Posts Tagged ‘Robert Wood’

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)

IMG_1186

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)

Share

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:

bowtie

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.”

 

IMG_1184

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).

 

Share

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.

 IMG_1178

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)

 

Share

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.

 

IMG_1188

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)

 

Share

Tax Roundup, 1/23/2015: Egg donor compensation taxable payment for services. Meanwhile, kidney donor compensation is a felony.

Friday, January 23rd, 2015 by Joe Kristan
"White-&-Brown-Eggs" by Evan-Amos - Own work. Licensed under Public Domain via Wikimedia Commons

“White-&-Brown-Eggs” by Evan-Amos – Own work. Licensed under Public Domain via Wikimedia Commons

The big news in the tax world today is a Tax Court case ruling that payments to an egg donor were compensation for services. The case turned on the language of the contract of between the egg donor and the agency that procured the eggs. Tax Court Judge Holmes ruled that the payments were not excludible as payments for physical damages because there was no tort claim involved.

There are plenty of places you can read more details on this case, including Russ Fox and Tony Nitti. The TaxProf has a roundup.

So there is an organized and legal market for donor eggs, which, if all goes well, turn into an entire new human. That’s a good thing. But if an agency paid you for one of your kidneys to save the life of an already-born child on the kidney donor list, they would face a $50,000 fine and five years in prison under the Gore-Hatch National Organ Transplant Act of 1984.

The National Kidney Foundation reports that 12 people die daily waiting for a donor kidney, and that 4,453 died waiting for a kidney transplant in 2013.  It’s a felony to save any of those lives by buying a kidney from a healthy, willing and fully-informed seller. Meanwhile, nobody dies waiting for a donated egg.

Cite: Perez, 144 T.C. No. 4

Related: The Case for Paying Organ Donors (Sally Satel)

 

Kyle Pomerleau, Richard Borean, More than Half of all Private Sector Workers are Employed by Pass-through Businesses:

53.7% of Iowans work for pass-through businesses taxed on 1040s.

53.7% of Iowans work for pass-through businesses taxed on 1040s.

“Pass-through” income is income earned by S corporations and partnerships, including LLCs. This income is taxed on 1040s. Those who favor ever-increasing individual taxation of “the rich” by definition favor increasing the tax on employment.

 

buzz20140923Robert D. Flach has your Friday Buzz, including thoughts on avoiding scammers claiming to be from IRS and on Wal-Mart’s cash tax refund program: “My advice – avoid this program.”

Kay Bell, IRS gets $1.3 million for Darryl Strawberry’s Mets annuity

Paul Neiffer, IRS Scammers Net $14 Million from 3,000 Victims. If the e-mail says it’s from the IRS, it’s not. If you aren’t expecting a call from the IRS, the caller isn’t from the IRS.

Jason Dinesen, Ridiculous IRS Situations I’ve Recently Dealt With. A continuing series.

Leslie Book, Tax Court Addresses Verification Requirement in Trust Fund CDP Case (Procedurally Taxing)

Robert Wood, Washington Nationals $210M Pitching Contract For Max Scherzer Is About Taxes. “The Home Rule Act prohibits the District from imposing a commuter tax on non-residents.”

Peter ReillyExclusive – Kent Hovind Claims Congressmen Are Looking Into His Case. All you could possibly want to know about the case of the guy who thinks the Flintstones was actually a documentary series.

20150123-2

Robert Goulder, Reading the Tea Leaves: China’s Jurisdictional Tax Claims (Tax Analysts Blog). Contrary to some reports, even Communist China doesn’t plan to tax worldwide income of non-resident Chinese. The U.S. stands alone in doing that.

Howard Gleckman, A Look at the Territorial Tax Systems in Four Countries Finds No Magic Bullets (TaxVox). No magic beans, either, I’ll bet.

TaxProf, The IRS Scandal, Day 624

 

Career Corner. Here Are Just a Few Questions You’ll Be Asked in a Big 4 Interview (Adrienne Gonzalez, Going Concern).

 

Share

Tax Roundup, 1/22/15: Business-only tax reform: do-able, or doomed? And: Are Iowa taxes all that bad?

Thursday, January 22nd, 2015 by Joe Kristan
paul ryan

Paul Ryan

Business-only tax reform? Tax Analysts reports ($link) that the chief taxwriter in the GOP-controlled House is exploring tax reform ideas with the Obama administration:

As Republican taxwriters look for a way to advance tax reform in the face of White House ambivalence, House Ways and Means Committee Chair Paul Ryan, R-Wis., said he would explore a business-only compromise with the Obama administration, as long as it includes passthroughs.

“I’d like to think that there is perhaps an area for common ground there,” Ryan said on Fox News January 20 after President Obama’s State of the Union address. “We’re going to try to explore it and see if we can find something.”

Ryan said Obama’s recent tax proposals, which involve increasing capital gains taxes and implementing a tax on financial institutions to pay for new and expanded middle-income tax incentives, as well as new spending programs, show he is disinterested in comprehensive reform.

I think “as long as it includes passthoughs” is absolutely the right approach. I also think it will be fatal to the reform effort. A majority of businesses and business income is taxed on 1040s as a result of the increased popularity of passthrough structures like S corporations and limited liability companies.

Source: The Tax Foundation

Source: The Tax Foundation

Any tax reform effort worthy of the name would bring down rates in exchange for a broader base. As the President seems firmly committed to ever-higher rates on “the rich,” I don’t see how this can happen.

 

Is Iowa’s business tax climate really that bad? (Me, IowaBiz.com). Is Iowa ready for tax reform? Ready or not, it’s overdue for it:

Even after all of the explaining, the Tax Foundation’s main points remain true. Iowa’s corporation tax rate is the highest in the U.S. (even taking the deduction for federal income taxes into account). In fact, it is the highest in the developed world. Our individual tax rate is high, even considering the federal tax deduction. All of the special breaks make Iowa’s income tax very complex. And while Iowa has many tax credits, they are often narrowly tailored and require consulting and string-pulling to obtain. Many small businesses don’t qualify for the wonderful tax breaks, but they still have to pay their accountants to comply with the resulting complex and confusing tax system.

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

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

The post begins an exploration of Iowa tax reform options I will be running at IowaBiz.com, the Des Moines Business Record’s Business Professional’s Blog. While longtime readers know my fondness for massive changes to the Iowa tax system, I will also be exploring changes on the margin that would improve and simplify Iowa’s tax system in its existing structure that might be easier to pass.

 

David Brunori, Bad State Tax Ideas Abound – Nebraska, Virginia, and Missouri (Tax Analysts Blog):

Special taxes — those on narrow bases — should be imposed sparingly and only for good reason. The best reason is to pay for externalities. But unlike, say, cigarettes, 99 percent of gun purchases produce no externalities. So they should not be subject to special taxes — unless you really hate guns, gun owners, and the guys from Duck Dynasty.

Not every problem is a tax problem.

 

Via Wikipedia

Via Wikipedia

TaxGrrrl, Taxpayers Urged To Be On ‘High Alert’ For Fraud During Filing Season:

This week, the Treasury Inspector General for Taxpayer Administration (TIGTA) issued a reminder to taxpayers to beware of scammers making calls claiming to represent the Internal Revenue Service (IRS). The scam, which heated up last year, has continued to plague taxpayers.

If you aren’t expecting a call from the IRS, it’s not the IRS.

 

William Perez, Understanding Form W-2, the Annual Wage and Tax statement

Robert Wood, 10 Surprising Items IRS Says To Report On Your Taxes. As a listicle, it will probably generate traffic to crush Forbes’ servers.

Tax Trials, Fourth Circuit Affirms the Tax Court on Conservation Easement Donation.  “In the end, the Fourth Circuit held that while the conservation purpose of the easement was perpetual, the use restriction on the’ real property is not in perpetuity because the taxpayers could remove land from the defined parcel and replace it with other land.”

Robert D. Flach, ONE WAY RETIREES ARE SCREWED ON THE NJ-1040.

Keith Fogg, How Long Does a CDP Case Toll the Statute of Limitations on Collection? (Procedurally Taxing)

Peter Reilly, Bitter CPA Fight Good For Attorneys And Nobody Else. The U.S. Sixth Circuit picks up the tale of one of the worst accounting firm breakups I’ve come across.

Jack Townsend, USAO SDNY Announces Another Offshore Account Client Plea

 

20141201-1Glenn Hubbard, Obama’s Bad Economic Ideas (Via the TaxProf): “Piling up child tax credits and subsidies for health care over narrow household income ranges, as the president proposes, leads to high rates of taxation on earnings from work as assistance is phased out.” In other words, a poverty trap.

Kay Bell, Obama’s ‘won both’ elections State of the Union quip, Republicans’ many responses to the speech (and gibe)

 

The Tax Policy Blog has lots on the Presidents’ doomed tax proposals:

Kyle Pomerleau, Andrew Lundeen, The Basics of President Obama’s State of the Union Tax Plan

Scott A. Hodge, Michael SchuylerWhat Dynamic Analysis Tells Us About the President’s Tax Hike on Capital Gains and Dividends

Stephen J. Entin, President Obama’s Capital Gains Tax Proposals: Bad for the Economy and the Budget

 

TaxVox is also flooding the SOTU zone:

William Gale, David John, Retirement Security a Priority in the 2015 State of the Union

Gene Steuerle, President Obama’s Middle-Class Tax Message in the State of the Union

William Gale, Adjusting the President’s Capital Gains Proposal

 

20150122-1

 

TaxProf, The IRS Scandal, Day 623. Today’s installment features an e-mail where scandal figure Lois Lerner shows she’s well aware her unit was under suspicion, and was desparately discouraging further inquiry.

Matt Gardner, Adobe Products’ Acrobatic Tax-Dodging Skills (Tax Justice Blog). I would read that as “skills in meeting their fiduciary duty towards their shareholders.”

