Posts Tagged ‘Shulman’

Tax Roundup, 3/3/16: IRS sets up ID theft victims for another round. And: if you don’t have kids, there’s Craigslist!

Thursday, March 3rd, 2016 by Joe Kristan
This convicted ID thief likely was a first-day filer.

The kind of criminal mastermind ID thief that continually outwits the IRS.

There is no bottom. Every time I think that the John Koskinen’s IRS couldn’t possibly be less competent, they prove me wrong. Identity Thieves Bypass IRS Protections for Previous Victims (Tom VanAntwerp, Tax Policy Blog):

The IRS provides an Identity Protection PIN (IP PIN) to victims of identity theft with the goal of preventing it going forward. This IP PIN is mailed to individuals at the start of tax season, and is required to file a return. But the IRS also allows taxpayers to retrieve their IP PIN online by answering the same kinds of knowledge-based authentication questions that let thieves take advantage of the older Get Transcript website.

Computer crime reporter Brian Krebs published this account of Becky Wittrock, a previous identity theft victim whose IP PIN was compromised:

“I tried to e-file this weekend and the return was rejected,” Wittrock said. “I received the PIN since I had IRS fraud on my 2014 return. I called the IRS this morning and they stated that the fraudulent use of IP PINs is a big problem for them this year.”

Wittrock said that to verify herself to the IRS representative, she had to regurgitate a litany of static data points about herself, such as her name, address, Social Security number, birthday, how she filed the previous year (married/single/etc), whether she claimed any dependents and if so how many.

“The guy said, ‘Yes, I do see a return was filed under your name on Feb. 2, and that there was the correct IP PIN supplied’,” Wittrock recalled. “I asked him how can that be, and he said, ‘You’re not the first, we’ve had many cases of that this year.’”

Wittrock noted that the IRS representative said that they would be moving away from using the IP PIN in the near future and replacing it with a different system. No details are known about how this new system might function or if it will avoid the insecure knowledge-based approach to authentication.

Through lax IRS controls, the IRS lets a thief file a return in your name. You go through a long, exasperating process to straighten things out. Meanwhile, the IRS sits on your refund, even though it promptly wired cash to the thief. Then they give you an IP-PIN and assurance that it won’t happen again. And it happens again.

I never thought Doug Shulman would lose his crown as Worst Commissioner Ever. I wish I were right about that. And they think they should regulate preparers because we’re incompetent and out-of-control.

More coverage:

TaxProf, The IRS Is Using A System That Was Hacked To Protect Victims Of A Hack—And It Was Just Hacked

Taxable Talk, The Most Terrifying Words in the English Language Strike Again

 

20150918-3

 

TaxGrrrl, On Dr. Seuss’ Birthday, Oh, The Taxes You’ll Pay!:

More taxes!
Whether you like it or not,
Taxes will be something
you’ll pay quite a lot.

Oh, but the IRS will take such good care of it, you’ll not mind, not one little bit!

 

Peter Reilly, Tax Losses From Genetically Engineered Deer Allowed. “The purpose of the selective breeding is to get deer with really impressive head gear.”

Kay Bell, Doing the weird and wacky tax deduction dance. Yes, deer.

Leslie Book, Follow up On Clean Hands Post: The Imposition of Penalties and How Using a Preparer Does Not Automatically Constitute Good Faith and Reasonable Cause (Procedurally Taxing). “At the end of the day, the opinion is certainly a warning that merely hiring a preparer is not enough, and proving reliance on an advisor requires perhaps a bit more focus than a taxpayer’s testimony that the accountant prepared the return.”

 

20140729-1

 

Scott Drenkard, Philadelphia Mayor Proposes Gigantic Soda Tax (Tax Policy Blog). It’s the tax that’s gigantic, not the pop serving.

Donald Marron, Budgeting for federal lending programs is still a mess (TaxVox). A good reason to not have federal lending programs.

TaxProf, The IRS Scandal, Day 1029

News from the Profession. Accounting as Performance Art? Sure, Why Not? (Caleb Newquist, Going Concern)

 

You can get anything on Craigslist! Even dependents, it seems. From a Department of Justice press release:

Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that an Ozark, Mo., man has been indicted by a federal grand jury for filing false income tax returns after he advertised on Craigslist to purchase identity information for children that he could claim as dependents.

