Posts Tagged ‘Roger McEowen’

Tax Roundup, 11/30/15: Solar-powered tax fairies, and other signs and wonders.

Monday, November 30th, 2015 by Joe Kristan

Flickr image courtesy Ashley Van Haeften under Creative Commons license

Tax Fairy signs and wonders. The time is always right for a revival for the Cult of the Tax Fairy, the wonderful mythical being that can make your taxes go away with a wave of her wand, for an entirely reasonable up-front fee. These revivals are often accompanied by signs and wonders, several of which appear in request for a federal injunction filed earlier this month with respect to a solar energy operation. Being alert for these signs and wonders can save would-be Tax Fairy believers from a bad experience when the IRS folds up the revival tent.

The injunction request complaint deals with tax benefits alleged for “solar thermal lenses.” As I understand it, the basic technology is familiar to every little kid who has used a magnifying glass to burn things, but on a bigger scale. The real technical magic lies in the tax breaks.

We’ll discuss the tax breaks are described in the injunction request, which we should remember are the government’s allegations. The defendants may dispute the allegations, which have not been proven in court. The alleged facts do include signs and wonders often seen in Tax Fairy revival tents, though, and may be of instruction to those not wanting to be burned by Tax Fairy false prophets.

Tax benefits as a multiple of the cash paid. Real tax benefits rarely exceed the amount paid out for them. A deduction by definition provides a tax benefit of less than the amount paid — the tax rate times the amount of the expense. A tax credit could in theory provide more than a 100% benefit when combined with a deduction — the Iowa school tuition tax credit can come very close — but even that is a rare creature. By leveraging through borrowings, the up-front payment can be minimized, but real borrowings have to be repaid.

According to the government’s injunction request, the defendants sell solar lenses at a stated price of $3,500. But only $105 is due on the down payment, with $945 due the following year, after the tax fairy has magically provided tax savings from the investors. $3,500 in benefits for $105 would be a sweet deal.

Pretend loans. The remaining $2,450 is supposedly payable over 30-35 years. Most importantly, “the customer is not personally liable for the remaining $2,450. There is no provision for remedy in case a customer defaults, other than ‘repossession’ of the lens…”

This reminds me of cattle shelters of the early 1980s, when a $1,000 cow would be “sold” to Tax Fairy believers for, say, $5,000, or more, with $1,000 down and the rest in super-easy payments. The investors would claim depreciation of the cattle for the state price, but the loan was a wink and a nudge, with no real expectation of repayment. The solar lens shelter described by the injunction complaint would work the same way, promising $3,500 worth of tax benefits for $105 down.

tax fairyCasual Business operations. You can only deduct business expenses for a real business trying to make money. As described in the injunction request, at least, the don’t seem to be trying too hard. The lenses are described as “solar energy” property to generate a tax benefit, yet:

…neither the lenses, nor any other equipment on the installation, are (or have been) generating electricity, heating or cooling a structure, providing hot water for use in a structure, or providing solar process heat.


47. Defendants’ “lenses” consist of thin sheets of plastic. 
48. There are some lenses mounted on towers at the Installation in Millard County.
49. The thin plastic lenses that have been mounted have been exposed to desert conditions. Many are broken and dangling out of their frames. The ground near the Installation is littered with shards of plastic from lenses which have broken and fallen.
50. In this state, the lenses cannot capture or direct sunlight such that it could be used for any purpose that Congress intended to encourage through tax deductions or credits.
51. The vast majority of lenses purportedly sold – if they even exist – have not been  mounted. Defendants claim the lenses are in storage.

So many signs and wonders. We’ll just note that there is no deduction for an asset unless it’s “placed in service,” which is not the same thing as “placed in storage.”

Tax benefits are all that make the deal profitable. The injunction request says that the investors will get a small annual payment for the use of the lenses, but that the IRS says doesn’t actually get paid. The promotional material instead focuses on the ability to “zero out” taxes, according to the complaint.

Implausibility. Really, if somebody has a revolutionary technology, what’s more likely: that they would find venture capital to ramp it up and syndicate the tax benefits to large investors, or that they would finance it $105 at a time via multi-level marketing?

The web site for at least one defendant company remains up, so you can check it out for yourself.  But when pondering the signs and wonders touted by someone with something to sell, always keep one scientific fact in mind: there is no tax fairy.



Paul Neiffer, Happy Thanksgiving and CRP reporting:

Roger McEowen of the Center for Agricultural Law and Taxation just posted a brief on whether you need to file a Form 8275 with your tax return if you are reporting CRP payments and not paying self-employment tax on the rents received.  The Morehouse appeal was finalized last year in favor of the taxpayer.  However, the IRS recently issued a non-acquiescence and asserts that it will assess self-employment tax on any CRP payments where the taxpayer is not receiving social security benefits even if they are passive landlord.  Even though they did not appeal the Court’s decision, they still disagree with the Court (typical IRS).

Roger does a good job of breaking down the details of the issue and provides guidance on whether you need to file the form or not. 

I agree with Roger that the IRS is wrong in imposing self-employment tax on non-farmers. I am more willing to disclose than Roger, and I think preparers should discuss disclosure with clients.


Russ Fox, De Minimis Rule Change Is Better than I First Thought. “Normally when you read something that’s from the IRS, you expect to find ‘gotchas.'”

William Perez, Year-End Tax Planning Tips for Investors

Robert D. Flach, FINE WHINE! “Forced ethics CPE will not reduce tax fraud!”

Kay Bell, Hunters’ game plan: donating meat to feed the hungry

Peter Reilly, Hobby Lobby Owners Win First Round In $3 Million Tax Refund Case


Jason Dinesen, From the Archives: Take the Money and Run? The Tax Consequences of Winning a Home in a Giveaway, Part 2




Alan Cole, Universal Savings Accounts Introduced in Congress (Tax Policy Blog). “The bill, sponsored by Senator Jeff Flake and Representative Dave Brat, would allow Americans age 18 or older to open an account to which they could contribute $5,500 of after-tax money. The money could be invested in bonds and equities, and grow tax free.”

Renu Zaretsky, On Highways and Tax Bases. Today’s TaxVox headline roundup covers efforts to pass an elusive permanent highway funding bill, among other things.


TaxProf, The IRS Scandal, Day 931Day 932,Day 934Day 935. Day 934 is probably the best of this holiday weekend’s crop, with discussion of the systematic weakening of inspectors general by the administration. “Last year, 47 of the nation’s 73 federal IGs signed an open letter decrying the Obama administration’s stonewalling of their investigations.”

Robert Wood, Wesley Snipes Sues IRS Over Abusive $17.5M Tax Bill, False Promise Of ‘Fresh Start’. Mr. Snipes has not previously shown good skill with the tax law, and I don’t think he’s starting now.



Tax Roundup, 11/10/15: Sheldon! And: a hard-working mom, plus a sure clue that you aren’t talking to the IRS.

Tuesday, November 10th, 2015 by Joe Kristan

Sheldon! The Day 1 ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools team is in Sheldon, Iowa today, while another crew takes care of Day 2 in Waterloo. Today’s session is at Northwest Iowa Community College, where about 1,900 students study programs ranging from pre-professional accounting to powerline technology. It’s not exactly an urban setting:

View towards the Northwest from the campus of Northwest Iowa Community College.

View towards the Northwest from the campus of Northwest Iowa Community College.

It’s always a great crowd, and it’s good to see everyone again. Especially since it’s not freezing here yet this year.


Accounting firm real estate appraiser flunks real estate pro test. It’s not easy for someone with a day job to be a “real estate professional” under the tax law “passive loss” rules. Passive losses are only deductible to the extent of passive income, and are otherwise deferred until a taxable sale of the “passive activity.” Real estate rental losses are automatically passive for most taxpayers, but an exception allows “real estate professionals” to qualify as non-passive under the same rules that apply to other businesses.

You have to clear two hurdles to be a real estate pro:

  1. You have to work more than 750 hours in real estate businesses in which you have an ownership interest, and
  2. Your real estate time has to exceed the time you spend doing everything else.

The second qualification eliminates most taxpayers with day jobs. But that didn’t stop our intrepid appraiser, who worked for two top-ten accounting firms in their appraisal practices.

The taxpayer and his wife acquired several apartments over the course of their marriage, which they claimed losses based on the real estate pro provision. The Tax Court sets the stage; I change the taxpayers’ names to “Mr. Taxpayer” and “Mrs. Taxpayer” in my excerpts, and all emphasis is mine.

Petitioners were married in 2006. At that time Mrs. Taxpayer owned a single condominium (Unit 918) which she had previously used as her personal residence. Mr. Taxpayer owned two condominiums (Units 522 and 801), one of which he had previously used as his personal residence. Each unit was subject to a separate mortgage. When petitioners married, they pledged the three units as collateral and obtained a loan to purchase an additional condominium (in the same building as Units 522 and 801) for use as their new personal residence.

Beginning in 2006 and throughout the year in issue, petitioners operated Units 522, 801, and 918 as rental properties. The parties stipulated that petitioners did not hire a property manager to assist with their rental properties in 2010.

20151110-2The court quickly rejected the husband’s arguments:

Mr. Taxpayer’s reliance on work that he performed for Grant Thornton and Crowe Horwath to show that he qualified as a real estate professional in 2010 is misplaced. In short, he testified that he did not own an equity interest in either firm, and he did not offer any other evidence in support of the proposition that he met the definition of a “5-percent owner” of either firm within the meaning of section 416(i)(1)(B). Therefore, the personal services that he performed as an employee of those firms may not be taken into account in computing the number of hours that he performed personal services in real property trades or businesses.

The wife had a better argument, but the court was unpersuaded by her evidence of working 750 hours:

Petitioners’ testimony was inconsistent regarding the division of labor between them and the timing of significant events. As to the division of labor, Mr. Taxpayer stated, quite candidly we believe, that Mrs. Taxpayer did little physical labor after the birth of their son in late November 2009. In contrast, Mrs. Taxpayer testified (and her revised log indicates) that she spent many long days in the first weeks of January 2010 cleaning, painting, and repairing Units 522 and 801.

Against this backdrop, we bear in mind that Mrs. Taxpayer did not maintain a contemporaneous log of her rental property activities and instead made handwritten notes on scraps of paper that she did not review in any great detail until a few weeks before trial. A close examination of the revised log that she submitted to respondent’s counsel raises serious doubts about its accuracy… for the period January 2 to January 11, Mrs. Taxpayer’s revised log indicates that she worked at least 154 hours — an average of slightly more than 15 hours per day for the 10-day period — not counting any time that she may have spent showing either unit to prospective tenants. We find it improbable that Mrs. Taxpayer performed all of the work described above.

While I admire anyone who can work 15-hour days within two months of giving birth, the Tax Court’s admiration was at best tempered by poor recordkeeping. Decision for IRS, with 20% “accuracy related” penalties tacked on.

The Moral? If you need to prove your time spent for business activities, there’s nothing better than a current time log. “Scraps of paper” are a poor substitute.

Cite: Calvanico, T.C. Summ. Op. 2015-65

Related: Material participation basics.

What the Northwest Iowa Community College looked like on my visit two years ago.

What the Northwest Iowa Community College looked like on my visit two years ago.


Robert D. Flach comes through with an “especially ‘meaty'” Buzz today. LInks to much tax blog goodness, with free analysis of Donald Trump, no extra charge.

Russ Fox, Cleveland Loses on Monday (and They Didn’t Even Play). The Supreme Court rejected an appeal of rulings that its “Jock Tax” is unconstitutional.

Kay Bell, Looking for a holiday job? Employee or contractor status makes a tax difference to you, your boss and the IRS

William Perez, The Key Benefits of Health Savings Accounts


Renu Zaretsky, A Debate, A New Plan, A Vote, and Two Mulligans. Today’s TaxVox headline roundup covers the GOP debate, the Carson tax plan, and TurboTax’s plans for the coming filing season.

