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months.  It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.

Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation.  This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.

As of this writing, the IRS has yet to comment.

So who wins?  Small unenrolled preparers are big winners.  They are now free of the brain-dead RTRP bureaucracy.  Enrolled Agents are also big winners.  The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers.  But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.

The losers?  The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations.  The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors.  And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.

 

When at first you get enjoined, try, try again.  In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.”  Apparently he dusted himself off and went right back to work.  From a Department of Justice Press release:

The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.

 Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.

No, you can’t give a tax free “tool allowance” to employees.  And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.

 

In case you were wondering: Iowa explains sales tax treatment of Groupons.

Gongol, The people who pay a tax aren’t always the people who give the money to the government:

Companies that make medical devices are paying a 2.3%  excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.

So true.

Paul Neiffer, IRS Announces April 15 Farmer Deadline

Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation

Jack Townsend,  Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence.  A discussion of the Fiore case, which I discussed last week.

TaxGrrrl, Why Justice Matters, Revisited

Richard Morrison,  Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)

Roberton Williams,  How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe  AMT.”

Robert D. Flach,  RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS

Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)

Kay Bell, Tax filing preparation checklist

Brian Strahle,  Is Your Company Paying Too Much Virginia BPOL?

Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee

 

OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale.  C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.  

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Tax Roundup, 12/3/2012: Medicare 3.8% tax guidance issued. Meanwhile, to the cliff!

Monday, December 3rd, 2012 by Joe Kristan

The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday.  I will do detailed posts on the in the coming days as I study them.

I’ll note two important items from my first overview of the proposed rules:

  • The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. “Passive” business activities are subject to the the 3.8% tax.  Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
  • The rules appear to allow you to pro-rate state income taxes in determining “net” investment income.  That’s taxpayer-friendly, but it adds another level of complexity.

For an initial take on the rules, see Anthony Nitti at Forbes.

Related:   Obamacare: it’s a tax!

 

David Brunori of Tax Analysts on the fiscal cliff discussion:

     Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.

     Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.

You can’t pay for mass welfare benefits with a class tax.  The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required.  The Rich Guy’s not buying.

 

Why the fiscal cliff is such a big fall.  The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):

He adds:

And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.

Related:  ‘Fiscal Cliff’ follies: Why it may pay to take deductions early.  My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Nobody’s serious I:  No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)

Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit

 

Iowa admits its capital gain forms were a mess.  A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.

The taxpayer had excluded regular capital gains from a brokerage account on her tax return.  Iowa properly rejected the deduction, but admitted her mistake was understandable:

Your position relies on the Department’s instructions for completing the tax return.  We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above.  In any event, the instructions are not controlling.

Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction.  It’s a big improvement, but it should be better.  There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.

The state examines every capital gain exclusion claim.  Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.

Related:  Iowa Capital Gain Break: how it works when you rent property to your business

 

NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness  (TaxProf):

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

It’s a chump’s game, and we taxpayers are the unwilling chumps.  These things are to economic growth what steroids are to long-term fitness.

 

When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up.  A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS.  They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment.  From the Department of Justice Press Release:

Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.

No doubt it was of the best-quality.  Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.

Doug Shulman is no longer IRS Commissioner, but his legacy remains:

 ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report

Dayton Daily News,  IRS says tax fraud attempts up 39 percent

Greg Mankiw,   Some Advice on Tax Planning

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

The Critical Question:  Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)

Kay Bell:  Time to spend down your medical flexible savings account (FSA)

Paul Neiffer,  Senator Baucus Urges Extension of Current Estate Tax Laws

Jim Maule,  Passing the Tax Responsibility Buck

Peter Reilly,  Who Should Be Accelerating Income Into 2012?

Patrick Temple-West,  Most Americans face lower tax burden than in 1980, and more (Tax Break)

Robert D. Flach,  DAMNED IF THEY DO AND DAMNED IF THEY DON’T.

Tragedy:  Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)

The Tax Update is also on Twitter (@joebwan) and Facebook!

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Tax Roundup, 11/30/2012: IRS makes life difficult for ID-theft victims and Americans abroad, but they make compliance hard for foreigners too!

Friday, November 30th, 2012 by Joe Kristan

When your identity is stolen, the IRS will be happy to bounce you around the bureacracy.  The Taxpayer Advocate testified yesterday at a House hearing on identity theft.  The IRS, which does a bang-up job of rapidly mailing fraudulent refunds, is less streamlined when it comes to helping taxpayers whose identities are stolen:

“Yet today the IRS is moving backward toward a decentralized approach, creating specialized identity theft units within 21 separate functional areas,” Olson told the House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management. “If, as seems likely, the IRS reduces the role of the IPSU and directs taxpayers to deal directly with the 21 specialized units, I am deeply concerned that we will revert to back where we were in 2008, with large numbers of taxpayers that have cross-functional issues unable to get their problems resolved without multiple contacts with multiple functions, and that would in my opinion be a disaster for the victims.”

She says that the IRS will have to choose between fast refunds and stopping fraud:

Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly. Under current circumstances, I have come to the conclusion that it is simply not possible for the IRS both to process legitimate returns rapidly and to combat refund fraud effectively at the same time.

So it’s too much to ask for the IRS to make better use of existing resources by not wasting them on the futile and expensive return preparer registration program — a program unwisely supported by the Taxpayer Advocate.


IRS makes doing business in the U.S. even more of a hassle for foreigners.  The IRS and Congress are doing their best to make it impossible for Americans to do business abroad with FATCA and the offshore compliance jihad.  Now they are doing a bit of the same for foreigners trying to do business here with new rules for International Tax Identifiction Numbers (ITINs).

ITINs are needed when foreigners invest in US real property or other assets where a US tax identification number is needed.  U.S. taxpayers just use their Social Security numbers.  The process is a hassle, with exacting documentation requirements that often require applicants to send passports to the IRS for extended periods while the IRS processes the paperwork.

While the new rules provide more options for applying for the paperwork, they now make the ITINs expire after five years, requiring taxpayers to repeat the whole process to stay in tax compliance.  This hassle isn’t just an issue for offshore taxpayers; it also makes compliance more difficult for U.S. taxpayers with offshore investors.  Just another little effort by the IRS does to make staying legal as difficult as possible.

Related: Trish McIntire,  Finalized ITIN Rules

 

The injunction didn’t go through, so on to the indictment.  A few years ago the IRS tried to close down the practice of a St. Louis-area tax preparer after making spectacular allegations of malfeasance.  The effort ended in a settlement that looked much like a victory for the preparer.  The IRS apparently didn’t take that well.  Stltoday.com reports:

Frank L. “Tiger” Zerjav, Jr., 39, of Wildwood, has been indicted for allegedly submitting four years of false tax returns and trying to dodge $182,000 in taxes, the U.S. Attorney’s office said Thursday.

Zerjav was indicted on four charges of federal income tax evasion for the returns covering 2001-2004. He also faces an obstruction of justice charge for allegedly producing altered computerized accounting records after receiving a grand jury subpoena.

They couldn’t put Mr. Zerjav out of business through civil procedures.  A tax fraud conviction would do the trick.  They’ll need to make a much more convincing showing than they apparently were able to do on the injuction effort.   This does remind us that if you get on the bad side of the IRS, your own filings had better be squeaky clean.

