Posts Tagged ‘Robert Wood’

Tax Roundup, 7/9/14: It’s an outrage! Oh, we did it? That’s fine. And: Economic development cyanide!

Wednesday, July 9th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

So the taxpayer wants a tax refund.  He calls an IRS agent, who says she will look into it and call back.  Impatient taxpayer calls the agent back five times and tells her she is being uncooperative, finally telling her to “put her money where her mouth is.”  Taxpayer several days later sends the agent a letter telling her that she could issue the tax refund, but chooses not to, and demands the IRS submit some documents.  The IRS schedules a meeting, and the taxpayer insists on the refund now.  The taxpayer attempts to put a lien on the agent’s property for the balance due.

Naturally the taxpayer finds this doesn’t work, and gets hit with all sorts of penalties for this, right?  No, the taxpayer gets off scot-free.  Can you believe it?

Oops, I misspoke.  I got the names backwards.  The IRS was doing this to the taxpayer, and the courts this week refused to impose penalties on the agency for hounding a 71-year-old lady for back taxes on a failed like-kind exchange.

Sauce for the goose really ought to be sauce for the gander.  The IRS has a lot more resources and a lot more ability to follow the law than the average taxpayer.  Yet while the IRS and the courts routinely slap penalties on inadvertent or naive violations of a complex tax law, the courts rarely hold the powerful IRS to the same standards, and it almost never penalizes the agents for misbehavior towards taxpayers.

Cite: Antioco v. United States; USDC CA-ND, No. 3:13-cv-00924

Stephen Olsen, IRS Not Liftin the Penalties — Fed Circuit Denies Taxpayer’s Reasonable Cause Argument (Procedurally Taxing) The courts stack the deck against the taxpayer a little more.

 

20120906-1Don Boudreaux“Damn! My Neighbor Swallowed Cyanide. I Guess I Gotta Swallow Cyanide, Too.”  He’s talking about the crony subsidy Export-Import Bank, but his apt argument applies just as well to state “economic development” tax credits:

Subsidies and other economic privileges weaken the domestic economy.  They do so because, in order to artificially bolster industries that excel at satisfying politicians, such privileges necessarily transfer resources away from industries that excel at satisfying consumers.  Because Mr Summers (like nearly all economists) apparently accepts this sound argument, he especially should see that subsidies are not the economic equivalent of armaments: an armaments build-up does indeed strengthen the country militarily; subsidies, in contrast, weaken the country economically.

So when foreign governments subsidize industries (for example, through export credits of the sort doled out by the Ex-Im Bank), they themselves weaken their own countries’ economies relative to economies whose governments dispense no subsidies or other special privileges.

Taxing your existing taxpayers to lure and fund their competitors is a bad idea, even if Illinois is doing it too.

 

IRAJason Dinesen, ROBS Transactions – Be Very Careful of Using Retirement Funds to Start a Business.  Jason discusses the unwisdom of having your IRA invest in your business.  It can be a catastrophically expensive source of capital.

William Perez, Wage and Salary Income.   How it’s taxed.

Kay Bell, Pot shop seeks Tax Court relief from cash tax payment penalty.  You have to remit your taxes electronically.  We won’t let you have a bank account to transmit it from.  Understand?

Jim Maule’s Tax Myth series continues with “The IRS Gave Me a Refund.”  ” I suppose that those who are concerned that the federal government or a state government might run out of money before the refund is paid are overjoyed when the refund arrives, but as a realistic, practical matter, simply getting one’s money back isn’t a joyous occasion.”

Peter Reilly, Should You Follow The Clintons And Do Your QPRT Sooner Rather Than Later?

Robert W. Wood, Five Stages Of Grief, IRS Version.  I see clients go through all five stages every April.

 

20140508-1Kyle Pomerleau, Bonus Depreciation is a Bonus, but Full Expensing is Ideal (Tax Policy Blog)  “An Ideal tax code would allow the full $100 cost of the oven to be deducted in the year in which it was purchased.”

Howard Gleckman, New TPC Analysis: What Dave Camp’s Tax Reform Plan Would Really Mean (TaxVox)

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Kansas Edition (Tax Justice Blog).  “This Kansas gubernatorial election is shaping up to be a referendum on Governor Sam Brownback’s tax cuts and supply-side economics generally.”

Jeremy Scott, Could EU Probe Signal the End of Sweetheart Tax Deals? (Tax Analysts Blog)  “U.S. tax rules are clearly complicit in multinationals’ ability to lower their tax burden, but the European Union is now examining whether its member states are inappropriately aiding some companies through so-called sweetheart transfer pricing arrangements.”

Accounting Today has your Tax Fraud Blotter.

TaxProf, The IRS Scandal, Day 426

News from the Profession:  Consultant Shares Secrets For Milking the Most Out of CPA Firm Staff (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 7/1/14: Where the IRS budget really goes. And: IRS ends automatic expiration of foreign tax ID numbers.

Tuesday, July 1st, 2014 by Joe Kristan

Dang.  “We do not hold, as the principal dissent alleges, that for-profit corporations and other commercial enterprises can ‘opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.'” — from the majority opinion in yesterday’s Hobby Lobby Supreme Court decision.