Raheem L. McClain, 37, of Ozark, was charged in a three-count indictment returned under seal by a federal grand jury in Springfield, Mo., on Feb. 23, 2016. That indictment was unsealed and made public upon McClain’s arrest and initial court appearance on Tuesday, March 1, 2016.

The federal indictment alleges that McClain caused an advertisement to be posted on Craigslist on Jan. 16, 2015, stating:

“WANTED: KIDS TO CLAIM ON INCOME TAXES – $750 (SPRINGFIELD,MO)

IF YOU HAVE SOME KIDS YOU ARENT CLAIMING, I WILL PAY YOU A $750 EACH TO CLAIM THEM ON MY INCOME TAX. IF INTERESTED,REPLY TO THIS AD.”

In a way, it makes economic sense. It would let people whose incomes are too high monetize otherwise useless dependents. But as you might have gathered from the word “indictment,” the tax law frowns on this sort of thing.

 

Share

Tax Roundup, 2/26/16: Gronstal hints at approach to Section 179 coupling deal. And: Yes he can! (Release his returns)

Friday, February 26th, 2016 by Joe Kristan

couplingInteresting, if true. In opening hostage negotiations over the fate of Section 179 coupling, Iowa Senate Majority Leader Gronstal may have hinted at a “Main Street vs. Walnut Street” approach. From wcfcourier.com:

If the choice is between offering tax relief to a limited number of manufacturers “or taking care of 30,000 farmers, 25,000 small businesses,” Gronstal said he would “gravitate more toward the 50,000 or 60,000 effort to help those folks (rather) than something that is much more narrow in terms of its impact.”

I say “may have” because I think he is hinting at trying to get the Governor to reverse its regulatory change to sales tax rules on manufacturing supplies.

By “Walnut Street,” I refer to downtown Des Moines, where several of the big law/lobbying firms in town have their offices (Nothing against Walnut Street — that’s where Tax Update World Headquarters is located, too).  Whether or not Sen. Gronstal realizes it, the coupling issue is ultimately about whether to benefit a handful of insiders and big companies benefitting from special tax benefits, or whether to further the interests of the rest of the taxpayers who pay for any special deals.

The revenue cost from adopting the $500,000 Section 179 limit for Iowa is estimated around $90 million. Eight taxpayers by themselves claimed $35 million in research credits in 2015, of which around $30 million were paid to the companies in cash because they exceed the claimants income tax bills. Just last week the state promised $15 million to DuPont as a location incentive. The potential loss of Section 179 deduction is making its many beneficiaries suspicious of the multi-million dollar “economic development” tax credits that benefit relatively few insiders with lobbyists.

Walnut Street back in the day.

Walnut Street back in the day.

While Senator Gronstal will insist on concessions for passing the bill, I expect he will reach a deal without insisting on his full pound of flesh. More than anything else, he wants to remain Majority Leader, with control over whether legislation lives or dies. He has only 26-24 control of the Senate. If he is perceived as blocking coupling, it may be just enough to tip a close race or two against his party. I think his reference to the “50,000 or 60,000” shows he’s aware of this. That’s why I think an agreement to couple with the federal limit is now likely in the next two or three weeks. I have no insider information to confirm this guess.

Related: Me, Tax season impasse: why your 2015 Iowa tax return may be on hold. My new post at IowaBiz.com, the Des Moines Business Record Business Professional’s Blog.

Other coverage: Des Moines Register, Gronstal opens door to Iowa tax-coupling deal

 

Yes he can! Trump says he can’t release tax returns because he’s being audited (marketwatch.com). That’s not true, of course. While it’s illegal to release someone else’s returns without their permission, you can make your own returns public any time. The IRS doesn’t make you sign some sort of confidentiality agreement when they audit you.

Like every other silly thing he says, this probably will probably increase his standing in the polls.

Related: TaxGrrrl, Trump Won’t Release Tax Returns, Citing IRS Audit: Is It A Legitimate Excuse? “Trump could absolutely release those returns now – even in the middle of an audit.”

 

20150401-2

 

Tony Nitti, Beachbody Coach? Rodan & Fields Consultant? At Tax Time, Beware The Hobby Loss Rules. “If your Facebook feed is anything like mine, videos of clumsy toddlers and unlikely animal pals have recently given way to a relentless string of friends pushing side businesses.”

