Posts Tagged ‘Robert D Flach’
Wednesday, April 24th, 2013 by Joe Kristan
Max Baucus
Depart, I say; and let us have done with you. In the name of God, go! Chief Senate taxwriter Max Baucus won’t run for re-election. (Dealbook, via Going Concern).
Sen. Baucus has been either chairman or minority leader of the Senate Finance Committee for decades, and along with his partner in crime, Sen. Grassley, he bears great responsibility for the nightmare the tax law has become, including Section 409A, the Net Investment Income Tax, The First Time Homebuyer credit, Section 199… Good-bye, before you wreck any more trains.
Related:
Linda Beale, Baucus Will Not Run in 2014 (yay!)
Kay Bell, Senate Finance Committee chairman’s coming retirement could shape tax reform
Congratulations to Paul Caron, proprietor of the TaxProf Blog, on his move from Cincinnati to Pepperdine in Southern California.
Kyle Pomerleau, No Surprise: The Overly Complex EITC is Plagued with Billions of Dollars in Improper Payments (Tax Policy Blog)
Patrick Temple-West, Obama budget taxes more Americans, and more
Tony Nitti, Quantifying The Recent Tax Increases: What Is A Wealthy Taxpayer’s “Fair Share?” As far as some people are concerned, it’s always more than they are paying.
Daniel Shaviro, Senate vote on the “Marketplace Fairness Act”
Howard Gleckman, Five Things You Should Know About the Online Sales Tax Bill (TaxVox). He thinks it’s just lovely.
Joseph Henchman, Senate Voting This Week on Expanding State Authority to Collect Internet Sales Taxes (Tax Policy Blog)
Clint Stretch, Getting It Wrong: Energy Tax Policy (Tax.com):
Winston Churchill said that Americans can be counted on to do the right thing, after we have exhausted all other possibilities. He might have added that we usually start with the least direct and most complex approach. So it is with the energy tax policy expressed in President Obama’s FY 2014 budget.
I like this sentence: “By their nature, tax credits add complexity to the law and often reward behavior that would occur even without the credits.”
Robert D. Flach asks, DIRECT DEPOSIT – IS THERE A PROBLEM?
So far two clients have contacted me to report an issue – one with a 2011 refund andone with a 2012 refund. In both cases the refund was not directly deposited to the requested account. Instead it was applied to the subsequent year’s estimated tax. It was as if the taxpayer, or I, had entered the full amount of the refund on Line 75, although we clearly did not.
This isn’t a problem I have seen. Robert famously doesn’t e-file his returns. I wonder if it’s a simple keypunch error at the service center.
Jason Dinesen, In a Same-Sex Marriage? Watch Your Federal Tax Withholding
Jim Maule, Putting It in Writing Makes Good Tax Sense. If you use the right words, of course.
Peter Reilly, How To Shatter The Public Accounting Glass Ceiling ? Sometimes I think it’s that women see the hours and stress involved and wisely say “screw this.”
TaxGrrrl, Ready Or Not: Lauryn Hill Sentencing For Tax Evasion Postponed
Tax Trials, Tax Court: Second FPAA Invalid, Cannot Confer Jurisdiction
Robert D. Flach is buzzing again!
I love my hometown: Elvis impersonator engages police in 30-hour standoff in Des Moines (RawStory.com, via The Beanwalker)
Stoned people should not throw glass bongs in houses. Glass bong breaks two state windows (Jason Clayworth)
Tags: Baucus, Clint Stretch, Daniel Shaviro, Des Moines, Howard Gleckman, Jason Dinesen, Kay Bell, Kyle Pomerleau, Linda Beale, maule, Patrick Temple-West, Peter Reilly, Robert D Flach, Tax Trials, TaxGrrrl, TaxProf, Tony Nitti
Posted in Tax Roundup | No Comments »
Tuesday, April 23rd, 2013 by Joe Kristan
The legal business must really be getting tough, if lawyers have to resort to the lamest lame tax fraud scheme out there. A Monroe, Louisiana attorney named Francis Broussard has pleaded guilty to attempting to claim over $9 million through the “1099-OID” fraud. From thenewsstar.com:
According to the Stipulated Factual Basis in the plea agreement, Broussard, who has been licensed to practice law in Louisiana since 1986, had his accountant prepare his 2005 through 2007 tax returns, but the defendant never filed them. Broussard did present the documents to various financial institutions in efforts to obtain personal loans and other types of financing. In 2009, the defendant went to a different tax preparer to have his personal tax returns prepared for 2005 through 2008. The defendant brought already prepared federal tax returns along with a separate piece of paper with a set of numbers on it. The defendant instructed the preparer to use the set of numbers on Forms 1099-Original Issue Discount (OID) and on the Schedule B, Interest Income section of the form. The defendant’s fraudulent claim is based on the OID interest income.
The 1099-OID scheme is, to the extent it is coherent at all, based on the idea that government has a big cash stash for each of us. They don’t want us to know about it, goes the theory, but we can tap into it if we just fill out the right tax forms. It’s not surprising that people fall for it — heck, we fall for big delusions every time we vote — but it is surprising that a lawyer would give such a preposterous scheme a try.
TaxProf, TIGTA: IRS Fails to Comply With Mandated Reduction in Improper Payments — 25% EITC Fraud Costs $14 Billion/Year. The earned income tax credit is a fraud magnet because it is “refundable” — if it exceeds your tax for the year, the IRS writes you a check. That makes it a welfare program run through the tax system. EIC advocates say it is a critical help for struggling families, but when that much is stolen from the program in a year, you have to think there is a better way.
Howard Gleckman, High Income Households Would Pay Most—But Not All—of the New Taxes in Obama’s 2014 Budget (TaxVox). Just more evidence of the unseriousness of the budget. The rich guy isn’t picking up the tab. He can’t.
Jeremy Scott, How Important Is Deferral to Multinationals? (Tax.com)
Tax Trials, Mark Your Calendars: IRS Closes for 5 Days Under Sequestration
Patrick Temple-West, Businesses become REITs to avoid taxes, and more. That works great if you can live with at least 100 shareholders, and no five together own over 50%.
Robert D. Flach, MORE ON THE NEW “SAFE HARBOR” HOME OFFICE DEDUCTION
Trish McIntire, Do Overs. You can amend a tax return if you need to.
William Perez, Obama’s and Biden’s Tax Returns for 2012
Kay Bell, Celebrate Earth Day by exploring environmental tax breaks
Tags: Howard Gleckman, Jeremy Scott, Kay Bell, Patrick Temple-West, Robert D Flach, Tax Trials, TaxProf, Trish McIntire, William Perez
Posted in Tax Roundup | No Comments »
Monday, April 22nd, 2013 by Joe Kristan
The next generation of tax preparer?
A bill is floating around in Congress to have the IRS automatically fill out many tax forms. Robert D. Flach has details, which include a website where you would download a 1040 already filled in; you’d print it and sign it.
A lot of folks hate the idea. I’m sceptical, as I believe the IRS is far from having the data processing abilty to make it work without an enormous error rate. I can imagine the IRS cracking down on taxpayers who claimed and spent erroneously-generated auto refunds, while poor widows would sign off on excessive taxes year after year and then have no recourse after the statute of limitations runs. Robert has this to say:
It would be helpful if a taxpayer, or tax preparer, could access the details of what the IRS has received from payers and payees issuing information returns. But as a reference and not as a pre-prepared return option.
That would actually make sense.
Tags: Robert D Flach
Posted in Uncategorized | 2 Comments »
Friday, April 19th, 2013 by Joe Kristan
More
evidence that preparers are out of control and need IRS employees to keep an eye on them: 24 IRS Employees Indicted for Theft of Government Benefits (TaxProf).
24 current and former employees of the Internal Revenue Service have been charged for crimes relating to fraudulently obtaining more than $250,000 in government benefits.
Thirteen of the current and former IRS employees have been charged federally with making false statements to obtain unemployment insurance payments, food stamps, welfare, and housing vouchers. All thirteen, individually charged in separate indictments, are alleged to have falsely stated that they were unemployed while applying for or recertifying those government benefits.
They may have been right about being unemployed, just wrong about the timing.
We have to show the government our returns, so it’s only fair: Iowa Gov. Branstad plans to show income tax returns to reporters (AP)
Howard Gleckman, What Ever Happened to State Tax Reform? (TaxVox)
Kay Bell, Obama’s 2012 effective tax rate was 18.4 percent; Now what do your members of Congress pay in taxes? Make them do their returns on a live archived webcast, with a rolling comment bar.
Peter Reilly, How Not To Care About IRS E-mail Snooping
William Perez, IRS Provides Penalty Relief Due to Boston Marathon Explosion and Storms in South and Midwest
Patrick Temple-West, Tax extension after Boston attack, and more (Tax Break)
Russ Fox, RS Gives Extra Three Months for Filing and Payments to Boston-Area Taxpayers; Massachussetts Deadline Should be the Same
TaxGrrrl, So You Missed Tax Day, What Next?
Andrew Mitchel, Code §911 Foreign Earned Income Exclusion – Adverse Conditions
Freakonomics Blog, The History of Taxes
Megan McArdle, Our Tax Code is Too Complicated. Here’s How to Simplify It. ”Get rid of the corporate income tax. It’s not worth it, and there are better ways to collect the money.”
Janet Novack, Tax Geeks: Make Tax Filing Easy, Kill The Mortgage Deduction, Tax CPAs
Jim Maule, Tax Compliance and Non-Compliance: Identifying the Factors
Trish McIntire, You Need the Numbers Before You Do the Return
Scott Drenkard, Perry Calls for Reforms of Texas’ Margin Tax (Tax Policy Blog). It could use it.
Christopher Bergin, It Just Isn’t Fair (Tax.com):
The headline producing data in the report was that revenue loss – about $181 billion – from corporate tax expenditures in 2011 was “approximately the same size as the amount of corporate income tax revenue the federal government collected that year.” That makes a headline grabber; here would be my version: “Corporations Got More in Tax Breaks Than They Paid in Taxes, Government Says.”
It’s almost like the tax exists only so the politicians can carve loopholes for their friends.
Indeed. It’s Rarely a Good Sign When a Tax Prep Business Closes Its Doors Three Days Prior to April 15th (Going Concern)
Just plead “miseducation” and leave it at that. Lauryn Hill asks judge for leniency in upcoming tax evasion sentencing claiming she failed to file taxes due to threats and withdrawal from society (dailymail.com.uk)
Tony Nitti, Girl, You Know You Better Watch Out: Singer Lauryn Hill To Be Sentenced On Tax Evasion Charges
Jack Townsend, Bank Frey Executive and Swiss Lawyer Indicted
How I spent April 15. (Marketwatch, via Going Concern). I approve of the comment at the bottom of the GC post.