 

Better this fiscal cliff than the next, bigger one?  Bring On the Fiscal Cliff! (Megan McArdle):

Unless something changes, we’re headed toward one of two uncomfortable places. Either we veer over the fiscal cliff and the economy crashes—or we keep going down the road we’ve been taking for more than a decade, delaying hard choices while assuring voters that no really hard choices need to be made. That road probably ends in an even nastier smashup.

So how are Iowa’s congresscritters dealing with this nasty reality?  “Senator Harkin says the “fiscal cliff” doesn’t exist.” (Radio Iowa)

Howard Gleckman,   What to Read While Hanging Out at the Fiscal Cliff (TaxVox)

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

Martin Sullivan,  How To Limit the Deduction for State and Local Taxes (Tax.com)

Jim Maule, Tax Rates and Deduction Caps

 

Jack Townsend,   Major CA2 Decision on E&Y Tax Shelter Convictions.  Two E&Y guys go free.

Jana LutteneggerTax Implications of Holiday Bonuses (Davis Brown Tax Law Blog)  Don’t think that Wal-mart gift card for the employees is tax-free.

Kay Bell,  Lottery dreams and tax realities

The Critical Question:   How Much Tax Would You Owe On A $550 Million Powerball Jackpot? (Janet Novack)

Brian Strahle,   DC Combined Reporting and the Real Estate Investment Industry:  Unintended Consequences?

Tax Trials,  Michigan Court of Appeals Rejects IBM’s MTC Election

 

Robert D. Flach, at his “The Tax Professional” blog, is not thrilled with the “due dilegence” requirements for returns with the Earned Income Tax Credit:

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.

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Tax Roundup, 11/14/2012: So what about the other $8.4 trillion?

Wednesday, November 14th, 2012 by Joe Kristan

Tell me when they get serious about the budget.  The federal budget deficit is running about $1 trillion annually.  So how does the President propose to address it?  Primarily by increasing taxes by $1.6 trillion — over 10 years.  And, of course, no real spending cuts.  The TaxProf links this:

Wall Street Journal:  Obama Sets Steep Tax Target: President to Seek $1.6 Trillion More in Revenue, Double Level From 2011 Talks:

President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. …

Kevin Smith, a spokesman for House Speaker John Boehner (R., Ohio), dismissed the president’s opening position for the negotiations. He said Mr. Boehner’s proposal to revamp the tax code and entitlement programs is “consistent with the president’s call for a ‘balanced’ approach.” …

In negotiations between Messrs. Boehner and Obama in mid-2011, the two sides neared agreement on a plan to cut the deficit by $4 trillion over 10 years, including $800 billion in new revenue. The deal fell apart after Mr. Obama asked to raise the revenue component to $1.2 trillion, and to this day each side blames the other for the collapse. Based on that history, some senior GOP aides said they believed a likely compromise would call for about $1 trillion in new tax revenue, possibly from capping deductions for wealthier taxpayers.

As noted here, a straight dollar cap on itemized deductions would still be a tax increase on pass-through businesses.  Taxpayers who report business income on their personal returns have to deduct the state income taxes as itemized deductions, rather than as “above-the-line” business expenses.  A straight deduction cap would eliminate the deduction for state income taxes on business income.

How would you be able to tell if they are serious?  When they admit that to have government benefits for everybody, you have to increase taxes for everybody, and that cutting spending by cutting “fraud, abuse and waste” never happens.  The rich guy isn’t buying.

Chart 29. The federal deficit has grown so large that tax increases only on America’s millionaires will not be our silver bullet. Even if the government took all of the income earned by those who have an after-tax income of $1 million or more, the amount of revenue generated would fall far short of eliminating the deficit. The expected federal deficit for 2012 is about $1.2 trillion. The latest IRS data indicates that the total after-tax income for all millionaires is roughly $709 billion. If every penny of that after-tax income were taken by the government through a 100% tax rate, and we assume that no spending cuts are made to accompany the tax increase, this would account for only about 60% of the amount needed to erase the deficit. With numbers like this, one thing is clear: soaking the wealthy with increasingly higher tax rates simply cannot be the only answer to our nation’s fiscal problems.

 

TaxProf,  Democrats Embrace Romney’s Tax Plan to Limit Deductions

Patrick Temple-West,  Essential reading: Democrats like a Romney idea on income tax, and more (Tax Break)

Tell me when they get serious about the budget II: Branstad, Grassley push for extension of wind tax credit (Radio Iowa, via The Beanwalker)

So much for that deficit solution.  ‘Fat Tax’ in Denmark Is Repealed After Criticism (New York Times)

Howard Gleckman,  Congress Can’t Avoid Tax Rate Hikes By Closing “Loopholes” (TaxVox)

 

 

Meanwhile, this upcoming tax season is likely to be horrible.  Acting IRS Commissioner Steven T. Miller tells the IRS that many taxpayers may have to wait until late March next year to file, depending on whether and when an “AMT Patch” is enacted (my emphasis):

Without an AMT patch, about 28 million taxpayers would be faced with a very large, unexpected tax liability for the current tax year (2012). In addition, in order to allow time for the IRS to make the programming changes necessary to conform our processing systems to reflect expiration of the AMT patch and the credit ordering rules, the IRS would, at minimum, need to instruct more than 60 million taxpayers that they may not file their tax returns or receive a refund until the IRS completes the necessary systems changes. Because of the magnitude and complexity of the changes, it is entirely possible that these taxpayers would not be able to file until late March 2013, if not even later. Tens of millions of these taxpayers would unexpectedly have to pay additional income tax for 2012, leaving them with a balance due return or a much smaller refund than expected.

Tax season has become more compressed into the last few weeks before April 15 because 1099s and K-1s are issued later every year as a result of tax law complexity.  It looks like it could get much worse.

 

You Gotti like it.   John A. Gotti, son of the convicted organized crime figure, scores a legal victory, convincing the Tax Court not to grant summary judgment for the IRS in a tax case involving a corporation he controls with his wife.  It involves a dispute over whether IRS correspondence mailed to a jail address was a proper notification at the taxpayer’s “last known address.”

 

Another sign of the apocolypse.  There is now on online exchange for trading transferable film tax credits.  Tax Analysts reports ($link)

The newly launched Online Incentives Exchange LLC (OIX) purports to be the first “truly national, transparent, liquid exchange for the trading of state tax credits,” competing against direct brokerages in the trading of transferable and/or refundable state tax credits.

Right now, only Louisiana tax credits are trading on the exchange. Organizers plan to enable trading of California and Georgia credits in December and to eventually list on the exchange transferable and refundable tax credits in the 45 states where those incentives are available.

I prefer Iowa’s new practice of imprisoning filmmakers, myself.

 

Richard Morrison,  What Canada Can Teach Us about Corporate Taxes (Tax Policy Blog)

William Perez,  TIGTA Reveals Cause of Refund Delays that Occurred in Early 2012

Kay Bell,  Superstorm Sandy tax considerations; California cities’ soda tax falls flat

Paul Neiffer,  IRS Announces It Does Not Like Fixed Dollar Gifts

Jason Dinesen,   No to Additional Preparer Testing, Yes to CPE Requirements. I say no to the entire preparer regulation scheme.

Brian Strahle,  What Are Your Year-End State and Local Tax Needs?

