Posts Tagged ‘Roger McEowen’

Tax Roundup, 8/1/14: Links edition. And: no oppression.

Friday, August 1st, 2014 by Joe Kristan

Today is the annual office golf outing.  It’s also the one time I play golf each year.

For some reason golf is supposed to be fun for everyone, not just the three or four people in the office who actually have enough skill to enjoy the game.  I have proposed alternative field days, including all-office chess tournaments, shooting, rock climbing — things where I might be competitive — and have made no progress.  So golf it must be.

But I will wear my New Mexico hat, that’ll show them.

 

20130114-1Roger McEowen, Minority Shareholder in Closely-Held Farming Corporation Had No Reasonable Expectations that Majority Could Violate – Case Dismissed.

This case generated a controversial Iowa Supreme Court decision on the rights of minority shareholders.  The decision covered in Roger’s article was the trial court’s attempt to apply the Supreme Court’s decision to the facts in the case. Roger concludes:

The trial court’s remand decision is welcome relief for closely-held corporations in Iowa from an Iowa Supreme Court decision that is out-of-step with reality.  To find, as the Iowa Supreme Court did, that there can be shareholder oppression (with the likely result of corporate liquidation) where there isn’t even an allegation of a breach of fiduciary duties by the controlling shareholders would result in, as the trial court’s remand decision points out, oppression of the majority and could also result in corporate liquidation anytime a minority shareholder wants to “cash-out” for personal gain (as in the present case).  The trial court’s decision also upholds the use of bylaws that set forth stock valuation upon buy-out.  In this case, the Iowa Supreme Court allowed the minority shareholder to ignore the bylaw setting forth the valuation methodology for a buy-out (which he drafted), but the trial court held him to it.  That’s more welcome news for closely-held corporations.

This, too, can and probably will be appealed.

 

20140801-2Paul Neiffer, Pay Your Kids; It Saves Taxes!:

A farmer who operates as a sole proprietor may pay their children under age 18 wages and be exempt from payroll taxes.  If the farmer operates as a partnership (either regular or a LLC taxed as a partnership), paying wages to children under age 18 is still exempt from payroll taxes if the only partners of the partnership/LLC are parents of the children. 

But grandpa is out of luck.

From Jim Maule’s Tax Myths series, Retired People Do Not Pay Income Tax

Peter Reilly,Don’t Leave Money To Children Buried Under IRS Liens.  “Leaving money to someone who is subject to IRS liens can be like leaving money to IRS.”

Keith Fogg, When Should Bankruptcy Court Hear a Tax Case (Procedurally Taxing).

TaxGrrrl, Guilty Plea In One Of The Largest, Longest Running Tax Fraud Schemes Ever.  Kelly explains how some New York grifters milked the Treasury for years, stealing $65 million under the nose of Doug Shulman.

 

Joseph Henchman, Maryland Argues There’s No Constitutional Bar to Taxing Over 100% of Residents’ Income.  Maryland argues that it doesn’t have to allow a credit against county taxes for taxes paid in other states.  Joseph argues, I think correctly, that Maryland’s position is an unconstitutional burden on interstate commerce.

Howard Gleckman, How REIT Spinoffs Will Further Erode the Corporate Tax Base‘ (TaxVox).

 

20140801-1

 

Kay Bell, Seersucker Day returns to Capitol Hill, but lawmakers can’t deduct their special summer duds

TaxProf, The IRS Scandal, Day 449

 

Kelly Davis, ales Tax Holidays = Not Worth Celebrating (Tax Justice Blog).  “In the long run, sales tax holidays leave a regressive tax system basically unchanged.”

Iowa’s sales tax holiday for clothing and footwear is today and tomorrow.
News from the Profession.  Teamsters Get Dynamic With a Giant Rat at Grant Thornton’s Downtown NYC Office (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 7/28/14: Out of the Wilderness edition.

Monday, July 28th, 2014 by Joe Kristan

Joe K as Ted KI’m back from the Philmont Scout Ranch.  81 rough and hilly miles in 10 days, not counting wrong turns, and all but about 12 with full pack.  The remainder were side trips up mountains.

It was a memorable and wonderful experience, even though I don’t intend to repeat it anytime soon.  I went with a great crew (including my younger son), and a skilled and wise adult “co-advisor,” so mostly I just got to enjoy the scenery and work on my new Unabomber Cowboy look.  I got a bunch of New Mexico mountain flora and fauna photos, many of which will be used as decoration on the Tax Roundups in the coming weeks.

I missed some tax stuff, which I will try to catch up on over the next few days.  I especially need to ponder the implications of the Halbig decision by the D.C. Circuit, striking down tax credits for Obamacare, and, perhaps, the employer and individual mandates for non-exchange state residents.

For the record, I had to clear my spam filter of 50,852 assuredly wonderful comments, and another 128 that got through the spambox for moderation. If you made a non-spam comment that I deleted, I’m sorry.  With so much spam, I have to take the spam filter’s word for it.

Today’s roundup will be abbreviated, as I still have to dig out from the usual post-vacation accumulation of chores.

 

20140728-1Roger McEowen, D.C. Circuit Says IRS Illegally Created Obamacare Tax; Fourth Circuit Sees No Evil.  “The D.C. Circuit’s decision relieves millions of persons from the penalty tax under I.R.C. Sec. 36B that the Congress did not state were subject to the tax.  Most assuredly, the government will ask the full court to hear reconsider the decision.”

TaxGrrrl, Courts Issue Conflicting Rulings On Obamacare Tax Credits: Which One Got It Right?   

William Perez, List of Sales Tax Holidays in 2014.  Iowa’s is this weekend.

Jana Luttenegger, Change in One-Per-Year Rollover Rules on IRA (Davis Brown Tax Law Blog)

Peter Reilly, Pulling IRS Into Your Business Dispute Might Not Be Such A Good Idea.  No kidding.

Robert D. Flach just keeps Buzzing!

 

Christopher Bergin, Inversion Diversion (Tax Analysts Blog):

There’s a lot more wrong with the tax system than corporate inversions. But that’s not the point. With all that’s going on in the world, when President Obama jumps on the anti-inversion bandwagon, it will give the official seal of approval to inversions as this summer’s red herring.  

The talk of corporations making tax moves as “deserters” is repulsive — as if their only duty is to generate revenue for Uncle Sam, without regards to their owners and customers.

Howard Gleckman, The Bring Jobs Home Act Won’t (TaxVox)

Joshua Miller, Richard Borean, Higher Education Tax Credits are a Windfall for Universities.  Of course they are.  You didn’t think they were for students, did you?

Accounting Today,  Former IRS Employee Arrested in Identity Theft Ring.  How do people think IRS regulation of preparers will stop fraud when IRS employment doesn’t.

TaxProf, The IRS Scandal, Day 445

News from the Profession.  This Complete Idiot Cheated on the Open Book Ethics Exam, Ratted Self Out. (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 6/23/14: Making no friends edition.

Monday, June 23rd, 2014 by Joe Kristan
Rose Mary Woods checks her e-mail in the Nixon administration.

Rose Mary Woods checks her e-mail in the Nixon administration.

