Posts Tagged ‘Roger McEowen’

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Roger, Paul and Me

Friday, May 3rd, 2013 by Joe Kristan

Paul Neiffer, proprietor of the fine Farm CPA Today blog, stopped in Des Moines today for lunch with me and Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation.

Roger McEowen and Paul Neiffer

Roger McEowen and Paul Neiffer

Paul clearly didn’t anticipate the snow we had today when he packed for his visit.  After all, it’s 80 degrees today in his hometown of Yakima, Washington.    He’s even more fun and interesting in person than he is on his blog.

We were conspiring in advance of the tax school we will be teaching together next month in Traverse City, Michigan (register today!).  We hope nobody has to bundle up then.

 

 

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Tax Roundup, 5/2/2013: Peter Fisher takes on The Tax Foundation. And I’m a video star.

Thursday, May 2nd, 2013 by Joe Kristan
Peter Fisher

Peter Fisher

Cage Match: Iowan Peter Fisher takes on the Tax Foundation.  Mr. Fisher has written a study for Good Jobs First, a left side advocacy group.  Mr. Fisher who shows up in The Tax Update occasionally, doesn’t care for the Tax Foundation’s Business Tax Climate Index:

The TF, on the other hand, despite claims to the contrary, ignores the consensus approach to assessing business taxes in the economic literature and attempts to portray the effect of state and local tax law on business profits in an entirely different fashion: by stirring together no less than 118 features of the tax law and producing out of that stew a single, arbitrary index number. That number turns out to bear very little relationship to what businesses actually pay.

Here Mr. Fisher makes the same mistake he makes when he defends Iowa’s highest-rate-in-the nation corporate income tax, which collects very little net revenue because it clobbers some taxpayers while paying generous subsidies to the well-connected and well-lobbied.  He concludes that means Iowa’s corporation tax doesn’t matter because of the low net collection.

A good business tax climate, to the Tax Foundation, doesn’t take money from some businesses and give most of it to other businesses; good policy is based on “simplicity, neutrality, transparency, and stability.”  I agree.

As the Tax Foundation explains in its response to Mr. Fisher:

 The problem here is that we do not claim to measure business tax burdens. We measure and rank tax structures, and this because the size of a tax is less important than the economic distortions it creates. This is a fundamental error in Fisher’s understanding of tax policy.

Mr. Fisher seems more focused on “equity,” whatever that means.  But even if you think the tax law should be used to punish the rich and reward low incomes, cross-border mobility makes state tax systems an awful place to to that.

 
Tony Nitti,  Overview Of The New 3.8% Investment Income Tax, Part 3: Gains From The Sale Of Property.   Tony discusses the ridiculous proposed rules on sales of pass-through businesses, among other things.

TaxGrrrl,  IRS Rolls Out More Proposed Regulations On Health Care As “Train Wreck” Comments Continue To Make Rounds.   “Train wreck” is a term that frequently makes the rounds in the vicinity of train wrecks.  This batch of regs covers “minimum value” for determining whether coverage disqualifies individuals from premium credits.

Trish McIntire,  First Time Penalty Abatement.  The IRS will usually abate minor penalties for first-time infractions, but they don’t like to talk about it.

 

Jen Carrigan,  Should You Expect an Audit?  A guest poster at Missouri Tax Guy’s place explains the IRS exam process.

Jason Dinesen,  Another Example of a Tax Scam E-Mail.   The IRS never contacts taxpayers by e-mail.

Kay Bell,  Tax moves to make in May 2013

 

Janet Novack,  U.S. Demands Wells Fargo Records To Identify Tax Cheats Using Caribbean Havens

Cara Griffith, Feeling the Impact of Impact Fees (Tax.com).

 

Paul Neiffer,  From 80 to 45 in 40 miles.  Temperature, not speed.  I get to meet Paul tomorrow, it should be fun.

Catch a Thursday Buzz from Robert D. Flach.

 

Video!  The Iowa Bar Association now is selling DVDs of “Notes from the Fiscal Cliff,” a January webcast I did with Roger McEowen of the ISU Center for Agricultural Law and Taxation.  The outline is here. Supply your own popcorn.

 

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Tax Roundup, 3/22/2013: IRS makes it easy for many taxpayers to pay late. And Beavers at the end of the pond.

Friday, March 22nd, 2013 by Joe Kristan

20130322-1IRS waives late payment penalties for returns containing delayed forms.  If you can’t file or pay taxes on time, it’s always better to extend your return while you round up the information or the cash.  The penalty for filing a late unextended return is 5%, plus an additional 5% for every additional month of late filing.  The penalty for paying late on a timely extended return, in contrast, is only 1/2%, plus 1/2% per additional month.

  While penalties will be waived, the IRS will charge interest on amounts paid after the deadline.

The notice has a complete list of forms that allow taxpayers to qualify for the late payment exception.  The most commonly-seen ones are probably Form 4562, for depreciable assets and the section 179 deduction, and  Form 8582 for passive activities.

By issuing this notice early, the IRS has also given taxpayers a planning opportunity.  If you have a big balance due on April 15, and you have one of the qualifying forms, you now are eligible for what amounts to a low-interest loan for up to six months, until the October 15 extension deadline.   Many taxpayers accelerated income into 2012 to beat the 2013 tax hikes, and they loan might come in handy.  The current IRS interest rates:

  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments

But if you have the cash, you probably want to pay up on April 15.  There aren’t many places left where you can get a 3% after-tax return on your money for six months.

 

In a just world, they could sue Congress and the IRS.   TurboTax, other Intuit products, now OK to use in Minnesota; H&R Block facing lawsuits over filing snafu, refund delays (Kay Bell)

The tax law is still broken, though.  Minnesota Revenue Department Announces TurboTax Problems Have Been Fixed (William Perez)

 

William McBride, UK Dropping Corporate Rate to 20 Percent, Half the US Rate (Tax Policy Blog).  It makes a difference.

Peter Reilly, International Flight Attendant Does Not Score As Well As Sergio Garcia In Tax Court

Ben Harris,  Automatic Retirement Saving Inches Forward (TaxVox)

 

Roger McEowen, Another Development In The Tax Implications of Insurance Company  Demutualization

Janet Novack, New Study Using IRS Tax Data Shows Rich Are Staying Richer, Poor Poorer

Jim Maule,  So How Does This Tax Plan Add Up?

Howard Gleckman,  Why the Tax Cuts in the Senate Budget Don’t Add up (TaxVox)

David Cay Johnston, Level Playing Fields Under Attack.  (Tax.com).  Because we don’t want Wal-Mart to be at the mercy of some guy selling stuff from his basement.

Patrick Temple-West, Senate votes on tax hikes in budget, and more (Tax Break)

TaxGrrrl, You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure.  I’m sure that makes other foreclosed folks feel better.

 

The road not taken.  I left a national accounting firm to start a new firm.  A (purported) alumna of the same firm took a somewhat different path. (Going Concern)

Guilty.  Dam Guilty. Beavers Convicted: Loans Require Payback  (Russ Fox).