Had they allowed a religious exception to the tax law, all the world religions would quickly develop wildly-popular sects with a doctrinal allergy to tax, and, well,  lots of things.

 

Instapundit links to this chart where it looks like IRS spending is out of control

IRS total 20140701 cato

And I think it is — but not in the obvious way.  The Cato Institute, source of the first chart, also provides this:

IRS budget cato 20140701

It shows that almost all of the massive increase in IRS spending is from refundable credits, which are counted as part of IRS spending in the first chart.  But money given away through the Earned Income Tax Credit is not available for auditing taxpayers or buying additional backup tapes.

That, of course, doesn’t excuse the IRS malfeasance in the Tea Party scandal.  It does show that even as Congress has piled more responsibilities on the IRS — especially via Obamacare — it hasn’t provided additional resources.  Now that one party has seen that the IRS has been acting institutionally as its opposition, the agency is unlikely to get significant new resources as long as that party controls one house of Congress — even less so if the GOP takes the Senate, too.

Meanwhile, rather than trying to conciliate and reassure Congressional Republicans, Commissioner Koskinen has been defiant and tone-deaf in his response to the Tea Party and email erasure scandals.  The results for tax administration will not be good.

 

Jeremy Scott, IRS Strategic Plan Highlights Effects of Budget Cuts (Tax Anlaysts Blog):

A crippled tax collector means a damaged tax system. And a damaged tax system only hurts taxpayers and the federal government as a whole. Congress should focus more on punishing those responsible for the various missteps at the IRS and less on gutting the nation’s revenue collection and tax administration system as a whole.

That will require the IRS as a whole to stop acting like a partisan agency.

 

20130419-1IRS does something very sensible.  Credit where credit is due:  the IRS has decided to no longer make non-resident aliens renew their tax ID numbers every five years.   From IR-2014-76:

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

Very welcome, and long overdue.  Obtaining an ITIN is an inconvenient and burdensome process, involving either mailing passports or national ID cards to the IRS — and trusting them to return the documents — or making the often long trip to a U.S. consulate to apply in person.  For foreign residents with long-term U.S. financial interests, the requirement to renew ITINs every five years was a gratuitous and expensive burden.

(Hat tip: Kristy Maitre).

 

BitcoinRobert Wood, What IRS Calls ‘Willful’ May Surprise You–And Mean Penalties, Even Jail.  The lingering IRS threat to impose fines for “willful” FBAR noncompliance for small amounts is unwise; it seems that they are more concerned with missing a few lawbreakers than in bringing foot-fault violators into compliance.

Jack Townsend, Good Article on the Non-Willfulness Certification for Streamlined and Related Issues

TaxGrrrl, IRS Says Bitcoin Not Reportable On FBAR (For Now)   

 

Paul Neiffer, IRS Releases Final Regulations on ACA Small-Business Tax Credit

Robert D. Flach starts out July with a Buzz!

Kay Bell, Supreme Court finds contraceptive tax costs ‘substantially burdensome’ in its ruling for Hobby Lobby stores

 

 

Martin Sullivan, States Should Cede Some Taxing Power to the Feds (Tax Analysts Bl0g):

Given that states’ corporate taxes are here to stay, we should consider making them as painless and low-cost to businesses as possible. One way to do that is for Congress to exercise its authority under the commerce clause of the Constitution and require states to entirely piggyback their corporate taxes on the federal system.

Canada does this, and it does help, but getting rid of state corporate income taxes would help much more.

Liz Emmanuel, Millionaires’ Tax Clears New Jersey Legislature, Faces Likely Veto (Tax Policy Blog)

Renu Zaretsky,The Tax Man Cometh, But Sometimes Collects Less.  The TaxVox headline roundup covers the formal effective date of FATCA (today), Kansas budget woes, and a link to an interactive tool to track state budgets.

 

Russ Fox, IRS Didn’t Tell a Court About the Missing Lerner Emails

TaxProf, The IRS Scandal, Day 418

 

20140508-1I wouldn’t try asking one this question.  What Type of Fruit is a Polar Bear? Petaluma and Interpretive Choice (Andy Grewal, Procedurally Taxing)

Career Corner.  How to Create a CPA Exam Study Schedule That Guarantees Failure (Adrienne Gonzalez, Going Concern)

News from the Profession.  San Diego CPA convicted in elaborate tax evasion scheme:

A federal jury deliberated for 30 minutes before finding Lloyd Irving Taylor, 71, guilty of all 19 counts against him, including aggravated identity theft, making false statements to a financial institution, evading taxes, corruptly impeding the Internal Revenue Service and making false statements on U.S. passport applications.

According to evidence presented at trial, Taylor, who has been in custody since April 2013, stole the identities of deceased minors, used them as aliases and obtained fraudulent passports and other identification papers.

Oh, that’s illegal?

According to witnesses who testified, Taylor failed to report $5 million in income during the span of the fraud and owed the IRS about $1.6 million. During his 42 years of working, Taylor had filed a total of seven tax returns, according to trial testimony.

That’s one every six years.  It took awhile, but the IRS eventually notices something was amiss.

At a bond hearing last year, a judge ordered Taylor detained pending trial based on a number of factors, including his international travel on his false passports, the millions of dollars he controlled through dozens of bank accounts and his numerous false statements to banks.

