Posts Tagged ‘Robert Wood’

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

Friday, February 27th, 2015 by Joe Kristan

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

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

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

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

And the records:

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

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

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

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

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

Citations:

Sabolic, T.C. Memo 2015-32

Hall, T.C. Memo 2014-171

 

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

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

Annette Nellen talks about Taxes Around the World.

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

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

 

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

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

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

TaxProf, The IRS Scandal, Day 659.

 

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

Jim Maule, Testing Tax Knowledge.

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

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

Nor can I.

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

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

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

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

 

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

 

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

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

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

 

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

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

Only two?

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Tax Roundup, 2/25/15: Iowa gas tax boost goes to Governor. And: an appointment with Sauron.

Wednesday, February 25th, 2015 by Joe Kristan

IMG_1284Both houses of the Iowa General Assembly approved a 10-cent per gallon gas tax increase yesterday. The Des Moines Register reports:

The fuel tax increase has had strong support from a coalition representing farm groups, business organizations and local government officials. Iowa Farm Bureau members flooded the Capitol last week to lobby legislators to encourage a vote in favor of the gas tax increase. They contended better roads are crucial to the state’s economy and that gas taxes — 20 percent of which are paid by out-of-state motorists — offered the best solution.

The legislation was opposed by Iowans for Tax Relief and Americans for Prosperity, a conservative advocacy group, as well as truck stop operators and convenience store owners who worry retailers on Iowa’s borders will lose business to competitors in neighboring states. Opponents suggested lawmakers needed to better prioritize state spending, and proposed tapping revenues from the state’s general fund to pay for highway projects.

While I think gas taxes are a good way to pay for roads — they put the cost on the users — I am unconvinced that the state uses the funds wisely. By ramming the bill through committee by stacking it with yes votes, the legislature leadership made sure such concerns would not be addressed.

I expect the Governor to sign the bill. The legislature wouldn’t have gone through the trouble if they had any doubt. I have predicted that his approval of a gas tax increase means he won’t run for another term. But I also predicted the gas tax wouldn’t pass.

Somewhat related: Jim Maule, So Who Should Pay for Roads?

 

IMG_0543Why not exempt everyone? Tax Analysts reports ($link) that taxpayers who have filed returns based on incorrect ACA 1095-A forms will not have to pay any additional tax based on the corrected forms:

Tax return filers who purchased health insurance from federal marketplaces set up under the Affordable Care Act and who then filed tax returns based on erroneous information contained in Forms 1095-A will not need to file amended returns with the IRS to stay compliant, the Treasury Department said in a February 24 statement.

“The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected [1095-A] forms,” the Treasury statement said.

It’s yet another example of the IRS making up rules for Obamacare when its flaws become too obvious. I’m not one to complain when the IRS fails to enforce a dumb tax, but does anybody think the IRS would be as understanding for, say, failing to amend based on a corrected K-1?

Related: Robert Wood, Wrong Obamacare Form Tax Filers Get Relief From IRS. “Unfortunately, the 750,000 people who were sent erroneous form but who haven’t yet filed their taxes are being told to wait until the corrected forms arrive in March.”

 

TaxGrrrl, IRS Testing Taxpayer Appointments At Some Taxpayer Assistance Centers. Why appointments?

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Tax season is saved! Majority of Taxpayers with Obamacare Premium Tax Credits Need to Pay Back Portion (Accounting Today). I’m sure that’s popular.

Howard Gleckman, So Far, Affordable Care Act Users Are Managing Tax Filing, Many Uninsured May Use New Enrollment Period (TaxVox)

Jason Dinesen, Is Iowa Filing Status Tied to Federal Filing Status When You’re Married?

Annette Nellen explains Bitcoin transaction reporting. If you use Bitcoins regularly, you’ll need a bigger tax return.

Kay Bell, New York city, state lawmakers seek pet adoption tax credit. Not every problem is a tax problem, folks.

Leslie Book, Taxpayer Rights: A Look Back to Congressional Testimony of Michael Saltzman and Nina Olson

Jack Townsend, Cono Namorato to Be DOJ Tax AAG.

 

Enjoying a short Des Moines winter commute.

Snow warning today!

 

Scott Drenkard, Utah Is Eyeing An E-Cigarette Tax, But Its Reasoning Is Faulty (Tax Policy Blog). States have a pretty sweet deal with the tobacco devil, getting a cut of tobacco revenues. They hate the idea of e-cigs cuttting into that.

 

David Brunori, Sorry Folks — Clothes Should Be Taxable (Tax Analysts Blog):

The sales tax should fall on all final personal consumption. Everything you buy, be it tangible personal property or services, should be subject to the tax. Such a broad base minimizes economic distortions, allows for overall lower rates, and makes both administration and compliance easier.

But it minimizes the opportunities for legislators to do favors for friends.

TaxProf, The IRS Scandal, Day 657

 

Caleb Newquist, Accountants vs. Lawyers: A Pointless Debate (Going Concern). “A lawyer and an accountant walk into a bar. Everyone else in the bar doesn’t care.”

 

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Tax Roundup, 2/24/15: Iowa gas tax boost vote may be today. And: are tax credit subsidies on the way out?

Tuesday, February 24th, 2015 by Joe Kristan

It looks like the gas tax increase will come to a vote today, reports the Des Moines Register:

Rep. Josh Byrnes, R-Osage, who chairs the Iowa House Transportation Committee, said Monday he expects a tight vote. He added that talks were continuing among House Republicans.

“I don’t think we’d bring it up for debate if we didn’t think we had the votes,” Byrnes said.

It sounds like a done deal. At least that’s what they want everyone to think.

 

20120906-1Iowa has just announced a big new set of tax breaks for an out-of-state company, in the name of  “economic development.” But are “targeted” tax subsidies on the way out? Ellen Harpel says they might be in Beyond tax credits: creating winning incentive packages (smartincentives.org):

 

Tax credits have become problematic for several reasons:

  • Tax credits are often presented as no-cost incentives. That is, tax credits are not taken (incentives “paid out”) until the company has met certain thresholds and has started paying the taxes against which the credit is taken. However, as this article in the Wall Street Journal points out, the fiscal costs are substantial. It is not clear to us that other taxes expected to be generated by incentivized projects either materialize or are sufficient to fill the budget gap.
  • One reason might be that tax credits are more important to existing businesses than firms new to a location, based on our review of major incentive deals, so an incentivized project may not generate as much new tax revenue as anticipated.
  • Once the tax credits have been granted, states do not know when businesses will choose to take the credit, wreaking havoc on state budgets, possibly for decades depending on the terms of the tax credit arrangement.
  • Some tax credits are refundable (paid back to the company if their tax liability is not high enough to take the credit) or transferable (sold to another taxpaying entity). Film tax breaks often fall into this category, lowering the taxes paid by other taxpayers that are not the direct target of the incentive.

Using tax credits in this manner is not sustainable. To the extent economic development organizations continue to use tax credits, caps and limits will become the norm.

As long as politicians can get media outlets to run headlines like “New $25 million plant will bring 120 jobs to Iowa,” tax credits remain “sustainable” for vote-buying politicians. If they really wanted to help everybody — not just chase smokestacks — they would enact something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Related:

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

WSJ, Tax-Subsidy Programs Fuel Budget Deficits

 

If Iowa’s tax climate is so bad, why do businesses locate here? A hint may be found here: J.D. Tucille, Florida, the Freest State in the Country? “California, New York, and New Jersey always rank near the bottom of these lists as intrusive, red tape-bound hellholes.”

 

Via the John Locke Foundation

Via the John Locke Foundation

Iowa is #13.

