Posts Tagged ‘Robert D Flach’

Tax Roundup, 4/9/14: Common K-1 problems. And: if the preparer doesn’t have a brain, give him a diploma!

Wednesday, April 9th, 2014 by Joe Kristan

S-SidewalkSo you read yesterday’s post and you’re still preparing your own return?  You’ve answered the questions you need to ask yourself before starting to put numbers from your S corporation/Partnership/Trust (collectively, “thing”) K-1 onto your 1040 schedules?  OK, if you are intrepid enough to be doing your own return here, you are mostly on your own.  Don’t shortcut it.  This is one chore where you really should read the instructions (S corporation, Partnership, Trust), rather than just opening the box and putting pieces together.

There’s no point in me trying to walk through the whole K-1 with you; that’s what the instructions are for.  I will point out a few items on the K-1 (or left out) that frequently cause errors and trigger questions.

On the partnership K-1 the ending capital account is probably not your “basis.” The capital account is frequently useless in measuring basis.  It might be the same as your basis if the “Tax basis” box is checked, but the only sure way to track your basis is to keep your own running basis schedule year-by-year.  S corporation shareholders can find their basis computation schedule here.

Don’t double-count your gains.  The “Unrecaptured Section 1250 gain” in Box 8c of your S corporation K-1  (9c of the partnership return) is a part of the “Net Section 1231 gain” (S corporation box 9, partnership box 10).  The total income is the Section 1231 gain, not the sum of the unrecaptured 1250 and 1231 amounts.  You use the “Unrecaptured 1250 gain” on your Schedule D worksheet to figure out how much of your Section 1231 gain is taxed at a 25% rate, rather than the normal 20% top capital gain rate.

Don’t double count “investment income.”  If you have interest, dividends or capital gains on your K-1, the partnerships is required to tell you how much of that is “investment income” with a code “A” in the “other information” box on the K-1.  You only need that number if you are computing an investment interest expense deduction on Form 4952.  You don’t add it as additional income on your return.

Beware the “net investment income” disclosure, code “Y” in the “other information” section.  The partnership and S corporation instructions for computing this came out late, and this number is likely to be wrong.  If you have to fill out Form 8960 to compute your Obamacare net investment income tax, you shouldn’t count on this number, especially for a K-1 with trade or business income.  Use instead the separate items from the K-1 that are investment income for Form 8960 purposes.

Be careful out there, and come back tomorrow for a new 2014 filing season tip!

 

20140307-1Russ Fox, Bozo Tax Tip #5: Procrastinate.  You mean waiting won’t solve my tax problems?

Tony Nitti, Tax Geek Tuesday: Are Those S Corporation Distributions Taxable?

 

William Perez, Tax Freedom Day 2014.  April 21.

Kay Bell, Being DIFferent could prompt a tax audit.  Kay points out things that can attract IRS attention on your 1040.

Jeremy Scott, Audit Electability (Tax Analysts Blog).  ”However, a taxpayer’s choice of entity can have broad tax ramifications, including some consequences unintended even by the complicated U.S. tax regime.”

Stephen Olsen, Summary Opinions for 4/4/2014.  (Procedurally Taxing), A good roundup of some recent tax cases, including coverage of the Ohio accounting firm’s unpleasant breakup that we covered last week.

 

20140409-1The IRS Commissionerwho apparently can’t regulate his own employees sufficiently to provide subpoenaed documents to Congress, still wants to regulate tax preparers.

The idea is no more than what the Wizard of Oz told the scarecrow: regulated preparers wouldn’t be any smarter, but they would have a diploma.  An IRS-issued Doctorate in Thinkology doesn’t make an inept preparer competent, any more than granting a CPA or a JD makes somebody a good tax preparer.  I would much sooner have uncredentailed Robert D. Flach do my 1040 than any number of fully-credentialed CPAs and attorneys I know.   All regulation would accomplish would be to raise prices, lining the pockets of the big tax prep franchises while driving many taxpayers to self-prepare or stop filing.

TaxGrrrl, House Committee Gunning For Criminal Charges In IRS Scandal

TaxProf, The IRS Scandal, Day 335

 

Roberton Williams, If You Have High Income, Your Taxes Are Going Up (TaxVox)

Tax Justice Blog, “Tax Extenders” Would Mean Even Lower Revenue than the Ryan Plan

Jim Maule, How Shocking is Tax Evasion?

Radio Iowa, Senator Grassley says fouled up tax system is depressing.  He’s depressed?  As a senior taxwriter for most of the last three decades, he’s answerable for a lot of the depression.

 

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Tax Roundup, 1/31/14: Earned Income Tax Credit Awareness Day party edition! And: e-filing begins.

Friday, January 31st, 2014 by Joe Kristan


EITC error chart
Yes, for those of you not already taking the day off to observe it, today is Earned Income Tax Credit Awareness Day!  Let’s celebrate with a true story of EITC awareness.

Cedar Rapids tax preparer Demetries Johnson displayed her awareness of the credit in a big way:

Defendant DEMETRIES JOHNSON notified some taxpayers seeking her services that she could obtain larger tax refunds than they would otherwise receive.  To obtain refunds, defendant DEMETRIES JOHNSON would knowingly report false information on taxpayers returns. The claims made in the tax returns were false, fictitious, and fraudulent in that the claims for refunds, for example: 1) falsely reported income when little or no income was earned, thereby substantially and materially overstating taxpayers’ income in a manner that made the taxpayer appear eligible for a refund by virtue of the EITC; and 2) falsely included a child or children on taxpayers’ returns who did not in fact qualify under the EITC.  Through submission of these false claims, defendant DEMETRIES JOHNSON increased payments made by the Internal Revenue Service to the taxpayers or to bank accounts controlled by the defendant.

Her awareness ended up earning a two-year prison sentence after she pleaded guilty to tax charges.  Her keen level of awareness isn’t uncommon; a recent Treasury Inspector General analysis showed that 21-25% of the $13 billion of the credit issued annually is claimed “in error.”  No small amount of those errors are deliberate.

Those who scam the system are especially aware that the credit is “refundable.”  If you claim more credit than you owe in taxes, the IRS will send you a check for the excess.  Like all refundable credits, it attracts fraudsters.

Come to think of it, maybe “awareness” isn’t the real problem with the Earned Income Credit.

 

Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

When you buy a round, it’s always popular Wind industry fears slowdown as Congress considers future of popular tax credit  (Des Moines Register).  The recipients of wind subsidies delivered through the tax law are annoyed that there is a delay in getting their free stuff.

The headline says the wind turbine subsidy is “popular,” but nothing in the article backs that up, or even repeats the claim.  I suppose it’s as popular with the Warren Buffet-controlled utility that is a big recipient of the credit as the Earned Income Tax Credit was with Demetries Johnson’s clients.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 267.  He highlights today’s Peggy Noonan piece:

 Meanwhile, back in America, conservatives targeted and harassed by the Internal Revenue Service still await answers on their years-long requests for tax exempt status. When news of the IRS targeting broke last spring, agency officials lied about it, and one took the Fifth. The president said he was outraged, had no idea, read about it in the papers, boy was he going to get to the bottom of it. An investigation was announced but somehow never quite materialized. Victims of the targeting waited to be contacted by the FBI to be asked about their experience. Now the Justice Department has made clear its investigation won’t be spearheaded by the FBI but by a department lawyer who is a campaign contributor to the president and the Democratic Party. Sometimes you feel they are just laughing at you, and going too far.

For a case where a key figure promptly hid behind the Fifth Amendment, the FBI was sure quick to conclude there was no crime.

 

William Gale, Benjamin Harris, David John, State of the Union Speech Promotes New Retirement Savings Vehicles (TaxVox):

 Similar to the R-Bond discussed in a recent AARP Public Policy Institute paper written by William Gale, David John and Spencer Smith, MyRA would allow individuals to save in a government bond account similar to the one offered as an option to federal employees through the Thrift Savings Plan. The details are unclear (there’s a WhiteHouse fact sheet here), but MyRA would allow new savers and those with small balances to accumulate retirement savings without either having to pay administrative charges or face market risk.

Just inflation and government policy risk.

 

20130916-1TaxGrrrl, IRS Officially Opens Tax Season Today, Begins Processing Returns and Refunds

William Perez, IRS’s Electronic Filing Systems Opens January 31

Kay Bell, Are you ready to e-file your federal tax return? Here’s how.

Trish McIntire, IRS Notice Prevention

 

Fear the Family (and other related parties).  My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

Kyle Pomerleau notes A Few Contradictions in President Obama’s State of the Union Address (Tax Policy Blog)

Keith Fogg, Does Treasury’s Policy Restraining Referrals to Low Income Tax Clinics Harm Individuals and the Tax System? (Procedurally Taxing)

Robert D. Flach serves up his last Buzz for awhile as he begins his tax season hiatus.  It’s his 43rd tax season.  If I hit my 43d tax season, it will be in my 68th year.  I admire Robert’s endurance, but I have no plans to match it.

 

haroldDirector of Chartered firm among 13 charged over £2.5m film tax fraud (ifaonline.co.uk).  I think film tax credits are the bait car of tax incentives.

Useless tool.   Treasury Nominee Dynan Calls Home Buyer Tax Credit ‘Useful Tool’ (Tax Analysts, $link).  Not only should her nomination be rejected on the basis of her approval of the failed and fraud-ridden credit, she should be presumed self-disqualified from any public position ever.

While I think the court decision ending tax-free treatment for cash parsonage allowances is likely to stand, not everyone agrees.  Zelinsky: The First Amendment and the § 107 Parsonage Allowance (TaxProf)

 

Tax Trials continues its “Famous Fridays” series with Pete Rose, Gambling Winnings Are Income Too.

News from the Profession: PwC Doing Its Part to Keep Dog Tails Wagging in Northeast Ohio (Going Concern)

 

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Tax Roundup, 1/29/14: E-cigarette panic! And: SOTU, SALY.

Wednesday, January 29th, 2014 by Joe Kristan
Via e-cigarettepedia.com

Via e-cigarettepedia.com

Jeff Stier, Iowa should tread carefully on e-cigarette rules, on the weird impulse to restrict and tax water vapor:

Restricting the use of e-cigarettes, known as “vaping” for the vapor they emit, would undermine the very goal of this law.

