Posts Tagged ‘Russ Fox’
Monday, April 1st, 2013 by Joe Kristan
Flickr image courtesy Sean MacEntee under Creative Commons license
April Fools day is a challenge for tax bloggers. No matter how outlandish an idea you have for a joke story, chances are that the legislation has already been proposed. Today’s challenge: Real tax headlines are mixed with fake ones from today’s Tax Policy Blog. Can you pick the real fakes without peeking?
A. Protecting Consumers by Eliminating the Business Deduction for Advertising
B. Could tax breaks keep psychiatrists in Iowa?
C. Proposal would give artists tax credit for fair market value of donated work.
D.President Obama Backs Proposal to Legalize Marijuana, Tax Junk Food
E. Could Taxing Violent Video Games Actually Save Lives?
F. Senator backs off tax on condoms, contact lenses
G. Following Cyprus Lead, Senator Proposes Tax on “Everyone Else”
H. Mexico Considers Border Fence to Halt Californians Fleeing High Taxes
I. California politician proposes tax on email
Answers at bottom of post.
In fact, the research activities credit is noteworthy for its excessive cost — more than $45 million each of the past three years — and the lack of any demonstration of a public benefit. This giveaway is so loosely managed that companies are not even required to disclose how many jobs are related to the taxpayer cost, let alone demonstrate that the jobs would go away without the subsidy.
Related: Your tax dollars at work for somebody else.
David Brunori gets righteous on the “incentives” industry in today’s Tax Notes (unfortunately for subscribers only):
Incentives are inequitable. They’re unnecessary — and hence a waste of money. They distort markets. They breed cronyism. If the players involved weren’t establishment politicians, household name corporations, and prestigious law and accounting firms, we’d describe them as grifters.
Why wouldn’t we describe ”establishment politicians, household name corporations, and prestigious law and accounting firms” as grifters? Redundancy?
Here’s a new one. A Pakistani company, the Fatima Group, would like to open a fertilizer plant in Indiana. The company, which for all I know makes the Cadillac of fertilizer, is seeking both federal and state incentives to build its factory. The twist is that the Fatima Group’s fertilizer has been used in 80 percent of roadside bombs in Afghanistan. That’s awkward.
Right now Iowa seems to lead the world in fertilizing fertilizer companies with tax money. No doubt explosive growth is just down the road.
Lawrence Zelenak, Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax (via the TaxProf). I’m ready to see if absence might make the heart grow fonder.
Don Beaudreax takes Mr. Zelenak’s thinking to its logical conclusion:
If spending time and effort connecting with tax collectors helpfully “draws our attention to our duties as citizens,” then tax withholding short-circuits that attention. So why not eliminate withholding and oblige each income earner to pay every cent of his or her tax bill by writing personal checks to the IRS? Not only would elimination of withholding make us even more attentive to our “duties as citizens,” we would also – as any behavioral economist would point out – gain a truer and more fully felt sense of the price we pay for Uncle Sam’s splendors.
Reading Don Beaudreax Cafe Hayek blog for one week will make you smarter than all of Iowa’s legislators combined.
Russ Fox begins his annual countown of bad tax ideas with Bozo Tax Tip #10: Report Income That You Didn’t Earn
William Perez, April 1st Deadline to Take Required Minimum Distributions for 2012
Kay Bell, IRS loses latest round in tax preparer regulation lawsuit
Brian Strahle, New York “Amazon Law” Ruled Constitutional: But Wait, There’s More
Trish McIntire, Return Is Done but you Owe.
Peter Reilly, First Circuit Tells Tax Court To Look Harder For Fraudulent Transfer
TaxGrrrl, Taxes From A To Z (2013): P Is For Passive Activity Rules
David Cay Johnston, Spam and Taxes (Tax.com)
Howard Gleckman, Is This a Good Time to Reform the Mortgage Interest Deduction? (TaxVox)
Zumba instructor finds way to draw men to her studio. From RegisterCitizen.com:
The dance instructor who used her Zumba fitness studio as a front for prostitution faces jail time after pleading guilty in a case that captivated a quiet seaside town known for its beaches and picturesque homes.
The plea agreement, which calls for a 10-month sentence, spares Alexis Wright from the prospect of a high-profile trial featuring sex videos, exhibitionism and pornography. She’s scheduled to be sentenced on May 31.
Wright quietly answered “guilty” 20 times on Friday when the judge read the counts, which include engaging in prostitution, promotion of prostitution, conspiracy, tax evasion and theft by deception.
Remember, just because they pay in cash doesn’t make it tax-free.
News you can use. “Just Go Rob the H&R Block Instead, Their Computers Are Nicer” (Going Concern)
Fakes: A, D, G, H.
Tags: Brian Strahle, corporate welfare, David Brunori, David Cay Johnston, Don Boudreaux, economic development, Going Concern, Howard Gleckman, Iowa research credit, Kay Bell, Lawrence Zelenak, Mike Owen, Peter Reilly, Russ Fox, tax crime, TaxGrrrl, Trish McIntire, William Perez, Zumba
Posted in Tax Reform | No Comments »
Monday, March 25th, 2013 by Joe Kristan
Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)
Heresies of the Cargo Cult. When some remote societies encountered the industrial world in World War II, they had trouble grasping what they were seeing. Wikipedia explains:
Cargo cult activity in the Pacific region increased significantly during and immediately after World War II, when the residents of these regions observed the Japanese and American combatants bringing in large amounts of matériel. When the war ended, the military bases closed and the flow of goods and materials ceased. In an attempt to attract further deliveries of goods, followers of the cults engaged in ritualistic practices such as building crude imitation landing strips, aircraft and faux radio equipment out of bamboo or whatever materials they had at hand, and mimicking the behavior that they had observed of the military personnel operating there.
While it’s easy to mock an islander for building a refrigerator-like box in hopes of conjuring up an icy six-pack, cargo cult behavior also occurs in modern societies. Without describing it as such, tax historian Joseph Thorndike writes about the cargo cult of the 1950s, where modern policy wonks try to conjure up 1950s-style growth through a ritualistic process of duplicating tailfin-era totems. For example, Timothy Noah thinks the crushing stated top marginal rates of that era might help generate those Happy Days results. Mr. Thorndike sees problems with that approach:
We still don’t know if high statutory rates and (relatively) high average rates were a drag on growth. And we can’t know, because we also can’t know what growth might have been in a different tax climate.
Moreover, a range of nontax factors were probably more important in shaping growth patterns in the 1950s. In particular, the economic disruptions of World War II had left the United States in a uniquely dominant position; by one estimate, U.S. manufacturing output constituted 60 percent of the world’s total in 1950.
In other words, it takes more than a bamboo box to conjure up that beer.
After all, the tax system of the Eisenhower era was not a very good one: It paired notionally sky-high rates with a deeply flawed tax base and created distortions both coming and going.
I understand that progressives like Noah are fighting a different battle: They are trying to beat back the rate-cutting mania that often serves as a definition of tax reform these days. But I think we might take a lesson from the tax experts of the 1950s, who understood the problems bedeviling their own tax system. As economist Harold Groves said at the time, “The impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that makes these rates specious.”
Mr. Thorndike is more sympathetic to high rates than I ever will be. Doing taxes for a living, I see first-hand how high rates affect behavior, and I have no patience for academics who say otherwise. But he wisely notes that simply trying to recreate the totems of the 1950s, like high tax rates, misses all of the other things that put cold beer in the refrigerator. Same thing goes for other 1950s fetishes like tail fins, industrial unionism and defined benefit pension plans.
To serve and protect. Former Pittsburgh Police Chief Charged with Conspiracy, Failure to File Federal Tax Returns (FBI Press Release):
Former Pittsburgh Police Chief Nathan E. Harper has been indicted by a federal grand jury in Pittsburgh on charges of conspiracy and willful failure to file income tax returns, U.S. Attorney David J. Hickton announced today.
The five-count indictment named Harper, 60, of Pittsburgh.
According to the indictment, Harper was the chief of the city of Pittsburgh Police Department. From 2009 to 2012, he caused at least $70,628.92 in checks and cash received by the special events office of the department to be diverted to two accounts at the Greater Pittsburgh Police Federal Credit Union. Using Visa debit cards, Harper obtained more than $31,000 in ATM withdrawals and debit purchases, all for his personal benefit. Harper also failed to file federal tax returns for the years 2008 through 2011.
If he’s convicted, maybe the special events office can throw a little party for the occasion.
What could possibly go wrong? James Timothy Turner was convicted last week of masterminding a cunning plan. DothanEagle.com reports:
According to a U.S. Department of Justice press release, Turner was convicted of conspiracy to defraud the U.S., attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service, failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding.
The FBI began investigating Turner in 2010 after he and three other people sent packages to all 50 governors demanding they leave office.
Turner is the president of a group of what prosecutors called “sovereign citizens” known as the “Republic for the united States of America.”
Send “packages” to all of the governors telling them to resign? Well, at least they weren’t trying to hide what they were doing.
Turner toured the country in 2008 and 2009 teaching seminars that instructed attendees how to submit bonds to pay off tax debt.
According to prosecutors, these bonds were completely fictitious and often written for amounts in excess of $1 billion.
Silly man. Only the Federal Reserve can do that. Unless we’re talking about the $1 trillion magic coin…
Every theater needs a dirctor, including economic development theater. Economic development director accuses senator of engaging in “political theater” over Orascom deal (O. Kay Henderson, via TheBeanwalker)
William Perez, Penalty Relief Available for Some 2012 Federal Tax Returns
Jack Townsend, Ethicist Question About Tax Professionals Exploiting Loopholes:
So, for those tax professionals engaging in such transactions that they know violated a known legal duty, their conduct is illegal and unethical. For those transactions engaging in such transactions where they don’t know (perhaps are willfully ignorant) that the conduct is illegal (ultimately most of the b—-t tax shelters are found to be
illegal), then at least the ethical issues arise. These are smart professionals, paid (supposedly) to predict what a court will do with the b—–t tax shelter. Yet, in the prominent civil cases that swat down b—–t tax shelters, they fail miserably in their predictions.