The First in Freedom Index actually draws from a lot of the sources that have been cited here before, including the Fraser Institute’s Economic Freedom of North America as well as Mercatus Center’s Freedom in the 50 States, the Tax Foundation’s State Business Tax Climate Index, and measures put together by the Center for Education Reform, among others. To this, the North Carolina group adds its own weight and emphasis. 

Imagine how attractive Iowa could be without a bottom-10 tax climate.

 

Russ Fox, “Ripping Off Your Refunds” In the Miami Herald. “There is an excellent article in the Miami Herald on the identity theft tax fraud crisis. ”

TaxGrrrl, Tax Professionals Targeted In Latest Bogus IRS Email Scam. You can fool all of the people some of the time.

Robert Wood, Can IRS Seize First, Ask Questions Later? ‘Yes We Can’.

Kay Bell, NASCAR Hall of Fame and homeowner tax breaks collide. Another subsidized municipal boondoggle.

Peter Reilly, Estate Intended For Charity Depleted By Litigation And Income Tax. A sad story, and a cautionary tale for estate planning.

 

20121120-2Hank Stern, More Delays on HRAs:

For example, pre-ACA, small employers could fund “standalone” HRAs that allowed employees to pay for privately purchased health insurance (among other things). This encouraged employees to buy the plan best suited to their needs, and employers could control costs because they weren’t beholden to a group carrier’s annual rate in creases.

Sadly, those days are gone.

Everybody must be forced into the exchanges to participate in the ACA’s cross-generational subsidies.

 

William Perez, Problems with Form 1095-A

Jared Walczak, Will Mississippi Eliminate Its Antiquated Franchise Tax? (Tax Policy Blog). It’s a tax that can be a nasty surprise to a business entering that state.

 

Alan Cole ponders The President’s Revenue Problem (Tax Policy Blog):

It’s popular to claim that you’ll fund a big new government program through a tax on investors. The strong ideological priors of the political press tell us that investors are earning huge amounts of money, and that’s where the income is.

But the math tells us otherwise. Here’s what the tax bases for wage income and capital income actually look like in practice, from my recent report on sources of personal income.

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Tax Update regular readers already know that the rich can’t pick up the tab.

 

Jim PagelsNumber of American Corporations Declines for 17th Straight Year (Reason.com):

The report claims that the reduction in the number of incorporated firms is not so much due to inversions, mergers, or bankruptcy, but rather more firms classifying themselves as S Corporations, in which profits pass directly to owners and are taxed as individual income. Individual rates are typically lower than the U.S. corporate tax rate, currently the highest among members of the Organisation for Economic Co-operation and Development at 35 percent federal plus an additional 4.1 percent average rate levied by individual states.

This is why you can’t do a “corporate-only” tax reform.

 

Jeremy Scott, Does the United States Really Need a Tax Revolution? (Tax Analysts Blog): “Those who say that tax reform doesn’t go far enough and that the nation needs a revolutionary change are probably overstating the problem.”

Martin Sullivan, The Tax Reform Supermarket (Tax Analysts Blog). “Slowly but surely, members of Congress are coming to the painful realization that conventional, Reagan-style tax reform is going nowhere.”

 

Howard Gleckman, Better Ways to Link the Affordable Care Act with Tax Filing Season (TaxVox). “But since the ACA insurance is so closely linked to tax filing, it only makes sense to synch that sign-up period with tax season.”  I have a better idea: have health insurance purchases be totally unrelated to tax season, by getting rid of the whole misbegotten ACA.

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TaxProf, The IRS Scandal, Day 656, quoting the Washington Times:

The White House told Congress last week it refused to dig into its computers for emails that could shed light on what kinds of private taxpayer information the IRS shares with President Obama’s top aides, assuring Congress that the IRS will address the issue — eventually. The tax agency has already said it doesn’t have the capability to dig out the emails in question, but the White House’s chief counsel, W. Neil Eggleston, insisted in a letter last week to House Committee on Ways and Means Chairman Paul Ryan that the IRS would try again once it finishes with the tea party-targeting scandal.

Just like it couldn’t possibly find the 30,000 emails that TIGTA dug up from the back-up tapes.

 

News from the Profession. The PwC Partner Who (Sorta) Looks Like Matt Damon and Other Public Accounting Doppelgangers (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 2/23/15: 800,000 blown ACA reporting forms; tens of thousands of already-filed returns are wrong. And more!

Monday, February 23rd, 2015 by Joe Kristan
The Younkers Building ruins, morning, March 29, 2014.

Be calm. All is well.

Tax Season is Saved! 800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace (Accounting Today):

“About 20 percent of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium cost —about 800,000 (< 1% of total tax filers) —will soon receive an updated Form 1095-A because the original version they were issued listed an incorrect benchmark plan premium amount,” said a blog post on the Web site of the Centers for Medicare and Medicaid Services. “Based upon preliminary estimates, we understand that approximately 90-95% of these tax filers haven’t filed their tax return yet. We are advising them to wait until the first week of March when they receive their new form or go online for correct information before filing. For those who have filed their taxes—approximately 50,000 (< 0.05% of total tax filers) —the Treasury Department will provide additional information soon.”

It says something about how screwed up this tax season is that the IRS can issue:

– A blanket waiver for the $100 per-day penalty for health insurance reimbursement arrangements;

– A small business waiver the Form 3115 filing requirement for “repair reg” accounting method changes;

– A blanket waiver for late payment penalties for advanced Obamacare tax credit clawbacks;

And still have a filing season full of “mayhem.”

Related: 

Caleb Newquist, You Won’t Mind if Your Tax Refund Is a Little Late, Will You? (Going Concern)

Ellen Steele, The Affordable Care Act Tax Filing Season: A View From the Trenches (TaxVox). “Filing is not simple, even for our volunteers who all undergo rigorous training in tax law.”

Paul Neiffer, Perhaps 800,000 or More Form 1095-A Are Wrong

 

Tax Season is saved! Ripping off your refunds: One little number fuels South Florida’s tax-fraud explosion (MiamiHerald.com

Tax Season is saved! Wow! The IRS Will Pay Out This Much in Fraudulent Tax Refunds By 2016 (Motley Fool)


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Iowa Public Radio, Administration Grants Tax Time Reprieve For Obamacare Procrastinators:

The Obama administration said Friday it will allow a special enrollment period from March 15 to April 30 for consumers who realize while filling out their taxes that they owe a fee for not signing up for coverage last year.The special enrollment period applies to people in the 37 states covered by the federal marketplace, though some state-run exchanges are also expected to follow suit.People will have to attest that they first became aware of the tax penalty for lack of coverage when they filled out their taxes.

Megan McArdle called it. So once again they bend the ACA rules because following the law as enacted would be unpalatable. It’s as if the entire legislation is optional. Here are other made-up-on-the-fly amendments to ACA decreed by the Administration that I can think of off the top of my head:

– Waiving the $100/day penalty for employer insurance reimbursement arrangements.

– Waiving tax penalties for failure to pay the premium credit clawbacks.

– Rolling back the employer mandate penalty by a whole year — two for smaller employers.

– Allowing premium tax credits in states using federal exchanges when the statute only allows them where there is an exchange “established by a state.”

You almost might conclude that they didn’t really think things through very well when they enacted ACA.

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William Perez, Social Security Benefits are Partially Taxable: How Much Depends on Your Other Income.

Roger McEowen, Primer on the Income Taxation of Trusts and Estates (ISU-CALT)

Peter Reilly, You And Your Shadow Do Not A Partnership Make. “I don’t think it is news that you can’t create a partnership with yourself and a disregarded entity, but it is a point that bears repeating.”

