Posts Tagged ‘Shulman’

Tax Roundup, 8/6/2013: Iowa preparer gets prison for reporting too much income. And an ID theft nightmare ends.

Tuesday, August 6th, 2013 by Joe Kristan

bureauofprisonsSometimes a big refund isn’t a good thing.  A Shellsburg, Iowa man went too far to get his clients big refunds.  The AP reports that Keith Rath was sentenced last week to 21 months after pleading guilty one count of an 8-count indictment.  He was charged with fabricating business income on 1040s.

While it may seem odd that the IRS would have a problem with taxpayers reporting too much income, the Earned Income Tax Credit is the motivation.  If you have around $10,000 of businss or wage income, you can maximize this refundable credit, generating a nice check from the IRS.

The report says the clients were anaware of the fraud.  It seems like you would notice a business on your return that doesn’t exist, but many taxpayers don’t even look, especially if they like the refund being reported.  The taxpayer problably isn’t pleased to have to give that money back.

It is estimated that about 25% of earned income tax credit claims are improper.  That apparently is just fine with the Governor and the Iowa General Assembly, who doubled Iowa’s EITC last year — with a predictible effect of sending around $8 million to Iowa thieves annually, with and without the aid of shady preparers.

 

TaxProf, The IRS Scandal, Day 89.

 

Jason Dinesen, Taxpayer Identity Theft — Part 18:

I’ve been telling the story of Wendy Boka and the identity theft nightmare she’s going through with the IRS. Her husband Brian died at age 31 in 2010. Someone stole his identity and filed a fraudulent tax return in his name.

On August 1, 2013, the refund check from the IRS for that 2010 tax return finally arrived in Wendy’s mailbox.

Jason’s series on his client’s identity theft nightmare shows the huge cost of this out-of-control scam.  While the $5 billion mailed annually to thieves is bad enough, it pales compared to the human cost to the taxpayers whose IDs are stolen — the months of frustration, the near-useless bureaucracy, and the financial losses.  The IRS failure to address this, while spending resources on a useless preparer regulation scheme, are what made Douglas Shulman the Worst Commissioner Ever.

Kay Bell, Tax-related identity theft: Its growth and IRS efforts to stop it

 

Me, When you buy business assets, no do-overs. (IowaBiz.com):

The Moral?  No do-overs. You only get one shot at the purchase price allocation when you buy a business. The purchase price allocation needs to be addressed early in your negotiations. If you want to have experts come in for a cost segregation study, you should do it as part of your due diligence before the deal closes, or under agreement after the close with the seller. You can’t unilaterally change the allocation. 

 

Russ Fox, Kansas Joins Bad States for Gamblers in 2014

Robert D. Flach has his Buzz on!

TaxGrrrl profiles fellow tax blogger Peter J. Reilly.

Peter Reilly, Rhode Island Not Giving Historic Credit For Journal Entries.   But journal entries are history, right?

Jack Townsend, IRS Has No Authority To Settle Cases Referred to DOJ Tax Even After They Are Returned

William Perez, IRS Update for August 2, 2013

 

Yes.  Is the Exclusion for Employer-Provided Healthcare Outdated? (Jeremy Scott, Tax Analysts Blog)

Martin Sullivan, Tax Reform: Will the Chairmen Offer Real Plans or Gimmicks?  (Tax Analysts Blog) Bet on gimmicks.

Kyle Pomerleau, More Trouble for Small Businesses in Tax Reform Talks (Tax Policy Blog)

Today, it seems like there is more trouble for pass-through businesses coming from the Democratic Party.

According to Tax Analysts (subscription required), Charles Schumer (D-NY) is quoted as saying “I don’t think we should lower individual tax rates. I think the overwhelming majority of our caucus agrees. We think 39.6 percent is about the right rate.”

Any “reform” that doesn’t lower rates is no reform at all.

 

Tax Justice Blog, Sales Tax Holidays Are Silly Policy:

While one commonly cited rationale for such holidays is that they increase local consumer spending, boosting sales for local businesses, available research concludes this “boost” in sales is primarily the result of consumers shifting the timing of their already planned purchases.

Jana Luttenegger, Sales Tax Holidays in Iowa and around the US

Howard Gleckman, We Make More Than We Think (TaxVox)

Boulevard of Broken Dreams. The AICPA Has Created A Place For Young CPAs To Share Their Woes (and Dreams) (Going Concern)

Answering The Critical Question: Why we all need Dolce & Gabbana to survive the tax evasion drama (Handbag.com)

 

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Long live the Queen!

Thursday, July 18th, 2013 by Joe Kristan

20130717-1The Facebook “Queen of IRS Tax Fraud” will need to live for a long time to get out of her new palace.  Rashia Wilson, who famously boasted on her Facebook of her fraud prowess, got a 21-year exile in federal prison yesterday in a Tampa federal courtroom.  Tampa Bay Business Journal reports:

A Tampa federal court judge sentenced Rashia Wilson, a Wimauma woman who dubbed herself the “First Lady” and “Queen of Tax Fraud,” to 21 years in prison on charges of wire fraud, aggravated identity theft and being a felon in possession of a firearm.

She also was ordered to forfeit $2.2 million, the proceeds traceable to the offenses, according to a written statement.

I have a feeling that not much of that $2.2 million will be recouped.

Ms. Wilson, perhaps imprudently, put on her Facebook:

YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD.  IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!

She also posted the fetching picture in this post with some of your money.

Identity thieves like Ms. Wilson are milking the U.S. Treasury to the tune of maybe $5 billion annually.  While Rashia Wilson was buying $90,000 cars and throwing $30,000 birthday parties with your money, The Worst Commissioner Ever was leading IRS efforts to create a worthless preparer regulation bureaucracy while hassling Tea Partiers and terrorizing innocent Americans abroad.  Priorities, I guess.

Related: Jason Dinesen, Taxpayer Identity Theft — Part 17

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Tax Roundup, 5/22/2013: Don’t blame me, I’m only the boss. Also: tornado tax relief.

Wednesday, May 22nd, 2013 by Joe Kristan
Former IRS Commissioner Shulman, showing how bad he feels about politcal harassment under his watch.

Former IRS Commissioner Shulman, showing how bad he feels about politcal harassment under his watch.

The Worst Commissioner Ever returned to Washington yesterday to testify before a Senate committee on the IRS scandal.  He bravely took responsibility for the targeting of disfavored political groups and apologized to the victims.

Well, not exactly:

 I certainly am not personally responsible for creating a list that had inappropriate criteria on it. And what I know, with the full facts that are out, is from the inspector general’s report, which doesn’t say that I’m responsible for that. With that said, this happened on my watch. And I very much regret that it happened on my watch.

In other words, I was just the boss, and you can’t blame me for what those crazy kids in Cincinnati do.

 

Just exercising the right they encouraged the Tea Partiers to use – silence.  The IRS functionary who announced the scandal in response to a planted question isn’t going to answer real ones.  From the Wall Street Journal:

Lois Lerner, the head of the Internal Revenue Service office that targeted conservative groups, intends to invoke her constitutional right against self-incrimination and decline to answer questions about the matter when questioned by a congressional committee Wednesday.

Ms. Lerner, director of the tax-exempt-organizations division at the IRS, notified the House Committee on Oversight and Government Reform through her attorney that she wouldn’t answer questions on the matter, according to a committee spokesman.

When it comes to the Bill of Rights, better late than never.

 

Is Washington a suburb of Cincinnati?  Oversight from Washington, All Along    (Eliana Johnson)

TaxProf, The IRS Scandal, Day 13

Watchdog.org, Top 10 quotes about Obama’s #scandalpalooza

Via Don Boudreaux, The Real Lesson of the IRS Scandal (Richard Epstein) and The Autocrat Accountants    (Mark Steyn)

Patrick Temple-West,  White House knew of IRS scandal in April, and more (Tax Break)

Clint Stretch, Targeting tax-exempts and tax reform (Tax Analysts Blog)

Joseph Thorndike, A World Without 501(c)(4)s (Tax Analysts Blog)

Russ Fox, Ms. Lerner Knows the Fifth (IRS Scandal Update)

 

In other news:

Kay Bell, Tornado-ravaged areas of Oklahoma declared major disasters, leading to special tax relief from IRS

Trish McIntire,  Oklahoma DIsaster- Tax Relief.

TaxGrrrl, IRS Announces Tax Relief For Oklahoma Tornado Victims

 

Paul Neiffer, Will Excess Farm Loss Rules Apply With New Farm Bill?

Jason Dinesen, How to Allocate the Deduction for Federal Estimated Tax Payments on Your Iowa Tax Return

Robert D. Flach, TRUE TAX TIME TALES – IRA WITHDRAWALS

 

Brian Strahle,  MARYLAND:  WYNNE CASE UPDATE

On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller’s motion for reconsideration in Comptroller v. Wynne,  which struck down the state’s application of credits against pass through income from S corporations; however, the court stayed implementation of the ruling to allow the comptroller to petition the U.S. Supreme Court for certiorari.

Peter Reilly,  RVania Resident Taxed By New Mexico.  State tax problems of folks who live on the road.

 

Kaye Thomas,  Self-Directed IRA Implodes.  The same case I discussed here.

 

 Jack Townsend, Tax Perjury and FBAR Charges Related to Illegal Income Fake Art Case

Jim Maule, Taxation is Not Theft.  It’s not theft when the government does it.

 

 

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Tax Roundup, 5/16/2013: Acting-out edition. And a real Iowa economic development initiative.

