Posts Tagged ‘Russ Fox’

Tax Roundup, 2/3/14: The Fable of the Wife’s Purse and your legislature. And: start with the right name!

Monday, February 3rd, 2014 by Joe Kristan

20120906-1Why do state legislators enact such dumb laws?  After speaking to a group of State Senate Presidents, David Brunori has some thoughts ($link, unfortunately) on why they persist in enacting special incentive breaks for their special friends:

I said that tax incentives are largely unnecessary because business location decisions are mainly determined by labor costs and access to markets (Boeing proved that to some extent). But several senators quickly asked about industries such as filmmaking or high-tech, in which labor costs and market access aren’t nearly as important: Taxes would matter more, yes? I had to fall back on the “government still shouldn’t be picking winners and losers” argument, which I think is a powerful one. But it doesn’t resonate well with those who pick winners and losers all the time — in all aspects of public policy.

My response would be giving tax breaks to one business or industry means screwing all of your other constituents to pay for it.  It’s like taking your wife’s purse to the bar to buy drinks for the girls — yes, there are winners, but somebody loses too, and even the winners don’t respect you.

I like this “destroy the village to save it” argument:

 One senator asked whether widespread use of tax incentives would eventually make the corporate tax so irrelevant that its repeal would be easy. Again, indignantly, I explained all that is wrong with incentives. The senator said he agreed and was merely pointing out that the widespread use of incentives was a sure way to eliminate the corporate tax.

If that were true, I think we’d have seen at least one corporate tax collapse under the weight of its loopholes.  If any state corporation tax were ripe for collapse, it would be Iowa’s.  It has the highest rate in the nation, but its loopholes and credits make it pretty much useless, raising less than 5% of Iowa’s tax revenue.  Yet it still is going strong.

The best explanation for our bad tax policies are found in the “Public Choice” analysis of public policy pioneered by Gordon Tullock and James Buchanan.  They say that public officials, like everyone else, respond to incentives.  The incentives for legislators and their executive-branch enablers are to give money to well-connected constituents who will reward them with campaign cash.  They understand and appreciate the largesse, and the taxpayers whose pockets are being picked don’t notice the little larcenies that make the largesse possible.

Or, in my Fable of the Wife’s Purse, the girls at the bar know who’s buying, but the wife doesn’t, so the incentives are all in favor of the bar girls.

 

taxanalystslogoChristopher Bergin, The State of Our Union: My, My, My (Tax Analysts Blog):

The only thing new about the myRA is that it’s being done by executive fiat, which makes it lamer still. That leads me to a question: Shouldn’t we have the Treasury Department working on reforming our tax code instead of running around placing fig leaves over tough truths, such as the fact that many of us don’t save enough for retirement? A suggested starting point: Treasury should study why the myriad provisions already in the tax code that are designed to provide incentives to save for retirement aren’t working.

Oh, I’m sure the next tax code change will work so much better than all of them so far.

 

20111040logoWilliam Perez, Getting Your Name Right on the Tax Return:

If a person changed their name last year, now is a good time to check their Social Security card. The name shown on a person’s Social Security card is the name the IRS expects to see on the tax return. If a person’s name has changed, the person will first need to update their name with Social Security before using their new name on their tax return.

This problem comes up every year.  If you get married, or divorced, and you change your name, you need to file under the name that Social Security has if you e-file.  Even if you paper-file, using the “wrong” name can delay your refund.

 

Jason Dinesen,Life After DOMA: Gift Tax

Russ Fox, Tax “Professionals” Behaving Badly.  Russ recaps tax pros gone off the rails.

Annette Nellen passes on Tax mistakes to avoid – WSJ article.  I wonder if the WSJ will follow up with “Tax mistakes to seek.”

Kay Bell, Married couples filing joint returns share all tax liability, too.

 

Scott Drenkard, Indiana House and Senate Pass Business Personal Property Tax Reform.  “Taxes on business personal property are more distortive than other means of collecting revenue.”

Ben Harris, Variation in EITC Take-up, County by County:

The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South.

Half?  Wow.

 

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TaxGrrrl, Ads Score Big At Super Bowl And At Tax Time, Too   

Peter Reilly, Flap About NFL Tax Exemption Seems Silly.  Not as silly as Denver’s first play from scrimmage yesterday.

Tony Nitti, Super Bowl Tax Tale Of The Tape: Who Ya’ Got?  “When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious ‘busy season’ work week, this one with a bit of a hangover.”

 

TaxProf, The IRS Scandal, Day 270

Jack Townsend, Administration Insists that FATCA Will Not Be Further Delayed.  We must make personal finance a huge hassle for Americans abroad as quickly as possible.

 

On Friday Going Concern wished you a Happy First Day of the Tax Filing Season!

 

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Tax Roundup, 1/27/14: Job destruction incentives. And: did you ride your bike today?

Monday, January 27th, 2014 by Joe Kristan

 

Flickr image courtesy Retrofresh! under Creative Commons license.

Flickr image courtesy Retrofresh! under Creative Commons license.

You mean state tax credits aren’t magic beans for economic development?  A frequent commenter on the Econlog blog, Daniel Kuehn, shares some early work on a paper he is preparing on “job creation tax credits” (my emphasis):

 The paper is on the employment and earnings effects of job creation tax credits (and actually investment credits… I’ve recently found out they were phased in using the same selection rule so I can’t distinguish the two, which is fine I guess).

My prior was that they would create jobs and raise wages. I have a good identification strategy – an RDD model. But one thing lacking in the existing literature on it is a way of dealing with displacement effects (in other words, person A gets the job from the tax credit by displacing person B who was not eligible for the credit). I can deal with that (at least within-county displacement). I expected that would reduce the effect somewhat of course, but I was sure even after accounting for displacement the credits would still generate jobs.

So far, they seem to reduce employment. Displacement appears to be a big problem.

There is one other explanation I’m investigating now. You have to create full time jobs to get the credit, so it is possible that I’m seeing a negative employment effect because part time jobs are being replaced with full time jobs. I’m investigating that now with individual level data. So in the end, it may create full time jobs and destroy more part time jobs, in which case it would be interesting to look at the impact on total hours.

I’m not sure how it will all shake out in the end, but I am definitely less confident in policy than I was before I started this.

Mr. Kuehn should be respected for following his data in spite of his prior assumptions, but that’s the result I would have expected.  The money going to the subsidized jobs has to come from somewhere, and much of it comes from unsubsidized businesses.  The politicians like to point to the jobs they “create” with “Economic development” incentives, but they ignore the loss of jobs in competing businesses and from the increased taxes on the unsubsidized.

It’s the old broken window thing.

Related: IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

Scott Drenkard, Indiana House Unanimously Approves Incentive Study Commission.  Iowa did this a few years ago, and the study panel was unable to identify any clear economic benefit to the giveaways.  And they just went on enacting more giveaways.

 

William Perez points out some Resources for Getting Organized for Tax Time

Kay Bell, Tax filing checklist 2014

Paul Neiffer reminds us that You Must Start IRAs Draws at Age 70 1/2!.  Except for Roth IRAs, of course.

Jana Luttenegger, Taxing Bike Share Programs.  She discusses the expiration of a tax break for bike commuters, but notes:  ” With our recent below-zero weather, the bikes likely aren’t being used much currently… “

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Russ Fox answers the question, It’s Only $1,300; Do You Really Have To Send Me the 1099?

 

Annette Nellen, Minnesota Storage Tax Problems.  She discusses an expansion of Minnesota sales taxes:  “Any base broadening should only cover consumption of individuals (non-businesses).”

Peter Reilly, Obama Administration Weak On Church State Separation? Clergy Housing Allowance Appeal.  The Department of Justice has appealed the Wisconsin District Court Ruling disallowing tax-free cash “housing allowances” for pastors.  The ruling is stayed pending the appeal.  I suspect this is just a maneuver to get through this tax season with minimal disruption to existing plans.  I think it is likely that the District Court ruling will be upheld, and churches should plan accordingly.

 

tax fairyJack Townsend, Yet Another B***S*** Tax Shelter Goes Down Flaming.    There is no tax fairy.

Stephen Olsen, Summary Opinions for 1/24/2014 (100th Post!!!), a roundup of tax procedure news.

 

TaxProf, The IRS Scandal, Day 263

That’s a funny way to aid the nurses.  Second Nurses Aide Sentenced for Conspiracy to Defraud the Government (U.S. Attorney press release)

Tax Trials, Willie Nelson, The IRS’s Most Talented Musician.  Talk about not building expectations.

News from the Profession: The SEC Bans Big 4 Member Firms in China For Failing to Show Their Work (Going Concern)

 

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Tax Roundup, 1/23/2014: Ideas edition. And: why are we taxing pot?

Thursday, January 23rd, 2014 by Joe Kristan

20130117-1Bad idea.  Refundable tax credits are the favorite kind of credit for tax fraudsters because they generate tax refunds even when there is no tax paid or withheld.  The earned income tax credit is refundable, and that feature has something to do with 20-25% of the credits issued annually being improper.

An intrepid group of Iowa legislators isn’t letting that stop them.  They have introduced HF 2027 to create a new refundable tax credit in Iowa — a piggyback credit equal to 25% of the als0-refundable (and fraud-ridden) American Opportunity Tax Credit.

The AOTC is based on a percentage of tuition paid for the first four years of college.  It phases out at higher income levels.

Politicians can’t resist using the tax law to pass out political favors.  But even the best-intended ones make the tax law more complicated and, by creating a class with something to lose, they make it that much harder to reform.  When there already countless tuition aid programs, not to mention state-funded colleges and universities, it’s unwise to just throw in one more program willy-nilly.

 

Good idea.  Republican Party to vote for repeal of U.S. anti-tax dodging law (Patrick Temple-West).  

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

I hate the headline on the article.  I would have written it “Republican Party to vote to decriminalize personal finance for Americans abroad.”  FATCA makes outrageous demands of non-U.S. institutions that have made Americans unwelcome at many foreign banks.

Related: Republicans Target FATCA As Another Windmill to Attack  (Jack Townsend)

 

haroldWorse idea: film tax credits.

Accounting Web, Film Credits: Your Tax Dollars at Work Making Movies:

Actor/director Ben Affleck told the Los Angeles Times he’s filming part of Live by Night in Georgia, a state that is popular for its film credit availability.

“It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin,” he said.

Understood – but there’s a disconnect here. Affleck and his fellow actor/director, Matt Damon, both advocate and participate in using film credits to reduce taxes so they can make their movies. But both are also on record saying, because they are wealthy, their taxes should be raised.

What’s wrong with this “picture?”

Why is the film business, of all businesses with thin margins, entitled to special breaks?  Because politicians are suckers for celebrities.

Joseph Henchman, The Economist Reviews State Film Tax Credit Programs (Tax Policy Blog):

The report notes that it’s getting tougher to compete with Louisiana’s 30 percent refundable credit or New York’s $420 million annual budget to subsidize film and TV, and that independent analyses find these do little on net for job creation or economic growth.

But you can’t forget the intangibles!  As a Des Moines columnist breathlessly reported at the high point of the Iowa film credit looting spree:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Fortunately, Iowa is sadder but wiser now.

 

20130916-1Russ Fox, More Work for Tax Professionals: Submission IDs for Efiled Returns:

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

And anybody who’s been around a tax prep office during tax season knows there aren’t all that many extra minutes lying around.

 

TaxGrrrl, 11 Questions To Ask When Hiring A Tax Preparer .  A good list.

Leslie Book, The Ban on Claiming the EITC: A Problematic Penalty (Procedurally Taxing).  “We have not addressed the special EITC ban that arises when a taxpayer inappropriately claims the EITC.   The following gives some context, with a focus on the two-year ban for reckless or intentional (but not fraudulent) errors.”

