Posts Tagged ‘Russ Fox’

Tax Roundup, 2/12/15: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

Thursday, February 12th, 2015 by Joe Kristan

Lincoln

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

Happy Lincoln’s Birthday. President Lincoln signed the first U.S. income tax into law in August, 1861, to cope with costs of the Civil War and the loss of income from customs collections in the rebellious states.  Wikipedia says the tax was initially 3% on income over an $800 exemption. Right away they started tinkering, and adding expiring provisions:

The income tax provision (Sections 49, 50 and 51) was repealed by the Revenue Act of 1862. (See Sec.89, which replaced the flat rate with a progressive scale of 3% on annual incomes beyond $600 ($12,742 in 2009 dollars) and 5% on incomes above $10,000 ($212,369 in 2009 dollars) or those living outside the U.S., and perhaps more significantly it was explicitly temporary, specifying termination of income tax in “the year eighteen hundred and sixty-six“).

The rates were increased again in 1864 to a top rate of 10%, but it actually was allowed to expire after the end of the war.

For some reason, this early version of the income tax isn’t a big topic in history books. Something else must have been going on then.

 

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

April 15, the thieves holiday Tax-refund fraud to hit $21 billion, and there’s little the IRS can do (CNBC):

Tax-refund fraud is expected to soar again this tax season, and hit a whopping $21 billion by 2016, from just $6.5 billion two years ago, according to the Internal Revenue Service.

And the problem—which the agency admits is growing quickly—is compounded by an outdated fraud-detection system that has trouble identifying many attempts to trick it.

$21 billion. The entire tax system of the state of Iowa raises maybe $8 billion, and the IRS issues $21 billion annually to thieves. Not counting earned income credit fraud, of course.

I’m no IT expert, but saying the IRS is helpless sounds like a cop-out. Even with obsolete technology, the IRS has been slow to stop obvious fraud, such as multiple (say, hundreds of) refunds going to a single bank account. The agency allowed this crisis to spin out of control years ago. Practitioners certainly knew about it during Doug Shulman’s execrable term as IRS commissioner, but he spent his efforts trying to regulate practitioners and harass the Tea Party, while grossly failing at the more basic duty of not wiring money to theives. Commissioner Koskinen obviously hasn’t solved the problem. I think it’s fair to conclude that they just haven’t considered it their biggest problem.

This should be the highest IRS priority, certainly more so than the “voluntary” preparer program. It should also be the highest oversight priority of the tax writing committees in Congress, who should be able to find a way to find the necessary funding in a way that keeps the Commissioner from diverting it to pet projects. Of course, the history of IRS technology upgrades isn’t very encouraging.

It’s possible that the solution will also require taxpayers to wait longer for refunds. It takes a lot longer to get a refund when your identity is stolen anyway, so it’s probably worth taking a little more time. But when technology exists to enable the credit card company to call me when my wife is buying an expensive dress in Chicago, the IRS ought to be able to notice someone like Rashia Wilson before she fills her purse with Benjamins.

Related: TurboTax Fraud May Impact Federal Returns Too, FBI Investigating (Robert Wood)

 

Iowa’s $37 million corporate subsidy programNot everybody knows that the State of Iowa mails subsidy checks to business taxpayers, including $11.7 million just to one. Iowa’s research credit is “refundable,” which means once it wipes out your Iowa tax, the state sends you a check for any remaining credit.

The total 2014 Iowa research credits claimed was $56,918,030 for 2014, according to the newly-issued Iowa Research Activities Tax Credit Annual Report for 2014. (Hat tip: Iowa Fiscal Partnership). Sixteen companies claimed $42 million of the credit, according to the report:

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I know everybody thinks they have earned whatever cash they have coming from the state, and I’m not shy about claiming refundable credits for my clients. When the state offers you cash, you’d be foolish not to take it. Still, there’s no way this makes any sense from a tax policy perspective.  The money sent to a few taxpayers should be used to lower rates for everyone, or to help eliminate the futile Iowa corporation income tax.

 

William Perez, Last Year’s State Refund Might be Taxed on Your Federal Return

TaxGrrrl, IRS Releases Latest Version Of Its Mobile App – And Something’s Missing. Service!

Russ Fox, A Bipartisan Tax Bill? I’ll Drink to That! “It’s to end age discrimination against bourbon and whiskey.”

Peter Reilly, Lois Lerner’s Old IRS Team Looking Anti-tech. “…now I’m thinking there might be a full blown Luddite cult operating in there.”

Jason Dinesen, Tips For Financing a Small Business: Part 1 of 5 — There’s Going to Be Paperwork, Deal With It

Kay Bell, Got your tax refund yet? IRS issued 7.6 million in January

 

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Principal Park, home of the Iowa Cubs. About 2 months until opening day!

 

Andrew Lundeen, Proposed Tax Changes in President Obama’s Fiscal Year 2016 Budget (Tax Policy Blog). “In total, the plan includes $2.4 trillion in proposed tax increases offset by $713 billion in new credits, deductions, and other offsets, for a total tax increase of nearly $1.7 trillion over the next ten years.”

Cara Griffith, Series LLCs: The Next Generation of Passthrough Entities? (Tax Analysts Blog). I think they will continue to be the wave of the future, as they have been for years now.

TaxProf, The IRS Scandal, Day 644

 

Career Corner. Interruptions at the Office: Good or Bad? (Adrienne Gonzalez, Going Concern). Bad, unless cookies are implicated.

 

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Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

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Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382″ restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

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Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

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Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

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

Monday, February 9th, 2015 by Joe Kristan

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

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

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

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

Naturally the politicians disagree:

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

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

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

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

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

Link: The Comptroller Report.

 

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

 

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

 

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

William Perez, How Is Interest Income Taxed and Reported?

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

IMG_1271Leslie Book, Preparers and Due Diligence (Procedurally Taxing)

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

 

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Tax Roundup, 2/3/15: President announces fresh new hopeless tax proposals!