Robert D. Flach has an exasperated Buzz.

 

Worse than a computer virus?  McAfee On The Run: Murder and Mayhem (But Few Taxes) In Belize  (TaxGrrrl)

In these troubled times, it’s good to know there are still things we can believe in.  Sixth Circuit Agrees That Cliff Claven Is Not A Thief (Peter Reilly)

x

 

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Tax Roundup, 11/8/2012: Denison Day! And some things to look forward to.

Thursday, November 8th, 2012 by Joe Kristan

The Tax Update is on the road in beautiful Denison, Iowa, birthplace of Donna Reed!

 

I’m speaking at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School.  There’s still time to register for the remaining five sessions!

 

“‘There are a lot of sales right now,’ explains Steve Bruere, president of Peoples Co. in West Des Moines.”  From IowaFarmerToday.com:

“I see a drop off (in the number of sales) after the first of the year.”’s one logical response to the looming increase in capital gain rates. 

With potential sellers concerned they may have to pay a 20 percent capital gains tax rate instead of 15 percent, and with many of them questioning what other tax changes may be coming, there has been a push to sell now.

The logic says if you were seriously considering a land sale, you would make sure it happened before the end of the year, Bruere says.

Actually, the rate will probably be 23.8%, including the new Obamacare tax on investment income.

More to look forward to:  “The IRS Small Business/Self-Employed Division plans to increase its audit activity for passthrough entities beginning in 2014, SB/SE Commissioner Faris Fink said November 7,”  reports Tax Analysts ($link).  But if you operate a C corporation, don’t be smug:

SB/SE is planning a one-year National Research Program project to study areas of noncompliance. Under the project, the division will examine 2,500 returns from corporations with assets of less than $250,000, Fink said.

Something to look forward to, like a colonoscopy appointment.

 

The Election is over. Now what?

TaxProf, Boehner Would Accept ‘New Revenue’ Under ’Right Conditions’

Going Concern, Hold the Phone, John Boehner Didn’t Say Anything About Taxes Going Up

 Martin Sullivan,   Wanna-Be Tax Reformers Need a Dose of Reality (Tax.com)

Daniel Shaviro,  Boehner on the possible terms for a fiscal cliff deal

Kay Bell,  Investors sell stock ahead of fiscal cliff, plus locking in 15 percent capital gains

Patrick Temple-West,  How far can Obama push on key issues including tax increases, and more

Anthony  Nitti,  With The Election Over, We Can Finally Do Some Meaningful Tax Planning. Six Year-End Steps To Consider.  #6 is bold planning indeed.

 

In other news… 

Robert D. Flach,  DEDUCTING SANDY

William Perez,  New Jersey Tax Relief for Hurricane Sandy

Linda Beale,  Tax Relief for Victims of Sandy

Richard Morrison,   Chart of the Day: Can Taxing Millionaires Eliminate the Deficit?  (No).

Brian Strahle,  How Virginia Based Companies Can Reduce Their State Income Tax Liability

TaxGrrrl, IRS Commissioner Says Public Goodbye After Election 2012

Jack Townsend,  Commissioner’s Swan Song – Excerpts on Offshore Bank Initiatives

 

Tomorrow is Doug Shulman’s last day as IRS Commissioner.  So how is the fight against tax refund fraud going?

Tampa Police Chief Jane Castor went public with her irritation at the slow pace of the investigation into a piece of the tax fraud scourge spreading among street criminals. Authorities say hundreds of millions of dollars in bogus income tax returns have been processed from the Tampa area alone.

“We have an individual that we know did in the ballpark of $9 million in tax fraud,” Castor said in February. “He was arrested and charged in September. And there’s no reason for us to believe that he’s slowed down at all.”

In March, Tampa Police Detective Sal Augeri testified before a U.S. Senate subcommittee in Washington about tax refund fraud and described the Simmons case without naming him.

“We have no reason to believe he has stopped committing this crime,” Augeri said then.

Russell B. Simmons, the man referred to above, pleaded guilty this week to tax fraud. He has to give up ill-gotten goods, including “… a $60,000 Bentley coupe and diamond jewelry that included a $30,000, 18-karat gold Rolex watch with a diamond dial; a 14-karat gold men’s bracelet with 2,420 diamonds; a 14-karat chain and “RS” pendant with 703 diamonds; and a 14-karat ring with 110 diamonds.

Every day the IRS let the identity thief continue to operate, he created new little nightmares, like those experienced by Jason Dinesen’s client, for the innocent taxpayers whose identities he stole.  Meanwhile, Commissioner Shulman was focusing IRS resources on creating a big, expensive and futile preparer regulation bureaucracy.  A man has to have priorities, after all.

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Tax Roundup, 11/6/2012: Election day! And a flawed Plan B.

Tuesday, November 6th, 2012 by Joe Kristan

Brutal Assault on Reason Watch.*  Today is election day, so we’ll run one more rundown of election-related news.  We”ll start with my post from last week at IowaBiz.com, Tax stakes for entrepreneurs next Tuesday.  An excerpt:

Mitt Romney’s tax plan is built around a 20% across-the-board individual tax rate cut, to be paid for by a eliminated deductions and tax breaks. He would also repeal the 3.8% investment income tax. 

These individual rates are important to entrepreneurs because most business are now organized as “pass-throughs” — typically as S corporations or LLCs taxed as partnerships. Income of pass-through businesses is taxed on their owners’ 1040s, so the top individual rate is also the top rate on business income. The Romney approach, with its 28% top rate, takes the tax law in a very different direction than the Obama 44%+ top rate.

 Also:

Kay Bell,  Ways and Means, Senate Finance incumbents should hold tax-writing seats

Robert D. Flach commands, VOTE!

Martin A. Sullivan,  The Post-Election Fiscal Mess (Tax.com)

Joseph Thorndike,  Soda Taxes and the Case for a GOP Majority (Tax.com)

Joseph Henchman,  State and Local Ballot Initiatives to Watch (Tax Policy Blog)

TaxGrrrl,   More Reasons to Vote: Election Day Freebies and Promos

*The “Brutal Assault on Reason Watch” is my roundup of election-related tax posts.  The title comes from Arnold Kling’s description of political campaigns:

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.

So if your post is listed in the Brutal Assault on Reason Watch, it doesn’t mean your post was a brutal assault on reason (though it happens).  It means that it had something to do with election season.

 

Richard Morrison,  Chart of the Day: High Earners and Business Income

 

Don’t ask if you’re not ready to tell.  If you inquire about participating in the IRS offshore voluntary disclosure program and you let slip who you are, you’d better be prepared to follow through.  From Tax Analysts ($link):

Rebecca Sparkman, CI director (operations policy and support), said that CI checks to ensure that taxpayers who undergo a pre-clearance check for acceptance into the voluntary disclosure programs follow through with disclosure. “Those [taxpayers] are suspect, and we are looking at those who decided not to continue to come through. Will it be Criminal Investigation? I don’t know; it could be a civil audit,” she said at the annual meeting of the California Tax Bar and California Tax Policy Conference in Coronado, Calif.

The IRS is long overdue for a standing simple offshore amnesty, like many states have for business non-filers.  If a taxpayers who have not been contacted by the IRS would file, say, five years of FBARS, asset disclosures and amended returns, and owe less than some generous threshold of tax — maybe $250,000 — then offshore sins would be forgiven and they can get on with their lives.  Maybe next Commissioner.