First, it wouldn’t reduce exposure to environmental smoke, better known as second-hand smoke, because there is no smoke. There isn’t even any first-hand smoke.

More important, a ban on vaping in public places would damage public health because it would make e-cigarettes a less convenient alternative to cigarette smoking. It would also send the implicit (and incorrect) message that they are also equally dangerous, not only to the user, but to those exposed to the vapor.

All true.  There are two explanations for the why politicians have their dresses over their heads over what amount to very small room vaporizers.

First, because people vaping look a little like smokers, and smoking is a great sin these days, they must be sinning, and sin must be stopped.  For the children!

The second explanation is more cynical, so it probably is true.  The state has a nicotine addiction.  Iowa collected $227 million in tobacco taxes in 2013.  If smokers use e-cigarettes to quit, that money dries up.  We can’t have that.

 


EITC error chart
Tax Analysts’ 
headline ($link) on its story about the tax proposals in the State of the Union doesn’t exactly scream Hope and Change:  ”Obama Proposes EITC Expansion in State of the Union, Otherwise Reiterates Old Tax Proposals.”

One hopes that Congress will do something to keep 20-25% of the EITC from being issued “improperly” to grifters before it increases the theft pot.  We can expect the President’s other tax proposals to go nowhere, as they went nowhere when he was in better political shape.  The dead-on-arrival proposals include disallowing more of the Section 199 deduction for f0ssil fuels and tax credits to “build fuel infrastructure” and to subsidize alternative fuels.

His budget also provides for a hodgepodge of other tax incentives.  His revenue-raisers include repealing LIFO inventories, slower depreciation for aircraft, changing grantor trust rules so they are treated the same for income and tax purposes, and limiting the size of retirement accounts — all doomed absent an unlikely comprehensive tax reform.

Related:  Tax Policy is MIA in the State of the Union (Howard Gleckman, TaxVox). “The president perfunctorily restated his support for business tax reform but added no new twist to make his plan any more acceptable to congressional Republicans.”

Good Jobs First, a left-side think tank, has released Show us the Subsidized Jobs, a report on state tax incentives.  Iowa only scores 27%, largely because there is no online disclosure of recipients of the Industrial New Jobs Training program and the Iowa New Jobs Tax Credit.  I would give Iowa zero percent, because these hidden subsidies wouldn’t exist in a well designed tax system.  They should be repealed and replaced by the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Broadbandits.  Speaking of corporate welfare, SSB 3319 was introduced yestarday in the Iowa Senate.  Among other ways to pay providers for something they will do anyway if customers want it, the bill includes a 3% credit on the cost of “new installation of broadband infrastructure.”  Just one more step away from simplicity and transparency.

 

20111040logoDavid Henderson, Marginal Tax Rates: Singing Taxman to My Class:

Think about the Beatles’ earnings. Late 1963 was when they first started making real money. Then in 1964, they hit it big. Presumably they didn’t spend it all but started investing, figuring that they would get interest and dividends on their investments. They probably did. But those returns would be taxed at the 95% rate. When would they start noticing this? Probably some time in 1965. Thus the 1966 song. 

And we all know what an economic dynamo the UK was then.

Martin Sullivan, The Obama Administration’s Backdoor Bailout of Puerto Rico (Tax Analysts Blog):

But here’s a little secret that the powers that be inside and outside government don’t want you to know: The Obama administration has already provided a multibillion-dollar bailout to Puerto Rico. Nobody in the major media outlets has noticed because the issue is highly technical.

And because Look!  Justin Bieber!

 

Tony Nitti, Tax Geek Tuesday: Why You Should Never Hold Real Estate In A Corporation? 

William Perez, Filing Requirements for Tax Year 2013

TaxGrrrl, ‘Same Love’ Grammy Wedding: Married Is Married For Tax Purposes

Leslie Book, Corbalis v Commissioner: Tax Court Holds it Has Jurisdiction to Review Interest Suspension Decisions (Procedurally Taxing)

 

Scott Hodge, President Obama Signs Executive Order to Increase Minimum Wages Paid by Federal Contractors (Tax Policy Blog).  Spending our money to show us how generous he is.

Tax Justice Blog, Has the Tax Code Been Used to Reduce Inequality During the Obama Years? Not Really.   They’ve tried, but it doesn’t work.

Jeremy Scott, BEPS Project Should Include Digital Economy Permanent Establishment (Tax Analysts Blog).   Should companies be taxable in a country because they have a “digital permanent establishment”?  I say they shouldn’t be taxed at all.

 

TaxProf, The IRS Scandal, Day 265

Jack Townsend, DOJ Tax AAG Keneally Reports on Swiss Banks Joining DOJ Swiss Bank Program

Kay Bell, Mortgage tax break contributes to fading American dream.

 

Robert D. Flach is a sensible man:

I did not watch the State of the Union address last night.  Instead I watched the wonderful film GAMBIT with Michael Caine and Shirley MacLaine on TCM.

I ate a delicious dinner and had pie for dessert, with the TV off.  My view of the whole SOTU thing is well-reflected here.

 

Career Corner: You Can Run But You Can’t Hide. Therefore, Sabotage Your Coworkers (Going Concern)

 

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Tax Roundup, 1/28/14: Another Iowa ESOP debacle. And: soft skills!

Tuesday, January 28th, 2014 by Joe Kristan


20120920-3
Iowa gets all of the good bad ESOP cases.  
Thanks largely to the energetic work of a single ESOP evangelist in the 1980s and 1990s, Iowa has been treasure trove of cases involving faulty employee stock ownership plans.  The pinnacle of these cases may have been the Martin v. Feilen case, finding violations sufficient for the Eighth Circuit to rule that a district court “abused its discretion” by not banning the Iowa ESOP evangelist from doing any further ERISA work.

Iowa’s bad ESOP history got another chapter yesterday in Tax Court.  The ESOP involved a Rockwell, Iowa S corporation, which had an ESOP owner.  The non-ESOP shares were owned by the corporation’s sole employee and his wife.

So many things can go wrong with this sort of arrangement, and they all did — starting with Sec. 409(p).  Judge Kroupa explains (some citations omitted, emphasis added):

  Responding to perceived abuses, Congress in 2001 enacted section 409(p), which generally limits the tax benefits available through an ESOP that owns stock of an S corporation unless the ESOP provides meaningful benefits to rank-and-file employees.

There are significant tax consequences when an ESOP violates the section 409(p) requirements. For one, an excise tax equal to 50% of the total prohibited allocation is imposed. Sec. 4979A. Furthermore, the ESOP will not satisfy the requirements of section 4975(e)(7) and will cease to qualify as an ESOP. 

Those are pretty severe penalties.  So how do you violate Sec. 409(p)? Roth and Company alum Nancy Dittmer explains:

Section 409(p) is satisfied if “disqualified persons” do not own 50% or more of the S corporation’s “stock.” This stock includes allocated and yet-to-be allocated ESOP shares, synthetic equity of the S corporation, and any shares held directly in the S corporation. The ESOP shares and any synthetic equity are considered to be “deemed-owned” shares for purposes of Section 409(p).

In general, a disqualified person is any ESOP participant who owns 10% or more of the ESOP’s stock. 

20140128-1As our Rockwell taxpayer was the only employee of the S corporation and, by attribution, the only owner of the ESOP, he owned 100% of the shares.  Those of you who are good at math will realize that 100% exceeds 50%, and 409(p)’s excise tax and plan disqualification applies.

So things looked dark for the Rockwell ESOP.  Yet there was a glimmer of hope — not only was the ESOP screwed up, so was the S corporation.  The corporation had 2 classes of stock, which normally disqualifies an S corporation election.  If the corporation isn’t an S corporation, it can’t violate 409(p)!  Alas, Judge Kroupa decided here that two (OK, more than two) wrongs didn’t make a right:

     Petitioner represented to respondent that it qualified as an S corporation for 2002 when it filed its election to be treated as such. Respondent relied on this representation for 2002 because petitioner reported on its 2002 Form 1120S that it owed no income tax because of its electing to be treated as a passthrough entity under subchapter S. The statute of limitations on assessment now bars respondent from adjusting petitioner’s income tax liability for 2002. See sec. 6501(a).

Petitioner was silent regarding its desire to be treated as something other than an S corporation for 2002. Petitioner cannot avoid the duty of consistency, however, by simply remaining silent. Allowing silence to trump the duty of consistency would only encourage gamesmanship and absurd results. Therefore, we will treat petitioner as an S corporation for 2002 under the duty of consistency. 

This bundle of bad facts resulted in $161,200 in taxes and another $76,000 or so in penalties.

The moral?  In spite of media reports, it can be dangerous to game the ESOP rules to avoid tax on S corporation income.  There are many hazards and much legal complication.  If you want to have an ESOP, be sure to bring in a specialist.

Cite: Ries Enterprises, Inc., T.C. Memo 2014-14.

 

Me: IRS gives mulligan to elect portability for $5 million estate exclusion

Paul Neiffer, Not Too Late to Make Portability Election!  I have more here.

Kay Bell, Decoding your W-2

TaxGrrrl, Do You Need To File A Tax Return In 2014?   

 

TaxProf, The IRS Scandal, Day 264

Kyle Pomerleau, The U.S. Has the Highest Corporate Income Tax Rate in the OECD (Tax Policy Blog):

OECD corporate rates

And as Iowa has the highest corporate rate in the U.S., at 12%, we’re number 1!  In a bad way.

 

Robert D. Flach is right on time with your Tuesday Buzz!

 

Career Corner: Soft Skills Are For Pansies (Going Concern)

 

 

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Tax Roundup, 1/24/14: Executive stock spiff proposed for Iowa. And: Haiku!

Friday, January 24th, 2014 by Joe Kristan

20130117-1Legislators propose to exempt employer stock gains from employee Iowa income tax.   S.F. 2043 would exclude from taxation capital gains from stock received by an “employee-owner” of a company “on account of employment” with the corporation, and acquired while the taxpayer was still employed..  While it isn’t entirely clear from the legislation, it would appear to include long or short-term gains, and would include stock acquired by exercise of options or stock bonus plans.  It’s not clear that it would apply to gains on ESOP shares, which are generally issued to owners or redeemed on retirement, but I suspect it would.