Kay Bell, Penalty for late tax filing increases in 2017. “Starting in 2017, if you send in your Form 1040 (and additional forms and schedules) more than two months after the return is due, you’ll be slapped with a penalty of $205 or 100 percent of your due tax, whichever amount is smaller.” Another example of the ugly practice of funding the government through penalties instead of taxes.

Keith Fogg, Discharging the Failure to File Penalty in Bankruptcy (Procedurally Taxing).

Somehow I missed this: WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – SPECIAL TAX SEASON EDITION (Robert D. Flach). “An unprecedented tax season BUZZ!  Some good stuff that needs to be spread around now – and could not wait until April.”

Andrew Mitchel, Charts of Examples in Rev. Proc. 91-55: Form 5472 & Direct and Ultimate Indirect 25% Shareholders. A big issue when you have foreign owners of a U.S. corporation.

Robert Wood, Kanye West Could Still Get $1 Billion Tax Free. Why?

Jim Maule, Section 280A and the Tree House. “The reader asked, ‘Can a tree house qualify under the Section 280A rules? Can a tree house be depreciated?’ Though there’s no direct authority, careful reading of the applicable statute provides an answer.”

Party on Walnut Street.

Party on Walnut Street.

 

TaxProf, The IRS Scandal, Day 1023

Renu Zaretsky, Times get taxing for candidates… Today’s TaxVox headline roundup covers last night’s debate, candidate tax returns, and the lost credibility of the IRS under Shulman and Koskinen.

 

News from the Profession. Password Inundation: Password Policies We Love to Hate (Megan Lewczyk, Going Concern).

 

Share

Tax Roundup, 6/15/15: IRS declines to make estate tax easy for surviving spouses. And: New ID theft measures!

Monday, June 15th, 2015 by Joe Kristan

Due Today: Second Quarter estimated tax payments; returns for U.S. citizens living abroad.

 

Funeral home signIRS declines to make the estate tax portability election easy. There’s no such thing as a joint estate tax return. That means if one spouse has all of the assets, the other spouse’s lifetime estate tax exemption — $5,430,000 for 2015 deaths — can be lost.

Congress changed the tax law to allow a surviving spouse to inherit the deceased spouse’s unused estate tax exemption, for use on when the surviving spouse files an estate tax return. unfortunately, this treatment is not automatic. It is only available if a Form 706 estate tax return is filed for the first spouse to die. The IRS on Friday issued final regulations rejecting any short-cuts in this process.

There are many problems with this approach. The most obvious is the lottery winner problem. A couple might be living in a trailer, and when the first spouse dies, there seems to be no point in filing an estate tax return when their combined assets are a small fraction of the amount triggering estate tax. Then the surviving spouse wins the Powerball, and suddenly the first spouse’s estate tax exemption becomes very valuable — but it’s lost, because no return was filed.

The IRS rejected allowing any pro-forma or short-cut estate tax returns for such situations:

The Treasury Department and the IRS have concluded that, on balance, a timely filed, complete, and properly prepared estate tax return affords the most efficient and administrable method of obtaining the information necessary to compute and verify the DSUE amount, and the alleged benefits to taxpayers from an abbreviated form is far outweighed by the anticipated administrative difficulties in administering the estate tax. In

The IRS did say it would be generous in allowing “Section 9100” late-filing relief for taxpayers who die with assets below the exclusion amount, but they did not provide any sort of automatic election. The result is a trap for the unwary executors of small estates.

Cite: TD 9725

 

20130419-1IRS announces ID-theft refund fraud measuresThe IRS last week announced (IR-2015-87) steps it promised in March to fight refund fraud in cooperation with tax preparers and software makers:

The agreement — reached after the project was originally announced March 19 — includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. And there will be continued collaborative efforts going forward.

The most promising of the steps:

Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:

-Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.

-Reviewing computer device identification data tied to the return’s origin.

-Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.

-Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

These are important because they might actually prevent fraudulent refunds from being issued. Measures to help identify fraud after it happens don’t do much, especially when the fraud occurs abroad. Catching the fraudulent returns before the refunds are issued is the only way to really deal with the problem, and the only way to keep innocent taxpayers whose identification has been stolen from having to go through the annoying and sometimes lengthy process of recovering their overpayments.