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

160 tax proposals. Close to 160 doomed tax proposals. The President released the details of the tax proposals for his 2015 budget yesterday. Tax Analysts Reports ($link):

The added details on international reforms the administration is seeking serve as “a significant step forward” to flesh out its business tax reform framework and see if there is an “opportunity for movement” on business reform with Congress, a senior Treasury official told reporters at a February 2 briefing on the release of the Treasury’s green book explanation of the revenue proposals in the budget.

Overall, the fiscal 2016 budget includes roughly 160 tax proposals, of which about 30 are new, 45 are modifications or combinations of old proposals, and 85 are the same or similar to the administration’s fiscal 2015 budget, the Treasury official said.

Almost all of these proposals are doomed for this Congress. As most of these couldn’t pass when Democrats controlled the Senate, they’re hardly likely to pass now that they don’t. A GOP Congress is also not about to pass some of the more publicized class warfare proposals, like the increase in the capital gain rate, the taxation of capital gains at death, increase the estate tax rate to 45% (from 40$) and lowering the estate and gift tax lifetime exclusion to $1 million (from $5+ million).

No Walnut STA few proposals might get a sympathetic hearing on their own from GOP taxwriters. These include:

– Cash basis accounting and repeal of Section 263A inventory capitalization for companies with up to $25 million in gross receipts.

– Permanent extension of the Section 1202 exclusion for qualifying small C corporation stock gains.

– Permanent extension of the refundable Child Tax Credit.

– Increasing the maximum Section 179 deduction from $500,000 to $1 million.

A few other corporate welfare gimmicks that might get a hearing include permanent research credits and permanent New Markets Tax Credits.

While there are a few items that might attract GOP support, overall this batch of proposals is more extreme than the ones that went nowhere before. The President probably won’t let Congress just pick out the tasty bits from his proposals, so I expect little to none of this to actually pass.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

Jeremy Scott, Obama’s Foreign Earnings Tax: 19 Percent Minimum DOA but Deemed Repatriations Key (Tax Analysts Blog)

Kyle Pomerleau, The President’s Tax on Offshore Earnings Represents the Worst of Retroactive Policy (Tax Policy Blog)

Len Burman, Are Accrued Capital Gains Income in the Year You Die? (TaxVox). “But reclassifying exceptionally thrifty middle-class families to the top of the income distribution by counting a lifetime of unrealized gains in income when they die clearly overstates their well-being.”

Tony Nitti, Tax Aspects Of The President’s FY2016 Budget

TaxGrrrl, Obama Budget Proposal Tackles Small Business, Changes To IRS

Kay Bell, Tax highlights in Obama’s FY2016 budget proposal

Annette Nellen, President Obama’s 2015 Tax Proposals

 

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Megan McArdle, Government Blinks Again on Obamacare, a discussion of the IRS announcement that it won’t impose the failure-to-pay penalty on exchange policy purchasers who have to repay some subsidy:

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Affordable Care Act is a lot less strong than the will to distribute the benefits.

It also telegraphs that the IRS expects that a lot of taxpayers who are anticipating a refund will be instead writing a check on April 15.

 

20140925-2Peter Reilly, Repair Regs And Tax Pros Are Like Headlights And Deer:

For the most part, the people who have been really looking at these regulations have had a large firm perspective.  To be a just a little cynical, they actually kind of like all this complexity, since they can make a case for sending out big bills to entities that can afford to pay them.  My brief time at the national level, not Big 4, but with many former Big 4 people made me realize there is a radically different perspective at that level.  They are used to having a very small number of competitors for any client who more or less sing from the same hymn book.  The client people that they deal with are quite likely fellow members of the Big 4 cult rather than tight fisted entrepreneurs who resent every penny they spend on professionals.

Regulation always favors the big, and the “repair regulations” are no exception.

 

Russ Fox, Fake Interest Income, Fake Withholding, Real Fraud at the Tax Court. “What is amazing to me is that the petitioner has not, as far as I can tell, been criminally indicted.”

Robert Wood, The Truth About Lying On Your Tax Return.  “…as with your resume, making up something on your tax return is a terrible idea.”

Martin Sullivan, JCT Report Provides New Insight on Competitiveness (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 635

 

News from the Profession: How Internal Controls Will Keep You Safe From Velociraptors (Leona May, Going Concern).

 

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Tax Roundup, 2/2/15: Film trial sequel ends badly for a main character. And: Iowa conformity bills advance.

Monday, February 2nd, 2015 by Joe Kristan
Dennis Brouse

Dennis Brouse

They got him for the trailer. The filmmaker who got more transferable tax credits under the Iowa film tax credit program than anyone else was convicted Friday of first degree fraud with respect to the program. From the Des Moines Register:

Dennis Brouse, 64, could face up to 10 years in prison at a sentencing hearing scheduled for March 23. Brouse owned Changing Horses Productions, a company that received $9 million in tax credits from the scandal-ridden Iowa Film Office. Brouse starred in the company’s main series, “Saddle Up With Dennis Brouse.”

Prosecutors claim Brouse bought a 38-foot camper trailer from an elderly couple, Wayne and Shirley Weese, for $10,500 in cash. But prosecutors charged that Brouse claimed the trailer cost twice that much in a statement for tax credits that he turned in to the state.

The State Auditor’s Report on the program reported that Changing Horses claimed 50% tax credits for many other doubtful items. For example, they claimed a $1 million value for a “sponsorship” awarded to a feed company that had refused to sign a document with that value on the grounds that it was “grossly overvalued.” This enabled the company to get tax credits that likely were more than 100% of the money spent in Iowa by the filmmaker.

Mr. Brouse had a prior conviction on charges related to the film program overturned, and his attorney says he will appeal this conviction.

While Iowa’s film credit program was spectacularly mismanaged, it was only one extreme example of the unwisdom of the state legislature attempting to manage Iowa’s economy via the tax law.