TaxProf, The IRS Scandal, Day 915


A vital clue. While leading the class yesterday in Waterloo, co-presenter Roger’s phone was buzzing frantically in his pocket while he was speaking. As it turns out, Mrs. Roger had received a message on her anwering machine at home saying the IRS needed to talk to her immediately. She called the number that was left, and somebody answered, telling her the police would arrest her right away if she didn’t pay her taxes.

Roger related the story to the class, and one of the attendees immediately pointed out the sure clue that it wasn’t really a call from the IRS:

“Somebody answered the phone.”



Tax Roundup, 11/9/15: Waterloo! And Estonia!

Monday, November 9th, 2015 by Joe Kristan

Day 1: Waterloo! The ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools are underway! I am on this morning’s panel in beautiful Waterloo, Iowa, with Roger McEowen and Kristy Maitre. Spaces are available for all of the remaining Iowa sessions, so register today! If you can’t make one of the sessions in person, you can attend the December 14 Ames session via webinar.

The November 9 session of the Farm and Urban Tax School in Waterloo is underway!

The November 9 session of the Farm and Urban Tax School in Waterloo is underway!

The early-rising schedule for the drive up here today requires an abbreviated roundup today, so let’s roll.


Kyle Pomerleau Estonia’s Growth-Oriented Tax Code. (Tax Policy Blog). It excerpts a speech from the Estonian Ambassador to the U.S.:

The main components of the Estonian tax system have been in place since the beginning of the 1990s. After Estonia regained independence in 1991, the country needed a tax system that was compatible both with the limited experience of the taxpayer who came from the Soviet communist controlled society and effective tax administration. It was essential that the tax system should support economic growth, not impede it. Therefore, a tax system was developed with an emphasis on indirect taxes. To keep the system simple, transparent and easy to use, only a few exceptions were allowed, as at the same time, tax rates were kept rather low.

A cornerstone of Estonia’s fiscal policy was corporate and personal income tax reform, which introduced the proportional, or flat tax rate of 26% in 1992, which has been reduced to 20%. Since 1999, reinvested corporate profits are no longer subject to income tax. Today, Estonian income tax system, with its flat rate of 20%, is considered one of the simplest tax regimes in the world

We could do a lot worse than the Estonian system. We certainly do now.


Tony Nitti, Renting Your Home On Airbnb? Be Aware Of The Tax Consequences:

Section 280A of the Internal Revenue Code, which governs the treatment of homes that are used for both personal and rental purposes, is a complicated tangle of definitions, designations, and resulting consequences. But if you’re going to start renting out a property on Airbnb or Craigslist, you’re going to need to know the rules, so let’s take a deep dive into Section 280A and see if we can’t help all of you newly-minted slumlords sort through your tax considerations.

And remember the local lodging tax that may apply.


Still plenty of coffee and juice in Waterloo...

Still plenty of coffee and juice in Waterloo…


Headline of the Day: Colorado county’s pot tax to pay for higher education (Kay Bell). 

Jason Dinesen, What Is Iowa Alternate Tax?

Peter Reilly, Republicans Want IRS To Target Hillary Clinton:

Given the outrage that Republicans have expressed about the “targeting” of the Tea Party by the IRS, you would think that they would be slow to advocate IRS political targeting.  Apparently  it is more a matter of who’s ox is being gored.

That’s why the party in power may regret the way it has politicized the IRS. It isn’t likely to remain in power forever.


Rachel Rubenstein, IRS Announces Procedures for Identity Theft Victims to Request Copies of Fraudulently Filed Tax Returns (Procedurally Taxing).

TaxGrrrl, Austrian Woman Destroys Million Dollar Fortune Rather Than Pay Out Heirs

Robert D. Flach offers A YEAR-END TAX PLANNING TIP on capital gains.


...but the breakfast treats are going fast.

…but the breakfast treats are going fast.


Russ Fox, Chaka Fattah, Jr. Guilty of Tax and Fraud Charges. “Chaka Fattah Jr., son of Democratic Congressman Chaka Fattah Sr. (D-PA), was found guilty on Friday of 22 of 23 tax and fraud charges.”

Jack Townsend, Financial Secrecy in the U.S. – A NonTax Example Illustrating the Law Enforcement Problem:

One of the issues is that opacity of U.S. entity structures.  The beneficial owners of corporations and other entities may simply not be known.  And states permitting such entities to be organized usually do not request any representations of ownership.  So, shady actors can easily fly under the law enforcement — including tax enforcement — radar screen.  Hence, the U.S. may facilitate evasion of other countries’ taxes by offering foreign investors secrecy as to their investments in the U.S.

In the FATCA era, it will be more difficult for us to tell foreign tax collectors that U.S. tax structures are none of their business.


TaxProf, The IRS Scandal, Day 912Day 913Day 914.

Renu Zaretsky, Repeal, Reform, and Maybe Retaliation. Today’s TaxVox headline roundup topics include efforts to repeal the “Cadillac Tax,” the background of the new Ways and Means Chairman, and allegations of retaliatory audits in New Mexico.

Sebastian Johnson, State Rundown 11/6: Election Day Wrap Up (TAx Justice Blog).
Career Corner. More Accounting Firms Should Let Employees Build Their Own Niche Practices (Caleb Newquist, Going Concern).



Tax Roundup, 11/6/15: Time to invade rural Iowa! And: IRS backs off valuation discount limits.

Friday, November 6th, 2015 by Joe Kristan

Tax School Rampage! In the pre-dawn hours Monday I will rendezvous with Roger McEowen, Director of the Iowa State University Center for Agricultural Law and Taxation, for the drive to Waterloo and the first 2015 session of the Iowa Farm and Urban Tax Schools. We will rampage through four Iowa towns this week. The complete schedule:

Nov. 9-10 – Waterloo
Nov. 10-11 – Sheldon
Nov. 11-12 – Red Oak
Nov. 12-13 – Ottumwa
Nov. 16-17 – Mason City
Nov. 23-24 – Maquoketa
Dec. 7-8 – Denison
Dec. 14-15 – Ames

For those of you unfortunate enough to not be in Iowa, or who prefer to study from the comfort of your computer, the Ames session is also available in a live webinar.

I am on the Day 1 schedule for all eight sessions, along with Roger and Kristy Maitre, the former Iowa IRS stakeholder liaison. There are two Day 2 teams. Waterloo, Mason City, Maquoketa and Denison get Dave Bibler, Jim Goodman, and Daniel Fretheim. Sheldon, Red Oak, Ottumwa and Ames get Dave Repp and Paul Neiffer of FarmCPA Today blog fame.

We have lots to cover this year. Details of topics here, and registration information here. Say you heard about it at the Tax Update Blog and get free coffee at any session!



Valuation power grab inoperative. Tax Analysts reports that Treasury officials have disavowed any intention of using forthcoming regulations to crack down on valuation discounts in estate planning. From the Tax Analysts report ($link):

Coming regulations on estate valuation for interests held by family members will follow not the Obama administration’s prior budget proposals, but the statute, an IRS official said November 4, signaling a welcome about-face for practitioners from earlier comments made by Treasury officials.

“There seems to be some confusion as to exactly what the guidance will rely on,” Finlow said. “We are looking to the statute as it is now. . . . We are not looking at the green book,” she said, referring to Treasury’s green book explanation of the president’s proposal on valuation discounts in his fiscal 2013 budget plan.

How do such crazy rumors get started?

In May Catherine Hughes, attorney-adviser, Treasury Office of Tax Legislative Counsel, said practitioners should look to that fiscal 2013 proposal for hints on what would be in store in the regs. The Obama administration asked Congress to amend section 2704(b) to disregard some provisions, such as some transfer and liquidation restrictions, in the valuation of intrafamily transfers of interests in family entities.

This would take the urgency out of some gift tax planning that is going on in anticipation of a crackdown on discounts for minority interests that seemed to be telegraphed by the Hughes comments.


buzz20150804Friday is a good day for so many reasons. Not least of which is that it’s the day Robert D. Flach posts his Friday Buzz roundup. Today his links included his year-end planning guide and bad news about the level of IRS service we can look forward to this coming filing season.


Robert Wood, Surgeon Hid Money In Divorce, Is Convicted Of Tax Evasion, Faces Up To 95 Years Prison:

He left the country without telling friends, family or his workplace, and secretly drove to Costa Rica He opened two bank accounts there, depositing more than $350,000 in cash. He also hid a thousand ounces of gold in a Costa Rican safe deposit box. Crossing into Panama, he opened another account there under the name of a sham corporation, Dakota Investments. By 2008, he had moved $4.6 million into that account.

He was hiding the money from an estranged wife and the IRS. With the benefit of hindsight he may wish he had instead invested in good divorce and tax counsel.


Roger Russell, Taxes in the Sharing Economy (Accounting Today). Includes a discussion of local lodging taxes for AirBNB renters.

William Perez explains Itemized Tax Deductions.

Kay Bell, New Ways and Means chairman Rep. Kevin Brady wants to move tax extenders ‘sooner rather than later’. “Like House Speaker Paul D. Ryan before him, Brady favors making the tax extenders permanent pieces of legislation.”

Paul Neiffer, Does 7 Equal 5? “For most farmers, Section 179 (at the $500,000 level) is much more important than a five-year life for equipment depreciation.”

Keith Fogg, How Does Indexing Federal Tax Lien Impact Its Effectiveness (Procedurally Taxing). “The purchasers in this case did not realize they were purchasing property encumbered by a federal tax lien because the title search did not turn up a lien against a prior owner.”

TaxGrrrl, IRS Announces Lower Fees For 2016 As PTIN Registration Opens




TaxProf, The IRS Scandal, Day 911. Today’s link discusses the scandal’s context in the larger effort of “campaign finance reform” advocates to silence their opposition by government power.

Richard Auxier, 2015 Ballot Measure Results: Tax cuts, yes; marijuana, sometimes (TaxVox).

Career Corner. CPA Exam Score Release Anxiety Is the Best Anxiety (Caleb Newquist, Going Concern).



Tax Roundup, 10/15/2015: How to do that last-minute filing right. And: C.R. ID thief sentenced, Iowa sales tax rule delayed.

Thursday, October 15th, 2015 by Joe Kristan

certifiedFile! Today is the last, final, immutable deadline for filing an extended 2014 1040.* What are the stakes for getting that return in today?

  • If you owe federal taxes, it’s the difference between a late payment penalty of 3% (1/2% per month since April 15) and a late filing penalty of 25% (5% per month, capped at 25%).
  • It’s the last chance to make a free grouping election of your activities for the ne investment income tax and passive loss rules.
  • If you have an international reporting form on your return — a 5471, 8865, 3520, 8938, or 8891, for example — it’s the only way to avoid an automatic $10,000 late penalty on your filing. These forms may be due if you own an interest in a foreign corporation, partnership or trust; if you received a foreign gift or inheritance; if you have foreign financial assets, like a loan to an overseas person; or if you have an interest in a Canadian retirement plan.

So how to file? If you haven’t started yet (ugh), Russ Fox has some tips. If your return is done and you just need to file, e-file if at all possible. That gives you the assurance that your return has arrived on time and saves you the hassle of a trip to the post office or the UPS or FedEx store. And I feel safer if my return doesn’t have to be touched by an actual IRS employee.

OK, you ask, why can’t I just drop it in the mail or use the office postage meter? After all, the Mailbox Rule says “timely mailed, timely filed.”

Because then you have no proof that you filed on time. If the letter gets lost, or delayed, the IRS can call it “late” and you have no way to prove otherwise. If you have anything at stake with a timely-filing, it’s foolish to rely on the competence of the postal service and the goodwill of someone at the IRS service center.