Thursday, May 16th, 2013 by Joe Kristan
No-longer-Acting IRS Commissioner Steven Miller

No-longer-Acting IRS Commissioner Steven Miller

So the Worst Acting Commissioner Ever is gone.  From The Wall Street Journal:

 President  Barack Obama  forced the resignation Wednesday of the acting commissioner of the Internal Revenue Service in connection with the inappropriate targeting of conservative political groups.

“Americans are right to be angry about it and I’m angry about it,” Mr.  Obama said in announcing the departure of acting IRS Commissioner Steven Miller, who took over the post in November. “The IRS has to operate with absolute integrity.”

Mr. Miller’s resignation is necessary, given the evidence that he hasn’t been honest about IRS harassment of right-side political organizations, but it won’t be sufficient to quell the scandal.   Yesterday’s line, that the scandal was the work of “two rogue employees” in Cincinnati, is risible in light of the involvement of the D.C. and Laguna Niguel offices in the harassment.  That is, unless the two rogue employees were Doug Shulman and Steven Miller.

The TaxProf rounds up a big day in big media coverage: The IRS Scandal, Day 7.  Other blog coverage:

 

Tony Nitti, IRS Takes Time Away From Bullying Tea Party To Release Snoop Lion’s Tax Lien:

So in my view, the problem here isn’t so much that the IRS “targeted” a particular type of taxpayer — because that’s what the IRS does – but rather that in targeting the Tea Party, the Service is reflecting a political bias, something an arm of the government simply cannot do.

I think that’s about right.  Given the long delays in Tea Party applications, while similar applications by left-side groups were routinely approved, it’s pretty hard to believe that it wasn’t discrimination against right-side viewpoints.

 

Christopher Bergin, Scandal, Scandal, Scandal (Tax Analysts Blog):

Among the many ridiculous tasks our politicians pile on the tax collector, the agency has been charged with determining whether political organizations applying for 501(c)(4) status are too political and to do that without getting political. Sounds like a winner to me. Last Friday, the IRS admitted it failed in performing that task. What a surprise.
The IRS also fails in administering a social welfare program known as the earned income tax credit. And just think of how well it will administer the myriad of rules it will have to deal with once the new health care system becomes fully operational.

But we can trust them to regulate preparers, right?

Victor Fleischer raises related point in a New York Times piece.  While I think some of the focus on “institutional” issues is a way to change the subject from political bullying, I don’t mind if it leads people to realize that the tax law is for collecting taxes, not the Swiss Army Knife of public policy.

Howard Gleckman at TaxVox clings to the “botched processing” line: The IRS and the Tea Party: Treasury Report Finds Big Bungling but Small Scandal

Joseph Henchman, President Obama Obtains Resignation of IRS Acting Commissioner; Takes Effect in June (Tax Policy Blog)

TaxGrrrl, Acting IRS Commissioner Miller Out In Midst Of IRS Tax Exempt Scandal

Kay Bell, Obama fires IRS Acting Commissioner

Peter Reilly, Have Some Sympathy For IRS Cincinnati Gang That Couldn’t Sort Straight

Going Concern, Acting IRS Commissioner Is Gonna Take Off Now

Me, So the Worst Acting Commissioner Ever is done.  Too bad, they just finished his official portrait.

 

 

In other news:

Minnesota Budget Deal Includes $2 Billion Tax Hike (Elizabeth Malm, Tax Policy Blog):

The budget adds another income tax bracket on single filers earning $150,000 or more annually. The state’s top rate will now be 9.85 percent, making it the fourth highest top rate in the country. Politicians are spinning this as only affecting the “top 2 percent,” but that misses the point.

Pushing more of the tax burden onto a smaller, wealthier group is poor policy, not because I care about rich people more (an absurd and inaccurate, but unfortunately common, assertion), but because those incomes are volatile. Income tax revenues that derive a large share of receipts from the wealthiest are unstable, and there’s a lot of research to back that up (a few examples can be found here and here). This point is exacerbated by the fact that lawmakers might also throw in an additional temporary income tax surcharge on those earning $500,000 or more.

This will do more for Iowa’s economic development than anything the Iowa economic development bureaucracy ever will.

 

Tax Justice Blog, State News Quick Hits: Why a Revenue Uptick is Not a Surplus, and More

You’re as young as you feel.  A Rhode Island man pleaded guilty yesterday to charges arising out of an alleged kickback operation involving the Navy.

At age 81.

Maybe there are federal prisons with shuffleboards.

 

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Tax Roundup, 5/13/2013: Modified limited hangout edition. And a tax blog hijacking!

Monday, May 13th, 2013 by Joe Kristan

20130419-1If the IRS hoped Friday’s “apology” for giving extra special attention to tax-exemption applications of right-side groups would settle things, they’re very disappointed this weekend.  The Washington Post reports that the Treasury Inspector General for Tax Administration will soon issue a report saying Friday’s apologizer, IRS Director, Exempt Organizations, knew this was going on in 2011.  Meanwhile, in 2012 IRS Commissioner Doug Shulman was still testifying that IRS was not picking on the Tea Party.

So not only was the Shulman era at IRS grasping, incompetent and casually cruel, it was dishonest.

The Tax Prof has a fresh roundup, The Deepening IRS Scandal.

Another Washington Post story has this:

At various points over the past two years, Internal Revenue Service  officials singled out for scrutiny not only groups with “tea party” or “patriot” in their names but also nonprofit groups that criticized the government and sought to educate Americans about the U.S. Constitution, according to documents in an audit conducted by the agency’s inspector general.

The documents, obtained by The Washington Post from a congressional aide with knowledge of the findings, show that the IRS field office in charge of evaluating applications for tax-exempt status decided to focus on groups making statements that “criticize how the country is being run” and those that were involved in educating Americans “on the Constitution and Bill of Rights.”

Yes, we sure need to keep an eye on those wingnuts who want to educate people on the Constitution and Bill of Rights.  Dangerous lunatics, they are!

There is so much blog coverage of this that I won’t even try to round it all up.  A few links from our blogroll:

Megan McArdle,  Why Did the IRS Target Conservative Groups?

Going Concern, Footnotes: Tea Party Patriots to IRS: Drop Dead

TaxProf,  Schmalbeck on the IRS ‘Targeting’ of Conservative Groups, where an academic gives a ”nothing to see here” take, one that is already largely overtaken by events.

 

And some other coverage:

Connor Simpson,  Why the IRS Abruptly Apologized to the Tea Party  (via Instapundit):

The report doesn’t shay whether or not Shulman was informed about the Tea Party questioning, but it does show the IRS’s chief counsel was. It’s standard procedure for the counsel and commissioner to discuss this  sort of thing before a Congressional hearing.

If so, The Worst Commissioner Ever can only plead incompetence instead of lying to Congress.

Reason.com has a bunch of posts at their Hit and Run blog, including  Matthew Feeney,  IRS Scrutiny Extended Beyond Tea Party Groups (Reason.com); Jesse Walker,  A Brown Scare at the IRS?; Matt Welch,  NY Times: IRS Targeting of Tea Party Only Proves Republicans Are Desperate  “It’s the inability to see discrete news events for what they are, rather than what they might mean for the neverending scrum between Teams Red and Blue.”

Jonathan Adler,  IRS Scrutinized Teaching the Constitution (Volokh Conspiracy)

Professor Bainbridge, Wider Problems Found at IRS – Twisting slowly in the wind

William Jacobson,  IRS anti-Tea Party scandal gets real — senior IRS officials aware of targeting (Update – Chief Counsel knew and targets expanded to groups “educating on the Constitution and Bill of Rights”)

Katrina Trinko, Rubio: IRS Commissioner Should Resign Immediately (The Corner)

Ann Althouse has more.

And here’s my take from Friday, if you missed it:   Look at a celebrity return?  You’re fired!  Harass a Tea Party outfit?  Carry on.

 

In other news:

Nina Olson, IRS Taxpayer Advocate, has an article in Tax Analysts (via the TaxProf) affirming her support for taxpayer regulation.  Ms. Olson has done much good work as Taxpayer Advocate, but her support for increased preparer regulation is economically uninformed and hopelessly wrongheaded.

 

Russ Fox,  IRAs and Owning a Business Through an IRA and  What Can Go Wrong?  Nevada Democrats Want to Give Tax Breaks to Movie Industry

Peter Reilly,  Brooklyn Grandmother Wins On Dependency Exemption.   Just in time for Mothers Day!

TaxGrrrl,  IRS Set To Close Next Week.  Bad news: it’s only temporary.

 

Trish McIntire,  Max and Dave Looking for Reform

Nick Kasprak,  Do Tax Cuts Pay for Themselves?

Patrick Temple-West,  Falling deficit alters budget debate, and more

Linda Beale,  Orrin Hatch on tax reform at the ABA–a predictable right-wing rant

 

Andrew Mitchel,  Barnes Group – Structured Repatriation Was a Dividend.  In spite of the best efforts of national tax firms.

Phil Hodgen,  Decline of American Civilization, Form 8938 Edition.  “Let’s just bury the world in useless paperwork, shall we?”  That does appear to be the plan.

 

Kay Bell,  IRS reports gains in criminal tax, other financial investigations

Jack Townsend, Cheating is Cheating, Except When Offshore Accounts Are The Means, followed up with More on Conviction Rates in Tax Cases.

Janet Novack,  Independent Contractor Enforcement: There’s More Than The IRS To Fear.  Plenty of state rules and taxes also come into play.

Jim Maule,  The Complexities of Tax: Is This Really Necessary?  “A recent IRS private ruling, PLR 201318003, illustrates how the special low rates for capital gain adds layer upon layer of complexity to the tax law.”