I suppose the man felt invincible, given how long he apparently went without drawing IRS attention.  Eventually that comes around, though he had quite a 42-year run.  But he did get caught, possibly because of better computer matching and more comprehensive bank reporting.  Don’t count on stringing the IRS out for 42 years yourself.

 

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Tax Roundup, 6/11/14: IRS Bill of Rights: just words? And: when your state got its income tax.

Wednesday, June 11th, 2014 by Joe Kristan

billofrightsTalk is cheap.  The North Korean constitution has a whole bunch of rights,  per Wikisource.  For example:

Article 70. Citizens have the right to work. All able-bodied citizens choose occupations in accordance with their wishes and skills and are provided with stable jobs and working conditions. Citizens work according to their abilities and are paid in accordance with the quantity and quality of their work.

Article 75. Citizens have freedom of residence and travel.

Article 78. Marriage and the family shall be protected by the State. The State pays great attention to consolidating the family, the basic unit of social life.

 

So written declaration of rights are just empty words when there is nothing behind them. That’s why I can’t get too excited about the big Taxpayer Bill of Rights announced by IRS Commissioner Koskinen and Taxpayer Advocate Olson yesterday.

Nothing to disagree with on the list, but what will the IRS do to make it more than empty words?  Going down the list:

The Right to Be Informed.  The IRS is infamously secretive.  Will they no longer require Tax Analysts to sue them to make public their positions and procedures?  Will the required compensation for S corproation employee- shareholders be only known to the whim of the examining agent?

The Right to Quality Service.  The IRS continues to get worse at answering taxpayer questions.  It seems like they are worse than ever at dealing with correspondence.  It has become nearly impossible to reach IRS personnel in D.C. by phone to ask technical questions. Is the Commissioner going to change any of this?

The Right to Pay No More than the Correct Amount of Tax.  The nearly-automatic assertion of penalties for every asserted deficiency will have to end for this to mean anything.

The Right to Challenge the IRS’s Position and Be Heard.  The consolidation of appeals offices and their seeming loss of independence will have to be reversed for this to mean something.

The Right to Appeal an IRS Decision in an Independent Forum.  See you in Tax Court…

The Right to Finality.  Does this mean IRS will enable offshore FBAR foot-faulters to come into compliance without facing financial ruin?

The Right to Privacy and The Right to Confidentiality. These are a big ones, and the IRS hasn’t been doing so well at them lately.

The Right to Retain Representation.  Yet the IRS wants to choose who gets to do this for you. When the IRS can shut down your representative, he may not be a really zealous advocate.

The Right to a Fair and Just Tax System.  This is something that the IRS can’t ultimately reach on its own — Congress designs the system — but it could sure do a lot better.  When the IRS routinely assesses $10,000 penalties for filing Form 5271 one day late, when they effectively loot foreign pension accounts of expats for inconsequential paperwork violations, it’s hard to see the fairness and justice.

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Other coverage:

TaxProf has a roundup.

Kay Bell, Would the newly adopted Taxpayer Bill of Rights have prevented the IRS Tea Party scandal?

Robert W. Wood, IRS Reveals Taxpayer Bill Of Rights

Joseph Henchman, IRS Approves List of Taxpayer Rights (Tax Policy Blog).  “My own addition is that much as requiring police to know and inform arrestees of “Miranda” warnings has increased awareness of those rights, so too will this.”

TaxGrrrl,  IRS Releases Much Anticipated ‘Taxpayer Bill Of Rights’  “With the wrap up of filing season, the IRS is now in its peak correspondence mailing season. This was, according to Koskinen and Olson, the perfect time to introduce the rights since they will be mailed out together with those correspondences.”

Russ Fox, IRS Adopts “Taxpayer Bill of Rights;” Will Anything Change?  “Until the IRS comes clean on the IRS scandal, what was released today makes a great sound bite but is otherwise nothing new. The IRS appears to have violated six of the ten rights, and is still stonewalling Congress on the scandal. The IRS’s budget won’t be increased because of today’s press release.”

 

Scott Drenkard, Richard Borean, When Did Your State Adopt Its Income Tax? (Tax Policy Blog):

20140611-1

No, they haven’t been around forever, it just feels that way.  Wisconsin was first.

 

Jason Dinesen, Same-Sex Marriage and Amending Prior-Year Returns.  “A broader way of asking the question is: if someone who’s in a same-sex marriage amends a prior-year return that they had previously filed as a single person due to the Defense of Marriage Act, must that amended return show a filing status of married?”

Tony Nitti, District Court: Lone Sale Of Undeveloped Land Generates Ordinary Income, Jeopardizing Land Banking Transactions   

William Perez, Home Office Deduction

Keith Fogg, Government Drops Appeal in Rand Case (Procedurally Taxing).  This is the case where the Tax Court ruled that a recovery of refundable credits in excess of income tax was not a “deficiency” for computing penalties.

Jack Townsend, Reminder: Category 2 Banks Will Serve Up Their U.S. Depositors .  Consider banking secrecy dead.

Brian Strahle provides a list of state and local tax blog resources. 