It’s an astonishingly broad exclusion.  Once elected, it would apply to stock gifted by the employee-owner to spouses and lineal descendants.  It wouldn’t apply to many family owned companies, because it requires five shareholders, at least two unrelated under IRC Section 318 attribution.  Interestingly, the bill misstates Sec. 318, saying:

Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly.

No, that would be Section 267 attribution, and only for pass-throughs.  Section 318 only makes a taxpayer related to:

his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents. 

No siblings, nieces or nephews to be seen.  If they can’t even read the Code, should they really be messing with the state income tax?

If the Iowa income tax is so awful that we need to carve out a special exemption to executive stockholders to get them to come to Iowa, we should fix it for everyone, not just for them.  Does anybody really doubt that Iowa would be more attractive to business with no corporate income tax and a 4% top individual income tax rate than with the current system plus a new executive spiff?  Come on, legislators:  take the Tax Update’s Quick and Dirty Iowa Tax Reform Plan off the shelf!

Related: Iowa House advances one-time stock gain bill, on a similar bill introduced last year.

 

David Henderson, Steve Moore’s Alternative Maximum Tax (Econlog).  Governor Branstad floated a plan to allow taxpayers to choose between Iowa’s current baroque income tax and a simpler one with lower rates, before abandoning it prior to the opening of the legislative session.   I thought I was being clever by calling an alternative maximum tax.  David reports that Steve Moore came up with both the idea and the name for a proposal he made for the federal tax system in the 1990s.

I still don’t care for it.  In practice we would be computing the tax both ways and paying the lesser amount.  By adding another computation to the process, it would actually make things harder.  The only way it would work would be if it resulted in lower taxes for everyone; then in a few years they could repeal the regular income tax without anyone noticing.

 

20120531-1The 200th edition of the Cavalcade of Risk is up!  This milestone edition of the long-lived roundup of insurance and risk management posts is at Rootfin.  Congratulations to Hank Stern, the evil genius behind the Cavalcade; he participates in this edition with Hacktastic!, on the security troubles of Healthcare.gov, and government’s efforts to hush them up:

See, the problem isn’t the wide-open portal, it’s the folks trying to alert the folks who run it that there is, in fact, a problem. I’m reminded of a certain Middle East river.

More alarming still, though, is that that it’s not just the state folks yelling “burn the witch:” now the FBI has warned Mr Hermansen to zip his lips. That’ll sure make the problem go away.

Your healthcare is in the very best of hands.

 

Jim Maule, How Not to Compute a Casualty Loss Deduction:

The taxpayer claimed a $12,020 casualty loss deduction on account of the loss of the vehicle. The taxpayer computed the deduction by subtracting the $48,000 from $60,020, the original value of the vehicle. However, the first step in computing the amount of a casualty loss deduction is to subtract the insurance recovery from the difference between the value of the property immediately before the casualty and the value of the property immediately after the casualty, unless the taxpayer chooses to use cost of repairs as a substitute measure, though that was not relevant in this case.  Because the taxpayer did not provide evidence of those values, and because the Tax Court was unwilling to assume that the vehicle’s value immediately before the accident was the same as its value when it was new, it upheld the determination of the IRS that the taxpayer was not entitled to a casualty loss deduction.

The IRS often examines casualty loss deductions, so you need to do your legwork on getting the valuations documented before you file.

 

Jason Dinesen, Small Businesses — Review Those Benefit Programs  “When was the last time your small business reviewed the benefit programs your business offers?”

William Perez weighs in on Finding the Right Tax Professional.

Kay Bell, Tax season is tax scam, tax identity theft season. “If you get any unexpected communication in any form that is purportedly from the IRS, especially at the start of tax season, be wary.”  And they will never initiate contact by phone or email.

Paul Neiffer, Cash Does Not Equal Gain.  You can’t make taxable gain go away by using it to pay off loans.

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

Kyle Pomerleau, High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season.  Be glad we don’t take it all, serf!  He computes Iowa’s top combined rate at 47.4%.

 

taxanalystslogoChristopher Bergin, Fortress Secrecy – No News Here (Tax Analysts Blog).

Anyone familiar with my writing knows that I have bent over backwards to give the IRS the benefit of the doubt in this black eye some call the “exemption scandal.” I must admit I’m getting a little tired of bending.

Back in the day, as the saying goes, I often referred to the IRS as Fortress Secrecy, a term meant to describe the agency’s obsession with hiding as much of its operations as it can get away with. I am not a casual observer, and I have never seen things this bad. Everything the IRS has done in addressing the exemption scandal leads to just one conclusion: that this agency now believes it is accountable to no one other than itself.

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

Howard Gleckman, Fiscal Magic: Paying for New Highways by Cutting Corporate Taxes (TaxVox)

 

Frank Agostino, Jairo G. Cano, and Crystal Loyer.  Guest posters at Procedurally Taxing, including the prolific Tax Court litigator Frank Agostino, discuss how IRS rules against giving false testimony bolstered an IRS man’s own case, in Section 1203 to Bolster a Taxpayer’s Credibility at Trial.

Jack Townsend, Required Records IRS Summons Enforced Again

 

News from the Profession.  Pulling Back the Curtain on Making Partner in a Big 4 Firm. Just sell, baby!

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

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Tax Roundup, 1/22/14: Let’s pay it for Hollywood! And: choosing a preparer.

Wednesday, January 22nd, 2014 by Joe Kristan

haroldTaking your money and giving it to Hollywood.  Oscar Nominees Cash In On State Tax Subsidies (Howard Gleckman, TaxVox):

Each of the nine movies nominated for this year’s Oscar for best film may already have taken home a pile of tax subsidies. Seven brought back state goodies from the U.S. and two got cash for their work in the U.K.

And, according to data collected by the Manhattan Institute, the winner is….Wolf of Wall Street. The $100 million black comedy about (irony alert) over-the-top greed among sleazy stockbrokers got a 30 percent tax credit for making the movie in New York State.

The Empire State isn’t even the most generous when it comes to doling out tax incentives to filmmakers. In Louisiana, moviemakers not only get a 30 percent credit against overall in-state production costs but also an additional 5 percent payroll credit. Even better, filmmakers with no state tax liability can monetize the credits by selling them to firms that do owe Louisiana tax or even selling them back to the state at 85 percent of their value.

Iowa used to do this, until its film tax credit program collapsed in scandal and disgrace following revelations that filmmakers were charging fancy cars and personal items to Iowa taxpayers under the guise of “economic development.   Further revelations showed that millions of dollars of pretend expenses were used to claim the credit, taking advantage of credulous administration and almost non-existent oversight.

More from Howard Gleckman:

No doubt these credits are good for filmmakers. And I’m sure residents get a kick out of seeing Leonardo DiCaprio shooting a scene in their neighborhood (assuming they are not steamed over the related traffic jam). But is there an economic payoff in return for these substantial lost tax revenues as supporters claim?

Most studies conclude there is not.

It’s amazing that politicians think Hollywood deserves their taxpayers dollars.  Fortunately, Iowa film subsidies now are limited to housing and meal expenses for filmmakers.

 

Jason Dinesen, Deducting Miles Driven for Charity.  ”Taxpayers can take a deduction of 14 cents/mile for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.”

Tony Nitti, Tax Geek Tuesday: The Sneaky Tax Consequences of Real Estate Repossessions 

 

Choosing a preparer?

Kay Bell, Time to pick the proper tax pro.  She gets one thing wrong about the IRS:  ”For years, the agency has been trying to set up a system under which it register and test tax preparers to help ensure that they meet a minimum competency level.”

No, the agency simply wants to expand its control over preparers and help powerful friends in the big tax prep franchises.  The “minimum competency level” stuff is a weak pretext.

Robert D. Flach, IT’S THAT TIME OF YEAR AGAIN – CHOOSING A TAX PREPARER:

Contrary to the popular “urban tax myth”, unfortunately perpetuated by uninformed journalists and bloggers, just because a person has the initials “CPA” after his/her name does not mean that he/she knows his arse from a hole in the ground when it comes to preparing 1040s.  

True.  But a lot of the best prepaers are CPAs.  Not everybody needs a CPA.  Many folks just need somebody who knows a little more than they do to help them put the W-2 income in the right place.  But if you are doing a complex business return — even on a 1040 — a CPA may be your best bet.

That’s not to say only CPAs are competent preparers.  Enrolled Agents can be very good, and there are many very competent unregulated preparers, like Robert.  I think the competence curve between CPAs and unenrolled preparers would look something like this:

competence curve

The more complex your return, the more likely it is that you will want to bring in an Enrolled Agent or a CPA, but if you already have a strong unregulated preparer who is taking care of your tax needs, you’d be foolish to switch.

 

Paul Neiffer, Average is Important for 2013 Tax Filing.  Farm income averaging, that is.  Another example of a provision that would result in frivolous return penalties for anyone but farmers.

Fairmark.com: Share Identification Under Attack

 

20121120-2Tea Party: Resolved: Obamacare Is Now Beyond Rescue.  Oh, wait, that wasn’t the Tea Party.   It was a debate audience on New York’s Upper West Side.  

TaxProf, The IRS Scandal, Day 258

William Perez, The Number of Sole Proprietors has been Rising for 30 Years

Tax Justice Blog: CTJ Submits Comments on the Finance Committee Chairman Baucus’ International Tax Reform Proposal.  They have very different, and largely opposite, concerns from the Tax Foundation.

Jack Townsend, Tax Notes Article on IRS 2013 Victories in Offshore Evasion

 

gatsoNext: automated pedestrian jaywalking camera fines, for our own safety:  NYC Cops Allegedly Beat Up Jaywalking Elderly Man, Refused to Tell Son Which Hospital He Was In (Ed Krayewski, Reason.com)

But I thought it was about traffic safety, not money…  Council members: Traffic camera revenue helped keep property taxes down, pay for public safety.

 

The importance of philanthropy: Warren Buffett Offers $1 Billion For Perfect March Madness Bracket  (TaxGrrrl)

 

The Critical Question: A Meat Tax? Seriously?  (Joseph Thorndike, Tax Analysts Blog).

News From the Profession: Guy Who Couldn’t Hack Two Years in Public Accounting Needs Validation He Isn’t a Loser (Going Concern)

It’s Academic!  How Not to Use Your Faculty Laptop (TaxProf)

 

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Tax Roundup, 1/20/14: If it’s not a scandal, it hurts like one. And: S corporation ESOP play in WSJ.