 

Share

Tax Roundup, 1/19/15: President announces doomed tax proposals. And: Iowa gets 2015 credit for non-SHOP plans.

Monday, January 19th, 2015 by Joe Kristan

 

Economic supergenius

No, he’s not serious. The President has put forth a new set of tax proposals. So much for any ideas that he would spend his lame-duck last two years reaching out to pass bipartisan bills. The President’s “fact sheet” is a tendentious, partisan collection of slogans and half-truths posing as policy.

The first proposal:

Close the trust fund loophole – the single largest capital gains tax loophole – to ensure the wealthiest Americans pay their fair share on inherited assets. Hundreds of billions of dollars escape capital gains taxation each year because of the “stepped-up” basis loophole that lets the wealthy pass appreciated assets onto their heirs tax-free.

This is just partisan class warrior nonsense. First, it has nothing to do with “trust funds.” That’s just content-free name-calling. It would, according to Peter Reilly, treat death as a taxable sale of assets at fair market value.

The “wealthiest” already pay estate tax at rates up to 40% on the value — not just the gains — on their assets at death. But stepped-up basis applies to everyone, not just the wealthiest. The President’s proposal, if it really does call for elimination the basis step-up at death, affects everyone who inherits property, not just the few who pay estate tax. Everyone would get to try to find out how much Mom and Dad paid for that land or that stock in 1967, not just the wealthy.

Raise the top capital gains and dividend rate back to the rate under President Reagan. The President’s plan would increase the total capital gains and dividends rates for high-income households to 28 percent.

Somehow this proposal omits restoring the Reagan-era 28% top ordinary income rate that was key to allowing the 28% capital gain rate. The proper capital gain rate, of course, is zero.

None of this has a remote chance of passing, so there’s no point in me spending a lot of time on it. If you want more coverage, TaxGrrrl and Robert D. Flach dive into the details.

I’ll just point out that this is all dishonest class warrior nonsense about making “the rich” pay their “fair share.” A fair look at the numbers indicates that the rich guy is already picking up more than his share of the tab.

First, the shares of all taxes paid by different income segments:

Tax foundation Distribution of Federal Taxes in 2014

Next, the share of federal taxes by the dreaded “top 1%” vs. the bottom 90% since 1980:

taxfoundation top 1 vs bottom 90 percent

Maybe you think that “the rich” may pay more tax, but they still don’t pay as much as the rest of us as a share of their income. Nope:

tax foundation income share vs tax share

Finally, the taxes (Federal, state and local) paid by different income levels compared to the government benefits received by those income levels:

tax foundation taxes vs benefits 2012

No matter how much “the rich” have to cough up, as far as the President is concerned, it will never be enough.

More coverage:

Paul Neiffer, Do Farmers Take Advantage of “Trust Fund” Loopholes

Peter Reilly, President Obama Would Make Death A Taxable Event. “The President’s proposal would close the stepped-up basis loophole by treating bequests and gifts other than to charitable organizations as realization events, like other cases where assets change hands.”

Len Burman. President Obama Targets the “Angel of Death” Capital Gains Tax Loophole. (TaxVox). So dying is a loophole now.

 

cooportunity logoIn case you missed it, the IRS announced Friday that it will allow taxpayers in 85 Iowa counties to claim the small employer health care tax credit in 2015 now that CoOportunity, the sole provider of “SHOP” policies in those counties, has been taken over by insurance regulators. Details here.

 

TaxProf, The IRS Scandal, Day 620. Today’s installment quotes Friday’s Wall Street Journal:

If the IRS continues to stonewall the political targeting investigation, as Mr. Koskinen has, then the only tool Congress has to express disapproval is the power of the purse. In any case it’s hard to imagine the IRS could offer worse service than it already does.

Please, don’t tempt them.

 

Scott Hodge, Don’t Cry for the IRS, We’re Doing Their Work for Them (Tax Policy Blog)

20150119-1

On the Martin Luther King holiday, a cautionary tale of politically-motivated tax prosecution from Robert Wood.

Annette Nellen, Due diligence for preparing 1040s for 2014

Kay Bell, Terrorism, not taxes, rank high on policy priorities survey. I’ll bet that changes in about two months.

Christopher Bergin, Frack It, Tax It (Tax Analysts Blog)

 

Career Corner. If Your Accounting Firm Uses Timesheets, For the Love of God, Track Your Time Daily (Caleb Newquist, Going Concern)

 

Share

Tax Roundup, 1/16/15: Insurance reimbursements may trigger $100/day penalty, but at least they’re not on W-2.

Friday, January 16th, 2015 by Joe Kristan

20121120-2Letter to Congressman says insurance reimbursements that trigger $100/day Obamacare penalty still excludible from W-2. 

Small employers have long used “Section 105″ plans to reimburse employee purchases of individual health insurance, in lieu of setting up an employer group health plan. Such reimbursements were excludible from employee W-2 taxable income.

Under the Administration’s interpretation of the Affordable Care Act, such plans trigger a $100 per-day, per-employee penalty starting in 2014. Many employers are just learning that they had disqualified plans last year and are scrambling to comply; fixing a plan within 30 days of compliance may enable such taxpayers to avoid the $36,500 hit for each employee on “reasonable cause” grounds.

One question that has hung over this is whether the employer has to put the reimbursements that trigger the penalties on employee W-2s as income. A letter to an Illinois Congressman reprinted today in Tax Analysts says they don’t. From the letter  (my emphasis and links):

Prior to the ACA, an employer could reimburse employees for the medical expenses of the employee and the employee’s family and exclude those amounts from the employee’s income and wages under section 105(b) of the Code. The ACA has not changed the tax treatment of the reimbursement for employee medical expenses. However, these arrangements, under the ACA, are considered to be group health plans and must satisfy the market reform rules for them.

The guidance that we provided in Notice 2013-54 did not change the tax results described in Revenue Ruling 61-146. This ruling says that under certain conditions if an employer reimburses an employee’s substantiated premiums for individual health insurance policies, the payments are excluded from the employee’s gross income under section 106 of the Code. This exclusion also applies if the employer pays the premiums directly to the insurance company.

W2Note that the exclusion “applies.” That’s present tense, meaning it’s still alive.

Some employers responded to Notice 2013-54 by treating reimbursements as taxable, but subsequent guidance issued in November last year said that didn’t work to make the $100/day penalty go away.

While they scramble to terminate their now horrifyingly expensive Sec. 105 reimbursement arrangements and figure out how to get out of the penalties, employers still have to issue W-2s this month. Now they know they can at least leave the reimbursements off employee W-2s. Given how widespread the problems seems to be, and how terrible the penalties, the IRS ought to just issue a blanket penalty waiver on this for everyone for 2014 if the non-compliance is disclosed.

Why wasn’t this printed as guidance? This letter went to Congressman Lipinski in September. A similar letter went to Kansas Congressman Goodlatte about the same time. Obviously the IRS knew from the Congressional inquiries that guidance was needed, but until Tax Analysts published this guidance, the IRS had never explained how to handle the W-2s. They still haven’t published guidance telling employers how to  “correct” the erroneous plans, as required on the penalty waiver instructions to the penalty reporting form, Form 8929.

 

IMG_0598Yeah, like he’d admit that. From Tax Analysts ($link):

The IRS is not pursuing a “Washington monument” strategy of discontinuing taxpayer services to protest recent congressional budget cuts, Commissioner John Koskinen told reporters at a press conference on January 15.

The Washington monument strategy refers to claims made by some media outlets during the October 2013 government shutdown that various federal agencies seemed to be closing highly visible public services as a protest against the shutdown.

Koskinen denied that any such calculations entered into the IRS’s decision-making regarding service and enforcement constraints that he said were induced by Congress’s $346 million cut (to $10.9 billion) to the IRS budget for fiscal 2015.

I’ll believe that he’s serious when he closes the “voluntary” preparer registration program and stops paying IRS employees to work full-time for the Treasury Employees Union.

James Taranto at the Wall Street Journal doesn’t deny that the IRS needs more money, but doesn’t have much sympathy anyway (WSJ subscription may be required to access original):

It’s all rather comical—but also galling. The IRS’s abuse of power in its harassment of conservative nonprofits aimed in substantial part at suppressing opposition to ObamaCare. That is, the IRS traduced the free-speech rights of citizens in order to preserve a law expanding IRS power and creating more work for IRS agents.

Now the commissioner complains that the IRS has too much work and not enough resources and threatens to make life even more difficult for taxpayers. It’s like the guy who killed his parents and then pleaded for mercy because he was an orphan.

And an unapologetic one.

IMG_0543

Robert D. Flach has your Friday Buzz, with a warning for users of off-the-shelf software.

William Perez, The Penalty for Not Having Health Insurance. Don’t think it’s just $95.

Robert Wood. 3 Reasons Filing Taxes Sucks? Obamacare, Obamacare & Obamacare. I can think of a lot of others, myself, but these are definitely three of them.

Alan Cole, The Employer Mandate Reduces Hours Worked (Tax Policy Blog). Not by tax preparers, it doesn’t.

 

Kay Bell, IRS Free File opens Friday, Jan. 16, for eligible taxpayers, four days ahead of Jan. 20 full tax season start

Russ Fox, If You Do Government Work, It Pays to Treat the Government Well

TaxProf, The IRS Scandal, Day 617

Howard Gleckman, What To Make of the Senate Finance Committee’s Tax Reform Workgroups 

 

Keith Fogg, Eskimos and the IRS: A Winter’s Tale (Procedurally Taxing) “This post is not about tax procedure issues in the native American population in Alaska but a recent Treasury Inspector General for Tax Administration (TIGTA) report concerning frozen credits at the IRS made me think about the number of ways Eskimos have to say snow.”

 

News from the Profession. Ron Baker: You Can Put Lipstick on Billing by the Hour But Don’t Call It Value Pricing (Adrienne Gonzales, Going Concern).