Kay Bell, A tax lawyer has ethical problems with tax loopholes
Janet Novack, How Much Tax Will You Owe On A $320 Million Powerball Jackpot? A Lot More Than In 2012 . I knew I should have arranged to win that Powerball last year.
Jim Maule, Tax Meets the Chicken and the Egg
Trish McIntire, Extensions
Patrick Temple-West, Athletes’ tough tax bills, and more
TaxGrrrl, Senate Passes Budget, Calls For Nearly $1 Trillion In Tax Increases
You are required to go to the party. The Affordable Care Act Turns 3 (Richard Morrison, TaxVox).
The Critical Question: Who Will Play Margaret Fuller When The Movie Comes Out ? (Peter Reilly)
Tony Nitti, IRS Employees’ Star Trek Parody Is As Wonderfully Awful As It Sounds
Russ Fox, To Boldly Go Where No IRS Employee Has Gone Before…
You mean it’s not a documentary? IRS Releases Gilligan’s Island Parody Training Video (TaxProf).
Frankly, they don’t give a dam. Beavers defiant after convicted of tax evasion (Chicago Tribune)
Tags: Anthony Nitti, Beavers, cargo cult, Jack Townsend, Janet Novack, Joseph Thorndike, Kay Bell, maule, O Kay Henderson, Patrick Temple-West, Peter Reilly, Richard Morrison, Russ Fox, soverign citizens, tax crime, tax protesters, TaxGrrrl, TaxProf, Timothy Noah, Trish McIntire, William Perez
Posted in Tax Roundup | No Comments »
Friday, March 22nd, 2013 by Joe Kristan
IRS waives late payment penalties for returns containing delayed forms. If you can’t file or pay taxes on time, it’s always better to extend your return while you round up the information or the cash. The penalty for filing a late unextended return is 5%, plus an additional 5% for every additional month of late filing. The penalty for paying late on a timely extended return, in contrast, is only 1/2%, plus 1/2% per additional month.
While penalties will be waived, the IRS will charge interest on amounts paid after the deadline.
The notice has a complete list of forms that allow taxpayers to qualify for the late payment exception. The most commonly-seen ones are probably Form 4562, for depreciable assets and the section 179 deduction, and Form 8582 for passive activities.
By issuing this notice early, the IRS has also given taxpayers a planning opportunity. If you have a big balance due on April 15, and you have one of the qualifying forms, you now are eligible for what amounts to a low-interest loan for up to six months, until the October 15 extension deadline. Many taxpayers accelerated income into 2012 to beat the 2013 tax hikes, and they loan might come in handy. The current IRS interest rates:
- three (3) percent for underpayments;
- five (5) percent for large corporate underpayments
But if you have the cash, you probably want to pay up on April 15. There aren’t many places left where you can get a 3% after-tax return on your money for six months.
In a just world, they could sue Congress and the IRS. TurboTax, other Intuit products, now OK to use in Minnesota; H&R Block facing lawsuits over filing snafu, refund delays (Kay Bell)
The tax law is still broken, though. Minnesota Revenue Department Announces TurboTax Problems Have Been Fixed (William Perez)
William McBride, UK Dropping Corporate Rate to 20 Percent, Half the US Rate (Tax Policy Blog). It makes a difference.
Peter Reilly, International Flight Attendant Does Not Score As Well As Sergio Garcia In Tax Court
Ben Harris, Automatic Retirement Saving Inches Forward (TaxVox)
Roger McEowen, Another Development In The Tax Implications of Insurance Company Demutualization
Janet Novack, New Study Using IRS Tax Data Shows Rich Are Staying Richer, Poor Poorer
Jim Maule, So How Does This Tax Plan Add Up?
Howard Gleckman, Why the Tax Cuts in the Senate Budget Don’t Add up (TaxVox)
David Cay Johnston, Level Playing Fields Under Attack. (Tax.com). Because we don’t want Wal-Mart to be at the mercy of some guy selling stuff from his basement.
Patrick Temple-West, Senate votes on tax hikes in budget, and more (Tax Break)
TaxGrrrl, You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure. I’m sure that makes other foreclosed folks feel better.
The road not taken. I left a national accounting firm to start a new firm. A (purported) alumna of the same firm took a somewhat different path. (Going Concern)
Guilty. Dam Guilty. Beavers Convicted: Loans Require Payback (Russ Fox).
Tags: Ben Harris, David Cay Johnston, extensions, Form 4868, Going Concern, Howard Gleckman, Janat Novack, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Roger McEowen, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Thursday, March 21st, 2013 by Joe Kristan
Most people would say that making low-income taxpayers pay a higher tax rate on each additional dollar they earn would be a funny way of “helping” the poor. Yet that’s just the approach of a bill passed yesterday by the Iowa Senate to raise Iowa’s earned income tax credit (SF 422). The bill would raise the Iowa earned income credit from current 7% of the federal credit to 20%.
The credit phases out as income increases; that means taxpayers who receive the credit have a high hidden tax rate on additional income — their regular tax rate, plus the lost earned income credit. That gives them higher tax rates than the highest earners on each additional dollar of income. Here is a new chart showing the marginal tax rates on an EIC recipient with three children as income rises under SF 422:
The marginal Iowa tax rate on EIC recipients would be around 10%. That compares with an effective rate of just over 6%, counting the deduction for federal taxes, for Iowa’s highest earners. Combined with the federal effective phase-out rate, the EIC earners face marginal rates over 50%. That makes the EIC a poverty trap.
The EIC is a “refundable” credit — which means that if you don’t have enough tax to use the credit, the government writes you a check for the difference. That makes it a welfare program, not a tax cut. Yet the press often gets this wrong:
Omaha.com: Iowa Senate OKs tax cuts for low-income families
KCRG.com: Iowa Senate Approves Tax Break for Low-income Families
Spending is still spending, even when it’s run through a tax return. This spending, though, is likely to get no further; even if the House passes this – very unlikely – the Governor vetoed a similar bill last session.
Cara Griffith, A Culture of Mistrust (Tax.com):
I recently spoke at a conference about transparency in state tax administration. Among other issues that were discussed, I suggested that there is a culture of mistrust between taxpayers and practitioners and state tax officials. When I suggested that the feeling was one of “us” vs. “them,” heads began to nod and many mouthed a silent yes. It
confirmed what I already knew: the culture of mistrust between taxpayers and state tax officials is very real.
…
But state tax authorities seem to perpetuate the culture of mistrust, in part because they have a tendency to play “hide the ball.” That is, they don’t let taxpayers in on the rules by which they are expected to play. The reason is that state taxing officials have a significant amount of discretion to adjust taxpayer incomes yet they don’t provide aroadmap for how and when that discretion will be used.
So true.
In other news:
Me: Taxpayer gets basis of 60% of IPO price in demutualized shares in Arizona case. Taxpayers don’t win it all, but still a defeat for the IRS.
Russ Fox, When a W-2G (or Other Information Return) Is Wrong. It happens.
Kay Bell, Tax penalty relief for some who file for an extension
TaxGrrrl, Taxes From A To Z (2013): K Is For Kidnapped Children
Donald Marron, TPC’s Upcoming Leadership Change (TaxVox)
Ellen Kant, U.S. Corporate Tax Rate Fails to Move with Competition (Tax Policy Blog)
Patrick Temple-West, Tax reform spurs bipartisan lobbying, and more
William Perez, Senate to Begin Tax Reform Hearings
Jack Townsend, Acquittal in Pflueger Involving Offshore Accounts.
David Brunori, Everybody Loves a Drone (Tax.com)
News you can use: Internal Controls Are of the Devil (Or: Why Stealing from the Catholic Church Is So Easy) (Going Concern)
Tags: Cara Griffith, Donald Marron., Earned Income Tax Credit, Going Concern, iowa tax policy, Jack Townsend, Kay Bell, Patrick Temple-West, Russ Fox, TaxGrrrl, William Perez
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Monday, March 11th, 2013 by Joe Kristan
The 1040 filing deadline is five weeks from today. The 1120 and 1120S deadline is this Friday. The penalty for filing an 1120-S late is $195 per shareholder, with the penalty repeated each additional month the return is late. Proceed accordingly.
A Des Moines tax lawyer lets us know what we are in for: Just a Little Bit More? Yeah Right. Get Ready to Pay More Taxes in 2013 (William Brown). He illustrates what will happen to one of his clients, “Fred,” when he pays his 2013 taxes:
Fred’s federal taxes have increased by 9% with no change in his earnings. If Fred does not increase his distributions from his business to pay these increased taxes, his disposable income will decrease by 19%. Might these increased taxes have no substantial impact on the prospects of his small business and its employees? Not a chance.
Read the whole thing. Related: Phil, we have altered the deal. Pray we don’t alter it further.
David Cay Johnston pushes for harsher accumulated earnings tax. As I predicted, we’re starting to see people pushing for enforcement of the Accumulated Earnings Tax to deal with the pretend problem of corporations “hoarding” cash. Mr Johnston takes the podium in an (unfortunately gated) article in Tax Notes:
American nonfinancial corporations held more than $2.2 trillion of cash and near cash offshore at the end of 2010 in current dollars, IRS and Federal Reserve data shows. And that is on top of the almost $1.7 trillion of liquid assets owned by firms and subsidiaries with U.S. addresses that we will see when the 2012 corporate income tax data becomes available in a few years. That global cash and near cash pile of almost $4 trillion came to $12,600 per American — well more than triple the $3,500 in per capita federal income tax revenues that year.
There is no possible business justification for that much cash. As Tax Court Judge David Laro wrote in Haffner’s Service Stations Inc. v. Commissioner, T.C. Memo. 2002-38 “a need to retain earnings must be directly connected with the needs of the corporation itself and must be for bona fide business purposes.”
No “possible” business justification for that much cash? It’s pretty easy to come up with potential justifications. If you are a corporation sitting on a lot of cash, you have a lot to think about. You have unusual opportunities, which you need to evaluate carefully. The imposition of the shareholder-level tax on earnings is certainly a factor. Does that mean I trust corporate management and boards? No. But I trust them a lot more than second-guessers at the IRS.
The Judge Laro cite that Mr. Johnston uses only restates the legal background of the accumulated earnings tax — not the economics of it.
