Posts Tagged ‘Tax Analysts’

Tax Roundup, 9/6/2013: The IRS is losing the S corporation comp war? And Tax Analysts has a history video!

Friday, September 6th, 2013 by Joe Kristan

S-SidewalkIf they’re losing the war, I’d hate to see how they’d act if they won. The TaxProf today offers Schwidetzky: The ‘John Edwards S Corp Tax Shelter’: Is the IRS Winning the Battles But Losing the War? :

 Arguably, that case has yet to be litigated. But there are two cases where the taxpayer either paid or was supposed to have paid a modest salary, curiously the same amount in both cases, $24,000 per year. The two cases are Watson v. Unied States, 107 AFTR2d 311 (IA DC 2010), aff’d 668 F.3d 1008 (8th Cir. 2012) and McAlary v. Commissioner, T.C. Summ. Op. 2013-62. Both cases rejected the $24,000 salary as too small. But neither case concluded that that the net income of the S corporation was wages. Instead, following John Edwards’ lead, the courts looked to what, essentially, the average similarly situated taxpayer earned instead of what the taxpayer earned from his services…

It is common for tax advisors to suggest that the taxpayer take a salary equal to the social security tax cap. Until the courts come to their senses, there is no reason for tax advisors not to continue to give that advice.

The tax law does not impose self-employment or employment taxes on S corporation K-1 income.  Most (but not necessarily all!) partnership income of active partners, and all Schedule C income, is subject to self-employment tax.  This encourages S corporation shareholders to take less in salary and more on their K-1s.

Mr. Schwidetzky, an academic, seems to think taxpayers are just having their way with the poor IRS, but for those of us in the wild trying to keep our clients out of trouble without wasting their money on excessive taxes, it hardly looks like the IRS is losing.

First, the IRS is auditing S corporations aggressively — way too aggressively.  Mr. Schidetzky fails to bring up the recent Glass Blocks case, where the Tax Court ruled that a struggling one-man S corporation had to pay a “reasonable salary” even doing so throws the corporation into a loss.  That’s a result far worse than the poor guy would have had filing as a Schedule C taxpayer.  It’s hard to see how such pointless and harsh treatment is good policy.

Second, there is still no clear statutory or regulatory guidance to determine minimum “reasonable” salaries.  There are many taxpayers who have interests in multiple businesses, and whose time spent in one of them may be very high early, or when the business may be struggling, but devoted to other businesses in other years.  The taxpayer may take all of his salary from one of his companies, inviting the IRS to say that he should be taking it from other companies instead.  Whatever you do, the IRS can second-guess it, while giving the taxpayer no guidance on what it should be doing.

Third, why is this just an S corporation issue?  The same thing can come up in C corporations.  Think of Warren Buffett’s famous $100,000 annual salary — one that is arguably tens of millions “too low.”  Why not hit him for more payroll taxes?  The same problem can also arise in an LLC with multiple classes of ownership interests in a partnership return.

The “problem,” such as it is, comes from the tax statutes that exempt some business income from self-employment tax, and from the IRS failure to provide clear guidance to either examiners or taxpayers — not from the courts’ attempts to prevent taxpayer abuse.

Related:

 ’JOHN EDWARDS SHELTER’ TARGETED BY IRS

Eighth Circuit upholds ‘Watson’ decision requiring increased comp for CPA S corporation shareholder

Update: Don’t miss Tony Nitti’s long-form analysis, S Corporation Shareholder Compensation: How Much Is Enough?

 

Lois Lerner, IRS, FEC

Lois Lerner, IRS, FEC

This is why the IRS political scandal is such a big deal.  Who Will Audit the Auditors(Steven Malanga):

The Internal Revenue Service’s targeting of conservative groups has revived old fears about the agency’s vast taxing and auditing powers, so easy to abuse. But the IRS isn’t alone in holding those powers. Across the country, states and municipalities have endowed thousands of revenue and audit bureaucracies with similar capabilities. Critics complain that officials use these entities to harass enemies and help allies. The evidence makes clear just how well-founded those concerns are—especially since these agencies typically receive far less scrutiny than the IRS does.