 

I’d like to report a hijacking.  It looks like somebody at Tax Analysts forgot to renew their ownership of the  tax.com domain name.  Going there this morning gets this:

20130512-1

Tax.com is (has been?) home to the great group blog featuring, among others, David Brunori, Christopher Bergin, David Cay Johnston, Martin Sullivan, Cara Griffith and Clint Stretch.  I hope this is only a temporary hijacking.

 

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Tax Roundup, 1/21/2013: Preparer regs struck down. What’s next?

Monday, January 21st, 2013 by Joe Kristan

20130121-2After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers.  U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.

So now what?

I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months.  It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.

Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation.  This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.

As of this writing, the IRS has yet to comment.

So who wins?  Small unenrolled preparers are big winners.  They are now free of the brain-dead RTRP bureaucracy.  Enrolled Agents are also big winners.  The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers.  But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.

The losers?  The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations.  The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors.  And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.

 

When at first you get enjoined, try, try again.  In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.”  Apparently he dusted himself off and went right back to work.  From a Department of Justice Press release:

The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.

 Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.

No, you can’t give a tax free “tool allowance” to employees.  And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.

 

In case you were wondering: Iowa explains sales tax treatment of Groupons.

Gongol, The people who pay a tax aren’t always the people who give the money to the government:

Companies that make medical devices are paying a 2.3%  excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.

So true.

Paul Neiffer, IRS Announces April 15 Farmer Deadline

Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation

Jack Townsend,  Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence.  A discussion of the Fiore case, which I discussed last week.

TaxGrrrl, Why Justice Matters, Revisited

Richard Morrison,  Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)

Roberton Williams,  How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe  AMT.”

Robert D. Flach,  RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS

Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)

Kay Bell, Tax filing preparation checklist

Brian Strahle,  Is Your Company Paying Too Much Virginia BPOL?

Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee

 

OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale.  C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.  

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Tax Roundup, 1/14/2013: Big webcast today! Meanwhile, outlook bleak for Iowa income tax policy.

Monday, January 14th, 2013 by Joe Kristan

20130114-1New law webcast today!  I will be participating in a webcast today on the new Fiscal Cliff law and other recent tax developments.  The webcast, sponsored by the Iowa Bar Association, will start at noon.  I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and IRS Taxpayer Liason Christy Maitre.   Cost:  $35 for IBA tax school attendees and attendees of any 2012 CALT Farm and Urban Tax School; $35; $75 otherwise.  Agenda here, registration page here.  2 hours of timely CPE and Tax Update fun!

 

No good will come of this.  The 2013 session of the 85th Iowa General Assembly begins today, and the outlook for improvement in Iowa’s tax system is bleak.  Iowa business groups have firmly embraced a state tax incentive policy based on taking money from all of us to bribe well-connected businesses to do things they would do anyway.  From the Sioux City Journal:

Business groups like the Iowa Chamber Alliance, a non-partisan coalition representing 16 chambers of commerce and economic development organizations, are supporting a variety of tax credits to retain, grow and attract investments in the state. Those credits include restoring the $185 million cap on economic development tax credits that currently stands at $125 million for fiscal 2013.

Jason Hutcheson, chief executive officer of the Greater Burlington Partnership, said tax credits are a highly effective tool that deliver a high return on investment and are essential to retain, expand and recruit businesses and to attract technology and research. ICA members also are lobbying legislators to spend at least $25 million for business development incentives after the line item was shrunk to $15 million for the current fiscal year.

The politicians shed crocodile tears about just being forced to go along with a system based on them granting special favors:

Senate GOP Leader Bill Dix of Shell Rock said there is opposition to government choosing winners and losers with taxpayer-funded incentives, but he added, “There’s no question in my mind that an incentive policy is the world we live in. I don’t appreciate that and wish it wasn’t the case, but we do need a policy that includes incentives.”

You know what would be a real incentive to grow a business in Iowa?  A much simpler tax system with lower rates, one eliminating the corporate income tax altogether.  Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Instead, Iowa has a horrible system built around complexity and high rates, made less painful — even lucrative — for those with the connections and lobbyists to score targeted tax credits.  The legislators hear from those people — not from the more numerous businesses  who quietly set up shop in South Dakota or other more friendly tax climates.

20130114-2

The Iowa Research Credit is refundable, so Iowa writes a check when the credit exceeds the computed tax. The $45.2 million in corporate research credits claimed in 2010 resulted in $43 million in refunds.

The best we can hope for from the legislature is prompt action on ”coupling” legislation to conform Iowa’s 2012 tax law to the federal changes passed earlier this month.  The 2012 filing of many Iowa returns is on hold until they do so.  We’ll see if they can even accomplish that much.

 

What does the Worst IRS Commissioner Ever do for an encore?  He becomes a guest scholar at the Brookings Institution, which may never recover (TaxProf)

Scott Drenkard, Governor Jindal’s Bold New Tax Plan  (TaxPolicy Blog).  Could you live with a higher state sales tax if the income tax goes away?  Even if it taxes accounting services?  Tempting.

Paul Neiffer, Good News – Certain Credits Offset AMT

Jack Townsend, The Big Boys Get Better Treatment in Our Tax System Than Do Minnows

Joseph Thorndike, Peggy Noonan and the Beleaguered 1 Percent

TaxGrrrl, Ask the taxgirl: Filing Your Tax Return Early

News you can use: States to seniors: Good times may be ending, and more (Patrick Temple-West, Tax Break)

The Critical Question: Your Money Or Your Life – Which Can You Deduct ? (Peter Reilly)

That’s what they say, anyway.  White House says no to Death Star.  (Kay Bell)

At least she knows her constitution.  Miss Iowa takes fifth! (TheBeanwalker.com)  UPDATE!!!  Miss America Contestant Says Marijuana Should Only Be Legal For “Recreational Use and Health Care” (Mike Riggs, Reason.com).  So don’t smoke at the office.

 

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Tax Roundup, 12/3/2012: Medicare 3.8% tax guidance issued. Meanwhile, to the cliff!

Monday, December 3rd, 2012 by Joe Kristan

The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday.  I will do detailed posts on the in the coming days as I study them.

I’ll note two important items from my first overview of the proposed rules:

  • The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. ”Passive” business activities are subject to the the 3.8% tax.  Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
  • The rules appear to allow you to pro-rate state income taxes in determining “net” investment income.  That’s taxpayer-friendly, but it adds another level of complexity.

For an initial take on the rules, see Anthony Nitti at Forbes.

Related:   Obamacare: it’s a tax!

 

David Brunori of Tax Analysts on the fiscal cliff discussion:

     Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.

     Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.

You can’t pay for mass welfare benefits with a class tax.  The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required.  The Rich Guy’s not buying.

 

Why the fiscal cliff is such a big fall.  The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):

He adds:

And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.

Related:  ‘Fiscal Cliff’ follies: Why it may pay to take deductions early.  My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Nobody’s serious I:  No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)

Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit

 

Iowa admits its capital gain forms were a mess.  A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.

The taxpayer had excluded regular capital gains from a brokerage account on her tax return.  Iowa properly rejected the deduction, but admitted her mistake was understandable:

Your position relies on the Department’s instructions for completing the tax return.  We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above.  In any event, the instructions are not controlling.

Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction.  It’s a big improvement, but it should be better.  There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.

The state examines every capital gain exclusion claim.  Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.

Related:  Iowa Capital Gain Break: how it works when you rent property to your business

 

NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness  (TaxProf):

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

It’s a chump’s game, and we taxpayers are the unwilling chumps.  These things are to economic growth what steroids are to long-term fitness.

 

When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up.  A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS.  They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment.  From the Department of Justice Press Release:

Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.

No doubt it was of the best-quality.  Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.

Doug Shulman is no longer IRS Commissioner, but his legacy remains:

 ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report

Dayton Daily News,  IRS says tax fraud attempts up 39 percent

Greg Mankiw,   Some Advice on Tax Planning

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

The Critical Question:  Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)

Kay Bell:  Time to spend down your medical flexible savings account (FSA)

Paul Neiffer,  Senator Baucus Urges Extension of Current Estate Tax Laws

Jim Maule,  Passing the Tax Responsibility Buck

Peter Reilly,  Who Should Be Accelerating Income Into 2012?

Patrick Temple-West,  Most Americans face lower tax burden than in 1980, and more (Tax Break)

Robert D. Flach,  DAMNED IF THEY DO AND DAMNED IF THEY DON’T.

Tragedy:  Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)

The Tax Update is also on Twitter (@joebwan) and Facebook!

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Tax Roundup, 11/9/2012: Don’t let the door hit you, Commissioner.

Friday, November 9th, 2012 by Joe Kristan

So long, Worst Commissioner Ever.

Today is the last day in office for IRS Commissioner Doug Shulman.  He gave a validictory speech to the AICPA reciting what he sees as his accomplishments — primarily the crackdown on international tax evasion and alleged progress in IRS technology.  He left out what I consider his most important achievements.  These include:

Wasting IRS resources, practitioner time, and taxpayer money on a futile taxpayer regulation regime.  The new program will expand IRS power over practitioners and help clear the field of competitors for H&R Block and Jackson Hewitt, which is the real goal.  It will increase the cost for taxpayers to have their returns done, driving some to do their own returns without help and others to drop out of the system.  It certainly won’t improve compliance by enough to justify the cost.

Identity theft refund fraud has become an epidemic on his watch.  While he was busy grabbing regulatory power over preparers and beating up on Americans abroad (see below), street thieves learned that they could steal billions from the taxpayers through ID-theft fraud and debit cards.  It’s a $5 billion annual problem, and only in the last few months has the service stirred itself to begin to address the issue.