Russ Fox, Solely a Way to Go to ClubFed. “As always, the usual warning applies: If it sounds too good to be true, it probably is. If you use a corporation sole as a vehicle to avoid taxes, you’re heading down a road that leads to ClubFed.”

Jack Townsend, Another UBS Customer Pleads

Rashia says "thanks, Commissioner!"

Someday this may seem quaint.

TaxGrrrl, What If Tax Refund Theft Isn’t Really About Refund Theft?:

In the case of Anthem, the hack was massive. Potentially 80 million customers had their data compromised, prompting the state of Connecticut to warn taxpayers that it might be to their advantage to file their taxes early.

That, security experts say, isn’t the work of a small time hack. It’s not folks working out of a van with stolen laptops or a teenage kid in a basement. It’s bigger. It’s been suggested that the hack could be related to an international crime group or perhaps even an international government. I spoke with experts in tech and security arenas – who, like Jim, wished to remain anonymous – and they’ve suggested that they would not be surprised to find that the hacks were orchestrated by the Chinese government.

Have a nice day.

David Henderson, From 2007 to 2012-13, The Income Share of Top 1% Fell (EconLog).

Andrew Lundeen, A Cut in the Corporate Tax Rate Would Provide a Significant Boost to the Economy (Tax Policy Blog). “The corporate tax rate is, in effect, a tax on corporate investment; a high corporate tax rate discourages investment, whereas a low corporate tax rate encourages investment.”

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David Brunori ($link): 

A California company that makes cans is demanding a 20-year, 100 percent property tax exemption in return for opening a plant in Iowa. The plant will employ 120 people. The company, Silgan Containers, makes metal cans (think the containers that hold vegetables and dog food). I’m sure it’s a great company. But why should it be relieved of paying its just share of taxes? And if its demand is met, what does the Iowa government say to the companies that are already in place and employing 120 or more people? There is nothing good about this.

“Economic development” is pretty much taking money from you and your employees to lure and subsidize your competitors.

 

TaxProf, The IRS Scandal, Day 653The IRS Scandal, Day 654The IRS Scandal, Day 655

Kay Bell, All of 2015’s best picture Oscar nominees got tax break help. We would like to thank all of the chumps, er, taxpayers of the various states that help us buy these $168,000 swag bags. We wouldn’t want to do it without you.

 

 

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Tax Roundup, 2/20/15: Sometimes you just need a new voter edition. Also: time travel for a tax credit!

Friday, February 20th, 2015 by Joe Kristan

IMG_1291When the votes don’t go your way, replace the voters. The Iowa House Republican leadership seems all-in on the proposed 10-cent gas tax increase. WHOTV.com reports:

A bill that will raise Iowa’s gas tax by ten-cents per gallon, as soon as March 1, took a big step forward at the statehouse Thursday. That’s thanks in large part to a committee membership shuffle by Iowa House Speaker Kraig Paulsen.

Paulsen replaced Jake Highfill, who he says was a ‘no’ vote on raising the gas tax, with Brian Moore, who he says is a “yes” vote, on the committee. Paulsen also removed Zach Nunn from the committee for one day and put himself in Nunn’s place.

That enabled the bill to clear the committee by a 13-12 vote.  So it looks like the powers that be are determined to make the gas tax increase happen.

 

Time travel. Congress reenacted the expired Work Opportunity Credit in December, retroactively to the beginning of the year. The credit provides a tax savings up up to $9,600 for employers who hire people in groups favored by legislation — welfare recipients and veterans, for example. There was a hitch in the retroactive legislation, though. The WOTC requires employers to certify that new hires are eligible within 28 days of their start date. It’s difficult for employers to go back in time to January to comply with legislation enacted in December.

Fortunately, the IRS yesterday issued Notice 2015-13, giving employers until April 30 to obtain employee signatures on Form 8850 and submit them to the local job service to qualify 2014 hires for the credit.

Wages may qualify for the credit if paid to employees who were on public assistance or food stamps in the period before their hire date, certain veterans, or ex-felons. Details can be found on Form 8850 and its instructions.

 

No Walnut STTax Season is Saved! Obamacare Inflicts IRS Paperwork on New Victims (J.D. Tucille, Reason.com). “Perhaps the Affordable Care Act’s most-resented wrong against the American people will be initiating those previously exempt to the dull, often incomprehensible grind of Internal Revenue Service paperwork.”

Tax Season is Saved! State tax refund troubles spreading (Kay Bell).

Tax Season is Saved! IRS Paid $5.8 Billion In Fraudulent Refunds, Identity Theft Efforts Need Work (Robert Wood)

 

Megan McArdle, Will Obamacare Join Tax Season Chaos?:

Apparently, there is a movement afoot to get the Barack Obama administration to line up the Affordable Care Act’s open-enrollment period with tax season. The reason: Many people are going to find out in March or April that they owe a penalty for not having the minimum essential insurance coverage. Those unlucky people, who may decide they’d like to buy health insurance after all to avoid next year’s penalties, will be too late to go through that year’s open enrollment.

Oh, goody.

IMG_1274William Perez, Reconciling Advance Payments of the Premium Tax Credit. Though the results might not be pleasant.

Jason Dinesen, Tips For Financing a Small Business: Part 2 of 5 — Use Your Accountant as a Resource

Peter Reilly, Tom Brady’s MVP Truck Even More On The Tax Implications

Carl Smith, The Empire Strikes Back on Excessive Refundable Credit Claim Penalties (Procedurally Taxing)

TaxGrrrl, Taxpayers Sue Treasury, SSA, Alleging Improper Refund Seizures. “As the stories became more sensational – in part due to reports filed by The Washington Post – SSA was forced to announce that it would stop trying to collect debts that were more than ten years old. But by “stop,” they apparently meant ‘slow down… a little.'”

 

Kyle Pomerleau, Richard Borean, The Dual Tax Burden of S Corporations (Tax Policy Blog):
Top marginal tax rates for active shareholders then vary based on whether the last dollar is profit or wage. The following map shows the top marginal tax rate in each state for an active shareholder, assuming that their last dollar earned was a profit.
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Passive shareholders do not pay any payroll tax on their income since they do not draw a wage from the business. Instead, they are liable for the ACA’s Net Investment Income Tax of 3.8 percent, which only hits income over $200,000 ($250,000 for married filing jointly).

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I think this will motivate some S corporation owners to become surprisingly active in their retirement.

TaxProf, The IRS Scandal, Day 652

 

Kristine Tidgren ponders The Irony of Yesterday’s Limited ACA Penalty Relief (ISU-CALT). She notes that some employees whose employers terminated these plans in the face of the $100 per-day-per employee penalty end up worse off than those whose employers continued the plans and whose penalties were waived by the IRS in Notice 2015-17. “Bottom line, the employee of the compliant employer walks away with only about 60% of the benefit received by the employee of the noncompliant employer.”

And that is true, as far as it goes. The apparent purpose of these rules is to force employers to either sponsor a group health insurance plan under the employer SHOP marketplace (good luck with that in Iowa right now), or to send the employees to the individual exchange. So it wasn’t about whether employees were covered, it was about whether their coverage was done under the right government supervision.

But the Obamacare drafters were careless. While they imposed a $100-per-day, per employee penalty for sponsors of plans that reimburse employee premiums, they also left the tax incentives for such plans under Section 105 in place. So while one code section punished employers for reimbursing individual health premiums, another rewarded employees for receiving the reimbursements. Given the mixed message, no wonder many employers didn’t realize that their long-time employee benefit was suddenly a bad thing.