William Perez, Which Tax Form to File?

 

Peter Reilly, Is Tax Court Rebelling Against Supreme Court?  Short answer: no.

Tyler Cowen, Income inequality is not as extreme as many citizens think.

TaxProf, The IRS Scandal, Day 259

Cara Griffith, When State Taxes and Interstate Compacts Collide (Tax Analysts Blog).  “But states can’t have their cake and eat it too; a compact cannot be both binding and offer states significant choices on whether to follow its terms.”

Tax Justice Blog calls the IRS budget cut The Dumbest Spending Cut in the New Budget Deal.  It’s bad policy, but it’s asking a lot of Congressional Republicans to fund an organ of their opposition.

 

20130607-2Because they can.  Why Exactly Are We Taxing Pot? (David Brunori, Tax Analysts Blog):

But I must ask: What is the rationale for imposing special taxes on marijuana? Excise taxes are appropriate to pay for externalities – the costs to society of using the product that are not borne by the market. But it is unclear what, if any, externalities are created by smoking pot.

Economic development in the Doritos aisle?

 

Kay Bell, IRS audit results in $862,000 lawsuit award for taxpayer.  Because he tripped over a phone cord.

 

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Tax Roundup, 1/20/14: If it’s not a scandal, it hurts like one. And: S corporation ESOP play in WSJ.

Monday, January 20th, 2014 by Joe Kristan

The U.S. District Court for the Southern District of Iowa didn’t need my services as a juror this week, so  I will be participating in the Iowa Bar Association webinar this afternoon on new developments for 2014.  It starts at noon.  You can register here and find more information here.   I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and Kristie Maitre, IRS Stakeholder Liason for Iowa.

 

20130419-1If the Tea Party scandal is not a scandal, why would it be so damaging to the IRS?  The TaxProf’s IRS Scandal Roundup for Day 255 has some eye-opening quotes from a high-powered panel from a Pepperdine/Tax Analysts Symposium last week:

Donald Korb (Partner, Sullivan & Cromwell; former IRS Chief Counsel):  I think it is incredibly damaging.  Frankly, I see it as one of the seeds of the next tax shelter era. … And in terms of scandal, I don’t think we really know. We have not been permitted to understand exactly what happened. So, who knows.

George Yin (Edwin S. Cohen Distinguished Professor of Law and Taxation, Virginia; former Chief of Staff, Joint Committee on Taxation):  I think there has been tremendous damage.  Almost without regard to what actually happened.  And I actually despair of finding out what actually happened. …

Donald Tobin (Frank E. and Virginia H. Bazler Designated Professor in Business Law, Ohio State):  I think it is awful. I agree with Don and George.  7 or 8.  I think this is ultimately going to have huge implications. …

Ellen Aprill (John E. Anderson Chair in Tax Law, Loyola-L.A.):  I agree with all of that.  I have myself avoided the word “scandal” because I just don’t know.  And some of the people I know personally.  I don’t think that was their political motivation.  So I’ve used “controversy” and “brouhaha” and everything but tried not to go all the way to scandal. …

Korb: … This is very, very damaging.  Maybe we are at a 9.5

You can already see effects in the reduction of the IRS funding request in the latest budget deal.  While Congress makes the IRS the Swiss Army Knife of tax policy, it continues to cut back its resources.  That can’t end well.  But the GOP sees that the IRS has acted as a tool for its political opponents, and it’s asking a lot for them to fund their opposition.

 

Robert D. Flach ponders whether the Registered Tax Return Preparer designation could be revived as a voluntary credential.  If any group of preparers can unite behind a voluntary credential with self-administered standards, great.  Just keep the IRS out of it.  It’s a poor use of their resources, and they aren’t to be trusted with that sort of power.

 

S imageS imageS-SidewalkESOP S corporation strategy.  The Wall Street Journal (Laura Saunders, via the TaxProf) reports on an S corporation that may have found a way to funnel all of its income to a tax-exempt ESOP via restricted stock for the non-ESOP owners.  Paul Neiffer suspects it may be too good to be true.

It would be a hard needle to thread, giving the severe 409(p) excise tax that can apply to allocations of ESOP shares to owners of closely-held S corporation.  If the strategy does win in the courts, I would expect to see legislation to change the result quickly.

 

Jack Townsend, Eighth Circuit Affirms Offshore Account Related Conviction

 

Joseph Henchman, What Same-Sex Couples Need to Know This Filing Season  (Tax Policy Blog).  He links to a nice Tax Foundation study that tells how each state is approaching same-sex marriage this filing season.

Roberton Williams, Utah Lets Same-Sex Couples File Joint Tax Returns (TaxVox)

Kay Bell, Girl Scout cookies might be tax deductible.  Unfortunately, only if you don’t eat them.

Russ Fox, The Trouble With Bitcoins: Taxation.  “If you make money with Bitcoins, it is absolutely taxable.”

Jason Dinesen, Issuing 1099s to an Incorporated Veterinarian.  So veterinary services are “medical services.”

So the IRS agrees with Corb Lund.

 

Tax Justice Blog, Oklahoma Shows How Not to Budget.  “The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase.”

William Perez, In Honor of Martin Luther King, Jr.  “In 1960, Dr Martin Luther King, Jr., was found not guilty of filing fraudulent state tax returns for the years 1956 and 1958.”  That’s why you don’t want politicized tax enforcement.

TaxGrrrl, Why Justice Matters: The Indictment & Trial Of Dr. Martin Luther King Jr. On Tax Charges   

 

Annette Nellen, Real revenue sources for tax reform.  “Where can permanent tax increases be generated to offset the desired permanent tax decrease generated from permanent lower rates?”

Good, we need it.  Bloggers = Media for First Amendment Libel Law Purposes (Eugene Volokh).  “To be precise, the Ninth Circuit concludes that all who speak to the public, whether or not they are members of the institutional press, are equally protected by the First Amendment.”

That’s how it should be.

Peter Reilly, Soldier To Tax Accountant – Rachel Millios EA   

 

News from the Profession.  CPA Exam Pass Rates Basically Went Right Off the Cliff at the End of 2013 (Going Concern).  

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Tax Roundup, 1/17/14: Envy as a principle of tax policy. And: my maybe webinar!

Friday, January 17th, 2014 by Joe Kristan

taxanalystslogoJoseph Thorndike, the tax historian at Tax Analysts, asks: What if the Income Tax Is All About Envy? Would That Be So Bad?.

The short answer: yes, it would.  The primary purpose of a tax is to fund the operations of the government.  Asking the tax to do anything else makes it worse at its main job, while imposing wealth-destroying distortions on the economy.  Also, as we noted the other day, increasing taxes on “the rich” has coincided with an increase in inequality.  It’s not clear at all that taxes at any non-catastrophic level can “help” inequality.

But its a slow news day, so let’s spend a little time on a longer answer.  Joseph thinks that inequality on its own is bad, even when “the poor” are well-off in real, but not relative, terms:

In other words, even if a rising tide lifts all boats, the relative size of everybody’s boat still matters. If some boats are much bigger than others, then a society is vulnerable to political instability.

Now, you can object that all the people with little boats are just feeling envious. But that doesn’t make the envy disappear; moral indignation may be satisfying, but it’s not a particularly effective means of keeping the peace. What’s needed, if you’re trying to fend off revolution, is some sort of actual policy response to feelings of relative deprivation.

I think Joseph greatly overstates the risk of well-fed people rising up against their neighbors just because they have nicer cars and houses.  People with something to lose tend to be risk-averse, and few things are riskier than revolution.   Still, that’s not something I can empirically demonstrate.

Equality in action in the Soviet Union on the Belomor Canal

Equality in action in the Soviet Union on the Belomor Canal

One thing that is indisputable is that catastrophe happens when a government makes “equality” its driving principle.  It was tried extensively in the 20th century, and tens of millions became equally dead as a result.  Given that history, equality as an end in itself has no moral force.

In our current politics, inequality is the cynical rallying cry of a President who lives in a mansion and plays golf at exclusive resorts pretty much every week.  He presides over a listless economy, enormous deficits,  and a health reform plan that is a debacle.  He’s out of ideas, so he’s reduced to saying it’s the rich guy’s fault.  Given the approval ratings he’s getting out of it, revolution seems a long way off.

 

Scott Hodge and Andrew Lundeen, High Income Taxpayers Earn the Majority of All Pass-Through Business Income (Tax Policy Blog).  They make a point that can’t be repeated too often:

It is often said that raising top tax rates will have little effect on business activity because only 2 percent of taxpayers with business income will be impacted. However, the more economically meaningful statistic is how much overall business income will be taxed at the highest rates. In 2011, the vast majority (70 percent) of pass-through business income was reported by taxpayers earning more than $200,000. Millionaire tax returns earned 34 percent of all private business income while taxpayers with incomes below $100,000 earned just 14 percent.

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Indulging in envy-driven rate increases on “the rich” means weakening businesses and their ability to hire and grow — reducing opportunities for their would-be employees in the name of “equality.”

 

Perspective.  The brilliant Arnold Kling quotes Laurence Kotlicoff on the U.S. Budget:

In a podcast with Russ Roberts, he says,

I think we are probably in worse fiscal shape and any developed country. The reason, Russ, is we’ve been piling up debts for over 6 decades; and when I say ‘we’ I’m referring to Republican and Democratic administrations and Congresses. And we’ve been hiding them. We’ve been keeping them off the books and using economic labels, words, to pretend that they are not real liabilities of the government…we have all these obligations to something like 30-40 million current retirees and close to 80 million baby boomers who are about to start collecting Social Security benefits if they haven’t already. All those obligations are not reported as part of the government’s debt, so we are missing those off-the-book obligations.

But the real economic emergency is inequality. Or austerity. Or something.

Of course, that “something” is probably those  Tea Party extremists who actually want the government to live within its means.  How dare they.

 

Kay Bell, Filing patience can prevent a big tax mistake.  Hurrying your refund by taking out a refund anticipation loan can be an expensive mistake.

Russ Fox, We Will Soon be Able to Efile Past Due Individual Tax Returns.  Good news.  While everybody should file on time, not everybody does, and anything that helps non-filers come in from the cold is a good thing.

 

20130114-1Programming Note:  I am scheduled to participate in a Tax Update Webinar Monday sponsored by the Iowa Bar Association from noon to 1:45 pm.  Registration information is here – $40 to get a great start on your 2014 CPE/CLE.  Other speakers are Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation, and Kristy Maitre, Iowa’s IRS Stakeholder Liason.

While I hope to be there, I can’t guarantee it.  I am on federal jury standby this month, and I won’t know until after 5 p.m. tonight whether I will be hanging out in the jury room at the Des Moines Federal Courthouse instead of at the webinar.  They haven’t needed me these first two weeks, but I suppose past performance is no guarantee of future results here.  If I am on jury duty, the Tax Update may go quiet for awhile.

Update, 1/18: not called for a jury next week, so I will be on!

 

TaxGrrrl, IRS Free File To Open January 17, Two Weeks Before Tax Season Officially Opens 

TaxProf, The IRS Scandal, Day 253.  He quotes an op-ed by an attorney for the Tea Party outfits, who says: “Let’s all be very clear: The FBI did not conduct an “investigation” into the IRS scandal.”  Of course.  Lookouts don’t investigate.

Robert D. Flach brings the Friday Buzz!

 

News from the Profession.  Life at Deloitte May or May Not Involve Time Spent on Your Knees (Going Concern)

 

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Tax Roundup, 1/14/2014: 4th quarter payment time! And: minimally-effective legislation.

Tuesday, January 14th, 2014 by Joe Kristan

Hey, corporations: federal estimated taxes are due for the fourth quarter of 2013 tomorrow, so you will need to set up your EFTPS payment today!  Individual fourth-quarter payments are also due tomorrow.  Kay Bell explains How to avoid estimated tax penalties.