The IRS crackdown on international tax fraud has ended up terrorizing thousands of innocent taxpayers.  U.S. citizens employed abroad and accidental citizens who have long since set up residence in other countries — generally owing no U.S. tax  — find themselves hounded and threatened with ruinous fines for failing to comply with busy-work paperwork requirements that they had never heard of.

There’s more, of course.  The IRS Taxpayer Liaison office is being gutted and the Taxpayer Advocate office emasculated, taxpayer service only gets worse, the K-1 matching and self-employment income initiatives send millions of wrong notices to taxpayers, and it’s never been more difficult to get answers out of Washington.   With his replacement to be appointed by a President who loves regulatory excess, taxpayers can only brace themselves for more of the same.

 

TaxProf, Voters Say Yes to Marijuana, IRS Says No, linking to a Forbes piece by Robert Wood.  False move by IRS.  If we all were stoned, the tax law might appear to make sense.

Going Concern,   Chuck Schumer Is Willing to Give John Boehner a Few Days to Warm Up to Higher Taxes

Martin Sullivan,  Tax Reform 2.0 (Tax.com):

 Get rid of the AMT. Simplify rules for pensions and retirement saving. Simplify education incentives. And in our effort to maintain distributional neutrality, don’t reinstate the Pease provision and personal exemption phaseout (as proposed by Obama). And don’t install new phaseouts of itemized deductions (as suggested by Romney). These are just hidden marginal rate increases.

Kay Bell,  Tax compromise or coded tax talk?

Paul Neiffer,  ObamaCare Here To Stay (At least 4 more years)

Especially those of GM, Chrysler, windmill companies…   CEOs vow to work with Obama team, and more   (Patrick Temple-West, TaxBreak)

Phil Hodgen,   Fideicomiso private letter ruling offers some hope:

This is an immensely sane step in the right direction.  Fideicomisos are title-holding mechanisms required by the Mexican Constitution.  A Mexican bank holds title to your real estate but otherwise takes no responsibility whatsoever for anything.  Trustees are required to protect and preserve assets for the beneficiaries.  A fideicomiso does not behave like a trust at all.

Anthony Nitti,   Continuing The Countdown: The 8th Most Noteworthy Tax Case Of 2012

Jim Maule,  Tax Collection Obligation is Not a Taxing Power Issue

Peter Reilly,   Hurricane Sandy Tax Relief – More Than Meets The Eye

Today? Right now?  RETIRE A MILLIONAIRE!  (Robert D. Flach)

 

Have a great weekend!

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Tax Roundup, 11/8/2012: Denison Day! And some things to look forward to.

Thursday, November 8th, 2012 by Joe Kristan

The Tax Update is on the road in beautiful Denison, Iowa, birthplace of Donna Reed!

 

I’m speaking at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School.  There’s still time to register for the remaining five sessions!

 

“‘There are a lot of sales right now,’ explains Steve Bruere, president of Peoples Co. in West Des Moines.”  From IowaFarmerToday.com:

“I see a drop off (in the number of sales) after the first of the year.”’s one logical response to the looming increase in capital gain rates. 

With potential sellers concerned they may have to pay a 20 percent capital gains tax rate instead of 15 percent, and with many of them questioning what other tax changes may be coming, there has been a push to sell now.

The logic says if you were seriously considering a land sale, you would make sure it happened before the end of the year, Bruere says.

Actually, the rate will probably be 23.8%, including the new Obamacare tax on investment income.

More to look forward to:  “The IRS Small Business/Self-Employed Division plans to increase its audit activity for passthrough entities beginning in 2014, SB/SE Commissioner Faris Fink said November 7,”  reports Tax Analysts ($link).  But if you operate a C corporation, don’t be smug:

SB/SE is planning a one-year National Research Program project to study areas of noncompliance. Under the project, the division will examine 2,500 returns from corporations with assets of less than $250,000, Fink said.

Something to look forward to, like a colonoscopy appointment.

 

The Election is over. Now what?

TaxProf, Boehner Would Accept ‘New Revenue’ Under ’Right Conditions’

Going Concern, Hold the Phone, John Boehner Didn’t Say Anything About Taxes Going Up

 Martin Sullivan,   Wanna-Be Tax Reformers Need a Dose of Reality (Tax.com)

Daniel Shaviro,  Boehner on the possible terms for a fiscal cliff deal

Kay Bell,  Investors sell stock ahead of fiscal cliff, plus locking in 15 percent capital gains

Patrick Temple-West,  How far can Obama push on key issues including tax increases, and more

Anthony  Nitti,  With The Election Over, We Can Finally Do Some Meaningful Tax Planning. Six Year-End Steps To Consider.  #6 is bold planning indeed.

 

In other news… 

Robert D. Flach,  DEDUCTING SANDY

William Perez,  New Jersey Tax Relief for Hurricane Sandy

Linda Beale,  Tax Relief for Victims of Sandy

Richard Morrison,   Chart of the Day: Can Taxing Millionaires Eliminate the Deficit?  (No).

Brian Strahle,  How Virginia Based Companies Can Reduce Their State Income Tax Liability

TaxGrrrl, IRS Commissioner Says Public Goodbye After Election 2012

Jack Townsend,  Commissioner’s Swan Song – Excerpts on Offshore Bank Initiatives

 

Tomorrow is Doug Shulman’s last day as IRS Commissioner.  So how is the fight against tax refund fraud going?

Tampa Police Chief Jane Castor went public with her irritation at the slow pace of the investigation into a piece of the tax fraud scourge spreading among street criminals. Authorities say hundreds of millions of dollars in bogus income tax returns have been processed from the Tampa area alone.

“We have an individual that we know did in the ballpark of $9 million in tax fraud,” Castor said in February. “He was arrested and charged in September. And there’s no reason for us to believe that he’s slowed down at all.”

In March, Tampa Police Detective Sal Augeri testified before a U.S. Senate subcommittee in Washington about tax refund fraud and described the Simmons case without naming him.

“We have no reason to believe he has stopped committing this crime,” Augeri said then.

Russell B. Simmons, the man referred to above, pleaded guilty this week to tax fraud. He has to give up ill-gotten goods, including “… a $60,000 Bentley coupe and diamond jewelry that included a $30,000, 18-karat gold Rolex watch with a diamond dial; a 14-karat gold men’s bracelet with 2,420 diamonds; a 14-karat chain and “RS” pendant with 703 diamonds; and a 14-karat ring with 110 diamonds.

Every day the IRS let the identity thief continue to operate, he created new little nightmares, like those experienced by Jason Dinesen’s client, for the innocent taxpayers whose identities he stole.  Meanwhile, Commissioner Shulman was focusing IRS resources on creating a big, expensive and futile preparer regulation bureaucracy.  A man has to have priorities, after all.

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Tax Roundup, 11/5/2012: Last week for the commissioner!

Monday, November 5th, 2012 by Joe Kristan

Soon-to-be-former-IRS Commissioner Douglas Shulman

Little disasters every day, courtesy Doug Shulman’s IRS.  We shouldn’t be surprised that the federal government is once again making a hash out of disaster relief.  They can’t even handle one-victim disasters at the IRS.  Jason Dinesen has posted two more installments (9, 10) of the infuriating saga of a client’s struggle with identity theft after her husband died.  From the latest installment:

I then proceeded to point out that it’s been 33 months since Brian died, 18 months since we filed the tax return, and 12+ months since we sent the original Form 14039 to the IRS. Again, can’t they use common sense and wrap this up?

The answer was, no.

Contrast that with the prompt issuance of a tax refund to the identity thief over a year ago.

Jason’s client ID theft problem was almost certainly the result of a glaring problem that has been known in the agency for years involving the use of social security numbers of recently-dead taxpayers published by the government by identity thieves.  The IRS is only now taking steps to fight it, while billions of tax dollars continue to go out to the thieves annually.  Meanwhile, they’ve found time to institute an expensive and futile preparer regulation scheme and power-grab.  They have their priorities, after all.

One thing voters of all parties can look forward to this week is the Friday expiration of the term of Doug Shulman, The Worst IRS Commissioner Ever.

 

Richard Morrison,   Chart of the Day: Trends in Business Income (Tax Policy Blog)

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Election Day Primer: Comparing the Obama and Romney Tax Plans

TaxProf,  Johnson: Tax Reform and the Presidential Election

Kay Bell, Voters get their say Nov. 6 on 30 tax-related state ballot initiatives

Joseph Thorndike,  Muzzling CRS is a Bad Idea — Even for Republicans (Tax.com)

Len Burman,  Which presidents spend the most? You might be surprised. (TaxVox)  For some reason he stops in 2001.

Paul Neiffer,  Get Ready For The New Medicare Tax Increase on Earned Income

Anthony Nitti,  Victims of Superstorm Sandy May Be Able To Exclude Assistance Payments From Taxable Income

Jack Townsend notes an Article on Erosion of Swiss Secrecy

Peter Reilly,  Unfair Tax Court Decisions On Life Insurance Are Tip Of Unclaimed Property Iceberg

Missouri Tax Guy,  Advantages of Filing a Tax Return Extension

Robert D. Flach,  TOP TEN LIST ADDENDUM.  This is so true:

More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

I would love to see an accounting of how much revenue the government steals from taxpayers who write checks because they are afraid of the revenue agencies, or because the amounts are known to be wrong, but the taxpayer doesn’t think they are worth the fight.

 

Bad News you can Use:  Bad News for German Poker Players (Russ Fox)

 

Richman, Dumdum man.  The story you are about to read is true.  Then names have been left the same to protect the humor.  CBSlocal from Chicago reports:

He wasn’t too smart about paying federal income taxes, and now Rimando Dumdum man is going to prison. 