Me too. Tax Season 2013: Mostly Unpleasant, And I’m Glad It’s Over (Jason Dinesen)
Robert D. Flach returns! THAT WAS THE TAX SEASON THAT WAS 2013
Me: Back to work.
News you can use. Hone your corporate tax evasion skills (Boston.com)
Tags: Andrew Mitchel, Anthony Nitti, Christopher Bergin, Freakonomics, Going Concern, Howard Gleckman, Jack Townsend, Janet Novack, Jason Dinesen, Jeremy Scott, Kay Bell, Lauryn Hill, maule, megan mcardle, Patrick Temple-West, Peter Reilly, Robert D Flach, Russ Fox, Scott Drenkard, tax crime, TaxGrrrl, Trish McIntire, William Perez
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Friday, February 22nd, 2013 by Joe Kristan
Enjoying a short winter commute in bicycle-friendly Des Moines.
We aren’t scaring them. Governor Branstad is making a trip to California to poach some businesses from the failing Golden State. He’s not scaring one Californian:
Iowa’s top state personal income tax rate is 8.98 percent, compared to 13.3 percent in California. Probably not enough of an improvement to lure millionaires from Pacific Palisades to Dubuque. By contrast, Texas offers zero percent.
The top state corporate income tax rate is 12.5 percent in Iowa, 8.84 percent in California and zero percent in Texas.
Earlier this year, Branstad said he would no longer pursue getting rid of Iowa’s corporate and personal income taxes. Instead, he’s going to focus on cutting property taxes.
Well, California’s property taxes already are fairly low thanks to Proposition 13. Although property prices here are triple those in Iowa and most other states because of our severe restrictions on building.
Bottom line: Iowa doesn’t offer enough incentives to attract many businesses and people to leave California. The Hawkeye State is the Golden State with bad weather.
Ouch. Well, Iowa’s solvent, too, unlike California, which is a fiscal disaster. We also have short commutes. Still, he makes a valid point: it’s not enough to compete with a basket case like California. Golden State refugees have plenty of places to choose from, many of which have better taxes, better weather, or both. I have no thoughts on fixing the weather, but The Quick and Dirty Iowa Tax Reform Plan would take care of the tax problems. With no corporate tax and a 4% individual rate, combined with good employees, education and quality of life, we’d see some Californians.
To C or not to C? The Wall Street Journal reports that taxpayers are revisiting whether to operate businesses as C corporations or pass-through entities. C corporations face a top rate of 35%, where individuals have top rates over 42% as a result of the ill-concieved fiscal cliff and Obamacare tax increases. From the article:
“Even though on the surface you’re looking at 35% versus 39.6%, it’s a deceptive comparison,” says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. “There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit.”
For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.
Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years.
At current rates, a switch to C corporation format is probably still unwise, if tempting, because of the double tax issue. You might have lower tax up front, but getting the money out involves either paying a second tax on the dividends or expensive tax gymnastics, often involving renting to a corporation or potentially “excessive” compensation. C corporations are the Roach Motels of the tax world: they’re a lot easier to check into than check out of. But if there is a significant reduction in corporation rates, the current tax savings will be enough to tip the balance for many taxpayers to C corporation status, double tax or no.
Hat tip: TaxProf Blog.
When Will Tax Complexity Cause a Collapse? (Jason Dinesen).
The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.
When will the complexity cause the system to collapse? And what, exactly, will collapse?
I think it would require a combination of things to “collapse” the tax law. If the perception becomes widespread that it is impossible to comply with the tax law without unreasonable effort, or the rates get intolerably high, and technical advances allow for cash transfers and banking that the government can’t trace, then the game is over.
Tax Analysts is having a conference today on whether, after 100 years, the income tax has run its race.
Elizabeth Malm, Holy Smokes! Washington Loses $376 Million to Cigarette Tax Evasion in 2012. Many states have raised tobacco taxes to a point where smuggling becomes attractive.
Howard Gleckman, Congress May Not Rewrite the Tax Code in 2013, But It Could Make It Simpler (TaxVox). If you can’t do everything, you might still do something.
Kay Bell, Education tax credit form, already pushed into February, now causing filer confusion and more delays in processing
Peter Reilly, Bill Romanowski’s Tax Court Loss Not A Typical Horse Case. We covered it here yesterday.
TaxGrrrl, About Those Leaked Wal-Mart Emails… Is IRS To Blame For Sluggish Sales? Are tax refund delays stopping consumer spending?
Teaching by bad example, Nebraska-style. I examine the tax troubles of a prairie-town lawyer.
Jim Maule, How Tax Falsehoods Get Fertilized. That “70,000-page tax code” really bugs him.
Want to raise the minimum wage? Then apply it to your interns, Congresscritters. (Donald Boudreaux).
Don’t bug Robert D. Flach with requests for free tax help.
It’s probably how he meets girls too. Berlusconi & The Lure of Tax Refunds (Robert Goulder, Tax.com).
CPA exam tip: Calm Down, This CPA Exam Practice Question Isn’t as Dirty as You Think (Going Concern)
Tags: Branstad tax policy, C corporations, California, Donald Boudreaux, Elizabeth Malm, Going Concern, Howard Gleckman, iowa tax policy, Jason Diensen, Kay Bell, maule, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, Robert Goulder, S corporations, TaxGrrrl, TaxProf
Posted in Tax Roundup | No Comments »
Tuesday, February 5th, 2013 by Joe Kristan
The Iowa Senate approved the Iowa tax code conformity bill, SF 106, yesterday. The bill was approved 48-0, which is a good sign that it will pass quickly — enabling Iowans to get on with filing their 2012 business returns.
The bill updates Iowa’s income tax for the Fiscal Cliff tax bill changes passed last month by Congress. Key items updated to match federal rules include:
- Conforming with the $500,000 federal Section 179 deduction limit for 2012 and 2013.
- Allowing the optional deduction for state and local sales taxes for 2012 and 2013.
- Conforming to federal research credit rule changes
- Continuing the IRA charitable distribution exclusion
- Adopting the federal “above the line” deductions for college tuition and for out-of-pocket expenses of educators.
The bill does not adopt federal bonus depreciation for 2012 and 2013. The bill does not show up yet on the calendars for the House Ways and Means Committee or for House floor debate, so it may not get to the Governor this week. Update, 9:00 am: An e-mail from the House floor manager for the bill says the House may take it up as soon as tomorrow.
More boffo reviews for the shutdown of the IRS preparer regulation program!
The Weekly Standard raves:
It’s hard to choose just one IRS knee-slapper, but here goes. The agency insists IJ’s “suggestion that the return preparer program is the product of a tainted lobbying effort is belied by support for the program from the Taxpayer Advocate, the Electronic Tax Administration Advisory Committee, numerous consumer advocacy groups, and comments from individual practitioners.”
The ETAAC is an IRS-administered panel whose members include lawyers and CPAs—who weren’t subject to the regulations—and people with connections to H&R Block and Jackson Hewitt, big businesses happy to help the government force the little guys out of the industry.
Protecting the taxpayers has never been the point.
The Wall Street Journal weighs in:
Rather than continuing to fight in court, the agency would do better to cashier the rules on legal and economic grounds. They are a classic example of big business harnessing government power to aid the powerful at the expense of small-business competitors. Meantime, won’t someone in Congress tell the IRS to stop exceeding its legal authority?
Sadly, no.
Meanwhile, the IRS has re-opened its PTIN registration system. It appears the IRS will still charge for them, though it’s not clear why anymore.
Nick Kasprak, Weekly Map: Sources of State and Local Tax Revenue: Sales, Excise, and Gross Receipts Tax:
Leave Gennifer Flowers Alone! Clinton woman pleads guilty to false tax returns. Clinton, Iowa, that is. From the Clinton Herald:
Regina Jimenez, 60, of Clinton pleaded guilty to two counts of filing
false tax returns. She faces up to three years of prison, a fine of up
to $1 million and costs of prosecution on each count.
According to court documents, Jimenez operated AA Accounting & Tax
Services, Inc. in Clinton from approximately 2007 through 2011. Jimenez
used the business to facilitate the theft of more than $200,000 from a
client who believed that Jimenez would use the money to pay the client’s
taxes.
There’s never a good reason to have your tax preparer pay your income taxes for you. If your preparer tries to get cash from you “to give to the IRS,” ask many questions.
Paul Neiffer, Hedging Versus Speculation:
Remember, if the farmer purchases a corn call option as part of this hedging strategy, this no longer qualifies as a hedge (even though is a normal strategy of selling actuals and buying the “board”, for tax purposes, it is not a hedge) and is considered speculation. In many cases, the tax treatment can be harsh since if the option produces income, the IRS will treat it as ordinary and if it produces a loss, it will be considered a capital loss (the worst of both).
Because partnership tax isn’t screwed up enough? Why the IRS Should be Taxing the Profits of Private Equity Funds as Ordinary Income (Steven Rosenthal, TaxVox).
Robert D. Flach, tax man of La Mancha New Jersey Pennsylvania, chases his favorite windmill: BEFORE I GO – MY “CRUSADE”
Windmills everywhere! Carl Levin Continues to Play the Role of Don Quixote (Jeremy Scott, Tax.com)
Patrick Temple-West, Democrats target corporate tax breaks, and more
TaxGrrrl, Guess What Turned 100 This Weekend?
Kay Bell, Happy 100th birthday federal income tax
Brian Strahle, The Maryland Wynne Case is Decided, Will The State Appeal Further? A possible refund for Maryland residents with taxes in other states.
Brian Mahany, OVDI – It’s Not Just For Unreported Foreign Accounts
Why you should spring for a good GPS unit. You might get lost otherwise, like a star-crossed couple in my home town of West Des Moines. The Des Moines Register reports:
The incident occurred at about 2:12 a.m. Friday, when a car pulled into a police station driveway at 250 Mills Civic Parkway marked for “Authorized Personnel,” according to a police report.
Police said the car passed two patrol cars and drove up a private drive before turning around when it reached a garage. An officer in one of the patrol cars then turned on his top lights and stopped the car.
The driver told officers they were trying get to Beach Girls, an adult entertainment venue at 6220 Raccoon River Dr., West Des Moines, according to the report.