 

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Tax Roundup, 2/18/2013: Your tax dollars at work for somebody else.

Monday, February 18th, 2013 by Joe Kristan

 Why don’t some big companies complain about Iowa’s highest-in-the-nation corporation tax rate?  Because they are on the receiving end.

20130218-1The Department of Revenue last week issued the 2012 list of recipients of of the Iowa Research Activities Tax Credit over $500,000.  Like the Earned Income Tax Credit for the working poor, the Research credit is “refundable.”  If a recipient doesn’t actually owe tax, the state will send a check for the amount of the credit anyway.

For the working poor, the EITC is unabashedly a welfare program.  For the corporate recipients, the credit is touted as “economic development.”  I’m sure EITC recipients feel the same way about their government checks.

The report shows that about $34.2 million of the $50.5 million claimed in research credits was refunded — about 2/3.  The biggest recipient of the credit was Rockwell Collins, which received $13.8 million in credits.    The report doesn’t say how much credit was refunded for each large recipient; If 2/3 of the Rockwell Collins credits were refunded, that means Iowa taxpayers gave the company $9.2 million

I don’t believe Rockwell Collins, or anyone else, should pay Iowa corporation income tax.  It is a bad tax whose repeal would make life better for Iowans.  But that’s a long way from saying that taxpayers should actually cut annual welfare checks to corporations doing business in Iowa.   While I don’t blame them for taking the checks — who turns down free money? – don’t try to tell me that it’s good for me.

Repeal of giveaways like the refundable research credit and the “economic development” credits given to the big fertilizer companies would go a long way towards paying for repeal of the corporation income tax for businesses lacking the lobbyists and wire-pullers needed to hit the corporate welfare jackpot.  Maybe some day we’ll demand the legislature replace the tax-some, pay-others Iowa tax system with something better, like The Quick and Dirty Iowa Tax Reform Plan.

Speaking of Iowa Tax Reform, I have posted my analysis of the proposed Iowa 4.5% optional flat tax.

 

Dislike.  The left-wing high-tax advocacy group Citizens for Tax Justice is scandalized that Facebook isn’t paying income taxes on its 2012 income (via the TaxProf):

Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.

Instead, Facebook says it will receive net tax refunds totaling $429 million. Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.

So why are “executive stock options” deductible?  Because they are taxable to the recipients as W-2 income.  They are reported as taxable income on the executives 1040s at the same 35% top rate that the corporation pays.  In other words, CTJ is upset because the executives, rather than the corporation, write the checks to the IRS.

There is no actual tax reduction.  In fact, the government actually gets more income from the options than if Facebook had not issued the options and just paid 35% tax. Because they are also subject to the 2.9% medicare tax (3.8% starting in 2013), the option exercises actually generate additional revenue for the IRS.  Presumably CTJ would want the executives to pay tax with no deduction on the other side.  That seems unjust.

 

Another victory for Citizens for Tax Justice!  After Illinois Tax Increase, State Farm Reportedly Moving Operations to Texas (Joseph Henchman, Tax Policy Blog).

 

Peter Reilly, Married Same Sex Couples – Windsor Decision Requires Action This Tax Season

Kay Bell,  Sign up now to pay your federal tax bill via EFTPS.  With the ongoing disintegration of the postal service, it’s good to have a secure and sure way to get your taxes paid on time.  I’m signed up.

Tony Nitti,  Former San Diego Mayor Gambles Away $1 Billion; What Are The Tax Implications?

Martin Sullivan, Taxation of Intangibles: Still Hazy After All These Years (Tax.com)

Roberton Williams, A New Marriage Penalty for High Earning Couples—and a Bonus for Some (TaxVox):

Our new Marriage Bonus and Penalty calculator, despite all its  Valentine’s Day finery, ignores the new 0.9 percent Medicare payroll tax hike buried in the 2010 health law. The extra levy affects only a few high-income couples but in very different ways. Lucky couples will collect marriage bonuses of up to $450. But those less fortunate—if anyone making $250,000 can be considered less fortunate—will incur marriage penalties of as much as $1,350 in additional Medicare tax.

Just another example of the whimsical and poorly-conceived nature of the Obamacare Net Investment Income tax.

 

Brian Mahany, IRS Wins Tax Shelter Case – Will Claims Of Accounting Malpractice Follow?

Jack Townsend,  New Plea Agreement Involving Israeli Banks

Robert Goulder, Jack Lew, the Cayman Islands & FATCA (Tax.com)

Ben Harris, Five reasons Why the Sequester’s Automatic Spending Cuts are Bad Policy (TaxVox).

Yeah, that’ll work.  Newtown Lawmaker Proposes ‘Sin Tax’ On Violent Video Games (TaxGrrrl).

 

Traverse City!  I will be speaking at a Farm Income Tax, Estate and Business Planning Seminar in Traverse City, Michigan June 13-14.  The seminar is co-sponsored by the Iowa State University Center for Agricultural Law and Taxation.  Other speakers include Roger McEowen and Paul Neiffer.  Register now!

 

Chicago! Jackson’s Fall Includes Tax Charge (Russ Fox):

The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats).  Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).

Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council.  Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return.  They pleaded guilty on Friday.

The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses.  As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return.  And we’re not talking nickel and dime purchases; the total is $582,772.58.  Add in filing false campaign reports and you have problems.

When people complain about the need to turn power over to government instead of ”greedy corporations,” there is an implied assertion that the government and its operatives are somehow less vulnerable to avarice and self-dealing.  Against all evidence.

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Tax Roundup, 2/13/2013: The President wants more taxes. Because they’re doing such a good job with what they get now.

Wednesday, February 13th, 2013 by Joe Kristan

State of the union:  raise taxes more.  It will never be enough.  If you think we don’t have a spending problem, or think we can solve it through “closing loopholes,” check out three charts gathered by Veronique de Rugy:

20130213-120130213-2

20130213-3

The President proposes nothing serious.

Breaking news from yesterday: Look for a Call to End Oil “Subsidies” in Tonight’s State of the Union (Andrew Lundeen, Tax Policy Blog)

Howard Gleckman, Obama’s State of the Union and the Great Deficit Smackdown (TaxVox)

 

How H&R Block guy got to write preparer regs.  Civil Service! Tim Carney reports:

In 2009, the Obama administration hired Mark Ernst, the previous CEO of tax prep giant H&R Block, as IRS deputy commissioner. Ernst became a “co-leader” (in the words of an IRS spokesman) in drafting new regulations for tax preparers.

This seems to clash with President Obama’s executive order barring appointees from working on regulations directly affecting their former employers.

But thanks to a fine legal distinction, these rules didn’t cover Ernst. “Mark Ernst is a civil servant at the IRS; he is not a political appointee,” an IRS spokesman wrote me. “The Presidential Executive order on Ethics Commitments by Executive Branch Personnel only applies to political appointees.”

Nobody here but us chickens.

 

Jason Dinesen has a new installment about his client whose identity was stolen in the ID theft epidemic that really got rolling while the IRS was busy regulating preparers.  “If you hired the best comedy writers and satirists in Hollywood, they couldn’t come up with a more farcical script about government ineptness.”