WBBM’s Bernie Tafoya reports the 44-year-old Morton Grove tax preparer, who came to the U.S. from the Philippines in 1989, owned a company called “Richman Tax Solutions.”

Apparently it’s easier for a camel to pass through the eye of a needle than for a Richman to get a tax return right.  But all things are possible:

According to his plea agreement, he helped clients illegally trim an average of $1,400 from their tax bills. In all, between his clients’ returns, and his own tax fraud, Dumdum cheated the federal government out of $232,000 in all.

However, prosecutors said he likely helped clients evade $3.5 million in taxes, citing an audit showing his company falsified 99 percent of the tax returns it filed.

The way he looks out for the 99%, he should be a favorite of the Occupy people.  I wonder if the 1% of his customers who didn’t get phony returns feels cheated somehow.

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Tax Roundup, 10/23/2012. News of the obvious edition. And…look! Dead squirrels!

Tuesday, October 23rd, 2012 by Joe Kristan

Refundable credits are vulnerable to fraud, and IRS can’t recover the fraudulent payments.  The Treasury Inspector General for Tax Administration discovers the obvious,  reports Accounting Today (my emphasis):

A new report released Monday by the Treasury Inspector General for Tax Administration on refundable tax credits found that they are highly vulnerable to fraud. Refundable tax credits such as the EITC, the Additional Child Tax Credit, the First-Time Homebuyer Credit, and the American Opportunity Tax Credit for education also provide valuable tax breaks for low-income taxpayers and the middle class.

I call foul.  To say the “First-Time Homebuyer Credit” provides “valuable benefits for low-income taxpayers and the middle class” is lazy and dishonest propaganda.  That’s just the Accounting Today reporter’s assertion, and it appears nowhere in the TIGTA report.   The credit poured money into a declining housing market with little effect, other than blowing $30 billion.  The policy behind the other credits is at best arguable, and the benefits aren’t clearly “valuable” to taxpayers as a whole.

TIGTA initiated its audit to determine the effectiveness of efforts by the IRS to recover refundable credits disallowed during post-refund examinations and to consider options the IRS could implement to decrease the issuance of erroneous refundable credits. 

“Because of the susceptibility of these credits to fraud, and the low success rates in recovering erroneous credits once refunds have been issued, the IRS should take every reasonable step possible to identify potentially questionable credits and validate those credits before associated refunds are issued,” said TIGTA Inspector General J. Russell George in a statement.

So Doug Shulman’s IRS isn’t taking every reasonable step to keep from sending cash to thieves?  He’s been too busy terrorizing innocents abroad and setting up a vast, expensive and useless preparer regulation bureaucracy, apparently.

 

Attorney: West Des Moines firm’s outstanding liabilities to be paid soon (Des Moines Register).  The payroll service provider facing large bills for not remitting client payroll taxes timely says they will make good on them:

A West Des Moines human resources provider has paid its 2012 tax liabilities and has the funds necessary to pay off more than $4.8 million liabilities within the next three months, an attorney for the businessman said today

The Internal Revenue Service since 2006 has issued at least 15 tax liens against John Vratsinas and his collection of companies, InFocus Partners, Iowa Construction Logistics and ICL Staffing, according to court documents.

That’s good news for clients who might otherwise have to pay their payroll taxes twice, first to the payroll company and then to the IRS.  The taxman wants its payroll taxes, even when the payroll company already has received them.   Of course payroll providers shouldn’t fall behind on payroll taxes in the first place.  A wise employer will enroll in EFTPS and go online to monitor that the taxes are being paid, even when they outsource the job.

Also from the West Des Moines Patch: Attorney for West Des Moines Payroll Outsourcer Says 2012 Taxes Paid

Related Tax Update coverage here.

 

The TaxProf mentions an academic paper “Ranking State Tax Systems: Progressivity, Adequacy, Efficiency.”  From the abstract:

A good tax system must raise sufficient revenue – and do so fairly, efficiently, transparently, and coherently. How do the tax systems of the states stack up in terms of fairness, adequacy, and neutrality? To answer this question, we assess each state’s relative performance in terms of progressivity, growth, and administrative and economic efficiency.

Iowa rates 32nd by their measure. I think “progressivity” is a poor tool for measuring state tax systems.”Progressivity” is just a weasel-way of saying ”high rates,” which create distortions and inefficiency, like in Iowa, while punishing pass-through businesses.  Any measure that rates the horrendous New York tax system as #1 is absurd.

 

Russ Fox, Bad States for Gamblers

Patrick Temple-West,  Essential reading: Democrats threaten payroll tax cut consensus, and more (Tax Break)

Trish McIntire,  Tax Backup.  Maintain your records.

Kay Bell,  Kiddie tax, gifts and other tax-related items do get 2013 inflation adjustments

William Perez,  IRA Contribution Limits for 2013

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Final Presidential Debate – Live Blog

Janet Novack,  10 Reasons Reagan Could Cut The Top Tax Rate To 28%, But Romney Can’t

Peter Reilly,  Debate Proceeds Despite Green Party Lawsuit – Hear Jill Stein On Defense Here

Anthony Nitti,  Clearing Up Confusion Created By The Debates: President Obama’s Tax Proposal And The Fate Of The Small Business Owner.  Anthony unfortunately repeats the pointless fact that increasing the Obama plan only affects “2.5 of small business owners.” That’s true when you rate your Shacklee-selling neighbor the same as a business with dozens or even hundreds of employees.

As the Tax Foundation notes, the Obama plan affects a much higher percentage of pass-through income, a more important measure than the number of Schedule C 1040s.  Anthony dismisses this as just a concern of hedge-funds and private equity millionaires.  My pass-through clients would disagree.

 

The Critical Question:  So Jason … How’s that Guidebook About Same-Sex Marriage and Taxes Coming?  (Jason Dinesen)

Stretch your coffee break:  How to Weaponize Office Supplies (Bloomberg Business Week, via Instapundit)

So the dog can do this, but I can’t?  Man cited for backyard squirrel hunt (KCCI.com)

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Tax Roundup, 10/11/12: Don’t let the door hit you edition.

Thursday, October 11th, 2012 by Joe Kristan

Hey, everybody, those extended 1040s are due Monday!  

Doug Shulman shows how much he cares.

Doug Shulman steps down November 9.   (TaxProf). Meanwhile, his legacy lives on:

Federal authorities Wednesday stepped up their assault on the viral-like crime of identity theft and tax fraud, arresting dozens of South Florida suspects on charges of filing fake returns totaling millions of dollars.

  Three homes were raided Wednesday in an effort to crack down on rampant tax fraud in the Tampa Bay area.

Under Commissioner Shulman’s watch, identity theft tax refund fraud has reached epidemic proportions.  The IRS mails perhaps $5 billion of your hard-earned tax dollars to thieves annually, while creating nightmares for taxpayers whose tax lives are disrupted and refunds held up.

Meanwhile, Commissioner Shulman has spent his time terrifying innocent Americans who have foot-faulted their obscure information reporting responsibilities and imposing a useless but expensive preparer regulation regime.  Way to go, Commissioner.

 

Attorney for West Des Moines payroll service says firm will catch up on unremitted client taxes (West Des Moines Patch)

No. If Europe Adds a Financial Transactions Tax, Will We Follow? (Linda Beale)

Martin Sullivan,  Don’t Count on Dynamic Scoring (Tax.com).  Meanwhile, William McBride, in How Far we are from the Enlightenment (Tax Policy Blog), doesn’t seem to fully agree with Mr. Sullivan.

Patrick Temple-West,  Essential reading: Romney pledges to keep tax deductions for mortgages, and more

Peter Reilly,  Three Candidates And Carried Interest:

I sometimes think that I am the only person who writes about taxes in a non-technical publication, really understands what “carried interest” is all about and does not find it particularly upsetting. 

I guess that makes the Tax Update a technical publication.  I don’t think carried interests — profits interests in partnerships — are bad things, and I think the proffered “cures” are.

Daniel Shaviro,  1986-style tax reform: a good idea whose time has passed

Anthony Nitti,  Tax Court: In Order to Take A Worthless Debt Deduction, the Debt Need Actually Be Worthless

Kay Bell,  5 tax-saving deductions & credits

Ain’t that the truth:  Return Still Not Done (Trish McIntire)

Paul Neiffer,  Is the True US Deficit $76 Trillion Instead of $16 Trillion

Need continuing education?  Registration is open for this year’s fall tax schools at the ISU Center for Agricultural Law and Taxation.  I’m on the Day 1 teaching schedule.  Yes, there’s farm stuff, but there’s plenty for us city folk too.

News you can use: If You Equate Long Hours with Hard Work Then You Aren’t “Committed” But You May Be a Dumbass (Going Concern)

 

This won’t work out well.  From Post-Gazette.com

Joseph E. Gump’s trial for evading taxes from 2003 through 2006 had been set to start Tuesday. But Mr. Gump told the court last week that he would plead guilty, prompting the judge to cancel a call for 50 prospective jurors.
Then Mr. Gump wrote to U.S. Judge Terrence F. McVerry’s staff saying that a guilty plea “would be a lie” and demanding a trial.
Why?
He said he understood that any prison sentence will likely be less if he pleads guilty, but said he did not believe he engaged in any evasion.

Mr. Gump was accused in a 2011 indictment of indicating “none” as his taxable income for four years during which he earned a total of $250,333 and owed a total of $49,370. He has argued in court filings that the income tax can only be legally levied on federal lands.

Good luck convincing a jury that files returns every April of that.
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Tax Roundup, 10/9/2012: Area employers find their payroll provider hasn’t been remitting their taxes. Also: taxes are easy, for drug dealers.

