Posts Tagged ‘Stuart Gibson’

Tax Roundup, 3/29/16: How you figure S corporation stock basis. And: Cronyism!

Tuesday, March 29th, 2016 by Joe Kristan

capitol burning 10904Cronyism 95, Taxpayers 1. The bill to provide a refundable tax credit — that is, a subsidy run through tax returns — for “bio-renewable chemical production” flew through the Iowa House of Representatives yesterday. Only Bruce Hunter (D-Des Moines) voted against SF 2300 in the house. He joins three Senate Democrats (Bolkcom, Quirmbach and Dearden) as the only opposition in the General Assembly to a classic bit of central planning through the tax law.

Iowa already has 24 economic development credits, budgeted to cost taxpayers $277 million in the coming fiscal year. Apparently we needed one more.

Rep. Hunter and Sen. Quirmbach cast two of the three votes against the disastrous Film Tax Credit Program. With a $10 million cap, at least this mistake will cost less than the film fiasco.

Other coverage:

O. Kay Henderson, Biochemical tax credit gains legislative approval, headed to governor

Erin Murphy, Renewable chemical tax credit in Iowa advances closer to final approval

 

S-SidewalkBasis: the first hurdle for determining your deductible S corporation lossYesterday we outlined the unholy trinity of rules restricting losses from pass-through activities: Basis, the at-risk rules, and the passive loss rules. Today we’ll talk a little bit more about S corporation stock basis. Tomorrow will talk about how you can use loans to your S corporation to get basis for deductions, and Thursday we will talk about how the rules are a little different for partnerships.

S corporation basis changes every year.

–It starts with your initial investment in your S corporation stock.

-It is increased by your share of taxable income and deductible expenses, as reported in lines 1-12 of the 1120-S K-1.

-It is increased by tax-exempt income (like municipal bond income) and reduced bypermanently non-deductible expenses (like the 50% non-deductible portion of meals and entertainment expenses); these are reported on line 16 of the 1120S K-1.  If you have a business that generates depletion deductions, factor your “excess depletion” from 1120S K-1 line 15c.

– It is increased by capital contributions, which appear nowhere on the 1120S K-1.

– It is reduced by distributions, which are on line 16 of the 1120-S K-1.

If your losses exceed your basis, your losses are limited to your basis.   If you have multiple deduction items, you have to prorate them to fit your basis.

For example, Assume you started 2015 with $3,000 in basis in your S corporation shares.  You have a K-1 line 1 loss of 9,000, line 4 interest income of $2,000, and a charitable contribution passing through on line 12 (code A) of $1,000.

You have $5,000 in basis to deduct your $10,000 in in expenses – the opening $3,000 in basis plus the positive $2,000 interest income.  You pro-rate the $10,000 expenses — you can (potentially) deduct $4,500 of line 1 loss and $500 of charitable contributions.  The remaining deductions carry forward until you increase your basis via contributions, loans, or future income. I say “potentially” because you still have to clear the “at-risk” and “passive loss” hurdles.

Many S corporation tax prep programs generate helpful basis and deductible loss schedules. Not all preparers do this, though, and even when they do, they are only as good as their starting information.  If the preparer doesn’t know what you paid for your stock, the schedules can’t be correct. Ultimately, it’s up to taxpayers to track their own S corporation stock basis.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

For more information on loss limitations from pass-throughs, check out Peter Reilly’s 2014 post Through The Hoops.

 

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TaxGrrrl, Walmart Gets Big Win Over Puerto Rico: No More ‘Walmart Tax’. Puerto Rico’s desperate revenue grabs are a preview of what states like California and Illinois will soon face.

Robert Wood, IRS Admits Audit Chance Is Small — And Dropping Like A Rock. They’re busy with other things.

Stuart Bassin, Sixth Circuit Requires IRS to Disclose Return Information of Non-Parties in Tea Party Exempt Organization Litigation (Procedurally Taxing). “The Government can continue fighting, but that seems to be an uphill battle and a battle which may produce further precedent that the Service will not like.”