 

20140611-2Alan Cole, Japan’s Tax Reforms and its Blockbuster GDP Growth (Tax Policy Blog):

Paired together, theory would predict that these two tax changes create a structural shift in the Japanese economy; the more favorable corporate tax climate would encourage investment, and some income would be spent on that new investment instead of immediate consumption. Over the long term, this will boost Japanese wealth and productivity, and eventually allow for a higher standard of living than before.

The data fit this theory so far; private nonresidential investment grew at a “blockbuster” rate of 7.6% in the first quarter of 2014. 

 

David Brunori, A Coke and a Smile and a Tax (Tax Analysts Blog). ” It would tax a can of Coke, but if you went to Starbucks and dumped five teaspoons of sugar into your latte, there would be no additional tax.”

TaxProf, The IRS Scandal, Day 398

Going Concern, Ex-BDO Vice Chairman Given 16 Months to Think About His Choices. He will retire to a Bureau of Prisons meditation facility.

He was ashen after the sentence was announced.  Gray man sentenced to 18 months for tax evasion

 

 

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Tax Roundup, 3/13/14: Looming Payday Edition. And: incentives galore!

Thursday, March 13th, 2014 by Joe Kristan

20130104-1Deduction day looms.   March 15 is the deadline for calendar-year corporate return filings and payments.  It’s also an important deadline for accrual-basis taxpayers for another reason:  compensation accrued at year-end by a calendar-year accrual-basis taxpayer has to be paid by March 15 of the following year to be deductible in the year accrued.

As every first-year accounting student learns, accrual accounting tries to match expenses with the period in which the income is earned.  If a bonus is based on calendar-year sales or profits, it normally can’t be paid until after year-end, when the numbers are sorted out; still, the bonus is related to those sales, so accrual accounting counts the expense against that year’s income.

The tax law has many limits on accrual accounting.  For example, accrued expenses to “related parties,” typically owners and their families, can’t be deducted until the expenses are actually paid.  The tax law gives accrual businesses 2 1/2 months after year-end to pay accrued compensation to non-related employees.  Otherwise, the deduction is deferred until the year in which the employee is paid.

Does the compensation have to be paid by Saturday, or can I wait until Monday?  The tax law provides that when tax returns are due on a weekend, the deadline is extended to the following monday.  That’s why 2013 calendar-year corporation returns  are due March 17, 2014 – March 15 is on Saturday this year.

But the IRS says that doesn’t work for compensation.  Rev. Rul. 83-116 holds that it only applies to “acts required to be performed in connection with the determination, collection, or refund of taxes”  — things like filing returns.  So, according to IRS, the March 15 deadline still stands for payment 0f 2013 accrued compensation.  It’s not clear that the IRS would win in court on this — they have lost on a similar issue — but you don’t want to be the test case.  If you want to deduct 2013 accrued compensation on your 2013 return, pay it by Saturday.

 

 

haroldIncentives!  Coralville Likely on the Hook for Large Chunk of Von Maur Taxes.  Coralville marches to the beat of its own drummer, who apparently is heavily medicated.

Hey, let’s pay $34 million to build a Des Moines Convention Hotel!  Brian Gongol reports “The city financed the hotel to help spur convention business…but now it’s in danger of losing money.”  You don’t say.

Tax Justice Blog, Film Tax Credit Arms Race Continues: “Saying “no” to Hollywood can be a difficult thing for states, but here are a few examples of lawmakers and other stakeholders questioning the dubious merits of these credits within the last few weeks”.

Good.  Iowa doesn’t seem to have been badly hurt since it turned from subsidizing filmmakers to jailing them.

Related: Robert Wood, Film Taxes Ensnares Beckhams, Bob Geldof, Andrew Lloyd Webber, Annie Lennox & More

 

TaxGrrrl, Taxes From A To Z (2014): F Is For Foreign Tax Credit.  “For many taxpayers, it’s more advantageous to claim income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit than as a deduction.”

William Perez, Chart: Total Refundable Credits from 1990 to 2011.  There are more of them now.

Peter Reilly, Hedge Fund, TEFRA And Community Property Give Woman Tax Nightmare

Russ Fox, The IRS Needs Volunteers for the Taxpayer Advocacy Panel

 

Cara Griffith, States’ Perspectives on Federal Tax Reform (Tax Analysts Blog)

Joseph Henchman, Nebraska Legislators Approve Inflation Indexing But Drop Major Tax Overhaul (Tax Policy Blog)

Howard Gleckman, Mike Lee’s Tax Plan: An Intriguing Idea That Would Add $2.4 Trillion to the Deficit (TaxVox)

Kay Bell, House panel finally looking at Internet sales tax legislation

TaxProf, The IRS Scandal, Day 308

News from the Profession.  Tweeting a Lot About Audit Stuff Can Get You a Job at Deloitte.  (Going Concern)

 

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Tax Roundup, 10/29/13: The case against the research credit. And no tax break for bike-shares.