Tuesday, October 9th, 2012 by Joe Kristan

http://www.rothcpa.com/misc/EFTPS.JPGIt can happen here.  IRS Files Liens to Recover $3.8 Million from West Des Moines HR Outsourcing Company.   From the West Des Moines Patch:

On Friday, court documents show the IRS filed a nearly $1.2 million federal tax lien against InFocus Partners and its subsidiary, ILC Staffing Inc., seeking to collect taxes that should have been paid on behalf of the company’s clients.

Not only did InFocus Partners fail to pay taxes for each of the past two quarters, according to the lien filing on the Iowa Secretary of State’s website, InFocus and its affiliated companies have been behind in tax payments off and on since 2006. The latest filing is part of an overall $3.8 million collection effort.

A woman answering the telephone at the InFocus office at 5930 Grand Ave. said company founder and owner John Vratsinas was not available for comment. She also said the company’s president, Charles Ganske, and at least two other top officers reportedly resigned Friday after learning of the liens against their employer.

The Des Moines Business Record quotes the company’s attorney as saying the nonpayment is an “administrative mistake” that will be corrected.  One hopes so.  If the company doesn’t remit the payroll taxes withheld for employees, the IRS and Iowa will come after the employers, who will end up paying the payroll taxes twice — a painful expense, and to some businesses a potentially fatal one.

That’s why you should verify your employment tax payments even if you outsource your payroll compliance function.  You can do this by signing up for EFTPS, the Electronic Federal Tax Payment System.  Employers enrolled in EFTPS can go online to verify that their employment taxes are being remitted.  If your payroll outsourcing provider doesn’t remit in a way that lets you verify via EFTPS, that means you can’t verify, but only trust.  That can end badly.

 

If true, the Romneys can start ordering furniture.    Election is a Referendum on Tax Hikes  (Martin Sullivan, Tax.com):

The latest predictions are that if Obama wins Republicans will allow passage of tax increases for the wealthy and if Romney wins Republicans will make no concessions.

Ask President Mondale how his advocacy of tax hikes worked out for his campaign.

Anthony Nitti,  The Tax Foundation: If You Account for Economic Growth, the Romney Tax Proposal Can Work, Be Revenue Neutral

 

TaxGrrrl,  Tax Deadline Approaching.  October 15 is it for extended 1040s; there is no second extension.

Kay Bell,  Tax procrastinators, the Oct. 15 final filing deadline countdown — and tax tips to help you get there — start today!

Paul Neiffer,  Maintain Flexibility with Deferred Payment Contracts.  One of the many great tax planning tools available to farmers only.

Bill Hanigan,  New Taxes on Farmland Sales for 2013 (Davis Brown Law Firm Tax Blog).  How Obamacare may make it best to sell the farm this year.

William Perez,  Consider Funding a Coverdell Education Savings Account:

Coverdell ESA’s are tax-advantaged savings plans combining tax-deferral on investment earnings and tax-free withdrawals if the beneficiary of the savings plan withdraws funds to pay for qualified education expenses. Coverdell ESAs are funded using post-tax dollars (no deduction is allowed for contributing to the account) and allow for contributions up to $2,000 per year per beneficiary.

How about next Friday night, then?  Smith: The Timing is Wrong to Reduce the Estate Tax on the Wealthiest Americans (TaxProf)

Russ Fox,  Escort Service Operator Charged with Structuring

Standing up to the menace of undocumented bugs:  Area men document Iowa’s moths (Gazette.com, via TheBeanwalker.com)

Who said taxes were hard?   Bogus tax returns easy money for drug dealers; Local law enforcement officials call on IRS to crack down on fraud (Reading Eagle)

Another triumph of tax simplification for Doug Shulman’s IRS.

 

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Tax Roundup, 10/4/12: IRS destroys taxpayer ID theft fraud reports. Also: the return of the Brutual Assault on Reason Watch!

Thursday, October 4th, 2012 by Joe Kristan

Because they’re too busy terrorizing Americans abroad who have bank accounts:  The IRS is Not Efficiently or Effectively Processing Identity-Theft Referrals, reports the Treasury Inspector General for Tax Administration.   From Tax Analysts (subscriber link):

     The IRS failed to investigate thousands of reported identity theft cases because taxpayers failed to follow inconsistent and confusing instructions for submitting a form to report tax fraud, the Treasury Inspector General for Tax Administration said in a report released October 3.

     The IRS instructs individuals to use Form 3949-A, “Information Referral,” to report suspected cases of tax fraud, but not identity theft. However, thousands of people have used the form to report identity theft cases because the instructions for the form are confusing, TIGTA said. Before May, the IRS did not have procedures in place for processing the Forms 3949-A that had been used to report identity theft, and in 2010 the IRS destroyed some 3,000 of the forms that had been used to report identity theft because there was no way to process them, the report says.

The explosion of identity theft has been the biggest IRS problem under Commissioner Doug Shulman’s watch.   Yet he has neglected and bungled the response to the thievery of up to $5 billion annually from the taxpayers so he could botch the “amnesties” for offshore bank paperwork foot-faults and build a new and useless preparer regulation bureaucracy.  His term ends soon; the next Commissioner has a lot of repair work to do.

Jack Townsend has more:  TIGTA Report on IRS Processing of Tips of Fraud

 

Brutal Assault on Reason watch.  I hate campaign debates and won’t watch them.  I agree with Arnold Kling:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed.  They are brutal assaults on reason.  I look forward to election season about as much as a gulf coast resident looks forward to hurricane season. 

But others have stronger stomachs:

Howard Gleckman,  What Did We Learn from the Presidential Debate? Not Much.

TaxProf,  Tax Whoppers in Last Night’s Presidential Debate

TaxGrrrl,  First Presidential Debate, 2012 – Live Blog and Romney Promises To Cut Taxpayer Funding For PBS (But Says He Still Loves Big Bird)

Anthony Nitti,  Reactions To Obama Versus Romney; Round 1

 

Bad idea.  The Romney campaign has floated a proposal to cap itemized deductions at $17,000 as a way to reduce tax rates.  That’s a bad idea for many obvious reasons.  If you are going to do that, why even bother?  Just have a $17,000 maximum standard deduction based on income.   By eliminating the deduction for state taxes paid, it would be a big tax increase on pass-through businesses operating in high-tax states.    William McBride at The Tax Policy blog gets it right:

Today Romney proposed to cap itemized deductions at $17,000, as a way to pay for his cut in personal tax rates.  This is not sound tax policy, as it would complicate the code, and likely require a number of exemptions and other loopholes.  For instance, how would legitimate business deductions be dealt with?  Which ones are legitimate? … It would be better to eliminate entirely certain wasteful tax expenditures, while lowering rates.

Other coverage:

Robert D. Flach,  LIMITING ITEMIZED DEDUCTIONS?

Martin Sullivan,  Romney’s Intriguing Idea (Tax.com)

Going Concern,  What Are People Saying About Mitt Romney’s Tax Deduction Cap Idea?

Kay Bell,  Romney suggests overall itemized tax deduction limit of $17,000

 

In non-campaign news:

Peter Reilly,  Navajo Nation Member Treated As New Mexico Resident For Income Tax Purposes

 Trish McIntire,  Kansas Taxing Business Losses

Jason Dinesen,  Would a New Name Help Enrolled Agents?  The new IRS “Registered Tax Return Preparer” designation can only be bad news for Enrolled Agents, whose much more stringent standards are little understood outside the professional world.  Many taxpayers have no idea of the distinction between these IRS-awarded titles.

News you can use: How To Make Partner In Five Easy Steps (or Don’t Give Up Now, Many Partners Are Going To Die Soon) (Going Concern)

 

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Tax Roundup, 9/28/2012: If you want to cheat on payroll taxes, get a government job. Plus: tax credits provide a man long-term housing!

Friday, September 28th, 2012 by Joe Kristan

A little personal liability for the unpaid taxes would get the point across.  The TaxProf passes on this nugget from the Treasury Inspector General for Tax Administration:

Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers.

When private or non-profit employers fail to remit payroll taxes, the IRS can impose personal liability on the “responsible persons” who fail to see that the taxes are paid.   The IRS can go after anyone from executives to bookkeepers to collect the unpaid tax.  It appears from the TIGTA report (page 2) that the IRS can’t or won’t apply this when government agencies are involved.   Another triumph of fairness from Doug Shulman’s IRS.  The TIGTA report recommends steps to address the problem, but tar and feathers would be a good start.

 

Contrast the IRS delinquent tax approach to other agencies with this:

Massachusetts Tax Fraud Promoter Sentenced to Prison for Conspiracy to Obstruct and Impede the IRS

A federal judge in Worcester, Mass., sentenced William Scott Dion today to 84 months in prison for conspiring to defraud the United States, and for obstructing the Internal Revenue Service (IRS), the Justice Department and IRS announced. U.S. District Judge F. Dennis Saylor also ordered Dion to pay restitution in the amount of $3 million. 

According to the evidence presented at trial, Dion, Floyd and Adams ran a payroll tax scheme in order to pay employees “under the table” without properly accounting for, withholding, and paying over to the IRS the payroll taxes required by law.

So a private sector actor gets seven years in the big house for scamming payroll taxes.   When a government agency budgeteer does it… nothing.

Other coverage: Kay Bell,  Uncle Sam owes himself $14 million in unpaid federal agency taxes

 

Think of it as a high-income housing tax credit.   Developer Gets 11 1/2 Years in Bank, Tax Fraud Scheme (HamptonRoads.com).

Eric Menden, the former owner of the Wainwright building and the old James Madison Hotel downtown, was sentenced Wednesday to 11-1/2 years in federal prison after admitting to his role in two fraud schemes that grossed more than $40 million.

