Federal 706 costs good for Iowa 1041. The Iowa General Assembly yesterday eased restrictions on administrative deductions for fiduciaries. Iowa uses federal taxable income, with modifications, as its tax bases. Both houses passed HF 661, which provides a modification to this tax base:
On the Iowa fiduciary income tax return, subtract the amount of administrative expenses that were not taken or allowed as a deduction in calculating net income for federal fiduciary income tax purposes.
If I understand this correctly, this means fiduciaries can now deduct on Iowa 1041s expenses that executors have opted to deduct on the federal estate tax return; executors get to choose to deduct estate administration costs on either the Federal 706 or the Federal 1041, but not both. This bill makes some sense, as there is no Iowa estate tax; any deductions taken on the federal Form 706 estate return would otherwise provide no Iowa benefit.
It also appears to allow the deduction of any “administrative” expenses that would otherwise be disallowed under the 2% of AGI floor. The explanation to the bill doesn’t add much, so we will have to see if this is how the Department of Revenue reads the bill.
The bill passed both houses unanimously, so it seems likely the Governor will sign it. It is to take effect for “tax years ending on or after July 1, 2015 — so it will apply to the current calendar year.
PEO operator gets 12 years after looting client payroll taxes. A Kentucky man will go away for a long time for an ambitious list of crimes that include stealing payroll taxes from clients. Wilbur Huff ran a professional employer organization. Such organizations take over employer payroll tax functions for their clients. PEOs file and pay the payroll taxes under their own tax ID number. This differs from traditional payroll tax services, which remit taxes under client tax ID numbers and provide prepared returns for the clients to submit.
From a Department of Justice Press release (my emphasis):
From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (“PEO”) located in Tampa, Florida. Like other PEOs, O2HR was paid to manage the payroll, tax, and workers’ compensation insurance obligations of its client companies. However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS, and instead of paying $5 million to Providence Property and Casualty Insurance Company (“Providence P&C”) – an Oklahoma-based insurance company – for workers’ compensation coverage expenses for O2HR clients, HUFF stole the money that his client companies had paid O2HR for those purposes. Among other things, HUFF diverted millions of dollars from O2HR to fund his investments in unrelated business ventures, and to pay his family members’ personal expenses. The expenses included mortgages on HUFF’s homes, rent payments for his children’s apartments, staff and equipment for HUFF’s farm, designer clothing, jewelry, and luxury cars.
Taxpayers using traditional payroll tax services can make sure their payroll taxes are actually paid to the IRS by logging into EFTPS, the Electronic Federal Tax Payment System. This doesn’t work for PEOs. That turned out very badly for Mr. Huff’s clients, who still have to pay the IRS the payroll taxes that went for the fancy cars and clothes.
Robert D. Flach has your Friday Buzz! It’s the place to go whether you Love Lucy or you love reading about tax administration.
Imagine that you go to the bank every four days and deposit $12,000. The bank will file currency transaction reports that let the Treasury Department know that. That notion annoys you, so you start going every three days and deposit $9,000. No more currency transaction reports, but before long there will be suspicious activity reports. If the reason you made the switch was to stop the currency transaction reports, you have committed the crime of structuring, even if there is nothing illegal about the source of the funds or the use of them and you are paying all your taxes.
The crime of avoiding paperwork.
Jack Townsend, Two More Banks Obtain NPAs Under DOJ Swiss Bank Program
Cara Griffith, Is the IRS Protecting Taxpayer Information or State Tax Authorities? (Tax Analysts Blog). “Although the IRS indicated it would make changes to improve the oversight of federal taxpayer information, it still seems information is shared between the IRS and state tax authorities as a matter of course and without a true determination (before information is shared) about whether a state tax authority has a secure system in place to protect the information received.”
Scott Drenkard, Why Do So Many Businesses Incorporate in Delaware? (Tax Policy Blog). “Delaware’s attractiveness for incorporation is driven by many things: favorable incorporation regulations, rules limiting corporate liability, and a second-to-none corporate court system (the Court of Chancery) with judges that are corporate law experts.”
Howard Gleckman, How Many Americans Get Government Assistance? All of Us. But some of us pay more than others for it.
Robert Goulder, Global Tax Harmonization and Other Impossible Things (Tax Analysts Blog)
TaxProf, The IRS Scandal, Day 757: “The IRS responded to a Republican request for an investigation into the Clinton Foundation’s tax-exempt status with a one-page form letter that starts with ‘Dear Sir or Madam.'”
Career Corner. ICYMI: AICPA Will Squeeze Excel Into the CPA Exam This Decade (Caleb Newquist, Going Concern). In my day we had pencils — no calculators, no slide rules, no nothing. Spoiled kids won’t get off my lawn.