 

Many talents, but tax compliance wasn’t one of them.  A man with multiple skills will have a restricted arena in which to use them for many years.  An Ohio attorney last week received an 85-month sentence after being convicted of tax offenses, false statements and witness tampering.  From a Department of Justice press release:

According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005.   In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990.   Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary.

At least he wasn’t an accountant.  Plans like this can work great, until the IRS notices them, and then they don’t work at all.  Plan B also went badly:

 The evidence at trial further showed that after learning of the federal grand jury investigation into his business activities in May of 2006, Rick Matsa, together with Loula Matsa and others, conspired to obstruct justice by concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses and lying to federal investigators.  

Rick Matsa’s tenant, P. Maria Galloway, the owner of an art gallery located next door to Matsa’s law firm, also testified after pleading guilty to conspiracy to obstruct justice.   Galloway testified that she signed numerous documents at Rick Matsa’s direction, including federal income tax returns for Matsa’s law firm and a number of his nominee entities, which Matsa used as part of his scheme to obstruct the IRS, and that she made false statements to agents and the grand jury during the investigation.

I bet that stuff wasn’t in her lease.

The Moral?  People who think trusts have magical powers to make your taxable income go away are mistaken.  You might be able to fool the IRS for awhile, but with enough time the IRS is likely to figure it out.  When Plan B involves getting your tenant to sign false papers for you, maybe it’s time to look at a plea deal.

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Tax Roundup, 11/5/2012: Last week for the commissioner!

Monday, November 5th, 2012 by Joe Kristan

Soon-to-be-former-IRS Commissioner Douglas Shulman

Little disasters every day, courtesy Doug Shulman’s IRS.  We shouldn’t be surprised that the federal government is once again making a hash out of disaster relief.  They can’t even handle one-victim disasters at the IRS.  Jason Dinesen has posted two more installments (9, 10) of the infuriating saga of a client’s struggle with identity theft after her husband died.  From the latest installment:

I then proceeded to point out that it’s been 33 months since Brian died, 18 months since we filed the tax return, and 12+ months since we sent the original Form 14039 to the IRS. Again, can’t they use common sense and wrap this up?

The answer was, no.

Contrast that with the prompt issuance of a tax refund to the identity thief over a year ago.

Jason’s client ID theft problem was almost certainly the result of a glaring problem that has been known in the agency for years involving the use of social security numbers of recently-dead taxpayers published by the government by identity thieves.  The IRS is only now taking steps to fight it, while billions of tax dollars continue to go out to the thieves annually.  Meanwhile, they’ve found time to institute an expensive and futile preparer regulation scheme and power-grab.  They have their priorities, after all.

One thing voters of all parties can look forward to this week is the Friday expiration of the term of Doug Shulman, The Worst IRS Commissioner Ever.

 

Richard Morrison,   Chart of the Day: Trends in Business Income (Tax Policy Blog)

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Election Day Primer: Comparing the Obama and Romney Tax Plans

TaxProf,  Johnson: Tax Reform and the Presidential Election

Kay Bell, Voters get their say Nov. 6 on 30 tax-related state ballot initiatives

Joseph Thorndike,  Muzzling CRS is a Bad Idea — Even for Republicans (Tax.com)

Len Burman,  Which presidents spend the most? You might be surprised. (TaxVox)  For some reason he stops in 2001.

Paul Neiffer,  Get Ready For The New Medicare Tax Increase on Earned Income

Anthony Nitti,  Victims of Superstorm Sandy May Be Able To Exclude Assistance Payments From Taxable Income

Jack Townsend notes an Article on Erosion of Swiss Secrecy

Peter Reilly,  Unfair Tax Court Decisions On Life Insurance Are Tip Of Unclaimed Property Iceberg

Missouri Tax Guy,  Advantages of Filing a Tax Return Extension

Robert D. Flach,  TOP TEN LIST ADDENDUM.  This is so true:

More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

I would love to see an accounting of how much revenue the government steals from taxpayers who write checks because they are afraid of the revenue agencies, or because the amounts are known to be wrong, but the taxpayer doesn’t think they are worth the fight.

 

Bad News you can Use:  Bad News for German Poker Players (Russ Fox)

 

Richman, Dumdum man.  The story you are about to read is true.  Then names have been left the same to protect the humor.  CBSlocal from Chicago reports:

He wasn’t too smart about paying federal income taxes, and now Rimando Dumdum man is going to prison. 

WBBM’s Bernie Tafoya reports the 44-year-old Morton Grove tax preparer, who came to the U.S. from the Philippines in 1989, owned a company called “Richman Tax Solutions.”

Apparently it’s easier for a camel to pass through the eye of a needle than for a Richman to get a tax return right.  But all things are possible:

According to his plea agreement, he helped clients illegally trim an average of $1,400 from their tax bills. In all, between his clients’ returns, and his own tax fraud, Dumdum cheated the federal government out of $232,000 in all.

However, prosecutors said he likely helped clients evade $3.5 million in taxes, citing an audit showing his company falsified 99 percent of the tax returns it filed.

The way he looks out for the 99%, he should be a favorite of the Occupy people.  I wonder if the 1% of his customers who didn’t get phony returns feels cheated somehow.

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Tax Roundup, 10/31/2012: Sandy washes away the tax news. Happy Halloween…

Wednesday, October 31st, 2012 by Joe Kristan

The IRS sends $5 billion in fraudulent refunds to ID thieves annually.  Surely they have figured out how to help out those whose ID’s have been stolen?  No.  Jason Dinesen updates the saga of his widowed client whose deceased husband’s identity was stolen:

The good news is, the IRS has finally gotten its systems coded correctly to show that Wendy did file a 2010 tax return. They won’t be sending any more “collection” notices to her, and I don’t have to call the collections department every 60 days.

The bad news is, I now have to figure out how to deal with the IRS Identity Theft Unit.

They wouldn’t talk to Jason, even though he has power of attorney.  So the IRS, rather than going out of its way to help identity theft victims whose tax lives are in turmoil, jerks them around.  After promptly issuing the fraudulent refunds to the thieves, of course.  But at least Doug Shulman’s IRS is doing a bang-up job of selling confidential preparer identification number information.

 

There isn’t much tax news today thanks to the Hurricane Sandy disaster.  Some appropriate coverage:

Kay Bell,  Hurricane Sandy major disaster declarations could mean federal tax help

Trish McIntire,  Isaac to Sandy

 

In other news…

 

Richard Morrison, Chart of the Day: Income Levels vs. Education Levels (Tax Policy Blog)

 

 

Brutal Assault on Reason Watch: 

TaxProf,  Bartlett: Romney’s Tax Plan Won’t Work Like Reagan’s Did

TaxGrrrl,  Why Romney’s ‘Tax Avoidance’ Strategies Don’t Deserve Criticism.  Making the important point that tax planning isn’t somehow unsavory.

Patrick Temple-West,  Essential reading: Fiscal cliff forces all sides to jockey, and more (Tax Break)

 

So government never fails?   When Privatization Fails: Yet Another Example (Jim Maule).  The difference is that when a business fails, it goes away and the assets are redeployed.  When a government program fails, it just goes on and on.