If you want to really encourage corporations to free up their cash, end the double-taxation of corporate income by allowing full deductibility of dividend payments — with an excise withholding tax on non-profit and non-U.S. distributees to ensure the income is taxed once. That will give corporations a powerful incentive to distribute cash they aren’t using – one that will work a lot better than beefing up the IRS Second-Guess Division.
Update: Mr. Johnston e-mails:
I have written in favoring of restoring tax-free dividends for modest sums or encourage savings, partly because most Americans have little saved in the tax system and even though only one in four gets dividends directly: [$link Ed.]
And I called for a two-year test of dividend deductions in this column a few months later, arguing that dividends have the virtue of separating actual value-added managers from those who play accounting games since you need need cash to make dividend payouts. [gated links here and here. Ed.].
Unfortunately I don’t have links to free versions of the original articles.
Related: Garett Jones, Redistributing from Capitalists to Workers: An Impossibility Theorem, on why the economically-optimal rate of tax on capital is zero. (Econlog)
No more paper Internal Revenue Bulletins. The IRS has discontinued its old paper Internal Revenue Bulletin, where it published tax guidance. From Announcement 2013-12:
The IRB is available on IRS.gov before printed copies are available. Also, the majority of items (about two-thirds) that appear in the IRB are released with a News Release about a month ahead of when the item appears in the IRB. Since all items in the IRB are available electronically, almost a month in advance of being available in the printed IRB, we are eliminating the printing of paper copies of the IRB, which are distributed directly from the IRS. The cost savings to printing and postage would be $148,000 annually.
It makes sense. Another bit of my accumulated tax training goes the way of the Dodo.
Russ Fox, If You’re a Sole Proprietor, Get an EIN…Now!. Otherwise it’s too easy to get your identity stolen.
William Perez, Minnesota Revenue Department Finds “Unacceptable” Errors in TurboTax.
TaxGrrrl, IRS Explains Delays In Processing Some Returns Claiming Education Credits
Kay Bell, Federal workers owe $3.5 billion in back taxes; Expect renewal of legislative efforts to fire federally-employed tax debtors. Some people don’t buy the “better to give than to receive” thing.
Brian Mahany, IRS Begins Rejecting OVDI Filings – Important News For Fence Sitters
Jack Townsend, Bank Leumi U.S. Clients Rejected from OVDP
Robert Goulder: Taxation & Morality: Odd Bedfellows (Tax.com)
Peter Reilly, Render Unto Caesar – Mormon Tithe Not A Necessary Expense In IRS Collection Case
Patrick Temple-West, Tax haven hunter Levin to retire, and more
The Critical Question: Who Are Your Tax Policy Friends? (Jim Maule)
Going Concern, No, We Can’t Help You Pass the Ethics Exam. When I took it, it was mailed to successful CPA candidates to do at home and mail in. No wonder there are no ethical problems with our generation. Oh, wait…
Tags: Accumulated Earnings Tax, Brian Mahany, David Cay Johnston, Garett Jones, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Robert Goulder, Russ Fox, TaxGrrrl, The Critical Question, William Brown, William Perez
Posted in Tax Roundup | 1 Comment »
Friday, March 8th, 2013 by Joe Kristan
Illegal procedure. Former Chicago Bear Chris Zorich has been flagged. CBS Chicago reports:
Zorich, 43, was charged Thursday with four misdemeanor counts of failing to file federal income tax returns, for the years 2006 through 2009, according to the U.S. Attorney’s office. During that time, he allegedly had an income of more than $1 million.
Federal prosecutors said Zorich was cooperating with the investigation and has agreed to plead guilty.
His lawyer says that he owes no more than $70,000 after withholding on the non-filed years is applied.
I wonder why he was charged. While it’s a bad idea, it’s not extremely rare for people to just get behind on filing their returns. It doesn’t usually lead to criminal charges. Much of his income for the years at issue was W-2 income, so it wasn’t as though the IRS would miss him.
Perhaps he did something to annoy an examiner enough to call in the Criminal Division. Maybe it’s because he is an attorney [update: he apparently never passed the bar exam]. Or maybe he’s just unlucky to be famous-enough for the IRS to use his celebrity to frighten the rest of us into getting our returns done. (Via Reason 24/7)
Update: This Chicago Tribune report suggests that self-dealing with his charitable foundation may have been a factor.
In other tax crime news:
Jack Townsend: Article on Deterrence Through Criminal Enforcement and Defining Tax Shelters
Miami Vice: Two Miami Officers Accused Of Tax Refund Fraud (CBS Miami)
William Perez, Tips for Preparing Form 1040-EZ
Janet Novack, IRS Yanks Criminal Amnesty Deal From Taxpayers With Secret Bank Leumi Accounts. If the IRS turns on taxpayers who turned themselves in under an amnesty, not many folks will participate in another one.
Russ Fox, When the IRS Changes the Rules Midstream in a Legal Matter…
J.D. Tuccile, As Government Grasps For Taxes, Brace for an Unwinnable War Against You (Reason.com). It’s a long-form essay on the way getting all sorts of social services from the government doesn’t make people happy to pay their taxes. This is interesting:
Those who think tax increases alone can solve our ongoing fiscal disaster are just kidding themselves.
Paul Neiffer, What Are W2 Wages for DPAD? You have to have paid W-2 wages to use the Section 199 deduction. But they don’t all work:
These wages cannot include wages paid to your children under age 18 (if a sole proprietor farmer) and commodity wages. However, wages paid in cash to spouses and children over age 17 are allowed as part of these wages.
If you are a schedule F farmer with no employees, the W-2 requirement makes the Section 199 deduction worthless.
Jim Maule, Selecting a Tax Return Preparer. All sound advice, including this:
Seventh, ask the tax professional about data security. Where and how is paper data stored while in the hands of the preparer? Where is the digital data stored? What precautions are in place to minimize the chances of a third party breaking into the office or the digital servers and obtaining information? If the individual hands over paper records without keeping copies, which is an unwise move, what happens if the tax professional’s office burns down?
Something to think about.
Nanette Byrnes, State defections impact U.S. interstate tax compact (Tax Break)
TaxGrrrl, Taxes From A To Z (2013): D Is For Disaster Relief
William McBride, Latest IRS Data Shows Taxable Returns Remain Below 1997 Levels (Tax Policy Blog). The income tax burden falls on fewer and fewer returns.
Howard Gleckman, Build America Bonds, the Medicaid Expansion, and Trust Between the States and the Feds
Tony Nitti, Congress Looks To The Wealthy To Bail Out Social Security. But the rich guy isn’t buying.
If you ever wonder why California is the Titanic of state governments, you might want to read Kay Bell’s latest, Tax on email suggested as way to help fund U.S. Postal Service:
Berkeley City Councilman Gordon Wozniak has tossed out the idea of an email tax to help save snail mail.
The financial straits of the U.S. Postal Service became an issue for Berkeley lawmakers when the paper mail delivery system proposed closing that northern California city’s downtown post office and selling the building.
It won’t happen, but a state where somebody who thinks it could happen can be elected to public office is pretty much doomed.
Tags: Anthony Nitti, Chris Zorich, Howard Gleckman, identity theft, J.D. Tuccile, Jack Townsend, Janet Novack, Kay Bell, maule, Nanette Byrnes, Paul Neiffer, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Wednesday, March 6th, 2013 by Joe Kristan
Tax tip: IRS doesn’t buy this numerology stuff. A strange story out of New York:
A tailor who counted star athletes including Rickey Henderson and Wilt Chamberlain among his clients has pleaded guilty to skirting about $2 million in sales and income taxes.
Mohanbhai Ramchandani pleaded guilty on Tuesday, state Attorney General Eric Schneiderman said. His company, Mohan’s Custom Tailors Inc., also has had local stars Patrick Ewing and Darryl Strawberry among its clients and made an appearance on Bravo’s “The Real Housewives of New York City.”
The charges say that he failed to pay $1.7 million in sales taxes starting in 2001, and he failed to pay $256,000 of income taxes from 2007 through 2009. I didn’t know tailoring could be so lucrative. But this is unusual:
Authorities said a whistle-blower first raised concerns over Ramchandani’s tax practices. They said one indication of fraud was the use of numbers on his tax forms that added up to multiples of 10, an outgrowth of his belief in numerology.
Once in a while you prepare a return that happens to foot to a round number somewhere. It looks funny, but it will happen occasionally just by chance. But when they are all round, apparently the tax people might notice.
As strange as Mr. Ramchandani’s approach to numbers is, Iowa gives him a run for his money. Iowa’s lead tax credit pusher, Debi Durham, has issued a press release touting the economic wonders of enormous tax credits granted Orascom, an Egyptian company, to build a fertilizer plant in Southeast Iowa. The release bases its conclusions on “ the Regional Economic Modeling Inc. (REMI) analysis for the Iowa Fertilizer Co. project.” From the release:
“The REMI analysis of the Iowa Fertilizer Co. project speaks for itself,” said Debi Durham, director of the Iowa Economic Development Authority (IEDA). “On the front end, Iowa Fertilizer Co. will inject $1.4 billion of capital investment into our state and create at least 165 permanent jobs and thousands of construction-related jobs. Now we know that the benefits of that project will serve Iowans for years to come.”
It speaks for itself and it says nothing. It says nothing about whether the project would have gone ahead without the credits, but Iowa’s claims that Illinois was hot after the plant with its own incentives lack credibility.
The analysis really betrays itself by omitting two key words: “opportunity cost.” It claims every projected benefit from the project without asking whether any benefits would be available if the money were used for something else. It certainly doesn’t say what Iowa loses by having a complex tax system with high rates to pay big subsidies to the well-connected.
I’ve said it before: using taxpayer money to lure businesses is like a guy taking his wife’s purse to the bar to buy drinks for the girls. It’s not impressive. They might let the guy buy the drinks, but they realize he’ll treat them like he is treating his wife if he gets the chance. And anybody he goes home with isn’t likely to be much of a prize.
Egypt taking a different approach to Orascom. The Orascom executives do better in Iowa than back home, reports SiouxCityJournal.com:
An Egyptian billionaire behind one of the largest and most controversial projects in the state is being investigated for tax evasion and has been barred from leaving his country.