Monday, January 20th, 2014 by Joe Kristan

The U.S. District Court for the Southern District of Iowa didn’t need my services as a juror this week, so  I will be participating in the Iowa Bar Association webinar this afternoon on new developments for 2014.  It starts at noon.  You can register here and find more information here.   I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and Kristie Maitre, IRS Stakeholder Liason for Iowa.

 

20130419-1If the Tea Party scandal is not a scandal, why would it be so damaging to the IRS?  The TaxProf’s IRS Scandal Roundup for Day 255 has some eye-opening quotes from a high-powered panel from a Pepperdine/Tax Analysts Symposium last week:

Donald Korb (Partner, Sullivan & Cromwell; former IRS Chief Counsel):  I think it is incredibly damaging.  Frankly, I see it as one of the seeds of the next tax shelter era. … And in terms of scandal, I don’t think we really know. We have not been permitted to understand exactly what happened. So, who knows.

George Yin (Edwin S. Cohen Distinguished Professor of Law and Taxation, Virginia; former Chief of Staff, Joint Committee on Taxation):  I think there has been tremendous damage.  Almost without regard to what actually happened.  And I actually despair of finding out what actually happened. …

Donald Tobin (Frank E. and Virginia H. Bazler Designated Professor in Business Law, Ohio State):  I think it is awful. I agree with Don and George.  7 or 8.  I think this is ultimately going to have huge implications. …

Ellen Aprill (John E. Anderson Chair in Tax Law, Loyola-L.A.):  I agree with all of that.  I have myself avoided the word “scandal” because I just don’t know.  And some of the people I know personally.  I don’t think that was their political motivation.  So I’ve used “controversy” and “brouhaha” and everything but tried not to go all the way to scandal. …

Korb: … This is very, very damaging.  Maybe we are at a 9.5

You can already see effects in the reduction of the IRS funding request in the latest budget deal.  While Congress makes the IRS the Swiss Army Knife of tax policy, it continues to cut back its resources.  That can’t end well.  But the GOP sees that the IRS has acted as a tool for its political opponents, and it’s asking a lot for them to fund their opposition.

 

Robert D. Flach ponders whether the Registered Tax Return Preparer designation could be revived as a voluntary credential.  If any group of preparers can unite behind a voluntary credential with self-administered standards, great.  Just keep the IRS out of it.  It’s a poor use of their resources, and they aren’t to be trusted with that sort of power.

 

S imageS imageS-SidewalkESOP S corporation strategy.  The Wall Street Journal (Laura Saunders, via the TaxProf) reports on an S corporation that may have found a way to funnel all of its income to a tax-exempt ESOP via restricted stock for the non-ESOP owners.  Paul Neiffer suspects it may be too good to be true.

It would be a hard needle to thread, giving the severe 409(p) excise tax that can apply to allocations of ESOP shares to owners of closely-held S corporation.  If the strategy does win in the courts, I would expect to see legislation to change the result quickly.

 

Jack Townsend, Eighth Circuit Affirms Offshore Account Related Conviction

 

Joseph Henchman, What Same-Sex Couples Need to Know This Filing Season  (Tax Policy Blog).  He links to a nice Tax Foundation study that tells how each state is approaching same-sex marriage this filing season.

Roberton Williams, Utah Lets Same-Sex Couples File Joint Tax Returns (TaxVox)

Kay Bell, Girl Scout cookies might be tax deductible.  Unfortunately, only if you don’t eat them.

Russ Fox, The Trouble With Bitcoins: Taxation.  ”If you make money with Bitcoins, it is absolutely taxable.”

Jason Dinesen, Issuing 1099s to an Incorporated Veterinarian.  So veterinary services are “medical services.”

So the IRS agrees with Corb Lund.

 

Tax Justice Blog, Oklahoma Shows How Not to Budget.  ”The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase.”

William Perez, In Honor of Martin Luther King, Jr.  “In 1960, Dr Martin Luther King, Jr., was found not guilty of filing fraudulent state tax returns for the years 1956 and 1958.”  That’s why you don’t want politicized tax enforcement.

TaxGrrrl, Why Justice Matters: The Indictment & Trial Of Dr. Martin Luther King Jr. On Tax Charges   

 

Annette Nellen, Real revenue sources for tax reform.  ”Where can permanent tax increases be generated to offset the desired permanent tax decrease generated from permanent lower rates?”

Good, we need it.  Bloggers = Media for First Amendment Libel Law Purposes (Eugene Volokh).  “To be precise, the Ninth Circuit concludes that all who speak to the public, whether or not they are members of the institutional press, are equally protected by the First Amendment.”

That’s how it should be.

Peter Reilly, Soldier To Tax Accountant – Rachel Millios EA   

 

News from the Profession.  CPA Exam Pass Rates Basically Went Right Off the Cliff at the End of 2013 (Going Concern).  

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Tax Roundup, 1/17/14: Envy as a principle of tax policy. And: my maybe webinar!

Friday, January 17th, 2014 by Joe Kristan

taxanalystslogoJoseph Thorndike, the tax historian at Tax Analysts, asks: What if the Income Tax Is All About Envy? Would That Be So Bad?.

The short answer: yes, it would.  The primary purpose of a tax is to fund the operations of the government.  Asking the tax to do anything else makes it worse at its main job, while imposing wealth-destroying distortions on the economy.  Also, as we noted the other day, increasing taxes on “the rich” has coincided with an increase in inequality.  It’s not clear at all that taxes at any non-catastrophic level can “help” inequality.

But its a slow news day, so let’s spend a little time on a longer answer.  Joseph thinks that inequality on its own is bad, even when “the poor” are well-off in real, but not relative, terms:

In other words, even if a rising tide lifts all boats, the relative size of everybody’s boat still matters. If some boats are much bigger than others, then a society is vulnerable to political instability.

Now, you can object that all the people with little boats are just feeling envious. But that doesn’t make the envy disappear; moral indignation may be satisfying, but it’s not a particularly effective means of keeping the peace. What’s needed, if you’re trying to fend off revolution, is some sort of actual policy response to feelings of relative deprivation.

I think Joseph greatly overstates the risk of well-fed people rising up against their neighbors just because they have nicer cars and houses.  People with something to lose tend to be risk-averse, and few things are riskier than revolution.   Still, that’s not something I can empirically demonstrate.

Equality in action in the Soviet Union on the Belomor Canal

Equality in action in the Soviet Union on the Belomor Canal

One thing that is indisputable is that catastrophe happens when a government makes “equality” its driving principle.  It was tried extensively in the 20th century, and tens of millions became equally dead as a result.  Given that history, equality as an end in itself has no moral force.

In our current politics, inequality is the cynical rallying cry of a President who lives in a mansion and plays golf at exclusive resorts pretty much every week.  He presides over a listless economy, enormous deficits,  and a health reform plan that is a debacle.  He’s out of ideas, so he’s reduced to saying it’s the rich guy’s fault.  Given the approval ratings he’s getting out of it, revolution seems a long way off.

 

Scott Hodge and Andrew Lundeen, High Income Taxpayers Earn the Majority of All Pass-Through Business Income (Tax Policy Blog).  They make a point that can’t be repeated too often:

It is often said that raising top tax rates will have little effect on business activity because only 2 percent of taxpayers with business income will be impacted. However, the more economically meaningful statistic is how much overall business income will be taxed at the highest rates. In 2011, the vast majority (70 percent) of pass-through business income was reported by taxpayers earning more than $200,000. Millionaire tax returns earned 34 percent of all private business income while taxpayers with incomes below $100,000 earned just 14 percent.

20140117-3

Indulging in envy-driven rate increases on “the rich” means weakening businesses and their ability to hire and grow — reducing opportunities for their would-be employees in the name of “equality.”

 

Perspective.  The brilliant Arnold Kling quotes Laurence Kotlicoff on the U.S. Budget:

In a podcast with Russ Roberts, he says,

I think we are probably in worse fiscal shape and any developed country. The reason, Russ, is we’ve been piling up debts for over 6 decades; and when I say ‘we’ I’m referring to Republican and Democratic administrations and Congresses. And we’ve been hiding them. We’ve been keeping them off the books and using economic labels, words, to pretend that they are not real liabilities of the government…we have all these obligations to something like 30-40 million current retirees and close to 80 million baby boomers who are about to start collecting Social Security benefits if they haven’t already. All those obligations are not reported as part of the government’s debt, so we are missing those off-the-book obligations.

But the real economic emergency is inequality. Or austerity. Or something.

Of course, that “something” is probably those  Tea Party extremists who actually want the government to live within its means.  How dare they.

 

Kay Bell, Filing patience can prevent a big tax mistake.  Hurrying your refund by taking out a refund anticipation loan can be an expensive mistake.

Russ Fox, We Will Soon be Able to Efile Past Due Individual Tax Returns.  Good news.  While everybody should file on time, not everybody does, and anything that helps non-filers come in from the cold is a good thing.

 

20130114-1Programming Note:  I am scheduled to participate in a Tax Update Webinar Monday sponsored by the Iowa Bar Association from noon to 1:45 pm.  Registration information is here – $40 to get a great start on your 2014 CPE/CLE.  Other speakers are Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation, and Kristy Maitre, Iowa’s IRS Stakeholder Liason.

While I hope to be there, I can’t guarantee it.  I am on federal jury standby this month, and I won’t know until after 5 p.m. tonight whether I will be hanging out in the jury room at the Des Moines Federal Courthouse instead of at the webinar.  They haven’t needed me these first two weeks, but I suppose past performance is no guarantee of future results here.  If I am on jury duty, the Tax Update may go quiet for awhile.

Update, 1/18: not called for a jury next week, so I will be on!

 

TaxGrrrl, IRS Free File To Open January 17, Two Weeks Before Tax Season Officially Opens 

TaxProf, The IRS Scandal, Day 253.  He quotes an op-ed by an attorney for the Tea Party outfits, who says: “Let’s all be very clear: The FBI did not conduct an “investigation” into the IRS scandal.”  Of course.  Lookouts don’t investigate.

Robert D. Flach brings the Friday Buzz!

 

News from the Profession.  Life at Deloitte May or May Not Involve Time Spent on Your Knees (Going Concern)

 

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Tax Roundup, 1/15/14: Serving society by shooting jaywalkers, sending billionaires to elementary school.