Using tax laws to silence opposition is a standard part of the Russia and Ukraine dictator toolkit.  And it has happened here, too.   That’s why talk over whether one organization might have had it coming misses the point.  It’s clear that only the Administrations political opponents are getting that sort of examination.  And the IRS can make life difficult even if you are squeaky clean.

TaxProf, The IRS Scandal, Day 120

 

Wall Street Journal,  IRS Rule Leads Restaurants to Rethink Automatic Tips; Gratuities Added for Large Groups Will Be Taxed as Service Charges

 

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don’t always report them fully.

Some big restaurants are reconsidering automatic tips on large parties.

 

Answer: the cost, especially when you are young and healthy.  What’s up with Insurance Premiums under Obamacare?  (Kyle Pomerleau, Tax Policy Blog)

 

Roberton Williams, A Closing Window for Some Same-Sex Couples to File 2012 Tax Returns:

But most reports on the ruling have missed an important detail: the IRS will begin applying the new rule on September 16. That gives same-sex couples who haven’t yet filed their 2012 tax returns just a few more days to file as individuals if they choose to do so.

Multiple-sex couples are unaffected.

 

TaxGrrrl, Back To School: Teacher & Educator Expenses 

Russ Fox,  IRS Interest Rates Unchanged for the Fourth Quarter

Kay Bell,  State taxes take a big bite out of most NFL players’ incomes

Paul Neiffer,  Notice to Employees of Coverage Options Due October 1st  More pointless government-mandated busywork for you!

Peter Reilly, Parent Booster Clubs – Raising Money For Your Own Kid Is Not Charity

Steven Olsen,  Tax Court Holds IRS Must Follow Corporation’s Designation on Tax Payment. (Procedurally Taxing):

To pay the restitution for their individual income tax, the Dixons paid the funds to Tryco, and then had Tryco submit payment with Form 941 and a cover letter stating the payment was “to be applied to the withheld income taxes of [the Dixons]” for the applicable years. Initially, the Service followed those directions, and then reversed course and applied the funds to the unpaid employment taxes.

The court held for the taxpayers.

 

Jack Townsend,  Outlier Foreign Investment Conviction

Robert D. Flach has his Friday Buzz on!

 

It’s comical.  Exclusive: Vintage Tax Reform Comic Book Now Online! (Tax Justice Blog)

Christopher Bergin, The Story of Tax AnalystsA little video that tells how this little non-profit has done so much to make the tax law less of an insider’s game.

It’s a little over three minutes, and it would be worth watching just for the old office technology pictured — but it’s especially valuable to see just how far back the IRS desire to hide what it does goes.

Accounting career news. Accounting Career Conundrums: How Soon Is Too Soon to Quit?   Anytime before tax season, if you work for me.  Otherwise, suit yourself.  (Going Concern)

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Tax Roundup, 1/9/2013: E-filing gets underway January 30. Also: 79 year-old lady pleads to tax crimes.

Wednesday, January 9th, 2013 by Joe Kristan

20130109-1The IRS announced yesterday (IR-2013-2) that it will begin processing 1040s January 30.  From where I stand that’s right on time, as very few of our clients have their 1099s, W-2s and K-1s before then anyway.

The IRS will be unable to process some returns that soon.  From the IRS press release:

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

Form 8582, used to report passive losses, is one of the forms that will cause delays.

State taxes, that will be another matter.  As the legislature has to decide whether to accept the retroactive changes to the tax law, many Iowans will have to wait awhile to know what the 2012 Iowa rules are.

 

Tax Update on Iowa Cable Network tomorrow.  I will be giving a rundown Thursday at 6:00 pm on the Fiscal Cliff tax bill and other recent tax developments in an ICN broadcast (is that the right word for a closed-circuit presentation?) for the Institute of Management Accountants.  There will be a live audience at 6500 Corporate Drive, Johnston and viewing sessions at Grinnell High School, Marion High School, Keystone AEA (Dubuque) and St. Ambrose University.  Contact Kathy Smith, ksmith4dlord@gmail.com, if you are interested.