According to an article published Tuesday in Construction Week Online, Orascom Construction CEO Nassef Sawiris and his father, Onsi Sawiris, are barred from travel until a resolution is reached regarding the sale of an Orascom subsidiary and the taxes from that sale.
As hard as it is to deal with Iowa and federal tax authorities, they are probably downright reasonable compared to Egyptian revenuers. I suspect that the “resolution” being sought is much like that sought by a kidnapper.
The TaxProf links to this from the New York Times Dealbook: Why Carried Interest Is a Capital Gain. It is as good an explanation as I’ve seen of why capital gain on private equity isn’t a crime against humanity:
Typically private equity investors are paid a 2% management fee, on which they pay ordinary income tax rates, and a 20% carried interest of the partnership’s profits that is only paid after limited partners receive a preferred return of 8%.
Carried interest, therefore, is the profits share on the sale of a capital asset and not “ordinary income” as some would have it treated. In other words, it is a capital gain within a partnership and is rightfully taxed at the long-term capital gains rate — provided that the asset, or company, is held for more than one year.
…
The underlying principle is no different than two friends who partner together to purchase a restaurant. One might bring capital and the other brings expertise. The restaurant could be in disrepair or a great concept that needs additional capital to expand. The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time. The friend has the capital to invest, but doesn’t possess the operational or investment skills to generate a return.
When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment. A private equity partnership works in the same way. This is Partnership Law 101.
Exactly. And it’s not like a salary, where somebody writes you a check. The private equity investor is taking a risk, and on any given investment is likely to get nothing. It’s not like, say, a tenured law school faculty paycheck that comes every two weeks.
It’s not just the rich guy? Obamacare Tax Increases Will Impact Us All (Andrew Lundeen, Tax Policy Blog).
Howard Gleckman, Changing Government’s Inflation Measure Would Raise Taxes as Much as it Would Cut Spending (TaxVox)
Jason Dinesen, Greatest Hits: Enrolled Agents, The Liechtenstein of the Tax World. ”When people hear ‘enrolled agent,’ they think either ‘what the hell is
that?’ or ‘he must work for the IRS, flee for your lives!’”
Anthony Nitti, Business Owners Could Find Their Tax Deferral Backfiring. Deferring income into higher-rate years works badly.
Russ Fox, Did the IRS Write Law? “I suspect the IRS has erred.” I agree, the IRS can’t change statutory rates to deal with budget issues.
Jack Townsend, Proposed New FBAR Form And Explanation
Brian Strahle, Will Maryland Match Virginia’s Corporate Income Tax Rate?
Patrick Temple-West, Tax-exempt bonds get scrutiny, and more
TaxGrrrl, Taxes From A To Z (2013): C Is For Carpooling
Robert Goulder, Will EITI Kill Transfer Pricing? (Tax.com). First ask yourself: what is EITI?
David Brunori, Remember the Alamo, Buy a Gun (Tax.com) On the unwisdom of sales tax holidays, even for guns.
ProTip: Don’t take your tax advice from rappers. This from Going Concern:
As you might expect, TMZ has the scoop and it quotes a number of artists who are currently considering tips for strippers as a legit deduction and therefore a serious tax strategy. And who doesn’t love creative tax planning? But how might they rationalize this idea?
Well, Bizzy Bone considers these young ladies to be like his family:
Bizzy Bone tells TMZ, “I’m giving charity to females who need their light bills paid. So, of course, that’s a write-off. You write off your kids, don’t you?”
Um, no. Mr. Bone might want to ponder the stories of Ja Rule, Fat Joe, and Beanie Sigel, to name a few, before he gets too smug about his tax deductions.
Tags: Andrew Lundeen, Anthony Nitti, Bizzy Bone, Brian Strahle, corporate welfare, David Brunori, Debi Durham, economic development, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Linda Beale, numberology, Orascom, Patrick Temple-West, Roburt Goulder, Russ Fox, tax credits, tax crime, TaxGrrrl, TaxProf
Posted in Tax Roundup | No Comments »
Tuesday, March 5th, 2013 by Joe Kristan
“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.
The Iowa income tax as Swiss Army Knife. The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week. The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.
SSB 1064 cleared the committee unanimously. After all, who would vote against the “Hire a Hero Tax Credit?” But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.
Nobody will hire an employee just to get a $1,500 tax credit. You hire somebody because you have work to do. Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500. It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.” Will the state really examine that? Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.
Still, why not make a nice gesture to show our voters how much we care? Because every feel-good tax break has a cost. It costs money to comply with and enforce. It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it. It makes a good tax system for everyone just a little bit harder.
The primary purpose of the tax law is to finance government operations. When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.
Swiss Bank corpse fined $58 million for tax cheating. The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes. Robert W. Wood has more.
Patrick Temple-West, Wegelin withers under U.S. tax scrutiny, and more (Tax Break)
While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards. While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:
In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”
What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.
Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.
Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.
William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog) “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”
Russ Fox, IRS Opens for All. We can e-file all the forms.
TaxGrrrl,IRS Now Accepting All Individual Returns
Paul Neiffer, IRS Announces They Are Processing All Remaining Tax Forms
Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s? (Tax.com). “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”
Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply
Linda Beale, Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work
Yes. Minnesota Tax Reform: Poorly Designed?? (Brian Strahle).
Kay Bell, Tax Carnival #114: March 2013 Tax Lions and Lambs
Good. Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern). If you want to do tax work for a living, why waste two years doing audit work that you hate?
I don’t condone the behavior, but I bet every bus driver dreams it. From WQAD.com:
Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.
According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.
The students were first graders from Iowa Falls. Nobody was hurt.
I might not make a very good bus driver. I’d probably always be racing…
Tags: Brad Birkenfeld, Brian Strahle, Going Concern, Grassley, iowa tax policy, Jack Tomwsend, Jeremy Scott, Kay Bell, Linda Beale, Patrick Temple-West, Paul Neiffer, Robert Wood, Russ Fox, Swiss Army Knife, TaxGrrrl, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, March 4th, 2013 by Joe Kristan
A federal judge Friday sentenced a key player in the once-lucrative Jenkens & Gilchrist tax shelter practice to eight years in prison. From the AP:
U.S. District Judge William H. Pauley III sentenced 52-year-old Donna Guerin, of Scottsdale, Ariz., after she pleaded guilty to conspiracy to defraud the United States and tax evasion. He ordered her to pay $190 million in restitution besides the $1.6 million she agreed to forfeit when she pleaded guilty in September.
Guerin, a former partner at Jenkens & Gilchrist, a Texas-based law firm with offices throughout the United States, had admitted that she helped market tax shelters from 1994 through 2004 to some of the world’s richest investors, including the late sports entrepreneur Lamar Hunt, trust fund recipients, investors, a grandson of the late industrialist Armand Hammer and one of the earliest investors in Microsoft Corp.
The biggest prosecution target at Jenkens, Paul Daugerdas, faces his second trial on the charges in September. His 2011 trial was voided because of juror misconduct.
Jenkens was one of the big players in the tax shelter industry that sprung up among big law and accounting firms in the 1990s. It shut down in 2007 after entering a non-prosecution agreement with the Justice Department.
Sort of related: Ernst & Young Admits That Some of Its Partners Were Running a Tax Shelter Factory (Going Concern); Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution (Janet Novack)
Robert Goulder, Questioning the Longevity of the Income Tax (Tax.com):
Dare we attempt to guess what the income tax might look like in another 100 years?
Personally I think it will still exist, but it will have company. The big question for policymakers is whether it should operate as a “mass” tax — as it strives to do today — or whether it will function as a “class” tax that applies only to the upper income strata. Given that roughly 47% of American households currently don’t pay the income tax (distinguished from payroll taxes, which almost everyone pays), one could argue it is already starting to resemble a class tax. Perhaps the future is already here.
I can state with some confidence that if there is an income tax in 2113, I won’t be preparing returns.
Jack Townsend, Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply. This is an ugly result caused by an in-house accountant who stole funds meant for payroll taxes. The Second Circuit overturned the Tax Court and held that the employee’s fraud meant that the employer’s statute of limitations never closed for tax assessment purposes.
Russ Fox has a helpful tip: A Sure-Fire Way to Get Indicted
There are many ways to get in trouble with tax law. As I have said in the past, if you want to get indicted it’s a bit harder. It helps to be a celebrity, have a very large tax debt, not report large amounts of funds in foreign financial accounts, or abscond with trust fund taxes. I need to add another item to that list: File liens against IRS employees who are investigating you.
For some reason, they respond badly to that.
William McBride, BEA: Personal Income Drops 3.6 Percent in January, the Most since the Clinton Tax Increase of 1993 (Tax Policy Blog). It wouldn’t be shocking if a lot of folks moved income up to 2012 to avoid the 2013 tax increases.
Kay Bell, Don’t forget about your traditional or Roth 401(k)
Paul Neiffer, When an UPREIT Might Make Sense
Trish McIntire, Catching Up On the News, a rundown of issues practitioners are running into during filing season.
TaxGrrrl, If You Qualify, File Your Taxes For Free
Tony Nitti, Competing Senate Bills Fail; Sequestration Is Here (For Now)
Howard Gleckman,Sequester, We Hardly Knew Ye (TaxVox)
Kaye Thomas, The Mindbending World of Wash Sale Calculations.
David Cay Johnston, Good News for Investors and Taxpayers (Tax.com)
Martin Sullivan, Red Hot REITs Fire-up Low Tech (Tax.com)
Peter Reilly, Time To Eliminate Joint Filing ? No, it’s not actually related to the next article.
News you can use. Leff: Medical Marijuana Providers Can Beat Oppressive Federal Taxes by Operating as Non-Profits. (TaxProf)
Tags: Anthony Nitti, David Cay Johnston, Ernst & Young, Going Concern, Howard Gleckman, Jack Townsend, Janet Novack, Jenkens & Gilchrist, Kay Bell, Kaye Thomas, Martin Sullivan, Paul Neiffer, Peter Reilly, Robert Goulder, Russ Fox, tax crime, tax shelters, TaxGrrrl, TaxProf, Trish McIntier, William McBride
Posted in Tax Roundup, Tax Shelter News | No Comments »
Friday, March 1st, 2013 by Joe Kristan
Post-sequester commuting.