The two officers reported that both the driver and passenger had bloodshot, watery eyes and that the vehicle smelled of marijuana.
If they mistook the West Des Moines cop shop for a strip club, either they already had enough fun for the night, or strip joints have changed a lot since my bachelor days.
Tags: Brian Mahany, Brian Strahle, iowa tax policy, Jeremy Scott, Kay Bell, Nick Kasprak, Patrick Temple-West, Paul Neiffer, preparer regulation, Robert D Flach, SF106, Steven Rosenthal, tax crime, TaxGrrrl
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, February 4th, 2013 by Joe Kristan
Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order. The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal. The judge declined:
As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.
So where do things stand? The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them. Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.
More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.
You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday. They had a football game and everything to observe it. The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official. And yes, it is official. While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons. So, in any way that matters, it’s official. Still, I can’t bring myself to say “Happy” anniversary.
More from Richard Morrison: 100 Years of the Federal Income Tax (Tax Policy Blog)
Iowa’s oldest judge, age 90, steps down. Ruth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court. Happy Retirement, Judge Klotz!
Paul Neiffer, Many States Are Delaying Farmer Filing Deadline
Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS
Kay Bell, Tips are taxable income
TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It
Trish McIntire, Gambling 1099MISCs. They don’t make your winnings taxable, they just let the IRS in on the secret.
Patrick Temple-West, Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)
Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com). Strange question. If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?
Rudy Penner, The Risks of Dumbing Down Fiscal Goals (TaxVox). It’s hard to think they could get any dumber than they are now.
Jim Maule, Looking Again at Tax and Political Ignorance:
The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.
Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.
Linda Beale, Red state tax “reform” and “economic growth”
Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE
The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).
What this country needs is a good 25-cent sneaker. Illinois Proposes 25-Cent Sneaker Tax (TaxProf)
It’s the little things. The mark of a true craftsman is attention to detail. Two Ohioans’ alleged failure to mind the details has led to trouble. From the Columbus Dispatch:
Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.
But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.
So did misspelling some of the occupations they listed on the phony tax returns.
I bet they thought those spelling drills in grade school were pointless.
Tags: 16th Amendment, Institute for Justice, Jack Townsend, Kay Bell, Linda Beale, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, Richard Morrison, Robert D Flach, Robert Goulder, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
Posted in Tax Roundup | No Comments »
Friday, February 1st, 2013 by Joe Kristan
Iowa legislature goes 0-for-January. The Iowa General Assembly has been completed the first three weeks of its 2013 session without settling what Iowa’s tax law is for last year. The legislation needed to update Iowa’s 2012 tax law for the retroactive federal changes enacted in the Fiscal Cliff bill at the beginning of this year hasn’t cleared either house of the legislature. The Senate Ways and Means Committee at least moved its bill (SF 106) out of committee Wednesday, while House Ways and Means hasn’t even done that much with its bill (HF 110)
Many Iowans were affected by the retroactive changes, including educators and people who made energy-saving home improvements. Almost all businesses are affected by the Federal extension of $500,000 Section 179 expensing of depreciable property for 2012. Yet these taxpayers can’t complete their Iowa 2012 tax returns until the legislature decides what parts of the federal changes to accept.
The silliest part: we pretty much know what the bill will look like. It’s almost certain that it will adopt federal Section 179 rules and the other “extender” rules, without adopting federal “bonus depreciation.” That means there’s no reason to dawdle. But dawdle they do.
50 years for Wasendorf. The Wasll Street Journal reports:
Russell Wasendorf Sr., was sentenced to the maximum 50 years in jail after admitting to orchestrating a fraud at his futures brokerage and misleading regulators for almost 20 years.
Mr. Wasendorf, 64 years old, pleaded guilty last September to the fraud at Peregrine Financial Group Inc. that federal prosecutors said had cost clients $215.5 million and masked a business that never was profitable. He also was ordered to pay the full amount of missing funds in restitution.
Mr. Wasendorf got away with it by forging paper bank statements for the regulators and auditors. The scam blew up when Peregrine was forced to move to electronic account verification. Sadly, the chances of full restitution being paid to his victims are less than the chances he will walk out of prison at the end of his sentence.
But it could be worse. Florida woman faces potential 351 years in prison for tax fraud (CPA Practice Advisor)
Kay Bell, Congressman wants answers from IRS regarding tax preparer registration
TaxGrrrl, Wrong Side Of An Audit: Memo Argues IRS Inflated Numbers, Exaggerated Figures. My favorite part (my emphasis):
The IRS also claimed that it would suffer unspecified “costs associated with . . . finding other positions for the 167 Service employees currently working on the return preparer project.” [Institute for Justice attorney Dan] Alban noted, in response, that just over two weeks ago, the IRS complained about understaffing, since “[o]verall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6% in the past year.” You’d think that the IRS would welcome, not rue, the idea of having nearly 200 employees available for other tasks – like answering the phone (at current staff levels, they only do that about 70% of the time).
The preparer regulation program has always seemed a frivolous use of IRS resources when tax complexity and identity-theft fraud are making the tax law almost impossible to administer.
That time already? It’s Time for Independent Certification for Tax Preparers (Robert D. Flach in Accounting Today)
I hate extra apostrophes. Careful Tax Update readers know that I have a terrible habit of inserting extra apostrophes, creating an unintended possessive. I know the rules, but my fingers betray me when typing. Fortunately I can easily change a blog post to turn “it’s” to “its.” Not everybody is so fortunate.
Unless, of course, Steven owns “Steven’s” building.
Tags: apostrophes, Ben Herris, David Cay Johnston, Downtown Des Moines, HF110, Jack Townsend, Kay Bell, maule, Patrick Temple-West, preparer regulation, Robert D Flach, SF106, tax crime, Tax Trials, TaxGrrrl, Wasendorf
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Tuesday, January 29th, 2013 by Joe Kristan
Flickr image courtesy Pasa47 under Creative Commons license
A Tax I can support! Tax the Revolving Door (Glenn Reynolds)
In short, I propose putting a 50% surtax — or maybe it should be 75%, I’m open to discussion — on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you’ll pay 50% of the difference — just over $400,000 — to the Treasury right off the top. So as not to be greedy, we’ll limit it to your first five years of post-government earnings; after that, you’ll just pay whatever standard income tax applies.
Plus make them wear clown clothes to work. (Via the TaxProf)
Allysia Finley, Mickelson and the Sports Star Tax Migration (Wall Street Journal):
About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?
It would be surprising if they didn’t.
Kyle Pomerleau and William McBride: EITC Awareness Day (Tax Policy Blog)
Research has shown that the EITC is associated with higher workforce participation among certain populations. However, Casey Mulligan’s research shows there is no free lunch here, since the EITC creates disincentives to work over the income range in which it phases out (roughly $20,000 to $50,000). And because the EITC is one of many overlapping anti-poverty programs, such as unemployment insurance, they all add up to huge disincentives to work among the poor.
And some Iowa politicians want to increase the Iowa EITC, making it a bigger poverty trap.
Steven Rosenthal, Chairman Camp Agrees: Too Many Choices Burden our Tax System (TaxVox)
Jeremy Scott, Huffington Post Draws Tenuous Link Between Camp Plan, Fix the Debt Group (Tax.com)
Robert D. Flach, GUIDELINES FOR TAX REFORM:
Recognize and acknowledge that the purpose of the federal income tax is to raise the money necessary for the administration of the government and government sponsored programs. It is not to be used to “redistribute income” or as a method for delivery of social welfare and other government benefits.
If that principal were vigorously applied to the tax law, the 1040 would fit on a postcard.
Climb in the Cavalcade! Worker’s Comp Insider hosts the latest Cavalcade of Risk roundup of insurance and risk-management posts, including Insureblog on the Curly Bulb Menace.
Russ Fox, Form 8863 Added to Returns that the IRS Won’t Accept Just Yet. The form for tuition credits.
William Perez, When Can You Begin Filing Your 2012 Federal Tax Return?
Jason Dinesen, Taxpayer Identity Theft, Part 11. In which the IRS ignores the change-of-address filing and mails a long-delayed refund to the wrong address.
Martin Sullivan, Taxing Financial Pollution. On the futility of a financial transactions tax. (Tax.com)
Missouri Tax Guy, What you’ll Need. A guide to gathering your tax return information.
TaxGrrrl, Tax Season Kicks Off January 30th: Here’s What’s On Tap
Jack Townsend, IRS Issues John Doe Summons to UBS (All Over Again)
Kay Bell, Deducting sales tax on your new car … or boat or airplane or home
Tags: Allysia Finley, Beavers, cavalcade of risk, Instapundit, Jack Townsend, Jason Dinesen, Jeremy Scott, Kay Bell, Kyle Pommerleau, Martin Sullivan, Missouri Tax Guy, Phil Mickelson, Robert D Flach, Russ Fox, Steven Rosenthal, tax crime, TaxGrrrl, TaxProf, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Monday, January 28th, 2013 by Joe Kristan
Iowa is collecting more tax money than it is spending. Iowa House Republicans propose to give the money back as a one-time tax credit. The Des Moines Register reports:
The proposal would capture the state’s estimated $800 million budget surplus, divide it equally among the state’s income tax payers and issue an income tax credit to every taxpayer for his or her share. Senate Republicans said last week the credit amounts to $375 for individuals or $750 for couples who file jointly.
That means, for example, if a married couple’s state income tax liability was $1,000, they would receive a $750 tax credit, reducing the amount they were actually required to pay to $250. If a payer’s burden was less than $375, he would receive a credit equal only to his actual bill.
It’s a simple plan that treats the surplus as a non-recurring event. Unfortunately, there is nothing simple about Iowa’s tax law otherwise. I’d prefer to see it returned as part of a tax reform plan.
House Democrats prefer to spend the money, and the Governor wants some of it to fund his education reform plan. ISU economist David Swenson says the money should be run through the government:
Drawing on a statistical model that predicts economic impacts, he said $780 million in government spending could support roughly 2,000 more jobs than the same amount of spending by households.
Yes, the magical power of the government to transform your money into jobs. If we just gave the government infinite money, we’d get infinite jobs. If that worked, you’d think we’d have more jobs than ever, considering that Federal and state governments are spending more money than ever.
Link: Text of HF 1.
Tax Notes, Preparers in Limbo as IRS Shutters PTIN System After Loving Decision ($link):
Tax return preparers who just recently were rushing to get their preparer tax identification numbers from the IRS before it starts accepting 2012 tax returns on January 30 are in limbo after a federal district court enjoined the Service from enforcing requirements under the registered tax return preparer (RTRP) designation.