 

The TaxProf gives a non-subscriber link to Ethan Yale’s Taxing Market Discount on Distressed Debt, which appeared in Tax Notes yesterday.  The paper talks about the weird and ugly issues that arise when a third party buys bad loans and tries to collect.  The market discount rules treat the debt as having a real high interest rate, with all payments principal first, based on the difference between the discounted purchase price and the face amount of the debt.  The rules also can cause the income on collections to be ordinary, but the losses to be capital.

The paper talks about why these rules don’t make sense for deeply-discounted debt.   If you buy a debt at 50% of face due in one year, it doesn’t make sense to assume that it will cash out at a 100% APR return, but that’s how the regulations would work.  The paper also covers arguments taxpayers can make to try to ameliorate the harsh treatment that the market discount rules would apply, but there’s no assurance the IRS would buy them.

 

A 79 year-old widow pleads guilty to concealing overseas bank accountsShe agrees to pay over $20 million in penalties in the plea deal and faces up to six years in prison, according to a Department of Justice press releaseJack Townsend has more.

 

Fiscal Cliff Notes

Problem solved!  Well, not really.  You know how the tax increases in the Fiscal Cliff legislation won’t begin to solve the $1.2 trillion deficit?  The Congressional Research Service reports that it’s even worse: it will increase the current fiscal year deficit by $330 billion and the cumulative 10-year deficit by $4 trillion.  ($link through Tax Analysts)

Howard Gleckman, Grim Predictions about the Fiscal Cliff II and Deficit Reduction (TaxVox):

I spent lunchtime today moderating a thoroughly discouraging Urban Institute panel discussion  on the fiscal cliff. The consensus of the speakers—all highly-regarded budget experts—was that the New Year’s cliff deal was pretty lame and the coming round of self-imposed budget crises will be even worse.

Oh, goody.

Roger McEowen on the Fiscal Cliff bill: A short summary of the most significant provisions. 

Paul Neiffer,  Reprieve For S Corporations With Built-in Gain

Patrick Temple-West,  Insiders benefited from special dividends, and more (Tax Break)

William McBride,  Taxes Up, Stocks Up, What Can Go Wrong? (Tax Policy Blog)

Jana Luttenegger,  Filing for 2012 Taxes Delayed Until January 30 (Davis Brown Tax Law Blog)

TaxGrrrl, IRS Announces Delayed Tax Filing Season

Russ Fox,  IRS Announces Tax Season to Start on January 30th

 

David Brunori, Good — and Not so Good — Corporate Tax Ideas from New Mexico (Tax.com):

New Mexico Governor Susana Martinez, a rising star among GOP politicians, is calling for a steep reduction in the corporate tax rate.   She proposes cutting the rate from 7.6 to 4.9 percent. That is good news. The corporate income tax is — and will likely remain — one of the worst ways to raise revenue for state governments. The tax is inefficient, ineffective, and distorts economic decision making. It would be better if Governor Martinez called for the repeal of the tax, but whittling it down is okay as well.

Repeal of the corporate income tax would be a good idea in Iowa as well, but the influential corporations that get big checks from the state via the tax law aren’t going to jump on the repeal bandwagon.

 

Jason Dinesen, The IRS — Putting Paperwork Ahead of People.   Doug Shulman’s legacy of identity theft nightmares lingers.

Kay Bell, Tax Carnival #110: Happy New Tax Year

It’s Wednesday, so it’s Buzz Day at Robert D. Flach’s place.

Socially-awkward, that’s something else.  Great News: Accountants Are Less Likely To Be Psychopaths (Going Concern)

News you can use:  The Problem With Libertarian Women is Not Libertarian Men (Megan McArdle)

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Tax Roundup, 1/7/2013: Economist says Iowa’s problem is income tax, not property tax. And: thieves don’t report all of their income?

Monday, January 7th, 2013 by Joe Kristan

O. Kay Henderson reports that maybe the Branstad focus on property taxes is misplaced in Economist: Iowa income taxes not competitive:

A Midwestern economist says Iowa policymakers should focus on cutting income taxes rather than property taxes. Ernie Goss, an economist at Creighton University in Omaha, says Iowa’s income tax rates are fifth highest in the country.