If you aren’t e-filing, the best thing to do is to go to the post office, spring for Certified Mail, Return Receipt Requested, and get a hand-stamped postmark. Save it and keep it with the return receipt when that comes back. That will ward off late-filing vampires. Filling out the certified mail slip and running it through the office postage meter or using a postmark doesn’t work.

If you can’t make it to the post office before they close, then you can go to the FedEx Store or UPS store and use a “designated private delivery service.” This is trickier. You have to use one of the delivery methods specified by IRS Rev. Proc. . For example, “UPS Ground” doesn’t work, but “UPS 2nd Day Air” does work. Make sure the shipping paperwork shows today’s date. Be sure to use the proper IRS service center street address, because the private services can’t use the IRS post office box addresses.

*Unless you are a South Carolina flood victim, a war zone resident, or a non-resident alien.





Five years for Cedar Rapids ID reports an Iowa woman will go away for 61 months after pleading guilty to one count of ID theft. The Government’s sentencing memorandum says Gwendolyn Murray prepared “at least 136 false and fraudulent returns.” Ninety-four of them were processed, netting over $380,000 in refunds.

And that’s the real crime. The IRS has such poor controls that an amateur, probably using an off-the-shelf tax prep software package, could help herself to that much taxpayer money before getting caught. The chances of getting that back are about the same as my chances of a pro baseball career. And yet the IRS says the real problem is that honest preparers don’t have to take a compentency literacy test and submit a fee and paperwork.

Related: TIGTA: 1,300 IRS Computers, 50% Of IRS Servers Are Running Outdated Operating Systems, Putting Taxpayer Data At Risk (TaxProf)


Iowa Sales Tax Rule for Manufacturing Supplies to be delayed six months. It will now take effect July 1, 2016, reports AP.


Gretchen Tegeler, Ask questions about your property taxes (

You may not realize you are supporting not only your city, county and school district, but also Broadlawns Medical Center, Des Moines Area Regional Transit (DART) and the Des Moines Area Community College (DMACC).

For instance, 8.6 percent of the property taxes my husband and I pay on our home are going to Broadlawns. The single largest percentage increase in our property taxes (and this would be the case for most everyone in Polk County) is for DART, a whopping 10.4 percent!  

I’m sure it’s worth every penny…


Roger McEowen, Obamacare; Reimbursement of Health Insurance Premiums; and Limited (and Inconsistent) Transitional Relief (AgDocket). On the incomplete and confusing relief for “Section 105 plans” being clobbered by insane ACA regulations.


Paul Neiffer, What about Partnerships?:

The ACA mandates an $100 per day per employee penalty for providing non-qualified health insurance to more than one employee.  Many of our farm operations operate as S corporations and partnerships.  There is specific IRS guidance that allows shareholders and partners to deduct these health insurance premiums for owners and since this guidance did not line up with the guidance on the imposition of the $100 per day penalty, the IRS issued a notice earlier this year that indicated S corporations could continue to file their returns the same way until the end of this year.

However, this notice appeared to be silent on the treatment for partnerships and partners. 

They had to pass it for us to find out what was in it.


Peter Reilly, Santorum 20/20 Flat Tax Might Be Hard On Many Small Businesses. “I don’t understand why there does not seem to be more excitement about the elimination of business interest deductions.” Maybe because it’s Rick Santorum.

Robert WoodU.S. Tax 35%, Ireland 12.5%, New Irish Tech Rate 6.25%, Any Questions?

Kay Bell, Be like Trump: Pay as little tax as possible




David Brunori, Getting Taxpayers to Rat on Each Other: Uncool (Tax Analysts Blog):

Private citizens should not be in the business of administering or enforcing the tax laws. The most obvious reason is that they do not have the expertise or the context to judge whether taxes are being evaded rather than, say, avoided. It is hard enough for trained tax professionals to ascertain the difference between tax fraud and very aggressive tax planning. That task should be left to the professionals.

Not to mention the free play it gives to bitter ex-lovers or spouses, shakedown artists, and parasites in general.


TaxProf, The IRS Scandal, Day 889


A big thank you to Gretchen Tegeler and the Taxpayers Association of Central Iowa for inviting me to be on a panel last night on small business tax and regulation last night. I wish I could have lingered to chat longer, and enjoy some of that delicious Lucca food, but it being October 14 and all, I couldn’t stick around. It was a good session with lots fo great discussion.



Tax Roundup, 9/25/15: IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.

Friday, September 25th, 2015 by Joe Kristan

binIRS says not farming is just like farming, for self-employment tax purposes. Last year the Eighth Circuit Court of Appeals ruled that non-farmers are not subject to self-employment tax on conservation reserve program payments received for not planting land. The IRS yesterday announced (AOD 2015-02) that it disagrees with the decision. It said that it will follow the decision only within the Eighth Circuit, and even there only for pre-2008 payments.

The Eighth Circuit panel said that CRP payments are properly treated for non-farmers as rentals from real estate, which are not subject to SE tax. The IRS says it still disagrees, and it said that a 2008 law change “clarified” things (my emphasis):

In addition, the 2008 amendment to section 1402(a)(1) to treat CRP payments made to Social Security recipients as rentals from real estate effective for tax years beginning after December 31, 2007, served to clarify that other CRP payments are not excluded as rentals from real estate. Congress neither enacted a blanket exclusion with respect to CRP payments (or CRP payments made to non-farmers) nor evidenced any disagreement with the analysis of the Sixth Circuit in Wuebker. Although the statutory amendment does not apply to the years at issue in Morehouse, the implication is that prior to the amendment, CRP payments to farmers and non-farmers alike are not excludible from self-employment income as rentals from real estate. If these payments were already excluded as rental payments then the amendment would have been unnecessary. After the amendment, the implication is that CRP payments to farmers and non-farmers alike are not excludible from self-employment income unless made to Social Security recipients.

That conclusion may not go unchallenged. Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation had a different take after the Eighth Circuit decision came down:

For CRP rents paid after 2007, the question is whether the recipient is a materially participating farmer.

That means the IRS can be expected to reject refund claims for SE tax paid by those not receiving Social Security payments. From the AOD:

We recognize the precedential effect of the decision in Morehouse to cases appealable to the Eighth Circuit. Accordingly, we will follow Morehouse within the Eighth Circuit only with respect to cases in which the CRP payments at issue were both (1) paid to an individual who was not engaged in farming prior to or during the period of enrollment of his or her land in CRP and (2) paid prior to January 1, 2008 (i.e., the effective date of the 2008 amendment to section 1402(a)(1)). We will continue to litigate the IRS position in the Eighth Circuit in cases not having these specific facts. We will also continue to litigate the IRS position in all cases in other circuits.

This means the whole issue will assuredly end up back in the courts sooner or later. For now, though, we are on notice that the IRS considers current CRP payments to be subject to SE tax in all circuits.

Robert D. Flach has a fresh Friday Buzz roundup of tax bog posts, with items including the awfulness of the coming tax season, state tax fairness, and the savers tax credit.

TaxGrrrl, 7 Budget & Tax Related Reasons We May Be Headed Towards A Government Shutdown.

Kay Bell, Bartering is a great — and taxable — way to buy and sell. A lack of cash doesn’t mean a lack of tax.

Jim Maule, In What Year Should a Prize Be Reported as Gross Income?. “The question is simple. When a person wins a prize, in what year should the person report the income on the federal income tax return?”

Sheldon Kay, “Judging Litigating Hazards – Another View” (Procedurally Taxing). “He [Keith Fogg] also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.”

Annette Nellen, Challenges of base broadening


Alan Cole, Cadillac Tax Working as Planned on Auto Workers (Tax Policy Blog). ”

The situation above is not a mistake in the Affordable Care Act; rather, it is the Cadillac tax fulfilling both of its intended goals.

The first goal is to encourage substitution from employer health benefits back towards ordinary compensation, like wages and salaries…

The second goal of the Cadillac Tax is to raise revenue.

By delaying the painful parts, the bill fooled enough people long enough to get enacted. Now the rubes are catching on, but it’s too late.

Robert Wood, Bernie Sanders And Republicans Both Urge Cadillac Tax Repeal




TaxProf, The IRS Scandal, Day 869

Norton Francis, The Trouble with State Tax Triggers (TaxVox). “Here’s how a tax trigger works: A state cuts taxes over a period of years. There may be an initial tax cut that takes effect right away but future reductions are tied to some other benchmark, typically (but not always) achieving an overall revenue target.”

Sebastian Johnson, Maine Republicans Double Down on Tax Cut Fervor (Tax Justice Blog).


If only he had been regulated by the IRS. Oh, wait… IRS Agent Busted for Extorting Money From Marijuana Dispensary Owner (High Times, Via the TaxProf)



Tax Roundup, 9/21/15: If you step away from the Iowa business, Iowa rules say sell within five years.

Monday, September 21st, 2015 by Joe Kristan

20150811-1When you get out of the business, Iowa wants you to really get out.  Iowa has a tough tax environment for business, consistently ranking in the bottom 20% in the Tax Foundation’s Business Tax Climate Index. But there’s a pot of gold at the end of the road for entrepreneurs tough enough to stick it out for at least ten years.

The Iowa Capital Gain Deduction excludes from Iowa tax the capital gains on the sale of the assets of a business, or on real estate used in a business, if the business was held for at least ten years and the taxpayer “materially participated” in the business for ten years at the time of sale. And that’s the catch.

This rule tripped up a Johnson County, Iowa couple this month in the Iowa Court of Appeals. The couple ran a rooming house in Iowa city and ran it full-time from 1981 to 1994 — safely longer than ten years. In 1994 they contracted out the daily operation of the business. The couple continued to pay bills, approve major expenditures and renovations, and perform some maintenance activities. They sold out in 2005.

The “material participation” rules are the same as the federal “passive loss” rules under Section 469. Most of these rules are based on time spent in the business during the year. For example, if you spend 500 hours working in a non-rental business during a year, that means you materially participate.

Several material participation rules apply when a taxpayer retires from the business. One applies only to farmers: if you retire at the time you start collecting social security, and you have materially participated otherwise in at least five of the prior eight years, you are considered to materially participate for the rest of your life. Once you participate in a “personal service” business for three years, your material participation is set for life.

For all other businesses, you are considered to materially participate if you have met one of the hour-based requirements in five of the prior ten years. As a practical matter, that means a retiring entrepreneur who continues to own the business is still materially participating for five years after stepping down.

That’s where the taxpayers here failed the material participation tests. While they easily met the requirement to hold the property for ten years, they were not material participants at the time of the sale. The court held that they failed to prove material participation after 1994. That would mean they would have until 1999 to sell and still be material participants. After that, they failed the five-of-the-last-ten-years test.

The Moral: Taxpayers who step back from an Iowa business shouldn’t wait too long to sell if they want to avoid Iowa capital gains tax. If you meet the ten-year holding period and material participation requirement, you have five years to find a buyer.

Cite: Lance, Iowa Court of Appeals No. 14-1144 (9/10/2015).

Roger McEowen has an excellent discussion of this case for Tax Place subscribers. If you practice Iowa tax regularly, the $150 annual subscription is a great bargain.


Iowa Capital Gain Deduction: an illustration





Hank Stern of Insureblog discusses some Dubious 105 Tricks:

Here’s the concept in a nutshell (emphasis on “nut”):

My employer claims that signing up for this “105 Classic Plan” will allow me to make %30+ of my income tax free. The jist [sic] of it is that they will take $560 per (bi-weekly) pay period out of my check, somehow “make it tax free” and refund most of it back through some vague “loan” that I apparently don’t have to pay back.

This will reduce my income taxes pretty massively… but not only that, the company making my money untaxable claims it will pay 75% of all my out of pocket medical expenses up to $12,000.

It’s sort of an underpants gnome tax plan:

  1. Take money out.
  2. ?
  3. Tax free!

It of course doesn’t work. There is no Tax Fairy.