The sad thing – I see nothing here that couldn’t have been done five years ago, when ID theft refund fraud was already becoming a problem. But the Worst Commissioner Ever was too busy trying to impose preparer regulations on behalf of the big franchise tax prep outfits to pay attention. Priorities.

 

20150615-1

 

Bob Vineyard, Best Kept Secrets About Obamacare (Insureblog). “About half of those living in Kentucky and classified as poor were not aware of the basics of Obamacare.”

TaxGrrrl, Spain’s King Felipe Strips Sister Of Royal Title As Tax Evasion Charges Proceed. What good is being regal if things like this happen?

Annette Nellen, Tax reform for 2015? Seems unlikely

Kay Bell, Lessons learned from being tax Peeping Toms

Jason Dinesen, Marriage in the Tax Code, Part 10: Filing Statuses Arrive in 1948

Peter Reilly, Why Is Multi-State Tax Compliance So Hard? “Don’t get me wrong.  I believe that the prudent thing is to try to be in pretty good, if not perfect, compliance.  Just don’t expect anybody to make it really easy any time soon.”

Robert Wood, Beware Tax Cops At Farmers’ Markets

 

20120816-1Joseph Henchman, State of the States: Special Session Edition and Kansas Approves Tax Increase Package, Likely Will Be Back for More (Tax Policy Blog). Mr. Henchman rounds up end-of-session tax moves from around the country. Kansas may have made the biggest changes, including a small retreat from its exemption of pass-throughs from the income tax:

Kansas in 2012 completely exempted the income from such individuals, who now total over 330,000 exempt entities. Efforts to repeal this unusual and non-neutral total exclusion of pass-through income earned a veto threat from Governor Brownback. The guaranteed payments provision is estimated to generate approximately $20 million per year.

Taxing guaranteed payments will hardly plug the fiscal hole created by the blanket pass-through exemption. Joseph concludes: “But overall, it is a grab bag of ideas that does little to address the problems underlying Kansas’s tax and budgetary instability. Absent more fundamental changes, legislators will likely have to return in coming years to address budget gaps.”

 

Norton Francis, How Would the Kansas Senate Close the State’s Budget Gap? Mostly by Taxing Poor People (TaxVox)

 

TaxProf, The IRS Scandal, Day 765The IRS Scandal, Day 766The IRS Scandal, Day 767

 

Career Corner. Reminder: Parents Meddling in Your Careers Will Not Help You (Caleb Newquist, Going Concern)

 

Share

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

Thursday, February 12th, 2015 by Joe Kristan

Lincoln

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

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

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

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

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

 

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

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

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

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

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

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

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

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

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

 

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

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

RAC2014

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

 

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

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

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

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

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

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

 

IMG_1271

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

 

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

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

TaxProf, The IRS Scandal, Day 644

 

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

 

Share

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

Thursday, January 8th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

IMG_0543

 

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

 

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

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

It’s all a matter of perspective.

 

Share

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

Wednesday, December 24th, 2014 by Joe Kristan

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

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

IMG_2493

 

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

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

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

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

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

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

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

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

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

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

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

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

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

 

William PerezQualified Charitable Distributions

Peter Reilly, The Wheels On The Easement Void The Deduction

 

 

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

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

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

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

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

Related: Can political contributions really be taxable gifts?

 

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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

 

Share

Tax Roundup, 9/22/14: Lerner speaks, sort of. And: a federal tax amnesty?

Monday, September 22nd, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner gives an interview. The former IRS officer at the center of the Tea Party disclosure scandal won’t testify under oath, but she sat down for a two-hour interview with Politico: Exclusive: Lois Lerner Breaks Silence:

And she’s a savvy lawyer: She studiously avoided answering fundamental questions about her role in the IRS scandal that could land her in deeper trouble with Congress. During her POLITICO interview, flanked by her husband, a partner at a national law firm, and two of her personal attorneys, she opened up about her life as a pariah, joked about horrible news photos and advice that she disguise herself with a blond wig, and cried when expressing gratitude for her legal team’s friendship.

It is, of course, a public-relations play, designed to make her look like a misunderstood victim of a partisan witch hunt. But it isn’t an especially impressive effort. From the Politico piece:

Several Lerner allies said she was so focused on enforcement that she failed to see the sensitivity of bringing cases against incumbents running for reelection.