“In terms of what Iowa needs to look at, in my judgement, given what’s going on in Kansas, what’s about to go on in Nebraska — Iowa’s neighbors — you need to look at income taxes, in terms of being more competitive,” Goss says.

Iowa property taxes are too high, but income taxes  matter more for many taxpayers.  While property taxes are a big deal to companies that own real estate, like a manufacturer or a big insurance company, income taxes can mean a lot more to a start-up or a tech company.  Fortunately the Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready to go!

 

Making a dent in the deficit!  A chart shows how much the tax increases on “The Rich” will reduce the $1.2 trillion federal deficit (new taxes in green, deficit in red)

Fiscal cliff taxes vs deficit

Either the government spends a lot less, or taxes go up a lot for everyone. The rich guy isn’t buying

 

The IRS isn’t buying, either.   Tax Analysts reports Better IRS Enforcement Could Net $1 Billion More a Year, Says GAO ($link).   $1 billion is less than 1/1000 of the deficit.  They won’t audit their way to solvency.

 

Breaking tax news from the Eisenhower administration:

Amity Shlaes,   Think Obama’s Tax Hikes Are Low Compared With Rates Of The 1950s? Think Again.  (Via Instapundit)

Andrew Biggs,  Were taxes really higher in the 1950s?

20130107-1

 

It’s Monday.  Do you know if your payroll taxes have been remitted?  Another sad story of a payroll service provider who decided he needed taxes withheld from his clients more than the IRS did.  Digtriad.com reports that Arthur Weiss of Winston-Salem, North Carolina is going away for 15 years:

Case documents show Weiss operated professional employer organizations (PEOs), which provided payroll-related services to client companies. For his client companies, Weiss agreed to pay the employees, withhold and remit federal and state taxes, prepare and file the federal and state employment tax returns  and provide workers compensation insurance (WCI).

Weiss did pay the employees and withhold the employment taxes, but he failed to remit the employment taxes, keeping them for his personal use.

PEOs that file taxes under their own names and ID numbers have a hidden danger: their clients can’t verify that the IRS has received their payments via the Electronic Federal Tax Payment System (EFTPS).  Employers can use EFTPS to monitor payments when they use a payroll service that reports employee taxes under the employer’s own name and Tax ID number.  This makes it necessary for taxpayers to investigate PEO-type providers very carefully before trusting them with payroll services.  If your payroll taxes are stolen by your payroll provider, the IRS will come after you to collect.  Not many employers can afford to pay payroll taxes twice.

Russ Fox has more.

 

Few thieves report their income honestly.  From WHOTV.com:

Disgraced former Peregrine Financial CEO Russell Wasendorf Sr. is in jail awaiting sentencing for embezzling over $200-million in customer funds, fraud, and lying to federal regulators.

Now the state says he may have also cheated on his taxes.

Records show the [Iowa Department of Revenue] filed an assessment in November against Russ  and Connie seeking $14.1-million in unpaid taxes and penalties to Iowa.

Good luck collecting anything.

 

Fiscal Cliff Notes:

TaxProf,  WSJ: The Stealth Tax Hike — Why the New $450,000 Income Threshold Is a Political Fiction

Elected representatives at work.  Tim Carney: Baucus rewards ex-staffers with tax breaks for their clients:

Tax breaks for Hollywood, NASCAR, windmills, algae and multinational corporations ended up in the “fiscal cliff” bill thanks to President Obama, according to Senate Republican sources. But they were spawned by a web of lobbyists, donors and staffers surrounding Democratic Sen. Max Baucus of Montana.

Baucus’ Finance Committee passed a bill in August extending 50 expiring deductions and credits for favored industries. At Obama’s insistence, the Baucus bill was cut and pasted word for word into the cliff legislation.

But it’s all for our own good, I’m sure.

William Perez, President Signs the American Taxpayer Relief Act into Law

The ‘fiscal cliff’ bill and Iowa entrepreneursMy new post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Paul Neiffer,  Up to Ten Capital Gains Tax Rates for 2013!