Speaking of government competence:

Not only will most farmers have to file after March 1, 2013 due to a delay in tax forms by the IRS, we  now have an announcement that almost all form 1099s issued by the USDA for Natural Resources Conservation Services payments in 2012 are either wrong or were never issued.

via Paul Neiffer.

 

David Brunori, If You Hate or Love Excise Taxes Read this New Report:

A new working paper  recently released by the Mercatus Center at George Mason University… finds that contrary to conventional wisdom, sin taxes are often not used to correct externalities but rather for general fund spending. My take on that is politicians don’t really care about externalities. They would like to raise money from people whose activities they despise. The report also found that the goal of “sin taxes” has changed from correcting market failures to protecting consumers from their own choices. That is, people are too stupid to run their own lives and they need help. Finally, the report finds that sin taxes are regressive, i.e., they punish the poor. Unfortunately, my liberal friends never get exercised over this issue. Maybe it’s as the great PJ O’Rourke surmised, liberals hate poor people. 

If they would just not wear those icky Wal-Mart clothes and watch their weight, like they tell them to… (Tax.com)

 

Peter Reilly,Even Real Estate Salesman Has Trouble With Passive Loss Exception

Even accepting that he spent 520 hours working on his own properties, he still lost.  Two of the properties were short-term vacation rentals and one was being readied for sale.  The time spent on those properties could not be grouped with the time spent on properties dedicated to long term rentals.

As Peter notes, this becomes an even more important tax issue with the new 3.8% tax on “passive” income this year.

 

Kay Bell,  When will you get your tax refund? Whenever

Trish McIntire, Child Tax Credit Delays

TaxGrrrl, Spammers Target Taxpayers Expecting Tax Refunds.  If you get an email about your refund from the IRS, it’s not from the IRS.

Jack Townsend, Another Bull**** Tax Shelter Bites the Dust

Roger McEowen, Another Court Issues Ruling on Tax Impact of Demutualization.

Tax Trials,  Second Circuit: Co-Op Owner Is Entitled to Casualty Loss

Patrick Temple-West, Navigating between tax avoidance and evasion, and more

Gene Steurle, Desperately Needed: A Strong Treasury Department (TaxVox)

Robert Goulder, La Bella Italia: Fast Cars & Loose Taxes (Tax.com)

Jim Maule, When Spending Cuts Meet Asteroids: The Value of Taxes.  Taxes and spending can never be too high because, you know, asteroids!

The Critical Question.  Minnesota’s Sexiest Accountant Contest: Cute or Creepy? (Going Concern)

 

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Tax Roundup, 1/23/2013: PTIN Paralysis! And: pay Iowa taxes with a cell phone?

Wednesday, January 23rd, 2013 by Joe Kristan

20130121-2The IRS has turned off its preparer registration initiative following the federal court decision enjoining the program.  The Service issued this statement yesterday:

As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.

The second paragraph is the most interesting. While the IRS doesn’t admit that it overreached, this is far short of a vow to fight to the last appeals brief.  One can only hope they will reconsider the whole misbegotten regulatory scheme.

Meanwhile, Accounting Today confirms reports the IRS has shut down the PTIN registration system and the Registered Tax Return Preparer testing program.  They report the PTIN system is expected to come online again after the RTRP registration system is removed from it.  Meanwhile, the Return Preparer Office has apparently turned off its phones.

All of this makes me believe that the IRS is not seeking any emergency stay of Friday’s decision and is planning to do without the RTRP rules for this season, anyway.

 

TaxGrrrl posts a great interview with the winning attorney in the preparer regulation decision, Dan Alban.  She encounters a new perspective on whether regulation actually does more good than harm (my emphasis?:

Finally, with all of the legal niceties out of the way, I asked Alban the really tough questions: What about all of those folks who say that regulation is a good thing? What does this ruling mean for taxpayers? And why would you embrace a scheme that wouldn’t require – at a very basic level – some semblance of regulation to ensure that preparers are competent?

Alban didn’t hesitate. Intent, he says, is key. The intent of any kind of licensing scheme should be to protect the consumer. But Alban, who focuses on a occupational licensing in his practice, noted that frequently, these kinds of laws instead protect established interests from competition. That is, he says, not in the best interest of the consumer.

And with that, I paused. You see, in all of the years that I’ve been writing this blog, I’ve only received a phone call from IRS complaining about a post once. And it was for this one. The IRS wanted to assure me that the exemptions had nothing to do with any special interests. None. Not a whit. Interestingly, many preparers at smaller firms thought differently. I received a number of supportive emails and “off the record” comments about how the new rules felt discriminatory.

Bingo. Regulation always favors the big.  It’s no big deal for H&R Block headquarters staff to deal with regulations for all of its franchises.   It’s a different story for small operators like Sabina Loving, the solo preparer in a low-income South Side Chicago neighborhood who was lead plaintiff in last week’s decision.

It would appear that attorneys benefited disproportionately from the regulations; as a point of context, the American Bar Association (ABA) has encouraged the regulation of “other” preparers for years. Why is that? Is there maybe something to Alban’s idea that these kinds of laws protect established interests from competition?

And then Alban said something else that struck me:  about fifty years ago, only 1 in 20 workers in the U.S. needed government permission (in the way of regulations) to earn a living. Today, that number is 1 in 3. That, he said, is troubling. We are increasingly relying on the government to decide who is qualified to perform services for us. Is that something we want? Does regulation really make someone competent? Or honest?

No, it just gives them one more way to control things.

Russ Fox: Alphabet Soup

Trish McIntire, Voluntary Licensing?

 

Paying taxes with cell phone money?  The Iowa Department of Revenue yesterday announced a venture with Dwolla to enable taxpayers to pay taxes with Dwolla’s mobile device online payment technology.  The Des Moines Register Reports:

 Dwolla is a cash-based payment network that provides real-time, low-cost, online and mobile payments, officials said. Instead of charging a floating percentage and fixed fee per transaction for goods and services or dealing with administrative issues of checks, Dwolla’s network costs a flat 25-cent fee on any payment over $10, and it’s free for transactions under $10.

…

Iowa Department of Revenue Director Courtney Decker said the state’s first use of Dwolla will allow businesses that already pay more than $100 million in cigarette stamp taxes the option of using the Dwolla network. She added, “This is just the tip of the iceberg” in terms of Dwolla’s potential in state government.

Dwolla’s service is cheaper and safer than mailing and processing a paper check, Decker said, and it will allow participating businesses to receive their tax stamps more quickly. She added that 89 percent of Iowa individual income taxes are  filed electronically, but the percentage of people paying taxes electronically to her department is far lower.

Paying online now requires a slow application process and analog mail delivery to receive permission to make electronic payments.  The Dwolla system will be a big improvement if the Department enables it for individual income taxes.