Via Wikipedia

Via Wikipedia

Misdirected priorities.  The Iowa Senate will reliably prevent any worthwhile income tax reform this year, while making a futile effort to increase Iowa’s minimum wage.  O. Kay Henderson reports:

Democrats like House Minority Leader Mark Smith of Marshalltown plan to press for an increase in the state’s minimum wage.

“Today, many Iowa parents are working two or three jobs that are low-paying, trying to put food on the table and pay the bills,” Smith said. “…We owe it to Iowa to raise the minimum wage, perhaps a dollar an hour now and more in the future. Our experience in Iowa has shown that raising the minimum wage has little effect on businesses, but gives working Iowans hope for a better future.”

David Henderson discusses a new study indicating that the Senate is pursuing an unwise idea:

- Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
– A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
– Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

So a minimum wage boost, even on its own terms, isn’t really there to help the poor.  Of course the price of wages can no more be set effectively by decree than any other price.  It will result in either job loss, benefit loss, or increased workloads.  As one of the studies authors notes:

Because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation. Burkhauser notes that such an effect will not show up in the government data because the data do not measure these non-money parts of the compensation package. But that is small comfort to those who would find themselves with higher-paying but reduced-benefit jobs.

But because that obvious effect is hard for senators to understand, they’ll just pretend it isn’t there.

 

Scott Hodge, The U.S. Has More Individually Owned Businesses than Corporations.  And they earn more income, too:

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That’s why efforts to make “the rich” pay “their fair share” are job killers.

 

Looking to get Medicaid to pay for Grandma’s nursing home?  Be careful.  Roger McEowen reports “Iowa Supreme Court Reaffirms Extensive Reach of Medicaid Recovery in Granting Department’s Claim against Irrevocable Trust“:

This case again warns practitioners of the limitations of income-only irrevocable trusts in protecting assets from Medicaid recovery in Iowa. Even if clients are willing to (1) risk the look-back period, (2) pay potential gift taxes, (3) forfeit control of their assets, and (4) deprive their heirs of a stepped-up basis at death, they still may not achieve asset protection.

And really, “free” care isn’t necessarily all that great.

 

Courts uphold FATCA rules.  Court Rejects Banking Associations’ Challenge to Regulations Addressing Offshore Tax Avoidance.  (Department of Justice Tax Release) “The regulations require U.S. banks to report to the Internal Revenue Service (IRS) information about accounts earning more than $10 of interest beginning in 2013 that are held by nonresident aliens of all countries with which the United States has a tax treaty or other information exchange agreement.”

20130419-1Of course not.  The IRS Scandal, Day 250: FBI Says No Criminal Charges in IRS Probe. (TaxProf)  They didn’t even contact the victims until recently, and they have apparently decided that, with respect to the disclosure of confidential information to ProPublica, the left-side reporting outfit, was just one of those things.  I doubt if you or I would get a pass for something like that.  That’s what happens when you have a Justice Department that is more a lookout than a watchdog.

 

Tony Nitti, Tax Geek Tuesday: Using ‘Land Banking’ To Minimize Tax On Property Development   

Martin Sullivan, Stop Beating on the IRS.  (Tax Analysts Blog) I think the IRS gives at least as good as it gets.

So true: The IRS Has Better Things To Do than the RTRP Designation (Russ Fox)

William Perez discusses the Taxpayer Advocate’s 2013 Annual Report to Congress

Jason Dinesen, But Seriously — How Do Taxes Work If You’re Married to More than One Person?  Interesting question, but anybody in that situation has more pressing non-tax issues.

TaxGrrrl, Will Overstock Force IRS To Make Up Its Mind About Bitcoin? 

Jeremy Scott, Financial Product Reform Might Not Be Imminent (Tax Analysts Blog)

 

The Critical Question:  Should It Bother Us that Boeing Says It Needs a Tax Incentive to Make Its Planes Safe? (Tax Justice Blog).  It should bother us that they realistically think legislatures are dumb enough to believe that.

Good luck with that.  Monte Jackel Puts Tax Blog Behind Subscriber Firewall, reports the TaxProf, with a $350 annual subscription rate.  I am embarrassed to learn of this blog just now, and I wish him luck.  Meanwhile the Tax Update subscription rate continues to be $0.00 (except for those wonderful folks who pay a nominal monthly charge to get it delivered to their Kindle).  In light of Mr. Jackel’s move, though, I may double that rate.

 

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Tax Roundup, 1/13/14: They’re back edition. And: tax fairy doesn’t show up at appeals court.

Monday, January 13th, 2014 by Joe Kristan


20130117-1
The 2014 session of the 85th Iowa General Assembly begins today.
 It doesn’t look like much tax legislation will pass.

The Governor abandoned a plan to allow taxpayers to choose between the current byzantine Iowa income tax and a lower-rate version with fewer deductions and no deduction for federal taxes paid even before the session started.  He instead will focus on lame feel-good initiatives in an election year, reports Omaha.com:

Gov. Terry Branstad is set to unveil his agenda Tuesday during the Condition of the State address. He said his priorities will include expanding broadband Internet access, fighting school bullying and curtailing student loan debt.

The Governor’s opposition will block any tax reform that isn’t sufficiently punitive to the “rich” — which means any reform worthy of the name.  They will try to change some of Iowa’s worst corporate welfare giveaways, reports the Des Moines Register, but the Governor, an inveterate smokestack chaser and ribbon-cutter, can be expected block any restrictions on using your money to lure and subsidize your competitors.

Meanwhile, trial balloons about increasing the gas tax have already deflated.  That means we can expect a quiet session on the tax front, and a continuation of Iowa’s insanely complex and worthless tax system for another year.  But if they change their minds and want to do something useful, it’s always a good time to talk about The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

tax fairyTax Fairy seeker loses appeal.  A South Dakota surgeon who looked across the ocean for the Tax Fairy found only grief — and the grief wasn’t alleviated on appeals.  The Eighth Circuit Court of Appeals last week upheld the conviction that led to a five-year sentence for Dr. Edward Picardi.

The doctor used a scheme where he “leased” his medical services to an offshore company he controlled to artificially reduce his income by stashing earnings in offshore accounts.  The scheme was promoted to him by an attorney-CPA who has been acquitted of criminal charges in another employee leasing case.

Other taxpayers have avoided fraud penalties from employee-leasing to offshore entities (see here), but not taxes and penalties.  When the best you can say about a tax plan is that you avoided fraud penalties, it’s not much of a plan.  There is no tax fairy.

Prior coverage here.

 

Kay Bell has Important January tax dates, deadlines

 

Lyman Stone, Should Nebraska Follow the Example of Illinois or Indiana?  “The case of Illinois is a great example of how higher taxes can contribute to a worsening business climate, which leads to less jobs.”

Annette Nellen, Marijuana and the Tax Law.  Despite appearances, there is no evidence the lawmakers are smoking something when they write tax laws.

TaxGrrrl, Top 10 Most Litigated Tax Issues.  Number one is penalties.

TaxProf, The IRS Scandal, Day 249

Robert D. Flach offers a SPECIAL OFFER FOR ITEMIZERS!

 

TaxTrials, Famous Fridays: Wesley Snipes, A Lesson in Listening to Bad Advice.  Did he ever.

 

The Critical Question: Massages May Feel Nice, But Can You Deduct Them at the Poker Table? (Russ Fox)

News from the Profession: KPMG Upgrades Its Female Interns From Necklaces to Camisoles  (Going Concern)

 

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Tax Roundup, 1/8/2014: Instructions for the Net Investment Income Tax! And new foreign account reporting rules.

Wednesday, January 8th, 2014 by Joe Kristan

20140108-1Almost four years after the passage of the Patient Protection and Affordable Care Act, the IRS has issued draft instructions for the act’s “Net Investment Income Tax” form, Form 8960 — which itself has only been issued as a draft so far.  With work already underway on many returns subject to this tax, especially trust returns, the timing is lame.  But this is one aspect of Obamacare that isn’t going to get punted, so we will have to go to war with the forms we have.

The draft instructions provide worksheets for some of the more baroque computations that will be needed to complete the form, including the net loss computation and the allocation of itemized deductions to net investment income.  Still, much of the work will have to be done off-the-forms on preparer worksheets applying the regulations.  Tony Nitti says:

That is my big takeaway from the instructions – there’s no faking it. When we saw that this new, complex area of the law would ultimately be computed on a one-page form, we anticipated that the meat of the computation would be done off-form in worksheets provided by the instructions. And that’s exactly what happened. But that shifts the onus back to us as tax advisors to make sure our inputs are correct, which means we must understand the nuances of the final regulations.

Based on my review of the instructions, it will be virtually impossible for a tax advisor to accurately compute, for example, the Net Gains and Losses worksheet without a solid understanding of the types of gains and losses the final regulations contemplate being included in and excluded from net investment income.

As with the rest of the ACA, what could possibly go wrong?

 

Russ Fox, FBAR Changes for 2014

First, Form TD F 90-22.1 is no more. The FBAR has a new form number, Form 114.

Second, as of last July the FBAR must be electronically filed. The good news is that as of last October, your tax accountant can file the form for you as long as you complete Form 114a.

Also, notes Russ, the filing requirement now kicks in when the balance of all foreign accounts together exceeds $10,000.  It used to be account-by-account.

 

William Perez offers Resources for Preparing Form 1099-MISC for Small Businesses

Kay Bell says it’s Time to get organized for your 2014 tax filing tasks

Paul Neiffer advises us to Decant a Trust – Not Wine.

 

David Brunori on the unwisdom of subjecting business inputs to sales tax:

Indeed, virtually every state tax commission that has studied this issue has concluded that business inputs should be exempt from tax. Why? When you tax business purchases, the tax becomes part of the cost of doing business, and companies try very hard to pass those costs on to consumers. Two bad things then happen. First, consumers unwittingly pay the tax in the form of higher prices. It is a hidden tax and a most cynical way of financing government. Second, consumers often pay sales tax on the tax embedded in the retail price of the goods they purchase. So we are actually taxing a tax. This “cascading” amounts to awful tax policy.

But, as David points out, that doesn’t stop the demagogues:

Several years ago, I had the opportunity to talk to a group of legislators about sales tax policy. I was asked if I had any ideas for reform. I mentioned the common ideas of broadening the base by taxing services and remote sales, and lowering rates. I also said that states should exempt business purchases from the sales tax. One legislator looked at me like I had three heads and asked, “Do you mean letting corporations off the hook for sales taxes?” He asked where the justice was in a system that would make poor working families pay sales tax but let multinational companies go free.

Not all that different from the Iowa Senate’s approach to income taxes.

 

Andrew Lundeen, The Top 1 Percent Pays More in Taxes than the Bottom 90 Percent (Tax Policy Blog):

An interesting piece of information from the chart below is that after the 01/03 Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1 percent actually increased significantly.

Top 1 pays more than bottom 90

No matter how much you jack up taxes on the “top 1%,” the same people always will say “the rich” aren’t paying “their fair share” and need to indulge in some “shared sacrifice.”

 

Howard Gleckman, Taxing Bitcoin (TaxVox)

What if bitcoin is a currency for tax purposes, the same as, say a euro? In that case, profits from sales would be taxed as ordinary income, with a top rate of 39.6 percent, though all losses could offset other income.

Either way, the mere act of buying something [with Bitcoins] would likely be a taxable event.

Tax Justice Blog, GE Just Lost a Tax Break – and Congress Will Probably Fix That.  That’s what fixers do.

Jack Townsend, Prosecuting the Banks: Does the U.S. Prefer Foreign Banks to U.S. Banks?