Janet Novack,  The Forbes Guide To The Fiscal Cliff Tax Deal

TaxGrrrl,  10 Things You Should Know About The Fiscal Cliff Deal

 

Kay Bell,  Ravens, Redskins and tax revenue

Brian Strahle,  Minimize Restructuring Costs with State Tax Due Diligence

Peter Reilly,  War Tax Resisters – Don’t Call Them Frivolous.

Patrick Temple-West,  Inquiry into tech giants’ tax strategies nears end, and more (Tax Break)

Kaye A. Thomas,  American Taxpayer Relief Act

Tax Trials,  Senate Confirms Two New Tax Court Judges

Robert D. Flach ponders whether he should rename his Buzz roundup of tax news.  Don’t do it, Robert!

 

Make up your minds!

Tax Analysts, New Congress’s Partisanship, Inexperience May Hurt Chances for Tax Reform 

The Hill:  Tax reform more likely after ‘fiscal cliff’ agreement, say House Republicans. (Via Instapundit)

 

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Tax Roundup, 7/24/2012: Why should death be simple? Film trial starts; did corporate welfare doom Curt Schilling?

Tuesday, July 24th, 2012 by Joe Kristan

Because why would they do something simple and sensible?  Tax Analysts reports ($link):

Practitioners should not expect a simplified estate tax return for electing portability, said James Hogan, branch 4 chief, IRS Office of Associate Chief Counsel (Passthroughs and Special Industries), on July 23.

The current estate tax law, which expires at year-end absent Congressional action, allows a surviving spouse to use a deceased spouse’s unused lifetime estate tax exemption — but only if an estate tax return is filed electing the carryforward for the deceased spouse’s estate.  In many cases neither spouse will owe estate tax, but there’s always the chance that the widow will win the lottery, so executors are filing a lot of these otherwise unneeded estate tax returns in self-defense.   It looks like that silly state of affairs will continue.

Casting Call.   Attorneys interview prospective jurors in Iowa film tax credit trial (Rod Boshart, QCTimes.com).  The report says the trial is expected to take about two weeks, with the panel to be seated today.  The charges against film-credit broker Chad Witter can be found here.

What happens when non-taxpayers run the show (Tax Foundation):

 Killed by corporate welfare?  An interesting item via Going Concern about Curt Schilling’s ill-fated video game venture:

Desperate to gain outside funding, Schilling used his fame to gain meetings with investors “practically every week for the company’s first three or four years.” But no one bought in, scared off by the company’s amateurish business plan and lack of experience. So when Rhode Island came calling with a sweetheart business development loan, 38 Studios jumped at the chance—even if it meant opening up a new office and hiring more employees, which hastened its demise.

If a business plan is any good, it will probably find funding without government help.  If it needs government help, it probably isn’t a great idea to start with.

No, the government doesn’t really have a big pot of cash waiting for you to claim it.  Two more taxpayers have pleaded guilty for their involvement in a Missouri-based scheme to claim $100 million in fraudulent refunds under the “1099-OID” scam.

Overruled.  Las Vegas Lawyer Pleads Guilty to Tax Evasion (USDOJ)

Steve Sink explains why rising tax rates may make this the year to sell your business (IowaBiz.com).

Peter Reilly: Romney’s Olympic Horse Not Jumping Through The Last Hoop Of Deductibility

Eh? Is the American Girl Really (Gasp) Canadian? (TaxGrrrl)

Firms Pass Up Tax Breaks Due to Hassles and Costs (Paul Neiffer). The elaborate “targeting” of tax breaks often misses the mark.

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What’s the opposite of tax reform?

Monday, February 6th, 2012 by Joe Kristan

Martin Sullivan at Tax Analysts loses hope that the Obama administration will attempt tax reform:

It wouldn’t be so bad if Obama simply remained a lackadaisical supporter of tax reform. But his proposals are actually moving us in the opposite direction. As the election approaches, he and his advisers are feeling the need to dish out new tax breaks. So the president who on national television shouted at Congress to “get rid of the loopholes” now wants to add a bunch of new loopholes of his own.