So the sequester takes effect. That made my commute like “Mad Max,” where I threaded my car between craters on shattered, lawless roadways before picking up the office Friday bagels, ignoring les miserables begging for a bagel crumb outside the door.
Well, OK, it was like my usual Friday commute, but with snow. But we will keep our eyes open for the chaos we know is right around the corner!
Iowa Senate advances limited property tax bill. The Sioux City Journal reports:
Senate Study Bill 1136, which passed the Senate Ways and Means Committee on a 9-6 party-line vote, would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial property values above that threshold would be taxed at the current 100 percent rate.
$324,ooo isn’t really that much property for a business, even at Iowa property values. The Governor proposes to reduce the taxable value to 80% of the value for all commercial property over four years.
House GOP advances “flat tax” idea (Radio Iowa). The Iowa House Ways and Means Committee sent HF 3 t0 the House floor yesterday. The bill would enact an optional income tax of 4.5% of adjusted gross income; taxpayers could elect to file under the HF 3 system or Iowa’s current system.
I don’t see this as a serious effort to pass a bill, given the flaws in using AGI as a tax base that I have pointed out. It has next to no chance of approval in the Iowa Senate, controlled by Democrats. At best it’s an attempt to keep much-needed income tax reform alive at a time when the Governor seems only interested in property taxes. Maybe next time they’ll get serious and pursue The Tax Update Quick and Dirty Iowa Tax Reform Plan.
Russ Fox, Important Court Ruling for Entities Owned by Californians Located Outside of California. A California owner shouldn’t by itself make your corporation taxable there.
TaxProf, Dow Chemical Loses $1 Billion Tax Shelter Case
Brian Mahany, Dow Chemical Suffers Billion Dollar Tax Shelter Loss – Accounting Malpractice
Jack Townsend, Mr. Cummings’ Defense of Aggressive Tax Shelter Professionals
Kyle Pomerleau and William McBride, Another Misleading Analysis of Income Inequality (with Pictures!) (Tax Policy Blog). They call out David Cay Johnston.
Martin Sullivan, A Moral Obligation to Aggressively Lobby (Tax.com)
Signs of sequester apocalypse:
TaxProf, The Impact of Sequestration on the IRS
Kay Bell, Despite sequestration, IRS plans to continue filing season as planned, start accepting more updated forms next week
TaxGrrrl, IRS Won’t Delay Tax Season For Sequestration
Howard Gleckman, The Sequester is Not Too Big, It is Too Stupid
Patrick Temple-West, Obama sees leverage in tax fight, and more
Paul Neiffer, Farmers Should Be Able to File Tax Returns by Monday
The Saratogian, Rapper Ja Rule in New York City jail on tax evasion charges; scheduled for July release
Huffington Post: Matthew Bender, Detroit Tax Preparer, Charged with Fraud For Preparing False Returns. Really, since Lexis-Nexis pulled the plug, it’s been all downhill for him.
Going Concern, Let the sequester blamestorming begin!
Tags: Brian Mahany, Going Concern, Howard Gleckman, Ja Rule, Jack Townsend, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Russ Fox, sequestration, tax crime, TaxGrrrl, TaxProf, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Thursday, February 28th, 2013 by Joe Kristan
If Congress fails to act today, automatic spending cuts take effect that drastically reduce government outlays to more than they were last year. Some commentary:
Gene Steurle, How to Avoid Sequester and Give Both Parties What They Want (TaxVox)
Michael Giberson, Sequester Reporting Scavenger Hunt: Official Rules (Knowledge Problem): “If you find a news story emphasizing the pain of sequester budget cuts that also clearly indicates that alternatives such as raising taxes or increasing the national debt also cause pain, you are a winner.”
The last refuge of rich scoundrels. Patriotic Millionaires Slam Congress on the Sequester Stall (press release)
Fire and brimstone coming down from the skies! Boehner Tells Members They Have to Fly Commercial
Real wrath-of-God stuff. Potential effects of U.S. cuts on Iowans remain a mystery (Des Moines Register)
Kay Bell, Tax cheating is unacceptable, say most Americans
Joseph Henchman, Wisconsin Governor Walker Proposes Income Tax Reduction. He would leave the top rate at 7.75%. Still too high. It’s even above Iowa, if you take Iowa’s deduction for federal taxes into account.
Tony Nitti, House Republicans Take First Stab At Killing Off The Tax Code
Dan Meyer, Another Tax Season, Another Warning: Watch Out for “IRS e-mail” Scams
Russ Fox, Illinois’ Pension Problems Get Worse; Lottery Checks Bounce
Cara Griffith, Stealth Lobbying (Tax.com)
You’re as young as you feel. UBS Client, 78, Charged With Tax Evasion in Illinois Case (Bloomberg.com)
The worst part is, they don’t have PTINs or continuing education. IRS: Gang members stealing tax returns (ABC-7.com)
Tags: Anthony Nitti, Cara Griffith, Dan Meyer, Gene Steurle, identity theft, Joseph Henchman, Kay Bell, Michael Giberson, Patriotic Scoundrels, Russ Fox, sequestration, tax crime
Posted in Tax Roundup | No Comments »
Thursday, February 21st, 2013 by Joe Kristan
Wikipedia image
Bill Romanowski couldn’t have played 16 years in the NFL by defying his coaches. When he retired from the NFL, he appears to have become more difficult to coach. That led to a $13 million investment loss, plus loss of deductions, according to a Tax Court decision yesterday. Yet the Tax Court didn’t tack on personal foul accuracy-related penalties.
NFL players are notoriously bad at managing their money. One source says “By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.” Mr. Romanowski took a wise step to avoid this trap. From the Tax Court:
From the late 1990s until early 2004 petitioners employed a financial adviser, Kathy Lintz. According to Mrs. Romanowski, Ms. Lintz “Basically * * * took care of everything” regarding petitioners’ finances, including managing their portfolio and allocating them a monthly stipend. Ms. Lintz also collected relevant information from petitioners in order to have their tax returns prepared by a certified public accountant (C.P.A.) and reviewed the completed tax returns before sending them on to petitioners. Ms. Lintz is a certified financial planner, but she is not an accountant or an attorney.
As a result, the Romanowskis faced retirement with the ability to finance a $13 million investment. Then they decided to defy their coach.
According to the Tax Court, Ms. Lintz referred the Romanowskis to an attorney, a Rodney Atherton with Greenberg Traurig, LP, to deal with tax issues arising from a real estate investment in Colorado. That’s where things started to go wrong.
During October 2003 Mr. Romanowski met with Mr. Atherton at the Greenberg Traurig office in Denver. At the meeting they discussed petitioners’ real estate investment issues as well as certain other issues. Mr. Atherton told Mr. Romanowski about a horse-breeding business, ClassicStar, which had retained Greenberg Traurig in July 2003 in connection with certain transaction and tax issues, including review of a tax opinion ClassicStar had received from another law firm. ClassicStar was working with Mr. Atherton, among others at Greenberg Traurig, to review the tax opinion.
Unfortunately, according to the Tax Court, the attorney wasn’t just looking out for the Romanowskis:
Although he testified multiple times to the contrary, the evidence is clear that Mr. Atherton received improper payments from ClassicStar as a result of petitioners’ choosing to enter the program. Mr. Atherton claimed that multiple documents regarding payments he received from ClassicStar were sent to him (from ClassicStar) in error. Many of those documents were chain emails which contained conversations between Mr. Atherton and ClassicStar employees in which Mr. Atherton used terms such as “fee splits” and “percentage” when discussing the amount of money ClassicStar would pay to him or Greenberg Traurig for bringing people into the program.
The Romanowskis fell in love with the horse program, which appears to have been intended as a tax shelter from the outset, what with “NOL illustrations” for net operating loss refunds being provided in the process.
The financial planner saw it that way:
On February 4, 2004, Ms. Lintz resigned as petitioners’ financial adviser, partially because of petitioners’ investment in the program. Ms. Lintz’s resignation letter states that petitioners choose to “enter into an aggressive tax shelter”, presumably the [ClassicStar] program.
In other words, the Romanowskis stopped listening to Ms. Lintz’s coaching and called their own play, investing $13 million into ClassicStar (much of it borrowed). The rest is just predictable details. The program never had the thoroughbred horses that it claimed, using most of the funds to breed less-desirable quarterhorses — and the Romanowskis went along. Over time the program went bust and the Romanowskis lost their investment. And now, they have lost their tax deduction on hobby-loss grounds, with the Tax Court upholding a $4.4 million deficiency.
The judge cut the Romanowskis slack on the penalties, though, apparently based on his belief that their attorney had a conflict of interest in advising the Romanowskis about the horse investment:
While a taxpayer familiar with the field of tax would have done several things differently from petitioners, petitioners were not sophisticated or knowledgeable in the field of tax. Petitioners had good reasons for the trust they placed in Mr. Atherton.
Decision for IRS, except for penalties. And a “notify the carrier” moment for Greenberg Traurig.
The Moral? Professional football may not be the best training for investments. And when the coach tells you to run the play as called, there’s probably a good reason.
Cite: Romanowski, T.C. Memo 2013-55
Tony Nitti has more, as do the TaxProf and Russ Fox.
Tags: Anthony Nitti, Judge Goeke, Russ Fox, tax court, TaxProf
Posted in Uncategorized | 2 Comments »
Monday, February 18th, 2013 by Joe Kristan
Why don’t some big companies complain about Iowa’s highest-in-the-nation corporation tax rate? Because they are on the receiving end.
The Department of Revenue last week issued the 2012 list of recipients of of the Iowa Research Activities Tax Credit over $500,000. Like the Earned Income Tax Credit for the working poor, the Research credit is “refundable.” If a recipient doesn’t actually owe tax, the state will send a check for the amount of the credit anyway.
For the working poor, the EITC is unabashedly a welfare program. For the corporate recipients, the credit is touted as “economic development.” I’m sure EITC recipients feel the same way about their government checks.