But Republicans continue to point to emails in which Lerner inquired about Crossroads specifically, asking her colleagues why the group hadn’t been audited and suggesting the group’s application should be denied. And just weeks before the tea party news broke, after she had seen a draft of the damning inspector general report, she asked colleagues if internal IRS instant messages are tracked and could be requested by Congress.

A little history sheds some light on her “non-partisan” background:

– Before she worked at the IRS, she worked at the Federal Elections Commission, she attempted to get an Illinois GOP senate candidate to withdraw from public life as the price for ending an FEC investigation. The allegations were later dismissed.

– The IRS Commissioner, Doug Shulman, repeatedly denied there was any targeting before the report. Either he knew better, or as a subordinate, she didn’t pass the word up the chain.

– She was in the middle of the Tea Party efforts at an early date. When the Treasury Inspector General Report was about to open the scandal, she did a modified limited hangout, using a planted question to spin the story as just a Cincinnati rogue agent problem.

– She had a hang-up about the Citizens United decision, and her emails show that she was trying to use the tax law to accomplish what the Supreme Court had forbidden.

– The numbers are glaring, showing that conservative groups got much more scrutiny, and it took much longer for their applications to be approved than liberal groups:

targetingstats

Ms. Lerner has, of course, invoked the Fifth Amendment to avoid testifying before Congress about her role in the scandal.

Presumably this interview is the start of a P.R. campaign. I don’t think it will work, but it might get her some good press from outlets inclined to dismiss the scandal.

 

TaxProf, The IRS Scandal, Day 500. It features Stonewall Koskinen: The IRS Commissioner Was Supposed to Clean Up the Mess. Instead, He’s Running Interference from Kimberly Strassel of the Wall Street Journal:

 The only thing Mr. Koskinen has seemed remotely interested in turning around is his agency’s ugly story-line. He has yet to even accept his agency did anything wrong, spending a March hearing arguing that the IRS didn’t engage in “targeting” and claiming the Treasury inspector general agreed. This was so misleading the Washington Post gave Mr. Koskinen “three Pinocchios, ” noting the IG had testified to the exact opposite.

He seems intent on de-throning Doug Shulman as the Worst Commissioner Ever.

 

 

get-outRobert D. Flach asks WHAT ABOUT A FEDERAL TAX AMNESTY?

This would be a one-time only offer. The legislation creating the Federal Tax Amnesty Program could so state by forbidding any future Amnesty programs. Or it could state that the federal government would not be able to institute another Amnesty Program during the twenty years after the end of the current amnesty period.

I have my doubts. One Congress can’t bind another, and if it is popular, the pressure for another amnesty will start building as soon as the first one ends. I also worry about the chump effect – people will feel like chumps for complying, and will convince themselves that if they don’t comply, there will be another amnesty anyway. But I might be convinced otherwise, especially if it were combined with tax reforms that would help prevent the need for another one.

 

Russ Fox, “I’ve tried to tell you the truth every time I’ve been here”. “That quote is from IRS Commissioner John Koskinen during his testimony from earlier this week on Capitol Hill. I have a simple question for Commissioner Koskinen: Why doesn’t that quote read, ‘I’ve told you the truth every time I’ve been here?'”

TaxGrrrl, Back To School 2014: Childcare Expenses

Jack Townsend, Trial Management of the Cheek Good Faith Defense.  Or as an old lawyer I know calls it, the “good-faith fraud defense.”

Kay Bell, Getting old sucks. We can’t stop Father Time, but we can prepare physically, emotionally and financially. And it still beats the alternative.

 

David Brunori talks about Nevada’s Tesla giveaway in State Tax Notes ($link):

Nevada is giving $1.3 billion to a company that is essentially owned by a guy worth $12 billion. I don’t begrudge Elon Musk his money. On the contrary, I admire his ability to create and accumulate great wealth. I just don’t see the need to give him public money. Assuming you ascribe to the belief that horizontal equity requires that similarly situated taxpayers bear similar burdens, Nevada is giving away public money…

I know that the politics of incentives are impossible to overcome. And I have had numerous readers tell me to give my constant ranting a rest. But the political inevitability of tax incentives does not make them appropriate or good.