Instead of cleaning up code and lowering rates, we see a batch of focus-group inspired tax breaks:

Just as with Clinton’s parade of tax breaks, the growing list of Obama’s special benefits includes features that are absurdly complex. The president wants to double the tax deduction currently available to manufacturing in the case of “advanced manufacturing technologies.” It has been difficult enough to figure out how to differentiate manufacturing from other businesses under section 199. What in the world is “advanced manufacturing technology”? Are we talking about technologically advanced production processes or about technologically advanced products? If a product or production line includes advanced technology, is the entire product or production line eligible for the benefit, or just the components with the advanced technology features?
The questions are endless. There will certainly be major disputes between the IRS and taxpayers. We can add a nice, new chapter to the book on everything we hate about tax law.

Unfortunately the tendency to make the tax law more difficult to enact pretty-sounding tax breaks isn’t confined to Washington. While the President and the Governor of Iowa are from different parties, they both are proposing to jerry-rig new narrow breaks to an already byzantine tax law. In Iowa, ESOPs are the flavor of the month. And, of course, special tax breaks do more harm than good. From Mr. Sullivan:

Only in exceptional circumstances do violations of tax neutrality promote growth. Just because these tax breaks are well intentioned and targeted to sympathetic causes does not make them exceptional.

Iowa, with the nation’s highest corporate rate and one of its most complicated tax laws, would do much better with simplicity and lower rates — with the Quick and Dirty Iowa Tax Reform, for example.
Link to Tax Analysts content courtesy of their special arrangement with the TaxProf. Tax Notes subscribers can follow this link.
UPDATE, 2/8: Free link to Sullivan story at Tax.com.

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IRS: Mileage rates staying put

Friday, May 13th, 2011 by Joe Kristan

Gas wasn’t $4 per gallon when the IRS announced the 2011 business mileage rate of 51 cents, but the IRS has no plans to raise the rate, Nicola M. White reports at Tax Analysts ($link):

The rates are based on an annual study from a third party, said Ligeia Donis, assistant branch 1 chief (employment tax) in the IRS Office of Associate Chief Counsel (Tax-Exempt and Government Entities). Changing the rate in the middle of the year could present logistical challenges, and if the price of gas dropped, there would be more complications, she said. “If it increased now and gas prices drop significantly, you’re going to end up overpaying with regard to expenses incurred,” she said.

Anybody think there’s a risk of a gas price crash this summer?
Related: Kay Bell, Representatives ask IRS for mid-year hike of standard mileage rates

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Costly jobs in Minnesota

Monday, March 28th, 2011 by Joe Kristan

David Brunori ($link) reports:

Last year Minnesota gave out $7 million in tax credits to investors who helped finance start-up companies. The payoff: 47 jobs. The state says the Minnesota angel tax credit program is just getting started and that it’s too early to make any judgments. All I know is the state paid out $148,936 for each job it created. I think the new jobs weren’t paying quite that much.

It’s probably worse than that. There’s no way of knowing how many of those “jobs” would have been created anyway. Economic development bureaucrats are notorious for claiming credit for any new hire in the neighborhood of a corporate welfare payment.
States can’t force job growth by throwing checks around. They can make a good environment for businesses to grow with low tax rates, an easy-to-comply-with tax system, and light-handed regulation.

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We will continue to execute jaywalkers ruthlessly, for their own good.

Monday, March 21st, 2011 by Joe Kristan

Tax Analysts reports ($link) that the IRS likes the way it is beating up on inadvertent non-compliance with foreign account reporting requirements just fine. At least that’s so if John McDougal, special trial attorney and division counsel in the IRS Small Business and Self-Employed Division, is representative:

Taxpayers do not like how the government defines reasonable cause. “The difference between reasonable cause and no reasonable cause has always been whether the taxpayer was aware of the facts that gave rise to the filing obligation,” McDougal said. “If they were not aware of the facts, that’s reasonable cause. If they were aware of the facts, but just didn’t bother to check it out or ask the question whether they had a filing obligation, the case is pretty clear that’s not reasonable cause.” He said that their representatives need to think about how much knowledge the taxpayer had of the facts and when that knowledge was acquired.