New IRS Commissioner Koskinen isn’t exactly making new friends for the agency in Congress.  His testimony Friday on the implausible rash of hard-drive failures that hit the IRS just as Congress began looking at Tea Party harassment amounted to an insistence that Congress take the IRS at its word, and give it more money.  From Tax Analysts ($link):

     “I don’t think an apology is owed,” Koskinen answered. “Not a single e-mail has been lost since the start of this investigation.”

Regarding the six other IRS employees who have experienced computer failures since the investigation began, Koskinen said technology experts told him that 3 to 5 percent of hard drives can be expected to fail during their warrantied lifetimes. 

It just happened to all the hard drives of the people most involved in beating up on the Tea Party.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen (correctly) points out that the IRS is underfunded for all of the chores (unwisely) given it by Congress.  With Congressional Republicans understandably reluctant to fund an agency it percieves, with justification, as its opposition, Mr. Koskinen ought to be going out of his way to assure them that he is making sure to eliminate political bias in the agency and to fully cooperate with the investigation.  He is doing nothing of the sort, and he may have already irretreivably lost his opportunity to convince GOP appropriators that he can be trusted.

IRS stonewalling isn’t a new thing.  As the many lawsuits filed by Tax Analysts to get the IRS to release its internal documents show, covering up is a way of life in the agency.  Christopher Bergin, in The Coverup Is Usually Worse Than the Crime (Tax Analysts Blog), gives some background:

Maybe it’s just sloppy record-keeping, which would be bad enough. Most of the government’s business is now conducted digitally, and those records need to be properly handled. Or is it worse? Is the IRS deliberately keeping things from the public? Excuse my cynicism, but the IRS’s penchant for secrecy is what led Tax Analysts, using the new Freedom of Information Act, to sue the agency in the 1970s to force it to release private letter rulings. There have been several subsequent lawsuits to pry records that should have been public out of the agency’s hands.

The idea that IRS emails are public records requiring preservation is nothing new, and was well-established at the time Ms. Lerner was busy.  It’s either negligent and outrageous incompetence or criminal destruction of public records, and to say that the IRS owes no apologies is to say that at least one of these unpleasant choices is just fine with him.

 

 

20140623-1TaxProf, The IRS Scandal, Day 410

Megan McArdle, An IRS Conspiracy? Not Likely … Yet.  “To be clear, of course six tragic hard drive failures in a relatively short period of time would make it very hard to believe in a benign explanation.”

Brian Gongol, Backing up your email isn’t hard to do.  “Someone should tell the IRS, which is making excuses for losing administrative emails — excuses that wouldn’t pass muster in an IRS audit

Russ Fox, We Don’t Need No Stinkin’ Backups

 

TaxGrrrl, Raking It In At Summer Yard Sales: Does Uncle Sam Get A Cut?   

Roger McEowen, U.S. Supreme Court Says Inherited IRA’s Not Exempt in Bankruptcy

Jason Dinesen, Bedside Manner is Important for Tax Pros, Too

Peter Reilly, Does Sixth Circuit ABC Decision Give Tenants Incentive To Buy?  “ABC Beverage Corporation is entitled to deduct the premium portion of the price it paid for the real estate as a cost of terminating the lease.”

 

Keith Fogg, D.C. Circuit Upholds the Constitutionality of Presidential Removal Powers of Tax Court Judges (Procedurally Taxing)

I think it’s only half-baked.  Stick a Fork in It: Is the Corporate Income Tax Done? (Joseph Thorndike, Tax Analysts Blog)

It’s not just a problem in Florida.  Seven indicted in Minnesota identity theft ring (TwinCities.com).

 

Wind turbineQuad City Times, Tax credits boost solar power in Iowa

David Henderson, Low-Carbon Alternatives: Solar and Wind Suck (Econlog).  “[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less–nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar.”

 

Roberton Williams, U.S. Taxes Have Changed A Lot Since 1929 (TaxVox)

Steve Wamhoff,  Good and Bad Proposals to Address the Highway Trust Fund Shortfall (Tax Justice Blog).  The TJB has started putting individual author names on their posts, so I’ll do so too.

David Brunori, Tax Policy Is Not the Way to Deal With an Ass (Tax Analsyts Blog).  Not every problem is a tax problem.

Going Concern, IRS Can’t Afford to Upgrade to Windows 7 But Can Afford to Pay Microsoft to Use XP

 

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Tax Roundup, 6/12/14: Tax Credits run for governor. And: bad day for IRS in CRP tax case?

Thursday, June 12th, 2014 by Joe Kristan

20120906-1Crony tax credits have become an issue in Iowa’s race for Governor, reports The Des Moines Register:

The Republican Governors Association is out today with another TV ad attacking Jack Hatch.

The new ad accuses Hatch of sponsoring legislation to increase the availability of development tax credit while applying for tax credits for a real-estate project in Des Moines.

“Jack, isn’t that a conflict of interest?” the narrator asks.

It’s true that Mr. Hatch has been a successful player in the tax credit game.  It may be the merest coincidence that an awful lot of tax credits go to political insiders like Mr. Hatch and the spouse of Governor Branstad’s opponent in his first election.  But that’s not the way to bet.

While I’m all for anything that spotlights the inherent corruption of targeted tax credits, the Republican Governors Association may be inadvertently bringing friendly fire uncomfortably close to its own man.  For starters, the Governor is a five-term incumbent. If the system is set up to be played by political insiders, the Governor has had plenty of time to do something about it.

More importantly, political insiders can benefit richly from crony tax credits without claiming them on their own tax returns.  They benefit by claiming credit for the “jobs” generated by well-connected businesses that play the system to get the tax credits.  The Governor has played this game tirelessly.  Just off the top of my head

- The $80 million+ in tax breaks for fertilizer companies.

- The sales tax giveaway to the NASCAR track in Newton.

- The rich tax breaks for data centers.

MP branstad

Governor Branstad, pre-mustache

In deals like this, the politicians claim credit for the jobs “created,” with no regard whether the lucky recipients of the breaks would have behaved differently without them, or for the jobs lost by other companies who compete with the winners for resources and customers, or for the jobs that would have been created had the funds been left with taxpayers to use without direction from politicians.

So yes, Governor, by all means call down the artillery on crony tax credits.  Just be sure to keep your helmet on.

Related:

The joys of cronyism

LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

Governor’s press conference praises construction of newest great pyramids

 

20130114-1Roger McEowen, Eighth Circuit Hears Arguments in CRP Self-Employment Tax Case. “It would appear that the oral argument went well for the taxpayer.” 

Jana Luttenegger,  IRS Releases Taxpayer Bill of Rights.  “ These rights have always existed, but now the IRS has put the rights together in a clear, understandable list to be distributed to taxpayers.”  If they’ve always existed, they sure haven’t always been respected.

Peter Reilly, Your Son The Lawyer Should Not Be Your Exchange Facilitator.  Peter talks about the case I mentioned earlier this week, including another issue I left out.

 

Tax Justice Blog, Reid-Paul “Transportation Funding Plan” is No Plan at All:

Instead of taking the obvious step of fixing the federal gas tax, Reid and Paul propose a repatriation tax holiday, which would give multinational corporations an extremely low tax rate on offshore profits they repatriate (profits they officially bring back to the United States). The idea is that corporations would bring to the United States offshore profits they otherwise would leave abroad, and the federal government could tax those profits (albeit at an extremely low rate) and put the revenue toward the transportation fund.

