Posts Tagged ‘Russ Fox’

Tax Roundup, 11/25/15: Don’t bother depreciating things up to $2,500. And: Have a great Thanksgiving!

Wednesday, November 25th, 2015 by Joe Kristan

20141226-1$2,500 is the new $500. The IRS yesterday announced (Notice 2015-82) that it was increasing the maximum “safe harbor” expensing amount from $500 per item to $2,500 for taxpayers without an “applicable financial statement” — that is, most taxpayers. Taxpayers with an AFS can elect to expense items up to $5,000. These safe harbors enable taxpayers to not worry about capitalizing and depreciating items up to these amounts.

The new safe harbor takes effect for years starting January 1, 2016 and later.

The safe harbors are authorized by treasury regulations for taxpayers who have in place at the beginning of the tax year “accounting procedures treating as an expense for non-tax purposes” that expense such “per invoice (or per item as substantiated by invoice)” So make sure you write down somewhere that you have a policy of expensing everything up to $2,500 before December 31.

This is a good, if small, step towards allowing taxpayers to expense capital costs. I object to the “applicable financial statement” requirement for the $5,000 amount, as the tax law shouldn’t care whether you have a CPA-certified audit or that you have to report your financials to a government agency, but at least this closes the gap some.   I should be happy, I suppose, that it gives my auditing brethren a small sales tool.

Related: Russ Fox, IRS Increases De Minimis Expense Threshold to $2,500 from $500 for 2016 OnwardTony Nitti, IRS: Taxpayers May Immediately Deduct The Purchase Of Assets Costing Less Than $2,500.




William Perez, Year End Tax Planning Ideas for Self Employed Persons.

Robert Wood, Passports Required For Domestic Travel In 2016, But IRS Can Revoke Passports For Taxes. Giving IRS control over passports is a horrible idea. They make so many errors, and the errors can be so hard to fix.

Robert D. Flach, MORTGAGE INTEREST LIMITATIONS. “But the Court of Appeals ruled that [unmarried] co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.”


Annette Nellen, Sales Tax as a Penalty? “A proposed California initiative may surprise you.  It calls for a 1000% sales tax on ‘political advertisements.'”

Kay Bell, IRS should focus tax audit efforts on richer taxpayers. Willie Sutton might agree. 

Paul Neiffer, FAFSA Reporting Changes. “The Department of Education has issued new rules that make this process be much less of a hassle; however, you have to wait until 2017 to take advantage of it.  Beginning in that year, your required FAFSA income tax return will be a whole year in arrears.” About time.

Jason Dinesen, From the Archives: Home Offices, Principal Place of Business, and Mileage Deductions

Carl Smith, New, Additional Proposed Innocent Spouse Regulations Issued (Part 1), (Part 2) (Procedurally Taxing)

TaxGrrrl, Don’t Try This At Home: Avoid These 10 Money Missteps That Landed Reality TV Stars In Trouble.




TaxProf, The IRS Scandal, Day 930. Today’s link on the “investigation” of the scandal by the Justice Department.


Scott Hodge, The Simple Solution to the Pfizer Deal: Cut the Rate and Move to a Territorial Tax System (Tax Policy Blog). So, you could actually do something like this that makes sense, or you could listen to….

Richard Phillips, Congress Must Act Now to Stop Pfizer and Other Companies from Inverting (Tax Justice Blog). The “continue the beatings until morale improves” approach.

News from the Profession. A Surprising Number of Accountants Think Accountants Are Incredibly Corrupt (Caleb Newquist, Going Concern).


Programming Note: The Tax Update will be taking the rest of the week off to celebrate Thanksgiving. I am thankful for the many fine tax bloggers I get to read when putting the Tax Roundups together, and I am especially thankful for those of you who stop by to read the Tax Update. Enjoy your Thanksgiving, and maybe start with Jim Maule’s holiday musings: Thanks Again! “For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things.”



Tax Roundup, 11/23/15: Maquoketa! And, bought and paid-for at year-end insufficient for golf-cart credit.

Monday, November 23rd, 2015 by Joe Kristan
A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

Maquoketa! The Day 1 team of the  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools is in the northeast Iowa town of Maquoketa, known for its cave system and the 61 Drive-in theater, “one of the few remaining outdoor theaters in the United States.” We then get two weeks off before the penultimate session in Denison, on the other side of the state, and our December 14 final session in Ames. Register here for one of the final schools or for the webcast of the Ames session.


“Ordered” doesn’t cut it for year-end asset purchases. Among the many silly tax rules enacted in the panicked response to the 2008 financial crisis was the tax credit for “low-speed electric vehicles,” more conventionally known as golf carts. This led to panic buying of golf carts to claim the lucrative tax spiff. Last week the Tax Court disappointed one buyer who tried to get a tax credit purchase in under the wire. It provides a lesson for all taxpayers looking at year-end purchases to get a Section 179 deduction or bonus depreciation.

The credit was available only for carts “placed in service” in 2009. Judge Paris sets the stage (all emphasis mine, footnotes omitted):

Respondent determined a deficiency of $6,253 in petitioners’ Federal income tax for 2009. The issue before the Court is whether petitioners are eligible for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of $6,253 pursuant to section 30D for 2009. The notice of deficiency did not determine a penalty.

The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26 I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1, 2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of section 30D, which as of the date of the notice allowed a tax credit for qualified plug-in electric vehicles placed in service from January 1 to December 31, 2009. On October 7, 2009, the IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model “meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a Qualified Plug-in Vehicle.

$6,253 off if delivery taken by December 31, 2009!

$6,253 off if delivery taken by December 31, 2009!

So the Spark NEV-48 EX qualified — if it beat the deadline. Back to Judge Paris:

The electric vehicle was delivered to petitioners on June 8, 2010, even though petitioners placed an order for a low-speed electric vehicle reflecting their choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through its Web site on December 21, 2009.

On December 21, 2009, petitioners remitted full payment of $7,786.53 for the vehicle with a credit card and promptly commenced insurance on the vehicle on December 28, 2009.

For charitable contributions and cash-basis business expenses, this would normally be all that is necessary, as a credit card transaction is as good as cash to IRS. But not this time:

Petitioners argue they remitted payment and acquired title to a qualified electric vehicle on December 21, 2009. Petitioners assert that legal title passed to them on the date of purchase and therefore they are entitled to a PEVC for 2009 because the vehicle was acquired before December 31, 2009. However, the statute effective on the date of purchase also required a qualified motor vehicle to be placed in service on or before December 31, 2009. 

Petitioners entered into the transaction for purchase of the vehicle just before the close of the year. As previously discussed, they received a bill of sale, which contained a VIN, and a certificate of origin shortly after they remitted full payment. However, a bill of sale containing a description of the vehicle and a VIN is not sufficient to show the vehicle was ready and available for full operation for its intended use. Petitioners have not offered evidence to show the vehicle was available for their use, much less fully manufactured. In fact, the vehicle was not delivered until June 8, 2010, making it impossible for the vehicle to be available for use until that date. Even if the Court were to assume the vehicle was fully manufactured and operational while awaiting shipment to petitioners, Brown and Noell tell us that the vehicle could not be considered placed in service unless and until the vehicle was readily available to serve its assigned function for petitioners’ personal use on a regular basis. The Court finds that the low-speed electric vehicle was not available for its intended use on a regular basis until it was delivered on June 8, 2010. Consequently, petitioners did not place the vehicle in service in 2009 and are not eligible for a PEVC for that year.

So the taxpayer’s golf cart just went up $6,000 or so in price.

The lesson for year-end tax planning is that the same “placed in service” rule applies to year-end fixed asset purchases by taxpayers wanting Section 179 deductions or bonus depreciation. If your business races to buy a big SUV or a new tractor by year-end, it needs to be in your garage or barn by December 31. A new machine has to be on the shop floor, ready to go.  “Bought and paid-for” isn’t enough.

Cite: Podraza, T.C. Summ. Op. 2015-67.



Peter Reilly, Tax Court Denies Exempt Status To Group Using Trading Card Games To Promote Sobriety. Peter has an in-depth exploration of last week’s Gamehearts Tax Court case. It explains that the organization denied tax exemption in the case was involved in non-casino games, including “Magic: The Gathering and similar games such as Pokemon and World of Warcraft Trading Card Game.” I had assumed that it was more of a gambling thing. I have edited my original post on the case accordingly.

Peter does not agree with the decision:

This is another example to me of the IRS EO group being out of touch with the modern world.  Magic the Gathering has been a thing since 1993.  You will also see IRS giving a hard time to not for profits dedicated to open source software.  It also turned down a sorority that wanted to operate on-line and a group planning to provide free wi-fi.

The whole exempt organization function is in disarray.



Kay Bell, Is Alaska getting closer to enacting a state income tax? The oil bust has clobbered Alaska revenues.

Jason Dinesen, From the Archives: Issuing 1099s to an Incorporated Veterinarian

Jim Maule, Old Tax Returns Have Value. I keep my tax returns forever; Prof. Maule explains why being a tax hoarder can be useful.

Robert Wood, Your Passport Could Be Cancelled If You Owe IRS. Because Congress apparently feels we need one more poorly-considered bill that will hugely inconvenience honest taxpayers and will be impossible to undo.

Russ Fox, The Turf Monster Striketh. With a caution against sending tax ID numbers via e-mail.

TaxGrrrl, Jay Z Loses On Alvarez-Cotto Boxing Bet As Charity Gets Big Win.

Robert D. Flach, YEAR-END TAX UPDATE WORKSHOPS. With some sound year-end planning reminders.


Me, How your calendar might help you beat the IRS. My newest post at, the Des Moines Business Record’s business professional’s blog, covers the importance of keeping track of your time to document “material participation” to take tax losses and to avoid the 3.8% Obamacare Net Investment Income Tax.


TaxProf, The IRS Scandal, Day 926Day 927Day 928, Day 926 discusses the ties between Lois Lerner and the architect of Wisconsin’s Kafkaeske partisan “John Doe” witchhunt.


Steven Rosenthal, Treasury Pulls its Punches on Earnings Stripping (TaxVox). “Treasury made only small technical changes to the definition of an inversion.  News reports suggested something much larger—namely limits on earnings stripping, which would have made inversions (and other combinations of U.S. firms with foreign corporations) much less profitable.”


Career Corner. Let’s Enjoy Some Intern Reviews of Various Accounting Firms (Caleb Newquist, Going Concern).


Tax Roundup, 11/20/15: IRS issues workaround for absurdly complex “repair regs.” And: more good ACA news!

Friday, November 20th, 2015 by Joe Kristan

See update below. 

IMG_1218In a tacit admission that the new repair regs are nightmarishly complex, the IRS has issued a new “safe-harbor” procedure for allocating remodeling costs for restraurants and retail buildings between deductible repair costs and capitalized improvement costs.

Rev. Proc 2015-56 is available to most retail buildings and to restaurants.