Menden, 53, of Chesapeake, pleaded guilty to charges of bank and wire fraud and making false statements. He admitted his role in scamming the state and federal government’s historic tax credit program and to defrauding Bank of the Commonwealth out of tens of millions in a loan scheme.

Even when outright theft isn’t involved, “targeted tax credits” are normally a disreputable transfer from the taxpayers to the well-connected.

 

Howard Gleckman, A Modest Proposal: Five Ways to Tax the 47 Percent (TaxVox). I know he’s trying to show how outrageous it is to try to broaden the income tax base, but his first suggestion — repealing the Earned Income Tax Credit and the Child Tax Credit — is probably a good idea, and it would save the government billions of dollars in fraud losses.

In any case, if spending is not cut, the “47 percent” are going to see a tax increase, probably in the form of a Value Added Tax.  The “rich” simply don’t have enough money to cover the government’s incontinent spending, even if you took all their income.

 

Tax Policy Blog chart of the day:

 

Jack Townsend,  Former IRS Agent Charged with Conflict of Interest and Disclosing Return Information Including Whistleblower Name

Janet Novack,  Former IRS Examiner Charged With Leaking Whistleblower’s Name To Big Bank Target

Trish McIntire,  Livestock Deferment Extended

Russ Fox,   California Musings

Jim Maule, Taxes and Services

No kidding.   Corporate tax avoidance subsides when IRS audit threat increases, study finds (Nanette Byrnes, Tax Break)  Next thing you know, a study will show that motorists slow down when they see a state trooper running radar up ahead.

News you can use:  Cigarette Smuggling Can Make You $4 Million Dollars Richer  (Scott Drenkard, Tax Policy Blog)

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Tax Update, 9/11/2012. Did you ask about that $107 million? Look, Blago! Also: wind and hot air; never forget.

Tuesday, September 11th, 2012 by Joe Kristan

Look, there’s Rod Blagojevich!  Governor Branstad defended the big smokestack-chasing tax credit package awarded to the Orascom Lee County fertilizer plant.  From QCTimes.com:

Branstad criticized President Barack Obama for “picking winners and losers in the marketplace” in an opinion piece distributed last week. It was the same week he announced the richest incentive package in state history that would be used to land the biggest single capital investment in state history.

As far as picking winners and losers, the governor cracked, “Illinois is the loser, Iowa is the winner.”

Branstad then took some more shots at the Land of Lincoln, describing it as “dysfunctional” and “willing to promise you the moon, then pulling the rug out from under your feet.” The state, he said, has “a reputation for corruption.”

Yes, corruption is unknown in Iowa.  Oh, wait…

Ramona Cunningham, currently serving time in federal prison for looting the Central Iowa (“no corruption here!”) Employment and Training Consortium, at the dedication of the CIETC Tom Harkin Learning Center.

This is fascinating:

Asked during his weekly news conference about how his column jibes with what he approved for the fertilizer plant, Branstad said the incentive package will be a catalyst for reforming the state’s tax system.

“A catalyst for reforming the state’s tax system?”  What does that mean?  That the award is so outrageous that it will finally spur legislators to replace Iowa’s futile, loophole-ridden system of high rates and complexity, sweetened with special deals for insiders?  “Stop me before I spend again?”  If it shocks legislators into adopting the Tax Update’s Quick and Dirty Iowa Tax Reform plan, it might almost be worth it.

More from the Des Moines Register.

 

Grounded.  Former Us Airways Pilot Sentenced in North Carolina to 10 Years in Prison for Tax Fraud (Dept. of Justice Press Release):

Charles A. Davis, 63, formerly of Mooresville, N.C. was sentenced today in U.S. District Court to 120 months in prison for committing tax fraud, the Justice Department and Internal Revenue Service (IRS) announced. U.S. Judge Richard L. Voorhees in the Western District of North Carolina also ordered Davis to serve twelve months of supervised release after his prison term and pay $538,569 as restitution to the IRS.  

Trial evidence established that in April 2006, Davis filed five fraudulent amended income tax returns for 1996 through 2000, falsely claiming that he earned little or no adjusted gross income in each of those years. And from April 2008 to February 2009, Davis filed five fraudulent individual income tax returns for 2004 through 2008, reporting false amounts of federal income tax withheld for each of those years and requesting fraudulent refunds from the IRS in amounts up to approximately $1.5 million. The evidence also established that during the time he failed to pay his taxes, the defendant drove a Ferrari and a Mercedes, and lived in a lakefront home on Lake Norman, N.C.

Well, he lived high for awhile.  Ten years imprisonment will bring down the average on his lifestyle.

 

Russ Fox,  A Modest Proposal on Tax-Related Identity Theft:

The IRS should check the address of every filed return versus the address on file for the taxpayer.  If the Jetsons’ return is filed with the same address as used last year, it’s likely the return is legitimate.  If not, then the IRS should put a hold on processing the return, and send a letter to the taxpayers at the address used in the prior year (with forwarding requested).

With this Russ has already done more to solve the $5 billion annual theft problem than Doug Shulman has done in over four years as IRS Commissioner.

 

Rob Smith, Residential wind energy a lot of hot air? (IowaBiz.com):

I can buy electricity from MidAmerican Energy at about 9 cents a KWH. My electric bill last month was $100.  At that rate, which is during the summer peak load, the investment would take 20-25 years to pay for itself.  My suggestion instead is to conserve energy or do other measures like insulation or new windows.

Indeed.

 

Robert D. Flach, NEVER FORGET.

TaxGrrrl,  The Post I Swore I Wouldn’t Write (Redux)

TaxProf,  6th Circuit: Severance Pay Is Not Subject to Employment Taxes

Jason Dinesen  On Mike Holmes and Going Cheap.  I like the quote he uses.

Peter Reilly,  Are Divorce Attorneys Trying To Whipsaw IRS ?

Patrick Temple-West,  Essential news: Travelers to Chicago pay steep taxes, and more.  I visited Chicago over Labor Day; he’s right.

Brian Strahle,  District of Columbia Extends Deadline for Combined Report!!

Politicians?  Describe the White House candidates in one (printable please!) word (Kay Bell)

You do?   You Have To Admire the Persistence of E&Y’s Partners (Anthony Nitti)

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Tax Roundup, 9/5/2012: Laying it on thick for the fertilizer plant. Math is hard. So is tax, even with TurboTax.

Wednesday, September 5th, 2012 by Joe Kristan

Governor Branstad’s administration is making a big push to promote STEM education: Science, Technology, Engineering and Math.  This headline in the Des Moines Register today shows how badly we need math education, especially in Iowa’s “Economic Development” bureaucracy:

165 jobs, $110 million in aid

Officials mull boosting incentives to keep $1.3 billion fertilizer plant project in Iowa

This is the worst kind of smokestack chasing, which is always the preferred approach of “economic development officials.”  Never mind that Iowa already has competing fertilizer plants — as Sioux Citian Debi Durham, Iowa chief official economic developer, surely knows.    Never mind that Iowa and Illinois are getting played shamelessly by Orascom, the fertilizer company.  Never mind that the money comes from taxes paid by existing competitors, and by thousands of unsubsidized businesses like ours, and our employees.  Never mind all that — it’s about buying a ribbon-cutting, not about making the state a good place for everyone to do business Unless, of course, Roth & Company gets a nice state check for $21.3 million for the jobs we have already created.

At least some folks are catching on to the game.  From the article:

Orascom has attracted a diverse group of opponents, from parents, environmentalists and liberal groups such as Iowa Citizens for Community Improvement and Iowa Policy Project, to conservative groups such as Public Interest Group, Lee County Tea Party and Americans for Tax Reform.

So there’s agreement from left to right that it’s a bad idea for the state.  But if politicians think it’s a good idea for them, it will go through.

Related: Taking your wife’s purse to buy drinks for the girls and  LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Who catches the identity thieves?  Hint: it’s not Doug Shulman’s IRS.  From the Bradenton (Florida) Patch:

Det. B. Pieper from the police department’s gang unit put together the case by paying close attention during a routine drug bust…

Pieper was one of several detectives watching traffic coming to and from a house where police suspected drugs were sold. He said he and his partner watched a car leave the house and then run a stop sign. When they pulled over the car Brydson was in the passenger seat with a laptop and a bag of marijuana on her lap.

Brydson quickly closed the laptop, which made Pieper suspicious. When he searched her purse, he said he found several TurboTax debit cards with different names on them. He also noticed a 60-step instruction sheet on how to perform tax fraud through TurboTax.

So local cops have to do the IRS’s job of stopping the thieves who take $5 billion of our taxes annually while the IRS is busy building a new preparer regulation bureaucracy at the behest of the national tax prep firms.  Priorities!

 

 Courtney A. Strutt Todd: Congratulations on Your Scholarship. Don’t Forget to Pay Uncle Sam (Davis Brown Tax Law Blog)

TaxProf, Tax Planks in Democratic Party Platform

Andrew Mitchel, Partnership Definition

Martin Sullivan, The Effects of Interest Allocation Rules in a Territorial System (Tax.com)

Linda Beale, Romney and Private Equity’s Questionable Schemes for Paying Very Little Tax

Kay Bell, Tax moves to make in September 2012

Robert D. Flach has a new Buzz roundup of tax blog posts.

Jim Maule offers A Peek at the Production of Tax Ignorance.  It’s booming.

I think spending less than you earn works even betterDo Mandates or Tax Subsidies Do a Better Job of Boosting Savings?