Peter Reilly, Estate Denied Discounts For Marketable Security Family Limited Partnership. “This decision makes me nervous about getting discounts for any family limited partnership that consists solely of marketable securities.”

 

Jack TownsendGuest Blog: IRS FOIA Request Unveils Previously Undisclosed Estate Tax National Policy for Offshore Disclosures

Kay Bell, Which 2016 presidential candidate will cut your tax bill?

 

Scott Drenkard, A Very Short Primer on Tax Nexus, Apportionment, and Throwback Rule (Tax Policy Blog). “The best run down of these concepts can be found in our 2015 edition of Location Matters: The State Tax Costs of Doing Business.”

Stuart Gibson, Information Exchange: Bonanza for Tax Administrators, Temptation for Hackers (Tax Analysts Blog). “While many countries outside the U.S. first reacted negatively to this massive information grab, some soon began to realize the value of coordinated information exchange. They realized, as the old saying goes, ‘if you can’t beat ‘em, join ‘em.'”

Renu Zaretsky, Tax Day is around the corner, and the IRS can take your call! Today’s TaxVox headline roundup covers the eternal IRS complaints of underfunding, the DOA Obama budget tax proposals, and the subsidies Michigan paid for “Batman v. Superman,” because Michigan has solved all of its problems.

 

TaxProf, The IRS Scandal, Day 1055.

News from the Profession. AICPA and CIMA Putting This New Thing to Members for a Vote (Caleb Newquist, Going Concern).

 

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Tax Roundup, 2/16/16: What Iowa considers more important than Sec. 179. And: Iowa’s sunniest counties!

Tuesday, February 16th, 2016 by Joe Kristan

Why we can’t have nice things, like the Section 179 deduction. Did you know the State of Iowa pays cash grants of $44.4 million to businesses every year? And that millions of dollars of these grants go to some of the largest corporations operating in Iowa?

capitol burning 10904The Iowa Department of Revenue has issued its 2015 Research Activities Tax Credit Annual Report. It is a rare and valuable example of transparency in the tax credit world. It discloses the total of Iowa’s research credits claimed in 2015, including the amount paid in cash subsidies. It also lists all recipients of over $500,000 in credits in 2015.

The Iowa Research Activities Credit — unlike the federal version — is refundable. That means if the credits exceed the taxpayer’s Iowa tax for the year, Iowa pays the taxpayer the difference in cash — a subsidy run through the tax return. Multistate corporations with most of their sales outside of Iowa, but who conduct research here, can have low Iowa tax and claim big cash refunds through the program.

According to the report, $57,147,847 in research credits were claimed in 2015. Corporations claimed $50,112,443. Individuals claimed the remaining $7,035,404, presumably as owners of partnerships and S corporations

The “refunded” amount — the amount paid as cash to taxpayers whose credits exceeded their Iowa tax for the year, was $44,428,444. The overwhelming majority of this, $42,078,611, was refunded to corporations. As a percentage of the credits claimed, just a hair under 84% of the 2015 credits for corporations were in the forms of cash grants claimed on tax returns.

Eight taxpayers claimed tax credits in excess of $1 million in 2015:

Source: Iowa Department of Revenue

Source: Iowa Department of Revenue

Assuming that the 83.97% portion of corporate credits applies to these recipients, that means about $29.5 million in cash grants were paid to just these eight corporations. Applying that percentage to individual companies, that translates to $10.1 million cash to Rockwell Collins, $6.2 Million to DuPont, and $1.4 million to Monsanto. To be clear, the report doesn’t disclose the actual refundable amount for any individual taxpayer, so those percentages are not correct for any taxpayer — some are higher, some lower. Considering these eight taxpayers account for 61.6% of the Iowa Research Activities Credits claimed by corporations in 2015, the numbers can’t be far off as a group.

And that gets us back to the Section 179 deduction. The Governor has concluded that the state budget can no longer support the $90 million revenue loss from coupling with the federal $500,000 Section 179 deduction. Section 179 allows businesses to deduct capital investments that would otherwise be capitalized and deducted over a period of years — typically five to seven. It is only allowed for taxpayers with new fixed assets of up to $2.5 million in a year, so none of the research credit recipients above qualify. It is, however, a big deal to smaller farmers and manufacturers in every county.