Yeah, not a real fix.

Scott Hodge, Likely “Solutions” to Highway Trust Fund Shortfall Violate Sound Tax Policy and User-Pays Principle (Tax Policy Blog)

 

No Walnut STAndrew Lundeen, Higher Marginal Tax Rates Won’t Improve the World (Tax Policy Blog). “The Upshot and Dave Chappelle may be right that for someone with a $100 million that next dollar might not means as much as the first dollar. But that money doesn’t sit collecting dust. It is invested in the broader economy.”

Howard Gleckman, Did Multinationals Use a Foreign Earnings Tax Holiday To Burnish Their Financials Rather Than Reduce Taxes? (TaxVox)

Keith Fogg, Supreme Court’s Decision on Monday in Arkison Could Impact Kuretski Case and Constitutionality of the Removal Clause for Tax Court Judges (Procedurally Taxing)

Jack Townsend, BDO Seidman Personnel Sentenced for B******t Tax Shelter Promotion 

Kay Bell, NBA beats NHL in this year’s jock tax championship 

 

TaxGrrrl, Waffle House Refuses To Allow Waitress To Keep $1,000 Tip   

 

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Tax Roundup, 5/8/14: No, Virginian, there is no travel expense Santa Claus. And more!

Thursday, May 8th, 2014 by Joe Kristan

20120801-2News Flash: Tax Court Judges didn’t just fall off the turnip truck.  That insight might have occurred to a Virginian after yesterday’s Tax Court decision denying $64,775 in 2010  “car and truck expenses” for a “mobile advertising business” that grossed $7,200 in revenue.

The Virginian worked full-time for Verizon while traveling up a storm — 129,550 miles in 2010, by his own account.  Special Trial Judge Dean questioned The Virginian’s work ethic (my emphasis):

The number of hours petitioner worked for Verizon and purportedly drove for his mobile advertising business simply strains credulity. Petitioner’s monthly mileage for 2010 ranged from 7,419 miles to 17,864 miles. Petitioner testified that he drove at approximately 60 miles per hour. If it is possible that he could average 60 miles per hour in the month that he drove 17,864 miles, he spent at least 300 hours on the road that month or almost 10 hours a day. All this while working full time for Verizon.

The judge also has doubts about the business model:

Furthermore, petitioner’s extensive driving does not appear to be ordinary and necessary to his mobile advertising business. Petitioner claims that he drove all over the United States to post fliers and to advertise his own mobile advertising business, even though most of his clients were local clients except one online refinancing company. All the while, petitioner had very little income in relation to the excessive costs he incurred driving to put up flyers. Furthermore, the advertising for his own business appeared to be fruitless, as he never made a profit in any of the six years he engaged in the business, despite incurring great costs traveling to advertise mobile advertising business.

20140508-2But ultimately none of that mattered, because The Virginian failed to cross the initial threshold for deducting any sort of travel expenses — Section 274:

Notwithstanding whether petitioner’s excessive driving was ordinary and necessary for his mobile advertising business, he simply did not satisfy the strict substantiation requirements of section 274(d) for claiming car and truck expenses… Petitioner had no backup receipts and no beginning and ending mileage for the automobile he allegedly used. 

Section 274(d) requires taxpayers to document travel expenses “by adequate records or sufficient evidence”

-the amount of expense,

-the time and place of the travel, and

-the business purpose of the trip.

For travel, that means receipts where possible (e.g., hotels), and contemporaneous calendars or logs documenting mileage.  Without that, your work ethic and business model doesn’t even come into play.

Cite: Abelitis, T.C. Summ. Op. 2014-44.

 

20130114-1Roger McEowen, IRS Says Agents Acting Under Power of Attorney Subject to FBAR Reporting.  “The agent (along with the principal) is subject to the FBAR filing requirements if the POA gives the agent signature authority over a foreign account that exceeds the dollar threshold.” 

 

TaxProf, The IRS Scandal, Day 364.  Big day tomorrow.

TaxGrrrl, UPDATED: Timeline Of IRS Tax Exempt Organization Scandal.  It started with a planted question to try to blunt the impact of the impending TIGTA report that pointed out the targeting.

Kay Bell,  Lois Lerner held in contempt of Congress, ramping up next phase of midterm election year political posturing.  Yes, posturing is occurring — that’s what politicians do.  But Sam Ervin’s posturing — and he did his share — didn’t make Watergate less a scandal.

 

Cara Griffith, Transparency Versus Disclosure of Taxpayer Information (Tax Analysts Blog)  “…the disclosure of documents that contain taxpayer information, whether required by state law or the result of litigation, does not encourage transparency in tax administration.”  I agree; unfortunately, the IRS hides behind dubious assertions of confidentiality to cover up its own questionable behavior.

 

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine.  No, don’t.  It’s still outrageous.

20140508-1Peter Reilly, Nonrecognition On Divorce Transfers Hurts Receiving Spouse .  It did in this case, when the recipient spouse had to pay tax.   Taxpayers receiving property in divorce receive the other spouse’s basis, and the other spouse doesn’t have a taxable sale.  But it’s still good policy.  Property settlements are contentious enough without hitting somebody giving up property with income tax on that dubious privilege.  Also, if the IRS got a cut, there would be less marital property to split in the first place.

Alan Cole, Failing by its Own Standard: What DC’s Insurance Tax Tells Us About its Obamacare Exchange (Tax Policy Blog)

Tax Justice Blog, What’s the Matter with Kansas (and Missouri, and …). “An anti-tax, Republican super majority in the Missouri Legislature claimed victory yesterday in a year-long battle with Gov. Jay Nixon over taxes by voting to override Nixon’s veto of a $620 million income tax cut.”

Do tell.  California Legislative Analyst’s Office Raises Concerns with Film Tax Credits (Lyman Stone, Tax Policy Blog).

Renu Zaretsky rounds up tax headlines for TaxVox with Contempt, Audits, Health Care, and Highways.

Janet Novack, Mansion Tax Kills Some Million Dollar Home Sales, Study Concludes.  Taxes always matter.

Jack Townsend, Another Foreign Account Sentencing.

 

Quotable:

The practice of regularly renewing the extenders package is unfortunate and should be stopped. It distorts the budget process, encourages legislative rent seeking, and invites highly particularistic legislative provisions that are better characterized as windfalls and wasteful government spending rather than well-targeted tax incentives.

Victor Fleischer,  Tax Legislation in the Contemporary U.S. Congress (Via the Taxprof)

News from the Profession: Grant Thornton Tries to Motivate With the Human Centipede, or Something (Going Concern)

 

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Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

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Tax Roundup, 4/22/14: $418,000 per-job edition! And: AGI and farm subsidies.

Tuesday, April 22nd, 2014 by Joe Kristan

20120906-1Iowa Watchdog reports Iowa to give Microsoft millions in exchange for 86 jobs:

The West Des Moines City Council on March 24 approved asking the IEDA to award Project Alluvion $18 million in sales tax rebates, the maximum amount possible under the IEDA’s High Quality Jobs Program.

Neither the city nor the IEDA questioned why Microsoft, which had $24.5 billion in revenue and $8 billion in profits in the most recent fiscal quarter, needed taxpayers’ support to build its data center.

By the time the new data center opens for business, Microsoft will have received from the state and the city more than $418,000 for each of the 86 jobs it says it will create.