 

TaxProf, The IRS Scandal, Day 244

Programming note: I will be doing a tax update program sponsored by the Institute for Management Accountants over the Iowa Cable Network tomorrow evening at 6:00 p.m.  It’s a chance to get your continuing education for 2014 off to a roaring start.  I figure on talking about an hour, with an emphasis on the new Net Investment Income regulations and other 2013 changes we will see this filing season.  I’ll also cover some of the more interesting cases and rulings of the last year.

In case you were wondering, our friends at Going Concern explain How To Tell if Your Accounting Firm is Really a Car Wash

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Tax Roundup, 1/7/2014: Koskinen proposes voluntary IRS preparer certification. And: Obamacare, small business incubator?

Tuesday, January 7th, 2014 by Joe Kristan
This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

The new IRS Commissioner, John Koskinen, would like for IRS to oversee a voluntary preparer certification program if their preparer regulation power grab fails in the courts, reports Accounting Today. But he would still prefer the power grab:

“If you could require certification of preparers and some educational requirements, it would help taxpayers feel some level of confidence that preparers actually know what they’re doing, and the vast majority of them do,” Koskinen said during a conference call with reporters after he was sworn in ceremonially Monday by Treasury Secretary Jack Lew with an audience of many IRS employees in attendance. “My sense is that we should be able to provide that same educational training and that background to preparers. If you can’t require it, offer it, and if you complete the information, you get a certificate that says, ‘I have completed the IRS preparer course.’ I think that could be over time very valuable to preparers, and consumers could ask preparers, ‘Have you gone through the IRS training?’ Whatever happens with the court case, we ought to be able to move forward on that and provide taxpayers with as much assurance as we can that the preparers they are dealing with have met some kind of minimum standards.”

Somebody should point out to him that there already is such a program: the Enrolled Agent Program.  If the IRS runs the now-mothballed Registered Tax Return Preparer literacy test as a voluntary program, it will be a crippling blow to the more rigorous and underappreciated EA designation. Before he worries more about the competence of preparers, Commissioner Koskinen should fix his agency first (my emphasis):

“When I look at the impact of the budget and the implications of further cuts or what happens the next time there’s a sequester, the first thing that happens is the waiting time on a phone call goes up and our service goes down,” he said. “We try to get to 70 or 80 percent, but sometimes it gets as low as 50 or 60, which means at 50 percent that half the people who are calling are getting no answer at all and no satisfaction. It just seems to me that’s intolerable. Taxpayers deserve better, so we need to do whatever we can to provide the services that taxpayers need and expect. They ought to be able to dial the IRS number and get an answer promptly, and they ought to be able to get accurate information.”

Even the shabbiest storefront preparer at least processes more than half of its customers.

 

Why Iowa income tax reform will go nowhere this yearvia the Sioux City Journal:

Senate Democratic Leader Mike Gronstal, D-Council Bluffs, said Senate Democrats would formulate a tax-relief approach geared toward income tax cuts for middle-class Iowans, not the two-tiered plan being pushed by Republicans.

“Nobody in my caucus is going to go along with a scheme that leaves middle-class Iowans carrying more than their share of the tax burden in Iowa so rich people can choose whichever one works the best for them,” Gronstal said.

The idea that the state income tax system is somehow a way to fight The Rich Guy is willfully dumb, with zero-income-tax South Dakota right next door.  Oh, and you know what another word for “the rich” is?  Employers. 

Source: The Tax Foundation

Source: The Tax Foundation

 

Megan McCardle poses the question “Will Obamacare Inspire Small-Business Ownership?“:

One theorized benefit of the Patient Protection and Affordable Care Act is that it will unleash a new era of entrepreneurship. Undoubtedly, there are people in the U.S. who wanted to start a business but feared losing their health insurance. Now that they know they can buy it, presumably they’ll be freed to take risks without fearing that they could end up uninsured and uninsurable.

Unfortunately, we just don’t have that much empirical evidence. European nations with more generous social safety nets have lower rates of entrepreneurship than the U.S. does, even though a thought experiment might suggest that generous welfare programs would encourage people to take more risks. Nor did we see a radical unfurling of entrepreneurial energy in Massachusetts after RomneyCare.

She also points out that Obamacare is a kick in the head for businesses that actually succeed:

Meanwhile, of course, the law imposes significant new penalties for growing a company; anyone with more than 50 employees not only has to provide health insurance for their employees, but they also have to meet a substantial regulatory burden to demonstrate that they’re providing affordable coverage. That might discourage people from growing their firms. 

You know, it just might.

 

Russ Fox, Your Mileage Log — Start It Now (2014 Version).  You would not believe how much it helps in an IRS exam.  And doing it retrospectively when the IRS exam notice arrives tends to go badly.

Peter Reilly, Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex   Ewww…

Paul Neiffer, Roger’s Top Ten. “Roger McEowen from Iowa State University and their Center for Agricultural Law and Taxation (CALT) just listed his Top 10 Ag Law and Taxation Developments for 2014.”

William Perez, Resources for Preparing and Filing Form W-2 for Small Businesses

Robert D. Flach tells us WHAT’S NEW FOR NJ STATE TAXES FOR 2013

Kay Bell, Tax Carnival #124: Happy New Tax Year 2014

20120829-1

 

Martin Sullivan, Goodbye Baucus, Hello Wyden (Tax Analysts Blog): “On tax reform the current chair of the Senate Finance Committee has been a laggard. Wyden will be a leader.”

Jeremy Scott, A To-Do List for Wyden (Tax Analysts Blog).  Tax Reform, Extenders, and the Tea Party investigation.

TaxProf, The IRS Scandal, Day 243

 

Joseph Henchman, Parking and Transit Benefits Tax Exclusion Parity Expires Again; Congress Should Consider Permanent Fix.  (Tax Policy Blog).  “The tax code is probably the wrong place to be subsidizing commuters, and the entire provision ought to be eliminated. If Congress wishes to retain it, it ought to consider a non-expiring unified exclusion of all transportation commuting expenses.”

Tax Justice Blog, Corporate Income Tax Repeal Is Not a Serious Proposal.  Stawmen go up in flames.

Ben Harris, Rethinking Homeownership Subsidies (TaxVox).  He wants to revamp them.  I’d prefer to get rid of them.

 

TaxGrrrl, Cracker Barrel Waitress Serves Up Happiness, Gets Tip & More .  $6,000 more.

The Critical Question: Is College That Guy on eBay Who Never Paid For the Crap You Sent Him? (Going Concern)

 

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Tax Roundup, 1/6/2014: Start this year’s year-end planning now! And lots more.

Monday, January 6th, 2014 by Joe Kristan

20140106-1I’m back.  It was good to take a little time off after year-end planning season and before the 2013 return season starts.  But now that it’s 12 below with howling winds, I might as well be at the office.

It was sort of a busman’s holiday, though, as I got an early start on my 2014 year-end tax planning.   While December year-end planning is important, it’s asking a lot of one month to do the work of all 12.  You can do some important tax planning in January that will pay off all year long.  For example:

- You can fund your 2014 Individual Retirement Account right now.  If you are married, you can also fund your spousal IRA.  The maximum contribution is $5,500, or $6,500 if you will reach at least age 50 by December 31, 2014.

- You can fund your 2014 Health Savings Account today too.  The HSA limit for taxpayers with a high-deductible plan and family coverage is $6,550 this year; for a single plan, the limit is $3,300.  You need to have a qualifying high-deductible insurance policy, but if you do, you can deduct your contribution and withdraw funds for tax-deductible expenses tax-free.  If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs.  If you stay too healthy to use the funds on medical care, withdrawals are taxed much like IRA withdrawals.

Using spousal IRAs and an HSA, a 50-year old with family coverage can tuck away a combined $19,550 right now and have it earn interest or dividends tax free right away — 15 1/2 months sooner than if you wait until April 15, 2015, the last day you can make these contributions.  And by saving it now, you won’t be tempted to spend it later in the year.

A few other things that you can do right away to get some of your 2014 year-end planning out of the way:

- If you care about estate planning, nothing keeps you from making the $14,000 maximum 2014 exempt gift to your preferred family donees right now.

- Make sure you’ve maxed out your 2014 401(k) deferral with your HR people — or at the very least, be sure you are deferring as much as you can get your employer to match.

- If you are an Iowan with kids, you can make a 2014 College Savings Iowa contribution that you can deduct on your 2014 Iowa 1040.  The maximum deductible contribution is $3,098 per donor, per beneficiary, so a married couple with two kids can put away $12,392 right now.  The Iowa tax benefit works like an 8.98% bonus to you for putting money in your college savings pocket.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 242: Lois Lerner Is 2013 Tax Person of the Year.  The TaxProf provides access to a Tax Analysts piece that says:

     While many of the Service’s problems were not necessarily its own fault, the exempt organization scandal was an almost entirely self-inflicted wound. No one personifies that scandal more than Lois Lerner.

Lerner ignited a political and media firestorm when she confessed in May that the exempt organizations unit of the IRS Tax-Exempt and Government Entities Division inappropriately handled many Tea Party groups’ exemption applications.

The now former exempt organizations director’s admission and subsequent refusal to testify before Congress contributed to her becoming the public face of the scandal. Although Lerner does not bear sole responsibility for the IRS’s missteps in processing conservative groups’ exemption applications, the publicity of her role in one of the year’s biggest news stories earns her the distinction of being Tax Notes’ 2013 Person of the Year. 

And in spite of much wishful thinking, it is a scandal.

It’s worth noting that Tax Analysts gives an honorable mention to Dan Alban, the Institute for Justice attorney behind the District Court defeat for the IRS preparer regulation power grab.

 

1040 2013William Perez, How Soon Can a Person File Their 2013 Tax Return?: “The Internal Revenue Service plans to begin processing personal tax returns on Friday, January 31, 2014, for the tax year 2013 (IR-2013-100).”  But don’t even try to get it done until you have your W-2s and 1099s all in hand.

Jana Luttenegger, Reinstating Tax-Exempt Organizations  (Davis Brown Tax Law Blog). She explains new IRS procedures for organizations that have lost their exemption by failing to file annual reports with the IRS.

Kay BellSocial Security taxable earnings cap in 2014 is $117,000. Thousands have already hit that tax limit.

Jason Dinesen, Small Business Planning: Got Your Financial Statements and Budget Done Yet?

Paul Neiffer, Remember Your Simplified Home Office Deduction

TaxGrrrl, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More.

Russ Fox, 1099 Time.  A look at who has to issue information returns, and who gets them.

 

Robert D. Flach poses AN ETHICAL, AND PERHAPS LEGAL, DILEMMA:

Beginning with the 2014 Form 1040, am I legally, or ethically, required to assess my client a penalty for not having health insurance coverage?  Or can I, as I do with the penalty for underpayment of estimated tax, ignore the issue and leave it to the IRS to determine if a penalty is appropriate?  Will I face a potential preparer penalty if I ignore the issue?

It’s a good question.  I suspect they plan to make us ask the question, under the same sort of rules that make preparers unpaid social workers for the earned income tax credit.  I don’t expect to ever have to ask the question, though, as I think this dilemma will resolve itself by an indefinite delay, and eventual repeal, of the individual mandate as Obamacare falls apart.

 

David Brunori, State Tax Reform Advice for 2014 – Think About Spending (Tax Analysts Blog). Sometimes I think that’s all they think about.  But hear David out:

But in thinking about tax reform efforts in the past year, I am more convinced than ever that our refusal to rethink the size of government makes fixing problems with the tax code impossible. Here is what we know. Cutting government programs is difficult because each program has a constituency that will fight like a gladiator to protect its access to public money. So when the topic of tax reform comes up, conservatives and liberals vow to find a fix that will neither raise nor decrease spending. But we also know that politicians – the majority anyway – generally hate raising taxes. This reflects the fact that most of their constituents hate the idea of paying more taxes. But the costs of government continue to increase. And that leads to worse tax policy as states look to gimmicks, excises, gambling, and other junk ways of collecting revenue. It also ensures that some horrible tax policies are never fixed.