Of course, absent the waiver, many of the employees receiving a premium reimbursement would be much worse off — their employers would go broke paying a $36,500 non-deductible fine for each employee for the crime of covering their individual premiums. As bad results go, this is a lot worse than the loss of a tax benefit by the compliant employer’s employee.

 

Caleb Newquist, #BusySeasonZen: The Train Snowblower (Going Concern). In case you think you’re having a tough winter.

 

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Tax Roundup, 2/19/15: Health insurance reimbursement relief and other cold-day links.

Thursday, February 19th, 2015 by Joe Kristan

The Tax Update is on a road trip across the frozen prairies. Just a few quick items today.

The big news item is handled in a separate post: Small employers, S corporations get relief from $100 per day premium reimbursement penalty. Other coverage:

20140106-1Kristine Tidgren, IRS Notice 2015-17 Provides Some Limited ACA Penalty Relief to Small Employers

Tony Nitti, In Last Minute Move, IRS Spares Small Employers Big Obamacare Penalties For 2014. “You’ve got to hand it to the IRS. It may improperly target political groups, inexplicably lose critical email evidence, abusively attempt to govern tax preparers in an overreaching manner, and callously refuse to answer the phone when we are in desperate need of assistance, but when the tax industry is struggling with complicated law changes, the Service sure as heck knows how to provide some last minute relief.”

Paul Neiffer, Here We Go Again.

In other news:

Robert Wood, TurboTax, Phishing, E-Filing, And IRS Security

Kay Bell, Tax pros are the latest tax scam phishing targets

William Perez, Tax Planning for Clergy

 

TaxProf, The IRS Scandal, Day 651

Greg Kyte, TurboTax Got Hacked Because of Course They Did (Going Concern)

 

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Tax Roundup, 2/18/15: Smishing, Stonewalling, and Checking the Chickadees Edition

Wednesday, February 18th, 2015 by Joe Kristan

Just links today, but good links!

 

20150218-1Kay Bell, Look out for smishing tax identity thieves:

Smishing is the text messaging cousin of phishing. It gets its name from the Short Message Service (SMS) systems used for texting; sometimes it’s written as SMiShing.

Like fake phishing emailers, smishers try to get you to reveal personal financial data.

They try to get the info directly by pretending to be someone else, say your bank or tax accountant or even an official tax agent. Or they tell you to click on a URL that will load malware onto your smartphone or tablet with which the crooks can then access the info on your device.

Be careful out there.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Robert Wood, Remember IRS Stonewalling When Filing Your Taxes:

At a hearing Rep. Jim Jordan, R-Ohio, noted a letter that Mr. Koskinen sent the Senate Finance Committee saying the IRS had handed over everything. Curiously, the letter didn’t even mention that the former Exempt Organizations chief Lois Lerner’s emails had been lost. Mr. Koskinen defended his actions: “Absolutely not. We waited six weeks to tell while trying to find as many of the emails as we could. We gave you all of Ms. Lerner’s emails we had. We couldn’t make up Lois Lerner emails we didn’t have.”

Of course, it took the Inspector General to find the emails, proving they weren’t destroyed. Yet there, too, Mr. Koskinen remained defiant. The IRS chief took criticism from Rep. Tim Walberg, R-Mich., about a recent TIGTA report showing that the IRS re-hired poor performing employees. Some were guilty of misconduct, even tax delinquency. Koskinen deflected responsibility and said they were just seasonal or temporary workers.

It is another disappointment in the long and sordid story of the Lerner e-mail information.

And Commissioner Koskinen tells us that there is nothing wrong with his agency that giving him more money won’t fix.

 

20150218-2What, no checkoff to fund the Department of Revenue? Chickadee Checkoff benefits wildlife in Iowa (Radio Iowa) and Iowa fair encourages donations at tax time (Hamburg Reporter) Iowans can voluntarily increase their income tax to three government programs. Wouldn’t it be fun if all government programs worked that way? More here.

 

Jason Dinesen, What to Do When a Management Company Issues a Wrong 1099 to Rental Owner.

TaxGrrrl, Filing Your Tax Return In 2015? You Might Want To Leave Those Medical Receipts At Home. “Hitting 10% of your AGI in medical expenses is a steep hill to climb.”

Janet Novack, American Tax Informant Going To Paris To Sing About Swiss Bank UBS. Road trip for Brad Birkenfeld.

Peter Reilly, Good Execution Protects Sellers From IRS Transferee Liability. “I think this will be Reilly’s Fourth Law.  It goes ‘Execution isn’t everything, but it is a lot’.”

Keith Fogg, Expanding Ex Parte (Procedurally Taxing). “The ex parte rules seek to insulate Appeals from other parts of the IRS that might taint their opinion by providing insights about a taxpayer that the taxpayer has no ability to counter.”

 

TaxProf, The IRS Scandal, Day 650

Clint Stretch, Tax Policy Is Really About Our Grandchildren (Tax Analysts Blog):

Every vendor says that its tool, finish, or accessory is the best. Similarly, every advocate for a tax incentive says it will increase jobs and GDP. Few of the claims in either set are true.

At least a vendor’s claim can be true.

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David Brunori, Goodlatte’s Idea Is No Good (Tax Analysts Blog):

Under Goodlatte’s plan, a vendor in a no-tax state like New Hampshire would either collect tax at a minimum rate and forward it to the clearinghouse or forward details regarding sales to nonresidents to the clearinghouse, which in turn would forward it to the destination state and take steps to collect. Again, New Hampshire decides not to tax sales, but the Goodlatte plan would require its vendors to collect tax for other states.  

I’m sure that would be popular with the no-tax state’s voters.

 

Career Corner. #BusySeasonProblems: Avoiding Scurvy (Adrienne Gonzalez, Going Concern). I hope they add vitamin C to Girl Scout Cookies.

 

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Tax Roundup, 2/17/15: Iowa 2014 code conformity bill set to become final this week. And: tax season saved again!

Tuesday, February 17th, 2015 by Joe Kristan

IMG_1291Iowa Code Conformity Update. The bill updating Iowa’s 2014 tax law to include December’s retroactive “extender” bill, SF 126,  was officially transmitted to the Governor yesterday. He has three days to act; if he doesn’t sign within three days, the bill becomes law automatically. That means it will be official this week, unless the Governor shocks everyone with a veto.

The bill adopts almost all of the “extender” items, including the $500,000 Section 179 deduction, but it does not adopt 50% bonus depreciation for Iowa.

Update, 2:30 pm. The bill is signed.

 

 

The tax season is saved!  Covered California Sends Out Nearly 100,000 Tax Forms Containing Errors, Others Deal With Missing Forms (CBS San Francisco):

Stacy Scoggins gets plenty of mail from Covered California, but the one tax form the agency was required to send her by February 2nd still hasn’t arrived.

“After being on hold for 59 minutes, told me that the 1095-A was never generated,” Scoggins told KPIX 5 ConsumerWatch.

When they finally do get their forms, many of them will find out that they have to repay advanced premium tax credits, as Insureblog’s Bob Vineyard reports in Paybacks are hell, quoting a MoneyCNN report:

Some 53% of Jackson Hewitt clients who received subsidies have to repay part or all of it, with the largest being $12,000, said Mark Steber, chief tax officer. 

Clients love to hear that they owe.

Related: Oops (Russ Fox).

 

Kay Bell serves up 6 ways to get electronic tax help from the IRS

Accounting Today, IRS Eases Repair Regulations for Small Businesses

Josh Ungerman, IRS Expected To Issue Hundreds Of Deficiency Notices TO USVI Residents.

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Tony Nitti, Lance Armstrong Ordered To Repay $10 Million Of Prior Winnings: What Are The Tax Consequences?  They could be ugly.