Wednesday, January 15th, 2014 by Joe Kristan

Don’t forget to mail your 1040 first quarter estimated tax payments today!

 

Wikipedia image

Wikipedia image

“Society will be best served by allowing him to continue his good works.”  So said Federal Judge Charles Kocaras in sentencing Beanie Baby Billionaire Ty Warner to two years of probation and 500 hours of community service.  Mr. Warner admitted evading taxes on more than $3.3 million in income through the use of Swiss accounts in a plea deal, but his total unpaid taxes was in the neighborhood of $5.6 million, according to Bloomberg News.

So Mr. Beanie Baby gets to do good works.  It’s remarkable, considering the federal sentencing guidelines for a $5 million tax loss start at a 51-month sentence.

Meanwhile, an American woman who has lived her adult life in France is terrified that she will be financially ruined if she starts complying with foreign reporting requirements that she had no idea existed.  A Canadian born of an American parent who has never been to the U.S. faces ruinous penalties because he never filed U.S. tax returns or FBAR reports — it never occurred to him that he might have to file U.S. taxes.  A second-generation American who inherited a foreign bank account from her father faces a minimum of $40,000 in penalties after not paying a whopping $100 in income tax on the account, which she didn’t even know existed.

So society is best served by allowing Mr. Beanie Baby to help out in classrooms, while the IRS quietly imposes outrageous penalties on the innocent conduct of non-billionaires for foot-faulting their paperwork?  I think society would be best served by letting people voluntarily come into compliance without facing financial ruin.  I think society would be best served by not imposing insanely severe penalties for failing to report a Canadian bank account on time when no tax was avoided.  I think society would be best served by not terrorizing Americans abroad for committing personal finance.  But I’m not a federal judge, so my idea of what best serves society doesn’t mean much.

Related:

Jack Townsend, The Beanie Baby Man, The Tax Evader Adult Man, Ty Warner, Gets Probation!  “I do ask the question that comes immediately to mind.  What is it about the very rich that seems to resonate with sentencing judges?”

Janet Novack, No Jail Time For Beanie Babies Billionaire Tax Evader Ty Warner   “Even after those payments, he will still, according to an accounting he gave the government, be worth more than $1.8 billion.”

 

Kyle Pomerleau, IRS Data on Income Shifts Shows Progressivity of Federal Individual Income Tax (Tax Policy Blog):

In 1980, the top 1 percent accounted for 8.46 percent of adjusted gross income and 19.06 percent of income taxes paid: a difference of 10.59 percent. By 2011, their share of income increased to 18.7 and their share of all income taxes paid increased to 35.06; the difference increased to 16.35 percent.

Top 1 pays more than bottom 90

 

So increasing taxes on the rich didn’t make things more “equal.”  How about that.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Howard Gleckman, IRS Gets Hammered in the 2014 Budget Agreement (TaxVox):

The Internal Revenue Service is one of the biggest losers in the 2014 budget deal agreed to last night by House and Senate negotiators. Under the agreement, the service would get just $11.3 billion, which is $526 million below its 2013 budget and $1.7 billion less than President Obama requested. 

Congress uses the tax law as the Swiss Army Knife of public policy.  It has a sprawling portfolio that ranges from energy policy to welfare to health care — responsibilities that dwarf many of the cabinet agencies nominally overseeing those areas.  Yet Congress, while increasing the responsibility of the IRS more and more, is cutting its resources.  That won’t end well.

Yet the IRS in a way has itself to blame.  It’s outrageous politicization under Doug Shulman and the resulting Tea Party harassment have had the predictable effect of making the Republicans consider the IRS a political opponent.  Nobody wants to fund the opposition.  And no, I don’t buy Mr. Gleckman’s line that “…the 501(c)(4) mess was caused in part by a lack of resources.”  If you don’t have resources, you don’t spend extra time singling out certain political views for “special” treatment.”

 

David Brunori, Apple and Wal-Mart Are Perfect Together in a World of Bad Tax Policy (Tax Analysts Blog):

In any event, the purveyors of tomorrow’s technology and cheap toiletries recently got together to lobby for a sales tax holiday in Wisconsin. In that regard at least, Apple and Wal-Mart are very much alike. They favor bad tax policy when it helps their bottom line. 

Of course they do.  The real shame is the legislators who make it happen.

microsoft-apple

 

TaxGrrrl, No Criminal Charges Expected In FBI Investigation Into IRS Scandal

William Perez discusses Prices for Professional Tax Preparation Services.

Kay Bell, California has $16 million in undeliverable 2012 tax refunds

Robert D. Flach, THE FUTURE OF THE RTRP DESIGNATION – THE CONVERSATION CONTINUES:  ”To be effective the organization that administers the independent voluntary RTRP credential must have the backing, support, and recognition of the entire industry, and not just one component or organization.”

 

TaxProf, The IRS Scandal, Day 251

If the sentence is carried out on April 16, it’s cruel and unusual punishment.  Governor Christie Redeems Himself By Signing “CPA Death Penalty” Legislation in New Jersey (Going Concern)

 

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Tax Roundup, 1/13/14: They’re back edition. And: tax fairy doesn’t show up at appeals court.

Monday, January 13th, 2014 by Joe Kristan


20130117-1
The 2014 session of the 85th Iowa General Assembly begins today.
 It doesn’t look like much tax legislation will pass.

The Governor abandoned a plan to allow taxpayers to choose between the current byzantine Iowa income tax and a lower-rate version with fewer deductions and no deduction for federal taxes paid even before the session started.  He instead will focus on lame feel-good initiatives in an election year, reports Omaha.com:

Gov. Terry Branstad is set to unveil his agenda Tuesday during the Condition of the State address. He said his priorities will include expanding broadband Internet access, fighting school bullying and curtailing student loan debt.

The Governor’s opposition will block any tax reform that isn’t sufficiently punitive to the “rich” — which means any reform worthy of the name.  They will try to change some of Iowa’s worst corporate welfare giveaways, reports the Des Moines Register, but the Governor, an inveterate smokestack chaser and ribbon-cutter, can be expected block any restrictions on using your money to lure and subsidize your competitors.

Meanwhile, trial balloons about increasing the gas tax have already deflated.  That means we can expect a quiet session on the tax front, and a continuation of Iowa’s insanely complex and worthless tax system for another year.  But if they change their minds and want to do something useful, it’s always a good time to talk about The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

tax fairyTax Fairy seeker loses appeal.  A South Dakota surgeon who looked across the ocean for the Tax Fairy found only grief — and the grief wasn’t alleviated on appeals.  The Eighth Circuit Court of Appeals last week upheld the conviction that led to a five-year sentence for Dr. Edward Picardi.

The doctor used a scheme where he “leased” his medical services to an offshore company he controlled to artificially reduce his income by stashing earnings in offshore accounts.  The scheme was promoted to him by an attorney-CPA who has been acquitted of criminal charges in another employee leasing case.

Other taxpayers have avoided fraud penalties from employee-leasing to offshore entities (see here), but not taxes and penalties.  When the best you can say about a tax plan is that you avoided fraud penalties, it’s not much of a plan.  There is no tax fairy.

Prior coverage here.

 

Kay Bell has Important January tax dates, deadlines

 

Lyman Stone, Should Nebraska Follow the Example of Illinois or Indiana?  “The case of Illinois is a great example of how higher taxes can contribute to a worsening business climate, which leads to less jobs.”

Annette Nellen, Marijuana and the Tax Law.  Despite appearances, there is no evidence the lawmakers are smoking something when they write tax laws.

TaxGrrrl, Top 10 Most Litigated Tax Issues.  Number one is penalties.

TaxProf, The IRS Scandal, Day 249

Robert D. Flach offers a SPECIAL OFFER FOR ITEMIZERS!

 

TaxTrials, Famous Fridays: Wesley Snipes, A Lesson in Listening to Bad Advice.  Did he ever.

 

The Critical Question: Massages May Feel Nice, But Can You Deduct Them at the Poker Table? (Russ Fox)

News from the Profession: KPMG Upgrades Its Female Interns From Necklaces to Camisoles  (Going Concern)

 

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Tax Roundup, 1/10/2014: Taxpayer advocate rips IRS penalties and foreign account enforcement. Also: the Code still stinks!

Friday, January 10th, 2014 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

The Taxpayer Advocate’s Annual Report directs some well-deserved fire on two of the worst IRS practices: the penalty-happy approach to examinations and the shoot-the-jaywalkers approach to offshore enforcement.

The report says this about penalties:

The IRS’s decision not to abate inapplicable penalties illustrates its resource-driven approach to them. As we have described in prior reports, the IRS too often proposes accuracy-related penalties automatically when they might potentially apply — before performing a careful analysis of the relevant facts and circumstances — and then burdens taxpayers by requiring them to prove the penalties do not apply.

The IRS should identify and abate all of the accuracy-related penalties that should not apply. It should minimize taxpayer burden when administering the IRC § 6676 penalty (e.g., by not proposing it automatically) and work with the Treasury Department to support a reasonable cause exception.

Amen.  The tax law is hard, and when a taxpayer does what a reasonable person — not a reasonable tax lawyer — should do to pay the right amount, there shouldn’t be an automatic 20% mistake penalty.  Too bad the advocate doesn’t seem to have embraced my “sauce for the gander” penalty, which would make the IRS pay taxpayers the same 20% penalty when the IRS makes an unjustified assessment.

Regarding foreign account enforcement, the report faults the IRS shoot-the-jaywalker approach (my emphasis):

In the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly six times the tax on their unreported income. Among unrepresented taxpayers with small accounts it was nearly eight times the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about three times their unreported tax. When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70 percent of the unpaid tax and interest. Given the harsh treatment the IRS applied to benign actors, others have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process. Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.

20121129-1Shooting the jaywalkers so you can slap the bad actors on the wrist.

The IRS should expand the self-correction and settlement options available to benign actors so that they are not pressured to opt out or pay more than they should; do more to educate persons with foreign accounts (e.g., recent immigrants) about the reporting requirements; consolidate and simplify guidance; and reduce duplicative reporting requirements.