The state instead proposes to limit Section 179 to $25,000 for 2015 and beyond, with the limit phasing out dollar-for-dollar as fixed asset additions exceed $200,000. That means a single combine can blow a farmer past the new limit. Because the state coupled with the federal $500,000 Section 179 from 2010 to 2014, this amounts to a significant and unexpected tax increase for 2015. It comes at a time when many of the businesses that use Section 179 are hitting a rough patch due to the decline in commodity prices.

Section 179 is a classic Main Street deduction. The Governor finds plenty of room in the budget to fully fund Research Credit cash grants to big corporations, but not for capital equipment deductions for smaller Iowa corporations. Priorities, I guess.

 

Sunshine! The state has issued another report, this one showing where the state tax credit for solar power installations is claimed.

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Based on this, the sun shines brightest in Northeast Iowa. Winneshiek County has a population of 20,768. With more than 100 solar installations, that means there is at least one solar array for every 207 residents. It also means there is a contractor up there selling solar arrays — and solar credits — pretty hard. In other words, Iowa pays sales incentives to heating contractors with your tax money.

 

O. Kay Henderson, ‘Prospect Meadows’ seeks ‘Field of Dreams’ tax break. Tax breaks are like feeding squirrels. Feed one, and they all show up.

William Perez, What You Should Know about Filing an Amended Tax Return

Peter Reilly, Easement Deductions – A Place In Greenwich Village And A $25 Million Eagles Nest. “If you sincerely want property you own to be preserved indefinitely in its current form, a charitable easement deduction is as close as you can come to a free lunch.” But there’s a devil in the details.

TaxGrrrl, How Former President Washington Dealt With The First Real Tax Crisis In America

Kay Bell, How taxes have — and haven’t — changed since JFK became the first president to visit IRS headquarters

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Allan Sloan, The Executive Pay Cap That Backfired (ProPublica). “A while back, Congress voted to curb soaring compensation for corporate officers by limiting tax deductions. Here’s how it went wrong.” (Via the TaxProf).

Stuart Gibson, It’s Still Groundhog Day, at Least in America. (Tax Analysts Blog) “Countries with parliamentary systems, like the U.K. and Ireland, have lowered corporate tax rates and adopted other business-friendly tax measures almost overnight.”

Renu Zaretsky, A Definite Crisis, Maybe an Evasion, and Lots of Talk. Today’s TaxVox headline roundup covers the Louisiana budget “hot mess,” Ikea taxes, and tax talk in last Saturday’s GOP debate.

TaxProf, The IRS Scandal, Day 1013

Robert Wood, Kanye West’s Tax Free $1 Billion From Mark Zuckerberg

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Tax Roundup, 1/27/16: Sign right here, friend, it’s just paperwork! And: Tax Foundation vs. U of I prof.

Wednesday, January 27th, 2016 by Joe Kristan

20151124-1What you’re signing isn’t necessarily what the nice salesman says you’re signing. A sad tax story in the Des Moines Register today shows how easy it is for a taxpayer to commit to a bad deal. The story, Misclassified: Iowa won’t refund veteran’s $5K payment, tells how a maintenance worker who was erroneously paid as an independent contractor by a Cedar Rapids furniture store ended up conceding a $5,000 sales tax liability he didn’t owe.

Iowa imposes a sales tax on “Janitorial and building maintenance or cleaning” for non-residential buildings. Because he was paid as an independent contractor, Iowa asserted sales tax on maintenance man James Robertson. He argued that he should have been classified as an employee, which would make the sales tax go away.

According to the story, Iowa was hounding him for unpaid taxes and preventing him from renewing his driver’s license. So he settled with Iowa for a $5,000 payment. From the story:

But he did so believing that the money he borrowed from a friend would be returned once a federal review process he was pursuing verified his claim he was not a contract worker.