 

Via Wikipedia

Via Wikipedia

Iowa conformity bills advance The bill to update Iowa’s income tax to reflect the December federal “extenders” bill cleared both the House and Senate taxwriting committees. I think than means the bills won’t be delayed, and we can get on with Iowa’s tax season. Both bills conform for pretty much everything in the federal tax law, including the increased Section 179 deduction, but do not conform to federal bonus depreciation.

 

Dahls checks outThe central Iowa grocery chain was broken up Friday in a bankruptcy liquidation. Seven stores will re-open under another name.

Perhaps the greatest victims of the failure are longtime Dahls employees who owned the company through their Employee Stock Ownership Plan. They get nothing, or close to it.

Iowa passed a special break for sales of companies to ESOPs in 2012. Proponents pointed to the employee ownership of Dahl’s major competitor, Hy-Vee, in support of the bill.

The Dahls example shows a dark side of employee ownership — the way it concentrates a large portion of employee retirement assets in a single vulnerable asset.

 

Jason Dinesen, Do I Have to Have Form 1095-A Before I Can File? “Yes, you need the Form 1095-A if you got premiums through an insurance exchange.”

William Perez, Need More Time? How to File for a Tax Extension with the IRS

20150105-1Jim Maule, When Is A Building Placed in Service? “Because the taxpayer presented undisputed evidence that certificates of occupancy had been issued, that the buildings were substantially complete, and that the buildings were fully functionally to house the shelving and merchandise, they had been placed in service within the required time period.”

Jana Luttenegger Weiler, Sharing Financial Responsibility at Tax Time (Davis Brown Tax Law Blog). “Whatever your situation, it is important to keep good records so that someone else can pick up where you left off, if needed.

Kay Bell, Is Belichick’s coaching style like tax avoidance or tax evasion?

Paul Neiffer, $500,000 Permanent Section 179 Could be Coming Soon! “The House Ways and Means Committee is expected to vote on seven expired tax provisions on February 4, including making permanent Section 179 expensing at the $500,000 level.” Given the politics involved, I’m not holding my breath.

Robert Wood: Receipts Rule IRS Keeps Quiet: They’re Optional. Well, sometimes they aren’t optional, and they always help.

TaxGrrrl, Salaries, Ads & Security: What’s The Real Cost Of Super Bowl XLIX?

Russ Fox, This Never Works…:

Patrick White is the owner of R & L Construction in Yonkers, New York. He liked his home and he liked to gamble. There’s nothing wrong with that. He took payroll taxes withheld from his business and used that money for his homes and for gambling. There’s a lot wrong with that, especially when it totals $3,758,000. Mr. White pleaded guilty to one count of failing to pay over payroll taxes to the government. He’ll be sentenced in May.

Russ throws in some good advice about using EFTPS.

Robert D. Flach regales us with THE TWELVE DAYS OF TAX SEASON

Stephen Olsen, “Summary Opinions for 1/6/15-1/23/15” (Procedurally Taxing). News from the tax procedure world.

 

IMG_0543Christopher Bergin, Robin Hood and Other Fables (Tax Analysts Blog):

When it comes to taxation, President Obama has his own particular points of view. He may use terms such as “middle-class economy” or say things like “the rich can pay a little more,” but at the core he views the tax system as either a mechanism that helps the rich hang on to their ill-gotten gains or as a “honey pot” to fund his political ideas and base. It’s all politics. And that’s why we will see no progress – regarding the gas tax, taxation of businesses, or any other kind of real tax reform – until there has been a change in administrations.

In fact, the major lesson we’ve learned from this latest episode is that when it comes to of tax reform, the Obama administration has the “tinnyist” of tin ears. Whether the merry men and women at the White House believe that section 529 tuition savings plans benefit the ”rich,” they should know that when American voters actually recognize and identify with a tax break by its code section number (in this case, 529), be careful — very, very careful. You usually can’t sneak a fast one into the tax code when taxpayers know the section by number.

Hard to argue with this.

 

Arnold Kling, 529: Popular != Good Policy. “529 plans subsidize affluent people for doing what they would have done anyway–send their kids to exclusive, high-priced colleges.” Maybe, but it still is better than rewarding borrowing by subsidizing it.

Howard Gleckman, Obama’s Failure to Kill 529 Plans May Say Less About Tax Reform Than You Think (TaxVox). “But the survival of these education subsidies does not mean that a rate-cuts-for-base-broadening swap will never be possible.”

 

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TaxProf, The IRS Scandal, Day 634

Matt Gardner, Facebook’s Record-Setting Stock-Option Tax Break (Tax Justice Blog). 595 words on the evils of the deduction for stock option compensation without one word noting that every dollar of “phantom” deduction for the issuing corporation is also a dollar of “phantom” income to the employees — and usually at higher rates than the corporation pays.

Scott Drenkard, Gov. Kasich’s Plan May Be A Tax Cut, But It’s Still Poor Policy. (Tax Policy Blog) “Unfortunately, the plan which is set to be announced next Monday by Governor Kasich isn’t going to address any of these problems and will probably make them worse.”

 

Career Corner. You Should Take a Nap This Afternoon Because Science (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/29/15: Iowans, fill ’em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

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For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.

Related:

Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.

 

Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.

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Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”

 

Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)

 

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

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

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

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

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

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

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

Cite: Perez, 144 T.C. No. 4

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

 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

TaxProf, The IRS Scandal, Day 624

 

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

 

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Tax Roundup, 1/20/2015: What’s with the accounting method changes? And: foot kissing + tax evasion = double trouble.

Tuesday, January 20th, 2015 by Joe Kristan

3115-2009If your business return seems extra thick this year, it could be a result of an “accounting method change” application — Form 3115 — buried in it.