 

Share

Tax Roundup, 1/15/15: Taxpayer Advocate rips offshore account enforcement, recommends fixes to Congress.

Thursday, January 15th, 2015 by Joe Kristan

Accounting Today Readershere is the post on the 2015 Iowa legislative session outlook.

 

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Still shooting jaywalkers. National Taxpayer Advocate Nina Olson has submitted her Annual Report to Congress, and she rips the IRS offshore compliance program. Among the “most serious problems” noted in the report is “Offshore Voluntary Disclosure Programs Undermined the Law and Violate Taxpayer Rights.”

The report says the IRS routinely stretches the penalties for “willful” violations of foreign reporting requirements to inadvertent violations, interprets its own guidelines whimsically and unfairly, and makes a practice of hammering small violators disproportionately.  The report also criticizes the IRS practice of denying relief for taxpayers who came in from the cold early when it later started applying reduced penalties.

The report includes one awful example of the IRS treating an apartment owned by the taxpayer as a foreign financial account for purposes of computing the penalty for late reporting:

Example : An IRS employee took the position that a taxpayer’s foreign apartment must be included in the “offshore penalty” base solely because the taxpayer filed returns reporting income from the apartment between two and fifteen months late—after receipt of foreign information reporting documents relating to inherited property. The employee concluded the delay in filing returns meant that the apartment was related to tax noncompliance. Under the 2011 OVDI FAQ 35, “[t]he offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax noncompliance.” FAQ 35 defines tax noncompliance as follows:

“Tax noncompliance includes failure to report income from the assets, as well as failure to pay U.S. tax that was due with respect to the funds used to acquire the asset.”

The taxpayer timely overpaid her taxes and reported the income from the apartment (albeit on late-filed returns), and the apartment was not acquired with untaxed funds. Thus, the IRS employee’s unreviewable determination to include the apartment in the offshore penalty base appears to contradict FAQ 35.

This indicates an IRS practice of shooting jaywalkers so that it can slap real international tax cheats on the wrists. Especially unrepresented jaywalkers:

20150115-1

These penalties – $2,202 average penalty for an average $268 tax understatement for the smallest accounts – are unconscionable. I defy anyone to say otherwise. Well, anyone who doesn’t work for IRS.

It also indicates that taxpayers who oped out of the voluntary disclosure program got better results — which is a harsh indictment of the way the “voluntary” program treats taxpayers.

The report does praise recent changes to IRS practice, but slams the IRS for not applying them retroactively.  The report also recommends that Congress ease up on offshore penalties, including eliminating the penalties when the taxpayer resides in the same country as the foreign account. This would be incredibly useful, eliminating the penalty for committing personal finance while living abroad.

I would go further and make the U.S. tax system territorial for non-residents, to eliminate absurd spectacles like the IRS going after the U.S.-born Mayor of London for capital gains on the sale of his home in London.

Related coverage: 

Robert Wood, National Taxpayer Advocate Slams IRS Offshore Programs & FBAR Penalties, Demands Change

TaxGrrrl, Taxpayer Advocate IDs Most Serious Problems For Taxpayers: Unacceptably Low Levels Of Service Tops List

 

20150115-2Kay Bell, It’s a new year, but time for final 2014 estimated tax payment

Russ Fox, Waiting for Godot. ” If you’re going to call the IRS, expect very lengthy hold times; yesterday I was on hold for 101 minutes before speaking with an IRS representative. I expect the hold times to get far worse as we head into Tax Season.”

Jason Dinesen, 5 Things You Didn’t Know About EAs, #5: EAs are the Only Pros Required to Take Tax CPE.

Robert D. Flach, WTF IS AN EA?  Wednesday Tax Forum is an EA?

Tim Todd, Unsubordinated Mortgage Prevents Charitable Deduction for Conservation Easement

Iowa Public Radio, Tax Time Gets New Ritual: Proof Of Health Insurance.

 

Alan Cole, Financial Transactions Are A Very Poor Tax Base (Tax Policy Blog):

Simply put, financial transactions are a very poor tax base. For one thing, it results in “pyramiding:” taxing the same economic activity many times. For another, economists generally think of trades as highly-valuable activity that benefits both parties, given that they both agreed to the deal. Taxing trade itself results in a kind of “lock-in” effect where people hold on to the things they have, whether or not they’re the best people to actually be holding on to them.

He also notes the social value of the ability to easily sell financial assets, one that would be damaged by a transaction tax.

Howard Gleckman, Gale and DeLong Debate: Is the Budget Deficit Even a Problem? (TaxVox).

20150115-3

Cara Griffith, Illinois Lawsuit Challenges Tax Credit Program for Encouraging Job Retention (Tax Analysts Blog). “But the interesting question this lawsuit raises is whether job creation and job retention should be treated as equal for purposes of a tax credit.” Yes, they should all get no tax credits.

Sebastian Johnson, State Rundown 1/12: When Your Mouth Writes a Check Your State Can’t Cash (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 616

Career Corner. The Happiest Lawyers Are Tax Lawyers  (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 1/14/15: Education credits to delay refunds? And: it’s not volunteering when you’re paid.

Wednesday, January 14th, 2015 by Joe Kristan
Kristy Maitre

Kristy Maitre

If your tax refund this year seems to take forever to arrive, education credits might be involved. The invaluable Kristy Maitre, former IRS Stakeholder Liaison and now with the Iowa State University Center for Agricultural Law and Taxation, has leaned that the IRS may delay refunds on returns claiming the “American Opportunity Credit.” From an e-mail she has distributed:

If your client is getting the American Opportunity Credit this year you need to be aware of a possible “refund hold” on the credit to verify attendance at the college. At this time we “assume” only that part of the refund will be held and the other part of refund not related to the American Opportunity Credit will be released.

At this time we are not sure who this will impact, IRS appears to want to keep it a BIG secret. Our concern is that the tax preparer will be blamed for the delay of the refund and overall it would make the preparer look bad as well as having to deal with an upset client due to the issue. I was able to find some criteria in a new IRM, but we need more information from IRS.

Your client should be  informed by IRS of the reason the refund is being held and that once the 1098-T from the accredited institution is verified the refund will be released,  or they will receive a Letter 4800C to inform them if further documentation is required to allow the education credit…

The AOTC is a “refundable” credit; if the credit exceeds the tax computed, the IRS will pay you the excess. Given the high incidence of refund fraud involving refundable credits like the AOTC, it’s understandable that the IRS would want to verify eligibility before issuing a refund.

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.

Unfortunately, this verification will come from matching 1098-Ts issued by colleges and universities. These forms, which purport to show tuition paid, are notoriously unreliable. The inevitable matching errors will leave some taxpayers trying to get their refunds fixed well into the summer.

This highlights the unwisdom of using the tax law as the Swiss Army Knife of public policy. It’s hard enough to get taxable income right. Congress also assigns IRS education policy, health care, social welfare, industrial policy, campaign finance regulation, you name it. Like with the Swiss Army Knife, you can only add so many functions before you make it bad at being a knife.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen wants us to blame cuts in his budget for tax refund delays. In a memo to IRS employees, he outlines the dire effects of the cuts in his agency budget, including:

Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week — or possibly longer — to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.

It’s foolish of Congress to pile work onto the IRS and then cut its budget. That said, Mr. Koskinen has brought a lot of this on himself with his combative and tone-deaf response to the Tea Party scandal.

Also, there’s a bit of the Washington Monument Strategy in his memo, by making cuts in areas that inflict pain on taxpayers. I would be more convinced that the IRS is really committed to making taxpayer service a priority if his list of budget adjustments included sending to the field, or laying off, the hundreds of full-time IRS employees who do only union work. He would be more convincing if he said the “voluntary” preparer regulation initiative was on ice until funding improves. Instead, the Commissioner puts the National Treasury Employees Union and his own power grab ahead of processing refunds.

 

No Walnut STVolunteering. I don’t think that word means what you think it means. From Governor Branstad’s 2015 Condition of the State address:

 In addition, I am offering legislation creating the Student Debt Reorganization Tax Credit. This tax credit allows individuals to volunteer for worthy causes within Iowa’s communities and in exchange have contributions made toward their student debt.

There is so much wrong with this, beyond the idea that it’s “volunteering” when you get paid for it. It’s one more random addition to an already ridiculous mishmash of distortive and unwise education subsidies. It’s one more incentive for students to take on debt they can’t otherwise afford. And it misplaces human capital from productive for-profit enterprise to the black hole of the government and non-profit sector.

Iowa Form 148 already lists 32 different tax credits. The Governor thinks adding some more is the solution to Iowa’s problems. I think the credits are a big part of the problem, as they help make the Iowa tax law the complex high-rate mess that it is.

 

William Perez, How Soon Can We Begin Filing Tax Returns?

Kay Bell, Reducing your 2014 tax bill using exemptions, deductions

Jason Dinesen, H&R Block Doesn’t Really Have ACA “Specialists” On Staff. A bold charge, but a convincing one.

Peter Reilly, Can Walgreen Stance On Property Tax Hurt Income Tax Position Of 1031 Investors? Thoughts on getting too cute in analyzing the value of a real estate interest.

Leslie Book, Can IRS Change Taxpayers from Procrastinators to Payors By Drafting Letters that Make Taxpayers Feel Bad? (Procedurally Taxing). Usually people feel bad when they get a letter that says “notice of levy,” but that’s not what he’s talking about.

Robert Wood, Citizenship Renunciation Fee Hiked 422%, And You Can’t Come Back

Jack Townsend, Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation

 

IMG_0940

David Brunori, Using the Poor for Fixing the Roads (Tax Analysts Blog):

The Michigan Legislature passed a bill that would significantly increase the state’s earned income tax credit. Some 800,000 Michigan families will see tax relief. I think that is a good thing. But the change won’t go into effect unless voters approve a sales tax increase from 6 percent to 7 percent.