So a U.S. citizen living overseas who knew she had a bank account, but had never heard of FBAR reporting, would have no reasonable cause for not filing the forms she never had heard of.
The Tax Analysts piece adds a wrinkle I had not heard of: the IRS is adding the value of offshore real estate to the value of offshore accounts in computing penalties on offshore account holders:

However, the 25 percent penalty in the OVDI is applied to the value of real estate if it produced unreported income subject to U.S. tax during 2003-2010. Mark E. Matthews, a partner at Morgan, Lewis & Bockius LLP, said he thought the focus on real estate seemed odd in the context of a program that is about offshore accounts. He noted that in many cases taxpayers had no reporting obligations for the real estate.
Kenneth Vacovec, a partner at Vacovec, Mayotte & Singer LLP, said that he disagreed with the inclusion of real estate in the OVDI because, unlike financial accounts, there is no separate reporting obligation for foreign real estate holdings. He said that the offshore penalties seemed especially inequitable when applied to real estate that was inherited or purchased for retirement and that was included in the OVDI solely because it produced a small amount of rental income. Because the value of the real estate generally exceeds the value of any income that it produces, taxpayers are facing large bills for minor tax reporting violations, he explained.

Mr. Matthews says the IRS habit of shooting jaywalkers — even when they come in voluntarily under the so-called FBAR amnesty programs — makes it hard to recommend using the new version of the amnesty:

“It is very difficult to talk to those people and make a compelling case for them to come into this program,” Matthews said. He explained that lawyers are faced with the prospect of telling these clients that the cost of entering the OVDI will be “basically a quarter of their net worth,” due to the inclusion of their real estate holdings in the penalty base.

It’s sad when the government offers you the alternatives of living under a cloud, financial ruin, or giving up your citizenship.
Related: Jaywalkers flee the gunfire

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We’ll have a conference to agree just how important it is that we agree.

Tuesday, November 30th, 2010 by Joe Kristan

Those of us hoping for Congressional action to deal with the huge backlog of unfinished tax business didn’t get a lot of hope from White House Press Secretary Robert Gibbs yesterday. Congressional big shots will meet the President today — to work out a tax deal? Not exactly, reports Tax Notes ($link):

The meeting will simply be the beginning of negotiations, White House Press Secretary Robert Gibbs said during a briefing with reporters.
“I do not expect that we’ll come out after an hour, an hour-and-a-half, and have full agreement on this,” Gibbs said. “I hope there is agreement on the notion of how important it is to get this done by the end of the year.”

Yeah, we’ve only been waiting 8 years or so for a deal, and there will be a huge tax increase on everybody January 1 if nothing happens. No rush.

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Senate may take up wacky S corporation tax increase today

Tuesday, June 8th, 2010 by Joe Kristan

The Senate may begin work on the House-passed “extender” bill, HR 4213, today, reports Tax Analysts ($link). This is the bill that imposes FICA and Medicare tax on professional S corporation K-1 earnings when the corporation’s “principal asset” is the “reputation and skill” of three or fewer employees.
Tax Analysts notes that the S corporation tax is generating opposition:

Because it would be limited to S corporations led by a relatively small number of employees, it has been described as unfairly targeting small businesses. At the same time, it has been criticized because its impact could still prove quite broad.
“They wanted to make it look narrow, and in effect they’re going after 94 percent of all S corps,” Reardon told Tax Analysts, referring to IRS data on the percentage of S corporations with three or fewer shareholders.
Skeptics of the provision, like Reardon, note that the IRS already has authority to measure the salaries of S corporation shareholders against market value and ensure that the taxpayer has received “reasonable compensation.” They doubt whether it would be any easier for the IRS, or an S corporation, to value the reputation and skill of a business’s employees or determine its principal asset.