The tax law requires taxpayers to get IRS permission to change a “method of accounting.” Without getting into all of the tedious details, and with great oversimplification, a “method of accounting” occurs when the way you account for something on your tax return affects the timing of income or expense, but not the total amount over time. In other words, it’s temporary vs. permanent differences.

Of course timing is everything in tax planning, and the IRS doesn’t want you to change accounting methods willy-nilly. The IRS doesn’t have the time to consider every accounting method change, though, so it publishes a long list of “automatic” method changes annually. This year’s list is in Rev. Proc. 2015-14.

This year will see more Forms 3115 than usual as a result of the so-called “repair regulations” that are effective for 2014 returns. These rules distinguish between “repair” expenses, which can be deducted, and “improvements,” which have to be capitalized and depreciated.

20140925-2The repair regulations have provisions that let taxpayers treat their building components — HVAC, roofs, elevators, etc — as separate items under these rules. Their effect is to permit deductions for some costs that may have been trapped in the depreciable cost of the building. That makes the automatic method change under these rules (Rev. Proc. 2014-17) a good deal, as it can provide a catch-up deduction for prior capitalized costs. Many returns will also include a method change (Rev. Proc. 2014-16) to reflect updated rules for deducting or capitalizing “materials and supplies.”

Automatic method changes are a good thing; if you have a method change that isn’t automatic, special IRS permission is required, and it doesn’t come cheap. But even an automatic change isn’t free, especially if your preparer has to go through old repair records to determine the catch-up deduction. But if you have significant depreciable real property, it’s probably worth the effort.

 

Russ Fox, Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy. 

An accountant from Stillwater, Minnesota — who happened to also be the Mayor — chose poorly.

 

20121120-2Hank Stern, Counting down the ObamaTax:

Many (most?) folks believe that the tax is a mere $95 this year and, for some people, this may well be the case. But it’s actually just a minimum; the actual rate (this year) is 1% of income:

TurboTax, an online tax service, estimated that the average penalty for lacking health insurance in 2014 will be $301.”

A common misconception.

Robert Wood, Beware Obamacare When Filing Taxes This Year. A roundup of the individual mandate penalty and the net investment income tax.

 

Annette Nellen, Due diligence for preparing 1040s for 2014:

What’s new for due diligence for 2014 individual tax returns?  Virtual currency, Affordable Care Act, FBAR, Airbnb rentals, for sure.  Also, the typical charitable contributions, mortgage interest and 1099-K review.  The biggest new item for 2014 will the new line asking if the individual had health coverage for the year.

More work doesn’t come free. The post lists to a longer article about preparer “due diligence” this tax season.

 

Tim Todd, Tax Court Adopts Functional Test to Define “Bank”. “In sum, the Tax Court held that Moneygram satisfied neither the Staunton functional test nor the § 581 test because it failed to receive deposits, make loans, and was not regarded as a bank by any state or federal regulator. Consequently, Moneygram was not entitled to the reported bad debt deductions of the partial or wholly worthless asset-backed securities.”

Jason Dinesen, A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913.

 

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part 1. “As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.”

TaxGrrrl, Fun With Taxes: Tax Haiku 2015. How about this:

 insure worker health?

Better not reimburse it

That is expensive.

 Kay Bell, Martin Luther King Jr. Day lessons via “Selma” & “Glory”

Mitch Maahs, IRS Announces New Standard Mileage Rates (Davis Brown Tax Law Blog)

 

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Robert D. Flach, BO SOTU PLANS TO INCREASE TAX ON THE “WEALTHY”. ” BO’s tax proposals, both to help the middle class and punish the wealthy, will never pass in the Republican controlled Congress.”

Matt Gardner, President Obama Takes on the Capital Gains Tax Inequity with New Proposals. By making it worse, of course, though not to hear Mr. Gardner tell it.

Renu Zaretsky, To Build a Better Tax Code, You Could Follow the Money.  The TaxVox headline roundup is heavy on the President’s proposals.

TaxProf, The IRS Scandal, Day 621. This edition cites Stephen Moore’s Op-ed: “Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job.”  Unfortunately, the President who hired him thinks he is doing his job, which is to be a partisan scandal goalie.

 

The headline that wins the internet: Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (Jack Townsend)

 

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

Friday, January 16th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

And an unapologetic one.

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

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

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

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

 

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

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

TaxProf, The IRS Scandal, Day 617

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

 

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

 

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

 

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

Thursday, January 15th, 2015 by Joe Kristan

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

 

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

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

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

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

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

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

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

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

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

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

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

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

Related coverage: 

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

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

 

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

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

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

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

Tim Todd, Unsubordinated Mortgage Prevents Charitable Deduction for Conservation Easement

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

 

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

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

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

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

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

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

TaxProf, The IRS Scandal, Day 616

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

 

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Tax Roundup, 1/13/15: Another bad day for Mr. Banister in Tax Court.

Tuesday, January 13th, 2015 by Joe Kristan

Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.

lizard20140826“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.

In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.

This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):

During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.

The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.

It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.

Mr. Banister tried to use his own medicine to fight the IRS:20120511-2

During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.

It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.

Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly  to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.

The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.

I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.

Cite: Banister, T.C. Memo 2015-10

Russ Fox has more: The Second Time Wasn’t the Charm

 

20120620-1Busy day, so just some quick links.

Robert D. Flach has fresh Tuesday Buzz,  with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.

Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.

 

Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).

Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:

Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.

Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.

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Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):

TaxProf, The IRS Scandal, Day 614

 

Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/12/15: They’re back! Gas tax boost, maybe; tax reform, not likely as 86th Iowa General Assembly convenes

Monday, January 12th, 2015 by Joe Kristan

20130117-1Same Governor. Same split party control in the legislature. So why would we expect different results? I expect no big tax cuts, tax increases or tax reforms. When you mix the same ingredients and put them in the same oven, expect the same thing to come out of the oven.

They will be legislating for the next few months, so they will talk, and who knows? Something might happen. But that’s not the way to bet.