Kristine Tidgren, Value of Closely Held Corporation Increased in Dissolution Proceeding (ISU Center for Agricultural Law and Taxation).

Robert Wood, Marijuana Tax Up In Smoke? Don’t Worry, Feds Plot 50% Tax.

Peter Reilly, Islamic Teaching On Usury Kills Property Tax Exemption In Tennessee

Jack Townsend, ABA Tax Lawyer Publication Comment on FBAR Willful Penalty

 

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Matt Welch, Record Number of Americans Renounce Citizenship in 2014 (Reason.com). “Terrible tax law produces predicted results”

TaxProf, The IRS Scandal, Day 649

 

Norton Francis, State Revenue Growth Will Remain Sluggish (TaxVox)

Sebastian Johnson, State Rundown 2/13: Snow Way Forward (Tax Justice Blog). Developments in Oklahoma, Arizona, North Carolina, Mississippie and Massachusetts, from a left-side view.

 

Things that are better now. From Don Boudreaux, a reminder of one area where a dollar goes a lot further than it used to:

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I dare you to access taxupdateblog.com from the Olivetti.  More at HumanProgress.org.

 

 

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

Monday, February 16th, 2015 by Joe Kristan

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

The main points:

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

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

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

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

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

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

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

Other Coverage: 

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

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

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

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

 

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

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

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

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

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

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

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

Via Wikipedia.

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

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

 

TaxProf, The IRS Scandal, Day 648

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

 

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

 

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

Friday, February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

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TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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Tax Roundup, 2/12/15: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

Thursday, February 12th, 2015 by Joe Kristan

Lincoln

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

Happy Lincoln’s Birthday. President Lincoln signed the first U.S. income tax into law in August, 1861, to cope with costs of the Civil War and the loss of income from customs collections in the rebellious states.  Wikipedia says the tax was initially 3% on income over an $800 exemption. Right away they started tinkering, and adding expiring provisions:

The income tax provision (Sections 49, 50 and 51) was repealed by the Revenue Act of 1862. (See Sec.89, which replaced the flat rate with a progressive scale of 3% on annual incomes beyond $600 ($12,742 in 2009 dollars) and 5% on incomes above $10,000 ($212,369 in 2009 dollars) or those living outside the U.S., and perhaps more significantly it was explicitly temporary, specifying termination of income tax in “the year eighteen hundred and sixty-six“).

The rates were increased again in 1864 to a top rate of 10%, but it actually was allowed to expire after the end of the war.

For some reason, this early version of the income tax isn’t a big topic in history books. Something else must have been going on then.

 

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

April 15, the thieves holiday Tax-refund fraud to hit $21 billion, and there’s little the IRS can do (CNBC):

Tax-refund fraud is expected to soar again this tax season, and hit a whopping $21 billion by 2016, from just $6.5 billion two years ago, according to the Internal Revenue Service.

And the problem—which the agency admits is growing quickly—is compounded by an outdated fraud-detection system that has trouble identifying many attempts to trick it.

$21 billion. The entire tax system of the state of Iowa raises maybe $8 billion, and the IRS issues $21 billion annually to thieves. Not counting earned income credit fraud, of course.

I’m no IT expert, but saying the IRS is helpless sounds like a cop-out. Even with obsolete technology, the IRS has been slow to stop obvious fraud, such as multiple (say, hundreds of) refunds going to a single bank account. The agency allowed this crisis to spin out of control years ago. Practitioners certainly knew about it during Doug Shulman’s execrable term as IRS commissioner, but he spent his efforts trying to regulate practitioners and harass the Tea Party, while grossly failing at the more basic duty of not wiring money to theives. Commissioner Koskinen obviously hasn’t solved the problem. I think it’s fair to conclude that they just haven’t considered it their biggest problem.

This should be the highest IRS priority, certainly more so than the “voluntary” preparer program. It should also be the highest oversight priority of the tax writing committees in Congress, who should be able to find a way to find the necessary funding in a way that keeps the Commissioner from diverting it to pet projects. Of course, the history of IRS technology upgrades isn’t very encouraging.

It’s possible that the solution will also require taxpayers to wait longer for refunds. It takes a lot longer to get a refund when your identity is stolen anyway, so it’s probably worth taking a little more time. But when technology exists to enable the credit card company to call me when my wife is buying an expensive dress in Chicago, the IRS ought to be able to notice someone like Rashia Wilson before she fills her purse with Benjamins.

Related: TurboTax Fraud May Impact Federal Returns Too, FBI Investigating (Robert Wood)

 

Iowa’s $37 million corporate subsidy programNot everybody knows that the State of Iowa mails subsidy checks to business taxpayers, including $11.7 million just to one. Iowa’s research credit is “refundable,” which means once it wipes out your Iowa tax, the state sends you a check for any remaining credit.

The total 2014 Iowa research credits claimed was $56,918,030 for 2014, according to the newly-issued Iowa Research Activities Tax Credit Annual Report for 2014. (Hat tip: Iowa Fiscal Partnership). Sixteen companies claimed $42 million of the credit, according to the report:

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I know everybody thinks they have earned whatever cash they have coming from the state, and I’m not shy about claiming refundable credits for my clients. When the state offers you cash, you’d be foolish not to take it. Still, there’s no way this makes any sense from a tax policy perspective.  The money sent to a few taxpayers should be used to lower rates for everyone, or to help eliminate the futile Iowa corporation income tax.

 

William Perez, Last Year’s State Refund Might be Taxed on Your Federal Return

TaxGrrrl, IRS Releases Latest Version Of Its Mobile App – And Something’s Missing. Service!

Russ Fox, A Bipartisan Tax Bill? I’ll Drink to That! “It’s to end age discrimination against bourbon and whiskey.”

Peter Reilly, Lois Lerner’s Old IRS Team Looking Anti-tech. “…now I’m thinking there might be a full blown Luddite cult operating in there.”

Jason Dinesen, Tips For Financing a Small Business: Part 1 of 5 — There’s Going to Be Paperwork, Deal With It

Kay Bell, Got your tax refund yet? IRS issued 7.6 million in January

 

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Principal Park, home of the Iowa Cubs. About 2 months until opening day!

 

Andrew Lundeen, Proposed Tax Changes in President Obama’s Fiscal Year 2016 Budget (Tax Policy Blog). “In total, the plan includes $2.4 trillion in proposed tax increases offset by $713 billion in new credits, deductions, and other offsets, for a total tax increase of nearly $1.7 trillion over the next ten years.”

Cara Griffith, Series LLCs: The Next Generation of Passthrough Entities? (Tax Analysts Blog). I think they will continue to be the wave of the future, as they have been for years now.

TaxProf, The IRS Scandal, Day 644

 

Career Corner. Interruptions at the Office: Good or Bad? (Adrienne Gonzalez, Going Concern). Bad, unless cookies are implicated.

 

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Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

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Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382″ restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

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Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

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Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

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Tax Roundup, 2/9/15: New York questions its tax incentives. And: where’s the ‘no anthrax’ sign?

Monday, February 9th, 2015 by Joe Kristan

New York FlagNew York Comptroller: nobody tracks whether the state’s corporate welfare tax incentives do any good. Tax Analysts’ Jennifer DePaul reports ($link):

It’s unclear whether the $1.3 billion in incentives and credits doled out annually by New York is creating jobs, a February 5 report by State Comptroller Thomas DiNapoli concluded.

The ESDC, which administers more than 50 economic development programs, provides little public information on taxpayer-funded investments in its initiatives, the report said.

“ESDC makes no public assessment of whether its disparate programs work effectively together, whether such initiatives have succeeded or failed at creating good jobs for New Yorkers, or whether its investments are reasonable in relation to jobs created and retained,” the report said.