The IRS’s online PTIN system appears to be unavailable. People familiar with the system are uncertain why the IRS took it offline and what its unavailability means for the hundreds of thousands of potential PTIN registrants.
“From a practical point of view, [the IRS] has already shut the [PTIN] system down,” said Dan Alban of the Institute for Justice and the lead attorney for the plaintiffs in Loving v. IRS, No. 1:12-cv-00385 (D.D.C. 2013) “Whether they are legally required to do so is the question.”
Well done, IRS! Preparers are required to have a PTIN. The IRS apparently tied it’s PTIN software to the preparer regulation system overturned earlier this month. Another triumph for tax administration.
TaxProf, What’s FATCA Got To Do With It? Tina Turner Renounces U.S. Citizenship. It’s always easier for the wealthy to avoid the ridiculous paperwork the tax law imposes on Americans abroad. It’s the little jaywalkers that get shot to ensure the serious money-launderers get slapped on the wrist.
Andrew Mitchel has posted two videos explaining Form 5471. Think that sounds dull? If you fail to report your interest in a foreign corporation, the $10,000 fine will make it interesting.
Martin Sullivan, UK Conservative Policies in Trouble (Tax.com)
Brian Mahany, Tiger Woods and Tax Migration – The Wealthy Flee High Tax States (tax planning post)
Patrick Temple-West, Republican governors open new front in tax debate, and more
Paul Neiffer, AMT Causes a Few More Capital Gains Tax Rates!
Robert Goulder, The Pepperdine Papers: Advice for Obama’s Second Term (Tax.com)
Kay Bell, Deducting sales tax on your new car … or boat or airplane or home
Jim Maule, Tax Planning: A Chore That Never Sleeps. I think it works better if it does.
Trish McIntire, Who Do You Believe?. If your tax advisor contradicts your bar buddy on a tax issue, go with the tax advisor.
Dan Meyer, Will Tax Benefits Later Cost You Now?
Robert D. Flach, THE RESIDENTIAL ENERGY CREDIT IS BACK FOR 2012 (AND 2013)!
Joseph Henchman, Municipal Bankruptcies Since 1988. (Tax Policy Blog). He lists about 43.
Russ Fox, Cash and Carry Doesn’t Work for Strip Club Owner. I don’t think it’s allowed for the patrons either.
Worth a try. Shop Till Your Taxes Drop (TaxGrrrl)
Tags: Andrew Mitchel, Branstad tax policy, Brian Mahany, Dan Meyer, Joseph Henchman, Kay Bell, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, PTIN, Robert D Flach, Roburt Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Friday, January 25th, 2013 by Joe Kristan
A proposal to refund part of the state budget surplus. The Des Moines Register reports:
Iowa House and Senate Republican leaders today proposed to give a flat $750 to every Iowa household in an effort to return to taxpayers the state’s $800 million budget surplus.
The money would be returned to taxpayers in the form of a tax credit, said Senate Republican Leader Bill Dix, R-Shell Rock, and House Speaker Kraig Paulsen, R-Hiawatha.
That seems pretty straightforward. Better still to give it back as part of simplifying the tax code, but better that than just spending it. Yet just spending it has its advocates:
Senate Democrats who control their chamber said that since it’s early in the session they are open to talking about the Republicans’ proposal, but they have other ideas.
Sen. Joe Bolkcom, D-Iowa City, who chairs the tax-writing Iowa Senate Ways and Means Committee, said Democrats are interested in providing earned income tax credits for lower-income Iowa families and raising the threshold for filing state income taxes. He added that Iowa needs to invest more tax money to clean up dirty rivers and streams, repair crumbling roads and bridges, upgrade the state’s education system and make other improvements.
The earned income credit is a welfare program run through tax returns, with a tremendous rate of fraud. It’s also a poverty trap. The phase-out of benefits with rising income serves as a stiff tax on improving your income. And spending doesn’t become something else just because you call it “investing.”
Elaine Maag, Earned Income Tax Awareness Day (TaxVox)
Kay Bell reminds us that taxpayers who failed to make a 2012 required minimum distribution from the IRA have a January 31 mulligan. The tax law imposes a stiff penalty on taxpayers who have reached age 70 1/2 who fail to take a minimum amount out by year end. Taxpayers who failed to take their 2012 withdrawal last year can roll the RMD amount to charity by January 31 and avoid the 50% penalty.
Taxpayers who took an IRA distribution in December can also roll that into a charity by January 31 and avoid having the distribution included in 2012 income.
These provisions were part of the Fiscal Cliff tax bill, which extended the tax-free status of IRA rollovers to charity along with a bunch of other expired provisions.
Just because your bank is a country bank doesn’t make the banker a bumpkin. Four Nebraskans have been charged with “structuring” — breaking deposits into chunks under $10,000 to avoid federal cash reporting requirements. Federal law requires banks to report cash transactions over $10,000. Folks who don’t want the government to know about their cash sometimes attempt to use multiple smaller transactions to fly under the radar; that’s illegal. Theindependent.com reports:
Randy L. Evans, 59, of Grand Island is charged in a 15-count indictment. In the first 14 counts, it is alleged that between March 29, 2010, and Dec. 27, 2011, Evans structured financial transactions to evade reporting requirements when he made deposits in the amount of $210,381 at Five Points Bank. Count 15 charges him with structuring financial
transactions to evade reporting requirements when he made 449 transactions between Jan. 4, 2010, and Feb. 28 at Five Points Bank in the amount of $2,030,322.
Bankers are required to report suspicious transactions, and if you make yourself a regular, they’ll notice — especially in a small-town bank.
Regrettably, yes. Libertarian writer Sheldon Richman breaks the bad news: just because the income tax is a bad thing doesn’t make it unconstitutional:
Where does this leave liberty’s advocates? First, we have to face the facts. Like it or not, the U.S. Constitution empowers the Congress to levy any tax it wants. Anyone is free to come up with a contrary interpretation, but the constitutionally endowed courts have spoken. Reading one’s libertarian values into the Constitution is futile. For better or worse, the Constitution means what the occupants of the relevant constitutional offices say it means.
In other words, it doesn’t matter if you think the income tax is unconstitutional if the IRS, the federal judge, the Marshals Service and the Bureau of Prisons think otherwise. Fighting the income tax by not filing ruins your finances without hurting the Leviathan one little bit.
Luring and subsidizing your competitors with your tax money. Left-side advocacy group Good Jobs First has released a report slamming “incentive” tax breaks like those used for two fertilizer companies in Iowa last year. The report doesn’t mention Iowa’s programs, but it provides a depressing list of corporate bribery in other states, including subsidies to lure employers from Kansas City, Kansas across the river to Kansas City, Missouri, and vice-versa. Their press release gets it right:
Interstate job piracy is not a fruitful strategy for economic growth, [report author Greg] LeRoy noted: “The costs are high and the benefits are low, since a tiny number of companies get huge subsidies for moving what amounts to an insignificant number of jobs.” LeRoy added: “The flip side is job blackmail: the availability of relocation subsidies makes it possible for companies that have no intention of moving to extract payoffs from their home states to stay put.”
For all the abuse, the organization’s recommendations are modest. I would eliminate all such subsidies and replace them with a simple low-rate tax system for everyone. The Tax Update Quick and Dirty Iowa Tax Reform would be a great start here.
TaxProf, House Ways & Means Chair Proposes Mark-to-Market Tax on Financial Derivatives
IRS Asks Judge To Suspend Injunction Barring It From Regulating Tax Preparers
Jim Maule, A Tax Question: So What Do You Do With Your Time?. A good discussion of the ”material participation” rules that take on extra importance under the new Obamacare Net Investment Income Tax.
Anthony Nitti, The Tax Impact of Obamacare On The Passthrough Income of Small Business Owners
Patrick Temple-West, Firms keep stockpiles of ‘foreign’ cash in U.S., and more (Tax Break)
Joseph Henchman, Tax Foundation and CBPP Agree: States Need Strong Rainy Day Funds (Tax Policy Blog)
Jamaal Solomon, Tax Organizer for Entertainers. Independent entertainers who cross state lines can find their taxes complicated, so good recordkeeping is essential.
Robert W. Wood, Shhh, Home Office and other IRS Audit Trigger Secrets
David Cay Johnston, Missing Half the Cash (Tax.com)
Start your weekend early with a Friday Buzz from Robert D. Flach!
News you can use: Stuff Creepy Accountants Like (Going Concern). Wisconsin!
Tags: Anthony Nitti, Bill Dix, corporate welfare, David Cay Johnston, economic development, EITC, Elaine Maag, Going Concern, Good Jobs First, iowa tax policy, IRA, Jamaal Soloman, Joe Bolkcom, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Quick and Dirty Iowa Tax Reform Plan, RMD, Robert D Flach, Robert Wood, Sheldon Richman, structuring, tax crime, TaxProf
Posted in Tax Roundup | No Comments »
Thursday, January 24th, 2013 by Joe Kristan
Tax Foundation graphic.
TaxProf, NY Times: it Is Time to Raise Taxes on Everybody — Including the Middle Class. Paul Caron links to a New York Times Op-ed:
To make ends meet, both parties agree, spending must be drastically cut. Under the White House budget proposal, discretionary spending on everything except the military is projected to shrink to its smallest share of the economy since the Eisenhower administration by the beginning of the next decade. Though he has resisted Republican demands to slash entitlements, President Obama remains willing to look for further savings from Medicare.
This is not, however, the only option we have. There is an alternative: raising more money from all taxpayers, including the middle class.
Nobody wants to talk about this. … Yet Americans would benefit from a discussion of this possibility.
It’s not true that “both parties agree” that spending must be drastically cut. It’s not clear that either party, as a whole, admits it, and at least one party remains in firm denial. The President’s campaign was all about spending money and sending the bill to the rich guy. Still, it’s nice that finally somebody at the New York Times admits that the rich guy isn’t buying. He can’t.
Janet Novack, As IRS Tax Filing Season Begins, Bad News For Honest Taxpayers. She speaks with Taxpayer Advocate Nina Olson. The article has some depressing truth:
Customer service at the Internal Revenue Service is dismal and deteriorating. (Only 68% of telephone callers who wanted to talk to a human at the IRS last tax filing season eached one, and then only after an average 17 minute wait.) The epidemic of identity theft refund fraud hasn’t yet been contained. Hope for a major reform that might simplify the tax code is waning.