(UPDATE: Brian Coddington notes correctly in the comments that this procedure only applies to taxpayers with an “applicable financial statement.” These are SEC statements, audited financial statements, or statements supplied to regulators other than the IRS. This seemingly gratuitous requirement greatly reduces the potential usefulness of this procedure. Why the IRS would restrict simplification to just those taxpayers least likely to need it is beyond me. I missed the applicable financial statement requirement in my initial take on the rule. My apologies, and my thanks to Brian for correcting me. Brian’s comment goes beyond this issue and is worth reading in full.)

It excludes vehicle dealers, gas stations, manufactured home dealers and “nonstore retailers.” It applies to business that own their own buildings and to landlords whose buildings hold qualifying businesses.

Under the procedure, 75% of “qualified remodel-refresh costs” are deductible, with the remaining 25% capitalized. The amount capitalized is depreciated over the life otherwise applied to the building. That generally means a 39-year life, but if the building is “qualified restaurant property” or “qualified retail improvement property,” the life can be as short as 15 years.

At first glance, it seems like a much more useful set of rules than the repair regs we were all fretting about this time last year. The biggest potential downside is that Rev. Proc. 2015-56 requires taxpayers to forego “partial disposition” treatment for buildings covered by the safe harbor. The taxpayer also has to elect “general asset account” depreciation for the building covered by the safe harbor.

The election will be made on Form 3115 as “automatic” accounting method change, as newly-designated automatic change number 222. It is available for years begining on or after January 1, 2014. As automatic changes have to normally be made with a timely-filed return, I don’t think we can change already-filed 2014 filings, but I will be digging into the lengthy procedure, and will amend this as needed as I get to understand it better.


The insurance markets aren’t doing what the President told them to do. 

First, Tyler Cowen, Further wounds for Obamacare: “To put it bluntly, I don’t think the mandate part of the bill is working.  These are mostly problems which decay and get worse, not problems which self-correct.”

Next, Megan McArdle, Obamacare Insurers Are Suffering. That Won’t End Well:

What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.

She adds:

This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.

I remember when we were told that the ACA would just get more popular over time as we all grew to love its benefits.


No, but they do make it easier to jack up tuition and administrative salaries. $23 Billion In Annual Federal Tax Credits For Higher Education Have No Effect On College Attendance (TaxProf). 




Jana Luttenegger Weiler, Quiet Changes to Social Security Could Have Big Impact (Davis Brown Tax Law Blog):

The file and suspend option was and still is used by couples when one spouse, typically the higher earner, files for benefits but then suspends receiving his or her own benefits. This allows the other spouse to file and receive spousal benefits based on the higher earning spouse’s record for a certain number of years while the higher earning spouse delays benefits and earns delayed retirement credits. The result is larger benefits for the higher-earning spouse at age 70, but still allowing the lower-earning spouse to take benefits. This option has been eliminated — though there may still be time to file and suspend in the next 180 days and be grandfathered in for those who are currently eligible to do so.

Jana expects additional guidance soon.


Gretchen Tegeler, Many Iowa public employees are better off in retirement than working ( In some cases, we’re better off that they’re retired too.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #7: Decoding The Mortgage Interest Limitation, “Cohabitation, of course, is not limited to same-sex couples, and so the Ninth Circuit’s decision to allow each taxpayer who co-owns a house to claim an interest deduction on the full $1,100,000 of debt — provided they are not married filing separately — should be a welcome one for many.”

Russ Fox, Update on the Future of Daily Fantasy Sports:

I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.

A very small number of states realize that fantasy sports aren’t one of the major problems plaguing the republic.

TaxGrrrl, ‘Real Housewives’ Stars Joe & Teresa Giudice Hit With Federal Tax Lien

Robert Wood, More Banks Spill Tax Evasion Secrets To Avoid Criminal Charges, Account Holders Beware. Bank secrecy is pining for the fjords.




Stephen J. Entin, Michael Schuyler, Some Tax Trip-Ups in the Democratic Debate (Tax Policy Blog):

Senator Sanders was asked how high he would raise the top tax rate. He answered, jokingly, that he would boost it a lot, although perhaps not to the 90% top tax rate in the Eisenhower Administration; that he, the Senator, was not as much of a socialist as Eisenhower!  In fact, the top tax rate was 91%…

One result of Ike’s policies was that he presided over three recessions in his eight years in office. Presumably, the Senator would not want to repeat that outcome.

I think Bernie would be willing to take that price to stick it to the man.

William Gale, David John, Two Important New Retirement Savings Initiatives from the Obama Administration (TaxVox) These guys think the MyRA program is important.

TaxProf, The IRS Scandal, Day 925


Peter Reilly, Princeton University Will Have To Prove It Deserves Property Tax Exemption. I’d make them apologize for Woodrow Wilson first.



Tax Roundup, 11/19/15: Play sober, play taxable (updated). And: Administration says no to permanent bonus depreciation.

Thursday, November 19th, 2015 by Joe Kristan


20150805-2Gaming while sober: maybe halfway right, but not even halfway exempt. See Update Below. Sobering up is hard to do for alcoholics. That’s why they’re alcoholics in the first place.

One of the hard parts is that many of the things you enjoy may be associated with alcohol.  That’s where GameHearts, A Montana Nonprofit Corporation, came in. The Tax Court picks up the story:

On July 14, 2010, GameHearts filed a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. In the Form 1023 GameHearts provided the following description of its activities:

    GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.


The IRS was unmoved:

In a June 3, 2013, letter respondent notified GameHearts of the conclusion that, on the basis of the information provided, GameHearts did not qualify for exemption under section 501(a) as an organization described in section 501(c)(3) because GameHearts was not organized or operated exclusively for exempt purposes. Respondent based this determination on the conclusion that (1) GameHearts failed to establish that it benefited a charitable class; (2) GameHearts’ nonexempt activities were more substantial than its exempt activities; and (3) GameHearts did not meet the requirements of section 1.501(c)(3)-1(d), Income Tax Regs., “because it did not limit activities to addicts with a low income.”

So the Tax Court got involved. Unfortunately for sober gamers in Montana, the court sided with the IRS:

While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and “boost the overall market shares of the industry”. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless, consistent with our holdings in Schoger Found. and Wayne Baseball, that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.

We therefore hold that GameHearts does not operate exclusively for charitable purposes within the meaning of section 501(c)(3). 

In other words, if there’s a market niche for sober gaming in Montana, it should be filled by somebody trying to make money.

Update: Peter Reilly has a well-researched post on this case, and he points out that the “gaming” involved was not casino gambling, which I incorrectly assumed in my initial reading of the article. I have made some modifications to my post to remove implications otherwise, and I thank Peter for his correction and for his in depth story.

Cite: GameHearts, T.C. Memo. 2015-218; No. 20303-13X



Administration opposes extending bonus depreciation. Tax Analysts reports ($link):

The Obama administration does not support a tax extenders package that would make bonus depreciation permanent, Treasury Secretary Jacob Lew told House Ways and Means Committee Democrats on November 18.

The administration is willing to consider making other tax extenders permanent, including the research credit and small business expensing, as long as the American opportunity tax credit and the expanded child tax and earned income tax credits are made permanent, according to House aides.

Secretary Lew didn’t rule out a “temporary” extension of bonus depreciation, and I suspect that’s what we’ll get.




Russ Fox, IRSAC Report Has Hits and Errors:

IRSAC laments IRS funding. While I agree it would be nice to have the IRS fully funded, the problem was caused by the IRS (and especially Chairman Koskinen) and the IRS scandal. Until the IRS comes clean, Republicans in Congress rightly will not allow full funding.

This is why those who want IRS funding increased should insist on Koskinen’s resignation.

TaxGrrrl, Report Accuses IRS Of Encouraging Illegal Immigrants To File Using False Info, Identity Fraud. Well, increase their budget, then!


Jason Dinesen, Choosing a Business Entity: S-Corporation. “S-corporations share many of the same characteristics of partnerships. The biggest difference is, owners who work in the business day-to-day are paid a salary.”

Kay Bell, Start your retirement planning and saving ASAP. Starting in your 20s makes a huge difference as you approach your 60s. 

Robert Wood, Lawyer Faces Up To 50 Years Prison Over Payroll Taxes. Always remit your payroll taxes, no matter who else you need to stiff.


Dave Nelson, Preparing for a cyberattack or data breach ( “In today’s world of nonstop cyberattacks, companies must prepare for when, not if, they are attacked.”

Leslie Book, International Conference on Taxpayer Rights Kicks off Today. (Procedurally Taxing).

Peter Reilly, Ownership Through LLC Kills Local Charitable Property Tax Exemption. “Disregarded For Federal Purposes Does Not Mean Disregarded For Local Purposes”





David Brunori, Business Entities Pay a Lot of State Taxes (Tax Analysts Blog):

In 2014 businesses paid about $142 billion in sales tax, or about 20.7 percent of taxes paid. More distressing is that they paid $5.8 billion more than in the prior year. The sales taxation of business inputs remains one of the greatest tax policy failings of the last 100 years. Business entities should not pay sales taxes on their services. Those taxes get passed on to someone else without their knowledge. Hiding the tax burden goes against every principle of transparent good government.

Iowa’s Department of Revenue has taken a small step to reduce the taxation of business inputs, to the outrage of all sorts of goodthinkers.


David Greenberg asks How Has Federal Revenue Changed Over Time? (Tax Policy Blog). This picture sums it up:


The corporation tax continues to decline in importance with the spread in pass-through entities. That won’t change regardless of what economic illiterates would wish.


Howard Gleckman, Would Two Year Budgeting Help Break the Fiscal Impasse? I think it would just reschedule the impasses.


TaxProf, The IRS Scandal, Day 924

Carl Davis, Congress Searches the Couch Cushions for Road Funding Money (Tax Justice Blog).


News from the Profession. At Least One SEC Commissioner Has a Sense of Humor (Caleb Newquist, Going Concern).


20151119-2Things that happened on November 19. Today’s the 152nd anniversary of the Gettysburg Address, when President Lincoln dedicated the Gettysburg battlefield cemetery by saying: “The world will little note, nor long remember what we say here; while it can never forget what they did here.”

81 years later on November 19, another war claimed another young man. A little note and a little remembering here.




Tax Roundup, 11/18/15: A 3% Iowa income tax rate? And: Californians, taxes could be worse!

Wednesday, November 18th, 2015 by Joe Kristan

engageiowalogoNew policy group proposes bold Iowa tax reform. In the wake of another Tax Foundation report showing that Iowa’s business tax policy stinks, there is a new proposal to do something about it. Tax Analysts reports ($link):

Iowa’s nine-bracket personal income tax would be flattened to a single rate of about 3 percent under a proposal from a recently formed Iowa policy group.

Engage Iowa, founded in August by Cedar Rapids Mayor Ron Corbett, is calling for changes to the state’s income tax code that it says would improve the state’s business climate and reduce the outflow of high-income taxpayers to states such as Texas and South Dakota.

Like The Tax Update’s Quick and Dirty Iowa Tax Reform Planthe Engage Iowa paper does not advocate a tax cut. It attempts to come up with a rate and tax structure that raises the same amount of tax as the current Iowa tax system. The paper presents several proposals, including one that uses a 1 percentage point increase in the state sales tax rate to reduce the income tax rate.