I don’t share David’s enthusiasm for the EITC, but I do appreciate the absurdity of the sales tax link.

Kyle Pomerleau, Representative Van Hollen Releases New $1.2 Trillion Tax Plan.  “Unfortunately, most of Representative Van Hollen’s tax plan would move the U.S. further away from having a competitive, modern tax code.”

TaxProf, The IRS Scandal, Day 615. This installment covers a Tea Party group that has been waiting five years for Lois Lerner’s old office to approve their exemption application.

 

Career Corner. Age and accounting as a second career (Caleb Newquist, Going Concern)

 

Share

Tax Roundup, 1/8/15: Tax shelter turned upside down: S Corp – ESOP structure produces pretend income. And: you are the 1%!

Thursday, January 8th, 2015 by Joe Kristan

tack shelterFlaky tax shelters are supposed to generate pretend losses. You know a shelter has gone very bad when it generates pretend income instead. Yet that’s how it worked out for an “S corporation ESOP management company” plan considered by the Tax Court yesterday.

The plan involved a partnership, a C corporation, an S corporation, and an Employee Stock Ownership Plan. The ESOP owned 100% of the S corporation. S corporation income is taxed to its owners. As a tax-exempt entity receiving special treatment from the tax law, ESOP-owned S corporations can achieve Tax Fairy-like results. The ESOP’s can earn non-taxed business income passing through from the S corporation (though this gets very tricky and dangerous when there are few ESOP beneficiaries).

The plan was hatched by A. Blair Stover, who has shown up in these pixels before. Mr. Stover started his tax career with a national firm in Nebraska, moving on from there to Kansas City and then to California, leaving questionable tax shelters in his wake. He was barred from promoting shelters like the one in this case in an injunction affirmed by the Eighth Circuit in 2011.

This plan involved the payment of “management fees” and other purported expenses by a partnership owned by the taxpayer and his spouse that ended up in his ESOP-owned S corporation. The partnership appears to have had no other purpose than to gin up deductions by paying pretend management fees and other expenses. The taxpayers deducted the “expenses” on their 1040, with the idea that they would avoid tax because they flowed through the S corporation to the ESOP.

tax fairyWhen the IRS went after Mr. Stover’s shelters, his clients received unpleasant IRS attention. In yesterday’s Tax Court case, the taxpayers signed a settlement agreeing to include in income on their 1040 the purported management fees paid to the ESOP.

So far, so good. But the agreement didn’t address the other side of the deal – the deduction for the payment of the purported fees by the partnership. The taxpayers claimed that if they had to pick up the pretend fees in income, they should get to deduct them too. Fair’s fair.

But if you want fairness, the tax law might not be the place to seek it.  The court held that while they agreed to pick up the extra income, their settlement said nothing about a deduction, and they were stuck with the results (my emphasis, citations omitted):

Generally, recognition of income does not inexorably prove a corresponding deductible expense. For example, payments to a promoter in furtherance of a tax avoidance scheme constitute income to the promoter, but they are not deductible under section 162 by the payor.  Furthermore, that petitioners might otherwise be obliged to recognize phantom income does not relieve them of their obligation to identify some legal authority for the deduction, nor does it permit the Court to manufacture such authority from whole cloth.

Petitioners’ phantom income argument amounts, in essence, to a plea for fairness. This Court strives to avoid unjust results, but “we are not a court of equity and cannot ignore the law to achieve an equitable end.” Moreover, the parties’ recent stipulation assuages our fairness concerns. In our order of July 1, 2014, we directed the parties to stipulate if possible, or to otherwise brief, the source of and factual and/or legal basis for the income inclusions required by the SOSI. The parties stipulated that the required income inclusions represent “the amount of taxable income petitioners avoided reporting” for tax years 2001 through 2003 because of their use of the management S corporation/ESOP structure. Taxable income is a term that is defined in the Code. Section 63 generally defines taxable income as gross income less allowable deductions. The parties’ chosen language thus implies that the $84,837 of income petitioners must include for 2003 pursuant to the SOSI represents not “phantom income” but bona fide, net taxable income that petitioners received and should have reported. So interpreted, the stipulation is difficult, if not impossible, to reconcile with petitioners’ theory for deducting the administration fee.

The result: a reverse tax shelter, generating only phantom income.

I’m not sure this too-bad-to-be-true result would hold up on appeal, but it does serve a warning. The Tax Fairy is a fickle sprite, and she can magically generate income for those seeking magical deductions. And if you agree to include phantom income when the IRS comes after you, make sure they allow the offsetting phantom deduction in writing.

Cite: Wakefield, T.C. Memo 2015-4.

 

IMG_0598Leslie Book, Bank of America on Hot Seat For Issuing Allegedly Incorrect 1099C to Disabled Veteran (Procedurally Taxing)

Robert D Flach explains WHAT’S NEW FOR THE 2014 FORM 1040?

Kay Bell, Daily Tax Tip #2: A tax quiz!

Robert Wood, The 1031 Exchange That Ate New York City. A lesson on the scalability of swaps.

TaxProf, The IRS Scandal, Day 609. The Worst Commissioner Ever comes out the other side of the revolving door.

 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

Scott Sumner on low-income use of untraceable cash at Econlog:

College professors who advocate the elimination of currency are often unaware of how important currency is for those with low incomes, many of who lack bank accounts. For instance, consider someone getting government benefits that are conditional on income (food stamps, EITC, disability, welfare, Medicaid, etc.) This group often faces relatively high implicit marginal tax rates. However currency allows them to supplement their meager benefits with additional earned income, perhaps doing home repair for neighbors, or working as a nanny. Lots of those jobs are paid in cash. If we eliminate physical cash then all transactions will be easily traceable by the government… That’s bad for two reasons; low-income people would see reduced incomes (increasing inequality), and the rest of us will be denied the services that they might have produced in the underground economy. Economists who advocate the elimination of currency need to consider those side effects.

This highlights one of the dangers of the earned income tax credit: its phase-outs serve as a hidden high tax rate on low incomes, resulting in a poverty trap on those earning their way out of poverty.

IMG_0543

 

Russ Fox, The Tax Court Looks for $1,410 in Dividends. Sometimes you can fight a small injustice and win.

 

We are the 1% Admit It: You’re Rich (Megan McArdle):

The cutoff for the global 1 percent starts quite a bit lower than the parochial American version preferred by pundits. I’m on it. So is David Sirota. And if your personal income is higher than $32,500, so are you.  

It’s all a matter of perspective.

 

Share

Tax Roundup, 1/7/15: Resolve to monitor your payroll taxes this year. And: searching for gray.

Wednesday, January 7th, 2015 by Joe Kristan

EFTPSIf you’re an employer, here’s a new year’s resolution: “I will verify that my tax payments have been made on time every payroll by logging into EFTPS.”

The customers of Riverside, California payroll service Paycare are wishing they had made and kept that resolution. From The Press Enterprise:

The co-owner of a Riverside-based payroll service, Paycare, Inc., pleaded guilty Monday to failure to pay federal payroll taxes and embezzlement from a federally-funded program, the Internal Revenue Service reported.

Scott Willsea, 56, entered the guilty plea in federal court before U.S. District Judge Manuel L. Real, according to a press release from IRS spokeswoman Linda Lowery.

Willsea allegedly prepared quarterly payroll taxes for 15 different client companies in the 2009 and 2010 tax years, including All Mission Indian Housing Authority and Of One Mind, LLC, and failed to account for or pay the full amount of tax owed to the IRS by each company.

The IRS and the states want those payroll taxes; after all, they issue refunds to the employees based on the reported withholdings, paid or not. If your payroll provider steals your payroll taxes, you have to pay them again. That can ruin a struggling business,and cripple a strong one.

That’s why employers who use a payroll service should still log onto their accounts with the Electronic Federal Tax Payroll System to verify that the payments have been made. If you do payroll taxes in-house, it’s good financial hygiene to do the same thing.

It’s also a reason for extra due diligence if you consider a “professional employer organization” to meet your payroll needs. These outfits pay your payroll taxes under their own account, and you can’t use EFTPS to monitor your payments. That can work out badly.

 

FranceflagAndrew Mitchel, A Reminder for Green Card Holders Living Outside the U.S.:

U.S. lawful permanent residents (“green card holders”) who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. 

Sad and true.

 

Jason Dinesen, Sorry, But There Really Isn’t a “Gray Area” for Most Taxpayers to Push:

NEWSFLASH: for the vast majority of taxpayers, there is no gray area to be pushed.

Your income is whatever your W-2 says it is.

Your deductions are whatever they are. Mortgage, property taxes, charitable, car registration. I suppose there could be a gray area if someone is claiming employee business expenses. But even then, those expenses are not likely to end up being deductible anyway.

No matter what the H & R Block commercials say, there is no magic wand that a tax preparer can wave to make a bigger tax refund appear.

Absolutely true. And if a preparer boasts otherwise, it’s likely that there is a perfectly bad explanation.

 

20141231-1Tim Todd, Late Tax Return Precludes Bankruptcy Discharge. One more reason to file timely.

Russ Fox, Varagiannis Gets 15 Months for Tax Evasion. In Nevada, pimping is OK, but only if you pay your income taxes.

Robert D. Flach has word of ANOTHER UNTRUE TAX EMAIL making the rounds. You mean we can’t trust spam emails? Next thing you’ll tell me that people post things on Facebook that aren’t precisely true.

 

Joseph Thorndike, Planned Disasters Are Here to Stay – and Probably the Only Hope for Tax Reform (Tax Analysts Blog).

All in all, it seems likely that the new GOP majority will need to gin up some potent crises if they hope to get anything done over the next two years.

I would think we have plenty of crises to go around already.