The Internal Revenue Service on Oct. 14 determined that Robertson was indeed wrongly classified, documents he provided to The Des Moines Register show.

But that doesn’t mean he gets his $5,000 back, according to the Department of Revenue:

Victoria Daniels, a spokeswoman for the Department of Revenue, said it’s unlikely Robertson can win an appeal because he participated in what her agency calls its “offer in compromise” program.

Robertson signed a document during the settlement negotiations saying he accepts that “all administrative and judicial protests and actions filed in relation to these taxes and tax periods be dismissed.”

“When a person signs an offer in compromise, one of the things that they are signing their names to is the fact that they are giving up their appeal rights and the rights to get any of that money back,” Daniels said. “When you sign an offer in compromise with the Department of Revenue you are signing away any appeal rights you may or may not have had.”

IMG_1287Mr. Robertson didn’t think that’s what he had signed, according to the story (my emphasis):

Robertson said the documents he signed pertained to unpaid tax liabilities, not to his rights to a refund for taxes he never owed. And he said the department collectors led him to believe a refund would be made in the event it was shown he’d been unjustly classified as a contract employee.

This is why any battle between an unrepresented taxpayer and a tax agency is an unfair fight. The taxpayer drew a distinction between tax liabilities and tax refunds that doesn’t matter here. It’s all just taxes. While the nature of the document he signed may have been obvious to the people at the Department of Revenue who work with these things every day, it was all new and unclear to a taxpayer who had never encountered an offer in compromise. I hope he can find a way to get back his $5,000.

The Moral: In any tax controversy, be very careful what you sign. There are a number of ways you can forfeit important rights. If the dollars are big enough to matter to you, hire a tax pro. It doesn’t appear that Mr. Robertson did. Having a guide to the bureaucracy can be a big equalizer in an unfair fight. It’s not right to have to pay someone to help you avoid a tax you don’t owe in the first place, but it might be necessary to avoid something much worse.

 

 

Peter Fisher

Peter Fisher

Joseph Henchman, Open Letter: Errors on Peter Fisher’s Grading the States Website. The brilliant Mr. Henchman takes on U of Iowa prof and tax complexity advocate Peter Fisher’s attack on the Tax Foundation’s State Business Tax Climate Index.

Like most people who dislike the Tax Foundation’s ratings, Mr. Fisher doesn’t like the Index because it doesn’t measure things he wants to measure. But the Index only tries to measure business tax climate. It doesn’t measure regulatory climate, or quality of education, quality of life, weather, or income inequality. And because it makes states with certain tax policy sets look bad, people with an affinity for high taxes or crony capitalism try to change the subject.

 

Paul Neiffer, What Gets a Step-Up. “I continue to get questions regarding how much of a step-up in cost basis farmland gets when someone passes away.  Again, as with most tax questions, it depends.”

Kristine Tidgren, Iowa Supreme Court Says Ag Lease Violates Iowa Constitution (Ag Docket). “Article I, section 24 of the Iowa Constitution states that no lease of agricultural lands ‘shall be valid for a longer period than twenty years.'”

William Perez, Should Married Couples File Taxes Separately? “The Married Filing Separately filing status provides fewer tax benefits than filing joint returns, but it does protect each spouse from any tax mistakes the other spouse makes.”

Kay Bell, 3 marriage-related tax tips to celebrate Spouse’s Day

Jim Maule, “Who Knows the Tax Code Better Than Me?”. “No, it’s not ME asking that question. Who asked it? According to this story, Donald Trump did.” I suspect Mr. Trump knows just enough to hire someone who really does understand the tax law.

G. Brint Ryan, Fee Arrangements are a Matter between Taxpayers and their Advisors. “In an important win for business against government encroachment, a California Superior Court recently invalidated a rule restricting taxpayers from paying performance-based fees for professional services.”

Robert Wood, Missing An IRS Form 1099 For Your Taxes? Keep Quiet, Don’t Ask!

TaxGrrrl, Executors Seek $100 Million For Work On Estate Of ‘Queen Of Mean’ Leona Helmsley

Robert D. Flach, WHAT IS GOFUNDME?