 

IRS wins another demutualization case.  The IRS continues to fight the to tax proceeds on the demutualization of insurance companies.  They famously lost the Fisherdecision, which held that taxpayers could treat their payments for insurance premiums as basis when they received shares of stock in an insurance company changing from mutual ownership to a stock company.  But earlier this month the IRS won a Federal District Court Decision in California rejecting the Fisher“open transaction” scheme.  If the IRS wins on appeal, this will likely end up settled by the Supreme Court.  This is the second IRS victory since the Fisher decision.

Cite:  Reuben, DC CACD, CV 11-09448

 

Roger McEowen, Two Important Tax  Developments:

On January 18, two key tax developments occurred.  First, a federal district court wiped out the  IRS preparer regulations.  Later, IRS  announced that farmers aren’t stuck with the March 1 deadline and can file  timely by April 15.

 

David Brunori, Jindal’s Bold Move (Tax.com):

Republican Louisiana Governor Bobby Jindal has made the most provocative tax reform recommendation in many years. Jindal said he was going to overhaul the tax law. If he has his way, he will revolutionize it.

Pay attention, Governor Branstad.

 

Donald Marron,  Five Key Facts about the House Debt Limit Bill (Tax Vox)

Howard Gleckman,  How Obama’s Inaugural Address Frames the Policy Debate for the Next Decade (TaxVox).  I don’t think so.

Kay Bell,  Tax Carnival #111: Countdown to Filing.  It’s Kay’s roundup of tax tax-related posts from all over.

Jack Townsend,  Steps in OVDI/P Processing and Opting Out.  Dealing with the IRS when you have an undisclosed offshore account.

Jason Dinesen,  Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed

Patrick Temple-West,  Private equity tax breaks in jeopardy, and more (Tax Break)

William McBride,  Phil Mickelson’s Tax Rate

Robert D. Flach is Buzzing!  He also has posted What to Give Your Tax Preparer at Mainstreet.com.

Jim Maule, Tax Ignorance and Its Siblings.  “Tax ignorance, of course, is but one part of political ignorance, as I explored in When Tax Ignorance Meets Political Ignorance.”  Yet the good professor insists that 50% + 1 voting by ignorant voters works better than trusting individual decisions in the marketplace.

 

News you can use: Life After Big 4: What You May Miss and Won’t Miss At All (Going Concern).  I don’t miss it one tiny bit.

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Tax Roundup, 1/14/2013: Big webcast today! Meanwhile, outlook bleak for Iowa income tax policy.

Monday, January 14th, 2013 by Joe Kristan

20130114-1New law webcast today!  I will be participating in a webcast today on the new Fiscal Cliff law and other recent tax developments.  The webcast, sponsored by the Iowa Bar Association, will start at noon.  I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and IRS Taxpayer Liason Christy Maitre.   Cost:  $35 for IBA tax school attendees and attendees of any 2012 CALT Farm and Urban Tax School; $35; $75 otherwise.  Agenda here, registration page here.  2 hours of timely CPE and Tax Update fun!

 

No good will come of this.  The 2013 session of the 85th Iowa General Assembly begins today, and the outlook for improvement in Iowa’s tax system is bleak.  Iowa business groups have firmly embraced a state tax incentive policy based on taking money from all of us to bribe well-connected businesses to do things they would do anyway.  From the Sioux City Journal:

Business groups like the Iowa Chamber Alliance, a non-partisan coalition representing 16 chambers of commerce and economic development organizations, are supporting a variety of tax credits to retain, grow and attract investments in the state. Those credits include restoring the $185 million cap on economic development tax credits that currently stands at $125 million for fiscal 2013.

Jason Hutcheson, chief executive officer of the Greater Burlington Partnership, said tax credits are a highly effective tool that deliver a high return on investment and are essential to retain, expand and recruit businesses and to attract technology and research. ICA members also are lobbying legislators to spend at least $25 million for business development incentives after the line item was shrunk to $15 million for the current fiscal year.

The politicians shed crocodile tears about just being forced to go along with a system based on them granting special favors:

Senate GOP Leader Bill Dix of Shell Rock said there is opposition to government choosing winners and losers with taxpayer-funded incentives, but he added, “There’s no question in my mind that an incentive policy is the world we live in. I don’t appreciate that and wish it wasn’t the case, but we do need a policy that includes incentives.”

You know what would be a real incentive to grow a business in Iowa?  A much simpler tax system with lower rates, one eliminating the corporate income tax altogether.  Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Instead, Iowa has a horrible system built around complexity and high rates, made less painful — even lucrative — for those with the connections and lobbyists to score targeted tax credits.  The legislators hear from those people — not from the more numerous businesses  who quietly set up shop in South Dakota or other more friendly tax climates.

20130114-2

The Iowa Research Credit is refundable, so Iowa writes a check when the credit exceeds the computed tax. The $45.2 million in corporate research credits claimed in 2010 resulted in $43 million in refunds.

The best we can hope for from the legislature is prompt action on ”coupling” legislation to conform Iowa’s 2012 tax law to the federal changes passed earlier this month.  The 2012 filing of many Iowa returns is on hold until they do so.  We’ll see if they can even accomplish that much.

 

What does the Worst IRS Commissioner Ever do for an encore?  He becomes a guest scholar at the Brookings Institution, which may never recover (TaxProf)

Scott Drenkard, Governor Jindal’s Bold New Tax Plan  (TaxPolicy Blog).  Could you live with a higher state sales tax if the income tax goes away?  Even if it taxes accounting services?  Tempting.

Paul Neiffer, Good News – Certain Credits Offset AMT

Jack Townsend, The Big Boys Get Better Treatment in Our Tax System Than Do Minnows

Joseph Thorndike, Peggy Noonan and the Beleaguered 1 Percent

TaxGrrrl, Ask the taxgirl: Filing Your Tax Return Early

News you can use: States to seniors: Good times may be ending, and more (Patrick Temple-West, Tax Break)

The Critical Question: Your Money Or Your Life – Which Can You Deduct ? (Peter Reilly)

That’s what they say, anyway.  White House says no to Death Star.  (Kay Bell)

At least she knows her constitution.  Miss Iowa takes fifth! (TheBeanwalker.com)  UPDATE!!!  Miss America Contestant Says Marijuana Should Only Be Legal For “Recreational Use and Health Care” (Mike Riggs, Reason.com).  So don’t smoke at the office.

 

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Tax Roundup, 1/9/2013: E-filing gets underway January 30. Also: 79 year-old lady pleads to tax crimes.

Wednesday, January 9th, 2013 by Joe Kristan

20130109-1The IRS announced yesterday (IR-2013-2) that it will begin processing 1040s January 30.  From where I stand that’s right on time, as very few of our clients have their 1099s, W-2s and K-1s before then anyway.

The IRS will be unable to process some returns that soon.  From the IRS press release:

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

Form 8582, used to report passive losses, is one of the forms that will cause delays.

State taxes, that will be another matter.  As the legislature has to decide whether to accept the retroactive changes to the tax law, many Iowans will have to wait awhile to know what the 2012 Iowa rules are.