Russ Fox, A 0% Chance of Success Didn’t Deter Him! “Well, one fact that I’ve mentioned in the past is that IRS Criminal Investigations looks at all allegations of employment tax fraud. The reason is obvious: The IRS doesn’t like the idea of people stealing from them.”

Kay Bell, How do fantasy sports differ from gambling? As far as I can tell, gambling takes less time.

Robert D. Flach, REQUIRED NEW YORK STATE CONTINUING EDUCATION FOR TAX PREPARERS. “To be perfectly honest all of the four-hours of sessions were a total waste of my time.” Senators Hatch and Wyden want to spread the time-waste nationwide.

Peter Reilly, Presidential Race – Let’s Talk Religion Politics And The IRS.

Robert Wood, IRS Delays FATCA To Help Banks, But Offshore Account Disclosures Continue




TaxProf, The IRS Scandal, Day 863864865


TaxGrrrl, Coca-Cola Says IRS Wants $3.3 Billion In Additional Tax Following Audit

Caleb Newquist, Coca-Cola Can’t Beat the Feeling That Its Taxes Are Just Fine (Going Concern). “Coca-Cola Co. is learning that the IRS side of life includes a challenge to its transfer pricing method.”



Tax Roundup, 9/3/15: How to cut the IRS in on your foreign inheritance. And more!

Thursday, September 3rd, 2015 by Joe Kristan

20150903-1Uncle Heinrich from the old country left you a bundle. Congratulations! Make sure to tell the IRS.

Why, you ask, should I tell them? Inheritances are tax-free, after all.

Well, yes. But the IRS still wants to know about them. And if you don’t tell them, you may be cutting the IRS in on 25% of the gift.

The tax law requires you to file Form 3520 to report gifts or bequests from a foreign source if they exceed $100,000 (or $13,258 if received from a foreign corporation or partnership). This return is due at the same time as your income tax return, including any extensions, but it is filed separately. The penalty for not reporting is 5% of the unreported amount per month, up to 25%.

What if Uncle Hans gives you $75,000, and his wife Aunt Anne-Sophie gives you another $75,000? Then the gifts are counted together and exceed the reporting threshold.

I will be talking about these and other easy-to-overlook  international reporting requirements that can arise in estate planning and administration at the ISU Center on Agricultural Law and Taxation September Seminars. They are September 17 (Agricultural Law Seminar) and September 18 (Farm Estate and Business Planning Seminar). My talk is on the 18th.  Register by September 10 for an early-bird discount!


20150903-2Robert D. Flach, AICPA CONTINUES TO PROMOTE THE URBAN TAX MYTH. “There is absolutely nothing about possessing the initials CPA that in any way, shape, or form guarantees that the possessor knows his or her arse from a hole in the ground when it comes to 1040 preparation.”

TaxGrrrl, Owner Of ITS, Formerly Fourth Largest Tax Prep Biz In Country, To Face Criminal Charges. “Readers sent me numerous emails advising that ITS was still in business for the 2014 tax season, despite the court order.”

Robert Wood, Report Cites Flawed IRS Asset Seizures, And Ironically, Sales Are Handled By ‘PALS’

Kay Bell, Tax moves to make in September 2015. Worth visiting for the accompanying autumn leaves picture alone, but lots of other sound advice too.

Stephen Olsen, Summary Opinions for August 1st to 14th And ABA Tax Section Fellowships (Procedurally Taxing). Recent happenings in the tax procedure world.

Jack Townsend, Ninth Circuit Affirms False Claim Convictions for Tax Preparer. “The false claims statutes involved, however, are not complex statutes.  All that is required is that the defendant know that the claims are false.”

Annette Nellen, 50th Anniversary of Willis Commission Report. “This is likely the most comprehensive study and report ever done on state and multistate issues covering income tax, sales and use tax, gross receipts tax, and capital stock tax.”




Scott Greenberg, Every Tax Policy Proposal from the 2016 Presidential Candidates, in One Chart (Tax Policy Blog). “While some presidential candidates have issued tax reform proposals that touch on almost all of these areas of the tax code, other presidential candidates are not listed as having offered any tax policy proposals at all.”

Renu Zaretsky, The Case of the Unreturned Call for Tax Code Simplicity (TaxVox)  “Are taxpayers clamoring for a simpler, faster, and cheaper filing experience? Well, they are, and they are not.”

Richard Phillips, Ben Carson’s 10 Percent Flat Tax is Utterly Implausible (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 847. Today’s installment links to an update on the status of the scandal by James Taranto of the Wall Street Journal: “In any case, it’s unreasonable for government officials to expect us to trust their assurances when they take such pains to prevent their verification.


News from the Profession. Here’s a Guy Wearing a PwC T-Shirt Giving Weird Street Massages (Caleb Newquist, Going Concern)



Tax Roundup, 9/2/15: Contract manufacturer deduction to sleep with the fishes? And: IRS can’t monitor ACA tax credit claims, and more!

Wednesday, September 2nd, 2015 by Joe Kristan

No Walnut STTreasury puts out a contract on some Sec. 199 deductions. In a new post at TaxPlace, Roger McEowen covers the New Domestic Production Activities Deduction Temporary Regulations. Unfortunately it is available only to TaxPlace subscribers right now (TaxPlace subscriptions are a fine bargain for practitioners, by the way). He covers a key aspect of the proposed rules: the way they make it impossible for firms who contract out their manufacturing to claim the deduction. From the article:

Contract Manufacturing Activities.  The proposed regulations change the test for determining which taxpayer is eligible for a DPAD.  The proposed regulations eliminate the “benefits and burdens” test of Treas. Reg. §1.199-3(f)(1) and replace it with a requirement that the taxpayer actually perform qualifying activity under the contract.  In other words, the DPAD is to be tied to the taxpayer that actually produces the property.  The IRS views the rule change one of administrative ease that would bar more than one taxpayer from being allowed a DPAD with respect to any qualifying activity.  The IRS is requesting comments on whether there are narrow circumstances that would justify an exception to the proposed rule, particularly with respect to cost-plus or cost-reimbursable contracts. 

Example:  Tex places his hogs in the Swine Place feedlot.  The question is whether the fees that Swine Place collects on Tex’s pigs are DPGR.

Result:  Under the existing regulations, the fees would not constitute DPGR because only income attributable to pigs owned by Swine Place would generate DPGR because Swine Place bore the benefits and burdens of ownership of the QPP (hogs) during the period of the MPGE activity in order for the applicable gross receipts to qualify as DPGR. Under the proposed regulations, the fees that Swine Place collects would appear to qualify as DPGR because Swine Place performed the qualifying activity under the contract with Tex.  

These rules are not yet in effect. Hearings are scheduled on them in December.


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

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

The Treasury Inspector General for Tax Administration has issued a report on IRS monitoring of the premium tax credits under the Affordable Care Act:

Because of incomplete or unreported data from the Exchanges, the IRS is unable to ensure that:

  • Taxpayers claiming the PTC met the key eligibility requirement of purchasing insurance through an Exchange.
  • Taxpayers who received the APTC properly reconcile the APTC on their tax return.

It was always a bad idea to make the IRS a key part of the nation’s health finance system. It’s hard enough to measure taxable income, determine the tax, and collect it. But politicians see the tax agency as their public policy multi-tool.


David Brunori, Messing With the Markets: Using the Tax Laws to Influence Economic Behavior (Tax Analysts Blog). David notes the inequities illustrated in the new Tax Foundation report, Location Matters: The State Tax Costs of Doing Business:

The report says that tax incentives mostly benefit new firms, while disadvantaging (I suspect greatly in many cases) established firms. This is something I have been pointing out since the Mercedes-Benz deal in Alabama. States give a company tax dollars in return for building a new plant or hiring a certain number of people. Sometimes the state gives millions of dollars, but recently it’s been billions of dollars. But what of the companies that have already opened a plant, made investments, and hired workers? They often receive no state gifts. That is patently unfair. Of course, all this often provides an incentive for mature firms to go to the legislature for their own breaks. That may even things up sometimes, but it’s a horrific way to run the government.

That’s just a taste; David’s whole post is well worth reading. This observation should be read aloud every time a legislature considers a new incentive tax credit:

There are a lot of winners in the state tax world but many more losers. And our leaders are picking them.

I made some related Iowa-centric observations yesterday.


7-30 fountain


Kay Bell, IRS awards tax whistleblower $11.6 million. If you are considering a questionable tax move, consider also how lucrative it can be for an accomplice to rat you out.

Jack Townsend, Whistleblower Award of $11.6 Million; Areas of WBO Emphasis Includes Offshore Accounts.


Paul Neiffer, 8 Digits Do Not Make an EIN – Extends Gift Tax Statute. Details matter.

Jason Dinesen, Choosing a Business Entity: What is Basis?

Jim Maule, When Tax Maneuvering Goes Bad. “According to this story, a gerrymandering stunt has backfired, leaving the outcome of a vote on a local sales tax increase in the hands of one person.” A bunch of insiders got together to carve themselves a special deal. And it would have worked if it wasn’t for that darned kid!

Peter Reilly, Billion Dollar Ball By Gilbert Gaul And The Unlikely Charity Known As College Football.

Robert Wood, Bartender Finds $20, Buys Lottery Ticket, Wins $1M, Pays IRS.

TaxGrrrl, Citing Budget Woes, State Won’t Pay Up (Yet) On Big Lottery Winnings. The happy bartender doesn’t live in Illinois, fortunately for him. But if Illinois can’t pay its lottery winners, how should that make its bondholders and pensioners feel?

Tony Nitti, You May Soon Be Able To Use Your HSA Money To Pay For Gym Dues, Spin Class. I would like to use it for groceries. After all, I wouldn’t be very healthy if I didn’t eat.




Scott Hodge, Fifteen Years of Tax Policy (Tax Policy Blog). The leader of the estimable Tax Foundation reflects on his 15th anniversary there.

Howard Gleckman, Could a Carbon Tax Prevent The Catastrophic Consequences of Climate Change That Obama Fears? (TaxVox) Does he? If he was really worried, would he be flying a  jet with a carbon footprint the size of Alaska to the tundra to tell us how concerned he is?


TaxProf, The IRS Scandal, Day 846. Today’s link covers the IRS’s habitual obstruction of its monitors.



Tax Roundup, 6/26/15: Supreme Court saves ACA subsidies — and taxes.

Friday, June 26th, 2015 by Joe Kristan


supreme courtThe Supreme Court upholds new punitive taxes on thousands of Iowa employers and uninsured individuals. That’s the flip side of the decision yesterday ruling that tax credits remain available for health insurance purchased on the federal exchanges, despite the language of the Obamacare statute — a ruling characterized by the Des Moines Register as “Obamacare ruling protects 40,000 Iowans’ subsidies.

Here’s what it means to those footing the bill:

– The employer mandates will take effect in all states as scheduled. The “Employer Shared Responsibility provisions” require employers to purchase “adequate” health coverage for employees.  It applied in 2014 to employers with over 100 “full-time equivalent” employees in 2013.  In 2015, it applies to employers who had over 50 full-time equivalent employees in 2014. It applies to government and non-profit employers, as well as to businesses.

Employers who fail to offer coverage to 95% of their FTEs and dependents are subject to a $2,000 penalty, pro-rated for months where coverage is lacking, for non-covered FTEs, with a 30-employee exemption. “Full-time Equivalent” means 30 hours per week.

The penalties kick in only if at least one employee claims the coverage tax credit. Yesterday’s decision ensures the mandate applies in all states — rather than just the 14 with state-run exchanges — because the triggering credits will remain available nationwide.

The individual mandate tax applies fully in all states. The “Individual Shared Responsibility Provision” penalizes individuals who aren’t covered at work and who fail to purchase “adequate” and “affordable” coverage. The penalty for 2015 is the greater of $325 ($162.50 for those under 18) or 2% of “household” income. It is prorated if coverage is obtained for some months and not others.