The plan has a lot going for it. Its one glaring weakness is its omission of any corporation tax reform. Iowa has the highest corporation tax rate in the country, but one so full of loopholes and corporate welfare tax credits that it generates a relatively paltry amount of revenue for the state. Iowa’s 49th place corporation tax rating in the Tax Foundation State Business Tax Climate Index is a big reason for Iowa’s perennially poor ranking.

Naturally the high-tax, high-complexity lobby is unimpressed by the plan. From

Peter Fisher, research director for the left-leaning Iowa Policy Project in Iowa City, on Monday said he applauded Engage Iowa for pointing out that Iowa’s current income tax system is less progressive than it might seem after deductions and credits are factored in. He said the Engage Iowa policy suggestions also might help eliminate “the perception problem” that Iowa has as a higher top income tax rate than it does in practice.

However, Fisher said the Engage Iowa flat tax seems like others of its kind: It lowers taxes for the wealthier and makes up for it with taxes on the lower end of the income earners.

The tax law is a poor vehicle for income redistribution in general, but the state income tax is an awful vehicle in particular, given the ability of high income earners to leave the state. The focus on “the rich” also skates by the reality of who “the rich” are: primarily employers who run their businesses through pass-through entities and pay their business taxes on their 1040s. Bashing “the rich” bashes employment, especially with zero-tax South Dakota right next door.




Russ Fox, Yes, Two States Rank Lower than California. “It’s not all bad news in the Tax Foundation’s 2016 State Business Tax Climate Index for California. You could always be in New York or New Jersey.”

Robert Wood, Man Gets $21.5M Verdict For Door Injury, But IRS Is Biggest Winner. “Damages for physical injuries are tax free, but punitive damages are taxed. For this reason and others, your taxes might be lower if you settle a lawsuit rather than going to verdict.”


Mitch Maahs, Report Highlights IRS Shortcomings Preventing Business ID Theft (Davis Brown Tax Law Blog). “In most cases, an ID thief files a business tax return using an Employer Identification Number (EIN) of an active or inactive business without permission to obtain a fraudulent refund, often claiming extensive refundable tax credits.”

Kay Bell, Tornadoes, other wild November weather: Be ready! “Be ready, on the physical and financial and especially tax fronts, for dangerous weather, this week and any time of the year.”

Janet Novack, After Budget Deal’s Surprise Cuts, Can Boomers Really Count On Social Security? It’s always dangerous to count on a fiscally insane scheme for your retirement security.

Jim Maule, The Fallacy of “Job Creating” Tax Breaks, Yet Again. “Job relocation is not job creation.”




Scott Greenberg, Section 179 Really Does Benefit Small Businesses (Tax Policy Blog). “Ideally, all business investments would be given the same treatment as Section 179 and businesses would be able to deduct all investment costs in the year that they occur. But until the U.S. tax code adopts this ideal, Section 179 remains an important provision that allows some businesses to deduct investment costs as they occur.”

TaxProf, The IRS Scandal, Day 923. And all politicians are honest in Chicago. “President Barack Obama’s public comments appearing to prejudge the outcome of Justice Department investigations don’t affect the decisions in those inquiries, Attorney General Loretta Lynch said Tuesday.”

Renu Zaretsky, Budgeting, Wooing, and Taxing. Today’s TaxVox headline roundup covers highway bill politics and Michigan’s entirely unoriginal idea of bribing companies to lure data centers.

Danshera Cords, Unintentionally Undermining Voluntary Compliance: Balancing Accountability and Budget (Procedurally Taxing). Another call to increase the IRS budget. If you want the IRS budget increased, you want Commissioner Koskinen to resign, because it’s not happening otherwise.


Career Corner. The Toll of Travel: An Interview With a Former Big 4 Advisory Road Warrior  (Leona May, Going Concern)



Tax Roundup, 11/16/15: Mason City Monday. And: maybe using that disbarred tax guy isn’t such a great idea.

Monday, November 16th, 2015 by Joe Kristan

Right here in River City. The ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools are here in Mason City, the town that was the model for Meredith Willson’s “Music Man.” It’s rainy here today.


Still, I’ll take that over what we had here last year:


There remain three sessions in this year’s circuit, in Maquoketa, Denison, and Ames. The Ames school is also available as a webinar, in case the weather continues to deteriorate. Register today!


The Tiffany of tax prep. If you’ve been in the tax prep business for very long, you probably have lost a client along the way to an “aggressive” tax guy who promised much better results than a milquetoast like you would ever have. If a federal injunction order issued last week is to believed, a California preparer is the model for that kind of “aggressive” guy.

The case involves a Mr. Siegel, who the court says never answered the allegations against him. The order describes some amazing tax thinking (my emphasis):

For example, Siegel falsely advises his customers that to treat their home as an out-of-state corporate office for federal tax purposes, the customer’s Nevada “C” corporation (i.e., an entity entirely controlled by Siegel and the customer) must require as a condition of employment that its corporate officers (i.e., the same Siegel customer) live in the customer’s California home while working away from the corporation’s purported home state of Nevada (i.e., a state where the Siegel customer typically has no actual contact). Siegel has falsely advised customers by e-mail that this scheme is valid because: (a) the customers, as business owners, are necessarily “on call 24/7” while living or working from their out-of-state “business office;” (b) the customers can deduct [their] rent and other expenses through [their] corporation when [they] are on call for that corporation”; and (c) while “the internet was just getting hot for being on call” in 2002, “[w]ithout a question in 2013 when we are truly on call 24/7 working at home is a deduction for the corporation”

It takes a special kind of preparer to give that kind of advice. The kind htat has been disbarred, like this one. The Department of Justice press release adds some details:

For example, the complaint states that Siegel deducted on one couple’s tax returns purchases at Tiffany & Company, Royal Caribbean Cruise Lines, Louis Vuitton and Princess Cruise Lines.  Siegel allegedly attempted to conceal these fraudulent deductions from the Internal Revenue Service (IRS) by lumping them together and reporting them as large expenses for “supplies” or “medical records and supplies.”

Medical records? I suppose you could stash your medical bills in your Louis Vuitton handbag.

The injunction isn’t a criminal charge, but given the allegations, Mr. Siegel may hear more from the Department of Justice. Meanwhile, his clients may be wishing they had used a less “aggressive” tax guy.

Other coverage:

Russ Fox, Don’t Go to Lawrence Siegel to Have Your Taxes Done

Robert Wood: Court Bars Masquerade, No More America’s Next Top Tax Lawyer


Mason City Sundog Morning, 2014

Mason City Sundog Morning, 2014


William Perez, What to do if you see “RSUs” on Form W-2

Robert D. Flach, TRAPPED BY OUR CAPITAL GAINS ARE WE. “Never let the tax tail wag the economic dog.”

Kristine Tidgren, A Trial Court Has Much Discretion When Divorce Strikes the Farm (Ag Docket): “The court noted that ‘there are no hard and fast rules governing economic issues in dissolution actions.'”

Kay Bell, Cleveland could owe millions in jock tax refunds

Peter Reilly, Former IRS Commissioners Scold Congress For Gutting IRS Budget. If they really want an increased IRS budget, they should also urge Commissioner Koskinen to resign.

TaxGrrrl, Spend It Like Beckham: Tax Deal Could Bring MLS Soccer To Miami. Apparently Miami has solved all of its real problems if it can spend tax money on this.



Scott Greenberg, Bonus Depreciation Covers 2/3rds of Corporate Investment (Tax Policy Blog). Not if an extender bill doesn’t pass for 2015.

Richard Auxier, Marco Rubio’s gas tax cut would give state and local governments flexibility, and political fights (TaxVox).

TaxProf, The IRS Scandal, Day 919Day 920Day 921

News from the Profession. A Three-Page Tax Code Would Keep Accountants Plenty Busy (Caleb Newquist, Going Concern).



Tax Roundup, 11/12/15: W-2 trumps uncertain memory. And: more debate reaction.

Thursday, November 12th, 2015 by Joe Kristan

Day 4: Ottumwa! The big first week of The  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools concludes for the Day 1 teaching team of me, Kristy Maitre and Roger McEowen at Indian Hills Community College in Ottumwa, Iowa today. The Day 2 team of Paul Neiffer, Dave Repp and Patty Fulton will finish up in Red Oak this morning.

It’s been some driving this week:


If you missed us, there are still four two-day schools left. We hit Mason City next Monday; Maquoketa November 23; Denison December 7; and Ames December 14. The Ames session is available as a webinar. Register today!


Sure enough. Few of us (generally only tax preparers) double-check the income reported on our W-2s. We take the employer’s word for it. So does the IRS. That’s the lesson a Californian learned this week in Tax Court.

The taxpayer faced some extra hurdles in filing his 2010 tax returns, according to the Tax Court:

Petitioner was arrested the second week of January of 2011 and was incarcerated until June 2012. Petitioner’s motorhome and van were seized, and he lost all of his records after his arrest and incarceration.

Petitioner did not file a timely return for 2010. On April 1, 2013, the Internal Revenue Service (IRS) prepared a substitute for return for 2010 under section 6020(b). The IRS issued a notice of deficiency for 2010 dated July 8, 2013.

Considering the circumstances, you can understand the non-filing, even while realizing he still needed to. But he was nagged by doubts (my emphasis).

As indicated, petitioner conceded all of the income determined in the notice of deficiency with the exception of wage income of $3,767 from Audio Visual Projection Services, Inc., and $404 from Swank Audio Visuals, LLC. These employers issued petitioner 2010 Forms W-2 for the respective amounts. Petitioner explained that because all of his records were lost and his employers often paid him late or not at all, he does not know whether he was paid for all of the work that he performed in 2010.

It’s an interesting defense. He didn’t say he wasn’t paid; he just wasn’t sure. But the court was sure enough (citations omitted, my emphasis):

In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income.  If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. The Forms W-2 from Audio Visual Projection Services, Inc., and from Swank Audio Visuals, LLC, are sufficient evidence to shift the burden of proof to petitioner.

We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is “a reasonable dispute.” This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.

Adding insult to uncertain memory, the Tax Court upheld penalties for late filing; being in jail is apparently no excuse.

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




TaxGrrrl bravely live-blogged the GOP debate this week. A handy place to check out what they had to say on taxes.

Kyle Pomerleau, Senator Ted Cruz’s Comment About His Border-Adjusted Tax, Explained (Tax Policy Blog).

Jenice Johnson, Candidates Tax Cuts Unequivocally Skew Toward the Wealthy (Tax Justice Blog). It’s just math. The wealthy pay pretty much all of the taxes, so they will “reap” any tax cuts.

Scott Greenberg, Carson Calls for Eliminating the Mortgage Interest and Charitable Deductions (Tax Policy Blog).


Paul Neiffer, When Will We Know Section 179 Amount?. My intrepid tax school colleague ponders the likelihood and timing of the “extender” bill for this year.

Tri-state sales tax webinar! The Iowa Department of Revenue will have a free webinar covering “Sales and Use Tax Basics” for Iowa, South Dakota and Nebraska. It’s easy to get nexus for sales tax. There are plenty of Iowa businesses that need to take care of sales taxes elsewhere.