The IRS should follow the lead of the states that allow non-resident taxpayers who voluntarily disclose past non-compliance to file and pay five years of prior taxes, with only interest and no penalties — reserving the penalties for those who wait until they are caught.  Tax Analysts quotes one lawyer as saying this would be unfair to the already-wounded jaywalkers:

“It’s very hard to make the program more lenient now without going back and adjusting thousands of [prior] taxpayers’ resolutions since 2009,” he said. That is something the IRS is likely unwilling to do, he added.

Too bad.  That’s exactly what they should do.

 There’s a lot more to the report, including a call for a new taxpayers bill of rights (good) and a renewed call for IRS preparer regulation (a waste of IRS and preparer time).

Related: 

Lynnley  Browning, IRS top cop says the agency is too hard on offshore tax dodgers.  I can’t imagine she wrote that headline.  Any lazy headline writers who call an inadvertent FBAR violator a “tax dodger” should have half their bank account balances seized if they ever forget to report a 1099.

TaxGrrrl, Report To Congress: IRS Is Increasingly Unable To Meet Taxpayer Needs

Jack Townsend,New Taxpayer Advocate Report to Congress Addressing, Inter Alia, OVDI/P Concerns

 

TaxProf, IRS Releases FY2013 2006 Enforcement Stats:

The IRS has released Fiscal Year 2013 Enforcement and Service Results, showing among other things:

  • Individual audit rate:  0.96% (lowest since 2005)

  • Large corporation audit rate: 15.8% (lowest since 2009)

  • Revenue from audits:  $9.8 billion (lowest since 2003)

  • Number of IRS agents:  19,531 (lowest since pre-2000)

  • Conviction rate:  93.1% (highest since pre-2000)

It’s hard to see where the IRS has the resources for making compliant preparers waste their time on preparer regulation busywork.

 

William Perez, Fourth Estimated Tax Payment for 2013 Due on January 15

Paul Neiffer, How Low is Too Low For A Rental Arrangement?  “We had a reader ask the following question: ‘Does leasing cropland to a family member for substantially less than fair market value become “gifting” subject to taxes for value above gifting limit?’”

Jason Dinesen,  Review Your Small Business Operations as Part of Year-End/Year-Beginning Planning

Leslie Book, NTA Annual Report Released (Procedurally Taxing)

 

 

Christopher Bergin, The Tax Code in 2014 – It Still Stinks (Tax Analysts Blog):

I’ve always believed in progressive income taxation. This isn’t it. The conservatives have sold us on the notion that tax is a dirty word, and the liberals have sold us on the notion that class envy is a healthy state of mind.

And that, folks, is why the tax code stinks. And it won’t get any better in the new year.   

There’s more to the stink than that, but it’s a good start.

 

Scott Hodge, Millionaire Taxpayers Tend to be Older.  Well, that’s one good thing about aging, I guess.

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Howard Gleckman, Pay to Extend Unemployment Benefits? Why Not Pay to Extend Temporary Tax Breaks Too?  (TaxVox)

Tax Justice Blog,  Reasons Why Congress Should Allow the Deduction for Tuition to Remain Expired

Kay Bell, Marijuana sales, tax collections good for Colorado coffers.

 

The Newest Cavalcade of Risk is up!  Hank Stern participates with an Overseas ObamaTax Conundrum

 

Robert D. Flach brings the Friday Buzz!

Career Corner: This Year, Resolve to Finally Decide What You Want To Be When You Grow Up in Public Accounting (Going Concern)

 

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Tax Roundup, 1/7/2014: Koskinen proposes voluntary IRS preparer certification. And: Obamacare, small business incubator?

Tuesday, January 7th, 2014 by Joe Kristan
This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

The new IRS Commissioner, John Koskinen, would like for IRS to oversee a voluntary preparer certification program if their preparer regulation power grab fails in the courts, reports Accounting Today. But he would still prefer the power grab:

“If you could require certification of preparers and some educational requirements, it would help taxpayers feel some level of confidence that preparers actually know what they’re doing, and the vast majority of them do,” Koskinen said during a conference call with reporters after he was sworn in ceremonially Monday by Treasury Secretary Jack Lew with an audience of many IRS employees in attendance. “My sense is that we should be able to provide that same educational training and that background to preparers. If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’ Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”

Somebody should point out to him that there already is such a program: the Enrolled Agent Program.  If the IRS runs the now-mothballed Registered Tax Return Preparer literacy test as a voluntary program, it will be a crippling blow to the more rigorous and underappreciated EA designation. Before he worries more about the competence of preparers, Commissioner Koskinen should fix his agency first (my emphasis):

“When I look at the impact of the budget and the implications of further cuts or what happens the next time there’s a sequester, the first thing that happens is the waiting time on a phone call goes up and our service goes down,” he said. “We try to get to 70 or 80 percent, but sometimes it gets as low as 50 or 60, which means at 50 percent that half the people who are calling are getting no answer at all and no satisfaction. It just seems to me that’s intolerable. Taxpayers deserve better, so we need to do whatever we can to provide the services that taxpayers need and expect. They ought to be able to dial the IRS number and get an answer promptly, and they ought to be able to get accurate information.”

Even the shabbiest storefront preparer at least processes more than half of its customers.

 

Why Iowa income tax reform will go nowhere this yearvia the Sioux City Journal:

Senate Democratic Leader Mike Gronstal, D-Council Bluffs, said Senate Democrats would formulate a tax-relief approach geared toward income tax cuts for middle-class Iowans, not the two-tiered plan being pushed by Republicans.

“Nobody in my caucus is going to go along with a scheme that leaves middle-class Iowans carrying more than their share of the tax burden in Iowa so rich people can choose whichever one works the best for them,” Gronstal said.

The idea that the state income tax system is somehow a way to fight The Rich Guy is willfully dumb, with zero-income-tax South Dakota right next door.  Oh, and you know what another word for “the rich” is?  Employers. 

Source: The Tax Foundation

Source: The Tax Foundation

 

Megan McCardle poses the question “Will Obamacare Inspire Small-Business Ownership?“:

One theorized benefit of the Patient Protection and Affordable Care Act is that it will unleash a new era of entrepreneurship. Undoubtedly, there are people in the U.S. who wanted to start a business but feared losing their health insurance. Now that they know they can buy it, presumably they’ll be freed to take risks without fearing that they could end up uninsured and uninsurable.

Unfortunately, we just don’t have that much empirical evidence. European nations with more generous social safety nets have lower rates of entrepreneurship than the U.S. does, even though a thought experiment might suggest that generous welfare programs would encourage people to take more risks. Nor did we see a radical unfurling of entrepreneurial energy in Massachusetts after RomneyCare.

She also points out that Obamacare is a kick in the head for businesses that actually succeed:

Meanwhile, of course, the law imposes significant new penalties for growing a company; anyone with more than 50 employees not only has to provide health insurance for their employees, but they also have to meet a substantial regulatory burden to demonstrate that they’re providing affordable coverage. That might discourage people from growing their firms. 

You know, it just might.

 

Russ Fox, Your Mileage Log — Start It Now (2014 Version).  You would not believe how much it helps in an IRS exam.  And doing it retrospectively when the IRS exam notice arrives tends to go badly.

Peter Reilly, Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex   Ewww…

Paul Neiffer, Roger’s Top Ten. “Roger McEowen from Iowa State University and their Center for Agricultural Law and Taxation (CALT) just listed his Top 10 Ag Law and Taxation Developments for 2014.”

William Perez, Resources for Preparing and Filing Form W-2 for Small Businesses

Robert D. Flach tells us WHAT’S NEW FOR NJ STATE TAXES FOR 2013

Kay Bell, Tax Carnival #124: Happy New Tax Year 2014

20120829-1

 

Martin Sullivan, Goodbye Baucus, Hello Wyden (Tax Analysts Blog): ”On tax reform the current chair of the Senate Finance Committee has been a laggard. Wyden will be a leader.”

Jeremy Scott, A To-Do List for Wyden (Tax Analysts Blog).  Tax Reform, Extenders, and the Tea Party investigation.

TaxProf, The IRS Scandal, Day 243

 

Joseph Henchman, Parking and Transit Benefits Tax Exclusion Parity Expires Again; Congress Should Consider Permanent Fix.  (Tax Policy Blog).  ”The tax code is probably the wrong place to be subsidizing commuters, and the entire provision ought to be eliminated. If Congress wishes to retain it, it ought to consider a non-expiring unified exclusion of all transportation commuting expenses.”

Tax Justice Blog, Corporate Income Tax Repeal Is Not a Serious Proposal.  Stawmen go up in flames.

Ben Harris, Rethinking Homeownership Subsidies (TaxVox).  He wants to revamp them.  I’d prefer to get rid of them.

 

TaxGrrrl, Cracker Barrel Waitress Serves Up Happiness, Gets Tip & More .  $6,000 more.

The Critical Question: Is College That Guy on eBay Who Never Paid For the Crap You Sent Him? (Going Concern)

 

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

Monday, January 6th, 2014 by Joe Kristan

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

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

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

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

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

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

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

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

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

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

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

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

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

 

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

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

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

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

Paul Neiffer, Remember Your Simplified Home Office Deduction

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

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

 

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

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

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

 

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

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

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

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

Annette Nellen, Continued bonus depreciation or tax reform?

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

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

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

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

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

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

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

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

 

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Tax Roundup, 12/31/2013: So much for Iowa tax reform. And: last-minute charity!

Tuesday, December 31st, 2013 by Joe Kristan

ijlogoThere’s only so much you can do on one day to achieve last-minute tax deductions.  The markets are open, so you can harvest your tax losses.  The post office closes early, so if you want to mail a check for a deductible expense, get down there this morning.  You might want to review all of my 2013 year-end tax tips for some other ideas.

If you are both charitable-minded and deduction-minded, credit-card donations up to midnight tonight work.  Indulge me while I suggest a few good causes that can get you a charitable deduction:

Salvation Army, doing hard work with the homeless and lost and on hand to help at disasters, doing much with little.

Iowa Donor Network, the Iowa organization that gathers and allocates donor organs.

Institute for Justice, the non-profit that helps the little guy fight back against government’s bent on stealing their business or preventing them from making a living.  IJ is the outfit behind the battle against the IRS preparer regulation power-grab — it’s hard to imagine how the IRS would have been stopped without their good work.

The Tax Foundation, fighting the good fight for sound tax policy.

Reason Foundation, supporting liberty against all comers.

Alzheimers Association, fighting an awful disease.