 

Kay Bell, Tax reform is part of new GOP Congress’ agenda

 

David Brunori is full of wisdom today in Want Bad Tax Policy? Here’s a Blueprint (Tax Analysts Bl0g):

Washington Gov. Jay Inslee recently released his proposed budget. It illustrates a lot of what is wrong with tax policy in the states. The governor wants to raise taxes by $1.4 billion over the next two years. Conservatives may think this is terrible — and it is. But the problem is how Inslee wants to raise the new revenue. He wants to impose a 7 percent capital gains tax on a narrow band of Washington residents. Specifically, he wants to impose the tax on the earnings sales of stocks, bonds, and other assets above $25,000 for individuals and $50,000 for those filing jointly. It would affect “only” an estimated 32,000 people who live in Washington.

Keep in mind that this is a state without an income tax. Certainly not a way to encourage their population of tech millionaires to stick around.

Also:

Inslee is also proposing a new excise tax on e-cigarettes and vapor products at 95 percent of the taxable sales price. Yes, 95 percent of the taxable sales price. If the government cared about the health of the poor, it would be subsidizing e-cigarettes.

States hate the idea of losing their tobacco revenue stream.

20140106-1

Andrew Lundeen, Kansas Would Have Benefited from Dynamic Scoring (Tax Policy Blog):

The tax cuts didn’t pay for themselves. Instead, they left Kansas was left with a hole in the budget. (You can read about what Kansas could have done better here and here.)

This isn’t because individual tax cuts are bad for the economy; they’re just expensive. If the governor had used dynamic scoring, he would have known this.

Iowa has a lot of room to improve its tax system, but they could always screw it up even worse.

 

Howard Gleckman offers Nine Tax Stories to Watch in 2015 (TaxVox), including this:

Tax extenders: They are, after a resurrection of two weeks, once again expired. This is tiresome to even write about, but the best bet is Congress will once again delay action on these 50-plus tax breaks until at least next fall, when the budget wars are likely to come to a head. After that, well, don’t ever bet against another short-term extension.

Yuk.

 

TaxProf, The IRS Scandal, Day 608Peter Reilly is featured.

 

Robert Wood, Taxman Is Funny In UK, Why Not IRS? Must not be in the budget.

Career Corner. Skip the Shout Outs and Other Helpful Farewell Email Advice (Adrienne Gonzalez, Going Concern). “Quitting your job is a part of life in public accounting. Unless you’re one of those sick, carrot-chasing freaks sticking around until partner, that is.”

 

Share

Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.

 

FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258

 

Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.

 

Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS

 

Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers

20111109-1

TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.

 

News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)

 

Share

Tax Roundup, 1/5/15: Early year-end planning edition. And: too cold for a film credit trial?

Monday, January 5th, 2015 by Joe Kristan

Accounting Today “In the Blogs” visitors: the tax and AMT article is here. You may also be interested in these thoughts on when prepaying tax is unwise, even without AMT.

 

20150105-1Now that you’re done with 2014 year-end tax planning, let’s get started on 2015. Procrastination is as human as liking sugar and shiny things. It’s natural to get serious about anything right at the deadline, whether it’s homework or tax planning.

But it’s often wiser to get started early. That’s especially true when looking at contributions to tax-advantaged savings accounts. You should look to fund these as soon as you can, rather than putting them off to the last minute. The sooner you fund your 2015 IRA, your Health Savings Account, or your Section 529 education savings account, the sooner your funds are earning their return tax-free.

So if you have the funds on hand, here’s a new year’s resolution to keep today — fully fund your tax-advantaged savings accounts. Your limits for 2015:

Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.

Taxpayers filing in Iowa can deduct their contributions to the College Savings Iowa Section 529 plan up to $3,163 per beneficiary, per donor on their Iowa income tax return. A married couple funding plans for their two children can therefore deduct up to $12,652 in 2015 CSI contributions.

 

Enjoying a short Des Moines winter commute.

Too cold for a film tax credit trial? A strange development in the Iowa Film Credit scandal, reported by the Des Moines Register:

A new fraud trial for a Nebraska filmmaker accused of using a fake purchase agreement to get tax credits should be delayed because two elderly witnesses have left Iowa for the winter, according to a prosecutor handling the case.

Yes, it’s cold here. We’re supposed to get a snowstorm today, and it’s supposed to be 1 on Wednesday. For a high temperature. And I can’t say I have a great deal of sympathy for somebody who got millions in tax credit money.

But a criminal trial is serious business, and the film scandal has been going since 2009. The prosecution says the witness is worried that he might fall. I think arrangements can be made to get him safely from the car.

What’s the case about?

Dennis Brouse, 64, has been waiting for a second trial after judges on the Iowa Court of Appeals overturned a felony fraud conviction against him in April. Brouse’s company, Changing Horses Productions, received $9 million in tax credits from Iowa’s scandal-ridden film tax credit program.

Brouse faces a single fraud charge and potentially a prison sentence, stemming from the purchase of a 38-foot camper trailer he bought from Prole couple Wayne and Shirley Weese. Prosecutors say Brouse paid the couple $10,500 in cash for the trailer, but he claimed it cost twice that amount in a statement for tax credits given to the Iowa Film Office.

The state auditor’s report on the Iowa Film Office showed a lot of creative accounting for Changing Horses, including the claim of a $1 million expense for non-cash “sponsorship” considerations. I am guessing that they are going after the trailer case because there are e-mails from the Iowa Department of Revenue blessing the “in-kind” expense concept. I’m pretty sure that there is no such endorsement of doubling expenditures.

 

Roger McEowen, Top 10 Agricultural Law and Taxation Developments of 2014 (ISU-CALT). The impact of Obamacare is #1.

20121120-2Alan Cole rings in the new year with New Year, New Individual Mandate Penalty and New Year, New Employer Mandate (Tax Policy Blog). What new individual mandate penalty?

However, it’s also worth remembering that the penalty will be doubled (or more than doubled) for 2015. 2014’s penalty is $95 or 1% of your household income, whichever is higher. 2015’s penalty is $325 or 2% of your household income, whichever comes higher.

And the employer mandate? It’s the penalty on taxpayers with 100 or more “full-time equivalent” employees. A blog post can’t really do it justice:

The IRS has issued a truly epic 56-question FAQ to help explain the even-more-epic final regulations for the employer shared responsibility provision. In case you are wondering, those final regulations total to over seventy thousand words – similar in size to the novel Harry Potter and the Sorcerer’s Stone.

It will get more epic if the Supreme Court rules that the individual tax credit only applies in the 14 states that have established their own ACA exchanges. The employer mandate only applies if an employee has qualified for the credit, and the individual mandate penalty will not apply to taxpayers whose insurance becomes “unaffordable” if the credits go away.

 

Robert Wood, Think Filing Taxes Was Tough Before Obamacare? Just Wait. “This year for the first time, the Affordable Care Act has created a trickier tax season. It is more expensive too, as virtually all Americans filing tax returns will have to consider the law’s impact on them and their taxes.”

Annette Nellen, ACA – Affordability of health insurance and age

William Perez, Directory of tax extensions for each state

Russ Fox, 1099 Time (2015 Version). “It’s time for businesses to send out their annual information returns.”

 

Kay Bell, Cigarettes are a bigger state tax target than booze. I think that explains the hostility of state governments to e-cigs.

Jason Dinesen, 5 Things You Didn’t Know About EAs, #4: The SEE Isn’t a Tax Prep Exam

Peter Reilly, IRS Revokes Exempt Status Of Faux Veterans Groups

 

20150105-2

 

Renu Zaretsky, Cap and Trade Plans, Tax Deadlines, and Rate Drops. The TaxVox headline roundup covers gas taxes, dynamic scoring, and an insane plan in Washington state for a state-only “cap and trade” carbon program.

TaxProf, The IRS Scandal, Day 606

News from the Profession: Celebrate the New Year with Accounting Salaries Charted by Company Type, Role, Service Line and More (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 12/31/14: Last minute tax moves: losses, gifts, and… weddings? Timing is everything!

Wednesday, December 31st, 2014 by Joe Kristan

20140608_2So.  2014 is down to its last few hours. What can we do today to make April 15, 2015 a little happier? Well, maybe less bad. It’s asking too much of one day to fix a year’s worth of tax problems, but today might still make a difference. A few things you can do yet today:

– Sell stocks at a loss to offset capital gains. It’s the trade date that counts in determining when a loss is incurred (except on a short sale). That means if you have incurred capital gains in 2014, you can sell loss stocks today and reduce your taxable gains for the year. Most individuals can deduct capital losses on a 1040 to the extent of your gains, plus $3,000. To the extent you fail to offset capital gains with the losses sitting in your portfolio, you are paying taxes voluntarilyJust make sure you make the trade in a taxable account and don’t repurchase the losers for 30 days.

– Consider making your state 4th quarter estimated tax payment today (and your federal payment, if you are an Iowan). Don’t do this rashly, as alternative minimum tax can make this a bad move for some taxpayers. Also, time value considerations can make this a bad move. But in the right circumstances, you can save a lot in April by getting your payment in the mail today.

- Make a charitable gift today, if you are so inclined. Gifts (and other deductions) paid with a credit card today are deductible, even if the credit card isn’t paid off until next year. Checks postmarked today are deductible this year. If you don’t know where to make your gifts, I have some suggestions; if you don’t like those, TaxGrrrl has some others.

- And if you are fanatical about tax planning, and someone else, you can change your marital status today. Your marital status on December 31 is your status for the whole year, as far as the IRS is concerned. But if you are seriously considering this, you definitely need to bring someone else into the discussion.

 

20120511-2A Tax Court Case yesterday shows how important year-end timing can beA Minnesota couple paid $2,150.85 of community college tuition for their daughter’s Spring 2011 semester on December 28, 2010. That normally would have qualified for an American Opportunity Tax Credit of about $2,037 — a dollar-for-dollar reduction fo their 2011 taxes. But they were four days too soon.