Greg Mankiw,  Tax Expenditure Fact of the Day

Sara Palovick,   Avoiding the Self-Rental Trap (Double Taxation)

Paul Neiffer,   Fiscal Cliff Example # 2

Dan Meyer,  IRA Holding Allocations: Do Demographics Matter?

And a Halloween Buzz from Robert D. Flach!

 

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Tax Roundup, 10/30/2012: Scary stories for Beggar’s Night. Also: Sandy tax tips.

Tuesday, October 30th, 2012 by Joe Kristan

IMG_1414.JPG

Des Moines has an odd “Beggars’ night” tradition of having “trick-or-treats” on the night before Halloween.  That means it’s not too early for a spooky story.

Once upon a time, a man ran a payroll service in Ohio.  Employers sent their money to the man thinking he was paying their payroll taxes.   The man instead kept the money.  From ToledoBlade.com:

Robert Sacco, the former PaySource owner accused of bilking the IRS of $26.7 million, pleaded guilty to federal felony charges before his trial was scheduled to start Monday.

Sacco pleaded guilty to conspiracy to defraud the United States by impeding the Internal Revenue Service, money laundering, and tax evasion. “This is one of the highest amounts of employment tax fraud we’ve ever seen,” said Craig Casserly, spokesman for IRS office in Columbus.

Sacco defrauded the IRS by withholding money from employees’ paychecks for taxes, then keeping the money instead of paying it to the IRS, according to Carter Stewart, U.S. Attorney for the Southern District of Ohio.

Why didn’t the employers use EFTPS, the Electronic Federal Tax Payment System, to monitor their payments on line?  The man made sure they couldn’t:

Dayton-based PaySource employed 40 people. It was a co-employment company — meaning that it hired a client company’s employees, thus becoming their employer of record for tax and insurance purposes.

So the payments weren’t made under the real employers’ tax numbers, and there was no way for them to monitor it using EFTPS.

The moral?  There are legitimate co-employment companies that have plenty of satisfied customers.  The problem is that the format is also handy for thieves because it makes monitoring very difficult.  If you are considering outsourcing to a co-employment payroll provider, it’s extremely important to do careful due diligence, and to re-do it regularly.  Without EFTPS, you can’t directly verify their performance, so you have to use other ways to assure compliance.  If your payroll provider doesn’t remit your taxes, the IRS will still expect you to pay them.

 

Brutal Assault on Reason Watch: 

Howard Gleckman,  What is Mitt Romney’s Tax Plan? (TaxVox)

Patrick Temple-West,  Essential reading: Washington Post reports Obama administration looking at new tax cut, and more (Tax Break)

Kay Bell,  Who’s the scarier Halloween costume, Barack Obama or Mitt Romney?

Linda Beale,  Romney’s CRUT Tax Shelter

 

Russ Fox,  New York Extends Tax Deadlines Because of Sandy; Expect the IRS, New Jersey, Pennsylvania and Others to Follow

William Perez,  New York Provides Tax Relief for Hurricane Sandy

Peter Reilly,  Hurricane Sandy Tax Planning

Richard Morrison,   Chart of the Day: The Increasing Burden on Older Taxpayers (Tax Policy Blog)

Missouri Tax Guy:  Small Business Health Care Tax Credit, Do you Qualify?

Brian Strahle,  Companies Operating in D.C. Should ACT NOW!!

Jack Townsend,  Render Unto Caesar and the Offshore Initiative

Robert D. Flach offers THE WANDERING TAX PRO’S TOP TEN LIST

Paul Neiffer,  What the Fiscal Cliff Means To You?

Jana Luttenegger, 2013 Inflation Adjustments (Davis Brown Tax Law Blog)

TaxDood,  Lance Armstrong’s Race for Deductibility.  No doping allowed.

In case you were worried:  One Reason The NFL Will Never Permanently Relocate A Team To London: The U.K.’s Tax Treatment of Nonresident Athletes (Anthony Nitti)

 

 

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Tax Roundup, 10/25/2012: Extra services at the post office. And there’s no such thing as a free sandwich.

Thursday, October 25th, 2012 by Joe Kristan

Opportunities with the postal service.  A mail carrier in Alabama has been accused of picking up more than letters on his route.  A Department of Justice press release says Mr. Harrison, a postman, served as a courier for a tax refund ID-theft ring:

Members of the conspiracy filed false tax returns using stolen identities from various locations including the Northern District of Alabama. The fraudulent tax refunds were directed to debit cards that were mailed to addresses on Harrison’s postal route in Montgomery, Ala. Harrison retrieved the debit cards from the mail and, for a fee, provided them to a co-conspirator.

The moral?  When it absolutely, positively needs to get there, be the top bidder for your mailman.

 

Richard Morrison,  Chart of the Day: The Demographics of Income Inequality (Tax Policy Blog):

Russ Fox,  Nevada Business Tax Initiative Ruled Invalid

My new post at IowaBiz.com:   Payroll taxes: Once is enough

Keep firing.  Hollywood tax incentives come under fire (NBCnews.com)

Patrick Temple-West, Essential reading: For some of the wealthy, a 0 percent tax on capital gains, and more (Tax Break)

Trish McIntire,  Basics of Retirement Tax Planning

 

Brutal Assault on Reason Watch: 

Anthony Nitti,  President Obama Releases Agenda For A Potential Second Term: Dissecting the Tax Aspects

Kay Bell,  We think Congress is doing a better job.  Since they went home, coincidentally.

Daniel Shaviro,  Paul Krugman on the worst case scenario if Romney wins

Linda Beale,  Tax Questions about the Romney-Ryan Ticket–from Romney’s Tax Returns to Ryan’s Vouchercare

 

Attention is great, but links are better.  Amy Hamilton at Tax Analysts quotes my post from yesterday extensively ($link)

 The governor is suggesting “a new tax plan that would exist side-by-side with Iowa’s current complex and loophole-ridden mess,” Kristan said, adding that the plan would require taxpayers to compute their taxes under each system and file whichever return produced the lowest tax.

Thanks!  But two quibbles.  First — no link?  I link to you, you link to me — manners!  Second, you didn’t even mention The Quick and Dirty Iowa Tax Reform plan in a discussion of Iowa Tax Reform.   Isn’t that like talking about the World Series without mentioning the Giants?

 

Expensive free sandwiches.  From Going Concern:

A St. Louis accountant has allegedly been taking the cheap thing just a little too far by scamming unsuspecting restaurateurs in the area for free sandwiches. Yup, you read that right: free sandwiches.

They call him the Scamwich Artist and it seems he’s been making the rounds, complaining about getting bad food in exchange for gift cards and, well, more food.

The story quotes restaurant personnel as saying the accountant was caught red-handed, and the guy’s picture, taken by a restaurant manager with a smart phone, is now all over St. Louis and the Internet.  It will make for interesting conversation at his next client meeting.

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Tax Roundup, 10/17/2012: Zappers!

Wednesday, October 17th, 2012 by Joe Kristan

Flickr image courtsy rust.bucket under Creative Commons license

Zappers rampant?   A representative of a company that works with sales tax collectors says that the use of tax-evading “zapper” software is rampant, according to a Tax Analysts article ($link).  No, frying bugs doesn’t help avoid taxes.  The article describes zappers:

Zappers are sales-tax-skimming software often loaded onto memory sticks, CDs, and memory keys, or downloaded from the Internet. Virtually undetectable, the devices are used to eliminate whole transactions or parts of transactions from cash registers and in turn reduce the amount of sales tax known to be owed.