Sertoma, little platoons working to prevent hearing loss through education and awareness.

Cornell College, my undergraduate alma mater.

Southern Illinois University, where I got my accounting degree.

Last but not least, The ISU Center for Agricultural Law and Taxation, sponsor of the Farm and Urban Tax Schools.

That’s it for our 2013 year-end tax tips, but there’s good stuff all year at the Tax Update!

 

Related:

William Perez, Last Day Deduction Ideas

TaxGrrrl, 13 Dramatic Year End Tax Strategies For 2013   

 

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

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

So much for the Iowa alternative maximum tax.  Branstad says he’s “realistic” — abandoning idea of pushing for income tax changes in 2014, reports O. Kay Henderson:

Earlier this month Governor Terry Branstad was considering a plan to let Iowans keep filing their personal income taxes under the current system, or opt for a flatter, simpler system with fewer deductions. Branstad’s now abandoning the idea.

“I’ll be real frank to say that with the present make-up of the senate and particularly with the present chairman of the Ways and Means Committee, I doubt that we’re going to see anything significant on the tax front this year,” Branstad said during an interview with Radio Iowa.

The majority Senate Democrats, led by Joe Bolkcom, are obsessed with sticking it to “the rich,” meaning employers, and the Branstad plan fails to do so sufficiently.  As the Senate can block any tax proposal, there was never much hope for the Branstad plan.

As the Governor’s half-baked plan was going nowhere anyway, perhaps now he can start working for the sort of real income tax reform that is so long overdue in Iowa.  The current system is a rat’s nest of special interest breaks, feel-good provisions, complexity and high rates that pleases only lobbyists and string-pullers.  It discourages small businesses with unforgiving complexity while paying the well-lobbied to be our friends.

Let’s get rid of all of the special deductions for special friends of the politicians, and all of the feel-good deductions, and even the deduction for federal taxes.  Oh, and lets get of the Iowa corporation income tax entirely.  Let’s drastically reduce rates to 4% or less and make Iowa taxes easy to understand and pay.  Governor, embrace the Tax Update’s Quick and Dirty Iowa Tax Reform plan for all and see if the soak-the-rich crowd really wants to stand up for insiders, lobbyists, complexity, high rates, and high compliance costs.

 

It’s a dishonor just to be nominated, but Russ Fox can only choose one 2013 Tax Offender of the Year.  The recipient worked very hard to earn the title, and is quite deserving.

 

Tony Nitti, Tax Geek Tuesday: Does The Sale Of Property Generate Ordinary Income Or Capital Gain?  It depends on what you sell, and who you sell it to.

 

Scott Hodge,  Out With the Extenders, In With the New Obamacare Taxes (Tax Policy Blog).  In case you were getting excited about a new year.  It lists all of the Lazarus provisions that expire at midnight, and all of the new taxes that start at 12:01.

Kay Bell,  Expiring commuter tax break will cost public transit users

 

Robert D. Flach brings you his last Buzz of 2013!

Jason Dinesen lists his Most-Popular Blog Posts of 2013

News from the Profession.  Count Your Blessings For Not Being on These Horrible Inventory Counts (Going Concern)

 

I will take the rest of the week off to clear my mind for tax season.  Happy New Year, and see you on Monday!

 

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Tax Roundup, 12/30/2013: Paying for those last-minute write-offs. And: Harold Hill marches on.

Monday, December 30th, 2013 by Joe Kristan


20121228-2
How to pay for those last-minute deductions.
  We’re down to the wire, kids.  2013 ends in less than 48 hours, so if you are going to claim some last-minute deductions, get busy!  Some things to keep in mind:

- A credit card is as good as cash. Better, even, because if you incur a business expense before the end of the year, you have your credit card statement to prove it.

- If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2013 to be a deductible 2013 expense. If it’s a big check, maybe you should spend a little extra to send it Certified Mail so you can document the postmark.

- If you receive a check in the mail, it’s taxable the day you receive it, even if you don’t deposit it.

- There is no “close is good enough” rule for cash basis taxpayers. Just because you could have paid a bill doesn’t get you a deduction if you didn’t pay it before year-end.

- Don’t overdo it. If you prepay expenses more than a year out, you don’t get the deduction until the year to which the payment applies.

- If you are making a gift to a loved one to qualify for the $14,000 annual gift tax exclusion, having the check in the mail isn’t good enough. A check has to be cashed for the gift to count against this year’s exclusion.

And in case you didn’t check in over the weekend:

What you need to pay by year-end to get a 2013 business expense deduction and

Hie thee to the altar! Maybe.

Check in tomorrow for the last 2013 year-end tax tip!

 

haroldL.A. Times: Transferable Movie Tax Credits Hurt States, Enrich Studios, Tax Lawyers (TaxProf):

Reitz is one of Hollywood’s new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.

In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.

Money for Hollywood, fixers, middlemen, and the well-connected, at your expense.  Sort of like every other “economic development” tax credit, only even more so.  Fortunately Iowa, sadder but wiser, has turned to jailing film folks instead of subsidizing them.

 

Russ Fox, Bring Me the Usual Suspects: Small Business Policy Index 2013.  Iowa is 43rd.  Not surprising, when “Of the 47 measures included in the 2013 edition of the Index, 22 are taxes or tax related…”

 

William Perez looks at the Top Tax News Stories of 2013.  His top story took place on the first day of 2013:

1. American Taxpayer Relief Act was passed on January 1, 2013. This tax law instituted at top personal tax rate of 39.6%, bumped up the top capital gains rate to 20%, provided for indexing the alternative minimum tax to inflation, reinstated the phaseouts on itemized deductions and personal exemptions. This law was Congress’s way of dealing with the fiscal-cliff, which was the name applied to the expiration of a several tax laws first enacted during the Bush administration.

I hope nothing so awful happens on the last day of the year.

Robert D. Flach also looks back with 2013: THE YEAR IN TAXES – PART TWO

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Annette NellenNew IRS Commissioner – Does anyone care?

“Despite running a significant organization with over 92,000 employees that collects over $2.2 trillion of revenue and affects the lives of most people in the U.S., it doesn’t seem to me that anyone really cares about who is running the IRS.”

That’s unfortunate.  As the tax law has become the Swiss Army Knife of public policy, the Commissioner oversees a sprawling portfolio ranging from health policy to campaign finance to industrial policy.  There’s more power in the IRS than in most cabinet agencies.  And as the disastrous regime of Doug Shulman proved, an awful Commissioner can cause a lot of damage to taxpayers and to the agency.

 

Jim Maule, Contracting a Tax Outcome.  ”When a taxpayer signs a contract, the terms of that contract quite often dictate the tax consequence.”

 

 

What could go wrong?  French High Court OKs 75 Percent Tax For Top Earners (Iowa Public Radio)

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Tony Nitti, A Tax On Cycling: Too Steep A Hill To Climb Or Just Around The Corner?  With talk of replacing gas taxes with mileage charges based, presumably, on tracking your whereabouts, it’s not surprising that they want to tax any alternatives to cars.

 

 

 

 

TaxProf, The IRS Scandal, Day 235

Jack Townsend, Judge’s Improper Question of Defendant as Witness is not Reversible 

 

That’s the only way the team overachieved.  St. Louis Rams say they collected too much ticket sales tax (Kay Bell)

 

Oh, this will end well.  “The Game: I’m a pot-smokin’ Tax Fraud“ (TMZ).  The first rule of Tax Fraud Club: don’t talk about Tax Fraud Club.

TaxGrrrl takes a look at Mr. Game’s tax claims in  Game Offers Tax Advice To Rappers: Write Off Strippers, Sneaks And Medical Marijuana:

Next, those Jordans. Clothing is deductible if the only purpose of the clothing/uniform is for business purposes (meaning that you must wear them as a condition of employment) and not suitable for everyday use. Clothing is not deductible if you could wear it outside of your workplace (even if you don’t). Those Jordans? Not merely for business purposes. And Game would totally wear them outside of business. 

In case you’re wondering, rappers are not required to take any tax continuing education.

 

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

Friday, December 27th, 2013 by Joe Kristan

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

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

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

 

January 15: Federal fourth quarter 2013 payments are due

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

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

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

April 30: due date of Iowa individual tax returns.

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

pv tax prepayment3

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

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

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

 

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

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

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

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

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

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

 

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

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

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

 

Jason Dinesen, Capital Losses and Tax Planning 

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

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

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

 

 

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

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

 

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

 

 

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

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

Go, David!

 

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

 

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Tax Roundup, 12/23/2013: The joys of being at-risk. And: commence self-destruction sequence!

Monday, December 23rd, 2013 by Joe Kristan

S imageS image20091210-1.JPG‘Tis the season to be at-risk.  We mentioned yesterday how you can get basis for deducting S corporation losses by making a loan to the corporation.  But not just any loan.  If you borrow from another S corporation shareholder to make your loan, your basis won’t be “at-risk.”

A Monroe, Iowa farmer learned that the hard way with his 1991 loan, as we discussed long, long ago:

Larry Van Wyk, a farmer from Monroe, Iowa, got a taste of the dangers of the at-risk related-party loan rules back when farmers were their primary target. He owned an S corporation farm 50-50 with his brother-in-law, Keith Roorda. On December 24, 1991, Larry borrowed $700,000 from Keith. The loan was fully-recourse, so the brother-in-law could proceed ruthlessly against Larry in the event of non-payment. Larry used about $250,000 to repay money he owned the S corporation and loaned the remainder to increase his basis to enable him to deduct losses.

 Unfortunately, Larry’s brother-in-law had “an interest in the activity” – he owned half of it. This made the deduction not “at-risk,” even though no loan from a brother-in-law is without risk in a very real sense. The efforts of some of the finest tax attorneys west of the Mississippi were unavailing; the Tax Court agreed with the IRS, and Larry lost his losses.

It’s not enough to avoid borrowing from another shareholder; you don’t want to borrow from somebody related to another shareholder.  And as “interest in the activity” isn’t necessarily the same as “shareholder,” you should watch out for borrowing from anybody else involved in the business.  The safe thing is to visit your friendly community banker for your loan.

This is another of our daily year-end 2013 tax tips — one a day through December 31!

 

Weekend update!  In case you missed it over the weekend:

2013 Winter Solstice Tax Tip: S corporation basis and

Winter Sunday tax tip: loans for S corporation basis.