There’s a good argument that businesses shouldn’t have to pay sales taxes on their purchases. There’s no good argument that only businesses who know how to pull strings in city hall and at the statehouses should be able to avoid sales tax on their inputs.  Yet that’s what Iowa’s “economic development” policy is all about: special deals for special friends.  The rest of you suckers without lobbyists and pull, pay up!

Related: LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

Tax Justice Blog, State News Quick Hits: Tax Breaks for Expensive Artwork and Apple Inc.

microsoft-apple

 

Roger McEowen, Farm Service Agency Adjusted Gross Income Calculation Could Influence Choice of Entity:

Beginning with the 2014 crop year, producers whose average adjusted gross income (AGI) exceeds $900,000 are not eligible to receive payments or benefits from most programs administered by FSA and the Natural Resources Conservation Service (NRCS). Previous AGI provisions distinguishing between farm and non-farm AGI are no longer utilized.  Average AGI for crop year 2014, for example, will be based on a producer’s AGI from 2010, 2011 and 2012.

This is an incentive for business owners receiving substantial farm subsidies to use C corporations, which don’t increase AGI, at least not immediately.  But C corporations do increase the effective tax rate on business income for most people who have enough AGI to worry about this problem.  It would be a lot easier to get rid of the subsidies and let farmers just grow what the market demands.

 

Yesterday was the national commemoration of The Tax Foundation’s Tax Freedom Day.   Not surprisingly, it’s later than last year.

Tax Freedom Day is “the day when the nation as a whole has earned enough money to pay its total tax bill for year.”  It varies by state.  Iowa’s day was April 13.  Connecticut and New Jersey will be the last states to finish paying their tax bill, on May 9.

Tax Freedom Day 2014 Map_0

 

TaxProf, GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

Jeremy Scott, The Misleading Debate About the Corporate Income Tax (Tax Analysts Blog):

Congress must consider passthroughs when discussing business tax reform. You can’t complain about high U.S. corporate tax rates or declining corporate tax revenues without looking at how the shift to passthrough entities is affecting the U.S. tax system. Passthrough reform is just as critical as corporate reform, even if it doesn’t receive nearly as much attention in congressional speeches or front-page news stories.

It won’t happen until the inane quest to hammer “the rich” is decisively rejected in tax policy debates  – because with pass-throughs, taxing “the rich” means taxing away employment.  Yet the same high-tax redistribution schemes have led to disaster over and over are enjoying a new vogue among people who just can’t stand other people having more money.

 

20140321-3Jack Townsend, GE Ducks Any Penalty for Its (BS) Tax Shelter — For Now 

Brian Mahany, Is the IRS Whistleblower Program a Failure?

TaxGrrrl, Higher Or Lower: How Do You Think Your U.S. Tax Burden Compares To Other Countries?   

Steven Rosenthal, A Flash Tax for the Flash Boys (TaxVox).  Never mind that high-frequency traders make for more efficient markets and lower transaction costs for other traders.  We need to screw up the capital markets even more.

Annette Nellen, Tax Day – April 15, 2014 – It Can Be Easier.  It sure could be.

TaxProf, The IRS Scandal, Day 348

 

William Perez, Obamas, Bidens Release 2013 Tax Returns.  I still say they should have had to prepare them by themselves in a live webcast — as should all congresscritters.

Russ Fox, If You Can’t Get the Refund, Why Not File Some Liens?  After all, it is a foolish and futile gesture, so go for it!

Peter Reilly, Court Approves Tax Sale Of New Mexico Property For Less Than 1% Of Its Value.  Peter sheds light on the sleazy practice of what amounts to stealing property to pay petty amounts of tax.

Jason Dinesen, On Schedule C’s and Setting Rates.  If your 1040 is really a business return, you can’t expect to pay the same as a 1040A filer.   In many ways Schedule C’s are harder, because they rarely have a balance sheet to provide a reality check.

 

20120620-1

Robert D. Flach’s Buzz is Back!  Welcome back, Robert!

Kay Bell, How are you spending your federal tax refund?

Jana Luttenegger, Are You Curious How Your Tax Dollars Were Spent? (Davis Brown Tax Law Blog)

News you can use.  Timely Filing a Tax Court Petition from Prison (Carl Smith, Procedurally Taxing)

Breaking!  Millennials Don’t Like Grunt Work, Says Millennial Grunt (Going Concern).  Hey Millennials, the rest of us aren’t so crazy about it either.  That’s why they have to pay us to do it.

 

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Tax Roundup, 4/8/14: So what do I do with the K-1? And: they also serve who go away!

Tuesday, April 8th, 2014 by Joe Kristan

So the K-1 finally showed up from my partnership or S corporation investment.  Now what?

Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it.  Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go.  Sort of.  Before you get started plugging in your numbers, you should answer some questions for yourself.

- Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax.  If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.

- Did the thing lose money?  If it lost money, then you have to clear three hurdles to deduct the losses:

1. You have to have basis.  This starts with your investment in the thing.  If you loaned money directly to the thing, you will get basis for the loan.  If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1.  S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder.  Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions.  If you have no basis, you can’t take losses.

2. Your basis has to be “at-risk.”  This normally means that you are out-of-pocket for the investment.  If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.

If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1.  Your at-risk amount is computed on Form 6198,

3. You have to materially participate (see above), or have “passive” income from other activities.  If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.

 Got that?  Tomorrow we’ll look at what you have to do after you answer these questions.  Come back every day through April 15 for more !

 

Senator Hubert Houser

Senator Hubert Houser

Legislator of the Century.  Yes, the century is young, but it will be hard to beat the accomplishment of Iowa state senator Hubert Houser.  He went home.  From The Des Moines Register:

At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.

Houser was not present in the Senate chamber again on Monday.

Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.

The coverage implies that Sen. Houser is doing a bad thing.  Considering the dubious accomplishments of the ones that do show up, I can’t agree.  We’d be better off if they all went home.  The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.

 

Of course they do.  Iowa House panel OKs $2 million tax break for Knoxville Raceway.  (Des Moines Register)

 

RashiaQueen of IRS tax fraud needs a break.  Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:

Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031. 

Then she’ll really get after it, I’m sure.

 

Peter ReillyNo Money For April 15 1040 Balance Due? Don’t Panic!

Tony Nitti, Where Is Your Tax Home When You Work In A Foreign Land?   

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me.  “I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”

I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980.  I learned that I have a face for radio and a voice for print.

 

Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It

 

Locust Street, Des Moines

Locust Street, Des Moines

TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress.  She gives him more credit than I do.

Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)

Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters.  The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.

Kay Bell, Energy efficient home improvement tax break might be back

TaxProf, The IRS Scandal, Day 334

News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)

News from the Profession.  According to Research, You Are Fat Because Busy Season (Going Concern)

 

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Tax Roundup, 3/31/14: A little fire won’t stop us!