Ying Sa, My IRS is little ( “Many immigrant-owned small businesses begin with a focus on just selling. The rest, such as an income statement, balance sheet and tax compliance, is sometimes unknown to them.”

Insureblog, Worse Insurance, Higher Cost. “The fact is, your insurance is going to get worse and you are going to pay more for it.”

Robert D. Flach, QUESTIONS ANSWERED. Robert answers a reader question on deducting state property taxes.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015, #8: Tax-Free Parsonage Allowance Gets A Second Life.

Russ Fox, The Real Winners of the World Series of Poker (2015 Edition). Hint: the winner’s first initial is “I.”

Janet Novack, Here’s How Congress Just Cut Social Security For Baby Boomer Couples. The end of “file and suspend.”


TaxProf, The IRS Scandal, Day 917,

Stuart Gibson, The European Predictability Paradox (Tax Analysts Blog). “Paradox will rule the European tax world, in which certainty will become uncertain and the predictability accorded by advance rulings will become entirely unpredictable.”

Renu Zaretsky, To make money you have to spend money…” Today’s TaxVox headline roundup covers the Dell-EMC merger, international tax reform hopes, and lots more.


News from the Profession. CPAs Admit That They’re Not Good Business People (Caleb Newquist, Going Concern).



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, 11/4/15. Taxpayer Advocate: Koskinen demoralizes IRS, IRS breaks law. Koskinen replies: give me more money!

Wednesday, November 4th, 2015 by Joe Kristan
Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

It’s getting bad when the IRS won’t even talk to its own Taxpayer Advocate. Nina Olson, the head of the IRS Taxpayer Advocate office, ripped the state of the IRS and Commissioner Koskinen’s management in a speech to the AICPA annual tax conference yesterday, Tax Analysts reports  (my emphasis, $link):

Olson said that IRS Commissioner John Koskinen’s oft-repeated mantra — that instead of doing more with less in budget-constrained times, the agency was going to do less with less — was demoralizing the IRS workforce and further eroding customer service.

“What my local taxpayer advocates are telling me is that they have never seen so much resistance to their own work” from the IRS, Olson said. She recounted the story of a local TAS employee who asked the IRS in October to release a taxpayer’s refund that had been held up since February. “The response that [TAS] got back was . . . ‘We have thousands of these cases; get in line,’” Olson said, adding that it was the first time she’d heard such a response from the IRS in her 15 years at the TAS.

The feeling at the IRS that there are some jobs it won’t do because Congress didn’t provide funding, Olson said, “works its way down to the employees, so that they feel like, ‘Well, I’m going to do just this, and I’ve got so much work that I’m only going to be able to get this done.'”

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Taxpayer Advocate Office is “an independent organization within the IRS” charged with helping taxpayers who can’t resolved their problems within the normal IRS bureaucracy. We only call on them out of desperation, when the IRS just refuses to do its job. It’s a bad sign if even the Taxpayer Advocate can’t get the time of day from the regular IRS.

Ms. Olson says the IRS mistreatment of the TAS office has risen to the level of lawbreaking:

Olson also protested that the IRS is refusing to grant her and her staff access to taxpayers’ administrative files unless they sign agreements barring them from sharing any of the files’ information, even with the taxpayer. Olson noted that she is bound by the same privacy laws as other IRS employees and said she is entitled to access under section 6103.

“My position is that the IRS in those instances has violated the law,” Olson said. “And I do not say that lightly.”

You have problems with the IRS breaking the law? Well, to coin a phrase, get in line.

Commissioner Koskinen responded later in a speech to the same group, in which he did what he always does: ask for more money. “Most of Koskinen’s prepared remarks at the conference were a repeat of his concerns about the IRS’s deteriorating budget position.”

But this Commissioner will never get a budget increase out of this Congress. His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Other Coverage: 

Russ Fox, Where I Agree (In Part) With IRS Commissioner John Koskinen. “Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation.”

Accounting Today, IRS Commissioner Sees Budget Cuts Hurting Practitioners, Warns of Delayed Tax Season. A story that weirdly downplays and buries the Taxpayer Advocate’s withering criticisms deep in the article.


Alan Cole, What Places Benefit Most From the Earned Income Tax Credit? (Tax Policy Blog).


It looks like the deep south and Indian country have the biggest proportion of EITC recipients.


TaxGrrrl, Despite Complaints, Past Failures & Opportunities For Fraud, Congress Pushes Private Tax Collection. I think Kelly is too hard on private tax collection. Plenty of preparers deal safely with confidential tax information every day, and I don’t think there’s something special about IRS employees that makes them automatically trustworthy. I think for uncontested and unpaid tax debts, private collection makes sense, especially when the IRS isn’t even trying to collect.

Robert D. Flach emphatically agrees with Kelly, though: NO! NO! A MILLION TIMES NO!. I guess private tax debt collection is one of those unpopular views I hold, like Waylon > Willie.


Wall Street Journal,  IRS Audits of Individuals Drop to 11-Year Low (via the TaxProf, $link).

Kay Bell, Avoid tax turkeys! Check out November Tax Moves

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #9 Rental Properties Should Probably Be Rented. “Believe it or not, the IRS doesn’t always require that you rent a home in order to establish that you have converted the home to a for-profit rental activity, but it certainly helps.”




Carl SmithGovernment Inconsistent on Whether Unpublished Tax Court Orders Can Be Cited (Procedurally Taxing). “I’m more a believer in ‘what’s good for the goose is good for the gander’.”

Renu Zaretsky, The Case of the Questionable Tax Incentive: Women and Retirement Savings (TaxVox). “But from what I can tell, the surest way to increase a woman’s savings is to give her a nice raise… and introduce her to my sister.”

David Brunori, Impeaching the IRS Commissioner Is the Wrong Thing to Do (Tax Analysts Blog). “Koskinen may be guilty of being combative with Congress. He may be guilty of caginess during his testimony. He may be guilty of being a lousy commissioner. But none of those are reasons for impeachment.”

TaxProf, The IRS Scandal, Day 909. Today’s link is to an editorial, Yes, the IRS Chief Has Earned Impeachment. I agree, but I still think it’s an unwise exercise when it has no chance of success. Still, the editorial is a concise summary of how awful Commissioner Koskinen has been.

Jim Maule, Taking and Giving Back. “The NFL and its teams, as well as the other professional sports leagues and franchises, do not need financial assistance from the public.”


News from the Profession. Socially Inept Accountant Held Responsible (Caleb Newquist, Going Concern). Is there another kind?




Tax Roundup, 11/3/15: Work in Illinois, live in Iowa, pay quarterly. And: fun with FATCA!

Tuesday, November 3rd, 2015 by Joe Kristan

Illinois sealReciprocity = no state wage withholding. A newly-released policy letter from the Iowa Department of Revenue explains how the Iowa-Illinois tax reciprocity agreement works for an Iowan working in Illinois for a non-Iowa company. The letter is addressed to the employer:

Your employee is an Iowa resident, earning income in Illinois, and therefore is exempt from paying Illinois income tax on income earned from salaries, wages, and other compensation. For your employee to pay Iowa income taxes, the employee should make estimated payments by completing Form 1040ES – Estimated Income Tax for Individuals. The employee may also need to file an Illinois form showing that they are an Iowa resident not subject to Illinois withholding under the agreement.

While in theory it should make no economic difference whether you pay taxes through quarterly estimates or withholding, many taxpayers prefer withholding. It just seems less painful to have the money taken out before you see it, and you don’t have to remember to write those estimates. I wonder if the employee really feels better off.

The letter adds:

It is also possible for your business to register for an Iowa Withholding Tax Permit on the Department’s website ( In that case your Iowa resident employees could have those employees fill out an IA W-4 (available at and you as the employer could withhold Iowa tax from their paychecks.

Illinois is the only state with which Iowa has a reciprocity agreement. Other states withhold (if they have an income tax) on Iowa employees, and the Iowans claim a credit for taxes paid in other states on their Iowa 1040s.  That sort of works out like Iowa wage withholding in a way for Iowans working in Wisconsin, Missouri, Nebraska and Minnesota — except with the hassle of completing two full state tax returns. For those crossing the border to South Dakota, which has no income tax, the compliance problem is the same as for the Illinois taxpayer in this policy letter.



Wall Street Journal, American Tax Refugees: Why So Many Yanks Are Renouncing Their U.S. Citizenship  (may be subscriber only link):

Fatca requires that foreign banks, brokers, insurers and other financial institutions give the U.S. Internal Revenue Service detailed asset and transaction records for any accounts held by Americans, including corporate accounts controlled by American employees. If a firm fails to comply, the IRS can slap it with a 30% withholding tax on transactions originating in the U.S. Facing such risks and compliance costs, many foreign firms have decided it’s easier to dump their American clients.

So Americans overseas are becoming increasingly unbankable. Not the wealthiest ones, of course, those “fat cat” potential tax evaders whom Democrats rail against. Much more vulnerable are sales reps, English teachers, lawyers, retirees—the overwhelming majority of American expatriates—whose modest finances make them unappealing clients amid Fatca’s compliance costs.

To get a few press releases, politicians have to break a few citizens eggs.


Robert Wood, U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA. As long as the U.S. intrudes on other countries’ banks, the other countries will want to reciprocate.

Jack Townsend, National Taxpayer Advocate Nina Olsen Comments on FATCA and OVDP. Quoting the Taxpayer Advocate: “The problem with FATCA is that it imposes burdens on taxpayers at all sorts of levels, and it’s not clear what benefits we’re really going to get from it or what we’ll be able to do.” It’s not about “we,” unless we are a politician looking for a cheap headline.




Robert D. Flach comes through with more Tuesday Buzz, with links to posts on minimum IRA distributions and small business money mistakes, among other things.

Kristine Tidgren, Tax Court Says 1972 Settlement Transfer Was Not a Gift (The Ag Docket). “One takeaway of this case for those outside of the Redstone family is recognition of the cold, hard fact that no statute of limitations applied to prevent the IRS from collecting taxes on this alleged 1972 gift.”

TaxGrrrl, Court Switches Gears, Says AICPA Can Sue IRS Over Tax Preparer Credentials. The IRS “voluntary” preparer regulation scheme hits a bump.


Russ Fox, I’m Sure Their Vacation in Arizona Will Impress the Sentencing Judge. “Mr. Joling wanted to be on “biblical safe ground” (he was a pastor) so he didn’t pay taxes.” Biblically safe, perhaps, but not legally, for sure.

Peter Reilly, Democratic Presidential Candidate Drops Out Without Releasing Tax Plan. And almost without anyone noticing.

Leslie Book, Halloween Special: Third Circuit Case Affirms Preparer’s Conviction For Aiding in Preparing False Tax Returns (Procedurally Taxing). “Despite the promise of oversight and its enhancing greater visibility, prosecuting bad apple preparers is an important after the fact way of ensuring that those who abuse the system know that their actions have consequences beyond bringing in fees for raiding the fisc.”

Jason Dinesen, Glossary: Gross Income/Gross Profit

William Perez discusses the new 401(k) Contribution Limits.