Tax credit corporate welfare doesn’t just hurt the states that “lose” the competition to bribe companies like Tesla. It hurts all of the businesses of the “winning” state that have to pay full-freight while brazen and well-connected companies like Tesla pay nothing.

 

20140922-1William Gale, Income Tax Changes and Economic Growth (TaxVox) “While there is no doubt that tax policy influences economic choices, it is by no means obvious on an ex ante basis that tax rate cuts will ultimately lead to a larger economy.”

Joshua McCaherty,  Senator Schumer’s Retroactive Tax Bill (Tax Policy Blog). Part of the inversion diversion.

Ajay Gupta, Renouncing the Dogma of Surrey’s Infallibility (Tax Analysts Blog). Sounds like something involving the Pope and Henry VIII, but it’s really about transfer pricing.

A new Cavalcade of Risk is up at Workers Comp Resource Center, with posts from around the insurance and risk-management world.

 

News from the Profession. 15 Reasons Why EY’s BuzzFeed Post Is a Bunch of Malarkey (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 6/4/14: IRS to ease up on FBAR foot-faulters? And: nanny-state taxes!

Wednesday, June 4th, 2014 by Joe Kristan

Programming note: The Tax Update will take Thursday and Friday off this week to tend to a family wedding.  We’ll be back as usual Monday.

Former IRS Commissioner Shulman, showing how much he cares for innocent victims of his FBAR war.

Former IRS Commissioner Shulman, showing how much he cares for innocent victims of his FBAR war.

Maybe we shouldn’t be shooting jaywalkers?  The IRS may be declaring a cease-fire in its long war on inadvertent foreign account violators.  Tax Analysts reports ($link) that IRS Commissioner Koskinen told a tax conference that it will be modifying its Offshore Voluntary Compliance Initiative:

“We are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives,” Koskinen told a luncheon audience at the 2014 OECD International Tax Conference in Washington. “We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas.”

Gee, you think so?  You really think 25%-300% penalties might not be appropriate for the crime of committing personal finance while living abroad?  What could possibly have given him that idea?

     Koskinen also pointed to taxpayers residing in the United States with offshore accounts “whose prior noncompliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.”

“We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA,” Koskinen said. 

One of the things that made Doug Shulman the Worst Commissioner Ever was his brutal treatment of trivial inadvertent offshore paperwork filing violators.  Hopefully his successor will make coming into compliance voluntarily a transparent, predictable process designed primarily to ensure future compliance.  Something like state programs for non-resident non-filers, where taxpayers pay back taxes, if any, and interest for a limited number of open years would make sense  People are understandably reluctant to come into compliance when it can mean financial ruin.

The IRS has not released any details of this kinder, gentler approach, so curb your enthusiasm for now.

Related: IRS Commissioner Koskinen Announces that Changes — Liberalizations — Are In the Offing for OVDP 2012  (Jack Townsend)  “All in all, this is good news, at least from a hope perspective.”

 

20140409-1Robert D Flach offers YET ANOTHER POST CALLING FOR A VOLUNTARY TAX PREPARER DESIGNATION.  Robert makes his case for a “voluntary” designation for preparers who meet some standard.

Robert says something I agree with:

  Having the IRS oversee the designation is not the best idea.  I have suggested that the voluntary RTRP-like designation be administered by an independent industry-based organization like an American Institute of Registered Tax Return Preparers (see “It’s Time for Independent Certification for Tax Preparers“).

If the IRS has nothing to do with it, fine.  If it does, it will inevitably do special favors for its “voluntary” friends and make like difficult for others.

Robert is a little like the Scarecrow in the Wizard of Oz, looking for a brain.  The movie quickly makes clear that the Scarecrow already has a perfectly good brain; all he lacks is a diploma.  Robert, a perfectly good (if old-fashioned) preparer, doesn’t need a diploma to save his clients from the Wicked Witch.

 

TaxGrrrl, After TIGTA Report, Expect More Tax Refund Delays,  The IRS is encouraged to expand its refund offset programs.

Paul Neiffer, Portability Revisited. “With the “permanent” changes in the estate tax laws from about 2 years ago, we now have a permanent provision called portability.  This allows for the unused portion of someone’s estate to be “ported” over to the surviving spouse to be used on their final estate tax return.”