Monday, March 31st, 2014 by Joe Kristan

There was a little disruption around the Tax Update neighborhood over the weekend.  The 115 year-old Younkers Building, kitty-corner from our quarters in The Financial Center, burned over the weekend.  It was being renovated into apartments and shops when it caught fire early Saturday morning.  Here’s how it looked yesterday from one of our conference rooms:

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While our neighbors in Hub Tower and the EMC Building are closed today, Roth & Company is open for business.  If you need to visit us, you have to enter on the Mulberry Street side; the Walnut side is closed by police order.  You can still reach the parking garage, but you have to come from Mulberry and turn north onto the little stub of Seventh Street left open to allow garage access (it’s normally one-way, Southbound, but it’s one-way northbound until they can re-open Seventh Street, and that doesn’t seem likely for awhile).  We are cut off from the skywalk system, for now. (Update, 8:54: we have Skywalks!  Both to Hub Tower and the EMC building).

Other Tax Update coverage:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

And some sound advice from Brian Gongol: “Make sure you have an offsite, offline backup of your critical work and personal files. You never know when a catastrophe will strike.”

Roger McEowen, U.S. Tax Court Deals Blow to IRS on Application of Passive Loss Rules to Trusts: “The case represents a complete rejection of the IRS position that trust aren’t “individuals” for passive loss purposes and the notion that only the trustee acting in the capacity of trustee can satisfy the test.”

William Perez, April 1st Deadline to Take Required Minimum Distributions for 2013:

Individuals who reached age 70 and a half years old in 2013 are required to begin withdrawing funds from their tax-deferred retirement plans no later than April 1, 2014. This applies to traditional individual retirement accounts (IRAs) and employer-based retirement accounts, such as a section 401(k), 403(b) or 457 plan.

You can get hit with a 50% excise tax on the required distribution amount if you fail to take it.

Jana Luttenegger, FICA Taxes on Severance Payments (Davis Brown Tax Law Blog)

Kay Bell, Selfies used as tax claim documentation, audit defense.  Not a bad idea.

 

20131206-1Arden Dale, A New Reason to Hoard Assets (WSJ):

In particular, taxpayers are taking advantage of a tax break known as the “step-up in basis,” in which the cost basis of a house, stock or other asset is determined by its current market price rather than when the deceased person acquired it.

Heirs get the step-up when they inherit the asset, and it can save them a lot in capital-gains taxes when they sell.

Gift recipients get only the donor’s basis, while the basis of inherited property is the value at the date of death.  Now that couples can die with over $10 million without incurring estate tax, it often makes tax sense to hold low-basis assets until death so heirs can dispose of them without incurring capital gains taxes.

 

Greg Mankiw,  The Growth of Pass-Through Entities:

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don’t know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

This is clearly true.  While I can’t quantify the effect on inequality statistics, it has to make a difference, now that a majority of business income is reported on 1040s:

Source: The Tax Foundation

Source: The Tax Foundation

In 1980, corporate returns reported about 2/3 of all business income; by 2010, the Form 1120-share of business income was down to about 43%.

 

Lyman Stone, Maryland Threatens to Confiscate “House of Cards” Set (Tax Policy Blog).  “High taxes and big incentives don’t seem to be working very well in Maryland right now.”  They should follow Iowa’s example and limit filmmaker subsidies to three hots and a cot.

BitcoinMegan McArdle, The IRS Takes a Bite Out of Bitcoin

Annette Nellen, Guidance on taxation of virtual currency

TaxProf, The IRS Scandal, Day 326

Tax Justice Blog, Grover Norquist cares a lot about Tennessee taxes. You should too.

Renu Zaretsky, Tax Reform, Tax Expenditures, and Kevin Spacey (TaxVox).  A roundup of tax headlines.

Jack Townsend, Tenth Circuit Opinion on Mens Rea for Tax Obstruction – What Does Unlawful Mean?

 

The Critical Question.  Am I a Hypocrite on Preparer Regulation?  (Jason Dinesen): 

I oppose regulation of tax preparers. But yet, I will tout my own licensing at the expense of an unlicensed preparer if the situation presents itself.

But nobody makes Jason do this, and if somebody wants to pay less for an unlicensed preparer, Jason isn’t preventing that.  If he replaced “but yet, I will” with “I prefer to,” it would be correct.

 

News from the Profession.  Per Criminal, PwC is Preferred Audit Firm for Criminals (Going Concern)

 

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Tax Roundup, 1/31/14: Earned Income Tax Credit Awareness Day party edition! And: e-filing begins.

Friday, January 31st, 2014 by Joe Kristan


EITC error chart
Yes, for those of you not already taking the day off to observe it, today is Earned Income Tax Credit Awareness Day!  Let’s celebrate with a true story of EITC awareness.

Cedar Rapids tax preparer Demetries Johnson displayed her awareness of the credit in a big way:

Defendant DEMETRIES JOHNSON notified some taxpayers seeking her services that she could obtain larger tax refunds than they would otherwise receive.  To obtain refunds, defendant DEMETRIES JOHNSON would knowingly report false information on taxpayers returns. The claims made in the tax returns were false, fictitious, and fraudulent in that the claims for refunds, for example: 1) falsely reported income when little or no income was earned, thereby substantially and materially overstating taxpayers’ income in a manner that made the taxpayer appear eligible for a refund by virtue of the EITC; and 2) falsely included a child or children on taxpayers’ returns who did not in fact qualify under the EITC.  Through submission of these false claims, defendant DEMETRIES JOHNSON increased payments made by the Internal Revenue Service to the taxpayers or to bank accounts controlled by the defendant.

Her awareness ended up earning a two-year prison sentence after she pleaded guilty to tax charges.  Her keen level of awareness isn’t uncommon; a recent Treasury Inspector General analysis showed that 21-25% of the $13 billion of the credit issued annually is claimed “in error.”  No small amount of those errors are deliberate.

Those who scam the system are especially aware that the credit is “refundable.”  If you claim more credit than you owe in taxes, the IRS will send you a check for the excess.  Like all refundable credits, it attracts fraudsters.

Come to think of it, maybe “awareness” isn’t the real problem with the Earned Income Credit.

 

Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

When you buy a round, it’s always popular Wind industry fears slowdown as Congress considers future of popular tax credit  (Des Moines Register).  The recipients of wind subsidies delivered through the tax law are annoyed that there is a delay in getting their free stuff.

The headline says the wind turbine subsidy is “popular,” but nothing in the article backs that up, or even repeats the claim.  I suppose it’s as popular with the Warren Buffet-controlled utility that is a big recipient of the credit as the Earned Income Tax Credit was with Demetries Johnson’s clients.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 267.  He highlights today’s Peggy Noonan piece:

 Meanwhile, back in America, conservatives targeted and harassed by the Internal Revenue Service still await answers on their years-long requests for tax exempt status. When news of the IRS targeting broke last spring, agency officials lied about it, and one took the Fifth. The president said he was outraged, had no idea, read about it in the papers, boy was he going to get to the bottom of it. An investigation was announced but somehow never quite materialized. Victims of the targeting waited to be contacted by the FBI to be asked about their experience. Now the Justice Department has made clear its investigation won’t be spearheaded by the FBI but by a department lawyer who is a campaign contributor to the president and the Democratic Party. Sometimes you feel they are just laughing at you, and going too far.

For a case where a key figure promptly hid behind the Fifth Amendment, the FBI was sure quick to conclude there was no crime.