The Des Moines Register today covers 10 key issues facing Iowa Legislature in 2015. Six of them are tax items. I think only one of them is likely to result in legislation. Let’s go down the list.

ROAD FUNDING/GAS TAX. The state gas tax isn’t inflation adjusted, and the Department of Transportation says it needs more money. As gas taxes are close to a fee on road use, you can make a policy case for an increase. It’s a lot harder to make a political case, which is why the Governor and the legislature are so deferential to one another in this area. The fracking-induced fall in gas prices may give them the legislature the excuse they need to do what they clearly want to do — raise the 10 21-cent per gallon tax. The governor may push it through if he has decided this is his last term. But most likely they’ll be saying “after you” right through adjournment.

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

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

INCOME TAX CUTS.  The Register conflates tax cuts with tax reform here. They aren’t necessarily the same thing. Iowa’s income tax could bring in the same amount of revenue without the highest corporation rate in the developed world by eliminating the dozens of special interest tax credits and carveouts and tax credits for the well-connected. As long as Michael Gronstal remains in control of the flow of legislation in the Iowa Senate, anything that cuts rates for “the rich” goes nowhere. In any case, the Governor doesn’t seem to mind a tax credit system that gets him invited to all the cool ribbon cuttings.

That’s too bad. Iowa has a bottom-ten business tax climate that favors those with good lobbyists while making South Dakota look attractive for everyone else. Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would wipe out the corporate tax, cut individual rates, and get rid of Iowa’s byzantine maze of special breaks, is long overdue.

20120906-1BROADBAND EXPANSION. This is the sort of small-ball legislation that has passed in recent years, and this seems like the most likely to get through, probably as a tax credit. Of course, every new tax credit means a puppy dies Iowa’s tax law is just a little worse and a little harder to fix. Never mind that the real obstacle to broadband expansion is in Washington, not Des Moines.

LOCAL OPTION SALES TAXES. The municipalities want to be able to drive out businesses by increasing sales tax without help from surrounding communities. Same ingredients, same cake.

BANNING TRAFFIC CAMERAS. It’s about the money, and Senator Gronstal will prevent any anti revenue camera legislation from advancing.

SALES TAX INCREASE. This proposal to increase sales taxes for natural resource funding died in the Senate last year. If you can’t get a tax increase out of the Iowa Senate, you sure aren’t getting one out of the GOP House.

Other coverage: Sioux City Journal, Iowa Legislators see limited budget room for tax cuts this session

Related: Tax States of the States: Mixed, Murky and Sometimes Mercurial (Renu Zaretsky, TaxVox)

 

IMG_0923Russ Fox, FTC Sponsors Tax Identity Theft Awareness Week

Tony Nitti, Four Things Sure To Destroy Your Tax Season. Three of them stem from Obamacare.

 

William Perez, What You Need to Know about Reporting Payments Using Form 1099-MISC

Annette Nellen, HR 30 – Defining full-time worker for ACA has costs. A story of unintended consequences.

Peter Reilly, Dressage Riding Physician Convinces IRS On Hobby Loss Audit But Loses To Massachusetts

Keith Fogg, Tenth Circuit Ups the Ante on Late Filed Returns (Procedurally Taxing)

Robert Wood, Bill Gives IRS Power Over Tax Prep, But Should It? No.

Kay Bell, St. Louis says no added taxes for new NFL Rams stadium. But the one they have is 20 years old, darn it!

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Kyle Pomerleau, Government Cost $4.5 Trillion in 2014 and We All Paid Part of It (Tax Policy Blog).

Robert Goulder, China’s Fiscal Roadmap: Tax Like America (Tax Policy Blog). If you are worried about China achieving economic domination, you can rest easy now.

TaxProf, The IRS Scandal, Day 613

News from the Profession. Judging By This List, Accountants Aren’t Marriage Material (Adrienne Gonzalez, Going Concern)

 

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

Thursday, January 8th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

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

 

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

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

It’s all a matter of perspective.

 

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

Wednesday, January 7th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

 

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

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

Sad and true.

 

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

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

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

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

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

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

 

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

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

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

 

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

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

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

 

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

 

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

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

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

Also:

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

States hate the idea of losing their tobacco revenue stream.

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

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

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

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

 

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

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

Yuk.

 

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

 

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

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

 

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Tax Roundup, 12/24/14: Giving season edition! How to give, avoiding traps, and suggestions for the perplexed.

Wednesday, December 24th, 2014 by Joe Kristan

The extender bill was signed while I was away, as you have probably figured out already. While the extenders remain awful policy, at least we go into the year-end knowing what the tax law is. We should be grateful for our presents; even a lump of coal can help keep us warm.

Related: Kristine Tidgren, Tax Increase Prevention Act of 2014 Revives Tax Breaks, But Only for 2014Paul Neiffer, It’s Official.

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Tax tips for the giving seasonAs the business week winds down early on Christmas Eve, many taxpayers find themselves feeling generous to charity. Here are some things to keep in mind as you go about your charitable gifting

Gifts of appreciated long-term capital gain property are often the most tax-efficient. Such gifts, done properly, give you a full fair market value deduction without ever taxing you on the appreciation. If you are not gifting publicly-traded securities, however, appraisal requirements for gifts over $5,000, and just the paperwork that may be involved in transferring ownership, may make it impossible to complete such a gift this year.

Even gifts of traded securities can be hard to pull off this late in the year. You have to get the securities into the donee’s brokerage account by the close of business December 31. I’ve seen attempts to get this done fail more than once. It is especially troublesome in dealing with small or unsophisticated charities, who might not even have a brokerage account available to use.