Joseph Henchman, Voters in Five States Consider Tax-Related Initiatives (Tax Policy Blog). Colorado ponders its marijuana tax windfall, Ohio considers approving one for itself.

Jonathan Ackerman, Rosanne Altshuler, Jeffrey Kupfer Bipartisan tax reform is possible: Lessons learned from President Bush’s reform panel (TaxVox). “Our antiquated business tax system has failed to keep up with an economy that has changed dramatically as a result of globalism, technology, and new capital flows.”
Scott Greenberg, The Bush Tax Reform Panel, Ten Years Later (Tax Policy Blog). “The Bush Panel was an important moment in recent tax policy history, because it provided one possible roadmap for a bipartisan tax reform agreement in the future.”

Matt Gardner, Apple Shifts a Record $50 Billion Overseas, Admits It Has Paid Miniscule to No Tax on Offshore Cash (Tax Justice Blog). Showing once again that Apple management isn’t stupid.


Career Corner. Accounting Firms Need To Have More Transparent Conversations With Employees About Compensation (Caleb Newquist, Going Concern)



Tax Roundup, 11/2/15: Iowa says airbnb rentals trigger hotel-motel tax. And: IRS backdoor regulation push suffers setback.

Monday, November 2nd, 2015 by Joe Kristan

wdmlogoAt least West Des Moines homeowners won’t have to pay hotel-motel tax. One of my now-departed uncles was a track and field coach in Illinois. Every April he would get together with some of his fellow coaches and drive to Des Moines for the Drake Relays. They always rented the same house in the South of Grand neighborhood in Des Moines while they stayed here. They had a great time, and the homeowners got a little extra cash.

Short term home rentals are nothing new, in other words. The federal tax law has long accommodated them by excluding income from rentals up to two weeks a year from income tax. The practice has become more widespread now that airbnb and make it easier to match up potential renters and guests.  It shouldn’t surprise us that the tax man has noticed.

An Iowa Department of Revenue policy letter made public last week says short-term home rentals are subject to Iowa’s 5% hotel-motel tax (all emphasis mine):

The Iowa Department of Revenue (“Department”) has received your question about home sharing.  You asked whether a homeowner who occasionally rents the home to others is subject to hotel and motel tax.

You provided the following facts:  A resident of Iowa City owns a home, which is the homeowner’s primary residence.  On the weekends of homecoming and graduation at the University of Iowa—four nights total each year—the homeowner stays with family members and rents the home to visitors.  You asked if the charges for renting the home are subject to hotel and motel tax.

Iowa imposes a hotel and motel tax “upon the sales price for the renting of any lodging” in Iowa.  Iowa Code § 423A.3.  A city or county may also impose a local hotel and motel tax “upon the sales price from the renting of lodging.”  Id. § 423A.4.  “Sales price” is “the consideration for renting of lodging.”  Id. § 423A.2(1)(f). 

“Lodging” means rooms, apartments, or sleeping quarters in a hotel, motel, inn, public lodging house, rooming house, or manufactured or mobile home which is tangible personal property, or in a tourist court, or in any place where sleeping accommodations are furnished to transient guests for rent, whether with or without meals. Lodging does not include rooms that are not used for sleeping accommodations.

Id. § 423A.2(1)(c).

The homeowner’s home is clearly a “place where sleeping accommodations are furnished to transient guests for rent.”  See id.  The statute does not place a minimum number of nights a place must be rented for it to qualify as “lodging.”  See id.  Accordingly, the rental of the homeowner’s home is subject to hotel and motel tax.  Iowa provides a limited number of exemptions from hotel and motel tax, none of which apply to the facts you provided.  See id. § 423A.5.  Therefore, the homeowner must collect and remit hotel and motel tax for renting the home. 

I suspect the next person to remit hotel-motel tax for a short-term home rental will also be the first. I also suspect that the existence of services like airbnb will make it easier for the state to collect hotel-motel taxes for short-term home rentals. Renters need to also tack on any local hotel taxes; your friendly county board and city council will surely want to share.

20151102-1Except in West Des Moines. I live in this Des Moines suburb, and the City Council has saved me the trouble of collecting hotel-motel tax by banning short-term rentals. The Des Moines Register explains:

In July, the city council passed an ordinance prohibiting the rental of single family homes, including condos, for 31 days or less. Owners can rent their properties only if they are “on-site and present at the time of and for the duration of the rental.” In other words, if someone attending the World Food Prize wants to rent a home in the suburb for a week, the owner must be there, too.

Was West Des Moines cowering in terror from rioting short-term visitors brazenly cutting across our lawns? No. From the Register piece:

Were the few short-term rentals available in West Des Moines creating problems? Were numerous residents lodging complaints with city officials? No. The ordinance was prompted by one complaint from one person.

One person, one moral panic. The resident said there ought to be a law, and in practically no time, the West Des Moines city council enacted one:

[The complaining resident] suggested the council consider adopting an ordinance to address the issue. Within about one month, it did exactly that. It didn’t survey residents. It didn’t contact the Ashworth homeowner. It didn’t do a comprehensive search of other properties that may be listed on several websites. It quickly passed an ordinance that applies to 60,000 residents because a man showed up at a meeting to complain about his neighbor. One man. One complaint.

It passed unanimously. The minutes of the meeting are here. West Des Moines city council elections are tomorrow, but the elections appear to be uncontested.




Russ Fox, AICPA Has Standing Per DC Court of Appeals; IRS’s Annual Filing Season Program In Jeopardy:

The original lawsuit claims by the AICPA look very accurate to me. And there’s a new one: Unenrolled preparers who do not participate in the AFSP will be denied the ability to represent taxpayers’ whose returns they prepared in examinations (as of January 2016). This makes the program look a lot more mandatory than voluntary.

I always assumed the “voluntary” program was preparer regulation by the back door, and that it would be just as voluntary as the United Way contributions were back at my first CPA job.

Robert D. Flach notes Russ’s piece and comments: “The bottom line – the AICPA fears that any government, or other, credential or designation that identifies a person’s competence and currency in 1040 preparation will take business away from CPAs.”

Elaine Maag, The IRS Could Improve EITC Compliance by Regulating Tax Preparers. (TaxVox). Ms. Maag is a big believer in hope over experience.


Paul Neiffer, File & Suspend Will Be No More:

The budget bill that was finalized this week eliminates a strategy for social security recipients called “File and Suspend”.  Under this strategy, the high income earner could file for benefits, allow his lower earning spouse to get benefits before full retirement age and then “suspend” their benefits until age 70 to lock in the additional 8% increase per year in benefits. 

Paul links to additional articles on what this means for retirement planning.


Peter Reilly, Redstone Family Saga Writ Large In Favorable Tax Court Decision. “Being in the movie business and all you would think the Redstones would have been familiar with the remark attributed to Samuel Goldwyn – ‘A verbal contract isn’t worth the paper it’s written on.'”


William Perez discusses Employee Stock Purchase Plans.

Kay Bell, IRS uses cell phone surveillance only in criminal cases. And everybody trusts the IRS.

Jason Dinesen, Corporate Tax Status Determined By Federal Law, Not State Law

Robert Wood, How IKEA Billionaire Legally Avoided Taxes From 1973 Until 2015. In Sweden.

TaxGrrrl, No ‘Candy Tax’ At My House On Halloween. “The candy tax – which is a variation on what parents used to do back in the day and just didn’t call it a tax – is a parenting trend where you purport to teach your kids about responsibility by stealing some of their candy levying a “tax” on their trick or treat loot.”




TaxProf, The IRS Scandal, Day 905Day 906Day 907. Day 906 covers blogger reactions to the resolution to impeach Commissioner Koskinen. This from the Day 905 link describes the larger problem, of which the IRS scandal is only a part:

The federal bureaucracy has always been bad at policing employees, but President Obama bears direct responsibility for the problem getting immeasurably worse. Last year, 47 of the 73 federal inspectors general signed a letter decrying the Obama administration for stonewalling their investigations and in some cases actively intimidating investigators.

The policy has been to fight all transparency and oversight, whether there’s something to hide or not. If there is, the long struggle will make it easier to spin bad news as “old news” by the time the facts emerge. If there is nothing to hide, then it makes the investigators look bad for investigating.


Scott Drenkard, Which States Have the Worst Sales Tax Administration? (Tax Policy Blog). It looks like Louisiana, Arizona and Colorado are pretty bad.


Bottom story of the day. The New York Times Advances a Poor Argument For Tax Hikes (Alan Cole, Tax Policy Blog).

Career Corner. Survey: Performance Reviews Cause Millennials to Complain, Curse, Cry (Caleb Newquist, Going Concern).



Tax Roundup, 10/28/15: Tax Court blocks IRS assessment of Gremlin-era gift tax. And: Impeachment is too good for him.

Wednesday, October 28th, 2015 by Joe Kristan
Wikipedia image ploaded by GrapedApe under Creative Commons license.

Wikipedia image uploaded by GrapedApe under Creative Commons license.

Closing the book on tax disputes arising in the Nixon administration, the Tax Court ruled this week that a taxpayer — the brother of Viacom mogul Sumner Redstone — did not make a taxable gift in 1972 when he transferred corporation shares to a trust as part of a lawsuit settlement.

The facts are confusing. Sumner Redstone’s father Mickey capitalized a business in 1959 but named his sons Sumner and Edward as 1/3 owners. When Edward wanted out and tried to sell his shares, the father refused to provide the certificates, saying that they were held in trust for Mickey’s children. Tax Analysts ($link) explains the result:

Mickey claimed that in 1959, when he created NAI, the shares had been held in an oral trust created at the same time. After months of negotiations, the parties agreed to settle by giving one-third of Edward’s shares to trusts in the benefit of his two children. His remaining shares were sold back to NAI for $5 million.

Edward didn’t consider this a gift, and he never filed a gift tax return for 1972. This left the statute of limitations open on the gift, and the IRS assessed gift tax on Edward’s estate after he died in 2011.

The tax law says there is no gift when property is transferred for full consideration and with no benevolent intent. The IRS says that because the beneficiaries of the trust, Edward’s children, paid nothing for the shares they received in the settlement, the transfer was a taxable gift. The Tax Court disagreed:

The evidence clearly established that Edward transferred stock to his children, not because he wished to do it, but because Mickey demanded that he do it…

Respondent’s argument focuses on whether the transferees provided consideration. But that is not the question the regulation asks. It asks whether the transferor received consideration, that is, whether he made the transfer “for a full and adequate consideration” in money or money’s worth. Sec. 25.2511-1(g)(1), Gift Tax Regs. (emphasis added). We have determined that Edward received “a full and adequate consideration” for his transfer — namely, the recognition by Mickey and Sumner that Edward was the outright owner of 66 2/3 NAI shares and NAI’s agreement to pay Edward $5 million in exchange for those shares. Section 2512(b) and its implementing regulations require that the donor receive “an adequate and full consideration”; they make no reference to the source of that consideration.

Decision for taxpayer.

The Moral? First, there’s no gift to the thief who points a gun at you, and there’s no gift when you transfer shares because you have to.