Tuesday, October 29th, 2013 by Joe Kristan
20131029-3

Flickr image courtesy Windy_ under Creative Commons license

Martin Sullivan, ‘Extortion’ and the Research Credit (Tax Analysts Blog) is the first prominent tax commentator I’ve seen who sees the research credit the much the way I do (my emphasis):

The problem is not with the theory of the credit but with its execution. I have been around a while and have researched the research credit since its inception in 1981. My take is that the essential problem of the credit has only grown worse: It is impossible to find a practical definition of subsidy-worthy research in the 21st century. It is less clear than ever where corporate research ends and other innovation-inducing functions like design and software development, begin. There is little empirical work regarding why, in this modern economy in which investment spending defies categorization, some business-building activity should be subsidized and others not. This inability to target incentives to where they should go means scarce resources are inappropriately and arbitrarily assigned to certain activities, certain businesses, and certain industries while others are left in the cold. What was intended as an incentive for productive activity by clever scientists and engineers turns out to be an incentive for totally unproductive activity by clever lawyers, accountants and lobbyists.

So true — though the accountants do use clever engineers to help turn stuff businesses do anyway into “research.”  I’m convinced that the credit is almost entirely harvested by businesses doing what they would do anyway.

Repeal of the research credit could fund a reduction of approximately 1 percentage point in the corporate tax rate. The benefits of the credit as it works in practice are questionable. In contrast, a reduction in the corporate rate would undoubtedly be a big plus for America’s competitiveness.

That’s right.  The IRS is institutionally incapable of distinguishing between worthwhile “research” and other spending.  If the IRS can’t competently police a tax spiff, get rid of the spiff and lower the rates for everyone.

 

Andrew Lundeen, Scott Hodge,  About Half of Tax Returns Report Less than $30,000 (Tax Policy Blog)

The median taxpayer earns roughly $33,000. This means that half of the 145 million tax filers (about 72 million or so) earn less than $33,000 and half earn more. While only about 14 percent of taxpayers earn more than $100,000, they pay the vast majority of all income taxes in America today.

 20131029-1

Compare that with who pays:

20130530-1

In other words, The bottom half of the distribution’s income tax burden is actually negative.

 

TaxGrrrl,  10 Things You Need To Know About Getting Married & Taxes

Kay Bell, A clearer look at maximizing medical tax deductions

Paul Neiffer,  Setup Your Deferred Payment Contracts Now:

The election is on a contract by contract basis so it is important to have at least a couple contracts in the $20-30,000 range to allow for the correct amount of adjustments to income.  If you have only one contract for $150,000, that may not give you the best flexibility.   

It’s one of those sweet tax planning tools that would be bizarre and subject to penalties for most of us, but is just Tuesday for farmers.

 

20131029-2

Flickr image courtesy Galpalval under Creative Commons license

Robert W. Wood, Bike Share Programs Are Not Tax-Free, Says The IRS  (Via the TaxProf).  The IRS says bikes borrowed from rent-a-bike stands, like those in downtown Des Moines, can’t be a reimbursed as a “qualified transportation fringe benefit.”  In contrast, expenses of personally-owned bikes qualify.

 

Phil Hodgen is running a series on the tax effects of expatriating.  He’s gotten ahead of me, so I’ll start at the beginning and add a link every day, starting with  Chapter 1 – A Quick Overview of the Exit Tax.

Jack Townsend, Does Our Criminal Justice System Find Truth Well And What is the Tolerance for Error?  “The question is whether our traditional criminal justice system for finding truth by triers of fact — usually juries but sometimes judges — really do it well and how much confidence can we have that they do it well.”

 

Jeremy Scott, Revenue Divide Will Likely Derail Conference Committee (Tax Analysts Blog)

TaxProf,  The IRS Scandal, Day 173

Tax Justice Blog, PricewaterhouseCoopers Report Quietly Confirms Low Effective Tax Rates for Corporations But Directs Attention to Irrelevant Figures

Linda Beale,  Carried Interest — a tax privilege for the rich whose end time has come.  Except it’s not just for “the rich,” and it would do more harm than good.

 

Keith Fogg, Vince Fumo: IRS Finding of Jeopardy (Procedurally Taxing)  “As mentioned in a previous post, the Service recently invoked the rarely used jeopardy assessment procedure against former state Senator Vince Fumo in connection with the activities leading to his criminal conviction.”

Robert D. Flach says it’s TIME FOR YEAR-END PLANNING.

 

News from the Profession:  “Is the CFO’s quitting time after 3 pm?” Coming to an Auditor’s Questionnaire Near You (Going Concern)

 

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Tax Roundup, 10/15/2013: Do or die day. And so long, 2009!

Tuesday, October 15th, 2013 by Joe Kristan


20130415-1
Today is it.
 Extended 2012 1040s are due today.  If you are still digging for that last charitable deduction or waiting on that last K-1, give it up.    It’s better to file an imperfect return on time than a perfect one late.  You only have one day left to file on-time, but you have three years to file an amended return if you need to.  As Robert D. Flach reminds us, that’s true even if you owe money but lack the cash to pay up.

If you can, you should e-file.  That removes all doubt about whether you have filed on time.

If you are paper-filing, you can prove timely filing by using certified mail, return receipt requested, and getting a postmarked mailing receipt at the post office.  Some people scoff, but it works.  Just this year a client avoided a nearly $10,000 late filing penalty by saving the Certified Mail receipt.

If you prefer, or if you don’t finish up before the post office closes, you can go to your late night FedEx or UPS Store and use a receipt from a designated private delivery service to document your timely filing.  If you use a private delivery service, be sure to send it to the Service Center’s street address, and be sure to use the right product from the delivery service.