If the government dialed back spending to population-and-inflation adjusted 1990 numbers, I don’t think mass famines would result.

Scott Hodge, Despite Rising Inequality, Tax Code is at Most Progressive in Decades (Tax Policy Blog). I’m not sure “despite” is the right word here.

Annette Nellen, Continued bonus depreciation or tax reform?

Cara Griffith, Cyclists: The Next Great Source of Tax Revenue? (Tax Analysts Blog):

 While I strongly believe taxes should not be used to encourage or discourage behavior, the effect of requiring cyclists to register their bikes is not the big problem with these types of proposals. The real problem is that they don’t raise any revenue. Dowell’s suggestion that a bike registration fee would raise some $10 million for the city of Chicago is a pipe dream. Almost every cent would be used simply to administer the program.

From the interests of the bureaucrats proposing the program, just funding new patronage jobs is a perfectly acceptable result.

Howard Gleckman, Time To Park The Commuter Tax Subsidy (TaxVox)

Peter Reilly, Are IRS Property Seizures The Stuff Of Reality TV?   Now there’s some grim viewing.

The ISU Center for Agricultural Law and Taxation has a shiny new look at its website.

Tony Nitti, Yes Virginia, There Is A Tax Extender Bill In Congress.

The Critical Question: If You Won the Lottery Tomorrow, Would You Still Go to Work? (Going Concern).  Only to clean out my desk, and laugh.

 

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Tax Roundup, 12/31/2013: So much for Iowa tax reform. And: last-minute charity!

Tuesday, December 31st, 2013 by Joe Kristan

ijlogoThere’s only so much you can do on one day to achieve last-minute tax deductions.  The markets are open, so you can harvest your tax losses.  The post office closes early, so if you want to mail a check for a deductible expense, get down there this morning.  You might want to review all of my 2013 year-end tax tips for some other ideas.

If you are both charitable-minded and deduction-minded, credit-card donations up to midnight tonight work.  Indulge me while I suggest a few good causes that can get you a charitable deduction:

Salvation Army, doing hard work with the homeless and lost and on hand to help at disasters, doing much with little.

Iowa Donor Network, the Iowa organization that gathers and allocates donor organs.

Institute for Justice, the non-profit that helps the little guy fight back against government’s bent on stealing their business or preventing them from making a living.  IJ is the outfit behind the battle against the IRS preparer regulation power-grab — it’s hard to imagine how the IRS would have been stopped without their good work.

The Tax Foundation, fighting the good fight for sound tax policy.

Reason Foundation, supporting liberty against all comers.

Alzheimers Association, fighting an awful disease.

Sertoma, little platoons working to prevent hearing loss through education and awareness.

Cornell College, my undergraduate alma mater.

Southern Illinois University, where I got my accounting degree.

Last but not least, The ISU Center for Agricultural Law and Taxation, sponsor of the Farm and Urban Tax Schools.

That’s it for our 2013 year-end tax tips, but there’s good stuff all year at the Tax Update!

 

Related:

William Perez, Last Day Deduction Ideas

TaxGrrrl, 13 Dramatic Year End Tax Strategies For 2013   

 

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.

So much for the Iowa alternative maximum tax.  Branstad says he’s “realistic” — abandoning idea of pushing for income tax changes in 2014, reports O. Kay Henderson:

Earlier this month Governor Terry Branstad was considering a plan to let Iowans keep filing their personal income taxes under the current system, or opt for a flatter, simpler system with fewer deductions. Branstad’s now abandoning the idea.

“I’ll be real frank to say that with the present make-up of the senate and particularly with the present chairman of the Ways and Means Committee, I doubt that we’re going to see anything significant on the tax front this year,” Branstad said during an interview with Radio Iowa.

The majority Senate Democrats, led by Joe Bolkcom, are obsessed with sticking it to “the rich,” meaning employers, and the Branstad plan fails to do so sufficiently.  As the Senate can block any tax proposal, there was never much hope for the Branstad plan.

As the Governor’s half-baked plan was going nowhere anyway, perhaps now he can start working for the sort of real income tax reform that is so long overdue in Iowa.  The current system is a rat’s nest of special interest breaks, feel-good provisions, complexity and high rates that pleases only lobbyists and string-pullers.  It discourages small businesses with unforgiving complexity while paying the well-lobbied to be our friends.

Let’s get rid of all of the special deductions for special friends of the politicians, and all of the feel-good deductions, and even the deduction for federal taxes.  Oh, and lets get of the Iowa corporation income tax entirely.  Let’s drastically reduce rates to 4% or less and make Iowa taxes easy to understand and pay.  Governor, embrace the Tax Update’s Quick and Dirty Iowa Tax Reform plan for all and see if the soak-the-rich crowd really wants to stand up for insiders, lobbyists, complexity, high rates, and high compliance costs.

 

It’s a dishonor just to be nominated, but Russ Fox can only choose one 2013 Tax Offender of the Year.  The recipient worked very hard to earn the title, and is quite deserving.

 

Tony Nitti, Tax Geek Tuesday: Does The Sale Of Property Generate Ordinary Income Or Capital Gain?  It depends on what you sell, and who you sell it to.

 

Scott Hodge,  Out With the Extenders, In With the New Obamacare Taxes (Tax Policy Blog).  In case you were getting excited about a new year.  It lists all of the Lazarus provisions that expire at midnight, and all of the new taxes that start at 12:01.

Kay Bell,  Expiring commuter tax break will cost public transit users

 

Robert D. Flach brings you his last Buzz of 2013!

Jason Dinesen lists his Most-Popular Blog Posts of 2013

News from the Profession.  Count Your Blessings For Not Being on These Horrible Inventory Counts (Going Concern)

 

I will take the rest of the week off to clear my mind for tax season.  Happy New Year, and see you on Monday!

 

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Tax Roundup, 12/30/2013: Paying for those last-minute write-offs. And: Harold Hill marches on.

Monday, December 30th, 2013 by Joe Kristan


20121228-2
How to pay for those last-minute deductions.
  We’re down to the wire, kids.  2013 ends in less than 48 hours, so if you are going to claim some last-minute deductions, get busy!  Some things to keep in mind:

- A credit card is as good as cash. Better, even, because if you incur a business expense before the end of the year, you have your credit card statement to prove it.

- If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2013 to be a deductible 2013 expense. If it’s a big check, maybe you should spend a little extra to send it Certified Mail so you can document the postmark.

- If you receive a check in the mail, it’s taxable the day you receive it, even if you don’t deposit it.

- There is no “close is good enough” rule for cash basis taxpayers. Just because you could have paid a bill doesn’t get you a deduction if you didn’t pay it before year-end.

- Don’t overdo it. If you prepay expenses more than a year out, you don’t get the deduction until the year to which the payment applies.

- If you are making a gift to a loved one to qualify for the $14,000 annual gift tax exclusion, having the check in the mail isn’t good enough. A check has to be cashed for the gift to count against this year’s exclusion.

And in case you didn’t check in over the weekend:

What you need to pay by year-end to get a 2013 business expense deduction and

Hie thee to the altar! Maybe.

Check in tomorrow for the last 2013 year-end tax tip!

 

haroldL.A. Times: Transferable Movie Tax Credits Hurt States, Enrich Studios, Tax Lawyers (TaxProf):

Reitz is one of Hollywood’s new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.

In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.

Money for Hollywood, fixers, middlemen, and the well-connected, at your expense.  Sort of like every other “economic development” tax credit, only even more so.  Fortunately Iowa, sadder but wiser, has turned to jailing film folks instead of subsidizing them.

 

Russ Fox, Bring Me the Usual Suspects: Small Business Policy Index 2013.  Iowa is 43rd.  Not surprising, when “Of the 47 measures included in the 2013 edition of the Index, 22 are taxes or tax related…”

 

William Perez looks at the Top Tax News Stories of 2013.  His top story took place on the first day of 2013:

1. American Taxpayer Relief Act was passed on January 1, 2013. This tax law instituted at top personal tax rate of 39.6%, bumped up the top capital gains rate to 20%, provided for indexing the alternative minimum tax to inflation, reinstated the phaseouts on itemized deductions and personal exemptions. This law was Congress’s way of dealing with the fiscal-cliff, which was the name applied to the expiration of a several tax laws first enacted during the Bush administration.

I hope nothing so awful happens on the last day of the year.

Robert D. Flach also looks back with 2013: THE YEAR IN TAXES – PART TWO

 

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.

Annette NellenNew IRS Commissioner – Does anyone care?

“Despite running a significant organization with over 92,000 employees that collects over $2.2 trillion of revenue and affects the lives of most people in the U.S., it doesn’t seem to me that anyone really cares about who is running the IRS.”

That’s unfortunate.  As the tax law has become the Swiss Army Knife of public policy, the Commissioner oversees a sprawling portfolio ranging from health policy to campaign finance to industrial policy.  There’s more power in the IRS than in most cabinet agencies.  And as the disastrous regime of Doug Shulman proved, an awful Commissioner can cause a lot of damage to taxpayers and to the agency.

 

Jim Maule, Contracting a Tax Outcome.  “When a taxpayer signs a contract, the terms of that contract quite often dictate the tax consequence.”

 

 

What could go wrong?  French High Court OKs 75 Percent Tax For Top Earners (Iowa Public Radio)

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Tony Nitti, A Tax On Cycling: Too Steep A Hill To Climb Or Just Around The Corner?  With talk of replacing gas taxes with mileage charges based, presumably, on tracking your whereabouts, it’s not surprising that they want to tax any alternatives to cars.

 

 

 

 

TaxProf, The IRS Scandal, Day 235

Jack Townsend, Judge’s Improper Question of Defendant as Witness is not Reversible 

 

That’s the only way the team overachieved.  St. Louis Rams say they collected too much ticket sales tax (Kay Bell)

 

Oh, this will end well.  “The Game: I’m a pot-smokin’ Tax Fraud” (TMZ).  The first rule of Tax Fraud Club: don’t talk about Tax Fraud Club.

TaxGrrrl takes a look at Mr. Game’s tax claims in  Game Offers Tax Advice To Rappers: Write Off Strippers, Sneaks And Medical Marijuana:

Next, those Jordans. Clothing is deductible if the only purpose of the clothing/uniform is for business purposes (meaning that you must wear them as a condition of employment) and not suitable for everyday use. Clothing is not deductible if you could wear it outside of your workplace (even if you don’t). Those Jordans? Not merely for business purposes. And Game would totally wear them outside of business. 

In case you’re wondering, rappers are not required to take any tax continuing education.

 

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Tax Roundup, 12/26/2013: Tax loss harvest time! And: people like you to give them money.

Thursday, December 26th, 2013 by Joe Kristan


harvest
Harvest those tax losses.  
Just as millions of disappointed gift recipients rush the retailers to improve on Santa today, investors can get busy over the next few days trying to make the best of their own disappointments.  They can cash out losses on disappointing investments to shelter their 2013 gains.  Some tips to make sure you do it right:

- You have to take the loss in a taxable account. A loss in an IRA or 401(k) plan doesn’t help you.

- Normally the “trade date” is the effective date for tax purposes, so you can sell a stock as late as December 31 this year and still deduct the loss on your 2009 1040.

- If you have a loss on a short sale, the tax law treats it as closing on the settlement date, not the trade date, so you can’t wait to the last minute to close a short sale to get a deduction.

- You don’t need to overdo it.  You can deduct your capital losses only to the extent of your capital gains, plus $3000.  But if you do overdo it, individual capital losses carry forward indefinitely.

- Harvesting losses helps taxpayers subject to the Obamacare/ACA Net Investment Income Tax to the extent it helps for regular taxes.