Yesterday’s decision broadens the reach of the tax because the penalty only applies if available coverage is “affordable.” The tax credits are used in computing “affordability,” so the availability of the credits nationwide broadens the tax to many more taxpayers.

20121120-2The Section 36B tax credit remains available nationwide. This is the refundable credit that was the subject of yesterday’s decision. It is estimated when coverage is obtained and applied against coverage costs for the year. It is “trued up” when the taxpayer files their 1040 for the coverage year — a process that can sometimes mean more credit, but that sometimes triggers a big balance due.  Because the credit phases out in steps, one extra dollar of income can trigger thousands of dollars of additional taxes:

Consider a middle-aged married couple earning $62,040, 400 percent of the FPL for a two-person household ($15,510.) If the second cheapest Silver plan in their area costs $1,200 per month, they would receive a subsidy of $8,506 in order to cap that plan’s price at 9.5 percent of their income. However, if they earned $62,041—only a dollar more—the entire subsidy would evaporate. 

Because the $8,506 would have been applied to health premiums, the household would have to pay it back on April 15.

What do I think of the decision? In March I wrote:

In a less politically-sensitive context, one could expect a 9-0 or 8-1 decision against the IRS. That’s what happened in Gitlitz, where the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

That means I think the Scalia dissent gets it right, but we don’t get to file tax returns based on the dissent. It should give pause to those who write legislation, though — there’s no telling how the Supremes will read their work if they don’t like what it does.

Other coverage:

William Perez, What You Need to Know about the Premium Assistance Tax Credit

TaxGrrrl, Supreme Court Upholds King, Says Obamacare Tax Credits Apply To All States

Kay Bell, Let the Affordable Care Act repeal efforts begin (again)

Hank Stern, SCOTUScare Fallout. “Obamacare Ruling May Have Just Killed State-Based Exchanges

Andy Grewal, Grewal: King v. Burwell — The IRS Isn’t An Expert? (TaxProf Blog)

Tyler Cowen, King vs. Burwell, and other stuff. “So on net I take this to be good news, although arguably it is bad news that it is good news.”

Megan McArdle, Subsidies and All, Obamacare Stays

Alan Cole, James Kennedy, King v. Burwell: Supreme Court Upholds Subsidies to Federal Exchanges (Tax Policy Blog)

Roger McEowen,  The U.S. Supreme Court and Statutory Construction – Words Don’t Mean What They Say (AgDocket)




Stuff other than the Supreme Court decision:

Jason Dinesen, Choosing a Business Entity: Sole Proprietor

Joseph Thorndike, Rand Paul’s Tax Plan May Be Radical, But It’s Not Impossible (Tax Analysts Blog) “But radical doesn’t mean impossible. Since proportionality lies at the heart of Paul’s plan, history suggests it might have a shot.”

Ethan Greene, Net Investment Income Tax Handicaps Those Meant to Benefit (Tax Policy Blog). “The irony of the NIIT is it taxes the very demographic it was intended to aid; that is, retirees relying on their savings and investment, and those with disabilities, counting on trust income or estate inheritance to maintain their quality of life.”

Donald Marron, Everything You Should Know about Taxing Carbon. (TaxVox)

TaxProf, The IRS Scandal, Day 778

Caleb Newquist, The Accounting Profession’s Murky Future (Going Concern)



Tax Roundup, 4/10/15: The Iowa tax credit that breaks hearts. And: IRS budget cut crocodile tears!

Friday, April 10th, 2015 by Joe Kristan
Flickr image courtesy Alexander Marie Guillemin under Creative Commons license

Flickr image courtesy Alexander Marie Guillemin under Creative Commons license

Stimulate them young. By my count, Iowa’s tax law has at least 31 tax credits designed to stimulate economic activity in one way or another. There’s another tax credit with stimulative potential that Iowans tend to forget: the tax credit that encourages you to send your high-schooler to the prom.

Any prom parent, or anybody who has gone to one, knows that proms require a flurry of economic activity, from dresses and tuxes to the cost of a nice dinner out. While those items don’t get a tax break, the Iowa tax law at least helps buy the ticket to the great event itself.

Iowa’s “Tuition and Textbook Credit” is a 25% credit on up to $1,000 of qualifying K-12 expenses. Yes, tuition and textbooks count. So do activity costs (my emphasis):

Annual school fees; fees or dues paid for extracurricular activities ; booster club dues (for dependent only); fees for athletics; activity ticket or admission for K-12 school athletic, academic, music, or dramatic events and awards banquets or buffets; fees for a physical education event such as roller skating; advanced placement fees if paid to high school; fees for homecoming, winter formal, prom, or similar events; fees required to park at the school and paid to the school  

Just as many young men today neglect some of the little things that can make a difference on a prom date between happiness and heartbreak, many taxpayers neglect to keep track of the little school fees that can add up to a $250 savings on their Iowa income tax. In addition to prom tickets, instrument rentals, school district drivers education fees, fees for field trips and transportation, band uniform costs and some athletic equipment costs also qualify. Click here for a more complete list.

Related: Prom tickets, rentals qualify for state tax credit (, in which you can see me sort of explain this on actual video).

This is another of our daily 2015 Filing Season Tips running through April 15. Six more to go!


"Nile crocodile head" by Leigh Bedford. Via Wikipedia

“Nile crocodile head” by Leigh Bedford

Christopher Bergin, Crocodile Tears for IRS Budget Cuts (Tax Analysts Blog):

Don’t get me wrong — I personally disagree with recent IRS budget cuts. They are not sound tax policy. They also strike me as being politically motivated payback for the Lois Lerner episode. That’s myopic on the part of congressional Republicans. It’s as if they’re demanding their pound of flesh regardless of the adverse consequences to millions of taxpayers.

But I’m equally disappointed with how the IRS has chosen to respond. Rather than rise to the occasion, it has resorted to a blame game. Congress didn’t give us the budget we wanted, so the first things to go are taxpayer service and enforcement. Conflict over agency funding is nothing new in Washington. What’s remarkable here is the blatant manner in which American taxpayers are being held hostage.

Commissioner Koskinen has only himself to blame. His tone-deaf and intransigient response to the Tea Party scandal gave GOP appropriators only more reasons to distrust the agency. Only a new Commissioner can start to repair the damage.

Howard Gleckman, What Will Happen To Voluntary Tax Compliance If a Budget-constrained IRS Is Not Fixed? (TaxVox)


20140507-1Russ Fox, Bozo Tax Tip #2: The Eternal Hobby Loss. “If your business loses money year-after-year, and you’re not making any efforts to change it, and you get a lot of personal enjoyment out of the business, beware!”

William Perez, 7 Ways to Pay the IRS

Kay Bell, 10 tax sins of commission that could be quite costly

Sean AkinsDark Matter: When to Seal the Tax Court Record (Procedurally Taxing)

Robert Wood, Best And Worst Tax Excuses To Fix IRS Penalties, “Relying on a professional tax adviser is one of the classic excuses.”


Roger McEowen, The Perils of Succession Planning (ISU-CALT). “Most U.S. businesses are family-owned, but statistics show that only about 30 percent of them survive to the next generation and only about 12 percent to the third generation.”

I firmly believe there is no need for a heavy estate tax to break up dynastic wealth. All you need are beneficiaries.


Alan Cole offers A Friendly Reminder That Pass Through Businesses Exist (Tax Policy Blog):

Every once in a while we see blog posts from other tax research organizations, or even congressional offices, puzzled over the low collection of corporate taxes relative to GDP or relative to other tax revenues. Today we have another such post, from Citizens for Tax Justice. I believe I can allay that confusion.

It’s not confusion, it’s political mischief.



Tony Nitti, Rand Paul Announces Presidential Bid, Favors Flat Tax. “Flat tax proposals come in many forms, and range from exceedingly simple to nearly as complex as the current law.”

Richard Phillips, Rand Paul’s Record Shows He’s a Champion for Tax Cheats and the Wealthy. (Tax Justice Blog). I’ll translate that: he thinks taxpayers are entitled to keep some of their money, and to a little due process. To the “tax justice” crowd, anything that keeps the government out of your pocket for any reason is cheating.


Caleb Newquist, #TBT: The Failed Merger of Ernst & Young and KPMG. I remember the abortive merger between Price Waterhouse and Deloitte Haskins & Sells. Price Sells would have been an awesome firm name.



Tax Roundup, 4/7/15: Dealing with that long-awaited K-1. And: IRS, beacon for Millenials?

Tuesday, April 7th, 2015 by Joe Kristan

My K-1 finally showed up. Now what? Many Tax Update visitors arrive here when they ask their search engines something like “understanding K-1s” or “deducting K-1 losses on 1040.” As more business income is now reported on 1040s via K-1s than on corporation returns, these aren’t trivial questions.

k1corner2014It helps to understand what a K-1 does. “Pass-through” entities — partnerships, S corporations, and trusts that distribute their income to beneficiaries — generally don’t pay tax on their income. The owners pay. The tax returns of the pass-throughs gather the information the owners need to report the pass-through’s tax results properly. Because many different tax items are required to be reported differently on 1040s, the income, deductions and credits of the business have to be broken out on the K-1. That’s why there are so many boxes and so many identification codes on the K-1.

The challenge for the return preparer is to take the information off the K-1 and to report it properly on the 1040. It can get especially complicated when losses are involved.

While anything short of a full seminar will oversimplify the treatment of pass-through items, there are three main hurdles a loss deduction has to clear. They are, in order (follow the links for more detail):

You have to have basis in the pass-through to take losses. Basis starts with your investment in the entity. It includes direct loans to the entity. If you have a partnership, it includes your share of partnership third-party debt. It is increased by earnings and capital contributions and reduced by losses and distributions. If you don’t have basis, the loss is deferred until a year in which you get basis.

There is no official IRS form to track basis, but many pass-throughs track basis for their owners. Check your K-1 package to see if includes a basis schedule.

Flickr image courtesy  Grzegorz Jereczek under Creative Commons license.

Flickr image courtesy Grzegorz Jereczek
under Creative Commons license.

Your basis has to be “at-risk” to enable you to deduct losses. While the at-risk rules are a very complex and archaic response to 1970s-era tax shelters, the basic idea is that you have to be on the hook for your basis, especially basis attributable to borrowings, to be able to deduct losses against that basis. Special exclusions exist for “qualified non-recourse liabilities” arising from third-party real estate loans. Losses that aren’t “at-risk” are deferred until there is income or new “at-risk” basis. At risk losses are computed and tracked on Form 6198.

You can only deduct “passive losses” to the extent of your “passive” income. A loss is “passive” if you fail to “materially participate” in the business. Material participation is primarily determined by the amount of time you spend on the business activity. Real estate rental losses are automatically passive unless you are a “real estate professional.”

Passive losses are normally deductible only to the extent of passive income. The non-deductible losses carry forward until a year in which there is passive income, or until the activity is disposed of to a non-related party in a taxable transaction. You compute your passive losses allowance on Form 8582.

Even if you have income, instead of losses, be sure to use any carryforward losses you might have against it. And consider visiting a tax pro if you find the whole process perplexing.

This is another of our 2015 Filing Season Tips. There will be a new one every day here through April 15!



Russ Fox, Bozo Tax Tip #5: Ignoring California

TaxGrrrl, Taxes From A To Z (2015): Y Is For Years Certain Annuity

William Perez, Opportunity to Increase Charitable Donations for 2014 under a New Tax Law. “Individuals who donate cash by April 15, 2015, to certain charities providing relief to families of slain New York City police officers can deduct those donate on their 2014 tax return.”

Robert Wood, Beware Tax Mistakes IRS Calls Willful. “Even a smidgen of fraud or intentional misstatements can land you in jail.”