Tax Court Judge Marvel explains (my emphasis):

Generally, the American opportunity credit is allowed only when payment is made in the same year that the academic period begins. Sec. 1.25A-5(e)(1), Income Tax Regs. For cash method taxpayers, such as petitioners, qualified education expenses are treated as paid in the year in which the expenses are actually paid.

Because the semester didn’t begin until 2011, the 2010 payment didn’t count. Judge Marvel explains that close isn’t close enough:

We realize that the statutory requirements may seem to work a harsh result in a case such as this where a four-day delay in making the December 28, 2010, payment would have engendered a different result. However, the Court must apply the statute as written and follow the accompanying regulations when consistent therewith.

The Moral? When it comes to tax planning, the difference between December 31 and January 1 is one year, not one day. If timing matters, be sure to get on the right side of the line, and be sure you can document your timing. If you are mailing a big check, go Certified mail, return receipt requested, and save that postmark.

Cite: Ferm, T.C. Summ. Op. 2014-115.

 

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

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

Iowa rated 8th worst small business environment. The Small Business & Entrepreneurship Council has ranked the entrepreneurial environment of the 50 states. Iowa does poorly:

Iowa is the nation’s number one producer of corn. Unfortunately, it’s costly policy climate works against production from free enterprise and entrepreneurship in general. Iowa ranks 43rd in terms of its public policy climate for entrepreneurship and small business among the 50 states, according the 2014 “Small Business Policy Index.” While Iowa’s entrepreneurs, businesses, investors and workers benefit from fairly low crime rate and a low level of government debt, there are many negatives, such as high individual capital gains taxes; very high corporate income and capital gains taxes; high unemployment taxes; and a high level of government spending.

While I think overall Iowa is better than 43rd, our awful tax environment hurts. Our system of high rates with dozens of carve-out credits for the well-advised and well-connected works great for insiders, but not so well for the rest of us. Maybe 2015 will be the year Iowa considers serious tax reform, like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Kay Bell, Donating and deducting a car

Jack Townsend, Reasonable Doubt and Jury Nullification

Jason Dinesen lists his Top 5 Blog Posts of 2014. My favorite is his #5, Having a Side Business in Multi-Level Marketing Doesn’t Make Personal Expenses Deductible

Tony Nitti warns us of Five Traps To Avoid When Deducting Mortgage Interest

Robert D Flach shares: MY NEW YEAR’S EVE TRADITIONS: “I type W-2s and 1099s.” Don’t get too wild, Robert!

Me, IRS issues Applicable Federal Rates (AFR) for January 2015

20141231-1

G. Brint Ryan, Who’s Afraid of the IRS? When Business Fights Back Against Government Overreach and Wins (Procedurally Taxing)

Annette Nellen,State taxes and bitcoin

Robert Wood, No Mickey Mouse Taxes On Jim Harbaugh’s $48M Michigan Deal And 49ers Exit. “Jim Harbaugh’s 49ers contract may be history, but his $48M Michigan deal has tax components that you might not expect.”

 

Howard Gleckman, Taxes, Charitable Gifts, the ACA, and Ineffective Deadlines (TaxVox).  “Scrambling to make a last-minute charitable donation to beat the New Year’s Eve deadline for a 2014 tax deduction? Take a deep breath and ask yourself, ‘Why am I going through this craziness now?'”

TaxProf, The IRS Scandal, Day 601

 

Post-sequester commuting.

Not excited about all the wild New Years Eve hoopla? Maybe you prefer a more low-key celebration, like the one Robert D. Flach relates in MY NEW YEAR’S EVE TRADITIONS:

Every year during the day on New Year’s Eve I do the same thing I do during the day on Christmas Eve – I type W-2s and 1099s.

Live it up, Robert!

 

And Happy New Year to all of you Tax Update readers! This is it for 2014 here.  See you next week, and next year.

 

Share

Tax Roundup, 12/30/14: Is prepaying taxes a good bet even without AMT? And: CoOportunity failure ripples.

Tuesday, December 30th, 2014 by Joe Kristan

I’ll gladly pay you today for part of a hamburger tomorrow. In our zeal to pile deductions into this year’s return, it’s easy to overdo it. If you aren’t subject to alternative minimum tax, you can get a 2014 tax benefit by mailing your estimated 2014 state balance due by tomorrow. But does it really make sense to pay a dollar of tax now to get a 35-cent benefit on April 15? at the 35% bracket, the answer would be yes, but for lower brackets, the numbers don’t work as well.

The chart below shows compares the time value lost by sending $1,000 to the government early to the present value of the tax benefit received, using a 2% discount rate.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Every situation differs. This table should be used with caution. It does provide some tentative rules of thumb for individuals, assuming you will be in the same bracket in 2014 and 2015, that you itemize, and that AMT does not apply:

– It always makes sense to pay your fourth quarter state estimates in December instead of January.

– If you are an Iowa taxpayer, it makes sense to prepay fourth quarter federal payments at any bracket, but it never makes sense to pay your April 15 balance due in December.

– It only makes sense to prepay your state balance due for April 15 2015 by tomorrow only if you are in at least the 33% bracket, which kicks in for joint filers and $226,850 of taxable income, and for single taxpayers at $$186,350. For Iowa taxes due April 30, it’s about a push, or even a small present value loss.

– It makes sense for taxpayers in the 25% bracket ($73,500 joint, $36,900 single) to prepay their March 1 property tax installments.

– It never makes sense to prepay your September property taxes nine months ahead.

As we discussed yesterday, AMT can make prepayments a much larger blunder, so don’t do anything without running some numbers.

 

cooportunity logoThe failure of Iowa’s federally-funded CoOportunity health care insurance company is drawing national attention. The Wall Street Journal opines in Fannie Med Implodes: “Call it the Solyndra of ObamaCare.”

Meanwhile, Iowans covered by CoOportunity have to deal with the consequences. Des Moines Register, CoOportunity’s crisis could cost members thousands:

Customers who switch out of CoOportunity coverage won’t be able to start their new policies until Feb. 1, because Dec. 15 was the national deadline for obtaining insurance policies that start Jan. 1. In the meantime, many customers would have to start meeting CoOportunity’s annual deductibles and out-of-pocket maximums for 2015. Then, when they switch insurers in February, “they would have to start over, unfortunately,” Commissioner Nick Gerhart said Monday.

If you like your plan…

CoOportunity Health’s troubles could affect whether small Iowa employers can qualify for 2015 tax credits toward workers’ insurance premiums.

Employers with fewer than 25 full-time workers making an average of less than $50,000 are supposed to be eligible for the tax credits, which can amount to 50 percent of the cost of premiums. However, starting in 2015, those credits are to be applied only to policies that are sold on the employer side of the public marketplace, healthcare.gov. In Iowa, CoOportunity was the only carrier selling health policies to Iowa employers on the marketplace. The company has ceased selling new policies because of its financial crunch.

Iowa Insurance Commissioner Nick Gerhart said he’s checking with federal officials to see if there’s another way to let small Iowa employers obtain the tax credit.

The IRS has let taxpayers in some counties without a SHOP provider take the credit. We will see if they grant a similar waiver here.

Related: Hank Stern, SHOP Chop.

 

Robert Wood, 3 Quick Year End Steps Pay Off Big April 15old walnut

Kay Bell, 5 tax-saving moves you can make by Dec. 31

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #1-Obamacare Endures Additional Attacks. Aw, poor thing.

Russ Fox, IRS Announces Tax Season to Start on January 20th

Robert D. Flach, THE YEAR IN TAXES 2014. “Once again the year ended with the idiots in Congress waiting until literally the last minute to pass an extension of all of the expired ‘tax extenders’.”

Melanie Migliaccio, 9th Cir. Rejects IRS’s Transferee Status Recharacterization Argument (Tax Litigation Survey)

 

Iowa Public Radio, Rep. Grimm To Resign After Guilty Plea On Tax Charge.

TaxProf, The IRS Scandal, Day 600

Alan Cole, Au Revoir to the Millionaire’s Tax (Tax Policy Blog). “The French government will quietly allow its millionaire’s tax to expire.”

20141210-1

 

If you think I’m unsympathetic to Commissioner Koskinen’s pleas of IRS povertycheck out No Fat to Cut at the IRS? So Take a Chainsaw to the Rest of the Beast. (J.D. Tuccille, Reason.com):

Of course, Koskinen framed it in terms of customer service, and friendly media outlets immediately parroted the message that a $346 million cut, bringing the IRS budget down to $10.9 billion, inevitably means longer wait times on the phone for distraught taxpayers seeking answers for their pressing tax questions.

This is an all-hands-on-deck spin on IRS cuts, with National Taxpayer Advocate Nina Olson (who is theoretically on the victims’ side, despite her government paycheck) recruited to caution that the IRS is “chronically underfunded” with unfortunate implications for taxpayer service and assistance.

Then again, that might not be so horrible an outcome, given that IRS assistance involved giving taxpayers bad advice 22 percent of the time back in 1987, 41 percent of the time in 1989, 22 percent of the time in 2002, and 43 percent of the time in 2003. And no matter the advice dispensed by the tax collectors themselves, taxpayers are on the hook for getting it right.

Via Wikipedia

Via Wikipedia

I can’t help thinking that the cuts to service are an IRS version of the Washington Monument Strategy, where the government responds to budget cuts by closing the most popular and visible tourist attractions. I would find Commissioner Koskinen’s pleas of poverty more convincing if he weren’t spending money on the new “voluntary” preparer program to end-run the Loving decision that shut down the preparer regulation power-grab. It would also be a good signal to put the 200 IRS employees who spend their working days doing union work on the phones instead.

Related: Cromnibus cuts IRS budget, delays extender vote.

 

Career Corner. What If Your Job Title Were Brutally Honest? (Adrienne Gonzalez, Going Concern). I don’t suppose it would be easy to fit “Chronic Blogger Who Does Taxes to Finance It” on a business card.