Congress renewed the IRA break in the extender bill, but it needs to happen by December 31, and there are some restrictions. The IRS explains:

  • If you are an IRA owner age 70½ or older you have until Dec. 31 to make a qualified charitable distribution, or QCD.
  • A QCD is direct transfer of part or all of your IRA distributions to an eligible charity. You may transfer up to $100,000 per year.
  • You may exclude the distributed amounts from your income. You can claim this benefit regardless of whether you itemize your deductions. If you do exclude the QCD from your income, you can’t also deduct it as a charitable contribution on Schedule A if you do itemize.
  • You can count your QCDs in determining whether you meet the IRA’s required minimum distribution.
  • The provision had expired at the end of 2013. The new law is retroactive for 2014. This means any eligible QCD in 2014 will qualify.
  • Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

If you want to give cash, the “mailbox rule” applies. The postmark date controls whether a mailed check is deductible this year.  If you don’t care to take chances, a gift by credit card is deductible in the year the credit card is charged, even if the credit card bill isn’t paid until next year.

If you give any charity a gift over of $250 or more, you need to insist on a written receipt declaring that you received no value for your contribution — or disclosing the amount of any value. No receipt, no deduction.

Of course, your gift has to go to an actual charity to be deductible. The IRS list of qualified Section 501(c)(3) organizations can help you make sure your intended donee qualifies.

If you feel generous, but don’t know what to do, I humbly submit for your consideration a few worthy organizations I donate to:

salvation armySalvation ArmyThey take care of many of the most needy and down-and-out with very little leakage to internal bureaucracy.

Institute for JusticeThis organization shut down the IRS preparer regulation power grab, winning a battle all good-thinking people considered hopeless and frivolous. They made the IRS give back the money they stole from the owner of a little restaurant in Arnolds Park, Iowa while forcing a change in their abusive use of their cash account seizure powers. They also support the little guy when the government abuses its eminent domain powers on behalf of the powerful and well-connected.

Tax FoundationThese guys do wonderful work in helping to form better tax policy. While it is difficult to get politicians to make tax policy for everyone, rather than just the well-lobbied, their 2014 successes in North Carolina, Indiana, Michigan and New York show that the good guys win sometimes.

ISU Center for Agricultural Law and TaxationRoger, Kristine, Kristy and Tiffany do great work helping keep the taxpayers and tax preparers of Iowa in compliance and out of trouble. If you use them, like I do, you should help them out.

 

William PerezQualified Charitable Distributions

Peter Reilly, The Wheels On The Easement Void The Deduction

 

 

20131209-1TaxProf, The IRS Scandal, Day 594. This edition covers the new report by the House Oversight Committee on the scandal.

There is a lot to the report, which I hope to spend more time on. The item that jumps out at me is that 2011 IRS assessments of gift taxes on contributions to 501(c)(4) organizations were no accident, but were instead part of the IRS effort to fight conservative 501(c)(4) organizations.  The Wall Street Journal reports:

The then-IRS commissioner, Doug Shulman, denied at the time that the IRS was making a broad effort to assess gift tax on donors to such tax-exempt groups, which are formed under section 501(c)(4) of the tax code. Mr. Shulman said in a May 2011 letter to lawmakers that the audits were initiated by a single IRS employee and were “not part of any broader effort to look at donations” to these organizations.

The new report from GOP lawmakers says that “although the IRS denied any broader attempt to tax gifts to 501(c)(4) groups, “internal documents suggest otherwise.” It notes that in May 2011, an attorney in the IRS chief counsel’s office wrote to his superiors that the “plan is to elevate the issue of asserting gift tax on donors to 501(c)(4) organizations,” and seek a decision from the commissioner and the IRS chief counsel.

It’s clear that Shulman at best didn’t care enough to learn the truth before testifying. At worst he gave false information on purpose. Either answer burnishes his crown as Worst Commissioner Ever.

Related: Can political contributions really be taxable gifts?

 

Grimm tidings. A Congressman pleads guilty to tax fraud involving a restaurant he owned. From the New York Times:

Michael G. Grimm, the Republican representing New York’s 11th Congressional District, who carried the burden of a 20-count federal indictment to a landslide re-election in November, pleaded guilty on Tuesday to a single felony charge of tax fraud.

Representative Grimm said he had no intention of stepping down. “Absolutely not,” he said.

My limited experience with felons is that they are cursed with grossly excessive self-esteem. That certainly seems to be the case here.

 

20141201-1Robert D. Flach brings the Holiday Buzz! Good tax stuff from around the tax blogs just in time for Christmas.

Kay Bell, Christmas tree ‘tax’ delayed again. Effort to end it continues

Jason Dinesen, From the Archives: Tax Court: Vacant House Can Still Qualify as Rental

Robert Goulder, The Vatican Bank, Christmas Cheer, and FATCA (Tax Analysts Blog). “The pontiff is cool with tax transparency.”

Tony Nitti, IRS To Sell The Right To Collect Darryl Strawberry’s Remaining New York Mets Salary.

Russ Fox, Nominations Due for 2014 Tax Offender of the Year

 

Amy Frantz, How the Grinch Taxed Your Christmas Candy in Iowa (Caffeinated Thoughts)

Howard Gleckman, The Tax Vox Lump of Coal Awards: The 10 Worst Tax Ideas of 2014 (TaxVox). My list would differ, but there are so many worthy ideas from which to choose.

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/8/14: Denison! And: Do-or-die week for extenders?

Monday, December 8th, 2014 by Joe Kristan

donnareedThe Tax Update comes to you today from Denison, Iowa, birthplace of actress Donna Reed. It’s also the fertile ground from which sprang the fertile imagination of Kennedy assassination figure Jim Garrison.

Today Denison hosts the seventh session of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m helping out with the Day 1 panel. The last session is in Ames next Monday (register now!).  If you can’t be there in person, that session will also be webcast.

 

Congress wants to finish up its year Thursday, reports The Hill. This article says the Senate is expected to take up the “extenders” bill before it goes home. This could mean that Majority Leader Reid’s comments last week that he might be too busy to bring up the bill are no longer operative. I hope so.