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.

 

TaxProf, The IRS Scandal, Day 993. “Citizens Against Government Waste, CAGW Names IRS Commissioner John Koskinen 2015 Porker of the Year

Jacob Sullum, Corny Crony Capitalism in Iowa (Reason.com). “The RFS raises food prices and imposes a hidden tax on motorists because ethanol is more expensive than gasoline and produces less energy per gallon. Between 1982 and 2014, Manhattan Institute Senior Fellow Robert Bryce found, ethanol cost an average of 2.4 times as much as an energy-equivalent amount of gasoline.”

Howard Gleckman, Tyco, Tax Inversions, Income Shifting, and Lost Revenue (TaxVox)

Stuart Gibson, The Dissonance of European Tax Harmonization (Tax Analysts Blog). “The question: Why do so many Americans, even those new to the country or born to immigrant parents, find it so easy to self-identify as American, while so few Europeans identify primarily as European?”

Meg Wiehe, What to Watch for in 2016 State Tax Policy: Part 1 (Tax Justice Blog)

 

Career Corner. How Will Your Team Air Its Grievances This Busy Season? (Caleb Newquist, Going Concern).

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Tax Roundup, 12/28/15: Harvesting without a combine. And: Tax Credits as a fiscal trap.

Monday, December 28th, 2015 by Joe Kristan

harvestThe corn’s in, but the harvest isn’t over. The tax law taxes capital gains for almost all individual taxpayers when you sell an appreciated asset, even though it shouldn’t. Still, if you’re like most of us, not everything you buy goes up.

The tax law allows individuals to deduct capital losses when they cash out a money-losing investment, up to the amount of capital gains plus $3,000. That means paying capital gain taxes is optional to the extent you have unrealized capital losses in your taxable portfolio. That’s a silly option to exercise. Here are some thoughts on loss harvesting:

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

Normally the “trade date” is the effective date for tax purposes, so you can sell a stock as late as December 31 this year and still deduct the loss on your 2015 1040.

If you have a loss on a short sale, the tax law treats it as closing on the settlement date, not the trade date, so you can’t wait until the last minute to close a short sale to get a deduction. (See also Russ Fox, Harvesting Capital Losses: Act Quickly on Shorts!)

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

Long-term losses can offset short-term gains, and vice-versa.

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

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

See also

This is another installment of our 2015 year-end planning tips series running through December 31. 

Related — weekend tax tips:

Altaring your tax planning

Keep on giving! A high-end tax planning tip.

 

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

Tax Credits as a trapThe Sunday Des Moines Register this week told the story of a tax credit deal gone awry, leaving the small college town of Grinnell, Iowa in a financial pickle.

Grinnell once housed Spaulding Manufacturing Company, one of many small early Midwest automakers. The Spaulding story is told in my college buddy Curt McConnell’s fine book, Great Cars of the Great Plains.

There is only one known surviving Spaulding vehicle. It was to be a crown jewel of a transportation museum to be built around the dilapidated remains of the old Spaulding plant. But it hasn’t gone well, according to the Register:

Three years after it opened, the Iowa Transportation Museum has hit a dead end, losing its building to foreclosure and leaving the city of Grinnell on the hook to repay more than $4 million in federal aid for the project.

The museum, which had operated in a renovated portion of the old Spaulding manufacturing plant in downtown Grinnell, closed in October, unable to pay its mortgage to Iowa City’s MidWestOne Bank. The bank even took possession of the museum’s crown jewel, a rare 1913 Spaulding automobile built at the Grinnell plant.

It sounds as though the business plan of attracting auto tourists to Grinnell was hopelessly optimistic, but it was tax credit failure that finished things off:

The museum built its budget around receiving $900,000 in federal historic tax credits that never arrived. A 2012 federal appeals court ruling about a real estate project in New Jersey shook up the market for historic tax credits. A subsequent IRS memo explaining the ruling said, essentially, that investors should not stand to profit from historic tax credits without shouldering some of the risk. As a result, investors backed away from historic tax credit projects.