 

Today is not just the deadline for extended 2012 returns.  It’s also the last possible day to claim a refund from an extended 2009 return filed at the deadline for that year.   The “mailbox rule” — timely-mailed is timely-filed —  also applies here, and you’d be foolish to not use certified mail for a last-day refund claim.

It’s also the last day the IRS can assess additional tax for 2009 extended returns.  Thanks, shutdown!  The statute remains open for 2009 in the case of a “substantial understatement,” which has a six-year statute of limitations.  The statute for assessment never closes when fraud is involved.

 

William Perez, IRS Shut Down, Week 3

TaxProf, The IRS Scandal, Day 159

Kay Bell, Wyoming, 5 other western states have best business taxes

Jack Townsend, For Tax Evasion, Is the Element “Tax Deficiency” or “Tax Due and Owing”. “The crisp answer to the question is ‘yes.'”

 

News you can use.  Shutdown Gives Tax Scammers New Opportunities To Steal (TaxGrrrl)

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Tax Roundup, 3/5/2013: Good intentions, broken whistles. Also: file all the forms!

Tuesday, March 5th, 2013 by Joe Kristan

 

Swiss knife

“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.

The Iowa income tax as Swiss Army Knife.  The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week.  The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.

SSB 1064 cleared the committee unanimously.  After all, who would vote against the “Hire a Hero Tax Credit?”  But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.

Nobody will hire an employee just to get a $1,500 tax credit.  You hire somebody because you have work to do.  Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500.  It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.”  Will the state really examine that?  Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.

Still, why not make a nice gesture to show our voters how much we care?  Because every feel-good tax break has a cost.  It costs money to comply with and enforce.  It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it.  It makes a good tax system for everyone just a little bit harder.

The primary purpose of the tax law is to finance government operations.  When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.

 

Swiss Bank corpse fined $58 million for tax cheating.  The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes.  Robert W. Wood has more.

Patrick Temple-West,  Wegelin withers under U.S. tax scrutiny, and more (Tax Break)

 

While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards.  While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:

In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”

What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.

Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.

Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.

 

William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog)  “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”

20130305-1

 

Russ Fox,  IRS Opens for All.  We can e-file all the forms.

TaxGrrrl,IRS Now Accepting All Individual Returns

Paul Neiffer,  IRS Announces They Are Processing All Remaining Tax Forms

Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s?  (Tax.com).  “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”

Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply

Linda Beale,  Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work

Yes.  Minnesota Tax Reform:  Poorly Designed??  (Brian Strahle).

Kay Bell,  Tax Carnival #114: March 2013 Tax Lions and Lambs

 

Good.  Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern).  If you want to do tax work for a living, why waste two years doing audit work that you hate?

I don’t condone the behavior, but I bet every bus driver dreams it.  From WQAD.com:

Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.

According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.

The students were first graders from Iowa Falls. Nobody was hurt.

I might not make a very good bus driver.  I’d probably always be racing…

 

 

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Tax Roundup, 1/25/2013: Only a few days left for IRA distribution mulligan. And: A $750 check for each Iowa household?

Friday, January 25th, 2013 by Joe Kristan

A proposal to refund part of the state budget surplus.  The Des Moines Register reports:

Iowa House and Senate Republican leaders today proposed to give a flat $750 to every Iowa household in an effort to return to taxpayers the state’s $800 million budget surplus.

The money would be returned to taxpayers in the form of a tax credit, said Senate Republican Leader Bill Dix, R-Shell Rock, and House Speaker Kraig Paulsen, R-Hiawatha.

20120504-1That seems pretty straightforward.  Better still to give it back as part of simplifying the tax code, but better that than just spending it.  Yet just spending it has its advocates:

Senate Democrats who control their chamber said that since it’s early in  the session they are open to talking about the Republicans’ proposal, but they have other ideas.

Sen. Joe Bolkcom, D-Iowa City, who chairs the tax-writing Iowa Senate Ways and Means Committee, said Democrats are interested in providing earned income tax credits for lower-income Iowa families and raising the threshold for filing state income taxes. He added that Iowa needs to invest more tax money to clean up dirty rivers and streams, repair crumbling roads and bridges, upgrade the state’s education system and make other improvements.

The earned income credit is a welfare program run through tax returns, with a tremendous rate of fraud.  It’s also a poverty trap.  The phase-out of benefits with rising income serves as a stiff tax on improving your income.  And spending doesn’t become something else just because you call it “investing.”

Elaine Maag,  Earned Income Tax Awareness Day (TaxVox)

 

Kay Bell reminds us that taxpayers who failed to make a 2012 required minimum distribution from the IRA have a January 31 mulligan.   The tax law imposes a stiff penalty on taxpayers who have reached age 70 1/2 who fail to take a minimum amount out by year end.  Taxpayers who failed to take their 2012 withdrawal last year can roll the RMD amount to charity by January 31 and avoid the 50% penalty.

Taxpayers who took an IRA distribution in December can also roll that into a charity by January 31 and avoid having the distribution included in 2012 income.

These provisions were part of the Fiscal Cliff tax bill, which extended the tax-free status of IRA rollovers to charity along with a bunch of other expired provisions.