This post from the Tax Policy Blog lists all of the extenders passed by the House last week in HR 5771. The bill revives these provisions through the end of this month, retroactively to the beginning of 2014. Prominent among them are the $500,000 Section 179 limit, 50% bonus depreciation, the research credit and the five-year limit on built-in gains. The bill also includes individual provisions like the exclusion for IRA donations for charity and the deduction for educator expenses and the non-business energy credit.

Paul Neiffer, Senate to Vote on Tax Extenders on Wednesday?

 

20141208-1

Today in Denison, Iowa.

 

Tax reform on the Iowa legislative agenda? The Des Moines Register reports that legislators are at least thinking about it.

Income tax reform will be high on the agenda when the Legislature convenes in January, although many details have yet to be hammered out, key lawmakers said Friday.

However, Democratic and Republican legislative leaders told the Iowa Taxpayers Association they are welcoming a debate on revising Iowa’s income tax system.

This paragraph from the story is why I don’t expect much to happen this session:

State Rep. Tom Sands, R-Wapello, chairman of the tax-writing House Ways and Means Committee, said his preference would be to examine corporate and individual income taxes while exploring ways to simplify the tax system. Senate Majority Leader Michael Gronstal, D-Council Bluffs, said any tax cuts should be focused on helping middle-class Iowans.

Nor does this bode well:

“If it is only to say really rich people get a break that nobody else can use; no, it doesn’t pass muster,” Gronstal told reporters.

If you have to “explore” ways to simplify Iowa’s byzantine tax system, you haven’t looked very hard. The whole thing about “really rich” taxpayers could guarantee that any reform of Iowa’s high rates and complexity won’t pass muster with Senator Gronstal, which is the same thing as not clearing the Iowa Senate.

If they do want to get serious, though, they could do a lot worse than starting with The Tax Update’s Quick and Dirty Iowa Tax Reform plan, sweeping away vast swaths of deductions and crony credits, eliminating the corporation tax, and slashing rates.

 

Just a few quick links today:

 

20121108-1Russ Fox, Speaking of Efficiency. “Imagine what would happen if every Congresscritter did their own tax returns by hand. The Tax Code would unanimously be shrunk four hours later.”  I think they should have to do it on a live webcast with a running comments feature.

Robert D. Flach, EVERYBODY OUGHT TO HAVE AN IRA

Kay Bell, IRS holding millions of dollars in frozen taxpayer accounts

TaxGrrrl, Whistleblower Alleges Vanguard Cheated On Taxes, Costing Taxpayers More Than $1 Billion

TaxProf, The IRS Scandal, Day 578

 

20141208-2TaxSlayer Bowl! Iowa’s highest-paid state employee will lead the 7-5 Hawkeyes to Jacksonville to compete with 6-6 Tennessee in the TaxSlayer Bowl.  I understand the game will be played under standard college football rules. It would help the educational mission of the schools if they modified the rules to reflect the tax theme. If college football had rules like the tax law, we might see some different rules.

– Throughout the game, referees would audit completed plays, with the option of imposing penalties for infractions in the three prior games, with yardage charged in the current game.

– When the play clock runs down, the quarterback can call for one automatic extension.

– When calling an audible, the quarterback will have to request a change in method from the referee.

– When a penalty is called, the referees could not tell the opposing team what the penalty is for under confidentiality rules.

– Penalties can be imposed on coaches who are “responsible persons” with respect to the infraction.

– If you like your football, you can keep your football.

 

 

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Tax Roundup, 12/2/14: Dead provisions to arise for just a few weeks? And: Shocker! IRS Commissioner wants more $$$

Tuesday, December 2nd, 2014 by Joe Kristan

lazarus risingCongress to let the Lazarus provisions make it to the end of 2014? The White House’s threat to veto the Senate’s deal to permanently extend some of the perennially expiring tax provisions has killed that proposal. Now it looks like Congress will take up a bill to extend the provisions, which expired at the end of 2013, through the end of this year. That means we get to do this all over again next year. The Hill reports:

The vote on a short-term extension, expected as soon as this week, would come after a veto threat from President Obama derailed a developing $400 billion deal between Senate Majority Leader Harry Reid (D-Nev.) and House Ways and Means Chairman Dave Camp (R-Mich.) that would have extended some expired tax breaks indefinitely, as well as others for two years.

Republicans on both side of the Capitol suggested the move showed that a one-year deal was the only proposal with a chance of becoming law.

The article says “practically all” of the provisions that expired at the end of 2013 will be included. The Lazarus provisions that will come back to life include, among many others:

– A $500,000 Section 179 deduction for asset purchases that would otherwise be capitalized and depreciated.

– 50% “bonus depreciation”

– The research credit

– The five-year built-in gain period.

– The allowance of tax-free distributions from IRAs to charities.

The full text of the bill is available here: (HR 5771)

So we will get a 2014 tax law just as 2014 comes to an end. Because there is no election, there is hope that we won’t have to wait until December 2015 to know what the tax law is for 2015. Not exactly a shining moment in tax policy.

The bill also includes technical corrections for tax bills going back to 2004.

Related:

How the White House torpedoed Harry Reid’s tax deal (The Hill)

The Politics and Policy of Tax Extenders (Len Burman, TaxVox). “In theory, allowing tax provisions to expire periodically could precipitate a careful reexamination of the effectiveness of each program in light of our fiscal situation and priorities. In practice, the expiration of popular temporary provisions such as the R&E credit creates a vehicle for all sorts of budget-busting mischief.”

 

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

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

TaxGrrrl has posted another installment of her interview with IRS Commissioner KoskinenYou may not be astounded to hear that he wants more money:

With spending cuts already taking a toll on taxpayer services, the agency is bracing itself for another tough season. In fact, Koskinen cites funding the IRS as his biggest challenge since taking office last December.

“It’s a serious problem for us,” he says. “I don’t know who got our $500 million but I’ll bet they’re not gonna give you back the $2-3 billion we would have if we had it.”