 

Tax Update on Iowa Cable Network tomorrow.  I will be giving a rundown Thursday at 6:00 pm on the Fiscal Cliff tax bill and other recent tax developments in an ICN broadcast (is that the right word for a closed-circuit presentation?) for the Institute of Management Accountants.  There will be a live audience at 6500 Corporate Drive, Johnston and viewing sessions at Grinnell High School, Marion High School, Keystone AEA (Dubuque) and St. Ambrose University.  Contact Kathy Smith, ksmith4dlord@gmail.com, if you are interested.

 

The TaxProf gives a non-subscriber link to Ethan Yale’s Taxing Market Discount on Distressed Debt, which appeared in Tax Notes yesterday.  The paper talks about the weird and ugly issues that arise when a third party buys bad loans and tries to collect.  The market discount rules treat the debt as having a real high interest rate, with all payments principal first, based on the difference between the discounted purchase price and the face amount of the debt.  The rules also can cause the income on collections to be ordinary, but the losses to be capital.

The paper talks about why these rules don’t make sense for deeply-discounted debt.   If you buy a debt at 50% of face due in one year, it doesn’t make sense to assume that it will cash out at a 100% APR return, but that’s how the regulations would work.  The paper also covers arguments taxpayers can make to try to ameliorate the harsh treatment that the market discount rules would apply, but there’s no assurance the IRS would buy them.

 

A 79 year-old widow pleads guilty to concealing overseas bank accounts.  She agrees to pay over $20 million in penalties in the plea deal and faces up to six years in prison, according to a Department of Justice press release.  Jack Townsend has more.

 

Fiscal Cliff Notes

Problem solved!  Well, not really.  You know how the tax increases in the Fiscal Cliff legislation won’t begin to solve the $1.2 trillion deficit?  The Congressional Research Service reports that it’s even worse: it will increase the current fiscal year deficit by $330 billion and the cumulative 10-year deficit by $4 trillion.  ($link through Tax Analysts)

Howard Gleckman, Grim Predictions about the Fiscal Cliff II and Deficit Reduction (TaxVox):

I spent lunchtime today moderating a thoroughly discouraging Urban Institute panel discussion  on the fiscal cliff. The consensus of the speakers—all highly-regarded budget experts—was that the New Year’s cliff deal was pretty lame and the coming round of self-imposed budget crises will be even worse.

Oh, goody.

Roger McEowen on the Fiscal Cliff bill: A short summary of the most significant provisions. 

Paul Neiffer,  Reprieve For S Corporations With Built-in Gain

Patrick Temple-West,  Insiders benefited from special dividends, and more (Tax Break)

William McBride,  Taxes Up, Stocks Up, What Can Go Wrong? (Tax Policy Blog)

Jana Luttenegger,  Filing for 2012 Taxes Delayed Until January 30 (Davis Brown Tax Law Blog)

TaxGrrrl, IRS Announces Delayed Tax Filing Season

Russ Fox,  IRS Announces Tax Season to Start on January 30th

 

David Brunori, Good — and Not so Good — Corporate Tax Ideas from New Mexico (Tax.com):

New Mexico Governor Susana Martinez, a rising star among GOP politicians, is calling for a steep reduction in the corporate tax rate.   She proposes cutting the rate from 7.6 to 4.9 percent. That is good news. The corporate income tax is — and will likely remain — one of the worst ways to raise revenue for state governments. The tax is inefficient, ineffective, and distorts economic decision making. It would be better if Governor Martinez called for the repeal of the tax, but whittling it down is okay as well.

Repeal of the corporate income tax would be a good idea in Iowa as well, but the influential corporations that get big checks from the state via the tax law aren’t going to jump on the repeal bandwagon.

 

Jason Dinesen, The IRS — Putting Paperwork Ahead of People.   Doug Shulman’s legacy of identity theft nightmares lingers.

Kay Bell, Tax Carnival #110: Happy New Tax Year

It’s Wednesday, so it’s Buzz Day at Robert D. Flach’s place.

Socially-awkward, that’s something else.  Great News: Accountants Are Less Likely To Be Psychopaths (Going Concern)

News you can use:  The Problem With Libertarian Women is Not Libertarian Men (Megan McArdle)

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Tax Roundup, 1/4/2013: How many seconds of federal spending do you cover? And more debris from the bottom of the Fiscal Cliff.

Friday, January 4th, 2013 by Joe Kristan

20130104-1Spending, by the numbers.  Local radio guy Brian Gongol asks, Why do we baffle ourselves with huge numbers instead of talking about budgets in per-person terms?  Why, indeed?  You could ask 100 people on the street how much money the government spends and how big the deficit is, and you would be lucky to get the size of the budget within a trillion dollars.  The numbers are hard to comprehend.

The ability of the politicians to get away with talk about “millionaires and billionaires” proves this — a billion is 1,000 million, and while there are likely people on your street with a net worth of $1 million, you probably haven’t met anybody worth $1 billion.  They aren’t remotely the same thing.

In doing year-end tax projections for a client with a once-in-a-lifetime gain from a business sale and a huge resulting tax liability, I wondered how long his enormous (to me) liability would keep the government running.  Dividing the 2012 fiscal year spending of $3.796 trillion by the 31,536,000 seconds in a 365-day year, I figure that the federal blob spends $120,370.37 per second.  The biggest tax liability I’ve ever seen comes well short of funding 2 minutes of government operations.  I probably will never cover a second.  Where do you fit?

 

Fiscal Cliff Webinar!   I will be appearing with Roger McEowen on the “Tax Notes From the Fiscal Cliff” webinar at Noon January 14.  We will be covering the new legislation and the proposed 3.8% “Net Investment Income Tax” regulations.  Register today!

 

The IRS has published new withholding tables for the Fiscal Cliff Legislation (Accounting today)

 

Fiscal Cliff Notes:

Wall Street Journal:  Cliff Fix Hits Small Business; Many Small Entities or Firms May Face Higher Taxes This Year After the Deal

David Henderson, Pssst:  Someone tell the Republicans they won:

So here’s the big news: the anti-tax side won.  Sure, Obama would love
to raise taxes even more, especially on people making between $200K and $450K.  But now he has almost zero leverage to do that. 

I think that’s about right.  And now the President has lost his ability to distract attention from the ongoing fiscal calamity with arm-waving about “millionaires and billionaires.”

Derek Thompson, Sorry, Middle Class: In a Few Years, Your Taxes Will Have to Go Up, Too (via Going Concern).  You know, we could try spending less.  In any case, the rich guy isn’t buying.

Tim Carney: How corporate tax credits got in the ‘cliff’ deal

Katrina Trinko, Hollywood, Electric Scooters Benefit From Tax Breaks in Fiscal Cliff Bill (The Corner)

Brad Plumer, From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill (Wonkblog, via Tyler Cowen).