Perhaps more importantly, gift tax can be assessed forever if you don’t file a gift tax return. If there is any question on whether a gift might have happened, or realistic risk that the IRS will challenge the amount of a gift, it’s wise to file a gift tax return even when it doesn’t appear gift tax is owed. Otherwise the statute of limitations never starts running, and you might be fighting a forty-years war with the tax man.

Cite: Estate of Edward S. Redstone, 145 T.C. No. 11




TaxProf, The IRS Scandal, Day 902. A resolution has been introduced to impeach IRS Commissioner Koskinen. While his conduct in office has been awful, I hope they don’t really try to make it happen. It could backfire, and even if he were impeached, there will never be a conviction. I would rather they spend the time and energy reducing the powers of all IRS commissioners by reducing the power of the IRS through tax reform.

Russ Fox, Chaffetz Introduces Impeachment Resolution of IRS Commissioner Koskinen. “My view of this is simple: Mr. Koskinen has become a mouthpiece of the Administration rather than an independent head of the IRS… The IRS’s budget does need to be increased, but that’s not happening until Mr. Koskinen leaves the agency (and the scandal is resolved).

Kay Bell, House GOP seeks impeachment of IRS commissioner

Robert Wood, Impeach IRS Chief, Say Republicans Alleging Lies, Obstruction


William Perez, What Every Small Business Owner Should Know About the Health Care Tax Credit

Peter Reilly, Maureen O’Hara’s Ill Fated Cuban Oil Tax Shelter


20151028-2Joseph Henchman is Remembering the Deceased Iowa Pumpkin Tax You Helped End (Tax Policy Blog). “It’s a weird tax system that taxes the same item differently depending on the buyer’s intent. I’m sure Iowa pumpkin patches have better things to do than quiz their customers on future pumpkin uses.”

David Brunori, Billionaires Who Want to Tax Poor People (Tax Analysts Blog) “Second, and just to show you that it really is all about the money, the initiative will impose significant taxes on electronic cigarettes. If people really cared about the health risks of smoking, they would be encouraging — indeed subsidizing — electronic cigarettes.”

Howard Gleckman, Gimmicks Galore Litter the Boehner/Obama Budget Deal (TaxVox) “But one thing seems certain: This deal is far worse for fiscal conservatives that the Grand Bargain that Boehner and President Obama nearly reached in July 2012, a deal the speaker never could sell to his restive caucus.”

Caleb Newquist, Florida Still Cranking Out Unsophisticated Tax Schemes (Going Concern): “If you or someone you know is thinking about concocting a haphazard tax fraud, it may be tempting to go with a tried and true method that goes something like this…”


Programming Note: My travel schedule will keep me from posting a Tax Roundup tomorrow. See you Friday!



Tax Roundup, 10/27/15: IRS list of citizenship renunciations hits new record. And: Santa Monica!

Tuesday, October 27th, 2015 by Joe Kristan

Jaywalkers continue to flee. 2015 Third Quarter Published Expatriates – A Record High (Andrew Mitchel):

Chart by Andrew Mitchel LLC.

Chart by Andrew Mitchel LLC.

Last year, there was a record-setting 3,415 published expatriates.  Only an additional 195 published expatriates in the fourth quarter would be required for a new record to be set. If a new record is set, this would be the third consecutive year with a year over year increase.  For a discussion of how the IRS compiles the data, see this post.

We continue to believe that the IRS is likely missing a significant number of names from its quarterly publication of expatriates.  During the third quarter of 2015, the FBI has added 1,558 individuals who renounced their U.S. citizenship to the NICS index.

U.S. taxation of offshore income and overseas citizens is off the rails. The area is full of compliance traps that can trigger catastrophic penalties for innocent behavior. FATCA is making personal finance a headache for U.S. citizens posted abroad. The whole system should be drastically changed, starting with FATCA repeal, a huge increase in the threshold for reporting offshore accounts, repeal of FBAR reporting for signature only accounts, and a standard program where small taxpayers can come into compliance without penalty if they have not been contacted by IRS.

But the IRS is committed to continuing a policy of shooting jaywalkers.

Related: Robert Wood, Reverse Immigration: Americans Renounce Citizenship In Record Numbers



Buzz! A fresh new roundup of tax news from Robert D. Flach is up!

Jack Townsend,  DOJ Will Not Seek Indictment of Lois Lerner  “But, based on what I know and infer from the letter, while DOJ could likely have obtained an indictment for some crime (the old ham sandwich phenomenon), DOJ would not have been able to convict — certainly, there was not the reasonable likelihood of conviction to meet DOJ standards for  prosecution.”

TaxGrrrl, IRS Joins FBI, DEA & Other Federal Agencies With Access To Cellphone Surveillance Technology

Scott Greenberg, The EITC is Not the Solution to Puerto Rico’s Woes (Tax Policy Blog). You mean there are things that tax credits can’t do?

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed. What tipped them off?

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #10 – Cash For Egg Donation Is Taxable Income


TaxProf, The IRS Scandal, Day 901

Peter Reilly, God May Bless Your Pot Shop – Tax Court Not So Much


Santa Monica Freeway. I arrived in Santa Monica, California last night for a conference with other members of TIAG, the alliance of independent accounting firms. Our firms membership in this organization gives us access to smart tax and accounting people around the country and around the world. As more of the economy crosses borders, this helps us help our clients as they grow. Yes, there are hardships, like beautiful southern California weather, but we shall be stoic about it. If you are a Tax Update reader and a TIAG member, come and say hi to me or my colleague Doug Ross, who is also here.



Tax Roundup, 10/26/15: No surprise, no Tea Party charges. And: the proposed Iowa graduate tax break.

Monday, October 26th, 2015 by Joe Kristan
Toby Miles, IRS.

Toby Miles, IRS.

You break news on Friday when you want to bury it. And that’s what the Department of Justice did when it told Congress that it would not prosecute Lois Lerner, or anybody else in IRS, as a result of the Tea Party Scandal.

Not that anybody would expect otherwise. The Justice Department continues to act as the Administration’s scandal goalie. The fix was in once the President changed his tune from “this is terrible” to “not even a smidgen of corruption.”

Throughout the investigation, not a single IRS employee reported any allegation, concern, or suspicion that the handling of tax-exempt applications — or any other IRS function — was motivated by political bias, discriminatory intent, or corruption. Among these witnesses were several IRS employees who were critical of Ms. Lerner’s and other officials’ leadership, as well as others who volunteered to us that they are politically conservative. Moreover, both TIGTA and the IRS’s Whistleblower Office confirmed that neither has received internal complaints from IRS employees alleging that officials’ handling of tax-exempt applications was motivated by political or other discriminatory bias.

The Investors Business Daily gets this right:

This is absurd. Lerner was caught red-handed targeting Tea Party and other conservative groups, wrote partisan emails to prove it, then engaged in a massive cover-up effort — with a suspiciously crashed server, an oddly missing BlackBerry and plenty of excuses.

She evaded even more accountability by shielding herself with the Fifth Amendment in Congress.

It was only Tea Party groups that had to wait years for approval. Considering the destroyed emails, “lost” backups, and Ms. Lerner’s peculiar interest in communication methods that could not be traced, there’s too much smoke and ash to believe there was no fire.

TaxProf has more: The IRS Scandal, Day 898Day 899Day 900. The fix is put in, and we’re told that means that there is no scandal.


Robert Wood, Obama Administration Learned From Lois, Dodging IRS Scandal. “Deny, stonewall, deny.”

TaxGrrrl, DOJ Says No Criminal Charges For Lerner, Others In IRS Scandal, Closes Investigation




Jana Luttenegger Weiler, IRS Releases Inflation Adjustments for 2016 (Davis Brown Tax Law Blog).

Kay Bell, Securing taxpayer data is the IRS’ biggest challenge

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Robert D. Flach, WHO MUST FILE A 2016, or 2015, TAX RETURN? “FYI, based on the new inflation adjustments recently announced by the Internal Revenue Service, you do not have to file a 2016 Form 1040, or 1040A, unless your “gross income” is at least…” Visit Robert to find the numbers.


Hank Stern, Easy come, easy go:

“[T]he GAO report found that … at least $1.6 billion [is] unaccounted for.”

That’s out of over $5 billion in “loans” sent to states, most of which went for state-based Exchanges (which, per SCOTUS, don’t actually exist).

That must be the “affordable” part of the Affordable Care Act.”




Joseph Thorndike, Mexico Is Having Second Thoughts About the Soda Tax – And So Should Everyone Else (Tax Analysts Blog). “If a big tax dissuades people from drinking Mountain Dew, maybe they will lose weight. But maybe they will continue to scarf down their Twinkies with a cupful of untaxed water – and keep packing on the pounds.”

Scott Greenberg, Reviewing Paul Ryan’s Short Term as Chairman of Ways and Means (Tax Policy Blog). “In the last 10 months, the Ways and Means Committee has brought 52 bills to the House floor, tied for most with the Energy and Commerce Committee. Out of these bills, 15 were passed into law, the most out of any committee.”

Howard Gleckman, Little Difference Between the Cadillac Tax and a Cap on the Tax Exclusion for Employer Health Plans (TaxVox).


Caleb Newquist, Accountant Won’t Be Taking a Walk in the Woods Anytime Soon. “James Hammes, who spent 6 years on the lam walking the Appalachian Trail, pleaded guilty earlier today to wire fraud.”


David Brunori discusses ($link) a tax break proposed by Iowa graduate students for… themselves.

The idea is that if you graduate from any college or university in Iowa and stay in the state, you would get a 50 percent tax break for five years. If you move to a rural part of the state, you get a 75 percent tax reduction. As an Easterner, I learned everything I know about Iowa from Joe Kristan’s blog. But I could have sworn most of the state is rural.

In any event, kids, this is a terrible tax policy idea. It will solve no brain-drain problem — although employers may pay less since these graduates won’t be paying taxes. Here is just one problem: If you’re not paying taxes, someone else is. That someone else is probably a poor guy or gal who didn’t graduate from college and is making a lot less than you. I thought college kids would be more empathetic than that.

While most of the state is rural, but most of the jobs for college graduates aren’t.

David gets the policy exactly right. It’s tough to justify a special deal for a young prosperous couple with accounting or law degrees while the people building their suburban house and watching their kids pay full fare.



Tax Roundup, 10/23/15: Tax Court dispenses with pot dispensary deductions. And: IRS scam call, captured on tape!

Friday, October 23rd, 2015 by Joe Kristan

Accounting Today newsletter visitors: click here to go directly to the rental loss story


Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Deductions get stoned. Not in a good way. Attitudes towards marijuana have changed a lot in the last 33 years. A recent Gallup Poll shows that 58% of respondents favor weed legalization. But a tax provision enacted in 1982 continues the Reefer War with full vigor, as the operators of a legal California medical marijuana dispensary learned yesterday.

Section 280E, enacted early in the Reagan Administration, is one of the more clear provisions of the income tax. It reads in full:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana remains a Schedule I controlled substance under federal law, despite its growing legalization at the state level. That means the only deduction allowed to state-legal weed dispensaries and dealers is their cost of goods sold — their direct cost of their inventory. No rent, salaries, benefits, security, depreciation, or any of the other obvious costs of doing business can be deducted.