Zappers have received a lot of attention in Canada, where Quebec revenuers required a technical fix, described by CGI representative Bryce Berg as an “ultra-secure” microcomputer that plugs into cash registers:

 Quebec required each of its 18,000 restaurants to install the modules in their 30,000 cash registers, Berg said, adding that in the first year the province saw an additional $160 million in revenue from voluntary sales tax compliance.

It would be surprising if sales tax chiselers in the U.S. were any less creative than those in Canada.

Related: ZAPPED!

 

More refunds for Des Moines?  The City of Des Moines, already reeling from a court order to refund $40 million of illegally-collected utility taxes, now may have to repay a $15 million federal grant used to build the Seventh Street Park-and-ride garage.

 

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Did The Debates Offer Enough ‘Hope and Change’ for the Obama/Biden Ticket?  She also live-blogged last night’s debate.

Linda Beale,  Romney shows he’s a “know-it-all” who has no real ideas at all

Daniel Shaviro, Cynicism and dishonesty in tax reform debate (although, perhaps, what else is new?)

 

Richard Morrison,   Chart of the Day: Millionaire Status is Fleeting  (Tax Policy Blog):


Paul Neiffer,   2013 Social Security Changes:

Remember that the Medicare surtax on earnings in excess of $200/$250,000 per year will apply beginning January 1, 2013.  Therefore, the Medicare tax on earnings in excess of those amounts will be 3.8% (split 50/50 between employee and employer).

Janet Novack,  Social Security Benefits To Rise 1.7%; Workers Face Up To $2425 Payroll Tax Hike

 

TaxProf,  WSJ: Taxpayers Will Lose Twice if Bankruptcy Court Allows Solyndra Insiders to Harvest $975m of NOLs

Kay Bell,   Will popular but costly tax breaks end?

Jason Dinesen,  Would a Name Change Help Enrolled Agents? Part 3

And yes, EAs ourselves bear some responsibility. We need to be less crabby and resentful of CPAs and embrace the uniqueness of our designation.

When I give presentations, I always include a slide at the beginning where I talk about my designation. One of the bullet points on the slide says, in bold words: “I don’t work for the IRS!” This helps break the ice and often draws chuckles from the audience.

Jason never seems crabby.  Robert D. Flach, maybe, but he’s not an enrolled agent.

None of that sounds good.  Do you have any specials today?   Which Do You Prefer: Income Tax, Earned Income Tax, Sales Tax, Property Tax? (Jim Maule)

It’s Wednesday,  so Robert D. Flach is Buzzing!

Tax trouble for Russ Fox!  No, not the tax one.  The fish and chips one.

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Tax Roundup, 10/15/2012: no more procrastination edition. Also: how not to stay in touch with your ex.

Monday, October 15th, 2012 by Joe Kristan

20080410-1ibiz.jpg

Today is it for extended 2011 1040s. File your return today, if you haven’t done so.  Get your 8879 to your preparer, e-file yourself,  send it certified mail, return receipt requested, or use an authorized private delivery service with the return addressed to the proper service center street address.  There are no more extensions available!

Related:  The End of Procrastination Season Is Upon Us  (Russ Fox);  TODAY IS “THE DAY”! (Robert D. Flach).

 

Brutal Assault on Reason Watch: 

Kay Bell, Top 10 tax moments in VP debate

Patrick Temple-West,   Essential reading: Biden and Ryan dispute economic toll of raising the top tax rates, and more

TaxGrrrl,  What The VP Debate Taught Us About Romney/Ryan – and Didn’t Tell Us About Tax

Joseph Henchman,   Biden, Ryan Give Tax Policy Rationales (Tax Policy Blog)

Donald Marron,  Five Things You Should Know about Mitt Romney’s “$5 Trillion Tax Cut”  (TaxVox)

Richard Morrison,   Chart of the Day: The Gains of the 1% Don’t Come at the Expense of the Middle Class  (Tax Policy Blog):

 

Peter Reilly,   Romney Wants No Estate Tax – Case For 2012 Mega Gift Remains Compelling:

When you break down possible outcomes on the political scene, they all argue for at least looking at your assets and sitting down with a planner to see if there is something worth doing.

Peter sees value in large-scale family gifting, no matter how the elections turn out.

Janet Novack,  The Forbes Guide To Estate Planning

 

Jim Maule,  Taking Tax Money Without Giving Back: Another Reality :

It is not surprising that, although they come at the problem from different angles and propose different solutions, both this commentator and the writer of this report consider taxpayer financing of private sector sports enterprises to be a very bad idea.

Brian Strahle, Non-Big 4 Firm SALT Professionals:  GOT LEVERAGE?

And, of course, Robert D. Flach came through with a Buzz this weekend.

 

So much for any chance of reconciliation.  A Fort Atkinson, Iowa man probably scored no points with his ex-wife while looking for tax refunds in all the wrong places.  Now Gene Jirak will serve a 45-month sentence for filing false refund claims.  From KCRG.com:

Prosecutors say Jirak devised a scheme by filing two tax returns claiming he was entitled in each return to a refund of over $50,000. Authorities say Jirak filed the first tax return as an amended joint return, using his ex-wife’s name and Social Security number and forging her signature.

Well, if he had a refund coming, maybe he should have asked for her signature.  Well, maybe because he didn’t have a refund coming.  Court documents show that Mr. Jirak attempted to get refunds under the absurd “1099-OID” theory, which, as much as I can make any sense of it holds that we all have big accounts in our name at the U.S. Treasury that we can tap by filing the right tax forms.    The judge wasn’t persuaded.

Acting as his own lawyer, Mr. Atkinson was convicted of five counts arising from the transaction.  Amazingly, he actually received a check from the IRS for $69,139.07 (still a few flaws in the old refund claim review system, I guess).  According the the indictment, his poor relationship with his ex caused things to go awry:

On or about March 9, 2009, defendant GENE JIRAK presented the Treasury check for deposit at Viking State Bank & Trust in Decorah, Iowa.  At the time the check was presented, it bore a forged endorsement signature [of his ex-wife].  When Viking State Bank & Trust determined [the] endorsement was forged, the bank returned the Treasury check to the IRS.

The Moral?  Don’t use ridiculous tax theories to claim tax refunds.  Oh, and forging your ex-spouse’s signature is never a great idea.

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Tax Roundup, 10/5/2012: $2 million to anonymous whistleblower. Plus more debate echoes!

Friday, October 5th, 2012 by Joe Kristan

Image via Wikipedia

Cheating on business taxes just got a little scarier.  CNNMoney reports:

An anonymous Wall Streeter is getting rich exposing alleged tax fraud through the IRS’s whistleblower program.

Washington law firm Phillips & Cohen announced Thursday that its client, a “Wall Street insider,” has netted a $2 million reward from the Internal Revenue Service for exposing an alleged tax-avoidance scheme by manufacturer Illinois Tool Works

This is interesting for many reasons.  The report implies that the whistleblower is in the financial services business.  That could mean banking, investment banking, or even accounting.  That means somebody who knows how to work the whistle could be in your business.