“That is where things really started to come apart on us, and it was just kind of a chain reaction from there,” Brooke said.

This is where I find myself puzzled. By their terms, federal historic rehab credits have never been transferable. A transferable tax credit can be sold by the original recipient to cash in on a tax break too big to use by itself. Tax credit middlemen tried to make them transferable by setting up “partnership” structures where investors were nominal partners, but really were in it only for the tax credits, with economic gains and losses from the rehab project allocated elsewhere.

To my surprise, the Tax Court had gone along with that structure, but the Third Circuit Court of Appeals reversed them in Historic Boardwalk Hall LLC (CA-3, No. 11-1832). The court held that because the tax credit investor didn’t share meaningfully in either potential income or loss from the project, it wasn’t a partner eligible for tax credits.

That was the risk I had always seen in these deals, and it came home to Grinnell.

The Moral? When it takes tax credits to make a deal work, it doesn’t really work. It’s just crony capitalism.

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Robert D. Flach has started a new organization, TAX PROFESSIONALS FOR TAX REFORM. “We believe that the one and only purpose of the Tax Code is to raise the money necessary to fund the government.” A worthy cause.

William Perez, Understanding Canceled Debt Income and Taxes

Kay Bell, Uncommon charitable gifts still provide donors the typical tax deduction. A discussion of property donations. “As with all tax deductible donations, you also need to make these more uncommon ones by Dec. 31 in order to claim them on this year’s taxes.”

Paul Neiffer, Farm and Ranch Provided Housing. A partnership, sole proprietor or S corporation cannot provide and deduct employee related housing for any of its owners (unless they own less than 2% AND are not related to any other owners).”

TaxGrrrl, 12 Days Of Charitable Giving 2015: Fender Music Foundation

 

Seventh Avenue, Des Moines, this morning.

TaxProf, Hemel:  Taxes To Cause Vanguard Fund Fees To ‘Quadruple’? Not So Fast. We know the nosy busybodies would punish Vanguard’s small saver base with higher fees to feed the federal black hole. The only dispute is how much.

Tax Policy Blog, Apple CEO Tim Cook: We Need a Tax Code for the Digital Age. “The solution to ‘profit shifting’ is not a new patch to an already complicated tax code. The solution that the U.S. needs is a comprehensive tax reform that reduces both the corporate tax rate and the complexity of the entire tax code.”

TaxProf, The IRS Scandal, Day 961Day 962Day 963. The Day 961 post notes the obvious problems of giving one of the most aggressively secretive agencies power over passports. Day 962 inadvertently confirms one of the driving forces of the IRS scandal — ongoing bitterness over the Citizens United decision preventing bureaucrats from selectively restricting free speech rights.

Robert Wood, More Calls To Impeach IRS Chief Over Targeting, Bonuses, Obstruction

 

Stuart Gibson, Unlikely New Year’s Resolutions (Tax Analysts Blog). Like these:

-Citizens of Greece: Pay all the taxes they owe.

-Greek tax collectors: Pay all taxes they collect into the Greek treasury.

Unlikely indeed.

 

Peter Reilly, Did You Hear The One About Bernie Sanders And Kent Hovind Walking Into A Tax Blog? Well, Bernie is evidence of the co-existence of dinosaurs and hominids.

 

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Tax Roundup, 11/12/15: W-2 trumps uncertain memory. And: more debate reaction.

Thursday, November 12th, 2015 by Joe Kristan

Day 4: Ottumwa! The big first week of The  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools concludes for the Day 1 teaching team of me, Kristy Maitre and Roger McEowen at Indian Hills Community College in Ottumwa, Iowa today. The Day 2 team of Paul Neiffer, Dave Repp and Patty Fulton will finish up in Red Oak this morning.

It’s been some driving this week:

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If you missed us, there are still four two-day schools left. We hit Mason City next Monday; Maquoketa November 23; Denison December 7; and Ames December 14. The Ames session is available as a webinar. Register today!