Canna Care, Inc., a California dispensary, claimed about $870,000 in business deductions over a three-year period. The Tax Court explains (my emphasis, ditations omitted):

Petitioner argues that its actions cannot be considered “trafficking” for purposes of section 280E because its activities were not illegal under California law. Petitioner claims that this conclusion is supported by memoranda issued by the Department of Justice (DOJ) on October 19, 2009, and August 29, 2013, and guidance issued by the Financial Crimes Enforcement Network (FinCEN) on February 14, 2014.

We have previously held the sale of medical marijuana pursuant to California law constitutes trafficking within the meaning of section 280E… DOJ memoranda and FinCEN guidance released after the years at issue that represent exercises of prosecutorial discretion do not change the result in this case. Petitioner regularly bought and sold marijuana. This activity constitutes trafficking within the meaning of section 280E even when permitted by State law.

The taxpayer also argued that its business activities weren’t entirely about marijuana, and that at least some of the activities should therefore be deductible. The Tax Court said that the taxpayer’s evidence wasn’t sufficient to make that case:

Aside from the sale of medical marijuana, petitioner’s only other source of income was the sale of books, T-shirts, and other items. On the basis of the evidence presented, we cannot determine what percentage of petitioner’s income was from the sale of medical marijuana and what percentage was from the sale of other items. Because of the parties’ stipulation, we find that the sale of medical marijuana was petitioner’s primary source of income and that the sale of any other item was an activity incident to its business of distributing medical marijuana.

No deductions. Victory for IRS.

The Moral: Sometime in the next few years I suspect weed will either cease to be a controlled substance or Section 280E will be amended to allow legal pot sellers to deduct their expenses. Until then, dealers will need to mark up their product a lot to cover the taxes on phantom income. If they have other business activities, they need keep records sufficient to separately track the non-pot profits.

The other moral: Don’t use the tax law to do anything other than measure income and collect taxes. Special carve-outs, whether punitive or beneficial, linger long after the moral panic surrounding their enactment passes. In addition to Section 280E, we remain stuck with other moral panic tax provisions. These include Section 409A, enacted in the Enron panic but punishing ordinary businesses and non-profits trying to compensate their employees, and FIRPTA, enacted to combat the threat of Japanese buying up our precious golf courses. The Japanese have moved on to other things, but FIRPTA still clobbers U.S. real estate buyers who fail to realize they need to withhold taxes on purchases from non-U.S. sellers.

Cite: Canna Care, Inc., T.C. Memo 2015-206.

Related: Russ Fox, Up In Smoke, Again. For more on taxes in the early ’80s, TaxGrrrl has Back To The Future: Taxes Now & Then.


Ed Brown’s fortress-house sells at auction, reports The winning bid was $205,000, though the story makes it appear that the winning bidder may also need to pay some accumulated property taxes.


buzz 20151023-1

It’s Friday, so celebrate with fresh Buzz from Robert D. Flach. Year-end planning, IRS inflation adjustments, and the S corporation vs. partnership conundrum figure prominently.

William Perez reports on the updated 401(k) Contribution Limits.

Tony Nitti, IRS Redefines ‘Husband’ And ‘Wife’ In Response to Landmark Same-Sex Marriage Decisions.

Caleb Newquist, Company Accused of Being ‘Pharmaceutical Enron’ Doesn’t Appreciate the Sentiment (Going Concern).

Robert Wood, Stock Options 2.0: Twitter CEO Gives His Own Stock To Employees

Peter Reilly, IRS Should Be Asking For Cooperation Not Volunteering. “Audits of non-compliant taxpayers will have them “busted” which is unpleasant, whereas non-compliant taxpayers not being audited make the rest of us feel like chumps.”

Kay Bell, As Ryan gets ready to take on House Speaker role, Ways & Means members jockey for tax-writing chairmanship




TaxProf, The IRS Scandal, Day 897. Administration partisans urge continued political administration of the IRS, as they needed the encouragement.

Alan Cole, This Bill to Repeal Obamacare Taxes Would Grow the Economy (Tax Policy Blog). Just eliminating the ridiculous and costly paperwork of the ACA would be an economic boost.


Ever wonder what it sounds like to get a phone call from a scammer claiming to be from IRS? Well, you are in luck! A scammer was kind enough to leave a message on my phone at home, which I recorded and uploaded to the link in this sentence.  I believe it is typical of the recorded-message version of the scam, telling me that the IRS “is filing a lawsuit against you” and telling me to call a number to “get more information on this case file.”

The IRS does not call you to tell you they are suing you. They use the old-fashioned U.S. Postal Service, and if they can’t find you, they will use genuine U.S. Marshals to serve you papers. Believe me, if the IRS is after you, you will know you have a problem, and that knowledge won’t come over the phone.



Tax Roundup, 10/21/15: The tax law doesn’t care where you are on the autism spectrum. And: Iowa sales tax rule change praised.

Wednesday, October 21st, 2015 by Joe Kristan

20151014-1No Asperger exception to Section 475. It’s heads they win, tails you lose for capital gains and losses. If you have capital gains, they’re happy to tax them, no matter how many you have. If you have capital losses, you are limited to gains plus $3,000 per year, with the remainder carrying forward — even if you have to outlive Methuselah to use them up at $3,000 annually. Many sadder-but-wider former day traders have found themselves with this problem.

Section 475 offers some taxpayers a way out. If you qualify as a “trader,” a Section 475 election makes your losses fully deductible. It makes your gains ordinary, rather than capital, and it requires you to recognize gains and losses on your open positions at year-end, but that’s not a big deal for day traders. They tend to trade short-term, and short-term gains are taxed at ordinary rates anyway, and marking-to-market isn’t normally a big deal to them.

But Section 475 has a strict election requirement. You have to make the election no later than the April 15 of the year you want the election to take effect. For example, a taxpayer wanting to make the election effective for 2015 tax returns would have to make the election on his 2014 timely-filed 1040 due April 15, 2015.

A New York man claimed he made the election on his 2003 1040. Unfortunately, he made two serious mistakes. See if you can spot them in the Tax Court’s summary:

In 2003 on the advice of his accountant, petitioner intended to file a section 475(f) mark-to-market election. Petitioner, however, did not retain a signed copy of any election or any evidence of mailing it. Petitioner filed his Federal income tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a statement that petitioner had made an election pursuant to section 475(f), but did not have a copy of Form 3115, Application for Change in Accounting Method, attached to it.

Error 1: Not keeping a copy of the election (assuming he made it).

Error 2: Not filing until over a year after the due date.

Other cases have shown that the IRS enforces the timely-filing requirements of Section 475 strictly, to keep taxpayers from making the election with the benefit of hindsight.

The Court ruled that he traded enough to qualify as a “trader” under the tax law, but that he blew the election (my emphasis):

We find that petitioner failed to comply with the requirements for the mark-to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner did not submit a copy of any executed version of Form 3115 or any evidence of mailing it. Respondent did not find any record of petitioner’s Form 3115 in his electronic database, but also admitted that in some years not all Forms 3115 received were actually entered in the database. Next, petitioner filed his Federal income tax return for 2003 on July 25, 2005, failing to comply with the filing deadlines.

There’s a lot in that paragraph. Perhaps the most important thing is that the IRS admits that it doesn’t always know what you file, so it’s wise to keep your returns forever in case something like this happens. The other thing is that the deadlines matter.

The taxpayer made an unusual argument to get out of penalties: that his Asperger Syndrome made it impossible to meet deadlines. The Tax Court wasn’t convinced:

For a number of years, including 2002 and 2003, petitioner worked as a high school teacher. There is no evidence in the record that at any time from 2001 through 2006 petitioner filed for a disability accommodation while he was employed as a school teacher. In 2007 petitioner was trading in securities. Petitioner’s work station was equipped with six monitors showing the status of his trades. Petitioner was able to collect, analyze, and organize information to base his trades on. Petitioner understood he had a duty to file tax returns but claims that in 2007 he was “despondent” because of the losses he suffered and could not organize himself to file a tax return timely.

We are sympathetic to petitioner’s plight. We cannot find, however, under these circumstances that petitioner’s mental condition prevented him from managing his business affairs.

This is consistent with other cases where the courts have found that if you are able to deal with the challenges of daily life, you are presumed to be able to file your returns on time.

The Moral: File your returns on time, and keep copies of your filings forever.

Cite: Poppe, T.C. Memo 2015-205

Related: TaxProf, Tax Court: Asperger’s Syndrome Does Not Excuse Taxpayer’s Failure To File Tax Return




David Brunori calls the Iowa proposal to broaden the definition of manufacturing supplies subject to exemption from sales tax The Best Tax Policy Proposal of the Year (Tax Analysts Blog):

Taxing what business entities buy is wrong for two important reasons. First, businesses will try to pass the tax they pay on to their customers in the form of higher prices. Almost all succeed. The customers incur the tax burden without knowing it. That’s wrong. Even for those companies that don’t pass the tax along to customers, some person is unwittingly paying the tax. Second, when consumers pay higher prices, they are sometimes subject to tax. Thus, the sales tax is imposed on a value that includes previous sales tax. You may know it as cascading or pyramiding. But it’s wrong.

And that’s why the Iowa proposal is so refreshingly right. It would expand the types of business purchases exempt from sales tax. My understanding is that there is a debate in Iowa about whether the Department of Revenue can expand the number of exempt business purchases administratively. I don’t know the answer to that. I do know that the proposal represents sound tax policy.

Governor Branstad says expects the proposal to be enacted, reports the Sioux City Journal in Branstad: House GOP won’t buck rule change.


Russ Fox, The Wagering Excise Tax and DFS:

I’m focusing on the tax aspects of daily fantasy sports (DFS) this week. It’s beneficial for DFS participants for the activity to be considered gambling. For political reasons (“gambling is a sin”) and regulatory reasons (gambling is regulated, skill contests are not), the DFS sites want to be considered skill games sites. There’s another reason that DFS sites don’t want to be considered gambling: the wagering excise tax.

Picking the right horse at the track is a skill, too, but I’m pretty sure it counts as gambling.


Paul Neiffer, What is a Marginal Tax Bracket. A useful explanation for the non-specialist of how tax brackets work.

Kay Bell, Increased e-filing security planned for 2016 filing season. Better at least five years too late than never, I suppose.

Jim Maule, Beachfront House Rental Deduction Washed Out. When you try to deduct what looks like a beach party, you’d better have excellent documentation.

Eric Rasmusen, Law Suit for Billions Against Citigroup Because of Treasury’s 2009 Waiver of Section 382’s Rule about Losing NOL’s after an Ownership Change. The Administration put the fix in for its friends at Citigroup, and now another taxpayer is suing.




Tax Policy Blog, A Comparison of Presidential Tax Plans and Their Economic Effects.

Renu Zaretsky, “There’s no cut like a tax cut… There’s no cut like a tax cut…” Today’s TaxVox tax headline roundup covers the continuing fiscal pain in Kansas and the IRS patting itself on the back on ID theft after letting it spiral out of control for years.