Have a nice day.

I’m from the IRS, and I’m here to help! IRS Agent Causes Grief For Taxpayer’s Spouse By Being Helpful (Peter Reilly)

Kay Bell, Don’t bet on fooling IRS with bought losing lottery tickets.

Leslie Book, District Court FBAR Penalty Opinion Raises Important Administrative and Constitutional Law Issues. “Taxpayers should not be forced to sue in federal court to get an explanation as to the agency’s rationale or the evidence it considered in making its decision.”

Jason Dinesen, It’s Pointless for EAs to Attack CPAs. And vice-versa.



TaxProf, The IRS Scandal, Day 698

Roger McEowen, Rough Economic Times Elevate Bankruptcy Legal Issues (ISU-CALT)

Martin Sullivan, How Much Did Jeb Bush Cut Taxes In Florida? (Tax Analysts Blog). “So was Jeb Bush a pedal-to-the-metal tax slasher in Florida?”

Renu Zaretsky, It’s Spring Break, and “Everything’s Coming Up Taxes…” (No Daffodils). The TaxVox headline roundup covers IRS budget cuts, reefer madness, and online sales taxes in Washington State today.


Career Corner. Do Any Millennials Want to Work at the IRS Non-ironically? (Caleb Newquist, Going Concern). Not very hipster.



Tax Roundup, 3/26/15: Not every project is an “activity,” and why that’s a good thing. And: starting Iowa’s tax law fresh.

Thursday, March 26th, 2015 by Joe Kristan

What’s an activity? The tax law’s “passive loss” rules limit business losses when a taxpayer fails to “materially participate” in an “activity.” Whether an “activity” is “passive” is mostly 20150326-2based on the amount of time spent in the activity by the taxpayer. That can raise a tricky question: just what is an “activity?”

Many businesses do multiple things. Take a CPA firm that does tax and auditing. If those feckless auditors lose money, is that a separate “activity” from the hard-working tax side? Or consider a convenience store owner with two locations; is each a separate activity, or are they one big activity?

The Tax Court addressed this problem yesterday in a case involving a South Florida developer. Greatly simplifying a complex story of real estate backstabbing and inter-family rivalry, the problem was whether an S corporation was the same “activity” as a partnership with the same owners set up for s specific development project. If so, family patriarch Mr. Lamas could cross the basic 500-hour threshold for participation in the combined activity, making his losses deductible.

Judge Buch explains the IRS regulation (1.469-4(c)) governing this issue:

This regulation sets forth five factors that are “given the greatest weight in determining whether activities constitute an appropriate economic unit for the measurement of gain or loss for purposes of section 469”:

(i) Similarities and differences in types of trades or businesses;

(ii) The extent of common control;

(iii) The extent of common ownership;

(iv) Geographical location; and

(v) Interdependencies between or among the activities (for example, the extent to which the activities purchase or sell goods between or among themselves, involve products or services that are normally provided together, have the same customers, have the same employees, or are accounted for with a single set of books and records).

This regulation further instructs that taxpayers can “use any reasonable method of applying the relevant facts and circumstances” to group activities, and that not all of the five factors are “necessary for a taxpayer to treat more than more activity as a single activity”.

Equality in action in the Soviet Union on the Belomor Canal

The judge said that Shoma (the S corporation) and Greens (the partnership) met these requirements, considering they had the same control and both were in the same general business. Also:

Finally, Shoma and Greens were interdependent. Greens operated out of Shoma offices, used Shoma employees, and consolidated its financial reporting with Shoma’s. Greens was formed by Shoma as a condominium conversion project. The shareholders intended that Greens be dissolved after the project was completed and the capital returned to its shareholders.

Because Shoma and Greens meet these five factors, we find that they are an appropriate economic unit and should be grouped as a single activity.

The taxpayer was able to satisfy the court through witness testimony and phone records that he met the 500-hour requirement.

This case is good news for developers, as this structure is common in that business: a permanent S corporation sets up new LLCs for each development project. This case correctly concludes that they are all part of the same development business.

Cite: Lamas, T.C. Memo 2015-59.


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

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

Me, What an Iowa income tax might look like with a fresh start. My new post at, the Des Moines Business Record Business Professionals’ Blog, on what Iowa’s tax system might look like if we could start over. A taste:

A system designed from scratch would apply the ultimate simplification to Iowa’s corporation income tax: it wouldn’t have one. Iowa’s corporation income tax is rated the very worst, with extreme complexity and the highest rate of any state. 
Eliminating the corporation income tax would eliminate the justification for almost all of the various state incentive tax credits, all of which violate the principles of neutrality and simplicity in the first place. For its astronomical rates and complexity, it generates a paltry portion of the state’s revenue, typically 4-7 percent of state receipts.
For S corporations, a from-the-ground-up tax reform might tax Iowa resident shareholders only on the greater of distributions of S corporation income, or interest, dividends, and other investment income earned by the S corporations. The investment income provision would prevent the use of an S corporation as a tax-deferred investment. The effect would be to put S corporations on about the same footing as C corporations.

I have little hope in the legislature actually doing something sensible, but we have to start somewhere. I’d love to hear any thoughts readers may have.



Roger McEowen addresses the Tax Consequences When Debt is Discharged (ISU-CALT): “There are several relief provisions that a debtor may be able to use to avoid the general rule that discharge of indebtedness amounts are income, but a big one for farmers is the rule for ‘qualified farm indebtedness.'”

Russ Fox, A Break in my Hiatus: Poker Chips and Tax Evasion. Russ lifts his head from his tax returns to tell of the tax problems of a poker chip maker that he has personal experience with. “A helpful hint to anyone wanting to emulate Mr. Kendall: Just pay employees in the normal way, on the books, and send the withholding where it belongs.”

TaxGrrrl, Taxes From A To Z (2015): N Is For Nonrefundable Tax Credits

Robert Wood, Tax Fraud Draws 6 1/2 Year Prison Term Despite Alzheimer’s. Specifically, a dubious claim of Alzheimer’s.

Peter Reilly, Did Andie MacDowell’s Mountain Hideaway Require Tax Incentives? To listen to some people, you’d believe nothing good ever happened until tax credits were invented.




Jason Dinesen, Financing a Small Business, Part 5 of 5: Know When to Keep Quiet With the Banker. “Here are a couple of real-world examples I’ve seen where business owners got hung up with the bank because the owner wouldn’t stop talking.”

This has lessons for IRS exams, too.

Kay Bell, Obamacare, bitcoin add twists to 2014 tax filing checklist

Annette Nellen, Another Affordable Care Act Oddity. “Perhaps the problem is more tied to the “cliff” in the PTC that causes someone to completely lose the subsidy once their income crosses the 400% of the FPL (more on that here).”

William Perez, How Much Can You Deduct by Contributing to a Traditional IRA?


Alan Cole, Richard Borean, Tom VanAntwerpWhich Places Benefit Most from State and Local Tax Deductions? (Tax Policy Blog):



The short answer? Places with high state tax rates and high-income earners. Note the purple spot right in the middle of Iowa.


TaxProf, The IRS Scandal, Day 686

Renu Zaretsky, Sense and Sensibilities. Today’s TaxVox headline roundup covers the House GOP budget, a Texas tax cut, and tax-delinquent federal employees.


Richard Phillips, How Presidential Candidate Ted Cruz Would Radically Increase Taxes on Everyone But the Rich (Tax Justice Blog). A taste:

On the flat tax, Cruz has not yet spelled out a specific plan that he would like to see enacted, but it’s unlikely that any plan he proposed will be significantly better than the extremely regressive flat tax proposals that have been offered in the past.

Or, “we don’t know what he will do, but it will be terrible!”


Caleb Newquist, Big 4 Gunning for Big Law. To steal a cheap line: who wins if the Big 4 and Big Law fight to the death? Everybody!


Tax Roundup, 3/25/15: Why the casino may not be the place to invest those millions from that Chinese guy.

Wednesday, March 25th, 2015 by Joe Kristan

In the movies, an American who is entrusted with millions from a Chinese shipping magnate, but blows it at casinos, would face unimaginably dire consequences. In real life, he faces the IRS.

20120511-2That’s the story in a weird Tax Court case decided yesterday. The shipping magnate, a Mr Cheung, had fared poorly as an investor. He met a Mr. Sun from Texas and decided that he might be better at investing. He shipped the money to a C corporation and an e-Trade account owned by Mr. Sun, under a handshake deal with fuzzy terms. Judge Paris explains:

The only part of the arrangement that both Mr. Cheung and Mr. Sun consistently agreed on was the general structure of the investment. Mr. Cheung would transfer sums of money through his shipping companies’ bank accounts to Mr. Sun, who would then invest the money in the United States. Mr. Cheung would decide how much money he wished to send, and Mr. Sun had discretion on which investments to pursue with Mr. Cheung’s money.

The remaining terms of the verbal agreement were not memorialized and are unclear. Specifically, Mr. Sun and Mr. Cheung inconsistently described the investment term, the expected return, and enforcement provisions. Mr. Sun believed the term was a minimum of 5 years and did not give a maximum period, whereas Mr. Cheung believed the term was 7 to 10 years. The expected return is also unclear; Mr. Sun believed the return on investment would be a 50-50 split of the net profit with a minimum 10% gain annually, but the return might not be paid annually. Mr. Cheung believed the return would be 10% to 15%, but was uncertain whether that return was annual or total.

Not the sort of investment arrangement Suze Orman or Dave Ramsey would embrace. Nor would they embrace some of the “investments” described in the Tax Court case.

The funds sent to Mr. Sun’s C corporation went into an “officer loan account” for Mr. Sun. And then… well, again from Judge Paris (emphasis mine):

Mr. Sun would either pay his personal expenses directly from the officer loan account or he would remove money and use it at his discretion. For example, in 2008 Minchem paid $135,874.43 for home automation, $158,517.80 for a new Mercedes Benz, and $49,598.81 for personal real estate tax. In total, Minchem’s officer loan account was debited $4,116,414.43 in 2008 and $1,811,127.65 in 2009 for expenses that Mr. Sun identified as personal during his trial testimony.

Some of the personal expenditures included gambling expenses. In 2008 $4,800,100 was transferred to casinos from the officer loan account and $2,394,550 was returned. In 2009 $1 million was transferred to casinos and $1,300,000 was returned. Thus between 2008 and 2009 Mr. Sun transferred $5,800,100 from the officer loan account to casinos and received back $3,694,550; i.e., over the two years in issue Mr. Sun lost $2,105,550 from gambling from the officer loan account.

20120801-2Judge Paris said that the funds never belonged to the C corporation because it was a mere conduit for the cash; that meant the corporation was not taxable on the amounts.

Mr. Sun didn’t get off so easy. Judge Paris said that the funds became income to Mr. Sun when he began spending them for his own purposes (citations omitted):

Whether funds have been misappropriated is a question of fact, but facts beyond “dominion and control” must be considered. More specifically, an individual misappropriates funds when money has been entrusted to the individual for the sole purpose of investing and the individual instead uses the money for personal activities.

Mr. Sun undisputedly treated as his own money held for Mr. Cheung’s benefit and specifically earmarked for investment purposes. For example, Mr. Sun used some of the funds to purchase a personal automobile and a home automation system. Perhaps the most obvious example of Mr. Sun’s misappropriation of the funds is his gambling activities.

The opinion dismissed the idea that the funds were loans because there was no documentation of any sort of loan agreement or terms. The court said that the amounts weren’t gifts because no Form 3520, where U.S.  taxpayers report large foreign gifts, was filed, and because there was no evidence of an intent to make a gift.

While the Tax Court ruled that Mr. Sun misappropriated the money, it ruled that the IRS failed to prove fraud. That meant the penalties were only 25% of the roughly $4.7 million of additional tax, rather than the 75% under the civil fraud rules.