 

Just because your bank is a country bank doesn’t make the banker a bumpkin.  Four Nebraskans have been charged with “structuring” — breaking deposits into chunks under $10,000 to avoid federal cash reporting requirements.  Federal law requires banks to report cash transactions over $10,000.  Folks who don’t want the government to know about their cash sometimes attempt to use multiple smaller transactions to fly under the radar; that’s illegal.    Theindependent.com reports:

 Randy L. Evans, 59, of Grand Island is charged in a 15-count indictment.  In the first 14 counts, it is alleged that between March 29, 2010, and Dec. 27, 2011, Evans structured financial transactions to evade reporting requirements when he made deposits in the amount of $210,381 at Five Points Bank. Count 15 charges him with structuring financial
transactions to evade reporting requirements when he made 449 transactions between Jan. 4, 2010, and Feb. 28 at Five Points Bank in the amount of $2,030,322.

Bankers are required to report suspicious transactions, and if you make yourself a regular, they’ll notice — especially in a small-town bank.

 

Regrettably, yes.  Libertarian writer Sheldon Richman breaks the bad news: just because the income tax is a bad thing doesn’t make it unconstitutional:

Where does this leave liberty’s advocates? First, we have to face the facts. Like it or not, the U.S. Constitution empowers the Congress to levy any tax it wants. Anyone is free to come up with a contrary interpretation, but the constitutionally endowed courts have spoken. Reading one’s libertarian values into the Constitution is futile. For better or worse, the Constitution means what the occupants of the relevant constitutional offices say it means.

In other words, it doesn’t matter if you think the income tax is unconstitutional if the IRS, the federal judge, the Marshals Service and the Bureau of Prisons think otherwise.  Fighting the income tax by not filing ruins your finances without hurting the Leviathan one little bit.

 

Luring and subsidizing your competitors with your tax money.  Left-side advocacy group Good Jobs First has released a report slamming “incentive” tax breaks like those used for two fertilizer companies in Iowa last year.  The report doesn’t mention Iowa’s programs, but it provides a depressing list of corporate bribery in other states, including subsidies to lure employers from Kansas City, Kansas across the river to Kansas City, Missouri, and vice-versa.  Their press release gets it right:

Interstate job piracy is not a fruitful strategy for economic growth, [report author Greg] LeRoy noted: “The costs are high and the benefits are low, since a tiny number of companies get huge subsidies for moving what amounts to an insignificant number of jobs.” LeRoy added: “The flip side is job blackmail: the availability of relocation subsidies makes it possible for companies that have no intention of moving to extract payoffs from their home states to stay put.”

For all the abuse, the organization’s recommendations are modest.  I would eliminate all such subsidies and replace them with a simple low-rate tax system for everyone.  The Tax Update Quick and Dirty Iowa Tax Reform would be a great start here.

 

TaxProf,  House Ways & Means Chair Proposes Mark-to-Market Tax on Financial Derivatives

IRS Asks Judge To Suspend Injunction Barring It From Regulating Tax Preparers

Jim Maule,  A Tax Question: So What Do You Do With Your Time?. A good discussion of the “material participation” rules that take on extra importance under the new Obamacare Net Investment Income Tax.

Anthony Nitti,  The Tax Impact of Obamacare On The Passthrough Income of Small Business Owners

Patrick Temple-West,  Firms keep stockpiles of ‘foreign’ cash in U.S., and more (Tax Break)

Joseph Henchman,  Tax Foundation and CBPP Agree: States Need Strong Rainy Day Funds (Tax Policy Blog)

Jamaal Solomon, Tax Organizer for Entertainers.  Independent entertainers who cross state lines can find their taxes complicated, so good recordkeeping is essential.

Robert W. Wood, Shhh, Home Office and other IRS Audit Trigger Secrets

David Cay Johnston, Missing Half the Cash (Tax.com)

Start your weekend early with a Friday Buzz from Robert D. Flach!

News you can use:  Stuff Creepy Accountants Like (Going Concern).  Wisconsin!

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Tax Roundup, 1/24/2013: Tax increases for everyone, anyone? And more bad news for tax season!

Thursday, January 24th, 2013 by Joe Kristan

 

Tax Foundation graphic.

TaxProf,  NY Times: it Is Time to Raise Taxes on Everybody — Including the Middle ClassPaul Caron links to a New York Times Op-ed:

To make ends meet, both parties agree, spending must be drastically cut. Under the White House budget proposal, discretionary spending on everything except the military is projected to shrink to its smallest share of the economy since the Eisenhower administration by the beginning of the next decade. Though he has resisted Republican demands to slash entitlements, President Obama remains willing to look for further savings from Medicare.

This is not, however, the only option we have. There is an alternative: raising more money from all taxpayers, including the middle class.

Nobody wants to talk about this. … Yet Americans would benefit from a discussion of this possibility.

It’s not true that “both parties agree” that spending must be drastically cut.  It’s not clear that either party, as a whole, admits it, and at least one party remains in firm denial.  The President’s campaign was all about spending money and sending the bill to the rich guy.  Still, it’s nice that finally somebody at the New York Times admits that the rich guy isn’t buying.  He can’t.