The article also has some serious nonsense about last week’s ruling shutting down the IRS preparer regulation power grab:
“If the injunction stands, the taxpayers of the United States will be grievously harmed,” IRS National Taxpayer Advocate Nina E. Olson told Forbes. “The practical effect of not having some kind of consumer protection for taxpayers going to return preparers is enormous. And I say that seeing all the return preparer fraud, and the return preparer negligence, and the return preparer inadvertent mistakes that happen.”
Enormous? More like what we did forever until two years ago. If anybody has evidence that last year’s tax preparers were significantly more accomplished and accurate than they were before the regulations, they haven’t shared it. And the idea that the RTRP literacy competency test and minimal CPE requirement would have changed that is silly.
Ms. Olson believes that depriving consumers of choices in preparers is in their interest because the diminished choices would be better. That flies in the face of all we know about regulation. The net result would be higher prices, driving more taxpayers to do their returns and driving some on the margins out of the system altogether, while sending more business to the big franchise tax prep outfits.
Robert D. Flach, TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION. Robert’s magnum opus on how tax preparers should be regulated.
While I agree that having the Internal Revenue Service regulate tax preparers is not the best option – it is without a doubt a far superior option to having Congress legislate regulation. My opinion of the intelligence, competence, and ability, or rather lack of intelligence, competence, and ability, of the current members of Congress is well known.
The optimal source of tax preparer regulation/licensure/certification, whether mandatory or voluntary, would be an independent industry-based organization, not unlike the AICPA or ABA, such as the National Institute of Registered Tax Return Preparers that I have proposed.
Robert also calls me out:
As I have asked in response to Joe’s assertion, would you want a “casual” electrician wiring your kitchen, or a “casual” dentist filling a cavity, or a “casual” architect designing your home?
If I do, what business is it of anybody else? If I want to pay a talented handyman neighbor or cousin to install a ceiling fan for me, why is it anybody’s business? Why should he be not allowed to take my money just because he doesn’t have an electrician card from the Bureau of Electrical and Mortuary Science? As TaxGrrrl noted yesterday, occupational licensing is taking over the economy, and that’s not a good thing.
TaxGrrrl, With A Week To Go, IRS Talks Opening Day and Refunds
Cara Griffith, Have State Income Taxes Run Their Course? (Tax.com)
The corporate income tax is inefficient and a not sufficiently stable source of revenue for states. It should be eliminated. The individual income tax is likewise not a particularly stable source of revenue for states, and while counterintuitive, progressive tax systems do not work well at the state-level. Income redistribution, to the extent that it should be a goal at all, should not be undertaken at the state-level. So in a perfect world, yes, the state individual income tax should be eliminated as well.
Christopher Bergin agrees.
Good. Another bid to ban traffic enforcement cameras in Iowa. (O. Kay Henderson, via The Beanwalker). Traffic cameras are your local government’s most sincere way of showing their contempt for you.
Trish McIntire, Form 8332 and Fairness. How the IRS enables bitter ex-spouses.
Paul Neiffer, Why Imputed Interest Matters For 2013 (And Beyond)
Kaye A. Thomas, Another Demutualization Case
Robert W. Wood, Golfer Phil Mickelson Is Not Alone In Fleeing Taxes (Via Kerry Kerstetter)
Peter Reilly, Why Phil Mickelson’s Remark Was Really Dumb
Brian Mahany, Is FATCA In Trouble? Unfortunately, NO
Joseph Henchman, CBPP’s Misleading Chart on Debt Stabilization (Tax Policy Blog). A study in cherry-picking.
Jen Carrigan, Should Capital Gains Be Taxed Differently? (Guest post at The Missouri Taxguy blog).
Patrick Temple-West, Firms keep stockpiles of ‘foreign’ cash in U.S., and more
Tax Trials, District Court Decision Prevents IRS from Regulating Certain Tax Return Preparers
Kay Bell, Fiscal cliff tax provision could help stem fraudulent refund claims by prisoners
News you can use: Passing the CPA Exam While Billing Over 2500 Hours in a Year Is Way Harder Than Having a Baby. (Going Concern). Also less useful and not as smart.
Tags: Brian Mahany, Cara Griffith, Going Concern, Janet Novack, Jen Carrigan, Josehp Henchman, Kay Bell, Kaye Thomas, Kerry Kerstetter, Nina Olson, O Kay Henderson, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, Robert D Flach, Robert Wood, Tax Trials, TaxGrrrl, TaxProf, the rich guy's not buying, Trish McIntire
Posted in Tax Roundup | 1 Comment »
Wednesday, January 23rd, 2013 by Joe Kristan
The IRS has turned off its preparer registration initiative following the federal court decision enjoining the program. The Service issued this statement yesterday:
As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.
The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.
The second paragraph is the most interesting. While the IRS doesn’t admit that it overreached, this is far short of a vow to fight to the last appeals brief. One can only hope they will reconsider the whole misbegotten regulatory scheme.
Meanwhile, Accounting Today confirms reports the IRS has shut down the PTIN registration system and the Registered Tax Return Preparer testing program. They report the PTIN system is expected to come online again after the RTRP registration system is removed from it. Meanwhile, the Return Preparer Office has apparently turned off its phones.
All of this makes me believe that the IRS is not seeking any emergency stay of Friday’s decision and is planning to do without the RTRP rules for this season, anyway.
TaxGrrrl posts a great interview with the winning attorney in the preparer regulation decision, Dan Alban. She encounters a new perspective on whether regulation actually does more good than harm (my emphasis?:
Finally, with all of the legal niceties out of the way, I asked Alban the really tough questions: What about all of those folks who say that regulation is a good thing? What does this ruling mean for taxpayers? And why would you embrace a scheme that wouldn’t require – at a very basic level – some semblance of regulation to ensure that preparers are competent?
Alban didn’t hesitate. Intent, he says, is key. The intent of any kind of licensing scheme should be to protect the consumer. But Alban, who focuses on a occupational licensing in his practice, noted that frequently, these kinds of laws instead protect established interests from competition. That is, he says, not in the best interest of the consumer.
And with that, I paused. You see, in all of the years that I’ve been writing this blog, I’ve only received a phone call from IRS complaining about a post once. And it was for this one. The IRS wanted to assure me that the exemptions had nothing to do with any special interests. None. Not a whit. Interestingly, many preparers at smaller firms thought differently. I received a number of supportive emails and “off the record” comments about how the new rules felt discriminatory.
Bingo. Regulation always favors the big. It’s no big deal for H&R Block headquarters staff to deal with regulations for all of its franchises. It’s a different story for small operators like Sabina Loving, the solo preparer in a low-income South Side Chicago neighborhood who was lead plaintiff in last week’s decision.
It would appear that attorneys benefited disproportionately from the regulations; as a point of context, the American Bar Association (ABA) has encouraged the regulation of “other” preparers for years. Why is that? Is there maybe something to Alban’s idea that these kinds of laws protect established interests from competition?
And then Alban said something else that struck me: about fifty years ago, only 1 in 20 workers in the U.S. needed government permission (in the way of regulations) to earn a living. Today, that number is 1 in 3. That, he said, is troubling. We are increasingly relying on the government to decide who is qualified to perform services for us. Is that something we want? Does regulation really make someone competent? Or honest?
No, it just gives them one more way to control things.
Russ Fox: Alphabet Soup
Trish McIntire, Voluntary Licensing?
Paying taxes with cell phone money? The Iowa Department of Revenue yesterday announced a venture with Dwolla to enable taxpayers to pay taxes with Dwolla’s mobile device online payment technology. The Des Moines Register Reports:
Dwolla is a cash-based payment network that provides real-time, low-cost, online and mobile payments, officials said. Instead of charging a floating percentage and fixed fee per transaction for goods and services or dealing with administrative issues of checks, Dwolla’s network costs a flat 25-cent fee on any payment over $10, and it’s free for transactions under $10.
…
Iowa Department of Revenue Director Courtney Decker said the state’s first use of Dwolla will allow businesses that already pay more than $100 million in cigarette stamp taxes the option of using the Dwolla network. She added, “This is just the tip of the iceberg” in terms of Dwolla’s potential in state government.
Dwolla’s service is cheaper and safer than mailing and processing a paper check, Decker said, and it will allow participating businesses to receive their tax stamps more quickly. She added that 89 percent of Iowa individual income taxes are filed electronically, but the percentage of people paying taxes electronically to her department is far lower.
Paying online now requires a slow application process and analog mail delivery to receive permission to make electronic payments. The Dwolla system will be a big improvement if the Department enables it for individual income taxes.
IRS wins another demutualization case. The IRS continues to fight the to tax proceeds on the demutualization of insurance companies. They famously lost the Fisherdecision, which held that taxpayers could treat their payments for insurance premiums as basis when they received shares of stock in an insurance company changing from mutual ownership to a stock company. But earlier this month the IRS won a Federal District Court Decision in California rejecting the Fisher“open transaction” scheme. If the IRS wins on appeal, this will likely end up settled by the Supreme Court. This is the second IRS victory since the Fisher decision.
Cite: Reuben, DC CACD, CV 11-09448
Roger McEowen, Two Important Tax Developments:
On January 18, two key tax developments occurred. First, a federal district court wiped out the IRS preparer regulations. Later, IRS announced that farmers aren’t stuck with the March 1 deadline and can file timely by April 15.
David Brunori, Jindal’s Bold Move (Tax.com):
Republican Louisiana Governor Bobby Jindal has made the most provocative tax reform recommendation in many years. Jindal said he was going to overhaul the tax law. If he has his way, he will revolutionize it.
Pay attention, Governor Branstad.
Donald Marron, Five Key Facts about the House Debt Limit Bill (Tax Vox)
Howard Gleckman, How Obama’s Inaugural Address Frames the Policy Debate for the Next Decade (TaxVox). I don’t think so.
Kay Bell, Tax Carnival #111: Countdown to Filing. It’s Kay’s roundup of tax tax-related posts from all over.
Jack Townsend, Steps in OVDI/P Processing and Opting Out. Dealing with the IRS when you have an undisclosed offshore account.
Jason Dinesen, Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed
Patrick Temple-West, Private equity tax breaks in jeopardy, and more (Tax Break)
William McBride, Phil Mickelson’s Tax Rate
Robert D. Flach is Buzzing! He also has posted What to Give Your Tax Preparer at Mainstreet.com.
Jim Maule, Tax Ignorance and Its Siblings. “Tax ignorance, of course, is but one part of political ignorance, as I explored in When Tax Ignorance Meets Political Ignorance.” Yet the good professor insists that 50% + 1 voting by ignorant voters works better than trusting individual decisions in the marketplace.