The report shows that about $34.2 million of the $50.5 million claimed in research credits was refunded — about 2/3. The biggest recipient of the credit was Rockwell Collins, which received $13.8 million in credits. The report doesn’t say how much credit was refunded for each large recipient; If 2/3 of the Rockwell Collins credits were refunded, that means Iowa taxpayers gave the company $9.2 million
I don’t believe Rockwell Collins, or anyone else, should pay Iowa corporation income tax. It is a bad tax whose repeal would make life better for Iowans. But that’s a long way from saying that taxpayers should actually cut annual welfare checks to corporations doing business in Iowa. While I don’t blame them for taking the checks — who turns down free money? – don’t try to tell me that it’s good for me.
Repeal of giveaways like the refundable research credit and the “economic development” credits given to the big fertilizer companies would go a long way towards paying for repeal of the corporation income tax for businesses lacking the lobbyists and wire-pullers needed to hit the corporate welfare jackpot. Maybe some day we’ll demand the legislature replace the tax-some, pay-others Iowa tax system with something better, like The Quick and Dirty Iowa Tax Reform Plan.
Speaking of Iowa Tax Reform, I have posted my analysis of the proposed Iowa 4.5% optional flat tax.
Dislike. The left-wing high-tax advocacy group Citizens for Tax Justice is scandalized that Facebook isn’t paying income taxes on its 2012 income (via the TaxProf):
Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.
Instead, Facebook says it will receive net tax refunds totaling $429 million. Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.
So why are “executive stock options” deductible? Because they are taxable to the recipients as W-2 income. They are reported as taxable income on the executives 1040s at the same 35% top rate that the corporation pays. In other words, CTJ is upset because the executives, rather than the corporation, write the checks to the IRS.
There is no actual tax reduction. In fact, the government actually gets more income from the options than if Facebook had not issued the options and just paid 35% tax. Because they are also subject to the 2.9% medicare tax (3.8% starting in 2013), the option exercises actually generate additional revenue for the IRS. Presumably CTJ would want the executives to pay tax with no deduction on the other side. That seems unjust.
Another victory for Citizens for Tax Justice! After Illinois Tax Increase, State Farm Reportedly Moving Operations to Texas (Joseph Henchman, Tax Policy Blog).
Peter Reilly, Married Same Sex Couples – Windsor Decision Requires Action This Tax Season
Kay Bell, Sign up now to pay your federal tax bill via EFTPS. With the ongoing disintegration of the postal service, it’s good to have a secure and sure way to get your taxes paid on time. I’m signed up.
Tony Nitti, Former San Diego Mayor Gambles Away $1 Billion; What Are The Tax Implications?
Martin Sullivan, Taxation of Intangibles: Still Hazy After All These Years (Tax.com)
Roberton Williams, A New Marriage Penalty for High Earning Couples—and a Bonus for Some (TaxVox):
Our new Marriage Bonus and Penalty calculator, despite all its Valentine’s Day finery, ignores the new 0.9 percent Medicare payroll tax hike buried in the 2010 health law. The extra levy affects only a few high-income couples but in very different ways. Lucky couples will collect marriage bonuses of up to $450. But those less fortunate—if anyone making $250,000 can be considered less fortunate—will incur marriage penalties of as much as $1,350 in additional Medicare tax.
Just another example of the whimsical and poorly-conceived nature of the Obamacare Net Investment Income tax.
Brian Mahany, IRS Wins Tax Shelter Case – Will Claims Of Accounting Malpractice Follow?
Jack Townsend, New Plea Agreement Involving Israeli Banks
Robert Goulder, Jack Lew, the Cayman Islands & FATCA (Tax.com)
Ben Harris, Five reasons Why the Sequester’s Automatic Spending Cuts are Bad Policy (TaxVox).
Yeah, that’ll work. Newtown Lawmaker Proposes ‘Sin Tax’ On Violent Video Games (TaxGrrrl).
Traverse City! I will be speaking at a Farm Income Tax, Estate and Business Planning Seminar in Traverse City, Michigan June 13-14. The seminar is co-sponsored by the Iowa State University Center for Agricultural Law and Taxation. Other speakers include Roger McEowen and Paul Neiffer. Register now!
Chicago! Jackson’s Fall Includes Tax Charge (Russ Fox):
The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats). Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).
Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council. Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return. They pleaded guilty on Friday.
The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses. As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return. And we’re not talking nickel and dime purchases; the total is $582,772.58. Add in filing false campaign reports and you have problems.
When people complain about the need to turn power over to government instead of ”greedy corporations,” there is an implied assertion that the government and its operatives are somehow less vulnerable to avarice and self-dealing. Against all evidence.
Tags: Ben Harris, Branstad tax policy, Brian Mahany, Citizens for Tax Justice, corporate welfare, economic development, Facebook, Iowa tax p, Jack Townsend, Kay Bell, Martin Sullivan, Paul Neiffer, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert Goulder, Roberton Williams, Roger McEowen, Russ Fox, tax crime, TaxGrrrl, TaxProf, Tony Nitti
Posted in Tax Roundup | 1 Comment »
Friday, February 15th, 2013 by Joe Kristan
Governor Branstad has signed the bill conforming Iowa’s tax law to federal changes enacted last month. The Governor signed SF 106 yesterday afternoon.
The bill allows taxpayers to use several federal provisions in computing their 2012 Iowa taxes, including:
- The federal Section 179 deduction of up to $500,000.
- The federal above-the-line deductions for tuition and educator expenses.
- The exclusion for IRA distributions to charity for taxpayers who have reached age 70 1/2, and the transitional rules for January 2013 charitable rollovers of IRA distributions.
- The optional deduction for state and local sales taxes.
The bill does not conform Iowa to federal bonus depreciation; Iowa filers will normally use federal standard MACRS depreciation instead.
Tony Nitti, Senate Proposal for Tax Reform Part II: Democrats Seek To End S Corporation Payroll Tax Loophole. It’s similar to nonsensical proposals put forward in prior years to tax S corporation K-1 income when 75% or more of revenues are “attributable” to three or fewer shareholders — an impossible standard to evaluate in many cases, and one that discriminates against the smallest S corporations. It shows they are lazy — the problems with the approach are well known, yet the won’t make the effort to correct, instead trotting out the same old bill. It just shows they aren’t serious.
David Cay Johnston finds the cuts to IRS funding that would result from the impending sequester “Particularly Devastating” (Tax.com)
Going Concern, Former Dixon Comptroller Rita Crundwell Gets Nearly 20 Years. She stole over $50 million from an Illinois municipality of 15,000 people going back to 1990. And nobody noticed for over 20 years.
Kay Bell, IRS’ Where’s My Refund? site swamped by impatient refund tracking taxpayers.
Taxpayers overwhelmed with compliance demands, asks government to slow down. IRS Overwhelmed With Refund Requests, Asks Taxpayers To Slow Down. (TaxGrrrl)
Paul Neiffer, Another Bill to Reduce Farm Payments is Introduced!
Jack Townsend, Swiss and US Sign IGA. An agreement under the “FATCA” foreign bank reporting rules.
Patrick Temple-West, Married couples face tough taxes, and more (Tax Break)
Russ Fox, Nevada Looks to Tax Online Poker Tournaments
Donald Marron, The Balanced Budget Amendment’s $300 Billion Error
News you can use. Retire Rich: The Forbes 2013 Antiretirement Guide (Janet Novack)
Nick Kasprak, Happy Valentine’s Day! Will You Marry Me (For Tax Reasons?) (Tax Policy Blog).
Some people are just incurable romantics!
Tags: Anthony Nitti, Branstad tax policy, David Cay Johnston, Donald Marron., Going Concern, Iowa bonus depreciation, Jack Townsend, Janet Novack, Kay Bell, Nick Kasprak, Patrick Temple-West, Paul Neiffer, Russ Fox, Section 179, SF106, TaxGrrrl
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, February 11th, 2013 by Joe Kristan
When a convicted criminal feels he has been ill-used by an accomplice, the normal recourse tends to involve unpleasant events in the prison gallery. Lawyers are rarely consulted. But when international tax cheating is involved, it apparently works differently.
A group of clients of Swiss bank UBS who claim that bad things happened to them as a result of their Swiss accounts sued UBS. Seventh Circuit appeals judge Posner was distinctly unsympathetic (my emphasis):
The plaintiffs are tax cheats, and it is very odd, to say the least, for tax cheats to seek to recover their penalties (let alone interest, which might simply compensate the IRS for the time value of money rightfully belonging to it rather than to the taxpayers) from the source, in this case UBS, of the income concealed from the IRS. One might have expected the plaintiffs to try to show that they had forgotten they had accounts with UBS (though that would be preposterous, for these were significant investments for each of the plaintiffs). Or that UBS had told them that income earned in those accounts was somehow tax exempt and moreover that the accounts themselves were somehow not foreign bank accounts within the meaning of the tax code and so the plaintiffs didn’t have to acknowledge having accounts with UBS. They don’t make any of these feeble arguments. They do argue, as we’ll see, that UBS was obligated to give them accurate tax advice and failed to do so, but not that it gave them inaccurate, as distinct from no, advice.
While the IRS offshore compliance programs have abused many innocent Americans who have foot-fault violations, that doesn’t appear to be the case here. A U.S. resident who set up a Swiss bank account probably didn’t do so to ensure tax compliance.
At worst, UBS, as we’re about to see, violated an agreement with the IRS designed to prevent the kind of evasion that the plaintiffs engaged in. That might conceivably make UBS an aider or abettor of the plaintiffs’s tax evasion and so make this case a distant relative to Everet v. Williams (Ex. 1725), better known as The Highwayman’s Case and eventually reported under that name in 9 L.Q. Rev. 197 (1893). A highwayman had sued his partner in crime for an accounting of the illegal profits of their criminal activity. The court refused to adjudicate the case, and both parties were hanged. Minus the hanging and with certain exceptions (such as contribution and indemnity) irrelevant to this case, the principle enunciated in The Highwayman’s Case applies to accomplices in civil wrongdoing, as noted in our recent decision in Schlueter v. Latek, 683 F.3d 350, 355-56 (7th Cir. 2012). In The Highwayman’s Case one accomplice was seeking a bigger share of the profit from the crime from the other one; here one accomplice is seeking a smaller share of the costs of the crime from the other one. The principle is the same; the law leaves the quarreling accomplices where it finds them.