 

William Gale, Benjamin Harris, David John, State of the Union Speech Promotes New Retirement Savings Vehicles (TaxVox):

 Similar to the R-Bond discussed in a recent AARP Public Policy Institute paper written by William Gale, David John and Spencer Smith, MyRA would allow individuals to save in a government bond account similar to the one offered as an option to federal employees through the Thrift Savings Plan. The details are unclear (there’s a WhiteHouse fact sheet here), but MyRA would allow new savers and those with small balances to accumulate retirement savings without either having to pay administrative charges or face market risk.

Just inflation and government policy risk.

 

20130916-1TaxGrrrl, IRS Officially Opens Tax Season Today, Begins Processing Returns and Refunds

William Perez, IRS’s Electronic Filing Systems Opens January 31

Kay Bell, Are you ready to e-file your federal tax return? Here’s how.

Trish McIntire, IRS Notice Prevention

 

Fear the Family (and other related parties).  My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

Kyle Pomerleau notes A Few Contradictions in President Obama’s State of the Union Address (Tax Policy Blog)

Keith Fogg, Does Treasury’s Policy Restraining Referrals to Low Income Tax Clinics Harm Individuals and the Tax System? (Procedurally Taxing)

Robert D. Flach serves up his last Buzz for awhile as he begins his tax season hiatus.  It’s his 43rd tax season.  If I hit my 43d tax season, it will be in my 68th year.  I admire Robert’s endurance, but I have no plans to match it.

 

haroldDirector of Chartered firm among 13 charged over £2.5m film tax fraud (ifaonline.co.uk).  I think film tax credits are the bait car of tax incentives.

Useless tool.   Treasury Nominee Dynan Calls Home Buyer Tax Credit ‘Useful Tool’ (Tax Analysts, $link).  Not only should her nomination be rejected on the basis of her approval of the failed and fraud-ridden credit, she should be presumed self-disqualified from any public position ever.

While I think the court decision ending tax-free treatment for cash parsonage allowances is likely to stand, not everyone agrees.  Zelinsky: The First Amendment and the § 107 Parsonage Allowance (TaxProf)

 

Tax Trials continues its “Famous Fridays” series with Pete Rose, Gambling Winnings Are Income Too.

News from the Profession: PwC Doing Its Part to Keep Dog Tails Wagging in Northeast Ohio (Going Concern)

 

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Tax Roundup, 1/30/14: Gas tax increase advances. And: IRS starts to accept 1040s, but not issuing refunds yet.

Thursday, January 30th, 2014 by Joe Kristan

 

Via Wikipedia

Via Wikipedia

They’re still trying to increase Iowa’s gas tax, reports William Petroski of the Des Moines Register:

An Iowa House subcommittee voted 5-0 today to approve a 10-cent increase in the state’s gasoline tax, although the proposal still faces steep odds of winning final approval this session.

The bill, managed by Rep. Josh Byrnes, R-Osage, would raise the fuel tax by three cents the first year, an additional three cents and following year, and four cents the third year. When fully implemented, the tax increase would generate $230 million annually for city, county and state roads.

It’s always hard to increase taxes in an election year.  There is a good argument that gas taxes are the way to pay for roads, and that Iowa’s tax needs updating, but so far Iowa’s road spending is in line with most other states, and the talk of a “crisis” isn’t convincing everyone.

 

Iowa Farmer Today, Little action expected on taxes in Legislature.  It quotes my co-presenter at the Farm and Urban Tax Schools, Roger McEowen:

McEowen, head of the Center for Agricultural Law and Taxation (CALT) at Iowa State University, says it is always possible the state might do something to clean up its tax code, but it appears unlikely this year.

“Frankly, I don’t think anything important is going to happen on taxes, not in this legislative session,” he says.

It is a sentiment echoed by many other legislative observers.

Like me.

 

 

20130419-1TaxGrrrl, IRS Accepting Returns As Part Of Test Program, Not Issuing Refunds Early

Trish McIntire, Yes, You Have to Wait.  If you haven’t received your W-2, you can’t file using your last 2013 pay stub.

Jason Dinesen, Iowa Firefighter/EMS Tax Credit.  A $50 spiff to volunteer firefighters and EMS people. One more feel-good provision that clutters up the tax law but is too small to enforce.

Brian Strahle, SALT PRACTICES: WHAT PEOPLE THINK, BUT DO NOT SAY.  “SALT” is “State And Local Taxes.”

Paul Neiffer looks at the predictably expensive and absurd farm bill: How To Make an Extra $100 Per Acre!  It brings to mind the old joke:  “How did the farmer double his income?  He bought a second mailbox.”

Related: Billionaires Received Millions From Taxpayer Farm Subsidies: Analysis (Huffington Post)

William Perez, Earned Income Credit Recipients by State

 

 

Phil Hodgen, How Many Appointments in Buenos Aires to Expatriate?  The State Department doesn’t always make it easy to shed U.S. citizenship.

Brian Strahle, FATCA and Unintended Consequences.  A story of an American in Switzerland who is losing the ability to commit personal finance because of this anti-”fatcat” legislation.

 

taxanalystslogoDavid Brunori, A Sales Tax Conundrum (Tax Analysts Blog):

The sales tax has been a blessing and a curse. One of its great virtues is that it is collected by the vendor, which then remits it to the state. Neither the taxpayer nor the tax agency has much to do except pay and collect. The vendor does the work. The success of the sales tax for the last 90 years is largely attributable to vendor collection. But if the vendor doesn’t collect and remit the appropriate tax, it is liable for the amounts. The vendor will have to pay the unremitted tax and could face severe penalties and even criminal charges.

So if a vendor is unsure about the status of an item it’s selling, it will collect the tax. Better to collect and remit tax not owed than to face the consequences of a mistake.

David notes that online vendors will have to deal with many states, with very confusing rules, and that over-collection of sales taxes is the inevitable result.  Not that the states mind.

Cara Griffith wonders, Are State Tax Authorities Hiding the Ball? (Tax Analysts Blog).  “I’ve noticed an emerging trend in some state departments of revenue – a move toward secret law. In a time when transparency has become a buzzword, some revenue departments are doing what they can to avoid transparency.”

 

William McBride, State of the Union: Corporations Continue to Flee (Tax Policy Blog)

Tax Justice Blog, Why the Business Tax Reform Proposal in Obama’s SOTU Is Not as Great as It Sounds

Kay Bell, Taxes touched on lightly in State of Union via EITC, MyRA

Joseph Thorndike, The War on Wealth Is Not New.  (Tax Analysts Blog).  True.  And it has always been dishonest, disgraceful, corrupt, and impoverishing.

 

The Critical Question.  What Happens When You Mix a Seedy Strip Club, an Unsophisticated Taxpayer and the Tax Court? (Going Concern).  I’m sure if it was one of those real elegant and distinguished strip clubs, there wouldn’t have been a problem…

 

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Tax Roundup, 11/12/13: Mason City is cold edition. But: a reprieve!

Tuesday, November 12th, 2013 by Joe Kristan

The ISU Center for Agricultural Law and Taxation Farm and Urban Tax School makes its Mason City stop today.  7 degrees and sunny.

20131112

But we have a sold-out house today to keep us warm!  We are also sold out for Thursday in Ottumwa.  Meanwhile Paul Neiffer helps with the second day of the show today in Sheldon and tomorrow here.  Seats are going fast for our remaining sessions in Waterloo, Red Oak, Denison and Ames, so register today!  And if you come to one of the shows, please come up and say hi!