- Watch out for the wash sale rules. If you buy the same stock within the 30 days preceding or following the sale of a loss stock, your loss is disallowed. This is true even if you sell from a taxable account and buy in an IRA, according to the IRS.

Come back tomorrow for another 2013 year-end tax tip!

 

Paul Neiffer offers Some Quick Year-End Tax Tips

 

20120906-1Give away money and folks will line up.State tax credit program hits a big bump: It’s out of money, and that’s a good sign,”  reports the Des Moines Business Record:

Economic development officials in Des Moines and other Iowa cities have been told to stop sending requests for a state economic development tax credit. The reason: The fund is tapped out.

Greater Des Moines developers were told during a meeting last week with officials from the Iowa Economic Development Authority and the city of Des Moines that a tax credit program used to provide gap financing for multimillion-dollar developments has reached its $3 million annual cap on the ability to transfer the credits, a key element in financing the projects.

“Transferable” tax credits are actually subsidies. It is economically identical to giving the developers a license to factor the state’s receivables at a small discount.

Local developers, the Greater Des Moines Partnership, and state officials will press the Iowa Legislature to at least raise the $3 million cap and make adjustments that could eliminate the ranking system.

So people who want the state to give them more of our money and the state officials that give away our money want the legislature to make it easier to give away our money. What could go wrong?

 

Speaking of the people giving away our money,  State-owned Honey Creek Resort near Moravia continues to struggle financially.  (thegazette.com, via Gongol) What madness led the government to open a resort?  Maybe the same madness that makes people think the government should be allocating investment capital.

 

tf logoJoseph Henchman, Tax Foundation Wins State Tax Notes Honor, Third Year Running:

For three years running now, we have been honored as most influential in state tax policy by State Tax Notes (subscription req’d). This year, they present it as an unranked list of ten recipients. The list is five state officials, three lawyers, one legislator, and us…

Given the response of the Iowa legislature to my suggestions, I am sure that I rank among the ten least influential in state tax policy.  I wonder if there’s a prize for that?

 

Howard Gleckman,  TheTaxVox 2013 Lump of Coal Award: Wait ‘Til Next Year Edition.  He doesn’t think the Tea Party scandal was more than “merely bungling the job on a bipartisan basis.”  Given the overwhelming attention paid to the right, that’s an unsupported statement.   Mr. Gleckman is a man of the center-left; when it’s your opponents being targeted, it’s easier to conclude that it’s all fair.

 

Tony Nitti, Tax Geek Tuesday: When Structuring The Sale Of Your Business Goes Wrong   Tony addresses the related-party debacle of Fish v. Commissioner, where a Kansas City taxpayer generated $9 million in ordinary income when he thought he was going to have capital gains, because a partial cash-out of his business worked out to be a sale of goodwill to a related party.

Margaret Van Houten,  Do My Estate Planning Documents Need to Have Special Language to Deal with My Digital Assets?  (Davis Brown Tax Law Blog)

Russ Fox, Nominations Due for 2013 Tax Offender of the Year.  Sadly, Russ will have plenty of worthy candidates.

 

TreeTreetreetreetreePeter Reilly offers Kind Christmas Wishes To Those Behind Bars And The Tax Collectors Too  “So when you think treeabout it, you realize that one of the reasons that Jesus was born in Bethlehem was that Joseph and Mary were tax compliant.”

Kay Bell, The Christmas tax story

Jason Dinesen, Greatest Hits: Deducting Mileage from a Home Office   

TaxProf, World Giving Index 2013: U.S. Is #1

Me, What’s new in year-end tax planning, my new post at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog.

Career Corner. How to Choose Between Two Big 4 Offers When You Have No Clue What Either Involves (Going Concern)

 

TaxGrrrl, The True Cost Of Christmas: Santa’s Tax Bill:

Compensation is taxed to the elves as income – but Santa has taxes to pay on their behalf. Payroll taxes – at the employer contribution rate of 7.65% – for the elves work out to $1,890,927.

Santa doesn’t pay income taxes on compensation paid to the elves but he does have to manage their withholding according to any forms W-4 provided to him. Fortunately for Santa, there is no withholding requirement for state taxes in Alaska. 

I would argue the residency issue.  Technically, the North Pole is in the middle of the ocean, and I don’t believe there are territorial claims though.  Of course, with his fearsome legendary powers of retaliation, no IRS agent wanting to be on the “nice” list would mess with him.

 

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Tax Roundup, 12/23/2013: The joys of being at-risk. And: commence self-destruction sequence!

Monday, December 23rd, 2013 by Joe Kristan

S imageS image20091210-1.JPG‘Tis the season to be at-risk.  We mentioned yesterday how you can get basis for deducting S corporation losses by making a loan to the corporation.  But not just any loan.  If you borrow from another S corporation shareholder to make your loan, your basis won’t be “at-risk.”

A Monroe, Iowa farmer learned that the hard way with his 1991 loan, as we discussed long, long ago:

Larry Van Wyk, a farmer from Monroe, Iowa, got a taste of the dangers of the at-risk related-party loan rules back when farmers were their primary target. He owned an S corporation farm 50-50 with his brother-in-law, Keith Roorda. On December 24, 1991, Larry borrowed $700,000 from Keith. The loan was fully-recourse, so the brother-in-law could proceed ruthlessly against Larry in the event of non-payment. Larry used about $250,000 to repay money he owned the S corporation and loaned the remainder to increase his basis to enable him to deduct losses.

 Unfortunately, Larry’s brother-in-law had “an interest in the activity” – he owned half of it. This made the deduction not “at-risk,” even though no loan from a brother-in-law is without risk in a very real sense. The efforts of some of the finest tax attorneys west of the Mississippi were unavailing; the Tax Court agreed with the IRS, and Larry lost his losses.

It’s not enough to avoid borrowing from another shareholder; you don’t want to borrow from somebody related to another shareholder.  And as “interest in the activity” isn’t necessarily the same as “shareholder,” you should watch out for borrowing from anybody else involved in the business.  The safe thing is to visit your friendly community banker for your loan.

This is another of our daily year-end 2013 tax tips — one a day through December 31!

 

Weekend update!  In case you missed it over the weekend:

2013 Winter Solstice Tax Tip: S corporation basis and

Winter Sunday tax tip: loans for S corporation basis.

 

William Perez, Roth Conversions as a Year-End Tax Strategy

Jason Dinesen,  Six Things I’m Talking to My Small Business Clients About at Year-End (Part 2) 

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

We have a Commissioner.  Senate Votes 59-36 to Confirm John Koskinen as IRS Commissioner (TaxProf).  A lot of folks have noted that once again we have a Commissioner who hasn’t done taxes for a living.  That doesn’t have to be fatal.  Anybody who has hung around CPA firms can tell you that somebody who is good at taxes can be pretty terrible at running an organization.

Still, it’s not a great sign.  The new guy, John Koskinen, will be 79 years-old when his five-year term runs out.  He got his reputation as a “turnaround guy” at Freddie Mac in the wake of the financial crisis, preserving the bureaucracy as responsible as any for the financial meltdown.  I suspect he was hired to protect the agency, not the taxpayer.

By the way, there is another Koskinen.

 

The crumbling mandate.  Tax Analysts reports ($link):

Individuals whose health insurance plans were canceled by insurers because they did not meet the requirements of the Affordable Care Act will be eligible for an exemption from the individual mandate penalty that takes effect in 2014, the Department of Health and Human Services said late December 19.

20121120-2Megan McArdle says this means Obamacare Initiates Self-Destruction Sequence:

As Ezra Klein points out, this seriously undermines the political viability of the individual mandate: “But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it’s wrong. But it’s hard to argue that it’s right for the currently uninsured but wrong for people whose plans were canceled … Put more simply, Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people whose plans were canceled more deserving of help than people who couldn’t afford a plan in the first place?”

Arnold Kling put it more pithily: “Obama Repeals Obamacare.”

They’re desperately improvising as they go.  Not a good situation, considering the mandate tax is supposed to take effect in less than two weeks.   I’m starting to doubt that it ever gets enforced.

Related: Paul Neiffer, Cancelled Health Insurance Policies

 

20121220-3Kay Bell, Singing the praises of tax-favored retirement savings

Brian Mahany, IRS Ordered To Pay Taxpayer’s Legal Fees 

Russ Fox, The Death of the Death Master File (Sort of)

Peter Reilly,  Woody Allen’s Blue Jasmine Has A Tax Lesson.  If you don’t wan’t to stay married to a spouse, you might not want to file a joint return either.

TaxGrrrl,  12 Days Of Charitable Giving 2013: Esophageal Cancer Action Network

Robert D. Flach has a special Monday Buzz!

 

Tax Justice BlogUltra-Wealthy Dodge Billions in Taxes Using “GRAT” Loophole

Michael Schuyler, Why A Death Tax “Loophole” May Make Economic Sense (Tax Policy Blog).

Jack Townsend, Swiss Bank Hype and Over-Hype.  ” Merely having U.S. clients with undeclared accounts is not the problem for those banks; it is those banks actions to become complicit in the U.S. clients’ failure to report the accounts.”

Jim Maule finds his inner libertarian, embracing a Reason Foundation report calling for elimination of the home mortgage deduction in exchange for lower rates.

 

News from the Professon.  PwC Won’t Stop Beliebin’ In Ugly Christmas Sweaters (Going Concern)

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Tax Roundup, 12/17/2013: Map day! A B+ for Iowa tax administration.

Tuesday, December 17th, 2013 by Joe Kristan

I did my last session of the year yesterday for the ISU-CALT tax school in Ames, and I have much catching up to do today in the office.  It’s a two-day school, and today Paul Neiffer is on the Day 2 team at the Ames Tax School.

 

Ben Harris, The US Income Tax Burden, County by County (TaxVox):

While the median federal income tax burden across counties is about $3,400, approximately 10 percent of counties  have average tax burdens less than $2,100 and around 10 percent of counties have  average tax burdens over $6,700.

20131217-1

I think the right side of the little color key is supposed to read $7,000, not $70,000.  Unless Central Iowa has higher income than I thought, anyway.

 

Meanwhile, Joseph Henchman reports that the Council on State Taxation graded the states on “taxpayer administration,” with this map (Tax Poliy Blog):

20131217-2

Iowa gets a B+:

20131217-3

 

I think they are grading on a curve.  And Iowa gets credits for making rulings and decisions available; that hasn’t been done since August, at least not on the Iowa Department of Revenue website.

 

Jeremy Scott, IRS Moves Closer to Having a Commissioner (Tax Analysts Blog).  How novel.

O. Kay Henderson,  Energy execs say end of federal credit to curb wind energy expansion.  When something can’t happen without subsidies, that’s nature’s way of saying it shouldn’t happen.

Jason Dinesen, Will Same-Sex Married Couples Pay More or Less in Taxes Now?  “I answer by saying that the answer is: ‘yes, no, maybe.’”

 

Leslie Book, Omitted Income, Accuracy-Related Penalties and Reasonable Cause (Procedurally Taxing).  He talks about the case I discussed here, saying:

Sometimes when I read penalty cases involving individuals I am struck by how the penalties are inappropriate. Here, I understand why IRS counsel stuck to its guns and tried the case, but I also agree with the court’s conclusion on these facts. I suspect that very few taxpayers leaving off this amount of income would get relief from the penalties, though wonder if the IRM should extend the first time abatement relief to penalties other than failure to file or failure to pay, so that perhaps Counsel or Appeals will feel more comfortable in exercising discretion if there are facts suggestive of an isolated and understandable mistake.

IRS is much too quick to assess foot-fault penalties on taxpayers with a good compliance history.