Chris James, Fiscal Cliff Deal Adjust Capital Gain Rates and Qualified Dividend Rates (Davis Brown Tax Law Blog)

Paul Neiffer, Some More Goodies Buried in the Fine Print

Kay Bell, Redefining ‘wealthy’ for tax purposes

Tax Trials, Fiscal Cliff Legislation – American Taxpayer Relief Act of 2012

Patrick Temple-West, Cliff fix hits small business, and more

Nick Kasprak, 2013 Tax Brackets (Tax Policy Blog)

Roberton Williams, TPC Tax Calculator Shows What Avoiding Fiscal Cliff Means for Taxpayers (TaxV0x)

Howard Gleckman,  What the Fiscal Cliff Deal Really Means for Taxes and Spending

TaxProf,  More Fiscal Cliff Tax Commentary

 

In other news…

Jack Townsend, Wegelin & Co. Pleads Guity to Conspiracy

Lynnley Browning, Swiss bank Wegelin to close after guilty plea.  They opened in 1741.

Jason Dinesen, Tax Predictions for 2013

Trish McIntire, Disclosing Prisoner Returns

Taxdood, Intrastate iGaming: Federal Reporting and Withholding Tax Obligations

Robert D. Flach, WTF IS THIS AMT EVERYONE IS TALKING ABOUT?

News you can use: “Have Fun and Don’t Be Bored” (Brian Strahle)

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Tax Roundup, 10/1/2012: the thin blue line of sales tax scofflaws. Plus: the dangers of finding your roots.

Monday, October 1st, 2012 by Joe Kristan

Keeping your drunk cousin from starting a fight at the wedding reception: a taxable service?  From globegazette.com:

The state Department of Revenue is demanding that 46 Iowa police officers pay back sales taxes from years of working off-duty assignments such as wedding receptions and business security.

Department spokeswoman Victoria Daniels said the plan is to pursue back sales taxes for up to 10 years for those officers who have never filed tax returns for off-duty jobs.

Iowa only requires service providers to collect sales tax for “enumerated services.” CPA services and legal services are not “enumerated,” but “security and detective services” is, along with, for example, reflexology.  The thin blue line is not pleased.

Iowa law enforcement groups have tried for years to convince the Revenue Department not to require police officers to collect sales tax from businesses and individuals who hire them for off-duty gigs. Revenue officials considered drafting a change to the state’s administrative code to exempt officers, but ultimately decided the law clearly required officers to pay up.

So this obviously isn’t news to the officers, who blew off the tax collection requirement anyway.  Next time you get pulled over, try to convince the officer not to require you to slow down.

 

Aegis trust promoters sentences upheld.  The Seventh Circuit has upheld long sentences for the masterminds behind a sham trust scheme that operated out of the Chicago suburb of Palos Hills in the 1990s.  From the opinion:

     The Aegis trusts were typically marketed to wealthy, self-employed individuals whose income could not be easily traced through the W-2 forms that are issued to ordinary taxpayers. Aegis representatives, including the defendants, conducted seminars promoting the Aegis trusts in cities around the country. Attendance at these seminars was by invitation only, and guests were charged between $150 and $500 to participate. Attendees were told at such seminars that use of the Aegis trust system would reduce if not eliminate their federal income taxes. They were often given materials that purported to document the legitimacy of the system with seemingly thorough and impressive citations to the various legal authorities that supported the trusts. But as one lawyer wrote to a client who sought his advice as to the legitimacy of the system:

      “This material is full of errors, irrelevancies and partial truths followed by non sequiturs. I know that I must resist the temptation to follow every line or I could spend the rest of my life on this. I will concentrate on how, even if it were 99 percent correct, the claimed tax effects fail. In doing so, I’m not implying that that 99 percent is correct. I’m just skipping over the errors.”

The longest sentence is 223 months, which works out to over 18 years.  Under federal sentencing rules, the sentence can be reduced by only about 10% for good time; there is no early out.

The Aegis clients learned the hard way that there is no magical trust formula to get out of taxes.  There is no tax fairy.  Tax Attorney Jack Townsend finds the decision worth three posts (1, 2, 3).

Cite: USA v. Michael Vallone, CA-7, No. 08-3690

 

When genealogists go bad.  From Billings, Montana via SFGate.com:

 A Billings woman who said she filed false tax returns using the Social Security numbers and birth dates of deceased people she found while doing genealogy research online has been sentenced to more than four years in prison and ordered to pay nearly $130,000 in restitution to the IRS.

Maybe she was doing genealogy research, maybe she wasn’t.  While the “Death Master File,” the list of dead people published by the government, is prized by those researching their ancestry, identity thieves love using it to file refund claims for the recently deceased.  This report on the Billings woman from the Billings Gazette makes me wonder if the genealogy was an excuse of some sort:

I am so sorry for my bad behavior. I have so many amends to make,” said Shannon Kathlina Grimm, 41.

Crying as she apologized to the court and to family members and friends, Grimm said, “I know I can be a good person. You will not see me again. I will not be in trouble again, I promise you.”

But Chief U.S. District Judge Richard Cebull told Grimm she deserved more time on top of what she has already spent locked up while the case was pending and sentenced her to four years and three months. The term was at the high end of the guideline range, which started at 41 months.

Cebull also ordered her to pay $129,498 restitution to the IRS.

“Obviously, Ms. Grimm has little, if any, respect for the law,” Cebull said. He noted Grimm’s state conviction for issuing bad checks and her violation of a deferred sentence. She was on probation when she committed the federal fraud crimes, he said.

Maybe it’s genealogy gone bad.  Right, because ancestry research is notorious as a gateway to a life of crime.

For a good view of the fiscal cliff, Check out Roger McEowen’s List of Expired and Expiring Provisions.

Martin Sullivan,  Wrong Turns At the Fiscal Cliff  (Tax.com)

Jana Luttenegger,   Cashing in on a Life Insurance Policy (Davis Brown Tax Law Blog)

Kay Bell,  Bank forgiveness of phantom debt could create tax problems for former debtors.  Of course, so does forgivenes of real debt.

Jason Dinesen,  The Difficulties of Tax Planning with an Inept Congress.   Of course, we keep sending them back.

Irwin Schiff loses motion to vacate conviction.  Not a great surprise.  (Jack Townsend)

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Tax Roundup, 8/28/12: Feds cost Wells Fargo employee his job; an energy drink falls short.

Tuesday, August 28th, 2012 by Joe Kristan

(Because of Federal rules) Wells Fargo fires Des Moines worker for laundromat incident 49 years ago.  The Des Moines Register leads today with a sad story of a guy fired by Wells Fargo who was convicted of trying to use a cardboard slug in a laundromat in 1963.  Naturally it has spurred outrage against Wells Fargo in the comment section.  But the real story begins in the fifth paragraph:

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.
The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

So when you have enormous fines for foot-fault violations, you naturally are going to err on the side of of strictly following the rules.  If it’s a choice between a low-level employee and a $1 million-per-day fine (plus up to five years in prison for the person employing him), that’s no choice at all.  Goodbye, employee.  Thanks, FDIC.  Ironically, the rules come from Section 710 of Public Law 109-351, hilariously-named the “Financial Services Regulatory Relief Act of 2006.”  So thank you too, Congress.

 

Why we’re broke (Econbrowser):

 

The implication of a simple look at the numbers should be obvious to any objective observer.  To return to long-run fiscal solvency, the U.S. will need both tax increases, defense cuts and significant entitlement reform.