Naturally the politicians disagree:

On February 5 Gov. Andrew Cuomo (D) told reporters that he disagreed with the comptroller “fundamentally and on his concept of economic development” and said New York has lost its effectiveness to attract businesses over the past decade.

“We’ve come a long way in the past four years in terms of reversing that and bringing jobs back to New York,” Cuomo said. “To the extent that the comptroller thinks we should go back to the old way where we saw New York losing jobs, I couldn’t disagree more strongly.”

To politicians, the only job creation that matters is the kind that lets them hold issue press releases, hold press conferences, and cut ribbons.

For a brief shining moment in the Iowa’s Culver administration, the film tax credit fiasco made our politicians look at the Iowa’s tax credit programs. A panel of state officials issued a report finding no clear evidence that the tax credits do any good. So Iowa replaced them all and lowered individual and corporate tax rates with the savings.

Actually, no. They just continued enacting new credits. I can dream, though.

Link: The Comptroller Report.

 

dirtyThe Journal of Taxation has a summary of this year’s IRS “Dirty Dozen” tax scams. Number 1 with a bullet are phone call scams from people saying they are IRS agents. Just remember, if the caller claims to be from the IRS, he (or she) isn’t, unless you have been in touch with a specific agent by mail already.

 

Puzzling over the tangible property regulations and the 3115 requirements? The ISU Center for Agricultural Law and Taxation wants to help solve the puzzles. They have scheduled a webinar on on the regs February 18Roger McEowen and Paul Neiffer will host. Registration info available here.

 

Russ Fox celebrates 10 — the tenth anniversary of his excellent Taxable Talk. Congratulations, Russ!

William Perez, How Is Interest Income Taxed and Reported?

Annette Nellen discusses the new IRS Directory of preparers and Annual Filing Season Program (AFSP). Another useless effort by the supposedly impoverished agency.

IMG_1271Leslie Book, Preparers and Due Diligence (Procedurally Taxing)

Kay Bell, Additions to the tax law name roll of [dis]honor? We at Roth & Company would like to claim rights to the name “Roth IRA,” but alas, we had nothing to do with it.

Jason Dinesen, I Like Mowing My Lawn and Shoveling Snow; Do You Like Preparing Your Tax Return?

I see no value in hiring someone else to mow my lawn or shovel my snow.

The same principle holds true for people who choose to prepare their own taxes. If they know what they’re doing and they enjoy doing it, then I encourage people to do it themselves because they won’t see value in the work of a tax professional.

I see no value in hiring someone else to do my lawn and driveway either. That’s what the teen-ager is for.

TaxGrrrl, Brady Passes On Super Bowl Prize As Butler Hauls In Truck & Tax Bill

Jim Maule, So Who Gets Taxed on the Super Bowl Truck?

Peter Reilly, Oil Rig Manager Does Not Qualify As Foreign Resident

Robert Wood, On-Demand Workers: It’s Tax Time, You’re Self-Employed, Audits Are Inevitable

Me, IRS issues 2015 vehicle depreciation limits, updates 2014 limits for Extension of Bonus depreciation

 

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TaxProf, The IRS Scandal, Day 641. Judicial Watch says it has received emails showing the IRS Office of Chief Counsel delayed the investigation into the Tea Party scandal.

The tax law is obese. So the supergenius behind Obamacare, Jonathan Gruber, has floated the idea of taxing folks based on body weightArnold Kling is comments wisely: ” I know that many of my progressive friends would be disgusted by the obesity, but that does not make it a public policy problem.”

That’s right, not every problem is a tax problem. Or even the government’s problem.

David Henderson has more: Jonathan Gruber on Sin Taxes (Econlog)

 

Kyle Pomerleau, Worldwide Taxation is Very Rare (Tax Policy Blog):

At the beginning of the 20th century, 33 countries had a worldwide tax system. That number slowly dropped to 24 countries by the 1980s. By the 2000s, the number of countries switching to territorial systems accelerated, with more than 10 countries switching in 10 short years. Nearly all developed countries have moved to the superior territorial tax system. Today there are only 6 countries that tax corporations on their worldwide income. The President’s proposal would double-down on the U.S.’s current system and push the United States further out of line with the rest of the developed world.

The U.S. is even more of an outlier on worldwide taxation of individual income, with only Eritrea joining us in taxing citizens abroad.

Tracy Gordon, Go Team: Score 1 for Obama on Ending Tax Subsidies for College Sports (TaxVox).

Sebastian Johnson, State Rundown 2/5: State of the States (Tax Justice Blog).

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Career Corner. Let’s Discuss: The Worst of Eating in the Audit Room (Marty, Going Concern)

Brian Gongol says “You’re not allowed to carry a bag of anthrax spores through a mall.” My bad. It won’t happen again.

 

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Tax Roundup, 2/4/15: Backlashes, Blood and Dollar Bills Edition.

Wednesday, February 4th, 2015 by Joe Kristan

IMG_1236It’s a busy, snowy day, so just links.

Robert Wood, Obamacare Tax Filing Backlash: There Will Be Blood:

This year for the first time, the Affordable Care Act has created a trickier tax season. It is more expensive, as virtually all Americans filing tax returns will have to consider the law’s impact. There will be confusion and many mistakes. 

Well, there are always the “repair regs” to cheer us up.

 

William Perez, Should Married Couples File Taxes Separately? Joint returns usually get a lower tax on the same income, but joint returns stick you with any snakes hiding in your spouse’s return.

Kay Bell, Tax moves to make in February 2015

Jason Dinesen, Glossary: Varnum Ruling. “Whenever you see or hear reference to the Varnum Ruling in Iowa, it’s referring to the 2009 decision by the Iowa Supreme Court that legalized same-gender marriage in Iowa.”

IMG_2535Jack Townsend reports on the ABA Tax Section Meeting Developments on Streamlined Disclosures. “The IRS representative said that the IRS will not issue additional guidance on the meaning of willfulness in the streamlined program.”

Leslie Book, Tooting Our Own Horn and Remembering Janet Spragens and the Needs of Low Income Taxpayers (Procedurally Taxing). P.T. contributor Keith Fogg received the ABA Tax Section  Spragens Pro Bono Award for “‘outstanding and sustained achievements in pro bono activities’ in tax law.”  Congratulations!

 

David Brunori, Ignoring the People in Nevada (Tax Analysts Blog):

The state apparently needs money, and the governor is proposing to increase a “fee” on businesses. Specifically, Sandoval is calling for an increase in the state business license fee based on a business’s gross revenue. The current fee is $250 and is justified to cover the administrative costs of registering and regulating business enterprises. Most states have these fees, and they are usually nothing more than small nuisances. But Sandoval would like to impose the fee based on the amount of gross income — not profit — earned by state businesses.

Many folks have moved from California to Nevada to get away from ridiculous taxes. I don’t see the attraction of imitating California like this.

 

IMG_0940TaxProf, The IRS Scandal, Day 636

Joseph Thorndike, Obama Abandons the Gas Tax – Just Like Everyone Else (Tax Analysts Blog):

The Obama plan would break with the long tradition of using gas taxes to pay for roads (and some mass transit, as conservatives are quick to point out). Over the decades, this tradition has served the nation well, funding the construction and maintenance of the interstate highway system, among other things. And it has assigned the cost of building all those roads to the people and businesses that actually use them.

Funny, I thought the 2009 “stimulus” fixed all the roads.

Kyle Pomerleau, Obama Budget would Increase Top Marginal Capital Gains Tax Rate in California to 37.2 percent. Of course, it’s worse than that, as capital gains normally have already been taxed once.