The moral? Your banker isn’t your tax advisor, and when you are cheating, you are on your own. At least in Judge Posner’s court.
More coverage: TaxProf, Posner: Tax Cheats Suing UBS for Not Stopping Them From Cheating Like Suing Parents for Not Raising Them to be Honest
Overwhelming? A Tax Analysts story on the fallout from the Loving decision overturning the IRS preparer regulation program reports:
“There is overwhelming support for registration” among EAs, said Frank Degen, president of the National Association of Enrolled Agents. While preparers are watching to see what an appeals court will do — as the IRS said it would file an appeal soon — “most practitioners are just interested in cranking out those 1040s right now,” Degen said.
I’d want to see some polling showing that “overwhelming” support. The preparer regulation program strikes me as potentially fatal for the Enrolled Agent brand. EA’s, who have to pass a much stricter test and more stringent continuing education requirements than the registered preparers would have to, already have difficulty marketing their additional qualification. The IRS blessing of a competing bargain brand could easily bury the EA designation. At the very least, I see no overwhelming support for the preparer registration program from EA-bloggers Jason Dinesen and Russ Fox.
To your health! Compliance with ObamaCare Estimated to Take 127.6 Million Hours (Kyle Pomerleau, Tax Policy Blog).
Martin Sullivan, State of the Union: Stasis or Progress on Taxes? (Tax.com). My bet is on stasis.
Doom. What You Should Know About the Budget Outlook (William Gale, TaxVox).:
Even if seemingly everything goes right – in economic terms and in political terms – we are still on the edge of dangerously high debt and deficit levels with little room to spare.
Nah, we’re over the edge:
Jana Luttenegger, Social Media and Other Digital “Assets” After Death. (Davis Brown Tax Law Blog) If I die, please take me out of my high school reunion Facebook group.
William Perez, IRS Announces Start Dates For Processing Some Tax Returns. Y0u can file a return with depreciation starting today, and one with education credits starting Thursday.
Claudia Hill, Can This Tax Filing Season Be Saved? (Via @janetnovack’s Twitter Feed).
Paul Neiffer, Crop Insurance Proceeds on Feed Consumed by Livestock
And then pay your bill timely. 4 ways to be a better tax client (Kay Bell)
Patrick Temple-West, Higher payroll tax pinches those with the least to spare, and more
Jack Townsend, A Tax Curmudgeon Offers Ideas on Tax Compliance
Tax Trials, IRS Releases Schedule UTP Statistics for 2011. 1,783 taxpayers filed forms disclosing Uncertain Tax Positions for 2011. Seems low.
Peter Reilly, Is IRS Persecuting Kent Hovind For Creationism ? His tax planning shows little evidence of intelligent design, anyway.
Proposed by a guy wearing wing-tips, no doubt. Lawmaker Proposes Sneaker Tax, Retailers Opposed (TaxGrrrl)
Tags: Claudia Hill, EA, Jack Townsend, Jana Luttenegger, Jason Dinesen, Judge Posner, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, RTRP, Russ Fox, tax crime, Tax Trials, TaxGrrrl, UBS, William Gale, William Perez
Posted in Tax Roundup | 2 Comments »
Thursday, February 7th, 2013 by Joe Kristan
The Iowa House of Representatives passed without changes SF 106, the bill updating Iowa’s income tax to incorporate last month’s Fiscal Cliff tax bill. The bill conforms to all federal changes except for bonus depreciation, which remains unavailable on Iowa returns.
Now the bill goes to Governor Branstad. The Governor vetoed a prior conformity bill because it adopted bonus depreciation; he is expected to sign this one.
The early passage of these bills is a relief to taxpayers affected by the federal changes. Now they know how to file their Iowa 2012 returns. Among the items affected by the bill:
- Section 179 depreciation. Iowa now adopts the federal $500,000 limit for 2012 and 2013.
- IRA charitable distributions up to $100,000
- The above-the-line deductions for educator expenses and college tuition
- The optional deduction for state and local sales taxes.
No word yet on when the Governor will act on the bill.
West Des Moines denture-maker pleads to tax evasion. The West Des Moines Patch reports:
Charles R. Barbour, who entered his plea to one count of income tax evasion in a proceeding before U.S. Magistrate Judge Celeste F. Bremer, will be sentenced on May 9.
In it, Barbour admitted that he understated tax year 2006 income in the amount of nearly $81,000, tax year 2007 income in the amount of nearly $51,000, tax year 2008 income in the amount of nearly $52,900 and tax year 2009 income in the amount of $11,300.
From the plea agreement it appears that the charges involve diversion of business receipts from his denture-making business to a personal bank account, and improper deductions:
Barbour willfully claimed false business expenses on the Schedules C for tax years 2007, 2008 and 2009; deducting internet and cable expenses for his residence as advertising expense; rent payments on a condominium and an apartment as rent expense; loan repayments to his parents as equipment repairs and maintenance expense; payments for his daughter’s medical expenses as medical supplies; payments to a local country club as professional development; and child support payments as professional fees and contract labor expenses.
The standard IRS audit programs for business expenses look for personal expenses disguised as business expenses, and an experienced examiner knows where to look. That makes sneaking personal expenses onto a business return a bad bet — and if you make a habit of it, it can become a much bigger problem than back taxes and penalties.
Tyler Cowen, Will health insurance premia rise for young males?
Look at Table 1– where it says that the average premium for young healthy males will go from $2,000 to a little over $5,000. Yikes.
When the largely-optional penalty for not buying insurance is $695, it doesn’t seem likely that healthy young males will buy a lot of insurance — especially when they can buy it when they get sick because of the rules against pre-existing condition limits. It’s hard to imagine this working well.
Jack Townsend, Article for Canadians with Unreported Canadian Retirement Plans and Accounts. More news from the foreign tax compliance jaywalker-shooting front.
Linda Beale, Soon-to-be Google litigation with IRS over 2003-4 returns? A disclosure in their 10-K.
Kaye Thomas, Gaps in Cost Basis Reporting. Don’t just take as gospel what the broker tells you.
Ellen Kant, Super Bowl Loophole (Tax Policy Blog). On how the hugely-profitable NFL, and other sports leagues, are tax-exempt.
Elaine Maag, The Immigration Debate: Another Reason We Ought to Separate Work and Family Credits (TaxVox).
Have you ever tried to shoot one? Oh, I thought you said “Quail.” There Is Nothing Perplexing About Quill (Cara Griffith, Tax.com):
By saying that Quill created a perplexing inquiry gives credence to the idea that states can get around the physical presence requirement, but they can’t.
Try telling that to Iowa.
Russ Fox has a new book out, Tax Strategies for the Small Business Owner. Cool!
Yeah, that will solve the deficit. Obama repeats call to end tax break for corporate jets, and more. (Patrick Temple-West, Tax Break). I’m sure that will be wonderful news at the HondaJet North Carolina production facility that is newly up and running.
TaxGrrrl, Taxpayer Alleges IRS Agent Offered Sex In Exchange For Lower Tax Penalties On Audit. Sounds far-fetched, but based on what I have seen of IRS agents, it would be a human rights offense.
You expected “Days of Our Lives?” The Situation Around the Registered Tax Return Preparer Program Has Become a Really Bad Soap Opera (Going Concern)
Tags: Brnastad tax policy, Cara Griffith, Elaine Maag, Ellen Kant, Going Concern, iowa tax policy, Jack Townsend, Kaye Thomas, Linda Beale, Obamacare, Patrick Temple-West, Quill, Russ Fox, SF106, tax crime, TaxGrrrl, Tyler Cowen
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Wednesday, February 6th, 2013 by Joe Kristan
Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):
The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.
But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”
State Tax Notes also tracked down Tax Foundation Economist Elizabeth Malm:
“Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”
Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.
“I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.
Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”
*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.
David Brunori, Who Pays? Who Cares? You Should (Tax.com):
No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.
None of these are incompatible with lower top tax rates.
Tracy Gordon, The Downside of States as Laboratories for Tax Reform (TaxVox)
Needed, but impossible. Tax Notes has a sad-but-true headline that brilliantly summarizes the state of our national tax policy: Urban Institute Panelists Agree Tax Reform Necessary but Unlikely. ($link)
Linda Beale, More on PTINs for previously unregulated tax return preparers:
We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.
The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”
Peter Reilly, Future Baseball Commissioner Tackles Tax Laws As Complex As Infield Fly Rule
Tough tax return choice for 2012: Pay more now to save later? My new post at IowaBiz.com, the Des Moines Business Record Blog for Entrepreneurs, discussing whether maximizing 2012 deductions is really a good idea.
Jason Dinesen, Taxpayer Identity Theft — Part 12 . More Kafkaesque obstacles to resolving an identity theft for his client.
William Perez, IRS Provides Further Disaster Relief for Hurricane Sandy
Kay Bell, Tax Carnival #112: Super Bowl of Taxes
Jim Maule, Tax Ignorance As Persistent as Death and Taxes
Missouri Tax Guy: Missouri does not mail Form 1099-G. You have to get it online. One more little blow to tax compliance for small taxpayers.
Trish McIntire, Low Cost Tax Preparation Options
TaxGrrrl, U.S. Postal Service To Eliminate Saturday Delivery: Will It Save Tax Dollars? Next they’ll shut down the Pony Express.
Patrick Temple-West, Waiting on the phone for the IRS, and more (Tax Break)
Ellen Kant, William McBride, Super Bowl Tax Bill (Tax Policy Blog)
Russ Fox, Will the Third Time be the Charm for Appeals? A case where the “independent” IRS appeals function failed twice.
Howard Gleckman, Can the Income Tax Fund the Government We Want? (TaxVox). I can’t speak for “we,” but it could easily cover all of the government I want.
The Critical Question: Et Tu, Sarkozy? (David Goulder, Tax.com)
If they can spell their address, tax cheating should be easy for them: Massapequa Restaurant Owners Sentenced for Tax Fraud (Massapequa Patch).