The Moral? Hard to say. Don’t squander millions of dollars entrusted to you for investment at casinos? You didn’t need the Tax Court to tell you that. Maybe it’s a handy reminder to file Form 3520 if you receive large foreign gifts, lest the IRS get the wrong idea (and lest they hit you with a $10,000 penalty for not filing it). And if you have had bad luck with your investments, maybe index funds are a better way to go than a handshake deal with some guy in Texas.

Cite: Minchem International, Inc., et. al., T.C. Memo 2015-56.


Kyle Pomerleau, U.S. Taxpayers Face the 6th Highest Top Marginal Capital Gains Tax Rate in the OECD (Tax Policy Blog):



The United States currently places a heavy tax burden on saving and investment with its capital gains tax. The U.S.’s top marginal tax rate on capital gains, combined with state rates, far exceeds the average rates faced throughout the industrialized world. Increasing taxes on capital income, as suggested in the president’s recent budget proposal, would further the bias against saving, leading to lower levels of investment and slower economic growth. Lowering taxes on capital gains would have the reverse effect, increasing investment and leading to greater economic growth.

But, but, the rich!


IMG_1388William Perez covers Various Types of Individual Retirement Accounts.

Paul Neiffer, Tax Court Allows $11 Million Horse Loss to Stand. “Now, though this is a victory for the taxpayer in Tax Court, they are still out over $11 million in losses (or more).  I am not sure if it really is an overall win for the taxpayers.”

TaxGrrrl, Taxes From A To Z (2015): M Is For Municipal Bonds.

Jason Dinesen discusses Recordkeeping Considerations for a Startup Business.

Roger McEowen, USDA Releases Proposed Definition of “Actively Engaged in Farming” That Would Have Little Practical Application. Sounds useful.

Kay Bell, $42 million Montana mansion owner loses property tax fight. Looks like a nice place.

Jim Maule, When Social Security Benefits Aren’t Social Security Benefits: When They Meet Tax. “By reducing social security benefits on account of the state retirement system benefit payments, the Congress causes the portion of the taxpayer’s overall retirement receipts that is treated as taxable pension payments to increase, which in turn not only increases gross income on its own account but generates gross income from a portion of the social security benefits.”

Joni Larson, Proposal to Amend Section 7453 to Provide that the Tax Court Apply the Federal Rules of Evidence (Procedurally Taxing)


Tony Nitti, Ted Cruz To Run For President: Why His Plan For A Flat Tax May Doom His Candidacy:

Whether a move to a much more regressive system than the one currently in place is ultimately in the best interest of the economy and country is irrelevant; the Democrats will seize on the shift in the tax burden and continue to paint Republican candidates as seeking only to placate the rich.

I think Hillary Clinton, or whoever the nominee is, will do that to any Republican opponent, regardless of any actual policy positions. The question is whether they will be able to more successfully deal with the issue than Mr. Romney.

Robert Wood, Taxing Stephen King, Taylor Swift And Phil Mickelson




Renu Zaretsky, Tax Struggles and Tax Sneaks. Today’s TaxVox headline roundup has stories about how Orrin Hatch wants tax reform and John Koskinen wants more money.

David Brunori, Louisiana Tax Reform: Some Smart Guys Worth Listening To (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 685.  Today’s post features Media Matters, living proof that the IRS concern over political activity was rather selective.


Career Corner. Confirmed: Golf More Difficult Than CPA Exam (Caleb Newquist, Going Concern). But almost as much fun!



Tax Roundup, 3/23/15: ACA is five years old today. How’s that working out?

Monday, March 23rd, 2015 by Joe Kristan

Productivity wins! All three Iowa teams are out of the men’s NCAA basketball tournament. Back to those 1040s, fans!



President Obama signs the Affordable Care Act. Image via

Five years. The Affordable Care Act, or Obamacare, was signed into law five years ago today. Thanks to many delays — some part of the original law, others done in spite of the law to get past the elections — taxpayers and preparers are just beginning to cope with key portions of the law.

This is the first year for returns with the individual mandate — officially, and creepily, the “Individual Shared Responsibility Provision.” While many taxpayers thought this would only amount to $95, taxpayers hit with the penalty are learning that their refunds will get dinged for up to 1% of their AGI over a relatively low threshold.

This is also the first year that taxpayers have to true up overpayments of the advance premium tax credit.  Many taxpayers who bought policies on the ACA exchanges had their monthly premiums reduced based on their estimates of 2014 earnings. This subsidy is actually a tax credit, and it has to be reconciled at year end with the actual earnings.  Taxpayers with earnings in excess of what they estimated are now learning from their preparers that they need to write checks.

20121120-2The premium tax credit is horribly designed, with a stepped, rather than gradual, phaseout. One additional dollar in income can result in a loss of thousands of dollars in premium tax credits, which then have to be repaid with the tax return. H&R Block reports that most taxpayers who claimed the credit have to repay an average of $530. The IRS has tried to patch over some of the unpleasantness, unilaterally waiving penalties this year for taxpayers who have to repay the credits.

Here in Iowa, smaller employers who want to offer ACA-approved health insurance can’t, in the wake of the failure of the heavily-subsidized CoOportunity health insurance carrier. The IRS will still allow Iowa businesses to claim the convoluted credit for small employers for 2015. It required carriers who had signed up with CoOportunity to scramble to find new coverage, and it required many families who had already reached their out-of-pocket limits to start them over with a new carrier.


Looming over all this is the Supreme Court’s impending decision in King v. Burwell. The IRS decided to allow the premium tax credit in the 34 states using federal exchanges, in spite of statutory language limiting the credits to exchanges created “by the states.” If the court goes with the way the law is drafted, the premium tax credit will be gone for those 34 states, including Iowa. Employers in those states will be suddenly exempt from the “employer mandate” that begins to take effect in 2015. Millions of taxpayers will also be free of the individual mandate penalty because their insurance will no longer be “affordable.”

If you want to celebrate, head over to Insureblog, where they are always updating the latest developments and unintended consequences of the ACA.



20150312-1William Perez, Did You Pay Interest on Student Loans? It May be Tax Deductible

TaxGrrrl, Understanding Your Forms: 1098-T, Tuition Statement

Roger McEowen, Are Payments Made to Settle Patent Violations Deductible? (ISU-CALT)

Kay Bell, Tax returns on hold while IRS asks ‘Who Are You?’

Peter Reilly, Ninth Circuit Rules Against War Tax Resister

Jim Maule, Tax Credit for Purchasing a Residence Requires a Purchase. “Nothing in the opinion explains why the taxpayer thought she had purchased the residence. Nor does it explain why the taxpayer, if not thinking that she had purchased the residence, would claim that she did.”

Peter Hardy, Carolyn Kendall, Between the National Taxpayer Advocate and the Courts: Steering a Middle Course to Define “Willfulness” in Civil Offshore Account Enforcement Cases Part 1 (Procedurally Taxing). “The OVD programs have netted many people who may have inadvertently failed to file FBARs, and who are not wealthy people with substantial accounts.”

In other words, shooting jaywalkers while giving international money launderers a good deal.


Robert Goulder, When All Else Fails, Blame a Tax Pro (Tax Analysts Blog) “OK, the tax code is a disgrace. I get it. But a member of Congress is blaming tax professionals? Really?”

Congress is sort of like the guy who leaves his food plate on the floor, falls asleep, and then blames the dog for eating it.




Joseph Henchman, 10 Remaining States Provide Tax Filing Guidance to Same-Sex Married Taxpayers. “After the IRS decision to allow gay and lesbian married couples to file joint federal tax returns, we noted that a number of states would have to provide guidance because they require two contradictory things: (1) if you file a joint federal return, you must file a joint state return, and (2) same-sex married couples cannot file jointly.”

Renu Zaretsky, Budget Battles and Filing Follies: The Sagas Continue. Today’s TaxVox headline roundup tells of abundant ACA tax filing headaches and more tax nonsense from the only avowedly-socialist senator, Bernie Sanders.

TaxProf, The IRS Scandal, Day 683Day 682Day 681. “Commissioner John Koskinen, testifying before the House Appropriations subcommittee this week, admitted that nearly a dozen grassroots conservative groups seeking tax-exempt status are still awaiting determination.”

Robert Wood, Report Says Former IRS Employees–Think Lois Lerner–Can Still Peruse Your Tax Returns. Well, that’s reassuring.


Career Corner. Going Concern March Madness: More #BusySeasonProblems (Caleb Newquist, Going Concern). Brackets asking important work life questions like Which is the bigger busy season problem? Working Saturdays (#1 seed), or Colleagues who heat up smelly leftovers (16 seed).”

I’ll take the underdog.



Tax Roundup, 3/20/15: Tax Foundation looks at Iowa Alt Max Tax proposal.

Friday, March 20th, 2015 by Joe Kristan

IMG_1284More on the Iowa Alternative Maximum Tax Proposal. The Tax Foundation’s Jared Walczak discusses HSB 215 in Iowa Considers Alternative Maximum Tax:

The basic idea is that each year, taxpayers get to choose between (1) paying under the current graduated income tax structure, claiming any credits, deductions, or exemptions for which they are eligible; or (2) paying a flat 5 percent rate on all taxable income while foregoing most income subtractions.

Those making the election for a flat rate would still be able to subtract the standard deduction ($6,235 for an individual), plus interest and dividends from federal securities, and federal pension income, but would forego other subtractions. In exchange, they could pay a flat 5 percent rate.

Jared comes to conclusions much like I did when I looked at the 2013 version of this proposal:

Iowa is one of a small number of states that allow a deduction for federal income taxes paid, which can certainly be significant. However, I crunched the numbers on a variety of scenarios, and conservatively estimate that taxpayers with more than $40,000 in taxable income would almost always be better off paying the alternative tax—unless, again, they fall into tax-advantaged categories as farmers, low-income families with children, and the like.

It is not, however, a sure thing. Some high income taxpayers might fare better under the traditional rate structure if they combine that federal deductibility with, say, sizable deductions for charitable contributions. And some low middle-income families might qualify for enough assistance through the tax code to make the standard approach worth their while. This adds complexity to the system, as taxpayers would want to calculate their tax burden both ways.

Jared notes that the proposal would be a revenue loser to the state, adding to its political problems. He also provides an example of another state that has tried a similar setup:

Alternative maximum taxes are rare but not unknown. Rhode Island adopted an alternative flat income tax structure from 2006 – 2011 which culminated in lower overall rates and the elimination of the state’s top brackets. That bill included phased-in reductions in the flat rate, whereas the legislation pending in Iowa sets the rate at 5.0 percent in perpetuity, but like the Rhode Island bill, this Iowa proposal draws upon elements of good tax policy. Ideally, though, Iowa would look at ways to reduce its high income tax burden without making taxpayers calculate their tax burden twice.

While I have not heard anyone in the legislature say so, I believe this is an attempt to provide badly-needed individual tax reform to Iowa withoutIf Iowa's income tax were a car, it would look like this. offending Iowans for Tax Relief.  The self-proclaimed “Taxpayers’ Watchdog” is known as a powerful force in the Iowa GOP, and has been known to set up primary challenges to those falling into its disfavor (though one observer says its influence has waned). ITR is an uncompromising backer of the deduction for federal taxes on Iowa returns. It is very difficult to achieve significant rate reductions while leaving the deduction in place. By leaving the deduction on the books while making it mostly meaningless, the Alt Max Tax backers sneak reform past the watchdog.

Related Tax Update Coverage:

Iowa Alternative Maximum Tax advances to its doom.

The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.


Roger McEowen, How Do I Handle Unharvested Crops At Death? (ISU-CALT). “When an individual dies during the growing season, the tax treatment of the crop is tied to the status of the decedent at the time of death.”