 

William Perez, IRA Distributions at Year End:

Taxpayers who are age 70.5 or older are required to distribute at least a minimum amount from their traditional IRAs, 401(k) plans and similar pre-tax savings plans. These required minimum distributions must begin no later than April 1st after the reaching age seventy and a half. Individuals continue taking required minimum distributions each year. So the first year-end tactic is to figure out how much needs to be distributed from the retirement plan to satisfy the required minimum distribution rules.

Basic, but missed surprisingly often.

 

Tony Nitti,  IRS Issues Guidance On Employee Benefit Plans For Same-Sex Couples

Russ Fox,  Health Care Fraud Leads to Tax Charge

Kay Bell, Medical tax breaks’ 10% and FSA year-end considerations

TaxGrrrl has kicked off her “12 Days of Charitable Giving 2013.”  Today she highlights Children Of Fallen Patriots 

TaxProf,  The IRS Scandal, Day 222

 

Grab a Tuesday Buzz from Robert D. Flach!

News From the Profession.  Accounting Firm Busted Stealing From the Cloud in “Plain, Vanilla Dispute About a Customer List” (Going Concern)

 

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Tax Roundup, 12/16/2013: Ames! And: if you’re explaining, you’re losing.

Monday, December 16th, 2013 by Joe Kristan

It’s a cold day In Ames, Iowa, but it’s toasty warm with 315 or so eager participants in the last session of this year’s ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools!  

20131216-1

The Ames Crowd!

It’s a fun school, with lots of good attendees with great, challenging questions.  I’ve enjoyed working on the Day 1 panel with emcee Roger McEowen and IRS Taxpayer Liason Kristy Maitre

 

20120906-1“In economic development, if you’re explaining, you’re losing.”  An article at WCFcourier.com makes an often-overlooked point about how economic development spiffs that complicate the tax law end up backfiring:

A simpler tax system may top all other requests from the business groups, said Steve Firman, director of government relations for the Greater Cedar Valley Alliance and Chamber.

Firman pointed out that Iowa ranked 40th among states in the Tax Foundation’s 2014 tax climate comparisons because it is tough to explain the complexity of federal deductibility that blurs Iowa’s true tax picture.

Firman, explaining his position, pulled out a line he said he likes to use:

“In economic development, if you’re explaining, you’re losing,” he said.

Iowa’s byzantine tax system, with its dozens of special breaks, requires a lot of explaining.  The Tax Update’s Quick and Dirty Tax Reform Plan, with low individual rates and no corporate tax, would be a much better sell.

 

William Gale,  The Year in Taxes: From the Fiscal Cliff to Tax Reform Talks (TaxVox):

Although Camp and Baucus do not appear to have reached agreement on how much revenue should be raised or on how to raise it, the two leaders have nonetheless raised some interesting ideas. But the sorry state of tax reform can probably best be summed up by a small business owner who attended the New Jersey stop of a listening tour that the two chairmen held last summer. She urged the two leaders to “get rid of the deductions that don’t affect me.” As long as that attitude prevails, meaningful tax reform will not happen.

The same dynamic is at work in Iowa.

 

TaxGrrrl, Budget Faces Challenge From Senators Wary Of Spending, User Fees To Taxpayers   

William Perez, Use Fundsin a Health Care Flexible Spending Account (Year-End Tax Tips)

Kay Bell, Tax deductible mileage rate drops a half-cent in 2014

Annette Nellen, What’s My Rate? Challenges of Understanding 2013 Federal Taxes

Paul Neiffer, How Many 2013 Tax Brackets

 

IrwinIrwinIrwinirwin.jpgPeter Reilly, Euro Pacific Capital’s Peter Schiff Defends His Tax Protesting Father Irwin Schiff   Peter has a lot of interesting background on tax protester Irwin and his controversial, but much more prudent, son. And: “I can’t blame Peter Schiff for sticking up for his dad.  I would too, if I still had one.”

 

 

Irwin

TaxProf, The IRS Scandal, Day 221

Jack Townsend, Article on New Sentencing Guidelines on Unclaimed Deductions and Credits

 

Robert Rizzo

Robert Rizzo

Russ Fox, Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems:

 In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.ta

Just a humble public servant.

 

News from the Professon:  Grant Thornton Employees Break Out Dynamic Christmas Sweaters for Holiday Party

Jason Dinesen,  North Dakota Taxes, Same-Sex Marriage, And a Really Bizarre Twist 

The party’s over.  Unemployed German couple accused of tax fraud after caught hosting sex parties.   They had a $250, er, cover charge.

 

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Tax Roundup, 12/11/13: Iowa DOT restricts revenue cameras. And: whither extenders?

Wednesday, December 11th, 2013 by Joe Kristan


gatso
Department of Transportation enacts tax reduction.  
From the Des Moines Register:

Cities and counties would have to prove the need for traffic enforcement cameras on major highways under rules approved Tuesday by the Iowa Transportation Commission.

The new rules — which could take effect as early as February — would force a re-evaluation of all speeding and red-light cameras now placed on interstate highways, U.S. highways and state highways and require any new cameras to first win the Department of Transportation’s approval.

It’s not clear what effect this will have on the revenue cameras, like the one on Eastbound I-235 by Waveland Golf Course, but given the howls from the affected municipal pickpockets who profit from the cameras in the runup to the rules, I suspect it means fewer cameras.   The municipalities like their tax on passing motorists, at least those who aren’t “special.”

Of course they always invoke safety, in spite of inconclusive or contradictory evidence.  But if it really were about safety, you would see them experimenting with other solutions, like all-red phases at red lights and longer yellows.   When they have to say it’s not about the money, it’s about the money.

 

Howard Gleckman,  Whither the Tax Extenders? (TaxVox):

If published reports are correct–and if the deal does not fall apart–Congress would partially replace the hated automatic across-the-board spending cuts (the sequester) with more traditional targets for each federal agency. In effect, it would freeze discretionary spending at about $1 trillion-a-year for the next two years. Without a new agreement the 2014 level would be $967 billion.

The deal would replace the sequester cuts with a grab-bag of other reductions in planned spending and a bunch of increased fees for airline travelers and others.

But the “t” word will go unspoken in this agreement. There will reportedly be no tax hikes in the bargain. But neither will there be a continuation of expiring provisions. And there is no chance they will be extended in any other bill in calendar 2013.

That likely means no action on the “expiring provisions” until after the 2014 elections.  That means we might not know whether a bunch of tax breaks we have gotten used to will be extended into 2014 until next December, or maybe even later.  A few of the biggies:

  • The Section 179 limit on expensing otherwise depreciable property falls to $25,000 next year, from the current $500,000, absent an extender bill.
  • 50% bonus depreciation goes away.
  • The research credit disappears, as do a bunch of biofuel and wind credits.
  • The current five-year “recognition period” for built-in gains in S corporations goes back to ten years, from the current five-year period.

My money is still on an extension of these provisions, effective January 1, 2014, even if enacted later, but my confidence is wavering.

 

20121220-3William Perez, Selling Profitable Investments as Part of a Year-End Tax Strategy. “Taxpayers in the two lowest tax brackets of 10% and 15% may especially want to consider selling profitable long-term investments.”  Why?  Zero taxes on capital gains, as William explains.

Tony Nitti, Tax Geek Tuesday: Tax Treatment of Commuting Costs   

Kay Bell, Standard tax deduction amounts bumped up for 2014

Jana Luttenegger, 2014 Mileage Rates (Davis Brown Tax Law Blog)

Jason Dinesen, Philosophical Question About Section 108, Principal Residences and Cancelled Debt  “My question is. what if the homeowner moves out before the foreclosure process is complete?”

TaxGrrrl, You’re A Mean One, Mr. Grinch: Christmas Tree Tax Proposal Returns 

Russ Fox,  Bank Notice on IRS Tax Refund Fraud.  “While I salute the IRS (and the banks) for doing something, this effort is equivalent to patching one hole in a roof that has over a hundred leaks.”

Robert D. Flach offers SOME GOOD CONVERSATIONS ON TAX PROFESSIONAL ISSUES

 

 

Leslie Book,  TEFRA and Affected Items Notices of Deficiency (Procedurally Taxing).  “In this post, I will attempt to give readers a map as to how IRS can move from shamming a partnership-based tax shelter to assessing tax against the partner or partners that were attempting to game the system.”

 

Kyle Pomerleau, High Income Households Paid an Effective Tax Rate 16 times Higher than Low Income Households in 2010 (Tax Policy Blog).  He provides more commentary on a recent Congressional Budget Office report (my emphasis):

In 2010, the average effective tax rate for all households was 18.1 percent. This is the average combined effective rate of individual income taxes, social security taxes, corporate income taxes, and excise taxes. The top income quintile paid an average effective tax rate of 24 percent.  The lowest quintile had an average effective rate of 1.5 percent. The top quintile’s effective tax rate of 24 percent is 16 times higher than 1.5 percent for those in the lowest quintile.

cbo rates by income group

This is why any federal tax cut “disproportionately benefits the wealthy.”  You can only cut taxes for people who pay taxes.

 

The Critical Question: When Does the Conspiracy End? (Jack Townsend)

News from the Profession: Deloitte Associate Exercises Powers of Persuasion; Scores Firm-Subsidized Xbox One (Going Concern)

 

20131211-1Atlanta county gives money to prosperous media company.  Cobb County, Future Home of the Atlanta Braves, Strikes Out (Elia Peterson, Tax Policy Blog, my emphasis):

The county is projected to have to finance around $300 million for the development.  This includes a one-time $14 million transportation improvement subsidy, a $10 million commitment from the Cumberland Community Improvement District (CID), and payments worth $276 million of a bond issue. The bonds are financed by redirecting funds from two existing taxes (hotel & property taxes) and creating three new revenue sources (a rental car tax, a property tax in the Cumberland CID, and a hotel fee) combined to the tune of $17.9 million annually for the next 30 years.

Liberty Media, the owner of the Braves, despite being a very successful company (owning stakes in SiriusXM, Barnes & Noble, and Time Warner) had their investment subsidized by Cobb County taxpayers. Liberty Media retains most of the rights to the stadium and profits while Cobb County gets next to nothing except the promise of “surefire” economic development (the city won’t even be allowed access to the stadium they built except for special occasions).

Build it and you can’t come!

 

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Tax Roundup, 11/26/13: If they can spend your money better than you, by all means write them a check. And more!

Tuesday, November 26th, 2013 by Joe Kristan

20130117-1I really wasn’t baiting anybody when I asked Would you trust a state legislator to spend your $54?   but Des Moines Register columnist Rekha Basu bit anyway with $54 refund would do us more good if state kept it.  This is classic (my emphasis):

Your 54 bucks might get you a dinner out, a pair of jeans, a couple of sideline tickets to a Hawkeyes football game, or some fancy bottles of wine. But consider what it could have done for the state.  The budget for fixing roads and bridges falls $215 million short of need every year. That especially riles state Sen. Joe Bolkcom, who chairs the Senate’s Ways and Means Committee. Not only could our little refunds take care of critical infrastructure repairs, but they’d create jobs in the process, points out the Iowa City senator.

You don’t matter; the state does. You’d just squander your money, but the all-wise state would unerringly direct your money to where it is most needed for the greatest good.  Just like Joe Bolkcom did when he voted for the Iowa Film Tax Credit Program, which gave tens of millions of taxpayer dollars to grifters and Hollywood sharpies before it collapsed in scandal and disgrace — but not before Rekha Basu could sing its praises:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

 Saturday, “The Experiment” had a wrap party downtown. Brody and Whitaker were there, mingling and posing for pictures. Frank Meeink was there. The Iowan who may have inspired the 1998 “American History X” has an acting role. Deb Cosgrove, the nurse, was there. She’s been tending to the medical needs of the film’s luminaries. Casey Gradischnig, local multi-media designer, was there. He’s been working for Whitaker.