Have a nice dayCBO: Federal Healthcare Spending Will Exceed Discretionary Spending by 2016 (William McBride, Tax Policy Blog)

GIGO: it’s Tax Court Doctrine!  From a case rejecting a taxpayer’s use of TurboTax as an excuse for a bad return:

It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program. See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). Simply put: garbage in, garbage out.

Tim Geithner, call your office.

Cite:  Bartlett, T.C. Memo 2012-254.

Related:  Reason #17 to Hire Me: Blaming Turbo Tax Can Not Protect You From Penalties (Anthony Nitti)

 

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Tax Roundup, 8/30/2012: Hey, I said I’m sorry edition. But the IRS isn’t apologizing!

Thursday, August 30th, 2012 by Joe Kristan

Sorry about that $2.1 million.  Remember the world’s thriftiest tax cheat, the one who stole $2.1 million from Oregon and used it to buy a 1999 Dodge Caravan and some tires?  An apology from the director of the Oregon Department of Revenue didn’t go well, according to this report from OregonLive.com:

SALEM — A contrite director of the Oregon Department of Revenue appeared before a legislative committee Wednesday and apologized repeatedly for dropping the ball on a $2.1 million fraudulent tax refund. But both Democrats and Republicans weren’t in a forgiving mood, demanding to know why four workers who failed to catch the return weren’t fired and whether the agency can do its job.

“It’s not going to be enough to sit here and say you’re sorry,” said Rep. Cliff Bentz, R-Ontario.

 

Why are they so upset?  He said he was sorry, after all?

 

Two managers and one administrative clerk received written reprimands but no change in their salaries. A fourth worker was demoted and transferred to another part of the agency. That person, an administrative specialist, got a pay cut from $45,396 a year to $41,208.  

Most private sector clerks have problems beyond reprimands if they let $2.1 million go out the door to a theif.  Still, while the apology may not seem like much, it’s more than we’ve gotten from IRS Director Doug Shulman for letting over $5 billion per year go out the door to identity thieves.

Why is Doug Shulman too darn busy to apologize for letting ID thieves loot the Treasury?  Maybe because he’s spending his time making life miserable for Canadians.  Tax Notes reports ($link) that Frustration Grows for Canadians in OVDI:

Taxpayers and their advisers asked the IRS for guidance on how to deal with RRSPs [Canadian retirement accounts] in the summer of 2011 but received inconsistent replies     The IRS’s delay in issuing the guidance…  annoyed taxpayers because, at least regarding the requests for a letter ruling granting 9100 relief, it caused them to incur professional fees that turned out to be unnecessary.

“This decision could have been made in September, October, even November, and the clients could have avoided the additional costs,” said [attorney] Ciraolo. “While we appreciate the 9100 relief offered under FAQ 54, the fact that the IRS failed to acknowledge the inconvenience and cost caused by the delayed guidance, and failed to address whether the Canadians in the OVDI would be eligible for the new program open on September 1, only furthered the belief of the Canadian taxpayers that the IRS is acting without due consideration to the circumstances of those taxpayers who entered the OVDI in good faith.”

Of course.  The program has been haphazardly administered, treating innocent noncompliance with obscure IRS rules as presumptive evidence of offshore money-laundering.
The frustration that the delayed guidance on late elections to file Form 8891 has caused for U.S. practitioners and their Canadian clients exacerbated an increasingly tense diplomatic situation and perhaps convinced some Canadian taxpayers who sat out the 2011 OVDI that noncompliance was the right choice.

So we’ve provoked our closest neighbor while convincng many that non-compliance is safer than expecting the IRS to be fair.  Well done, Commissioner! 

Jack Townsend,  AICPA Complains to IRS About Form 3520 Administration Issues.  Form 3520 is a form that must be filed by taxpayers with interests in foreign trusts.  You’ll be shocked to hear that Doug Shulman’s IRS is botching it:
The AICPA letter described six specific errors the IRS letters claim taxpayers have made, including filing Form 3520 late when it was filed on time.

When you make it harder to follow the rules than to ignore them, the results won’t be good. 


This looks like one of those kinds of things that happen when staffing at a government agency is reduced beyond what is reasonable for the kinds of tasks that have to be carried out. 

I’d be more sympathetic to that argument if Doug Shulman’s IRS hadn’t taken it upon itself to devote massive resources to an intrusive and futile preparer regulatory scheme at the behest of the big national tax preparation firms and to requiring massive amounts of futile paperwork for international compliance.

How Bain Capital execs lower their taxes (Dan Primack, Fortune, via Going Concern):

There has been lots of talk over the past few days about how Bain Capital executives have used management fee waivers to effectively lower their tax payments (a tactic that is not unique to Bain). Some academics have argued that such waivers are an illegal dodge, while private equity tax attorneys I’ve spoken with call it “aggressive but accepted by the IRS.”

Here is the basic structure: Bain officially charges 2% management fees to investors in its private equity funds. The idea is to cover overhead, such as salaries, office leases, electric bills, etc.  But Bain has lots of other business lines (venture capital funds, hedge funds, etc.) that generate sufficient cash flow, so it “waives” the PE fund management fees…

By doing so, Bain partners don’t pay ordinary income taxes on their management fees. Instead, they pay at capital gains rates if/when the deals generate profit (because it’s now considered carried interest).

Many commentators seem to think that Mitt Romney should have gone out of his way to pay the highest tax possible, rather than doing what his tax advisors and the rest of his industry did.  I doubt that they direct their own preparers to forego deductions and exclusions that they think are poor policy or the result of poor administrative interpretations of the tax law.

 

TaxProf: Mitt Romney’s Tax Mysteries: A Reading Guide

Dan Meyer, The Annual Tax Extenders Legislation Addressed by the Senate.  But it has a long way to go.

Peter Reilly, Challenge To Clergy Tax  Break Gets Green Light — Next Stop, Scientology?

 Jason Dinesen has incorporated.

Anthony Nitti, How Does a “Go Shop” Provision Impact the Treatment of Transaction Costs?

 

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Tax Roundup, August 22, 2012: ID theft; the economist-politician gap; free subtlety and nuance!

Wednesday, August 22nd, 2012 by Joe Kristan

Doug Shulman, showing how much he cares.

The IRS does a bang-up job shoveling our cash to identity thieves,   as we have mentioned.  Too bad they don’t do as well helping out the theft victims.  Jason Dinesen tells what he has learned helping a widow deal with the theft of her husband’s identity:

  • The IRS is woefully under-equipped to deal with identity theft on tax returns.
  • The departments of the IRS don’t communicate with each other — or with themselves. Things I told the practitioner hotline were lost to the wind, as my conversations with them were not available to the collections department. And even within the collections department, it takes them 9+ weeks to open the mail, and not every call gets logged.
  • I really wish the IRS would tell you whose desk a tax return is sitting on. This is true even in cases not involving identity theft. It’s almost impossible to get answers when you call the IRS, because you — and the IRS rep you talk to when you call — don’t know which IRS employee is actually looking at the return.
  • Congress needs to do something to fix the problem with the Death Master File. It’s ridiculous that the government publishes something that is such a goldmine for identity theft.

Apparently IRS Commissioner Shulman has other priorities.

Related:  Missouri Tax GuyAvoid Identity Theft

 

TaxProf, Six Policies Economists Love (And Politicians Hate):

NPR, Six Policies Economists Love (And Politicians Hate): 

  1. Eliminate the mortgage tax deduction. …
  2. End the tax deduction companies get for providing health-care to employees. …
  3. Eliminate the corporate income tax. …
  4. Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
  5. Tax carbon emissions. …
  6. Legalize marijuana. …

 

Stephen Moore,  The U.S. Tax System: Who Really Pays?:

The Tax Policy Center, which is run by the Urban Institute and the Brookings Institution, recently studied payroll and income taxes paid by every income group. It found that the highest-income 1 percent of Americans still pay a combined (income plus payroll) average rate of 26.[1] percent, while the poorest fifth of Americans receive a refund of 0.9 percent, largely through the Earned Income Tax Credit. As Figure 3 illustrates, even when the regressive effects of the payroll tax are counted, the rich contribute a greater fraction of their income, and make a greater contribution to federal tax revenues, than other income groups.

It’s a powerful antidote to arguments that we just need to beat up on the rich some more.  The rich guy isn’t buying this round.

 

William Perez,  IRS Offers Tips for Correcting Tax Returns.  Paul Ryan knows how that works.

Jim Maule, How Not to Claim a Casualty Loss Deduction

Kay Bell, Bush tax cuts: slur, boast or both?

Janet Novack, Pssst! Florida! Obama And Ryan Both Want Seniors To Pay More For Medicare

Peter Reilly, Real Reason Romney Returns Not Being Released ?

Robert D. Flach has a new Wednesday Buzz.

Maybe that Swiss bank account wasn’t such a hot idea.  Credit Suisse / Wegelin Client Pleads Guilty to FBAR Violation in SDNY (Jack Townsend)

Dear Readers: Is my opinion of Commissioner Shulman too nuanced and subtle?

Fair Tax Gives Gary Johnson Some Hiccups On The Trail (Garrett Quinn, Reason.com):

When Libertarian presidential nominee Gary Johnson brought up the Fair Tax at his party’s nominating convention in Las Vegas, he was occasionally booed and even heckled by some of the delegates in the hall. It was the only thing his chief rival for the nomination, Lee Wrights, could really attack him on from a policy standpoint.

While I’m not holding my breath for a Gary Johnson presidency (alas), I remain puzzled by the continued embrace of the “Fair Tax” by otherwise-sensible politicians.   A 30% national sales tax (and that’s the rate, even though the 23% claimed by advocates is bad enough) on a narrow consumption base would never work.  And based on this story, it isn’t even very popular among audiences with selective tastes.

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