Share

Tax Roundup, 12/26/14: Bad SHOP-ing day: Iowa SHOP health insurance provider goes into receivership.

Friday, December 26th, 2014 by Joe Kristan

cooportunity logoSmall businesses wanting to provide health insurance coverage for their employees got a lump of coal in their stocking Christmas Eve with the announcement that CoOportunity Health, Inc. was placed in receivership by the Iowa Insurance Division. The Omaha World Herald reports:

CoOportunity Health, the two-year-old Iowa health insurance cooperative set up with federal loans under the Affordable Care Act, is running out of money and may be liquidated, which raises questions for other health insurance cooperatives nationally.

The company’s 120,000 individual and group customers, most of them in Nebraska and the rest in Iowa, are still covered if they signed up before Dec. 15 and should continue paying premiums to keep coverage in effect, said Nick Gerhart, Iowa’s insurance commissioner.

When the insurance division takes over an insurer, their policies remain in force while the insurer is either reorganized, sold or liquidated. But that doesn’t apply to brand-new enrollees. From the Herald:

But he recommended that policyholders switch to other insurance companies during open enrollment, which ends Feb. 15. People who enroll in new health plans by Jan. 15 would have that coverage in place by Feb. 1.

People who signed up for the first time with CoOportunity after Dec. 15 will not have coverage and should find other insurers, he said. CoOportunity, one of 24 health insurance cooperatives set up under the federal health care law, cannot sell or renew policies.

CoOportunity provided coverage on both the individual healthcare.gov marketplace and the “SHOP” marketplace for small businesses. A FAQ (.doc format) from the Iowa Insurance Division on the takeover has this for small businesses looking for coverage:

If I want to remain in the marketplace and change insurance companies, where do I go?

Contact your agent or broker or go to www.Healthcare.gov.

In central Iowa the website isn’t much help. In our coverage area, CoOportunity was the only SHOP provider, as far as I can tell. I have entered sample information in the SHOP marketplace for our 50309 zip code, and I get this result:

shop plans 20141224

This makes life complicated for small businesses that don’t currently have “grandfathered” coverage. The “marketplace reforms” of the ACA have a long list of requirements for qualifying coverage. If you provide coverage that fails to meet these rules, you incur an insane penalty of $100 per day, per employee. You need to make sure your broker knows if you don’t qualify for a grandfathered plan.

This also causes problems for employers wishing to take the 50% tax credit for providing employee coverage, as the credit is only available for plans purchased through the SHOP.

Roth & Company considered a plan offered by CoOportunity at our renewal last fall. It was slightly cheaper than our current plan (for which we had a 30%+ premium increase), but we stuck with our grandfathered plan, thinking the disruption to our employees wasn’t worth the minor savings. Bullet dodged.

More coverage:

Des Moines Register, CoOportunity Health falters, taken over by state.

Bob Vineyard, Another One Bites the Dust (InsureBlog).

20131112

Peter Reilly, Tax Court Rules Wounded Warrior Can Take His Time With The Trash – Merry Christmas. Peter discusses a wonderful Tax Court case from earlier this week that treats a disabled veteran as “materially participating” in maintaining three rental properties as a real estate professional. His handicaps, which make his caretaking a slow process, actually helped him achieve better tax results, as Peter explains.

TaxGrrrl offers A Christmas Day Look At Santa’s Tax Bill.

Kay Bell, Merry Christmas 2014

Paul Neiffer, Merry Christmas – 2014

Jason Dinesen, From the Archives: You Won a Home! Now What? Part 3 of the Series

Jim Maule, Enact Tax Laws But Break Them?:

Even if Representative Michael Grimm eventually gives in to the calls for his resignation or is removed in some way from holding office, his failure to step down as part of the plea is an affront to hard-working Americans who do their best to comply with the tax law.

Heck, it’s even an affront to lazy Americans.

 

buzz20141017Robert Wood, IRS Hid Conservative Targeting Until After 2012 Presidential Election. Smidgen Corrupt?

Stephen Olsen, Summary Opinions. It’s the Procedurally Taxing roundup of recent tax procedure developments.

Many folks are taking today off, but Robert D. Flach is Buzzing away with his usual good stuff from around the tax world.

TaxProf, The IRS Scandal, Day 596

 

William McBride, Japan Plans to Cut Corporate Tax Rate, Leaving U.S. Further Behind (Tax Policy Blog):

Japan currently has a corporate tax rate of 37 percent, the second highest in the developed world after the U.S., which has a corporate tax rate of 39.1 percent (federal plus state). With this cut, Japan would be roughly tied with France for the second highest corporate tax rate in developed world, at 34.4 percent.

Iowa has the highest corporate rate in the U.S., which makes us Number 1 in a not-good way.

Howard Gleckman, House GOP Leadership Would Require Dynamic Scoring of Some Tax Bills. Will It Matter?

20141226-1

Scott Sumner, The French experiment: Laffer >>>>>>> Piketty. (Econlog). France imposed a 75% top rate. Mr. Sumner observes:

Even if you are not a devout supply-sider (and I am a moderate supply-sider, who believes tax increases usually lead to more revenue) it would be hard to deny that this particular tax increase cost revenue, after accounting for the impact of French economic growth.

There are people who seriously insist that a 75%-90% top tax rate would be a good thing. France is Exhibit A.

 

The Cavalcade no longer moves on. The Cavalcade of Risk, the long-running roundup of insurance and risk-management posts is ending. It’s guiding light, Hank Stern, posts the final edition, which includes his own contribution Green Mountain State Blues, on the demise of their attempt at single-payer coverage in one state.

 

 

Share

Tax Roundup, 12/19/14: What to do when capital gain tax is voluntary. And: no signature yet.

Friday, December 19th, 2014 by Joe Kristan

Programming note: The Tax Update will be taking a long weekend. Back Wednesday.

The President hasn’t signed the extender bill yet. Everyone says he will sign HR 5771, but a lot of taxpayers will feel better when its official.  You can frantically refresh the Whitehouse.gov “Signed Legislation” page to watch for it.

 

Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So you cashed out some stock market gains this year. That makes it a good year to cash out your losers too. Capital losses can be deducted on individual returns to the extent of capital gains, plus $3,000.  That means if you have some unrealized losses on other investments, paying tax is optional to that extent.

If you don’t want to volunteer to pay those extra capital gain taxes, here are some tips for deducting your investment losses:

The loss has to be realized in a taxable account. Selling a loser in an IRA or 401(k) plan doesn’t give you a deductible loss.

-Be sure the trades are executed no later than December 31. For long positions, the trade date controls.

-If you have a loss on a short sale, the settlement date has to be no later than December 31.

-You can’t buy the same stock within either 30 days before the sale or 30 days afterwards. If you do, the “wash sale” rules disallow your loss. The IRS says this rule applies even if your loss is in a taxable account and your gain is in a non-taxable IRA.

Related: Topic 409 – Capital Gains and Losses (IRS.gov)

 

20120906-1Robert Wood, Ranking Facebook, Boris Johnson, Google On Taxes (Diplomatically Please). Well, Boris Johnson is the only one who doesn’t collect corporate welfare from me via the State of Iowa.

Kay Bell, Good news: the 2015 tax-filing season will start on timeBad news: It will be pretty miserable for IRS and taxpayers. Whee.

Jack Townsend, The Rub Between Restitution Assessed as a Tax and a Deficiency

Jim Maule, Code Size Claim Shrinks But Not Enough. The code is bad enough. There’s no need to exaggerate.

Peter Reilly, First Circuit Loss For Transgender Prisoner May Have Positive Tax Implications For Others. Peter can find tax implications in places I wouldn’t have thought to look.

Robert D. Flach gets us Buzzing into the big holiday week.

 

20120702-2Kristopher Hauswirth has been pondering the Farm Bill:

Commodity producers with the resources and/or level of sophistication to confidently optimize their farm bill decisions least need the safety net. While the smallest and/or least sophisticated producers will have to stumble into positive outcomes, if they benefit at all.

The greatest beneficiaries of this law are the people who have serve no public interest in benefitting from a program of this nature. They are the people and entities that create the system, unlock the riddle, and administer the program: lobbyists, lawmakers, attorneys, accountants, and government agencies.

So it’s pretty much like the tax law, then.

 

William McBride, New Research Shows Multinational Corporations Have No Tax Advantage Over Domestics (Tax Policy Blog). “The study calls into question policy makers’ emphasis on international “profit shifting,” including the elaborate efforts by the OECD and rich-country governments to crack down on MNCs exclusively.”

William Gale, Magical Thinking on Tax Reform (TaxVox). “Tax reform is important but policy makers and the public should not be misled about its true trade-offs. Unfortunately, the benefits of reform are more modest than its backers sometimes claim and its costs are often higher.”

TaxProf, The IRS Scandal, Day 589

 

IMG_2491

 

Clint Stretch, Did Next Year’s Holiday Gift Shopping Just Get Easier? (Tax Analysts Blog). “President Obama’s move to normalize relations with Cuba may add Cuban cigars and Cuban rum to next year’s holiday gift possibilities.”

Sebastian Johnson, What to Buy the Discerning Policy Wonk in Your Life: The ITEP/CTJ Holiday Gift-Giving Guide. The Tax Shelter Coloring Book!

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern). “Now, let’s talk about alcohol. Just because you can get blitzed on Fireball shots doesn’t mean you should.”

 

Share

Tax Roundup, 12/18/14: Year-end planning and relatives. And: when will the President sign the extenders?

Thursday, December 18th, 2014 by Joe Kristan

When will he sign? Now that Congress has finally sent the extender Bill, HR 5771, to the President, the “expired provisions” require only his signature. When will that happen? I have no idea. There is nothing at Whitehouse.gov about it. But everyone says he’ll sign. It would be the practical joke of the year if he didn’t.