And remember, the rich guy isn’t buying.

 

IRS tax credits make tempting fraud targets  (MarketWatch):

Whenever there are refundable tax credits on the table, criminals try to tap into them. Some of them even do it right from jail.
Refundable tax credits are moneys released to taxpayers over and above any taxes they might have paid through withholding or estimated tax payments. Some common tax credits include the Earned Income Credit, the Additional Child Tax Credit, part of the American Opportunity Credit, and the 2011 Adoption Credit.

Just remember that they aren’t “IRS” tax credits.  It’s Congress that enacts them, and it’s Congress that makes the multi-billion dollar industry of stealing from you via tax credit fraud possible in the first place.

 

Jack Townsend, Seventh Circuit Compels Production of Offshore Bank Under the Required Records Doctrine:

The Seventh Circuit today decided In Re: Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011, here, holding that the required records doctrine requires a taxpayer asserting a Fifth Amendment privilege to produce the documents required to be maintained under the FBAR statute.

 

 

Will Freeland,  Romney: Increasing Taxes, or Removing Tax Subsidies? (Tax Policy Blog)

Anthony Nitti, Tax Court Tackles “Dealer Versus Investor” Issue; Flood v. Commisioner, Examined

Is there an energy drink that gives you the zip you need to file a correct tax return?   Las Vegas sports drink czar sentenced for evading taxes (Las Vegas Sun)

Roger McEowen, IRS Says Vineyard Elgible To Be Expensed In Year Placed In Service

Now at TaxGrrrl: Guest Post: Online Sales Tax

William Perez,  Americans Living Abroad Filing Late Tax Returns

Robert D. Flach fondly remembers his first time.   I have no idea, myself.  Does that make me a bad person?

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Tax Roundup, 8/7/12: sales taxes, Olympian taxes, California fever dreaming.

Tuesday, August 7th, 2012 by Joe Kristan

Iowa’s sales taxes are right in the middle, per this map from the Tax Policy Blog:

 

Roger McEowen: 2012 Drought Raises Questions About Deferring Crop Insurance, Livestock Sales and Cash Forward Grain Contracts 

California ponders suicide. California’s Proposition 30 would raise top income tax rate, sales taxes  (Kay Bell)  California already has one of the highest tax burdens in the nation, but the bill would raise the top marginal rates to 12.3% on income over $500,000 — with no deduction for state taxes.  In a state where over 12,000 public employee retirees have pensions over $100,000, the problem probably isn’t that taxes are too low.

Brian Strahle, Texas “Fresh Start” Amnesty Program Ends August 17, 2012 – What Should You Do?

TaxGrrrl, President Obama Supports Tax Exemption for Olympic Athletes.  It’s too bad that the expats and others victims of the current jaywalker-shooting policy of enforcing offshore reporting requirements never learned to run fast, do gymnastics, or play basketball.   Andrew Mitchel reports that 189 U.S. citizens expatriated in the second quarter of 2012.  No doubt IRS harassment was behind some of these.

TaxTV: The Truth on Taxation of Olympic Gold Medals

Dan Meyer, “And Uncle Sam and his IRS Revenue Agent Buddy Step to the Podium”

Is there a gold medal for this? The Title of Most Awful Accountant in the World Is Spoken For (Going Concern)

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Tax Roundup, 7/27/2012: Congressional preening, California refund dreaming; corn squeezers squeezing.

Friday, July 27th, 2012 by Joe Kristan

Flickr Image by Bryan Villegas used under Creative Commons license

Christopher Bergin ponders our congresscritters:

The point is that you could set these folks pants on fire and they still wouldn’t get it. Our tax system is a mess, and we are heading into another recession (yes, I’m “doubling down” on that bet!). And these folks squabble like children.

The tax world is a microcosm of what is going on in Washington. Our political system is completely dysfunctional. Congress, when it manages to pay attention, is totally reactionary. Our lawmakers will do nothing but bicker until catastrophe hits. Bet on it.

But, sincerely, let’s all try to have a nice summer.

Maybe setting their pants on fire wouldn’t help, but it’s worth a try.

 But Political Preening Season is. Middle Class Tax Cuts Not Extended (TaxGrrrl)

Jason Dinesen: Enrolled Agents – The Lichtenstein of the Tax World:

In terms of name recognition, EAs are far, far behind. We may outnumber attorneys but that doesn’t mean our name recognition is better than that of attorneys, and we are light years behind CPAs.

The IRS’s program to “professionalize” unenrolled preparers will help enrolled agents, with their stricter requirements, not at all.

No. Any more questions? Do Higher Education Tax Credits Make Sense? (Kim Reuben, TaxVox). 

Unfortunately, we are flying blind in our efforts to reform these subsidies. There are limited data to help  evaluate the effects of these programs, including  recent expansions.  We know little about what the grants and credits mean for students over time. A key question is whether either or both programs result in higher tuition.

The key answer is almost certainly yes.

California refund claim opportunity? A California court rules that California’s double-weighted sales factor apportionment factor is optional, reports Russ Fox.  The traditional three-factor formula weighs payroll, property and sales equally.  Extra weight on the sales factor punishes out-of-state corporations, which is why Iowa uses only sales.  Brian Strahle has more.  If the decision holds up, taxpayers may want to file amended California returns to use the traditional three-factor formula.

Got Drought? Roger McEowen explains the rules for deferring crop insurance and disaster payments for farmers.

So stop making it. Ethanol Makers are Getting Squeezed (Paul Neiffer)

Kay Bell: Mississippi sales tax holiday begins today.  Iowa’s holiday for clothes is August 3 and 4.

Joining the rest of us:  Senate, House Take Turns Hatin’ On One Another (Anthony Nitti)

Peter Reilly says  Lowell Yoder Has Some Great Tax Posts – Read Them.  And he’s right.

Peter Pappas is posting again: Obamacare Will Cost Taxpayers $1 Trillion Over Next Ten Years

Tax Policy Blog has Updates to Bush Tax Cuts Calculator

TaxTv, Self-Directed IRAs: Prohibited Transactions Can Get You in Trouble

Young Buck’s IRS auction raises $53,000 (Sohh.com, via Going Concern)

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Tax Roundup, 7/12/2012: S corporation distributions aren’t fraudulent conveyance. Also: why Amazon will pay sales taxes; Daffy Chuck

Thursday, July 12th, 2012 by Joe Kristan

Bankruptcy court rules that S corporation payment of shareholder taxes not a fraudulent conveyance.   S corporations don’t pay taxes; their income is taxed on shareholder returns.  Shareholders rely on distributions from the corporations to enable them to pay the taxes. 

A Virginia S corporation paid shareholder taxes attributable to the S election, and not long afterwards ended up in bankruptcy.  The bankruptcy trustee sued to recover the the taxes from IRS, saying they were “fraudulent conveyances” made without consideration. 

Fortunately, the bankruptcy judge was sensible:

Broadly stated, “as long as the unsecured creditors are no worse off because the debtor, and consequently the estate, has received an amount reasonably equivalent to what it paid, no fraudulent transfer has occurred.”