News you can use: Life After Big 4: What You May Miss and Won’t Miss At All (Going Concern). I don’t miss it one tiny bit.
Tags: Dan Alban, David Brunori, Demutualizaton, Donald Marron., Dwolla, Fisher, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Kay Bell, maule, Patrick Temple-West, preparer regulation, Robert D Flach, Roger McEowen, RTRP, Russ Fox, TaxGrrrl, Trish McIntire, William McBride
Posted in Tax Roundup | 1 Comment »
Tuesday, January 22nd, 2013 by Joe Kristan
Wikipedia image
What’s it cost to be a successful golfer in California? Phil Mickelson says his tax rate in California for 2013 is 62%. He doesn’t like it. Naturally he is called a whiny rich guy and told to suck it up.
What is his real rate? He will be paying a real federal rate, considering the itemized deduction phase-out, of 40.788%. His California rate will be an insane 13.3%. That will be deductible on his federal return, so the net combined income tax rate is about 48.662%,
But there’s more! Golfers are independent contractors, so they have to pay self-employment taxes. That rate is 3.8% in 2013, but 1.45% can be deducted on the federal return, so the net is about 3.19%. That gets his rate up to about 51.856%, or so.
In 2011, Lefty’s combined rate worked out to about 42.589%. That means his effective rate increased by about 9.266%. But that understates it. Think of Phil Mickelson as a business. His after-tax profit on a given income level has taken a real hit. Where after-tax income was about 57.411 cents out of every dollar in 2011, now its about 48.144%. That means his after-tax income has fallen by about 16% – nearly 1/6. Don’t think it matters? Try it sometime with your own after-tax income.
A 16% cut in margins would be a worry in any business. Mr. Mickelson is in a business where he can boost his margins by nearly 8% with a moving van. He’d be an odd businessman indeed if he didn’t give the idea serious consideration. And he will have plenty of company.
Jason Dinesen, Further Thoughts on Preparer Regulation:
My concern is more for the EA [Enrolled Agent] name itself. I really fear that EAs are getting pushed further and further to the margins. We’ve always been on the margins, so how much further can we be pushed?
The problem is, there’s no good solution for how to enhance and protect the EA name, because there’s so few of us.
So again, where do EAs fit in? There’s just not a good answer or good solution.
I thought the RTRP designation was a mortal threat to the EA brand.
Enrolled Agents have to pass a much harder IRS-administered test and more rigorous CPE than the RTRPs would face. Yet few people know what an enrolled agent is. If IRS wants to improve the caliber of tax preparers, they should give more publicity to the existing EA designation and make it more desirable. But that doesn’t help them expand their power over all preparers.
Robert D. Flach proposes a voluntary Registered Tax Return Preparer designation. I have no problem with a voluntary branding, and if Robert and other unenrolled preparers can make a brand of it, more power to them. I don’t see it happening, though, as it would do nothing for the big franchise preparation companies, who already have their own brands.
Martin Sullivan, “Now it’s about loopholes.”
Republicans want to use revenues from base-broadening solely to reduce rates. Democrats want to use revenues from base-broadening solely to raise revenue. (The quote in the title of this post is from senior Obama advisor David Plouffe.)
We will never be able to begin the tax reform process in earnest until Republicans and Democrats settle their differences on the total amount of revenue the federal government can collect. It was actually Bowles and Simpson who outlined the process: First, you settle on a number for the amount of revenue you want to raise (if any). In their case the amount of revenue was $800 billion over 10 years (using a different baseline). Second, you broaden the base as much as possible. The money from base-broadening is first devoted to deficit reduction and whatever is left over is used for rate reduction.
That requires agreement on how much we can afford to spend. Until that answer changes from “MOAR!” it won’t be enough.
Brian Strahle, ALERT: California Sales Tax Refund Opportunity: Optional Service Contracts. If you bought a service contact on a Dell and paid California sales tax, you may have a refund coming.
Peter Reilly, Tax Planning – Repairman Jack Style
Missouri Tax Guy, Tax Issues with early Distributions from Retirement savings.
William Perez, Qualified Charitable Distributions from IRAs for 2012. You have until January 31.
Kay Bell, Alternative minimum tax still around, but now indexed for inflation
Jack Townsend, More on Conscious Avoidance
Yes. Are Taxes Progressive in the US? (Paul Neiffer)
Not if you are Phil Mickelson. Can You Use the 1040EZ? (Trish McIntire)
News you can use: JUST SAY “NO” TO HENRY AND RICHARD (Robert D. Flach)
Tags: Anthony Nitti, Brian Strahle, Enrolled Agent, Going Concern, Jack Townsend, Jason Dinesen, Kay Bell, Len Burman, Martin Sullivan, Missouri Tax Guy, Paul Neiffer, Peter Reilly, Phil Mickelson, preparer regulation, Robert D Flach, Trish McIntire, William Perez
Posted in Tax Roundup | 3 Comments »
Monday, January 21st, 2013 by Joe Kristan
After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers. U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.
So now what?
I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months. It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.
Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:
“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”
So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation. This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.
As of this writing, the IRS has yet to comment.
So who wins? Small unenrolled preparers are big winners. They are now free of the brain-dead RTRP bureaucracy. Enrolled Agents are also big winners. The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers. But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.
The losers? The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations. The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors. And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.
When at first you get enjoined, try, try again. In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.” Apparently he dusted himself off and went right back to work. From a Department of Justice Press release:
The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.
Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.
No, you can’t give a tax free “tool allowance” to employees. And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.
In case you were wondering: Iowa explains sales tax treatment of Groupons.
Gongol, The people who pay a tax aren’t always the people who give the money to the government:
Companies that make medical devices are paying a 2.3% excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.
So true.
Paul Neiffer, IRS Announces April 15 Farmer Deadline
Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation
Jack Townsend, Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence. A discussion of the Fiore case, which I discussed last week.
TaxGrrrl, Why Justice Matters, Revisited
Richard Morrison, Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)
Roberton Williams, How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe AMT.”
Robert D. Flach, RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS
Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)
Kay Bell, Tax filing preparation checklist
Brian Strahle, Is Your Company Paying Too Much Virginia BPOL?
Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee
OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale. C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.
Tags: Allen Davison, Brian Strahle, Dan Alban, Dan Meyer, Enrolled Agents, Gongol, Jack Townsend, Jana Luttenegger, Kay Bell, Paul Neiffer, preparer regulation, Preparers, Ray Nagin, Richard Morrison, Robert D Flach, Roberton Williams, RTRP, Russ Fox, Shulman, tax crime, TaxGrrrl
Posted in Tax Roundup | 2 Comments »
Friday, January 18th, 2013 by Joe Kristan
87 months? Holy Cow!
Iowan gets 7 years on Ponzi scheme, tax charges. An Ottumwa man who used funds he was supposed to invest to finance his online dating life was sentenced yesterday to 87 months in federal prison on federal fraud and tax charges. John Holtsinger, 52, will serve the federal sentence after he completes a state OWI sentence.
Mr. Holtsinger entered a guilty plea last year. The indictment said he sold this improbable investment opportunity:
After conducting trades on behalf of investors for a short period of time, Holtsinger offered and sold investments to the investors in the form of promissory notes. He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death. The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.
“High returns with no risk” is a rare beast indeed, nearly as rare as the Unicorn. I doubt if they show up in Ottumwa very often.
IRS stimulates prison system economy by $35 million in 2010. From a report by the Treasury Inspector General for Tax Administration:
Refund fraud committed by prisoners remains a significant problem for tax administration. The number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in Calendar Year 2004 to more than 91,000 tax returns in Calendar Year 2010. The refunds claimed on these tax returns increased from $68 million to $757 million. Although the IRS prevented the issuance of $722 million in fraudulent tax refunds during Calendar Year 2010, it released more than $35 million.
The new IRS regulation of tax preparers isn’t going to do much for this problem. (via the TaxProf)
Related: Doing Your Time (Jack Townsend)
TaxGrrrl, As We Creep Closer To The Debt Ceiling Limit, Is Your Tax Refund At Risk?
Kay Bell, Government report fuels fear (again) of federal mileage tax proposal
Russ Fox, The Walking Dead Come Back.
Brian Mahany, Taxpayer Advocate Questions OVDI, FBAR Penalties
David Cay Johnston, Foundering Tax Avoidance (Tax.com)
Paul Neiffer, Watch Out For Those Retroactive State Tax Gotchas!
Nanette Byrnes, Facebook’s slump hits California’s budget, and more (Tax Break)
Joseph Henchman and Elizabeth Malm, New Report: Gasoline Taxes and Tolls Pay for Only a Fraction of Road Spending (Tax Policy Blog)
Catch your weekend Buzz early! From Robert D. Flach.
Howard Gleckman, A Tiny Little Blog Post on a Tiny Little Tax Bracket. (TaxVox). Hey, I noticed it first!
News you can use: Retaining CPAs Is As Easy As Letting Them Work in PJs and Attend Boring Meetings, Says Guy (Going Concern)
When outsourcing goes too far. A story of how a model employee outsourced his own job. (Greg Mankiw). Nice work if you can get paid while some guy in China does the dirty work.
Tags: Brian Mahany, Elizabeth Malm, Going Concern, greg mankiw, Holtsinger, Howard Gleckman, identity theft, Jack Townsend, Joseph Henchman, Kay Bell, Nanette Byrnes, Paul Neiffer, Ponzi, Robert D Flach, Russ Fox, tax crime, TaxGrrrl, TIGTA
Posted in Tax Roundup | No Comments »
Thursday, January 17th, 2013 by Joe Kristan
Alternative Maximum Tax introduced in Iowa House. The Republican leadership of the Iowa House of Representatives has introduced a new way to compute Iowa personal income tax. HF 3 would create an optional ”alternative base income tax”at a 4.5% flat rate. The bill would allow taxpayers to elect to be taxed on their federal Adjusted Gross Income before net operating losses, less a $6,200 standard deduction ($12,400 for joint filers and heads of households). The only credits allowed would be for estimated taxes and withholding. Taxpayers could instead continue to follow the existing tax law.
There is an obvious flaw in the statute as drafted: federal AGI includes interest on federal debt, which states aren’t allowed to tax. Maybe that’s just assumed, but the existing Iowa income tax law specifically excludes U.S. interest. This tax is different from that proposed by Iowans for Discounted Taxes, which would exempt all investment income from the tax base.