If you can get a million dollars from the IRS and keep your identity secret, it becomes a lot easier to call the IRS.  It also becomes a lot more dangerous for the boss to take flaky tax positions, let alone commit tax crimes; every staff accountant becomes a potential IRS mole.  Because business taxes usually require some staff cooperation, this changes the odds in the tax game in favor of the IRS.

 

Richard Morrison,  Chart of the Day: The Growth of Refundable Tax Credits, 1990-2010. (Tax Policy Blog).

I bet the chart of tax refund fraud incidence would look about the same.

 

More debate fallout:

Christopher Bergin,  Shovel Ready (Tax.com):

And does the President really believe, as he said, that if we bring back the Clinton tax rates we will bring back the Clinton economy? Does he really think we are that naïve?

Clearly, Mitt Romney thinks we are that naïve. He came to the debate loaded with the latest iteration – it seems to change by the day – of his hocus pocus tax reform plan.

Going Concern,  Let’s Try to Make Some Sense of President Obama’s “Tax Breaks for Companies Shipping Jobs Overseas” Statement

Kay Bell,  Romney ‘makes up’ a new, higher tax deduction limit during the debate

Trish McIntire,  Location, Location, Location

Patrick Temple-West,  Essential reading: Fact or fiction in the U.S. presidential debate? and more

 

Anthony Nitti,  Tax Court Has Mercy on Taxpayer’s $16,000,000 Charitable Contribution Deduction

 Brian Strahle,  DC Employers Required to File Annual Use Tax Return by October 20, 2012!

Robert D. Flach,  TAX BLOGOSPHERE BUDDIES – JASON DINESEN

Peter Reilly,  Young Earth Creationists Whipsawed By IRS.  Tax Update coverage here.

 

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Tax Roundup, 10/3/2012: abbreviated edition

Wednesday, October 3rd, 2012 by Joe Kristan

Sorry, only links this morning:

Des Moines Register,  Off-duty police officers dispute Iowa sales tax rationale

TaxProf, TPC: 90% of Americans Face Average $3,500 Tax Increase From Fiscal Cliff; Rich Face Largest Increase

Anthony Nitti,Supreme Court Declines to Hear Watson, A Critical Case on S Corporation Reasonable Compensation

Kay Bell, Rep. Wile E. Coyote, aka a cartoonish Congress teetering on the fiscal cliff edge

Jim Maule, Dependency, Government Spending, Tax Breaks, and Middle School

Jason Dinesen,  Would a New Name Help Enrolled Agents?

Phil Hodgen, Property Transfers Between Spouses: Gift Tax

TaxGrrrl,  Investigation Into Bank Bailout Fraud Leads to Tax Charges

Richard Morrison, Chart of the Day: Number and Percentage of Nonpayers Has Reached Record Levels (Tax Policy Blog)

David Brunori,  Hawaii’s Solar Power Cronyism  (Tax.com)

Howard Gleckman, Will Going Over the Fiscal Cliff Make a Budget Deal Possible? (TaxVox)

It’s Wednesday,  the day you can catch the Buzz at Robert D. Flach’s place

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Tax Roundup, 10/2/2012: Des Moines has to repay $40 million in illegally-collected taxes. Also: Kansas City tax shelter figure arrested.

Tuesday, October 2nd, 2012 by Joe Kristan

The City of Des Moines will finally do the right thing, having exhausted all venues to do otherwise.  The Supreme Court yesterday ruled that the city must repay $40 million of an illegally-imposed franchise fee on utility bills.  The Des Moines Register reports:

The high court’s ruling centers on franchise fees that are added to customers’ gas and electricity bills. A lower court ruled that the city charged excessive fees for a period of years, in essence an illegal tax. The high court declined to review the lower court’s order requiring the city to repay roughly $40 million to residents who paid the illegal tax.

Mayor Cownie predicts disaster and famine:

City lawyers have fought the case for years by arguing, in part, that any refunds would lead inevitably to higher property taxes — in essence taking money out of one pocket of city residents to place cash in another.

Cownie said the city would pursue options fairest to citizens while balancing the long-term realities of a beleaguered city budget. Any franchise fee repayment from the city would likely come from a mixture of property tax increases and cuts to city services, he said.

“We’re not just cutting away fat. We’re cutting away muscle and bone and tendons,” he said.

It’s useful to imagine how much sympathy the city would offer a taxpayer who had illegally collected money from the city.  “I’m not just cutting away fat.  I’m cutting away essential services for myself and my family, like my house and my car.”  Of course, the city has compounded its own problems by litigating all the way to the U.S. Supreme Court, piling up legal fees and interest on top of the refunds.

The city now has to pay up, though the Register story makes it look like the city isn’t exactly racing to cut the refund checks.

The Moral?  Next time, don’t collect an illegal tax, and if you do, repay it. 

 

Supreme Court declines to review West Des Moines S corporation compensation case.  In addition to denying Des Moines’ franchise tax appeal, the Supreme Court yesterday denied a hearing in an important case involving the so-called “John Edwards Shelter,” named after the former vice-presidential nominee and model husband who ran his law practice in an S corporation.

A U.S. district court held that an area CPA who reported $24,000 of wage income and around $200,000 of K-1 income from his S corporation had to report as compensation around $90,000 of the income; the Eighth Circuit upheld the ruling in February (David E. Watson, P.C. v. U.S).   The tax law imposes payroll taxes on compensation, but not S corporation K-1 income, so the taxpayer must pay payroll taxes on the additional compensation.    The denial is reported on page 50 here.

 

Being enjoined is bad.  Being indicted is worse.  An attorney who was enjoined from promoting some extremely aggressive tax shelters in the Kansas City area now has worse problems, as outlined in a press release from the California Franchise Tax Board:  Los Angeles Tax Professionals Arrested for Illegal Tax Schemes Costing State $7.6 Million:

A Cerritos CPA and Los Angeles attorney were  arrested today on felony charges of conspiracy and tax evasion, the Franchise  Tax Board announced.

Victor George Kawana, 53, and Blair Stover,  51, each own one-third of Kruse Mennillo, LLP. According to FTB special agents,  Kawana and Stover allegedly promoted an abusive tax avoidance transaction  (ATAT) to more than 100 clients during the years 2002-2005. The fraudulent  activity cost the state more than $7.6 million in tax liability.

They each face three felony counts of aiding  in the preparation of false state income tax returns and one felony count of conspiracy.  Each tax count carries a maximum sentence of three years in state prison.

The charges appear to arise from the same sorts of shelters Mr. Stover was enjoined from promoting:

They instructed their clients to utilize an  ATAT involving the creation of Nevada corporations and Roth IRA or Employee  Stock Option Plans (ESOP) as the sole shareholders. The ATAT was formed with a  series of related transactions with no valid business purpose other than tax  evasion.

Kawana and Stover were recently arrested and  both pleaded not guilty at their arraignments.

Mr. Stover got his start at national firm Coopers and Lybrand in St. Louis, later moving to their Kansas City office.  He joined the Grant Thornton office there before going to Kruse Menillo, LLP.