 

Sure enough. Few of us (generally only tax preparers) double-check the income reported on our W-2s. We take the employer’s word for it. So does the IRS. That’s the lesson a Californian learned this week in Tax Court.

The taxpayer faced some extra hurdles in filing his 2010 tax returns, according to the Tax Court:

Petitioner was arrested the second week of January of 2011 and was incarcerated until June 2012. Petitioner’s motorhome and van were seized, and he lost all of his records after his arrest and incarceration.

Petitioner did not file a timely return for 2010. On April 1, 2013, the Internal Revenue Service (IRS) prepared a substitute for return for 2010 under section 6020(b). The IRS issued a notice of deficiency for 2010 dated July 8, 2013.

Considering the circumstances, you can understand the non-filing, even while realizing he still needed to. But he was nagged by doubts (my emphasis).

As indicated, petitioner conceded all of the income determined in the notice of deficiency with the exception of wage income of $3,767 from Audio Visual Projection Services, Inc., and $404 from Swank Audio Visuals, LLC. These employers issued petitioner 2010 Forms W-2 for the respective amounts. Petitioner explained that because all of his records were lost and his employers often paid him late or not at all, he does not know whether he was paid for all of the work that he performed in 2010.

It’s an interesting defense. He didn’t say he wasn’t paid; he just wasn’t sure. But the court was sure enough (citations omitted, my emphasis):

In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income.  If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. The Forms W-2 from Audio Visual Projection Services, Inc., and from Swank Audio Visuals, LLC, are sufficient evidence to shift the burden of proof to petitioner.

We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is “a reasonable dispute.” This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.

Adding insult to uncertain memory, the Tax Court upheld penalties for late filing; being in jail is apparently no excuse.

Cite: McDougall, T.C. Summ. Op. 2015-65.

 

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TaxGrrrl bravely live-blogged the GOP debate this week. A handy place to check out what they had to say on taxes.

Kyle Pomerleau, Senator Ted Cruz’s Comment About His Border-Adjusted Tax, Explained (Tax Policy Blog).

Jenice Johnson, Candidates Tax Cuts Unequivocally Skew Toward the Wealthy (Tax Justice Blog). It’s just math. The wealthy pay pretty much all of the taxes, so they will “reap” any tax cuts.

Scott Greenberg, Carson Calls for Eliminating the Mortgage Interest and Charitable Deductions (Tax Policy Blog).

 

Paul Neiffer, When Will We Know Section 179 Amount?. My intrepid tax school colleague ponders the likelihood and timing of the “extender” bill for this year.

Tri-state sales tax webinar! The Iowa Department of Revenue will have a free webinar covering “Sales and Use Tax Basics” for Iowa, South Dakota and Nebraska. It’s easy to get nexus for sales tax. There are plenty of Iowa businesses that need to take care of sales taxes elsewhere.

Ying Sa, My IRS is little (IowaBiz.com). “Many immigrant-owned small businesses begin with a focus on just selling. The rest, such as an income statement, balance sheet and tax compliance, is sometimes unknown to them.”

Insureblog, Worse Insurance, Higher Cost. “The fact is, your insurance is going to get worse and you are going to pay more for it.”

Robert D. Flach, QUESTIONS ANSWERED. Robert answers a reader question on deducting state property taxes.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015, #8: Tax-Free Parsonage Allowance Gets A Second Life.

Russ Fox, The Real Winners of the World Series of Poker (2015 Edition). Hint: the winner’s first initial is “I.”

Janet Novack, Here’s How Congress Just Cut Social Security For Baby Boomer Couples. The end of “file and suspend.”

 

TaxProf, The IRS Scandal, Day 917,

Stuart Gibson, The European Predictability Paradox (Tax Analysts Blog). “Paradox will rule the European tax world, in which certainty will become uncertain and the predictability accorded by advance rulings will become entirely unpredictable.”

Renu Zaretsky, To make money you have to spend money…” Today’s TaxVox headline roundup covers the Dell-EMC merger, international tax reform hopes, and lots more.

 

News from the Profession. CPAs Admit That They’re Not Good Business People (Caleb Newquist, Going Concern).

 

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