Renu Zaretsky, Taxed Reactions and Revenue Rules. Today’s TaxVox headline roundup covers Treasury Secretary Jack Lew’s dislike of pass-through entities and John Koskinen’s “what scandal, give me money!” testimony before the Senate Finance Committee.

Amber Erickson, Obama’s Progressive Plan to Simplify and Expand Education Tax Credits (Tax Justice Blog). Subsidies for higher education have led to $60,000 annual tuition. What do you think more subsidies will do?

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Career Corner. How to be More or Less Happy as an Accountant. (Jennifer, Going Concern)

TaxGrrrl, Texas Man Arrested After Attempt To Pay Taxes With Dollar Bills. I hope he brings pennies next time.

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Tax Roundup, 2/3/15: President announces fresh new hopeless tax proposals!

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

160 tax proposals. Close to 160 doomed tax proposals. The President released the details of the tax proposals for his 2015 budget yesterday. Tax Analysts Reports ($link):

The added details on international reforms the administration is seeking serve as “a significant step forward” to flesh out its business tax reform framework and see if there is an “opportunity for movement” on business reform with Congress, a senior Treasury official told reporters at a February 2 briefing on the release of the Treasury’s green book explanation of the revenue proposals in the budget.

Overall, the fiscal 2016 budget includes roughly 160 tax proposals, of which about 30 are new, 45 are modifications or combinations of old proposals, and 85 are the same or similar to the administration’s fiscal 2015 budget, the Treasury official said.

Almost all of these proposals are doomed for this Congress. As most of these couldn’t pass when Democrats controlled the Senate, they’re hardly likely to pass now that they don’t. A GOP Congress is also not about to pass some of the more publicized class warfare proposals, like the increase in the capital gain rate, the taxation of capital gains at death, increase the estate tax rate to 45% (from 40$) and lowering the estate and gift tax lifetime exclusion to $1 million (from $5+ million).

No Walnut STA few proposals might get a sympathetic hearing on their own from GOP taxwriters. These include:

– Cash basis accounting and repeal of Section 263A inventory capitalization for companies with up to $25 million in gross receipts.

– Permanent extension of the Section 1202 exclusion for qualifying small C corporation stock gains.

– Permanent extension of the refundable Child Tax Credit.

– Increasing the maximum Section 179 deduction from $500,000 to $1 million.

A few other corporate welfare gimmicks that might get a hearing include permanent research credits and permanent New Markets Tax Credits.

While there are a few items that might attract GOP support, overall this batch of proposals is more extreme than the ones that went nowhere before. The President probably won’t let Congress just pick out the tasty bits from his proposals, so I expect little to none of this to actually pass.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

Jeremy Scott, Obama’s Foreign Earnings Tax: 19 Percent Minimum DOA but Deemed Repatriations Key (Tax Analysts Blog)

Kyle Pomerleau, The President’s Tax on Offshore Earnings Represents the Worst of Retroactive Policy (Tax Policy Blog)

Len Burman, Are Accrued Capital Gains Income in the Year You Die? (TaxVox). “But reclassifying exceptionally thrifty middle-class families to the top of the income distribution by counting a lifetime of unrealized gains in income when they die clearly overstates their well-being.”

Tony Nitti, Tax Aspects Of The President’s FY2016 Budget

TaxGrrrl, Obama Budget Proposal Tackles Small Business, Changes To IRS

Kay Bell, Tax highlights in Obama’s FY2016 budget proposal

Annette Nellen, President Obama’s 2015 Tax Proposals

 

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Megan McArdle, Government Blinks Again on Obamacare, a discussion of the IRS announcement that it won’t impose the failure-to-pay penalty on exchange policy purchasers who have to repay some subsidy:

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Affordable Care Act is a lot less strong than the will to distribute the benefits.

It also telegraphs that the IRS expects that a lot of taxpayers who are anticipating a refund will be instead writing a check on April 15.

 

20140925-2Peter Reilly, Repair Regs And Tax Pros Are Like Headlights And Deer:

For the most part, the people who have been really looking at these regulations have had a large firm perspective.  To be a just a little cynical, they actually kind of like all this complexity, since they can make a case for sending out big bills to entities that can afford to pay them.  My brief time at the national level, not Big 4, but with many former Big 4 people made me realize there is a radically different perspective at that level.  They are used to having a very small number of competitors for any client who more or less sing from the same hymn book.  The client people that they deal with are quite likely fellow members of the Big 4 cult rather than tight fisted entrepreneurs who resent every penny they spend on professionals.

Regulation always favors the big, and the “repair regulations” are no exception.

 

Russ Fox, Fake Interest Income, Fake Withholding, Real Fraud at the Tax Court. “What is amazing to me is that the petitioner has not, as far as I can tell, been criminally indicted.”

Robert Wood, The Truth About Lying On Your Tax Return.  “…as with your resume, making up something on your tax return is a terrible idea.”

Martin Sullivan, JCT Report Provides New Insight on Competitiveness (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 635

 

News from the Profession: How Internal Controls Will Keep You Safe From Velociraptors (Leona May, Going Concern).

 

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Tax Roundup, 1/30/15: Earned Income Tax Credit Awareness Day Edition! And: judging your golf score

Friday, January 30th, 2015 by Joe Kristan

daydrinkersDid you know that today is “Earned Income Tax Credit Awareness Day“? Most of us don’t get the day off, but as it is Friday, we can celebrate after work into the wee hours.

What are we celebrating? Well, the EITC is a refundable tax credit designed for poor working families with children. A “refundable” credit generates a tax refund if there is no tax to offset, so the EITC works as a welfare payment for poor families with some earned income. It phases out as incomes increase.

Some economists praise the EITC as a useful anti-poverty program that doesn’t kill jobs the way minimum wage laws do. Others look at it as a way to achieve “tax justice” by redistributing taxes to the poor.

Still, if you really want to be fully aware of how the EITC works, you should know about a few things that aren’t on the IRS EITC Awareness Day web page.

For example, you should know that the EITC phase-outs make it a poverty trap. The effect of the phase-out of the credit as income rises is to impose a marginal rate on additional earnings of EITC recipients as high as that imposed on some of the top income earners. The Federal-Iowa combined rate, taking into account phaseouts and payroll taxes, can exceed 50%.

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This is a serious disincentive for EITC recipients to improve their earnings. Combined with the loss of other benefits, it can make self-improvement an unrewarding pastime.

 

Up to 25% of the EITC goes to people who shouldn’t get it, according to TIGTA. Part of it is because taxes are complicated and math is hard. A significant part, running into the billions, goes to fraudsters. Even in a good cause, you have to question the value of a program that misdirects so much money.

EITC error chart

Like all refundable credits, the EITC is a fraud magnet. Any time the government will write a check just for the effort of filling out a form, fraud happens. Just a few random instances:

Waterloo, Iowa preparer get 30 months for earned income tax credit fraud. A preparer invented earnings to get Iowa clients EITC refunds.

Tax Preparer Sentenced For Fraud Scheme. “The fraudulent returns sought refunds of $354,000 based on bogus expense deductions and refundable credits, such as entitlement to the First Time Home Buyers Credit and the Earned Income Tax Credit when the filer had little, if any, taxes withheld from income in that year.”

Tax preparer who bilked IRS out of $4M for poor clients: Fraud a ‘spiritual calling’. “As it turned out, Reed was inflating the incomes of his clients – generally unemployed women with children – so that they could claim an earned income tax credit.”

So as you observe this festive day in your own way, you can ponder whether the guy celebrating at the next table is buying because he just got his fraudulent EITC refund.