While a number of the tax shelters involved did poorly in court, that doesn’t make it a crime to promote them; the defendants are innocent until proven guilty.  Whatever the outcome of the trial, we can safely assume that the shelters relied on taxpayers’ eternal pursuit of the tax fairy, that mythical creature who can magically make income taxes go away without pain and without risk.  There is no tax fairy. 

Thanks to an alert reader for the tip.

 
Martin Sullivan,  Romney Advisor Advocates Tax Hikes (Tax.com): “He proposes putting a cap on everyone’s tax benefits from deductions and credits equal to some percentage (perhaps 2 or 3 percent) of adjusted gross income and using the revenue gained for both rate cuts and deficit reduction”

Richard Morrison,  Chart of the Day: The Average Tax Rate for the Rich (Tax Policy Blog):

 

Patrick Temple-West,  Essential reading: Payroll tax cut is unlikely to survive into next year, and more

TaxGrrrl,  Comment for the Cure: Cancer, Comments, Cures and Yeah, Taxes

Trish McIntire,  Chicken or Egg Tax Cut

Jack Townsend has two more posts on the affirmation of sentences for figures in the “Aegis” tax shelter case:  Aegis Convictions Affirmed Installment #4 – the Conspiracy Conviction and  Aegis Convictions Affirmed Installment #5 – IRS Notices and Harmless Error

Kay Bell,  Tax moves to make in October 2012

William Perez,  Consider Accelerating Salary Income into 2012

Howard Gleckman,  If Congress Goes Over the Fiscal Cliff Your Taxes Will Likely Go Up (TaxVox):

If Congressional gridlock sends the U.S. government tumbling over the fiscal cliff later this year, Americans could face an average tax hike of almost $3,500 in 2013. Nearly 9 of every 10 households would pay higher taxes. Every income group would see their taxes rise by at least 3.5 percent, but high-income households would suffer the biggest hit by far, according to a new Tax Policy Center analysis.

TPC found that if the tax hikes last the entire year—a big ”if”–those in the top 0.1 percent would pay an average $633,000 more than if today’s tax rules were extended. However, even middle income households would take a hit: they’d pay an average of almost $2,000 more, and see their after-tax income fall by more than 4 percent. Such tax hikes would be “unprecedented,” said the paper’s authors, Bob Williams, Eric Toder, Donald Marron, and Hang Nguyen.

So, have a nice day!

 

Kaye A. Thomas, Roth Conversions Ahead of 2013 Tax Increases.

The Critical Question: What is this “Fiscal Cliff,” and why are we in this handbasket?  My new post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

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Tax Roundup, 10/1/2012: the thin blue line of sales tax scofflaws. Plus: the dangers of finding your roots.

Monday, October 1st, 2012 by Joe Kristan

Keeping your drunk cousin from starting a fight at the wedding reception: a taxable service?  From globegazette.com:

The state Department of Revenue is demanding that 46 Iowa police officers pay back sales taxes from years of working off-duty assignments such as wedding receptions and business security.

Department spokeswoman Victoria Daniels said the plan is to pursue back sales taxes for up to 10 years for those officers who have never filed tax returns for off-duty jobs.

Iowa only requires service providers to collect sales tax for “enumerated services.” CPA services and legal services are not “enumerated,” but “security and detective services” is, along with, for example, reflexology.  The thin blue line is not pleased.

Iowa law enforcement groups have tried for years to convince the Revenue Department not to require police officers to collect sales tax from businesses and individuals who hire them for off-duty gigs. Revenue officials considered drafting a change to the state’s administrative code to exempt officers, but ultimately decided the law clearly required officers to pay up.

So this obviously isn’t news to the officers, who blew off the tax collection requirement anyway.  Next time you get pulled over, try to convince the officer not to require you to slow down.

 

Aegis trust promoters sentences upheld.  The Seventh Circuit has upheld long sentences for the masterminds behind a sham trust scheme that operated out of the Chicago suburb of Palos Hills in the 1990s.  From the opinion:

     The Aegis trusts were typically marketed to wealthy, self-employed individuals whose income could not be easily traced through the W-2 forms that are issued to ordinary taxpayers. Aegis representatives, including the defendants, conducted seminars promoting the Aegis trusts in cities around the country. Attendance at these seminars was by invitation only, and guests were charged between $150 and $500 to participate. Attendees were told at such seminars that use of the Aegis trust system would reduce if not eliminate their federal income taxes. They were often given materials that purported to document the legitimacy of the system with seemingly thorough and impressive citations to the various legal authorities that supported the trusts. But as one lawyer wrote to a client who sought his advice as to the legitimacy of the system:

      “This material is full of errors, irrelevancies and partial truths followed by non sequiturs. I know that I must resist the temptation to follow every line or I could spend the rest of my life on this. I will concentrate on how, even if it were 99 percent correct, the claimed tax effects fail. In doing so, I’m not implying that that 99 percent is correct. I’m just skipping over the errors.”

The longest sentence is 223 months, which works out to over 18 years.  Under federal sentencing rules, the sentence can be reduced by only about 10% for good time; there is no early out.

The Aegis clients learned the hard way that there is no magical trust formula to get out of taxes.  There is no tax fairy.  Tax Attorney Jack Townsend finds the decision worth three posts (1, 2, 3).

Cite: USA v. Michael Vallone, CA-7, No. 08-3690

 

When genealogists go bad.  From Billings, Montana via SFGate.com:

 A Billings woman who said she filed false tax returns using the Social Security numbers and birth dates of deceased people she found while doing genealogy research online has been sentenced to more than four years in prison and ordered to pay nearly $130,000 in restitution to the IRS.

Maybe she was doing genealogy research, maybe she wasn’t.  While the “Death Master File,” the list of dead people published by the government, is prized by those researching their ancestry, identity thieves love using it to file refund claims for the recently deceasedThis report on the Billings woman from the Billings Gazette makes me wonder if the genealogy was an excuse of some sort:

I am so sorry for my bad behavior. I have so many amends to make,” said Shannon Kathlina Grimm, 41.

Crying as she apologized to the court and to family members and friends, Grimm said, “I know I can be a good person. You will not see me again. I will not be in trouble again, I promise you.”

But Chief U.S. District Judge Richard Cebull told Grimm she deserved more time on top of what she has already spent locked up while the case was pending and sentenced her to four years and three months. The term was at the high end of the guideline range, which started at 41 months.

Cebull also ordered her to pay $129,498 restitution to the IRS.

“Obviously, Ms. Grimm has little, if any, respect for the law,” Cebull said. He noted Grimm’s state conviction for issuing bad checks and her violation of a deferred sentence. She was on probation when she committed the federal fraud crimes, he said.

Maybe it’s genealogy gone bad.  Right, because ancestry research is notorious as a gateway to a life of crime.

For a good view of the fiscal cliff, Check out Roger McEowen’s List of Expired and Expiring Provisions.

Martin Sullivan,  Wrong Turns At the Fiscal Cliff  (Tax.com)

Jana Luttenegger,   Cashing in on a Life Insurance Policy (Davis Brown Tax Law Blog)

Kay Bell,  Bank forgiveness of phantom debt could create tax problems for former debtors.  Of course, so does forgivenes of real debt.

Jason Dinesen,  The Difficulties of Tax Planning with an Inept Congress.   Of course, we keep sending them back.

Irwin Schiff loses motion to vacate conviction.  Not a great surprise(Jack Townsend)

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