The bill would be a huge step forward for Iowa tax policy if it were enacted as a replacement for Iowa’s current tax, rather than an option. Eliminating all of the tax credits and special state deductions would greatly simplify everyone’s tax life, and lowering the rate would make Iowa much more attractive to businesses and newcomers. In this form, though, it’s just another computation, an alternative maximum tax. It’s like the alternative minimum tax, except you pay the lower tax computed, rather than the higher one. It was probably drafted this way to avoid a fight over eliminating the current deduction for federal income taxes on Iowa returns.
I will run some numbers to see how the HF 3 tax would compare with taxes computed the current way. The bill is co-sponsored by 54 representatives, including House Speaker Paulsen, so it’s a given that it will pass the House in some form. It will be interesting to see whether the Senate, controlled by Democrats, will bring this to a vote. The Governor has made clear income tax reform isn’t his priority this year.
This plan might be half-cocked. From William McBride at the Tax Policy Blog:
This week Rep. Rosa DeLauro (D-CT) proposed an assault weapon buy-back program that would operate through the tax code:
“The SAFER Streets Act creates a $2,000 refundable tax credit ($1,000 for two consecutive years) for an assault weapon owner who turns in their firearm to the state police.”
…
This assumes the gun manufacturers cannot produce additional guns as
fast as the old ones are destroyed, and that they cannot be produced, at
this rate of production, cheaper than the buy-back price.
Cash for Clunkers, firearms edition.
Kay Bell, Guns, ammo, violence and taxes
TaxProf, TIGTA: IRS Has 60% Error Rate in Policing Noncash Charitable Contribution Deduction. I’m sure they’ll do lots better implementing the Affordable Care Act.
Patrick Temple-West, New Yorkers face higher real estate taxes, and more
Peter Reilly, Are Tax Protesters Actually Winning ?:
Ms. Curtis lost as badly as it is possible to lose in Tax Court. There is the 75% fraud penalty and the maximum sanction, $25,000, for frivolous arguments. She still might appeal, though. Presumably the Circuit will make relatively quick work of that and maybe pile on some more sanctions. Fine. Now the IRS has to start trying to collect from her.
Tax protester arguments can slow down the tax collector, but the tax man wins in the end.
Robert D. Flach, THE RETURN OF A HOME OFFICE STANDARD DEDUCTION
Kerry Kerstetter, New option for Home Office deduction
Jason Dinesen, How the Fiscal Cliff Deal Affects Teachers
Trish McIntire, Red Forms
Cara Griffith, Should States Just Enforce Use Tax Collection? (Tax.com)
Russ Fox, California Supreme Court Takes Gillette Case
Joseph Henchman, The Al Bundy Tax Rule: New Hampshire Governor Pledges to Veto Beer Tax (Tax.com)
If it’s your identity, pretty bad. IDENTITY THEFT AND TAX FRAUD – HOW BAD IS IT? (TaxTV.com)
Brian Mahany, Steelers’ Plaxico Burress Pays Off $98,000 IRS Tax Lien
Christopher Bergin, Everybody’s Gone Surfing (Tax.com)
News you can use: Going Concern’s Guide to a Healthy Busy Season: Because No One Should Die at Work
Tags: alternative maximum tax, Branstad tax policy, Brian Mahany, Cara Griffith, Christopher Bergin, Going Concern, Jason Dinesen, Joseph Henchman, Kay Bell, Kerry Kerstetter, Patrick Temple-West, Peter Reilly, Robert D Flach, Russ Fox, TaxProf, TaxTV, Trish McIntire, William McBride
Posted in Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Wednesday, January 16th, 2013 by Joe Kristan
Kraig Paulsen
It looks like the Republican leadership in the Iowa House of Representatives will be pushing income tax changes this year. Unfortunately, it looks like they are pushing the plan I call an “alternative maximum tax” like the one floated by Governor Branstad last year and quietly dropped after the election. O. Kay Henderson reports:
House Republicans are calling for a “flat” state income tax. If their idea becomes law, Iowans would have the option of filing their personal income taxes under the current system — which has a top rate of nearly nine percent — or opting to pay a four-and-a-half percent rate, with no deductions.
The governor has made it clear property tax reform is his top priority,
but House Speaker Kraig Paulsen of Hiawatha, the top Republican in the
legislature, says Branstad hasn’t said no to cutting income taxes.
Any tax practitioner will point out that this will in practice just be one more complication in computing Iowa taxes. Taxpayers will compute their taxes under both the current system and the flat system and choose the one that results in the lower tax. I assume the legislative leaders are resorting to this awkward plan to get around the implacable opposition of the powerful Muscatine-based Iowans for Tax Relief to any tax reform that would repeal the deduction for federal taxes on Iowa returns. Their plan is likely based on that proposed by Iowans for Discounted Taxes.
Far better to just clean up Iowa’s tax law. Repeal the special interest loopholes and corporate welfare tax credits, get rid of all non-federal deductions, get rid of the deduction for federal taxes, tie the tax law to the federal code, drastically lower the rates, and eliminate the corporation income tax entirely. In short, enact The Quick and Dirty Iowa Tax Reform Plan.
Flickr image courtesy e53 under Creative Commons license
Whether or not Governor Branstad wants to deal with income taxes, he may have to. His neighbor in Nebraska may be forcing his hand. 1011Now.com reports:
Gov. Dave Heineman is calling for an overhaul of Nebraska’s tax system, saying the state needs to get rid of its individual and corporate income taxes and make up the lost revenue by shutting off as much as $2.4 billion in tax breaks for businesses.
The Republican governor unveiled his tax plan Tuesday during his annual State of the State address to lawmakers.
Heineman says his plan would keep the state competitive with two neighboring states, Wyoming and South Dakota. Both have no individual income tax.
It sounds much like the plan proposed by Louisiana Governor Jindal this week. If the other states massively improve their income tax systems and Iowa doesn’t, all of the fertilizer tax credits in the world won’t help Iowa’s business climate.
IRS unveils simplified home office deduction for 2013. The IRS yesterday unveiled a new optional way to compute home office deductions. From IR-2013-5:
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
…
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
This will be handy. When you depreciate part of your home for a home office deduction, you lose the ability to exclude that much gain on a later home sale. Home office deductions are also complicated and a magnet for IRS examiners. This looks like it will be useful for the growing ranks of people who run businesses out of their home. Taxpayers will still be allowed to opt out of this new method and compute their home office deductions the old way. Full details are found in Revenue Procedure 2013-13.
Other coverage:
TaxProf, IRS Announces Optional $1,500 Home Office Deduction in Lieu of Depreciation
Russ Fox, Is A Simplified Home Office Deduction Better? “The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.”
Paul Neiffer, Senator Grassley Wants Extension of March 1 Filing Deadline:
Due to the passage of the new tax law, the ability of the IRS to accept most farmers tax returns by March 1 is very uncertain. Senator Grassley’s letter indicates that the IRS has granted an extension in the past, most recently last year when the MF Global mess occurred. In that case, the IRS did not actually extend the filing date, but granted waivers of the penalty for any estimated tax penalty caused by MF Global untimely mailing of form 1099.
Farmers don’t have to make estimated tax payments if they file by March 1. If they can’t do that, the IRS can impose estimated tax penalties on the whole balance due. The late enactment of new tax laws for 2012 may make it impossible for the IRS to process returns by then.
January: the month to start your 2013 year-end tax planning! My new post at IowaBiz.com, the Des Moines Business Record’s blog for entrepreneurs.
Jason Dinesen, Rental Properties and Basis Allocation
TaxGrrrl, IRS Announces 2013 Tax Rates, Standard Deduction Amounts and More
Mary Ellen Goode, A Stark Reminder of the Excessive Cost of Complying with the Tax Code
Rush Nigut, Iowa Business Specialty Court Pilot Project. I hope it leads to a specialized Iowa Court for tax cases. Taxpayers are at a huge disadvantage arguing before District Court judges with no tax expertise.
Kay Bell, The 1040 is ready! The 1040 is ready!
Anthony Nitti, Dear America: Your Higher Payroll Taxes Are Not The Result Of A Tax Increase. Only if the multi-year payroll tax break didn’t count as a tax cut.
Janet Novack, 11 Ways To Tap Retirement Cash Early, Without A 10% Penalty
David Brunori, Virginia’s Gas Tax Reform (Tax.com)
Howard Gleckman, A Budget Deal is Staring Them in the Face, But Here’s Why Lawmakers Won’t Compromise in 2013 (TaxVox)
Robert D. Flach has a new Buzz! He responds to my take on his take on CPAs.
Jim Maule, Still More Joys of IRC Section 86.
Kyle Pomerleau, New Paper on Estate Tax Misses the Mark. (Tax Policy Bl0g). It’s about…
Caron & Repetti: Occupy the Tax Code: Using the Estate Tax to Reduce Inequality (TaxProf)
My experience in tax practice convinces me that the estate tax is unnecessary to break up and dissipate large estates. Beneficiaries take care of that just fine.
Hey! I said I was sorry! Defendant Screws Up His Acceptance of Responsibility (Jack Townsend):
Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct. Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial. Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.
If you want the judge on your side, it might be a good idea to stop committing the crime for awhile.
Tags: ', Anthony Nitti, Branstad tax policy, David Brunori, Howard Gleckman, iowabiz.com, Iowans for Discounted Taxes, Iowans for Tax Relief, Jack Townsend, Janet Novack, Jason Dinesen, Kay Bell, Kyle Pomerleau, Mary Ellen Goode, maule, O Kay Henderson, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, rush nigut, Russ Fox, Senator Grassley, tax crime, TaxGrrrl, TaxProf
Posted in Tax Roundup | 1 Comment »
Tuesday, January 15th, 2013 by Joe Kristan
Via Wikipedia
Might the Iowa legislature lead on income tax reform? If it’s going to happen, they will have to, as Governor Branstad only wants to talk about property taxes this year. O. Kay Henderson reports:
During a recent interview with Radio Iowa, Governor Branstad made it clear he is focused on cutting property taxes.
“Sure, I’d like to see the income tax reduced, too, but in terms of my priority — and I’ve been working on this for a couple of years and we’re really trying to perfect it — our focus is going to be on significant property tax reduction and replacement,” Branstad said a month ago.
Some legislators are more ambitious, reports Henderson:
Representative Tom Sands, a Republican from Wapello, is the chairman of the House Ways and Means Committee that writes tax policy.