 

The first chart for any tax policy debate is in this post from Andrew Lundeen at the Tax Policy Blog,  Government at All Levels Redistributed $2 Trillion in 2012

 givers and takers

 From the study referenced in the post:

As Chart 1 illustrates, the typical family in the lowest 20 percent in 2012 (with market incomes between $0 and $17,104) pays an average of $6,331 in total taxes and receives $33,402 in spending from all levels of government. Thus, the average amount of redistribution to a typical family in the bottom quintile is estimated to be $27,071. The vast majority of this net benefit, a total of $21,158, comes as a result of federal policies.

Before considering any more taxes on “the rich,” it’s worth stopping to understand what is already happening, and to consider that if this isn’t solving the problem, maybe more of the same isn’t the answer.

 

You don’t get a “reprieve” from something you should look forward to: “Iowa gets Obamacare reprieve.”  Coming from Press-citizen.com, the party newspaper of the People’s Republic of Iowa City, that’s probably not the sort of headline to cheer up the administration.

 

train-wreck Megan McArdle, Hope Is All Obamacare Has Left :

When the tech geeks raised concerns about their ability to deliver the website on time, they are reported to have been told “Failure is not an option.” Unfortunately, this is what happens when you say “failure is not an option”: You don’t develop backup plans, which means that your failure may turn into a disaster.

Great idea!

 

Peter Suderman, Time to Start Considering Obamacare’s Worst Case Scenarios (Reason.com):

But it’s time to start considering the worst-case scenarios: that the exchanges continue to malfunction, that plan cancellations go into effect, that insurers see the political winds shifting and stop playing nice with the administration, and that significant numbers of people are left stranded without coverage as a result. Rather than reforming the individual market, which was flawed but did work for some people, Obamacare will have destroyed it and left only dysfunction and chaos in its wake. 

None of this makes me optimistic for a repeal of the inane 3.8% net investment income tax enacted to finance the debacle.  Cleaning up the disaster will be costly, and they’ll need the money for it.

 

Trish McIntire, The New January 21st.  “Despite the delay in the start of the tax season, taxpayers won’t get extra time to file their returns.”

 

Check out Robert D. Flach’s Tuesday Buzz!

Jack Townsend,  IRS Authority to Settle After Referral to DOJ Tax, a discussion of Ron Isley’s tax troubles.

Brian Mahany,  IRS Makes Important Changes For FBAR Appeals – FBAR Lawyer Blog

Fiduciary Income Tax Blog, Valuation of Indirect Ownership Through a Trust

Norton Francis, Narrow Tax Hikes Win Support in Several States (TaxVox)

 

All the news that’s fit to print.  NY Times: Estate Planning for Sex Toys (TaxProf)

News from the Profession.  Someone With Lots of Spare Time Has Doodled Big 4 Stereotypes (Going Concern).

 

 

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Tax Roundup, 11/6/13: Relief for the road warrior? And the futile state corporation income tax

Wednesday, November 6th, 2013 by Joe Kristan
Flickr image courtesy Tom Hilton under Creative Commons license

Flickr image courtesy Tom Hilton under Creative Commons license

Relief for the traveling employee?  Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013″ (S. 1645) was introduced yesterday.  The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days.  From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000.  That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig  – or more likely, saved the need to ignore the filing requirement.

 

Peter Reilly,  Mobile Workforce Act Good Idea But May Need More Limits  “Over the years I have studied the rules for what invokes state income tax withholding requirement.  It varies substantially from state to state.”

 

Elizabeth Malm, Richard Borean, Map: Share of State Tax Revenues from Corporate Income Tax (Tax Policy Blog)

 20131106-1

Notice that it’s a relatively paltry part of Iowa tax receipts, even in a good year, and even with the highest rate in the nation.  Better to repeal it as part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

David Brunori, Feckless Legislators and Corporate Welfare (Tax Analysts Blog)

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

…if once you have paid him the Dane-geld

You never get rid of the Dane.

 

Tax Justice Blog,  Let’s Face It: Delaware and Other U.S. States Are Tax Havens

 

Paul Neiffer, Crop Insurance Deferral Options.  “When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.”  Paul explains what the choices are if the recovery relates to a yield loss.

Tony Nitti, Shareholder Computes Basis In S Corporation Stock Incorrectly, $1.5 Million Loss Becomes $2 Million Gain

 

Jana Luttenegger, Interactive Form to Assist in Applying for 501(c)(3) Status (Davis Brown Tax Law Blog) 

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.

William Perez, CBO: Marginal Tax Rates Faced by Low- and Moderate-Income Individuals.  Helping the poor stay that way.

Andrew Mitchel, 2014 Inflation Adjustments for Individuals in the International Tax Arena

Roger McEowen, Inflation Adjusted Amounts for 2014

TaxProf,  The IRS Scandal, Day 181

TaxGrrrl, Bayern Munich Keeps Winning Even As Their Chief Faces Trial For Tax Evasion.

 

Brian Mahany,  More Guidance on Taxation of Same Sex Marriages

Jack Townsend,  Should You Opt Out of OVDI/P?.  He examines Robert Wood’s discussion of opting out of the IRS “amnesty”

Phil Hodgen’s Exit Tax Book: Chapter 7 – Taxation of Deferred Compensation 

 

Joseph Thorndike, Forget Carried Interest–It’s All About Taxing Capital Gains (Tax Analysts Blog).   He’s right when he says “The only issue that really matters is how we tax capital gains.”  Then he goes off the rails in so many ways.  Read Joseph, and then read Steve Landsberg.

 

A Wednesday Buzz from Robert D. Flach!

May you have this problem.  The Tax Treatment of Olympic Gold Medals (TaxProf)

News from the Profession.  Recruiting Season: Salaries and Offers for the Public Accounting Class of 2014 (Going Concern)

 

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Tax Roundup, 6/24/2013: Officially summer edition. And: catching up on the IRS scandal.

Monday, June 24th, 2013 by Joe Kristan
Former IRS Commissioner Shulman, showing how many times he visited the White House.

Former IRS Commissioner Shulman, showing how many times he visited the White House.

As the world slows down for summer, so does the IRS scandal.  The TaxProf has only a half-dozen items in yesterday’s daily roundup of IRS scandal stories.  Where are we at?

There’s no smoking gun, like an e-mail from President Obama to Doug Shulman telling him to thwart the Tea Party.  The mystery now appears to be the level of involvement of IRS personnel in Washington, who appear to have closely monitored the handling of the Tea Party 501(c)(4) applications, while  left-leaning applications flew through the system.  While some folks are in a hurry to bury the issue, there are plenty of remaining issues, as Eliana Johnson recounts:

Who at the IRS, for instance, developed the intrusive and exhaustive  questions that were sent to the tea-party groups? Why did so many of those groups have to wait years for their applications to be processed, and why are many more still waiting? Who specifically were the IRS officials in Washington directing the Cincinnati agents targeting the tea-party organizations?

It’s also become clear that the political culture of the IRS was hostile to Tea Parties at the top levels.  IRS defenders have pointed to Doug Shulman’s status as a Bush appointee as evidence of IRS neutrality, but it turns out that he has a long left-side political historyThe same goes for Holly Paz, a high-ranking IRS lawyer who had a key role in overseeing the non-approval process.   The best argument that can be made on behalf of the agency is that because the political culture was so far to the left, they didn’t realize how biased they were being — they actually could have believed Tea Party applications were political, while “progressive” ones were just good people trying to do good things.  That hardly inspires confidence.