 

TaxProf, The IRS Scandal, Day 391

 

 

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

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

Joseph Thorndike, Democrats Just Love Their Nanny-State Taxes (Tax Analysts Blog):

The Tax Foundation recently spotlighted a Democratic tax proposal that gives substance to the name-calling: the Stop Subsidizing Childhood Obesity Act, introduced last month by Sens. Tom Harkin, and Richard Blumenthal.

According to its champions, the act would protect children from the predations of junk food purveyors. In particular, it would deny manufacturers any sort of tax deduction “for advertising and marketing directed at children to promote the consumption of food of poor nutritional quality.” It would use the resulting revenue to help fund the Department of Agriculture’s Fresh Fruit and Vegetable Program.

That all sounds great. Except for the fact that it’s arbitrary, capricious, and an egregious misuse of tax policy.

The tax law – is there anything it can’t do?

Joseph adds, wisely:

Reasonable people can disagree about what qualifies as a loophole. But by almost any definition, the deduction for advertising junk food is not one.

Once you decide the tax law is a public policy Swiss Army Knife, there’s no logical place to stop.

 

20140411-1Kay Bell, Calories or volume: Which is the better tax on sugary drinks?  Neither.  Some problems just aren’t tax problems.

David Brunori’s righteous anger at taxes on e-cigarettes is now freely available at Tax Analysts Blog: Taxing E-Cigarettes Seems Crazy.  “Yet politicians routinely say that e-cigarettes will lead people to start smoking, or worse — use drugs! Are they daft?”  No, just greedy.

 

Renu Zaretsky, In the Midwest, Across the Pacific, and Down Under.  Tax Custs in Ohio and a rejected tax boost in Missouri are part of the TaxVox headline roundup today.

 

Tax Justice Blog, Will Anti-Tax Yogis Sink Tax-Reform in D.C.?.  If that’s what it takes to get the pic-i-nic basket.

 

This will make the homecoming in 2042 a little less awkward.  WMUR.com reports:

The woman who, along with her husband, held police at bay during a nine-month standoff in 2007 over tax evasion has apologized to the community.

Elaine Brown’s apology appeared in Plain Facts, a monthly publication written by Plainfield residents.

She said she and her husband Ed were trying to advance the “cause of justice.” She went on to say they “failed to take into account the impact we were having on others in the town. We failed to realize the fear, anxiety and impact we were causing these good people.

She was unable to apologize in person because she has been detained — until November 2042, according to the Bureau of Prisons inmate locator.  She should be home in time to invite her neighbors to her 102nd birthday party.

 

Share

Tax Roundup, 5/9/14: Worst-ever edition. And: It’s Scandal Day 365!

Friday, May 9th, 2014 by Joe Kristan

I was grumpy yesterday when I noticed Tax Analysts correspondent @Meg_Shreve’s live-tweeting of a speech by Doug Shulman, the Worst IRS Commissioner Ever.  So I tweet-grumpted, adding “#worstcommissionerever (fixed)” to one of her posts — the “(fixed)” as a perhaps inadequate attempt to inform the Twitterverse that the tag was my addition, not hers (apologies to Meg Shreve).  That earned this response:

 

20140509-1

 

Ah, where to begin?  How about with identity theft?  Doug Shulman took office with a reputation as an information systems maven.  He then presided over an historic IT debacle.  Tax refund fraud — fundamentally a systems failure —  has let two-bit grifters like Rashia Wilson steal tens of billions of dollars in fraudulent refunds over the years.

This problem has been ramping up for years, and only now, with Shulman gone, is the IRS beginning to take effective action to prevent it.  My wife can’t go shopping in Chicago without me getting a call from the credit card company warning me of a suspicious transaction, but Doug Shulman’s IRS could send 655 refunds to the same apartment in Lithuania without batting an eye.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

While the theft of taxpayer billions is outrageous enough, the inept treatment of ID theft victims makes it even worse.  Only after Doug Shulman left did the IRS even begin to get this right.

The Worst Commissioner Ever was just too darned busy to stop ID theft.  He was busy trying to increase IRS power over preparers with a useless, expensive and unilateral preparer regulation regime.  He reversed the longstanding IRS position that the agency had no such regulatory power, only to be unceremoniously slapped down by the courts.   In the meantime, the prospect of the regulations drove thousands of preparers out of the business, increasing taxpayer costs and driving many taxpayers to self-prepare — and surely causing some to fall out of the system altogether.  The IRS wasted enormous resources on this futile power grab — resources that might have been better-devoted, to, oh, maybe the fight against identity theft.