 


IMG_1944Beware t
he relative! The tax law generally assumes that when related parties do business together, they’re up to no good somehow. That’s why the law has so many provisions that deny or delay tax benefits when relatives are involved.

For example, Code Section 267 only allows a deduction to a related party “as of the day as of which such amount is includible in the gross income of the person to whom the payment is made.” That’s no problem if the “related party” is on the accrual method, because they will be accruing the income at the same time you accrue the expense. But if the related party is a cash-basis taxpayer, you have to pay this year to get a deduction this year.

But who is related? It’s more complicated than you might think. For purposes of year-end deductions,  owners of more than 50% of C corporation stock, and their families (siblings, spouses, ancestors and descendants) are related.  Families are usually considered as a single owner for the 50% test.

For pass-through entities — partnerships and S corporations — any owner is a related party, along with members of owners families and anybody related to the family members.

 

Seventh Avenue, Des Moines, this morning.William Perez, Tax Increase Prevention Act of 2014. “A quick summary of the tax changes included in the Tax Increase Prevention Act of 2014.”

Kay Bell, Tax filing projections for the 2015 season and beyond

Peter Reilly looks back on his idiosyncratic tax coverage this year. Everything from atheist parsonages to Dr. Dino. Peter covers a lot of stuff that I wish I did, in a lot more depth than I could.

Jason Dinesen, A Brief History of Marriage in the Tax Code: Part 1, In the Beginning

Robert D. Flach, THERE ARE A LOT MORE THAN 20 REALLY STUPID THINGS IN THE US TAX CODE! “The one and only purpose of the federal income tax is to raise the money necessary to run the government. Period.”

Me, Year-end business deductions: the two-minute drill. My new post at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog. “While you add up the score in April, December is when you run the two-minute drill.”

 

20130419-1Robert Wood, 8 Savvy Tax Tips & Extenders For Year-End

Tim Todd, 5th Cir. Affirms IRS’s Adjustment Outside Limitations Period for Improper Installment Sale of Partnership Interest.

Keith Fogg, Collection Due Process Determination and Decision Letters Redux (Procedurally Taxing)

Jack Townsend, Plea in Corporate Corruption Case with Tax Charge. Kickbacks kick back.

Gavin Ekins, The IRS’s Long Reach Doesn’t Just Apply to Corporations (Tax Policy Blog). The post describes some of the ridiculous hoops Americans abroad have to jump through to comply with the tax law, and observes:

Are Americans alone in this onerous system? Unfortunately, they are. Only one other country taxes its citizens is this manner. Eritrea, the small country on the northern border of Ethiopia, is the only other country which taxes its citizens who live and work abroad, but unlike the U.S., they have a reduced flat rate for those citizens and none of the reporting burden.  

The results range from annoyance to financial disaster for the absurd crime of committing personal finance while abroad.

Renu Zaretsky, They Saved the Must-Pass for Last. The TaxVox headline roundup provides a good summary of the passage of the extender bill; it also talks about state gas tax moves.

 

TaxProf, The IRS Scandal, Day 588

 

20141218-1Cara Griffith, A Champion for Tax Reform (Tax Analysts Blog). “New York enacted a comprehensive tax reform package designed to improve the competitiveness of the state’s tax code by merging the bank tax into the corporate franchise tax, adopting single-sales-factor apportionment with market-based sourcing, broadening the corporate tax base, and lowering the rate.”

Sebastian Johnson, State Rundown 12/10: The Best Laid Plans (and Reports) (Tax Justice Blog)

 

Daniel Shaviro,  Evaluating the Case for 1986-Style Corporate Tax Reform, (TaxAnalysts, available via the TaxProf)

 

Career Corner. My Firm Holiday Party is a Teaching Moment For What Not to Do at a Firm Holiday Party (Leona May, Going Concern)

 

News from the Profession. Former Stillwater mayor charged with aiding tax fraud (MPRnews.org):

A former mayor of Stillwater was charged in federal court Wednesday with helping two Minnesota brothers keep millions of dollars in taxes from the state and federal governments.

Ken Harycki, a certified public accountant, knowingly prepared false tax forms for twin brothers Thurlee and Roylee Belfrey and their health care companies, according to charges filed in U.S. District Court.

CPAs, you must only use your powers for good.

 

 

Share

Tax Roundup, 12/17/14: Lazarus rises! For two weeks, anyway. Senate passes extender bill.

Wednesday, December 17th, 2014 by Joe Kristan

The Senate has passed the extender bill and sent it to the President. The Hill reports:

By a 76 to 16 vote, the Senate passed a measure that would extend more than four dozen tax breaks for both businesses and individuals just through 2014.

Republicans and Democrats latched on to the one-year deal after the White House undercut negotiations on a broader bipartisan package, underscoring divisions between Democrats in the wake of this year’s heavy losses at the polls. Senators from both parties said Tuesday that they would have preferred legislation that restored the tax breaks through 2015.

20130113-3The President is expected to sign. That means we now know what the 2014 tax law is with two weeks left in the year. Unfortunately, all of the revived provisions die again on January 1, and Congress will have to go through this whole exercise to raise Lazarus again.

What does this do for year-end planning?

Fixed asset frenzy. Taxpayers who can place fixed assets in service between now and year-end can qualify for the $500,000 Section 179 deduction or 50% bonus depreciation.

The Section 179 rule allows taxpayers to fully deduct the cost of up to $500,000 in assets placed in service during 2014 that would otherwise be capitalized and depreciated over a period of years. It can apply no new or used property. It is normally unavailable for real estate or rental property. It is limited to taxable income, and it phases out dollar-for-dollar as fixed asset acquisitions exceed $500,000.

Bonus depreciation enables taxpayers to deduct 50% of the cost of qualifying property in the year in which it is placed in service. The remaining cost is depreciated under normal depreciation rules. It is only available for new property with a life up to 20 years, but it is not limited by taxable income or amount of assets placed in service, so it can generate net operating losses.

Remember that the tax law applies special limits to both Section 179 and bonus depreciation for vehicles.

S-SidewalkS corporation Built-in gains. The tax law requires S corporations to pay a 35% corporate-level tax on “built-in gains” included in taxable income during the “recognition period” after the convert from C corporation status. “Built-in gains” are income items, including appreciation of asset values, that exist at the time a C corporation becomes an S corporation.

This rule was enacted in 1986 with a ten-year “recognition period.” The tax goes away after the recognition period is over. The bill reduced the recognition period to five years for gains recognized in 2014. That opens tax planning doors. Taxpayers that have been S corporations for more than five years can unload appreciated assets. Taxpayers in their fifth S corporation year can reduce their taxable income to push any gains recognized this year past the recognition period — assuming this provision is extended to 2015.

IRA donations. The extender bill revives the provision allowing IRAs owned by individuals subject to the minimum distribution rules to make direct donations of up to $100,000 to charity. These donations do not show up as income or as itemized deductions on the owner returns.

Other tax breaks revived through the end of 2014 include the research credit, the deduction for state and local sales taxes, the educator expense deduction, charitable donations of conservation easements, and energy production tax credits. The Tax Policy Blog has more coverage, including a complete list of the extended benefits.

Other coverage:

Paul Neiffer, Senate Passes Tax Extender Bill 76-16

Robert D. Flach, FINALLY!

 

 

20130426-1Neil GandalWhy Does Uncle Sam Hate American Expats?  (Wall Street Journal, via the TaxProf):

The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.

But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.

The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back.

Our thumbless Congress, eager to to score cheap political points by cracking down on international “millionaires and billionaires,” has inadvertently, but effectively, made it ridiculously difficult for ordinary Americans working overseas to commit personal finance. They have enacted horrific financial penalties for petty paperwork violations. And the IRS has enforced these penalties under the assumption that everyone with an overseas account is a crook.

 

Tony Nitti, Have You Heard The One About The Tax Credit That You Pay To The IRS? It’s the premium tax credit under ACA that many taxpayers will have to repay with their tax returns in April.

Kay Bell, Noah’s Ark park loses state tax breaks (but Christmas is safe)

 

taxanalystslogoJeremy ScottSlashed Budget Shows IRS’s Failure to Build Political Support (Tax Analysts Blog, my emphasis):

Republicans made it clear that the cuts to the IRS were in response to the agency’s recent actions. The GOP has a long laundry list of complaints: the payment of IRS bonuses, the failure to accurately and timely answer questions about the exempt organization scandal, old training videos, and the cost of Obamacare implementation. With the exception of the last item, the Service has been tone-deaf in its response to Republicans. In fact, one might even call some of its vague and misleading answers outright defiance of the House majority. That’s an odd strategy for an agency crying out for more resources to take.

Regular readers know that this is my view also. I agree with this too:

Those who criticize the GOP’s handling of the various IRS scandals have a point. But lost in their reflexive defense of the Service are valid Republican complaints about the IRS’s lack of transparency and responsiveness. For whatever reason, the Service decided that it wouldn’t cooperate with Republicans over the scandal. Maybe it thought the GOP wouldn’t be reasonable. Maybe it thought giving clear answers and admitting obvious wrongdoing would be more damaging to its prospects than being opaque and evasive. Well, it was wrong — both in hindsight, given the budget passed over the weekend, and at the time, given the agency’s duty to be nonpartisan.

Read Mr. Scott’s whole piece. The result will be bad for taxpayers, but the IRS leadership can look in the mirror for someone to blame.

Howard Gleckman, The War on the IRS. As Jeremy Scott notes, the IRS is its own worst enemy in this war.

 

TaxProf, The IRS Scandal, Day 587. Featuring a contrarian take on the scandal from Peter Reilly.

Robert Wood, 20 Facts About IRS Targeting, Those Emails And The White House

 

News from the Profession. Going Concern Presents: The Worst of Auditing 2014 (Adrienne Gonzalez, Going Concern)

 

Share