William Perez, Did You Pay Interest on Student Loans? It May be Tax Deductible

TaxGrrrl, Understanding Your Forms: 1098-E, Student Loan Interest Statement

Robert Wood, Which Legal Fees Can You Deduct On Your Taxes?

Kay Bell, IRS welcomes tax tip-off time, aka March Madness betting

Jason Dinesen, Glossary: Earned Income Credit

Peter Reilly, Tax Court Rules That Being Accommodation Party In Tax Shelter Is Hard Work. Apparently signing papers can be taxing. I appreciate this:

The Harvard degrees and successful architecture practice were negatives when it came to getting out of the accuracy penalty. Also Mr. Chai had not provided all the correspondence to his tax adviser.  Of late I’ve been thinking that the IRS is too quick to propose the accuracy penalty, a sentiment Joe Kristan shares,  I’ll bet Joe wouldn’t object to this one.  It is actually pretty mild.

Not every wrong tax penalty is negligent or willful, but some certainly are.




Keith Fogg, From Lindbergh to Nixon to Stegman – Fixing Information Flow in Identity Theft Cases (Procedually Taxing):

Recently, the United States District Court for the District of Kansas in the case of Kathleen Stegman ruled that the IRS could keep from the taxpayer the return filed by someone using her identifying information.  The sad part here is that the administrative decision to withhold the returns from her and the Court’s decision sustaining the IRS refusal to turn over the information seems to correctly reflect the law as it stands.  The law should change and taxpayers should have the ability to access documents using their identifying information.

It seems that the IRS is very good at hiding behind taxpayer confidentiality to cover its own mistakes.


TaxProf, The IRS Scandal, Day 680

Annette Nellen covers the AICPA tax reform suggestions for individuals:

The suggestions address:
1. Simplified Income Tax Rate Structure;
2. Education Incentives;
3. Identity Theft and Tax Fraud;
4. Relief for Missed Elections (9100 Relief); and
5. “Kiddie Tax” Rules.

The AICPA proposal is here.




Howard Gleckman, Trying to Square the House’s Tax Cuts and Its No-Tax-Cut Budget. “House tax writers seem to be ignoring their own party’s fiscal plan.”

Matt Gardner, House Budget Proposal Silent on Fate of Budget-Busting Tax Extenders (Tax Justice Blog).

Career Corner. The Aftermath of the Ex-PwC Employee Who Got Fired After a Dispute with Comcast Is About What You’d Expect (Caleb Newquist, Going Concern).


Today’s Spambox Bargain: “Canadian Nightcrawlers Shipped Direct To You. Live Guarantee.”



Tax Roundup, 3/4/15: Big week for trusts. And: Iowa gets its own tax phone scam!

Wednesday, March 4th, 2015 by Joe Kristan

1041Friday is Day 65 of 2015. Though March 6 is just another day to most people, it has always meant something to me (happy birthday, Brother Ed!). It also means something to trustees. The tax law allows trusts to treat distributions made during the first 65 days of the year as having been made in the prior year. This allows complex trusts to control their taxable income with a distribution, because trust distributions carry trust taxable income out of the trust to beneficiary 1040s.

This has become more important since the enactment of the Obamacare 3.8% Net Investment Income Tax. This tax hits trusts with adjusted gross income in excess of $12,150 in 2014. If a trust has beneficiaries below the much-higher NIIT thresholds for individuals, it can make at least some of that tax go away with 65-day rule distributions.

This affects “complex trusts,” which are trusts that are not required to distribute their income annually and which are not otherwise taxed on 1040s. Distributions from such normally carry out ordinary income, but not capital gains. If the trust has income that is not subject to the NIIT, the distribution will be treated as carrying out some of each kind of income, so trustees have to take that into account in their NIIT planning.

Income subject to the NIIT includes interest, dividend, most capital gains, rents, and “passive” income from businesses or K-1s. Retirement plan income received by trusts is normally not subject to the NIIT. A 2014 Tax Court decision makes it easier for trusts to have non-passive income, but trust income is normally passive.


20120920-3An Iowacentric tax scamThe Iowa Department of Revenue warns of a scam targeted at Iowans:

The Iowa Department of Revenue has been made aware of a potential scam targeting Iowa taxpayers. The scam begins through an automated phone call, which shows on caller ID as being from 515-281-3114. That phone number is the Department’s general Taxpayer Services number; however, no automated phone calls can originate from that number.

When answering the call, the taxpayer is informed they are eligible for a refund from the Iowa Department of Revenue. The taxpayer is then asked whether the refund should be deposited into the account the Department has on file or if they’d like to donate the refund to an animal charity.

The Iowa Department of Revenue does not make these types of calls. We believe this is an attempt to steal bank account or other personal information. By fraudulently displaying the Department’s phone number on caller ID, the scammer is attempting to convince the taxpayer of the legitimacy of the call.

The Iowa Department of Revenue doesn’t phone you out of the blue. The IRS doesn’t phone you out of the blue — they barely even answer phones anymore. If you get a call from a tax agency, assume it is a scam. It is, unless you have already been in contact with the agency because of a notice you’ve received in the mail


Obamacare is again on the dock in the U.S. Supreme CourtThe IRS decision to allow tax credits for policies in the 37 states that did not set up ACA exchanges is up for debate. The law provides for credits only for exchanges “established by a state.”

In a less politically-sensitive context, one could expect a 9-0 or 8-a decision against the IRS. That’s what happened in Gitlitzwhere the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

Those arguing for the IRS interpretation say the chaos will ensue and thousands of people will dieMichael Cannon, a prime architect of the case against the IRS rule, has a more measured discussion of the consequences of a decision against the IRS rule in USA Today. Aside from upholding the rule of law, a decision against the IRS rule could have many benefits.

Related: Megan McArdle, Obamacare Will Not Kill the Supreme Court. For a roundup of posts on the topic, try King v. Burwell — The VC’s Greatest Hits, from the Volokh Conspiracy’s attorney-bloggers.

Update: From Roger McEowen, Would It Really Be That Bad If the U.S. Supreme Court Invalidated the IRS Regulation on the Premium Assistance Tax Credit?




William Perez, Self-employed? SEP IRAs Help Reduce Taxes and Save for Retirement

TaxGrrrl, Taxes From A To Z (2015): A Is For Actual Expense Method

Kay Bell, Some Ohio taxpayers stumped by state’s tax ID theft quiz

Jason Dinesen, Is Chamber of Commerce Membership Worth It?. Our local group functions as an alliance of crony capitalists.


TaxProf, The IRS Scandal, Day 664. Today’s edition mentions my high school classmate and junior class president election opponent, Al Salvi, and his outrageous treatment at the hands of Lois Lerner when she was with the Federal Elections Commission. For the record, Lois Lerner had nothing to do with my electoral triumph.

Robert Wood, Warren Buffett To Al Sharpton, The 1% Makes 19% Of All Income, Pays 49% Of All Taxes

Alan Cole, Most Retirement Income Goes To Middle-Class Taxpayers (Tax Policy Blog).

Distribution of Pension Income-02

Clint Stretch wonders whether it is Time to Retire Income Tax Reform? (Tax Analysts Blog). “With income tax reform out of the way, we could focus the conversation on the important issue – the size and scope of government. If eventually we can agree on how much tax we need to collect, we can always ask tax reform to come out of retirement for a little consulting.”


Len Burman, Cutting Capital Gains Taxes is a Dead End, Not a Step on the Road to a Consumption Tax. As someone who thinks the proper capital gain rate is zero, I can’t agree.

Career Corner. Starting a CPA Pot Practice Is Your Next Opportunity (Caleb Newquist, Going Concern). “Consider a joint venture, at least.”



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

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

Be calm. All is well.

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

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

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

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

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

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

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


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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

Jack Townsend, Another UBS Customer Pleads

Rashia says "thanks, Commissioner!"

Someday this may seem quaint.

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

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

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

Have a nice day.

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

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


David Brunori ($link): 

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

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


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

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




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

Monday, February 9th, 2015 by Joe Kristan

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

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

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

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

Naturally the politicians disagree:

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

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

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

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

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

Link: The Comptroller Report.


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


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


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

William Perez, How Is Interest Income Taxed and Reported?

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

IMG_1271Leslie Book, Preparers and Due Diligence (Procedurally Taxing)

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

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

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

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

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

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

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

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

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

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




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

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

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

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


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

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

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

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

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


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

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



Tax Roundup, 10/28/14: Back-to-school edition! And: IRS says it will stop stealing.

Tuesday, October 28th, 2014 by Joe Kristan

The 2014 tour of Iowa begins. I am helping Roger McEowen and Kristy Maitre teach Day 1 of the Farm and Urban Tax School this year, and this morning we are starting the first of eight sessions in Waterloo. We hit Maquoketa Thursday.  Other sessions will be in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. It’s two great days of CPE, and it’s a bargain. Get your details and sign up for a convenient session at the ISU Center for Agricultural Law and Taxation today.  Here is the crowd this morning:


Looks like fun, no?

f you are a Tax Update reader, come see me (Hi, Kevin!). You qualify for a discount! Well, not really, but I can get you a free postcard from the DNR Chickadee Checkoff booth…



Have a nice day. We’re All Flies in the IRS’s Widening WebMegan McArdle on the IRS’s sudden turnabout on asset seizures stealing from innocent businesses after the New York Times reported on it:

It’s as if the IRS just noticed that they were grotesquely abusing their power in order to punish people who appear to have done nothing actually wrong. Did this not occur to them when the victims’ lawyers pointed it out? Did none of their thousands of employees wonder aloud whether they really needed to make war on America’s college funds?

I’m sure it was forced on them by budget cuts.

So think about what has happened to our government agencies. We passed a law, to raise taxes, or curb the usage of addicting drugs. That law didn’t work as well as we wanted, because a lot of people were evading it. So we passed new laws, to make it easier to enforce the original one, like requiring banks to report all transactions over $10,000. And then people evaded that, so we made another rule … and now people who had no criminal intent find themselves coughing up tens of thousands of dollars they shouldn’t owe. 

There’s a lot of that in the tax law. FATCA and the FBAR foreign financial account reporting requirements are classic examples of laws nominally aimed at big-time tax evaders that destroy the finances of thousands of innocent foot-faulters.

As in the case of the fly, we were better off leaving the original ailment alone. No, I’m not saying that we shouldn’t try to catch tax evasion. I’m saying we shouldn’t try so hard that we end up criminalizing a lot of innocent behavior. There are worse things than a country with some tax fraud. And one of those things is a government with vast and arbitrary power to punish people who have done no wrong. 

And a willingness to use it carelessly.

Joseph Henchman, IRS Promises to Curtail Property Seizures After Abuses Come to Light (Tax Policy Blog)

Kay Bell, IRS seizes honest taxpayers’ assets under forfeiture program. “Oh my Lord, IRS. What in the hell were you thinking?”


buzz20140909Paul Neiffer, IRS Disagrees With Morehouse Ruling (Of Course). It looks like they will continue to assess SE tax on non-farmers with CRP income outside the Eighth Circuit.

Robert D. Flach has fresh Tuesday Buzz!!

Tax Prof, Tax Revolving Door Enriches Former IRS Officials Who Cash in by Navigating Inversions Through Rules They Wrote. And Commissioner Koskinen approves.


Leslie Book, A Combo Notice of Deficiency Claim Disallowance Highlights Tax Court Refund Jurisdiction (Procedurally Taxing)


Jeremy Scott, Will a Graduated Income Tax Sink Martha Coakley? (Tax Analysts Blog)

Steve Warnhoff, Senators Defend LIFO, a Tax Break that Obama and Camp Want to Repeal (Tax Justice Blog)


TaxProf, The IRS Scandal, Day 537. Today’s scandal roundup features Bob Woodward saying “If I were young, I would take Carl Bernstein and move to Cincinnati where that IRS office is and set up headquarters and go talk to everyone.