 

He was also busy shooting jaywalkers.  International tax enforcement is considered Doug Shulman’s greatest success — but there was no reason the pursuit of wealthy international money-launderers had to also terrorize American expatriates whose offenses were to commit everyday personal finance.  Many folks have been hit with ridiculous penalties for not filing FBAR reports that they had no idea existed.  These folks are often people who married overseas or moved out of the U.S. as children, but were presumptively treated as international money-launderers when they tried to come into the system, and were hit with enormous penalties — often when little or no tax had been avoided.

It’s hard to imagine that an agency that can find ways to simply wave away the ACA employer mandate couldn’t find a way to allow expats and individuals without criminal intent to come into the international reporting system without risking financial disaster.  The states that allow non-resident non-filers to come in by paying five years of back taxes provide an obvious model.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

Then there is the scandal.  When Tea Party groups complained about absurd and abusive IRS information requests, sympathetic Congresscritters asked Doug Shulman if the IRS was targeting Tea Party groups.  The Worst Commissioner Ever testified before Congress that the IRS was doing nothing of the sort:

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman said.

That statement, of course, became inoperative when the Treasury Inspector General for Tax Administration reported that the IRS was, in fact, picking on the Tea Party groups.  Subsequent revelations have shown that it was exactly a partisan attempt to fight anti-administration groups.  So Doug Shulman either was too lazy and ineffective to know what his own agency was doing, or he knew, or he didn’t care.  He destroyed the credibility of the agency as a nonpartisan enclave of competent technicians.

Now the party controlling the House of Representatives is on notice that the agency wants to see it lose.  That agency can hardly expect generous appropriations as long as that perception remains (and the new Commissioner has done nothing reassuring on that score).   This will damage the agency’s effectiveness for years — all because The Worst Commissioner Ever was unwilling or unable to run a professional, non-partisan agency.

This is a record of administrative ineptitude and negligence that is unbeaten.  No IRS commissioner has so squandered agency resources and reputation.  If another Commissioner has even come close, I’d sure like to know who it was.

 

Meanwhile, the TaxProf has reached a milestone: The IRS Scandal, Day 365.  The biggest item in this edition is the report that the IRS had not destroyed Tea Party donor lists — after saying it had — and that the IRS has audited 10% of Tea Party donors.  This is a staggering audit rate, if true, and is a tremendous scandal in itself if the IRS doesn’t come up with a good explanation.

TaxGrrrl, House Finds Lerner, Central Figure In Tax Exempt Scandal, In Contempt Of Congress

 

20140509-2Jana Luttenegger, Deadline Approaching to Avoid Losing Tax Exempt Status (Davis Brown Tax Law Blog). Get those 990-series reports filed!

Trish McIntire, EFTPS – Inquiry PIN.  “The Inquiry PIN will allow taxpayers to check and make sure that their federal tax deposits have been made and catch a problem before it becomes a major issue.”  This should be used by all employers.

Peter Reilly, Former Tampa Bay Buccaneers Owner Scores Touchdown In Tax Court.  “It may seem odd to look at a case that ends up with a charitable deduction dis-allowance of nearly $4 million as a victory, but when you consider how taxpayers generally fare in easement cases it really is.”

Leslie Book, Tax Court Jurisdiction to Determine its Jurisdiction: Foreign Taxes and Credits (Procedurally Taxing)

Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)

 

Richard Borean, Tax Freedom Day Arrives in Final Two States: Connecticut and New Jersey (Tax Policy Blog)

Howard Gleckman, Taxing Employer-Sponsored Insurance Would Hike Social Security Benefits But Boost Federal Coffers (TaxVox)

 

Kay Bell, IRS employee arrested after inadvertently following Obama daughters’ motorcade onto White House grounds.  Oops.

Tax Justice Blog, Déjà vu: Oklahoma Enacts Tax Cut Voters Don’t Want.  I’m not sure about the “don’t want” part.

Robert D. Flach has your Friday morning Buzz!

 

News from the Profession.  Deloitte CEO Prefers Traditional Photo Op Over Selfie  (Going Concern)

 

Share

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)

 

Share