 

20140826-1Get your Buzz now! Because Robert D. Flach has posted his final Buzz for this tax season, with a kind shout-out to the Tax Update Blog. Don’t miss his thoughts on choosing a tax pro.

Kay Bell, What would you pay for professional help in filing your taxes?

William Perez, Head of Household Filing Status, Explained

Accounting Today, Obamacare Penalty to Be Owed by as Many as 6 Million Taxpayers. That will make it popular.

Robert Wood, Senators Blast IRS Commissioner Over Waste, Bonuses, Bad Service, More. Well, shooting fish in a barrel can be fun.

TaxProf, The IRS Scandal, Day 631. More government stonewalling. Well, it’s worked so far.

 

William McBride, Federal Government Lost Money from 2013 Tax Increases on Investors (Tax Policy Blog):

As President Obama prepares to roll out another tax increase proposal targeting capital gains and dividends, it’s instructive to look at what happened the last time he did that. Fortunately, the IRS just released preliminary data on tax year 2013, the year the top tax rate on capital gains and dividends went from 15 percent to 23.8 percent. The fiscal cliff deal raised the top rate to 20 percent and the Obamacare investment surtax added 3.8 percentage points.

From the IRS data, we can see that investors didn’t just sit there and pay the higher tax rate. Qualified dividend income dropped 25 percent, from $189 billion in 2012 to $141 billion in 2013. Capital gains dropped 12 percent, from $475 billion to $416 billion. Recall this was in the midst of a historic stock market boom.

Not all tax increases lose money, and not all tax cuts make money. This shows, thought that increases in capital gains rates can backfire. The realization of many capital gains is discretionary, and many taxpayers will discreetly hold on to gains, rather than cash them out, when rates rise.

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Perhaps this might not have been the best way to impress the sentencing judge. The Denver Post reports Convicts in $100 billion tax fraud skipped sentencing to play golf

The three Colorado Springs defendants were arrested Thursday after they failed to appear for sentencing Wednesday. They were escorted into court Thursday afternoon in handcuffs, all wearing street clothes.

“We did go golfing. I shot a 49, which was pretty good for me,” Pawelski told the judge after she emphasized the seriousness of the felony charges he faced.

Judges always understand you skipping a court date if you have a tee time.

Arguello reset sentencing for all three tax fraud convicts for Feb. 10. The judge brought each offender into the courtroom separately. Brokaw and Pawelski each told the judge they are a “natural man.”

“I am a natural man, a legal person, a legal man; something I didn’t know before,” Pawelski said.

Good thing he figured that out. He’ll likely have plenty of time to ponder that starting about February 11.

 

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Tax Roundup, 1/29/15: Iowans, fill ‘em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

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For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.

Related:

Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.

 

Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.

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Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”

 

Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/26/15: Is Iowa 2014 tax season in jeopordy? And: how “trust fund tax” encourages trusts.

Monday, January 26th, 2015 by Joe Kristan

Accounting Today visitors: Here is the accounting method post mentioned by “in the blogs.”

 

20130117-1Uh-oh. Is there a holdup on passing the annual “conformity” bill at the statehouse? This from Republican State Senator Bill Anderson in the Sioux City Journal is a bad sign:

Senate Democrats are playing politics with the issue. The Department of Revenue is recommending accountants tell clients to delay filing their taxes until a decision is made. Senate Democrats’ indecisiveness to pass legislation in a timely manner creates uncertainty for taxpayers and tax professionals, preventing them from filing returns.

I had not heard there was any difficulty here. I hope it’s not serious, but I will be watching it more closely now.

This is another example of why Iowa should have a “floating conformity” rule. I don’t understand why they can’t say they will automatically adopt federal extender changes. If they want to leave out bonus depreciation, that could be done with language excluding that from the automatic conformity. We shouldn’t have to go into February without knowing what the state tax law is for the prior year.

 

Janet Novack, Obama Attack On “Trust Fund Loophole” Could Increase Tax Advantage Of Trusts. “Without step-up, there would, for example, be an even greater tax advantage to putting assets that are likely to explode in value—such as founders’ stock in a hot start-up—into an irrevocable trust for children or grandchildren.”

 

Kay Bell, Capital gains gain in income reporting, but tax hike unlikely

Jack Townsend, Fifth Circuit Rejects Attempt on Direct Appeal to Withdraw Guilty Plea in False Claims Conspiracy Case

Jim Maule, No Agreement? No Alimony Deduction. In divorce, paperwork is everything.

Robert Wood, 10 Crazy Sounding Tax Deductions IRS Says Are Legit. My favorite is “free beer.”

20130607-2Anthony Nitti, IRS Futher Limits Deductions For State-Legal Marijuana Facilities:

Most notably, Section 280E provides that “no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.” Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug.

And it does. Regularly.

I hope nobody really believes this actually prevents any drug crimes. What it does is add a crushing tax debt that helps ensure that anybody who gets involved in drug traffic can never reform and become a productive member of society.

 

Robert Goulder, Should the Mayor of London Pay U.S. Taxes? (Tax Analysts Blog):

True, there are tax treaty protections at play and foreign tax credits available. But the point of the story isn’t double taxation; it’s jurisdictional overreach. Many will argue that a citizenship-based tax regime is unfair and heavy-handed.

The U.S. is the only country that does it. Oh, Eritrea, too.

Stephen Olsen, The Gift that Keeps on Taking–Does Section 6324(b) Limit Gift Tax to the Value of the Gift or Can the IRS Take More? (Procedurally Taxing)

 

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

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

Alan Cole, The IRS Has Too Many Responsibilities (Tax Policy Blog):

On one hand, the IRS’s basic responsibilities have gotten less onerous over the years. More and more taxpayers file electronically, which means that everything just zips straight into the IRS’s computer system with little need for human oversight. This should mean that the IRS really doesn’t need to grow, and if anything it could stand to shrink.

But on the other hand, the IRS has been overloaded with all sorts of additional responsibilities. It’s acting as an extension of the Department of Health and Human Services in enforcing the Affordable Care Act. It’s acting as an extension of the Federal Election Commission and regulating political speech (an authority it has perhaps not used so well.) It’s acting as an extension of the Department of Energy with its residential energy credits, and it’s acting as an extension of the Department of Education in offering deductions and credits for teachers and students. It has to figure out who has health insurance and who has children and where the children live. It even has to try to get data from foreign banks, due to the complexity of our worldwide system of taxation. The more arbitrary things find their way into the tax code, the more verification systems the IRS has to put in place.

These are only a few of the non-revenue responsibilities dumped on the IRS that uses the tax law as the Swiss Army Knife of public policy. Beyond the bottle opener and the screwdriver, every gadget you add makes it harder to use it as a knife, and now we have a Swiss Army Knife the size of a railcar.

 

20140919-2Gretchen Tegeler, Benefits and Costs of DARTing Forward  (IowaBiz.com), on the troubling financial structure behind Des Moines’ public tansportaiton:

Despite a nearly 20 percent increase in ridership over this period, there has been no associated increase in fare-based revenue.  If more millennials are riding the bus, why aren’t we seeing an increase in operating revenue?  The absence of growth in operating revenue suggests that all of the recent improvements in service and ridership have been funded by non-users, i.e. from increases in property taxes.  Are we okay with this model? How far should we go with it?

Maybe if they had to rely more on farebox revenue, they would spend less on things like the downtown Palace of Transit.

 

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TaxProf, The IRS Scandal, Day 627

Glenn Reynolds, Middle-class Savings Like Blood in the Water. Paying for “free” college and student loan subsidies by taking money out of the pockets of those who save for college sets up a strange incentive structure.

Megan McArdle, Uncle Sam Is Coming After Your Savings. They need it to buy you “free” stuff.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

 

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