 

William Perez, Roth Conversions as a Year-End Tax Strategy

Jason Dinesen,  Six Things I’m Talking to My Small Business Clients About at Year-End (Part 2) 

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

We have a Commissioner.  Senate Votes 59-36 to Confirm John Koskinen as IRS Commissioner (TaxProf).  A lot of folks have noted that once again we have a Commissioner who hasn’t done taxes for a living.  That doesn’t have to be fatal.  Anybody who has hung around CPA firms can tell you that somebody who is good at taxes can be pretty terrible at running an organization.

Still, it’s not a great sign.  The new guy, John Koskinen, will be 79 years-old when his five-year term runs out.  He got his reputation as a “turnaround guy” at Freddie Mac in the wake of the financial crisis, preserving the bureaucracy as responsible as any for the financial meltdown.  I suspect he was hired to protect the agency, not the taxpayer.

By the way, there is another Koskinen.

 

The crumbling mandate.  Tax Analysts reports ($link):

Individuals whose health insurance plans were canceled by insurers because they did not meet the requirements of the Affordable Care Act will be eligible for an exemption from the individual mandate penalty that takes effect in 2014, the Department of Health and Human Services said late December 19.

20121120-2Megan McArdle says this means Obamacare Initiates Self-Destruction Sequence:

As Ezra Klein points out, this seriously undermines the political viability of the individual mandate: “But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it’s wrong. But it’s hard to argue that it’s right for the currently uninsured but wrong for people whose plans were canceled … Put more simply, Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people whose plans were canceled more deserving of help than people who couldn’t afford a plan in the first place?”

Arnold Kling put it more pithily: “Obama Repeals Obamacare.”

They’re desperately improvising as they go.  Not a good situation, considering the mandate tax is supposed to take effect in less than two weeks.   I’m starting to doubt that it ever gets enforced.

Related: Paul Neiffer, Cancelled Health Insurance Policies

 

20121220-3Kay Bell, Singing the praises of tax-favored retirement savings

Brian Mahany, IRS Ordered To Pay Taxpayer’s Legal Fees 

Russ Fox, The Death of the Death Master File (Sort of)

Peter Reilly,  Woody Allen’s Blue Jasmine Has A Tax Lesson.  If you don’t wan’t to stay married to a spouse, you might not want to file a joint return either.

TaxGrrrl,  12 Days Of Charitable Giving 2013: Esophageal Cancer Action Network

Robert D. Flach has a special Monday Buzz!

 

Tax Justice BlogUltra-Wealthy Dodge Billions in Taxes Using “GRAT” Loophole

Michael Schuyler, Why A Death Tax “Loophole” May Make Economic Sense (Tax Policy Blog).

Jack Townsend, Swiss Bank Hype and Over-Hype.  ” Merely having U.S. clients with undeclared accounts is not the problem for those banks; it is those banks actions to become complicit in the U.S. clients’ failure to report the accounts.”

Jim Maule finds his inner libertarian, embracing a Reason Foundation report calling for elimination of the home mortgage deduction in exchange for lower rates.

 

News from the Professon.  PwC Won’t Stop Beliebin’ In Ugly Christmas Sweaters (Going Concern)

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

Friday, December 20th, 2013 by Joe Kristan

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

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

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

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

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

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

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

 

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

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

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

 

Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

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

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

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

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

 

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

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

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

 

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

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

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

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

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

 

TaxProf, The IRS Scandal, Day 225

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

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

Get your Friday Buzz from Robert D. Flach!

 

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

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

“Oh, my.

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

Yep, I said that.  Thanks, Peter!

 

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

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

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

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

 

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Tax Roundup, 12/19/2013: Government finally to stop promoting identity theft. And more year-end tips!

Thursday, December 19th, 2013 by Joe Kristan

DMFGovernment shuts down identity theft enabling operation: its own.  The budget compromise headed to the President’s death places new restrictions on the Social Security Death Master File.  While prized by genealogists for their work, it’s prized even more by thieves, who use the information on it to snap up fraudulent tax refunds in the names of the dead.  It’s been a multi-billion dollar problem for years.

The person who stole the identity of the late husband of Jason Dinesen’s client almost certainly did so using DMF information, stealing unknown amounts from the government and disrupting the client’s tax life for years.

Bloomberg Business explains the new restrictions:

The legislation would exempt the records from the federal Freedom of Information Act and give the Commerce Department 90 days to set up a process to certify legitimate users. The public would have access to the data three years after an individual’s death.

The language in the bill was taken from a Senate Finance Committee draft from which lawmakers had asked for comment by mid-January, said Alane Dent, vice president for taxes and retirement security at the American Council of Life Insurers.

While the restrictions seem long overdue, not everyone is happy about them, aside from identity thieves.  Newsweek reports:

“Closing the Death Master File is ludicrous,” said Melinde Lutz Byrne, one of the nation’s top genealogists and part of a small group of forensic researchers at Boston University. They have banded together and for two years have fought similar proposals in Texas and Florida to block public access to the Death Master File.

“It is my opinion that the science of it all has bypassed our elected representatives and even the courts,” she said.

It’s a trade-off, but I think preventing fraud deserves priority here.  Still, the objectors are right about this:

“The IRS is handing out money like candy – and nobody wants to acknowledge it,” said Sharon Sergeant, a forensic researcher, technologist and tax-software programmer who strongly supports the Boston University group. “Why isn’t it checking to make sure dead people aren’t getting tax returns? Somebody who reads the obituaries and makes up a social security number the right way, according to the algorithm, can file a tax return and get a payment. It’s got nothing to do with the Death Master File. It has everything to do with the IRS not doing its job.”

But The Worst Commissioner Ever felt it was more important to expand power over preparers than to stop the thieves.

 

2013 year-end tip: Donate your appreciated stock now!  The tax law allows you to claim a full-value charitable deduction for donating appreciated long-term capital gain securities that are publicly-traded.  It’s a tax-efficient way to donate, as you get the full deduction without ever paying tax on the appreciation.

But there is a hitch: you have to get the stock to your favorite charity’s brokerage account by December 31 to get the deduction.  That can take time, especially when dealing with less-sophisticated smaller charities.  If you want a 2013 deduction, start by contacting the charity and learning how they want you to get the securities to them by year-end. Remind the charity that they need to provide you a written acknowledgement of the gift.  And make sure your own broker knows the transfer has to be completed this year.

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

 

20120906-1Just bluffing.  ”Archer Daniels Midland Co. decided Wednesday to set up its new international headquarters in Chicago even after it failed in its bid for millions of dollars in state tax breaks.”  Next time our politicians claim to have “created jobs” by giving away your money, remember that they are giving their friends money to do things they would be doing anyway.

 

 

Cara Griffith, The Tax Reform Debate…for a Limited Few in Wisconsin (Tax Analysts Blog):

What was advertised as an “outstanding opportunity for the hardworking taxpayers” to engage in discussions about tax reform are also closed to the public…

Making tax proposals available to the public and opening up a dialogue with affected taxpayers can be eye-opening for people who will eventually have to develop and administer the proposal. If tax legislation is enacted, those who wrote the legislation, those who will enforce it, and those who will be affected by it should all understand what the legislation was designed to do. 

Politicians and their friends don’t like company.

 

Christopher Bergin, Transparency Is in Our DNA (Tax Analysts Blog):

Tax Analysts is involved in litigation in the commonwealth of Kentucky to get its Department of Revenue to begin releasing redacted copies of final letter rulings. The agency is resisting that, which is why we are in court.

Bureaucrats and their friends don’t like company either.

 

Chris Stephens, Pressure Mounts Against “Jock Tax” in Tennessee (Tax Policy Blog):

For example, a player at the NBA league minimum of $500,000 who is paid per game would make about $6,097 per game. If the player plays only one game in Tennessee he would pay a tax of $2,500 for that game, which is a tax rate of 41 percent. It is also worth noting that the player would also pay approximately 40 percent in federal income taxes, potentially leaving almost nothing in take home pay.

The states that want to pick the stars’ pockets forget that not everybody is paid like LeBron.  Unfortunately, the federal proposal to prevent state income taxation of employees only in-state for a few days doesn’t cover athletes or entertainers, treating the couch-surfing musician the same as Peyton Manning.

 

20111040logoTaxGrrrl, IRS Finally Announces Start Date To 2014 Tax Filing Season  Filing season starts January 31.

Paul Neiffer,  Tax Filing Begins January 31, 2014

Jason Dinesen, Six Things I’m Talking to My Small Business Clients About at Year-End (Part 1)   

Tony Nitti, With Tax Break Set To Expire, Partnerships Should Consider Converting To C Corporations Before Year End.  This is a 100% exemption on gains for C corporation stock received on original issue held for at least five years.

Kay Bell,  Homeownership tax breaks to take in December

Robert D. Flach, WHAT’S NEW FOR NEW YORK INCOME TAXES FOR 2013

Margaret Van Houten, How to Maintain Records for your Digital Assets  (Davis Brown Tax Law Blog)

 

Janet Novack, Minus Taxes And Hype, $636 Million Jackpot Shrinks To $206 Million — Or Less 

Jim Maule, Let’s Not Extend The Practice of Tax Extenders.  Agreed.

Stephen Olsen, The “IRS Investigations” Scam.  A client he helped through the OVDI “amnesty” program gets targeting by a scammer.  Troubling.

Jack Townsend, Judge Rakoff Speaks on the Dearth of Prosecutions from the Financial Crisis   He quotes the judge: “But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.”

It’s at least as much political fraud as financial fraud, but political fraud is never prosecuted.

 

Tax Justice Blog, Murray-Ryan Budget Deal Avoids Government Shut down but Does Not Close a Single Tax Loophole, Leaves Many Problems in Place

TaxProf, The IRS Scandal, Day 224

 

News from the Profession: Future CPA Seeking the Best CPA Review Course Someone Else’s Money Can Buy (Going Concern)

 

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

Wednesday, December 18th, 2013 by Joe Kristan


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

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

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

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

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

Kay Bell offers Donating appreciated assets to your favorite charity

 

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

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

 

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

 

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

 

 

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

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

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

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

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

 

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

 

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

 

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

 

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

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

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

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

Good stuff.

 

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

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

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

 

 

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

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

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

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

 

 

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

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

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

 

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

 

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