 

Janet Novack,  As IRS Tax Filing Season Begins, Bad News For Honest Taxpayers.  She20130121-2 speaks with Taxpayer Advocate Nina Olson.  The article has some depressing truth:

Customer service at the Internal Revenue Service is dismal and deteriorating. (Only 68% of telephone callers who wanted to talk to a human at the IRS last tax filing season eached one, and then only after an average 17 minute wait.)  The epidemic of identity theft refund fraud hasn’t yet been contained.  Hope for a major reform that might simplify the tax code is waning.

The article also has some serious nonsense about last week’s ruling shutting down the IRS preparer regulation power grab:

“If the injunction stands, the taxpayers of the United States will be grievously harmed,” IRS National Taxpayer Advocate Nina E. Olson told Forbes. “The practical effect of not having some kind of consumer protection for taxpayers going to return preparers is enormous. And I say that seeing all the return preparer fraud, and the return preparer negligence, and the return preparer inadvertent mistakes that happen.”

Enormous?  More like what we did forever until two years ago.  If anybody has evidence that last year’s tax preparers were significantly more accomplished and accurate than they were before the regulations, they haven’t shared it.  And the idea that the RTRP literacy competency test and minimal CPE requirement would have changed that is silly.

Ms. Olson believes that depriving consumers of choices in preparers is in their interest because the diminished choices would be better.  That flies in the face of all we know about regulation.  The net result would be higher prices, driving more taxpayers to do their returns and driving some on the margins out of the system altogether, while sending more business to the big franchise tax prep outfits.

 

Robert D. Flach, TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION.  Robert’s magnum opus on how tax preparers should be regulated.

While I agree that having the Internal Revenue Service regulate tax preparers is not the best option – it is without a doubt a far superior option to having Congress legislate regulation.  My opinion of the intelligence, competence, and ability, or rather lack of intelligence, competence, and ability, of the current members of Congress is well known.
The optimal source of tax preparer regulation/licensure/certification, whether mandatory or voluntary, would be an independent industry-based organization, not unlike the AICPA or ABA, such as the National Institute of Registered Tax Return Preparers that I have proposed.

Robert also calls me out:

As I have asked in response to Joe’s assertion, would you want a “casual” electrician wiring your kitchen, or a “casual” dentist filling a cavity, or a “casual” architect designing your home?

If I do, what business is it of anybody else?  If I want to pay a talented handyman neighbor or cousin to install a ceiling fan for me, why is it anybody’s business?  Why should he be not allowed to take my money just because he doesn’t have an electrician card from the Bureau of Electrical and Mortuary Science?  As TaxGrrrl noted yesterday, occupational licensing is taking over the economy, and that’s not a good thing.

 

TaxGrrrl, With A Week To Go, IRS Talks Opening Day and Refunds

 

Cara Griffith, Have State Income Taxes Run Their Course? (Tax.com)

The corporate income tax is inefficient and a not sufficiently stable source of revenue for states. It should be eliminated. The individual income tax is likewise not a particularly stable source of revenue for states, and while counterintuitive, progressive tax systems do not work well at the state-level. Income redistribution, to the extent that it should be a goal at all, should not be undertaken at the state-level. So  in a perfect world, yes, the state individual income tax should be eliminated as well.

Christopher Bergin agrees.

 

Good. Another bid to ban traffic enforcement cameras in Iowa. (O. Kay Henderson, via The Beanwalker).  Traffic cameras are your local government’s most sincere way of showing their contempt for you.

 

Trish McIntire,  Form 8332 and Fairness.  How the IRS enables bitter ex-spouses.

Paul Neiffer,  Why Imputed Interest Matters For 2013 (And Beyond)

Kaye A. Thomas,  Another Demutualization Case

Robert W. Wood, Golfer Phil Mickelson Is Not Alone In Fleeing Taxes (Via Kerry Kerstetter)

Peter Reilly, Why Phil Mickelson’s Remark Was Really Dumb

Brian Mahany, Is FATCA In Trouble? Unfortunately, NO

Joseph Henchman,  CBPP’s Misleading Chart on Debt Stabilization (Tax Policy Blog).  A study in cherry-picking.

Jen Carrigan, Should Capital Gains Be Taxed Differently? (Guest post at The Missouri Taxguy blog).

Patrick Temple-West,  Firms keep stockpiles of ‘foreign’ cash in U.S., and more

Tax Trials,  District Court Decision Prevents IRS from Regulating Certain Tax Return Preparers

Kay Bell,  Fiscal cliff tax provision could help stem fraudulent refund claims by prisoners

 

News you can use:  Passing the CPA Exam While Billing Over 2500 Hours in a Year Is Way Harder Than Having a Baby(Going Concern).  Also less useful and not as smart.

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A new recruit in the Forbes army

Thursday, June 30th, 2011 by Joe Kristan

Is Forbes trying to take over tax blogging? They’ve now added Peter Reilly to their stable of tax bloggers, joining TaxGrrrl, Janet Novack and Robert W. Wood.
Rest assured, the Tax Update will never sell out, unless I get a good offer.

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I leave to you, my dear wife, an enormous tax problem

Thursday, June 2nd, 2011 by Joe Kristan

The TaxProf tells of a new book about a husband who died and left behind a secret:

Like any widow, Carol was devastated because she lost the love of her life and her son

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