Given that the Congress has used the tax law as the Swiss Army Knife of public policy, with responsibilities including attempting to run the broken Obamacare machine, it’s not unreasonable to think IRS has increased needs for funds.

That said, the Commissioner has nobody to blame but himself. His tone-deaf and confrontational tone with Republicans investigating the political abuse of the Exempt Organizations function has earned him no friends in the party that controls the purse strings. The sudden appearance of 30,000 Lois Lerner e-mails that he insisted could not be recovered killed any credibility he had left. Only a new commissioner has any hope of turning that around.

The Commissioner also says he has cut spending to the bone:

The agency is already down 3,000 employees last year. Another 2,000-3,000 are on their way out by the end of this year. The current rate of replacement is one new employee for every five employees who leave… 
What gets cut next? The Commissioner is clear that it will be more personnel. That is, he noted, all that’s left.

Well, maybe. I’d be more convinced of that if he decided there just wasn’t enough cash lying around for his “voluntary” tax preparer initiative — a blatant attempt to get around the Loving decision shutting down mandatory preparer regulation.

Related: Robert Wood, Horrible Bosses, IRS EditionPeter Reilly, Restoring Trust In IRS Is A National Imperative

 

buzz20141017Robert D. Flach has posted his fresh Tuesday Buzz, including a link to his post at The Tax Professional on tax preparer civil disobedience in ACA enforcement. I will have more to say about this topic later this week.

William Perez explains Itemized Tax Deductions

Russ Fox, Mundane Tax Fraud Downs Friend of Cicero Town President

Keith Fogg, Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement (Procedurally Taxing)

Jason Dinesen, 5 Things You Didn’t Know About Enrolled Agents

Jack Townsend, More on Willfulness. You can’t break the law if you aren’t trying.

Kay Bell, December to-do list: shopping, family visits and tax tasks

 

TaxProf, The IRS Scandal, Day 572

Andrew Lundeen, Kyle Pomerleau, Less Than One Percent of Businesses Employ Half of the Private Sector Workforce (Tax Policy Blog). “On the other hand, while only 0.4 percent of all firms have over 500 employees, this small group of businesses employs 50.6 percent of the nation’s private sector workforce, with most of those employees working for C corporations.”

News from the Profession. This Timesheet-Addicted Managing Partner Will Make You Grateful Not to Work For Him (Adrienne Gonzalez, Going Concern). A charming threat of dismissal issued the day before Thanksgiving will always make you thankful for an updated resume.

 

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Tax Roundup, 11/24/14: Report from the Battle of Scottsdale.

Monday, November 24th, 2014 by Joe Kristan

haroldBattle report from a skirmish in the state tax policy wars. I was in Scottsdale Friday to join Joseph Henchman of the Tax Foundation to talk about state film tax incentives. We were on a panel with three advocates for incentives — two from the film industry and one a retired head of a state film office. Our audience was a panel from the National Conference of State Legislators, mostly legislators heading state taxwriting committees.

Joseph did a nice job explaining that all of the studies not financed by the film industry show tax credits for films to at best an inefficient way to create jobs, and at worst job killers when other possible uses for the funds are considered.

The incentive boosters were big on stories, about all the jobs “created” by taxpayer money, all the happy stories of communities getting together to make a movie, and so on.

My role was to tell a different story — the story of Iowa’s embarrassing and disastrous Film Tax Credit program.  I told how the Iowa legislature enacted the program, with two different 25% transferable credits, with little debate and almost no opposition (three “no” votes out of 150 legislators) in 2007. By 2009, film trucks were everywhere and the local paper was running fanzine-like articles gushing over the “sightings” of celebrities.

But trouble was brewing. By spring 2009 the legislature was realizing that they had enacted an open-ended subsidy that threatened their ability to do anything but fund Hollywood. About the same time a tipster sent a letter to the Department of Economic Development saying a filmmaker was bragging around Los Angeles about how she was making money through the “Half-price Filmmaking” program, using pretend expenditures to get tax credit funding well in excess of her cost in making (bad) movies. An audit was commissioned, and soon the program collapsed in disgrace when the audit revealed amazing mismanagement and breathtaking looting of the program. A follow-up audit by the state auditors office showed that 80% of the credits that had been granted were either improper or fraudulent.  Good times.

The Tax Foundation crew was impressive. Joseph and his Tax Foundation colleague Elizabeth Malm seemed to know every legislator. Joseph seemed to be aware of every detail, even correcting my posture as I sat listening to the questions. I think he was a little concerned I might be a loose cannon and go off on the legislators; I can’t deny the temptation, but I knew that wasn’t my place.

The legislators agreed to set up a panel on setting standards for evaluating the cost-effectiveness of tax incentives. That’s a better response than I expected, and I hope something comes of it.

 

Only time for a few quick links today.

 

20140728-1Robert D. Flach starts the short holiday week with a special Monday Buzz!

Russ Fox tackles the important question: Would the Proprietors of “I Married an Idiot” Commit Tax Fraud?

Peter Reilly, Should President Obama Offer Amnesty For Legal Residents Behind On Taxes? I think he should offer a blanket amnesty for Americans abroad enmeshed in the FATCA/FBAR nightmare.

Paul Neiffer, Take Advantage of Low Rates! Low IRS minimum interest rates, that is.

 

Robert Goulder, Magnum Opus: “Paying Taxes 2015: The Global Picture” (Tax Analysts Blog)

Hauqun Li, An Introduction to Forms of Business Organization and Taxation (Tax Policy Blog)

Donald Marron, Bigger, Cleaner, and More Efficient: A Carbon-Corporate Tax Swap

 

TaxGrrrl, Those Not-So-Lost IRS Emails: Up To 30,000 Lerner Emails May Have Been Recovered

Kay Bell, Possible break in hunt for Lois Lerner’s lost IRS emails

TaxProf, The IRS Scandal, Day 564

 

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