Yes, this is the sort of critical infrastructure that we should be trusting our wise leaders to fund on our behalf, so we don’t blow it on football games or bottles of wine, or groceries or medicine — all of which “creates jobs” just as much as money given by politicians to well-connected contractors or filmmakers.

Ms. Basu says she is “tempted” to return her $54.  Talk is cheap.  If she really thinks the state can spend her money better than she can, she can write a check to “Treasurer, State of Iowa,”  mark it as a donation to the state, and send it to the Department of Revenue, Attn: Courtney Kay-Decker, 1305 E. Walnut, Des Moines IA 50319.   Otherwise, she reveals that she doesn’t really trust the state to spend “her” money;  only other peoples’ money.

 

William Perez,  Strategies for Reducing the Net Investment Income Tax.  “Planning strategies for the NIIT focuses on managing adjusted gross income, managing investment income or managing both.”

I would add that many strategies that might otherwise be unwise because of Alternative Minimum Tax, like prepaying state income taxes on big capital gains, become helpful in dealing with the net investment income tax.

 

I’ve seen niftier.  Nifty Scheme Lands Five at ClubFed (Russ Fox)

 

nfl logoJeremy Scott, The NFL Is Tax-Exempt? Yes, But . . . . (Tax Analysts Blog):

Removing the league’s tax exemption would be a largely symbolic move that would raise little revenue and wouldn’t change much about how the league does business. Far more significant would be increased debate and transparency over publicly financed stadium construction and the tax favors that are doled out to keep teams from moving…

The teams themselves are taxed, and that’s where the real money is.

 

Brian Strahle, MARKET-BASED SOURCING GOES INCOGNITO:

The trend toward market-based sourcing of revenue from services has been increasing over the past several years. Some states have adopted market-based sourcing by enacting legislation, and others have imposed it by interpreting their statutes and regulations to allow it.

Legislators looove taxing non-voters.

 

Stephen Olson, Summary Opinions for 11/22/2013 (Procedurally Taxing).

TaxGrrrl, Chrysler Slows But Doesn’t Put Brakes On IPO Amid Questions Over Taxes 

Peter Reilly, Decision On Clergy Housing Tax Break Evokes Memory Of JFK .  Not a connection I would have made.

Kay Bell, Religious housing tax break deemed unconstitutional

 

Elizabeth Malm, Richard Borean, Monday Map: Adjustment of State Income Tax Brackets for Inflation (Tax Policy Blog)

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Clint Stretch, Max Baucus and the Stamp Tax (Tax Analysts Blog).  I don’t think Sen. Baucus was around for the Stamp Act of 1765, but I’m not so sure about Sen. Grassley.

 

TaxProf, The IRS Scandal, Day 201

 

Tuesday is Buzz-day at Robert D. Flach’s place!

One of these things is not like the others?  Tax Simplification, Male Prostitution, and Mormon Thrift Stores (Going Concern)

 

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Tax Roundup, 11/25/13: Burning down the parsonage (allowance). And: Red Oak!

Monday, November 25th, 2013 by Joe Kristan

The Tax Update comes from beautiful Red Oak, Iowa, in the Southwest part of the state.  This is the sixth stop in the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School tour for 2013.  Register now if you want a seat in one of the final schools in Denison and Ames!

Flickr image courtesy dvs under Creative Commons license

Flickr image courtesy dvs under Creative Commons license

Sorry, Parson.   A U.S. District Court in Wisconsin ruled Friday that the Sec. 107 parsonage allowance exclusion violates the Establishment Clause of the constitution.  The allowance gives “ministers of the gospel” a much broader tax exemption for housing than is available to other employees.  The “parsonage allowance” even allows tax-free treatment for cash payments when no parsonage is supplied.

Sec. 107 reads in full:

In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The decision overturns the cash allowance exclusion, but does not affect the exclusion when an actual parsonage is supplied.  That would leave ministers a more generous exclusion than is otherwise provided under Sec. 119, which only allows employees to exclude housing from income if it is provided “for the convenience of the employer” and “on the business premises of his employer as a condition of his employment.”  Many parsonage are not attached to the church, so that’s an important difference.

The decision “shall take effect at the conclusion of any appeals… or the expiration of [the] deadline for filing an appeal,” so for now there is no effect.   But it’s not clear what happens next.  As the losing defendant, there’s no requirement for the Treasury to file an appeal.  Presumably they would at least file an appeal, if only to not disrupt the upcoming filing season, but then they could drop it.  We should know soon whether an appeal will be pursued.

Cite: Freedom From Religion Foundation v. Lew (W.D. Wisc. Nov. 22, 2013)

Peter Reilly provides background, and the TaxProf has a roundup.

 

EFTPSDo you know whether your payroll taxes are up to date?  Some Texas businesses learned the hard way they are not.  Courthouse News Service reports:

A Texas businessman admitted his role in a $133 million payroll scam that prosecutors called the largest fraud in San Antonio history.

Charles Pircher, 61, pleaded guilty Thursday to tax fraud conspiracy and mail fraud conspiracy. He faces up to 20 years in federal prison on the tax charge and up to 5 years for mail fraud…

Pircher managed several San Antonio-based professional employer organizations. From 2002 to 2008 they entered into staff leasing agreements with client companies to manage payroll and insurance programs.

If you use a “professional employer organization” for your payroll service, you may not be able to be sure.  PEOs typically operate as the nominal “employer” of their clients’ employees, so all employees are reported under the PEO’s number.  That makes it impossible for clients to go online on EFTPS, the Electronic Federal Tax Payment System, to check that their payroll taxes are being paid.  PEO clients need to find other ways to be sure their tax payments are getting made, as the IRS will still want their money from the “real” employer if the PEO pockets funds provided to make the payments.

 

Jana Luttenegger, IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog)

TaxProf, The IRS Scandal, Day 200

Kay Bell, Senate Finance chair wants to hear your tax reform thoughts

Paul Neiffer, Senate “Pool” Process to Increase SE Taxes? Sales of equipment would no longer be exempt.

Annette Nellen, California advertising its use tax

Scott Drenkard,  The Tax Bite on Thanksgiving Travel (Tax Policy Blog)

Tony Nitti,  As New Jersey Prepares To Launch Internet Gambling, Congress Has Plan To Tax The Industry

 

Russ Fox wisely advises us Don’t Try This at Home.  He quotes from a Department of Justice Press Release:

If clients were audited by the IRS, THORNDIKE would provide them with blank Goodwill receipts as well as instructions as to how they should create a list of charitable donations that would correspond with the donation value THORNDIKE had entered on their returns. He also would direct his clients to create mileage logs that would support deductions he had entered for employment-related travel.

You need to prepare the return based on the documentation, not the other way around.

 

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Tax Roundup, 11/19/13: Sub-zero edition! And the dark side of non-recourse debt forgiveness.

Tuesday, November 19th, 2013 by Joe Kristan

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Tax Court says you can’t go below zero.  At least not in computing penalties.

A taxpayer filed a return showing no tax, but claiming refundable tax credits that generated a refund of $7,327.  That’s why refundable credits are such a sweet deal — you can get a refund of taxes without ever paying them through withholding or estimated taxes.  They are really a form of welfare.

The IRS issued the refund as claimed, but then thought better of it.  The IRS recomputation was that the taxpayer should have showed a positive tax balance of $144.  That meant the taxpayer was supposed to repay the $7,327 refundable credit plus the $144 tax due, for a total of $7,471.  The IRS assessed the difference, plus a 20% penalty on the $7,471 “underpayment.”  The taxpayer didn’t think refunding the refundable credit counted as an “underpayment, and the case went to Tax Court.

The tax imposes an “accuracy related” penalty on deficiencies, based on how much the taxpayer underpays the “tax required to be shown on the return.”  The IRS said the underpayment was the whole $7,471.  The Tax Court said that refundable credits can’t take the tax below zero for this purpose, so the “underpayment” is only $144 for computing the penalty.

 

This seems wrong.  Refundable credit fraud — especially Earned Income Tax fraud — is a multi-billion-dollar problem.  If there is no monetary penalty for claiming bogus credits, the only deterrent for gaming the system is criminal penalties, and given the limits on the IRS ability to prosecute EITC fraud, it’s an empty threat.

The Tax Court seems to agree:

We note that our conclusion breaks the historical link between the definitions of a deficiency and an underpayment; however, it was Congress that made that break.

If the case holds up on appeal, Congressional action is all that can fix it.

Cite: Rand, 141 T.C. No. 12.

 

Peter Reilly, IRS Letter To Senator Boxer On Short Sales Not Good News For Everybody

I hate to spoil a nice celebration, but I am going to risk it.  The position that the IRS outlined in the ruling is probably good news for most people affected by it.  It may not be good news for everybody, though.  In order to understand why you have to understand the IRS reasoning.  Here is the deal.  When debt is secured by property, it is either recourse or non-recourse…

The effect of that section is to make just about all California home mortgages non-recourse…  There are various exceptions to recognizing debt discharge income, such as the insolvency exception.  These will no longer be available.  

When you give up a house for non-recourse debt, you are considered to sell it for that amount.  That can be a bad thing.   If you don’t qualify for the residential gain exclusion — say, because you haven’t used it as a residence long enough to qualify, or you bought the house to rent — you can have taxable gain, no cash, and no available debt forgiveness exclusion.

 

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.

 

Alan Cole, High Implicit Marginal Tax Rates Make Life Difficult for the Poor (Tax Policy Blog):

The CBO did a great study on this a year ago. It found that the implicit marginal tax rates on some poor folk are frequently above 50%, and sometimes above 80%. That is to say, that when they figure out how to increase their income by a $100, they lose $50 or more in new taxes or lost benefits. 

That’s exactly the sort perverse effect that results from the increase in Iowa’s earned income tax credit, which by itself can put low income taxpayers in a 50%+ bracket.  Take away other benefits and you can see how it could get to 80% or more.

 

Sioux City Journal, Branstad declines to issue a gas tax veto threat.  Probably because he’d like a higher gas tax, even though he likes being re-elected too much to push for one.

 

Ben Harris,  Sorting Through The Property Tax Burden (TaxVox):

Using self-reported American Community Survey data, we find that residential property taxes tend to be close to $1,000 per year, with a small share of households paying substantially more, especially in Connecticut, New Jersey, New York and New Hampshire. In recent years, 48 percent of homeowners paid between $750 and $1,750 in property taxes. About one-third—31 percent—paid less than $750 and 21 percent paid more than $1,750.  Just 3 percent paid more than $4,000, with a miniscule share of homeowners (0.2 percent) paying more than $8,000. 

That seems low, but my clients probably aren’t a representative sample.

 

Jason Dinesen, Missouri Guidance on Same-Sex Marriage

 

Kay Bell, Missouri recognizes same-sex marriages for tax filing only20130121-2TaxGrrrl, Black Market Tax Preparers Continue To Defy IRS :

The solution for tax preparers who didn’t want to register and pay the fee? They simply don’t sign the returns.

And yes, that’s against the rules. But a number of paid tax preparers do it anyway. They are referred to in the business as “black market preparers” or sometimes, “ghost” tax preparers.

And that will happen no matter what regulations the IRS imposes on honest preparers.

 

William Perez, Tax Provisions Expiring at the End of 2013

Tony Nitti, House Republicans Put Tax Reform On Hold To Revel In Obamacare Struggles

I really don’t expect to receive tips from clients–it’s not the norm for tax preparation. I definitely don’t expect to receive $1,458,905 in such gratuities.  

I can’t say I expect that either.  But I would be OK with it!

TaxProf, The IRS Scandal, Day 194

Robert D. Flach brings the Tuesday Buzz!

 

The Critical Question: Are Jamaican Credit Unions The Next Tax Haven?  (Brian Mahany)

AOL? Prodigy? Attorney’s License to Practice Law Is Suspended for Failing to Maintain an Email Account  (TaxProf)

 

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