While former Commissioner visited the IRS a lot — the exact number of visits isn’t clear, but it was more than Shulman could precisely remember — it appears his t0p aide went to the White House 2 or 3 times weekly.  It’s hard to imagine that slow-walking Tea Party applications would require that level of Administration involvement, but it does show a disturbing level of day-to-day administration involvement with the workings of the tax agency.  It best, it reflects how the IRS has become a multi-portfolio superagency stretching across the government, which is a terrible thing by itself.

 

Andrew Mitchel,  Mandatory Electronic Filing for FBARs Coming Soon.  Remember, they are due this week.  The Treasury (inexcusably) says the timely-mailed, timely-filed rule doesn’t apply to foreign financial account disclosure filings, so you should mail them by today to beat the June 30 deadline.

Roger McEowen, U.S. Tax Court Says that CRP Payments Are Subject To  Self-Employment Tax In the Hands of a Non-Farmer

- In a  stunning reversal of course, the U.S. Tax Court  has agreed with the IRS that  the signing of a CRP contract coupled with compliance with the contract  provisions (whether personally or via an agent) results in the party signing  the contract being in the business of participating in the CRP and engaging in an “environmentally friendly farming operation.”  The result was  that the CRP payments were subject to self-employment tax.

Paul Neiffer, Your CRP Income May Be Subject to SE Tax: “Under the ruling of this case, it appears that almost any farmland enrolled in CRP will be subject to SE tax (at least in the Eighth Circuit) unless the case gets appealed and overruled which may take a
couple of years to resolve.”

 

Jason Dinesen, Commentary on the IRS’s E-Services Decision:

The IRS says few practitioners are using E-Services (I think they said only 10% of power of attorney requests come through that system).

Still, in the year 2013, it seems more logical to encourage more practitioners to use E-Services instead of closing it down and taking away the electronic option completely.

Yet another bad IRS decision.  Meanwhile, TaxGrrrl reports that  Defying Directive, IRS Set To Pay Out $70 Million In Employee Bonuses.   Priorities.

Russ Fox, Onwards and Upwards into the 20th Century!

Christopher Bergin, Another Bad Day for the IRS (Tax Analysts Blog)

William Perez, Small Business Week: Deducting Health Insurance Benefits

Peter Reilly, Tea Party Patriots — Federalist Papers — Really ?

Tax Policy Blog, Tanning Tax Not So Hot

Tax Justice Blog, A Reminder About Film Tax Credits: All that Glitters is not Gold

Kay Bell, Amazon heading to Florida, leaving Minnesota

Kim Reuben, Andrew Cuomo’s Lesson in What Not to do With Rising Tax Revenues (TaxVox)

Robert D. Flach, TAX RETURN ERRORS:

Using a tax preparation software package is no substitute for knowledge of tax law.  This applies to paid preparers as well as individual taxpayers.  I sometimes wonder how many alleged tax professionals, especially those employed by the “fast food” tax preparation chains, are really nothing more than data entry clerks. 

Garbage in, garbage out.

 

The Cubs losing ways:  IRS Continues Its Scrutiny Of Leveraged Partnerships: 2009 Sale Of Chicago Cubs Finds Itself In Service’s Crosshairs   Fortunately for Cubs fans, it’s the seller’s problem.

Good luck with that. Billionaire Seeks $186 Million Tax Refund, Claims IRS Biased By ‘Politically Charged Atmosphere’ (Janet Novack)

Gee, who saw this coming?  Governor signs bill paying off Honey Creek Resort debt.  Operating resorts is one more thing the State isn’t very good at.

 

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Tax Roundup, 6/6/2013: Omaha Beach edition. And if you like new taxes, you can have Christmas all year!

Thursday, June 6th, 2013 by Joe Kristan

Just in case you’re having a bad day…  They hit Omaha Beach 69 years ago today.

20130606-1

I don’t know about you, but I’m pretty sure nothing I face today will be hard compared to that.

 

TaxProf, The IRS Scandal, Day 28.

Washington Post,  Two IRS officials put on administrative leave for accepting gifts at Calif. conference.  One is the “director of implementation and oversight”  for Obamacare implementation, so maybe he can say it was just an oversight.  But Going Concern notes “It was $1,100 in free food. Just freaking sayin.”

Robert W. Wood,  Lavish Expenses Are A No-No, Unless You’re The IRS

Kay Bell asks “Can the IRS be saved?”   It would be a lot easier if it functioned only as a revenue collection agency.  Now it is a superagency in charge of health care, industrial policy, historic preservation, welfare… as if just figuring taxable income weren’t enough of a challenge.

 

So what about the things IRS is supposed to be doing?  Jason Dinesen gives us a hint in Taxpayer Identity Theft — Part 15:

I’ve been telling the story of Wendy Boka and the identity theft nightmare she’s going through with the IRS. Her husband Brian died at age 31 in 2010. Someone stole his identity and filed a fraudulent tax return in his name.

The IRS still has not processed Brian and Wendy’s final joint tax return for 2010. Wendy is owed a refund from that tax return and we’re still waiting for that refund to be paid.

Good thing they have that line-dancing thing down.

 

Janet Novack,  Don’t Let Fear Of Taxes Or IRS Audits Destroy Your Wealth.  TaxGrrrl is quoted:

“Don’t let the tax tail wag the dog.” In other words, you should think about taxes when you invest, but “don’t be so paralyzed by the tax consequences that you miss out.” That goes for selling, too–don’t keep holding an asset you should get rid of just because you hate paying capital gains tax.

Wise.

 

Ben Harris,  What Changes in the Mortgage Deduction Would Mean for Home Prices (TaxVox):

By contrast, completely eliminating the mortgage interest and property tax deduction—a drastic change that probably would only happen if accompanied by a new tax preference for housing—would cause housing prices to fall by an average of 11.8 percent in the 23 cities studied.  Estimated price declines would range from 10.3 percent in Seattle to 13.8 percent in Milwaukee.

That seems high to me.

 

Cara Griffith, States’ Misuse of Unclaimed Property Laws (Tax Analysts Blog): “Unclaimed property laws were never meant to be a major revenue raiser for states or a major headache for businesses.”  Unfortunately, politicians think that everything defaults to them.

Brian Strahle,  State and Local Tax Challenges with Leases of Equipment and Other Assets – GUIDE / WEBINAR

 

Peter Reilly, Conservation Easement No Deduction For Hypothetical Vineyard

In other news, bears poop in the woods.  Social Security Still Deep in the Red (Kyle Pomerleau, Tax Policy Blog).

social security fund deficit

William McBride,  Contra Every Major Study, EPI Claims Corporate Tax Does Not Affect Growth (Tax Policy Blog)

Tax Justice Blog,  CTJ Report: Apple Is Not Alone.  Amazing that other companies also want to use legal means to reduce their taxes.

Patrick Temple-West, Calculating Apple’s true U.S. tax rate, and more

TaxGrrrl, As Senate Debates Immigration Reform, Worries Grow Over Tax Amnesty Provisions

 

Christmas in June?  They’re trying to restore the Christmas Tree Tax (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 NeifferRegister 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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