“I think there is some pressure building from Iowans to cut both income taxes — look at some reform as well as a cut to the individual income tax,” Sands says. “We’re hearing from corporations as well, on the income side.”
I doubt anything good will happen with income taxes this session. The Iowa Chamber Alliance even wants to to go the wrong way, pushing more tax credits for the well-connected. No organization seems to be pushing for the rest of us. But The Quick and Dirty Iowa Tax Reform Plan is ready to go if the legislature needs some ideas.
Russ Fox, Estimated Tax Payment Deadline Is January 15th. For 1040 and 1041 filers. Kay Bell has more.
Nick Kasprak, Monday Map: State Gasoline Tax Rates, 2013 (Tax Policy Blog):
Robert D. Flach, CHOOSING A TAX PREPARER. I suppose I should be upset by this:
Contrary to the popular “urban tax myth” perpetuated by uninformed journalists, 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.
But I’m not. It’s true, if roughly stated.
Robert goes astray in his next paragraph:
Only those individuals who possess the “EA” (Enrolled Agent) or “RTRP” (Registered Tax Return Preparer) designations have demonstrated competency in 1040 preparation by taking an IRS-sponsored test, and are required to remain current in 1040 law by taking a minimum number of hours in continuing professional education (CPE) in federal income taxes each year.
False. The RTRP test is open book. It demonstrates that somebody can read. It’s a literacy test, an empty exercise to justify the IRS power grab over the preparer industry. It’s different with Enrolled Agents, like Jason Dinesen and Russ Fox, who have to meet much stricter standards than RTRPs. One of the underreported nasty consequences of the RTRP designation is that it damages the EA brand.
I also disagree with the implied conclusion that CPAs who prepare returns are less competent as a group than EAs or RTRPs. Some are incompetent, no doubt, but many tax CPAs are highly-skilled. I think the competency curve for non EA preparers vs. CPAs would look something like this:
Substitute “RTRP” for “unenrolled preparer.”
There are excellent non-CPAs and there are incompetent CPAs. Still, I think as a group the CPAs who do tax for a living will tend to be more competent.
My rule of thumb for choosing a preparer: buy as much preparer as you need, but no more. Many taxpayers who only have wage and investment income and routine itemized deductions will do fine with an RTRP (and would have done fine with an unenrolled preparer without the new IRS preparer regulations). If you have business income, a multistate return, or a complicated financial life, your needs go up; you need a high-end RTRP like Robert, or an EA, or a CPA. As your business gets bigger, you are more likely to want to hire a good CPA. And when Robert gets to the bottom line of his post, I think he agrees.
But be careful which one you hire: Lawyer, Accountant Implicated in Estate Fraud Case (Brian Mahany)
Trish McIntire, Preparer Conflict of Interest
Jack Townsend, The Big Boys Get Better Treatment in Our Tax System Than Do Minnows.
I speak again on the basic relative unfairness of the treatment of many, if not most, in the IRS’s offshore voluntary disclosure initiatives.
They have to shoot the jaywalkers so they can slap the real offenders on the wrist.
You pay more in taxes this year than last year. How do you like your tax cut? At Tax.com, Jeremy Scott tries to convince us that we just got a tax cut:
The income tax rates, the estate tax, and the alternative minimum tax patch are all here to stay. And, according to the Tax Policy Center’s (TPC’s) preliminary study on distributional effects, the act essentially provided a big tax cut for almost everyone.
Funny, everybody’s taking home less. How does that work? My emphasis:
Using the Congressional Budget Office’s old baseline (which assumed that the Bush tax cuts would expire for everyone) and looking at the effects of the tax cut in 2018, the TPC says that the average taxpayer will receive a $2,335 tax cut under ATRA.
I see. Because the tax increase could have been bigger, we got a tax cut. I’ll see if I can cut staff accountant pay and convince them they got a raise because we didn’t cut more.
Janet Novack, Obama Vows Republicans Won’t Collect ‘Ransom’ For Raising Debt Limit. No, they’ll ultimately let the President continue the insane spending pace.
Paul Neiffer, We Wonder What the Investment Income Tax Form Will Look Like
Avoiding Excess Credit Card Interest Should Not Be A Taxable Event. But it can be, if you get the bank to forgive unpaid interest that would be non-deductible.
IRS Releases Additional Inflation-Adjusted Figures for 2013
Robert Goulder, Taxes & Corruption: Another Greek Tragedy (Tax.com)
TaxGrrrl, Ask the taxgirl: IRS Delayed Tax Filing Season Applies To Everybody
Martin Sullivan, IRS: Women At Work (Tax.com):
According to the latest IRS Data Book 60,623 of the agency’s 104,402 employees in 2011 were women. That 66 percent is far more than the 44-percent figure for government’s total civilian labor force and the 47-percent figure for the overall US civilian workforce.
Ben Harris, Should Louisiana Dump Its Income Tax for a Bigger Sales Tax? (TaxVox)
News you can use. FYI: Attorneys Think Auditors’ Legal Confirmation Letters Are a Giant Waste of Time (Going Concern)
Tags: Ben Harris, Branstad tax policy, Brian Mahany, Going Concern, Jack Townsend, Janet Novack, Jeremy Scott, Kay Bell, Martin Sullivan, Nick Kasprak, O Kay Henderson, Paul Neiffer, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, Robert Goulder, RTRP. Enrolled Agents, Russ Fox, shooting jaywalkers, TaxGrrrl, Tom Sands, Trish McIntire, William Perez
Posted in Tax Roundup | 5 Comments »
Friday, January 11th, 2013 by Joe Kristan
Don’t forgive them, because they have no idea what they’re doing. Last night I taught a session on the Fiscal Cliff tax law and the Obamacare Net Investment Income tax to Iowa chapters of the Institute of Management Accountants over the Iowa Cable Network. Using the controls to talk to remote classrooms in Marshalltown, Dubuque, Marion and Cedar Falls was a challenge, but a piece of cake compared to working with the tax law.
When they passed the Net Investment Income Tax as part of Obamacare, there were only two concerns for the guilty congresscritters:
- Did it apply only to “the rich,” as defined that day? and
- Did it raise enough revenue for them to help them pretend that they weren’t raising the deficit?
Nobody who voted for the bill took the time to ask: “should we really set up an all-new tax, unlike anything we have ever done before, requiring all new regulations and recordkeeping requirements, just to collect 3.8% of something?” And that’s exactly what they did.
If you have any illusions that they have any clue what they are doing, a look at the new bracket schedule for 2013 for single filers should cure you of that:
If taxable income is: The tax would be:
-------------------- ----------
Not over $8,925 10% of taxable income
Over $8,925 but not $892.50 plus 15% of the
over $36,250 excess over $8,925
Over $36,250 but not $4,991.25 plus 25% of the
over $87,850 excess over $36,250
Over $87,850 but not $17,891.25 plus 28% of the
over $183,250 excess over $87,850
Over $183,250 but not $44,603.25 plus 33% of the
over $398,350 excess over $183,250
Over $398,350 but not $115,586.25 plus 35% of the
over $400,000 excess over $398,350
Over $400,000 $116,163.75 plus 39.6% of the
excess over $400,000
Notice something funky about that 35% bracket? It covers only $1,650. While you have to earn $215,100 to get through the 33% bracket, you skip through 35% to 39.6% with only $1,650 of additional income. Why? Because the administration wanted to only tax “the rich,” and they decided for that day that “rich” starts at $400,000 income, if you are single.
The only sure cure is to make congresscritters, the President, and the Cabinet prepare their own returns in a live webcast, with a comment bar for viewers to mock them. It would serve them right if they had to do it a la Robert Flach, with no computer.
TaxGrrrl, Tax Code Hits Nearly 4 Million Words, Taxpayer Advocate Calls It Too Complicated:
What could you do with six billion hours?
Think hard. That’s the equivalent of 8,758 lifetimes. Yes, lifetimes.
It’s also how much time taxpayers spend every year trying to comply with tax filing requirements. That, according to the 2012 annual report as prepared by the National Taxpayer Advocate Nina E. Olson.
It’s not getting easier, either.
Martin Sullivan, Tax Reform Muddle (Tax.com):
Having agreed to tax increases, Republicans are now more insistent than ever that tax reform must be revenue neutral.
The big change is from Democrats– who have become so adamant on the need for tax increases in addition to the $600 billion raised by the fiscal cliff deal, and who realize additional rate hikes are absolutely impossible–are hell-bent on preserving the most politically feasible loophole closers for raising revenue.
It’s a hopeless game. The deficit is too big to deal with by “loophole closers.” Behind the push to raise taxes by closing loopholes is a delusion that you can pay for our incontinent government spending just by hitting “the rich” harder. But the rich guy can’t cover the check. Either spending comes down or everyone pays a lot more tax.
Nick Kasprak, Chart: Effects of Marriage on Income and Payroll Tax Liability (Tax Policy Blog)
Deborah Jacobs, A Married Couple’s Guide To Estate Planning (Forbes, via the TaxProf)
Paul Neiffer, Section 179 Can Create a Farm Loss (In Certain Cases)
Kay Bell, Top taxpayer problem? Continuing tax code complexity
Christopher Bergin, Permanent Insanity: “Only in Washington would you find folks who would brag that they did a good thing by making permanent an unfair and indecipherable tax system that wastes billions of dollars to administer.” (Tax.com)
Norton Francis, What the Fiscal Cliff Deal Means for the States (TaxVox):
The good news for states is that American Tax Relief Act of 2012 will end much of the uncertainty that has plagued the income tax code in recent years. No longer will states have to guess what will happen to many provisions of the federal revenue code that were set to expire. The bad news is some states will lose revenue they were counting on from
scheduled changes in the federal estate tax that won’t happen.
Trish McIntire, Refund Loans
Patrick Temple-West, Public goals, private interests in ‘Fix the Debt’ campaign, and more
Jack Townsend, Bank Leumi Signals Cooperation with U.S. on Offshore Accounts. Israili bank ready to spill the beans on U.S. taxpayers with accounts there.
A Friday Buzz from Robert D. Flach.
The Critical Question: Shipping Wars’ Token Hot Chick Is a Former Accountant? (Going Concern)
Tags: Christopher Bergin, Deborah Jacobs, Going Concern, Jack Townsend, Kay Bell, marriage penalty, Martin Sullivan, Net Investment Income Tax, Nick Kasprak, Norton Francis, Patrick Temple-West, Paul Neiffer, Robert D Flach, tax policy, TaxGrrrl, The Critical Question, Trish McIntire
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Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