TaxProf, The IRS Scandal, Day 895



Our media outlets dismiss the opponents of the Ex-Im bank or people who want to wind down Freddie and Fannie as Tea Party nut cases. If you want to stop crony capitalism, what we need are fewer influential media outlets and more Tea Party nut cases.

Arnold Kling



Tax Roundup, 10/20/15: Shock! State tax “incentives” favor the big! And: the 1% surprise.

Tuesday, October 20th, 2015 by Joe Kristan

20120906-1Regulation always favors the big. So do state business incentives. Left-side think tank Good Jobs First demonstrates the big-player bias of state “incentive” tax deals in a new report Shortchanging Small Business: How Big Businesses Dominate State Economic Development IncentivesMaria Koklanaris summarizes the report for State Tax Notes ($link):

Using its own databases and other programs, [Good Jobs First] weeded out awards targeting companies of a specific size, focusing only on those purportedly available regardless of company size. Of those “facially neutral” awards, 90 percent of the dollars went to big businesses, the report said.

“The deals, worth more than $3.2 billion, were granted in recent years by programs that on their faces, are equally accessible to small and large companies,” the report said. “Yet big businesses overall were awarded 90 percent of the dollars from the programs analyzed, indicating a profound bias against small businesses.”

While Iowa’s incentives weren’t among those studied, I am confident the exact same thing is true here. It’s the big and well-connected taxpayers who know how to play the system. They can hire the attorneys and accountants to navigate the system, and the lobbyists to make sure the taxpayer money is steered their way. And it’s the big projects — inherently done by big taxpayers — that attract the politicians. You’ve never heard of a Governor calling a press conference for some little business hiring two people.

A real Iowa tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, would get rid of all of these breaks for insiders and lower the rates and compliance costs for everyone.


New York Times, What Could Raising Taxes on the 1% Do? Surprising Amounts.

Scott Greenberg, No, Raising Taxes on the 1% Will Not Lead to “Surprising Amounts” of Revenue (Tax Policy Blog):

Let’s say, for instance, that Congress decided to raise the effective tax rate of the 1% by increasing the top rate on ordinary income. Currently, the top tax bracket on ordinary income is 39.6%. How high would Congress have to raise this rate, in order to raise the effective tax rate of the 1% to 45 percent?

According to our estimates, Congress would have to raise the top rate on ordinary income to 74 percent, in order to raise the effective rate of the 1% from 33.4 percent to 45 percent. This would be a rate hike of over 34 percentage points, or an 87 percent increase in the top rate.

Oh, I think the amounts of revenue raised would be surprising, to the Times. And disappointing. As I’ve noted many times, the rich guy isn’t picking up the tab, because he can’t.




TaxGrrrl, 11 Things I Wish I Could Tell My Younger Self About Taxes. Plenty of good advice here. It’s all worth reading, but I especially like #7, Planning is important:

Tax planning is important. You should take advantage of tax strategies that can help you lower your tax bill, like seeking out tax credits you might have overlooked or making a contribution to a tax-deferred retirement account. And knowing what’s coming down the pike is also important when it comes to payment: having a good idea of what you might owe and making estimated payments will help you avoid writing a big check at the end (trust me) and possibly being subject to underpayment penalties.

This is true for all taxpayers, but it is especially true for the self-employed, who are much more numerous with the growth of the “gig economy.”


buzz20150804Robert D. Flach is up and running with a fresh and pungent Tuesday Buzz roundup. He covers the recent tax season and the right response to callers claiming to be from the IRS demanding payment, among other things.

Jason Dinesen, Choosing a Business Entity: S-Corporation vs. C-Corporation. “The ‘C’ and ‘S’ refer to how that corporation is taxed, not to its legal standing.”

Tony Nitti, Apple To Issue Restricted Stock To Employees: Siri, What Are The Tax Consequences?

Russ Fox, The Future of DFS. “If you watch any sports television, you’ve almost certainly seen commercials for the two leading daily fantasy sports (DFS) sites, DraftKings and FanDuel.”

Robert Wood, Chef Jamie Oliver Calls For Sugar Tax, While Mexico Eyes Soda Tax Cut. We actually already have a pretty high sugar tax.

Keith Fogg, Contesting the Merits of the Underlying Tax in a Collection Due Process Case – A Convoluted Fact Pattern Leads to Wrong Decision (Procedurally Taxing).

Peter Reilly, Massachusetts Hits Staples For $10 Million On Sham Interest Deductions. “This case is a beautiful illustration of my fourth law of tax planning – Execution isn’t everything, but it is a lot.”




TaxProf, The IRS Scandal, Day 894. On how the President signals Justice Department investigators to back off.

Brian Doherty, Irwin Schiff, R.I.P. ( “He was indeed a jolly warrior for a cause he obviously very sincerely believed in, even when it became completely obvious that the federal government was not going to be daunted by his arguments and indeed was going to keep arresting him for practicing them and advocating them.”

Kay Bell, Infamous tax protester Irwin Schiff has died. “His anti-tax tactics live on, as do penalties for those who insist on using them.”


Howard Gleckman, Presidential Candidates, “Free Stuff,” and Pixie Dust (TaxVox):

Even in its early stages, the 2016 presidential race looks like it will be remembered for two depressing superlatives. The candidates will spend more money than ever before, and they will promise more costly give-aways than any politicians in history.

Once again demonstrating the wisdom of Arnold Kling.


Tax Roundup, 10/19/15: Keeping a calendar pays off big for Brooklyn apartment owner. And: Irwin Schiff dies in prison.

Monday, October 19th, 2015 by Joe Kristan

20150811-1Marking time pays. If you ever think owning income property is easy money, a Tax Court case last week might make you think twice. But the case also shows how keeping track of the time you spend can make a big difference if the IRS questions your rental losses.

The taxpayer couple owned “a four-floor mulifamily house” in Brooklyn. The couple lived on the first two floors, and rented out the two remaining floors as two apartments. He had a day job involving construction, but he also had his hands full with the apartment.

The couple claimed just under $70,000 of rental losses between 2010 and 2011. The IRS challenged the losses. The IRS has a good track record in rental loss cases because the tax law sets a high bar for deducting them. Such losses are automatically “passive,” and deductible only to the extent of “passive income,” unless you are a “real estate professional.” To be a real estate professional, you have to

  1. work more than 750 hours in a real estate trade or business during the year, and
  2. Your real estate work has to take more time than anything else you do.

It’s that second test that usually trips up people with day jobs. The taxpayer here, though, had an advantage, as Special Trial Judge Panuthos explains:

For purposes of the requirement in section 469(c)(7)(B)(i) [the real estate professional test], a real property trade or business includes construction and reconstruction. Sec. 469(c)(7)(C). 

So that meant the rental activity didn’t have to take more time than the day job. But the real estate professional rule doesn’t automatically make a rental loss deductible. The taxpayer still had to show that he “materially participated” to avoid the passive loss rule. Material participation is generally based on time spent working on the activity during the year, with 500 hours annually being the most common threshold used.  Fortunately, the taxpayer kept track of his time:

We used petitioner’s contemporaneous activity log to calculate the amount of time that he spent on the rental property. We included the amount of time petitioner recorded in his contemporaneous activity log for the work related to the tenants’ apartments and two-thirds of the amount of time petitioner recorded in his contemporaneous activity log for the work related to the common areas. On the basis of these calculations, we conclude that petitioner spent 1,008 hours performing services with respect to the rental activity for 2010. Because the 1,008 hours meets the more-than-500-hour requirement of section 1.469-5T(a)(1), Temporary Income Tax Regs., supra, petitioner meets this requirement for the 2010 taxable year. Accordingly, petitioner materially participated in the rental real estate activity for 2010, and petitioner’s 2010 rental real estate activity was not a passive activity.

That’s a lot of time. So much for the idea that rental income is easy money. The taxpayer’s records also carried the day for 2011. In total, the recordkeeping saved the taxpayer $25,174.60 in taxes and penalties that the Tax Court overturned.

The Moral? Keeping a daily calendar of your time is the best antidote to an IRS passive loss examination. It may seem like a hassle, but as this case shows, it can turn out to be the best investment of time you can make if the IRS comes for a visit.

Cite: Simmons-Brown, T.C. Summ. Op. 2015-62.


Irwin SchiffTax Protester Schiff dies in prisonIrwin Schiff, a prominent figure among those denying the general application of the income tax, died in prison last week, reports Peter Reilly. Mr. Schiff, 87, had been diagnosed with lung cancer while serving a 13-year sentence for practicing what he unwisely preached. Peter’s humane and thoughtful coverage includes this:

When I first encountered Schiff’s arguments in the nineties I was so impressed by how well put together they were, that I found it difficult to believe that they were constructed by someone who believed them, as citations always checked out, but were wildly out of context.  Irwin, however, has proved his sincerity.  That doesn’t make his arguments right, but it does merit some grudging admiration.

Mr. Schiff’s story shows that however sincerely you believe that the income tax doesn’t apply to you, your sincerity does little good when the IRS, the U.S. Marshals, the federal judges, and the Bureau of Prisons think it does. And they do.



Russ Fox, That Was the Year that Was. Russ reflects on the filing season ended last week:

Calling the IRS was almost a joke. The “Practitioner Priority Service” hold times were so bad that I’d hate to think of what they were for regular numbers. Unfortunately, I see no improvement possible with the IRS budget until the IRS scandal is resolved. That’s not going to happen until we have a new President, so we have probably two more years of misery in dealing with the IRS.

At least.


William Perez, Where to Find and How to Read Tax Tables

Annette Nellen, Responsible Governance – Tax break bills vetoed! “What happened – On 10/10/15, Governor Brown vetoed nine bills that either created or expanded a tax credit or exclusion or exemption.”




Alan Cole, How Do Property Taxes Vary Across The Country? (Tax Policy Blog). The post feature a handy interactive map showing the average property tax deduction taken in each U.S. county in 2013.

TaxProf, The IRS Scandal, Day 891Day 892ay 893. Day 892 covers the connection between Lois Lerner and a bureaucrat behind the outrageous Wisconsin “John Doe” investigations of conservative organizations.

Howard Gleckman, The Debt Limit: Here We Go Again (TaxVox).

Kay Bell, GOP presidential candidates tax trash talk on Twitter

Robert Wood, Execs Get 10 Years Prison Over Company Taxes? Yes, Here’s How. Robert covers the Arrow Trucking saga.

TaxGrrrl, As TIGTA Continues To Warn On IRS Scams, New Treasury Scams Surface. “In one version, scammers advise that an individual has been awarded a grant or a similar sum of money and in order to collect, the individual needs to provide personal information or a sum of money to ‘release’ the funds. It sounds a little bit like those lottery scams making the rounds but the use of the name of the Office of the Treasury seems to make individuals believe that it’s more legitimate”


News from the Profession. A Noncomprehensive List of Morale Boosters for Accounting Firms (Leona May, Going Concern). “Accounting firms, who generally eat their young, are all competing for ‘who has the best perks’ in race to scoop up all of the competent new hires.”



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.