…

In this instance, it is clear that there is a benefit derived by the corporation from this arrangement. The summary judgment record shows a taxable income of $1,559,954, which was passed through to the shareholders. The IRS calculated the tax that would have been paid by the corporation had it been a chapter C corporation and not a chapter S corporation. The benefit to the corporation of the election was significant.

It would be a planning nightmare if taxpayers who thought they had paid their taxes had them pulled back from the IRS in bankruptcy.  Cite: In Re Kenrob Information Technology Solutions, Inc., Bankruptcy Court, ED-VA

Will the push to make Amazon pay local sales taxes destroy local retail? Slate reports:

In response to pressure from local businesses, many states have passed laws that aim to force Amazon to collect sales taxes (the laws do so by broadening what it means for a company to have a physical presence in the state)… But suddenly, Amazon has stopped fighting the sales-tax war.

Why?

 Now that it has agreed to collect sales taxes, the company can legally set up warehouses right inside some of the largest metropolitan areas in the nation. Why would it want to do that? Because Amazon’s new goal is to get stuff to you immediately—as soon as a few hours after you hit Buy… It’s hard to overstate how thoroughly this move will shake up the retail industry.

Be careful what you lobby for.  (Via Megan McArdle’s twitter feed)

Roger McEowen: Court Says IRS Position Wrong on Tax Impact of Insurance Company Demutualization.  But as we noted yesterday, it didn’t care for the taxpayer’s position either. 

Anthony Nitti also weighs in with  District Court Refuses to Apply Open Transaction Doctrine to Insurance Company Demutualization

Kay Bell, Home sale profits usually don’t create any tax bills for residential sellers

David Brunori:  Free the Puppies, Tax a Millionaire (Tax.com)

In Defense of Lindsey Graham—and (Legal) Tax Evasion (David A. Graham, The Atlandtic)

Really?  Fight Over Tax Rates Is Meaningless, Really (TaxGrrrl)

Jason Dinesen allitetively addresses Deducing Whether Deductibles are Deductible

Because it’s the biggest issue facing the country, right? Essential reading: Attacks on Romney for offshore assets, taxes heat up, and more (Nanette Byrnes) 

News you can use: Julian Block Explains How To Save Taxes While Being Kind To Animals (Peter Reilly)

Schumer would know despicable. From Phil Hodgen:

I was interviewed today for the NBC Nightly News. They did a story about expatriation (focusing on Denise Rich). The best feature — Charles “Despicable” Schumer’s usual ad hominem attacks. He labels people who expatriate of being “despicable” (watch the video). Senator Schumer’s remark so reminded me of Daffy Duck. (YouTube).

How dare the jaywalkers not stand still while we shoot at them!

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Defined values: When an IRS victory leaves them with no tax.

Friday, March 30th, 2012 by Joe Kristan

The Tax Court this week again upheld a “defined value clause” gift valuation.  Defined Value gifts are given under the condition that if the IRS successfully reduces the claimed value of a charitable gift, the donor will give (or receive back) additional property (usually closely-held business interests) to get the value to that originally claimed.  The IRS hates these because when they win, the deduction stays the same anyway because of the required adjustment.  Roger McEowen explains what this means for estate planning.  The TaxProf has a related post, “Gerzog: Defined Value Clauses and FMV.”

Cite: Wandry, T.C. Memo 2012-88. 

Related: IRS loses another ‘defined value’ gifting case

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IRS loses farm ‘special use valuation’ case (again)

Monday, March 26th, 2012 by Joe Kristan

Roger McEowen has the scoop.

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Quick hits

Wednesday, March 21st, 2012 by Joe Kristan

There’s much good stuff out there on taxes that I would to spend all day reading and posting about.  Tax returns pay better, though, so here are links to better reading for those of you with more persistence and longer attention spans:

Finally, Andrew Mitchel shows how voluntary expatriations have soared in the wake of the IRS foreign compliance pogrom, with this chart:

http://intltax.typepad.com/.a/6a00e54fb13f5188340168e8ff8a37970c-pi

Courtesy Andrew Mitchel

When you fire into the crowd, the crowd will scatter.

 

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So what is the right S corporation salary?

Wednesday, February 22nd, 2012 by Joe Kristan

By affirming yesterday that a West Des Moines CPA had to pay FICA taxes on about $91,000 of his earnings from his professional S corporation — instead of the $24,000 he put on his W-2 — the Eighth Circuit helped make the first marks in the big unmapped area of how much compensation S corporations must pay their employee owners.
Income reported on an S corporation K-1 isn’t subject to FICA and Medicare taxes. This tempts S corporation owner-employees to skip the W-2 and take out all of their earnings as S corporation distributions. The IRS naturally doesn’t like that, and they have been successful for some time in attacking S corporations paying zero salary.
The case decided yesterday made a bold challenge to the IRS position. Rather than taking a zero salary, the S corporation shareholder took a $24,000 salary, with the rest of his $200,000 or so earnings from his practice coming out as S corporation distributions. This avoided the 12.4% combined FICA tax and the 2.9% Medicare tax on the difference. The taxpayer argued the $24,000 was all the salary he intended to pay, and that the IRS had no authority in the tax law to upset this intent.
The appeals court declined to accept the taxpayer’s stated intent as decisive:

However, even if intent does control, after evaluating all the evidence, the district court specifically found “Watson’s assertion that DEWPC ‘intended’ to pay Watson a mere $24,000 in compensation for the tax years 2002 and 2003 to be less than credible.” We will not disturb this finding on appeal.

So $24,000 compensation for a CPA whose practice earns $200,000 isn’t “reasonable,” but, at least in this case, $91,000 is. What does that tell an S corporation owner trying to set his compensation?
Colorado CPA Anthony Nitti draws this conclusion:

The IRS is taking a formal, quantitative approach towards determining reasonable compensation, so to adequately advise our clients, we must be prepared to do the same thing.

Roger McEowen adds:

The bottom line is that S corporation salaries must not be set too low in an attempt to avoid payroll taxes. The good news, however, is that

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ISU-CALT farm tax school schedule released

Monday, February 6th, 2012 by Joe Kristan

The Iowa State University Center for Agricultural Law and Taxation has released its schedule for the 2012 Farm Tax Schools. The biggest change for this year is that a school in Red Oak will replace the Griswold session, probably because of the rush-hour traffic problems in Griswold:
20101206-2.jpg
The schedule:
October 29-30: Mason City (North Iowa Area Community College)
November 7-8: Waterloo (Hawkeye Community College)
November 8-9: Denison (Boulders Conference Center)
November 12-13: Ottumwa (Bridge View Center)
November 19-20: Muscatine (Clarion Hotel)
November 27-28: Sheldon (Northwest Iowa Community College)
December 11-12: Red Oak (Red Coach Inn)
December 17-18: Ames (Quality Inn and Suites)
Watch for more details at the CALT site.

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Estate Planning for 2012

Friday, January 6th, 2012 by Joe Kristan

Roger McEowen has some worthwhile thoughts.

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