Isn’t that conspiracy? Tax fraud: We have a plan, authorities say (Myfoxtampabay.com)
Screwed either way. Taxpayer Sues IRS, Claims Agent Coerced Him Into Having Sex to Avoid Adverse Audit (TaxProf).
But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:
Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.
Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.
No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.
Tags: alternative maximum tax, David Brunori, David Goulder, David Osterberg, Elizabeth Malm, Ellen Kant, Howard Gleckman, iowa tax policy, iowabiz.com, Iowans for Tax Relief, Jason Dinesen, Kay Bell, Linda Beale, maule, Missouri Tax Guy, Patrick Temple-West, Russ Fox, TaxGrrrl, TaxProf, The Critical Question, Tracy Gordon, Trish McIntire, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Monday, February 4th, 2013 by Joe Kristan
Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order. The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal. The judge declined:
As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.
So where do things stand? The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them. Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.
More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.
You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday. They had a football game and everything to observe it. The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official. And yes, it is official. While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons. So, in any way that matters, it’s official. Still, I can’t bring myself to say “Happy” anniversary.
More from Richard Morrison: 100 Years of the Federal Income Tax (Tax Policy Blog)
Iowa’s oldest judge, age 90, steps down. Ruth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court. Happy Retirement, Judge Klotz!
Paul Neiffer, Many States Are Delaying Farmer Filing Deadline
Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS
Kay Bell, Tips are taxable income
TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It
Trish McIntire, Gambling 1099MISCs. They don’t make your winnings taxable, they just let the IRS in on the secret.
Patrick Temple-West, Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)
Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com). Strange question. If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?
Rudy Penner, The Risks of Dumbing Down Fiscal Goals (TaxVox). It’s hard to think they could get any dumber than they are now.
Jim Maule, Looking Again at Tax and Political Ignorance:
The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.
Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.
Linda Beale, Red state tax “reform” and “economic growth”
Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE
The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).
What this country needs is a good 25-cent sneaker. Illinois Proposes 25-Cent Sneaker Tax (TaxProf)
It’s the little things. The mark of a true craftsman is attention to detail. Two Ohioans’ alleged failure to mind the details has led to trouble. From the Columbus Dispatch:
Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.
But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.
So did misspelling some of the occupations they listed on the phony tax returns.
I bet they thought those spelling drills in grade school were pointless.
Tags: 16th Amendment, Institute for Justice, Jack Townsend, Kay Bell, Linda Beale, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, Richard Morrison, Robert D Flach, Robert Goulder, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
Posted in Tax Roundup | No Comments »
Thursday, January 31st, 2013 by Joe Kristan
Today is the last day to make a charitable IRA rollover for 2012. Yes, 2012 is over, but taxpayers who are required to make IRA minimum annual distributions may still have one 2012 transaction left in them.
- Taxpayers who are born before July 1, 1942 who took cash from an IRA in December 2012 can contribute up to $100,000 to a charity today and have it excluded from their 2012 income.
- Taxpayers who have failed to take their required minimum 2012 distribution can avoid the 50% penalty for failing to take their distribution by arranging for the IRA to transfer the minimum amount, up to $100,000, to a charity today.
These opportunities are part of the retroactive extension of the rule allowing up to $100,000 to be transferred from an IRA directly to a charity without including the amount in the IRA owner’s income. This avoids the 50% of AGI charitable contribution limit. It also avoids other potentially unpleasant consequences of having the IRA income above-the-line, like making your Social Security taxable.
On brief, the Tax Update Blog. The Institute for Justice, the victorious legal team behind the shutdown of the preparer regulation program, has filed a brief opposing a stay in the injunction against the program. Making their case airtight, they cite the Tax Update, along with tax bloggers Kelly Phillips Erb (TaxGrrrl), Robert D. Flach and Jason Dinesen. From Footnote 18 of the brief:
For an example of the disruption routinely caused by the IRS’s misadministration of the RTRP regulations, see Alban Decl., Ex. 3 (the comments from preparers are illustrative and reference previous examples of similar disruptions); see also Joe Kristan, IRS quietly delays CPE requirement under new preparer regulation scheme , Tax Update Blog (January 8, 2013), http://rothcpa.com/2013/01/irs-quietly-delays-cpe-requirement-under-new-preparer-regulationscheme/ (describing IRS message as “a quiet admission of failure”).
With the Tax Update Blog on their side, who can be against them?
What does a poor college student have that could be lucrative to a thief? A Social Security number. From the Memphis Business Journal:
With tax season bearing down, the IRS has a warning about a new refund scam aimed at college students, seniors and church members.
The Internal Revenue Service said Tuesday the scam tries to get students to give their personal identification and file tax returns claiming fraudulent refunds. It has sent misleading and bogus refund claims using the American Opportunity Education Tax Credit on college campuses throughout the Southeast.
Be very cautious about giving anybody but your employer, your bank, a medical provider or the IRS your Social Security number. And never give it to a scammer.
David Brunori, Stifling Lefty — Political Correctness in the Tax Debates (Tax.com):
So the pro tax people managed to shut Mickelson up. Rather than engaging in a discussion about why it is okay to take his money, they stifled him.
Shut up, they explained.
Paul Neiffer points out that now that penalties are waived for farmers who file after March 1, they may not want to file by their usual deadline: File Your Return After March 1 Not Before!
Have you mailed your 1099s and W-2s? Today is the deadline for sending them to recipients. Russ Fox has the scoop.
TaxGrrrl, Ask the taxgirl: Tax ID Numbers and 1099s
Kay Bell, Tax e-filing and Free File is now available for most taxpayers
Trish McIntire, Freebies. Don’t ask for them.
Chris Sanchirico, Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains? (TaxVox)
Tax Foundation, New Report: Cell Phone Taxes Exceed 20% in Several States
Margaret Van Houten and Jodie Clark McDougal, Iowa Trust Industry Breathes a Sigh of Relief after the Supreme Court’s Reversal in Trimble
Cara Griffith, Kentucky DOR’s Disregard of Transparency (Tax.com)
Jack Townsend, Another UBS Depositor Pleads
Patrick Temple-West, India sees end to Vodafone tax dispute, and more
News you can use. IRS: No One Is Too Old, Too Poor Or Too Sympathetic To Avoid Prosecution (Brian Mahany)
How to catch a dinosaur. Not Income Tax Evasion – Structuring – That’s How They Got Kent Hovind (Peter Reilly)
Robert D. Flach goes into blog hibernation for the remainder of tax season: SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!
These are a few of my favorite things… Guns and Tax Returns. (Christopher Bergin, Tax.com).
Today’s morale builder: Les Misérables-Inspired Video Reminds You That Busy Season Kills Your Dreams (Going Concern)
Tags: Brian Mahany, Cara Griffith, Chris Sanchirico, Christopher Bergin, David Brunori, Going Concern, Institute for Justice, IRA, Jack Townsend, Jason Dinesen, Jodie Clark McDougal, Margaret Van Houten, Patrick Temple-West, Peter Reilly, preparer regulation, Russ Fox, scams, Tax Foundation, TaxGrrrl
Posted in Tax Roundup | No Comments »
Tuesday, January 29th, 2013 by Joe Kristan
Flickr image courtesy Pasa47 under Creative Commons license
A Tax I can support! Tax the Revolving Door (Glenn Reynolds)
In short, I propose putting a 50% surtax — or maybe it should be 75%, I’m open to discussion — on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you’ll pay 50% of the difference — just over $400,000 — to the Treasury right off the top. So as not to be greedy, we’ll limit it to your first five years of post-government earnings; after that, you’ll just pay whatever standard income tax applies.
Plus make them wear clown clothes to work. (Via the TaxProf)
Allysia Finley, Mickelson and the Sports Star Tax Migration (Wall Street Journal):
About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?
It would be surprising if they didn’t.
Kyle Pomerleau and William McBride: EITC Awareness Day (Tax Policy Blog)
Research has shown that the EITC is associated with higher workforce participation among certain populations. However, Casey Mulligan’s research shows there is no free lunch here, since the EITC creates disincentives to work over the income range in which it phases out (roughly $20,000 to $50,000). And because the EITC is one of many overlapping anti-poverty programs, such as unemployment insurance, they all add up to huge disincentives to work among the poor.
And some Iowa politicians want to increase the Iowa EITC, making it a bigger poverty trap.
Steven Rosenthal, Chairman Camp Agrees: Too Many Choices Burden our Tax System (TaxVox)
Jeremy Scott, Huffington Post Draws Tenuous Link Between Camp Plan, Fix the Debt Group (Tax.com)
Robert D. Flach, GUIDELINES FOR TAX REFORM:
Recognize and acknowledge that the purpose of the federal income tax is to raise the money necessary for the administration of the government and government sponsored programs. It is not to be used to “redistribute income” or as a method for delivery of social welfare and other government benefits.
If that principal were vigorously applied to the tax law, the 1040 would fit on a postcard.
Climb in the Cavalcade! Worker’s Comp Insider hosts the latest Cavalcade of Risk roundup of insurance and risk-management posts, including Insureblog on the Curly Bulb Menace.
Russ Fox, Form 8863 Added to Returns that the IRS Won’t Accept Just Yet. The form for tuition credits.
William Perez, When Can You Begin Filing Your 2012 Federal Tax Return?
Jason Dinesen, Taxpayer Identity Theft, Part 11. In which the IRS ignores the change-of-address filing and mails a long-delayed refund to the wrong address.
Martin Sullivan, Taxing Financial Pollution. On the futility of a financial transactions tax. (Tax.com)
Missouri Tax Guy, What you’ll Need. A guide to gathering your tax return information.
TaxGrrrl, Tax Season Kicks Off January 30th: Here’s What’s On Tap
Jack Townsend, IRS Issues John Doe Summons to UBS (All Over Again)
Kay Bell, Deducting sales tax on your new car … or boat or airplane or home
Tags: Allysia Finley, Beavers, cavalcade of risk, Instapundit, Jack Townsend, Jason Dinesen, Jeremy Scott, Kay Bell, Kyle Pommerleau, Martin Sullivan, Missouri Tax Guy, Phil Mickelson, Robert D Flach, Russ Fox, Steven Rosenthal, tax crime, TaxGrrrl, TaxProf, William McBride, William Perez
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