The professional S corporations are victimized by the awful Congressional habit of extending “temporary” provisions one year at a time to disguise their true cost. Each annual extension of the “temporary”provisions — there are now 70 of them — leads to a round of permanent tax provisions to “pay for” them. This time they are doing so with a provision that not only applies disproportionally to smaller businesses at the expense of their larger competitors, but it does so in a way that will be extremely difficult to comply with and enforce.
Good tax policy doesn’t require taxpayers to gather a bunch of information that they wouldn’t normally need in running their business. This provision requires S corporations to value their intangibles every year to determine whether their “principal asset” is the “reputation or skill” of three or fewer employees. Nobody values their intangibles annually — certainly not small S corporations. Nobody even knows how.
There’s still time to raise your voice against this stupid provision. You can find how to contact your Senator here. Tell them that the S corporation provision of HR4213 is a mess and should not be enacted.
Prior Coverage:
A one-hitter is “not perfect.” This is something else.
How not to determine your S corporation compensation
Reputation and skill
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I have lots to say about taxes right now…

Monday, April 12th, 2010 by Joe Kristan

…but it’s probably already been said in Tax Analysts new book, As Certain as Death, Quotations About Taxes. You can find a pdf of the book here, or order it free here. Hat tip: Chris Bergin at Tax.com.
The quote that best sums up my views:

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TaxProf, Tax Analysts get together

Wednesday, March 31st, 2010 by Joe Kristan

Excellent news from the TaxProf:

I am delighted to announce that Tax Analysts has agreed to partner with TaxProf Blog in making some of its wonderful content available to the broader tax community. In particular, each week I will post three full-text items from Tax Analysts’ flagship publication, Tax Notes Today, as well as three full-text items each from State Tax Today and Worldwide Tax Daily. And of course, all Tax Analysts content is available through the LexisNexis

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Turbotax Timmy? Dancing Helio? Let’s pick the 2009 Taxpayer of the Year!

Monday, January 4th, 2010 by Joe Kristan

Now that 2009 has been over for several whole days, we can look back with the perspective of history to determine a worthy Taxpayer of the Year for 2009. Prior winners are ineligible, while those who win awards from other major tax sites are automatically nominated. Without further ado, the candidates:

Who is the 2009 Taxpayer of the Year?
Brad Birkenfeld
Nick Cage
Helio Castroneves
Joe Francis
Tim Geithner
William Halby
Peter Hendrickson
Kent Hovind
Rev. Anthony Jinwright
  
pollcode.com free polls

To learn more about our candidates, read on!

(more…)

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But high-speed golf carts are essential to our green future!

Monday, November 30th, 2009 by Joe Kristan

20091130-1.jpg
Tax incentives stink.
Don’t just take my word for it. Listen to Amity Shlaes, author of a ground-breaking study of how the government put the “Great” in the Depression, in a Tax Analysts piece ($link):

The greatest problem with tax incentives is that they distort the economy in ways that hurt us all in the long run. The tax deductibility employers enjoy when they buy health insurance for workers was first offered decades ago in the name of a righteous goal: encouraging those employers to provide coverage for uncovered citizens. But the third-party payment system that resulted provided a significant disincentive for doctors and patients to economize on healthcare. No one really knew who was paying, so no one took the costs seriously.

And they aren’t cheap:
Removing all tax expenditures, from the child credit to estate tax breaks, would allow lawmakers to cut the top tax rate from 35 percent to 20 percent, as scholars Leonard Burman, Eric Toder, and Christopher Geissler pointed out in a recent Urban Institute-Brookings Institution paper. Or, to put it another way, eradicating tax incentives would make us enough to extend Medicare and Medicaid without cutting benefits.

There’s a great example in the Sioux City Journal of how a tax credit for “green” vehicles works to take away what little exercise exists in a round of golf. The credit for “low-speed electric vehicles” has triggered a stampede to the cart dealers:
Some Siouxland golf cart dealers report a flood of interest from linksters wanting to tap a federal income tax credit that can slice the price of the machines in half or more. Out of stock, they’re waiting for new orders to arrive.
“Our sales usually slow down this time of year when the weather gets nasty,” said Jack Mills of Midwest Golf Car in Tea, S.D. “This year, our phones have been ringing off the hook. This has taken us by surprise and we’re trying to meet the demand.”
Why the big rush? To qualify for the credit, which amounts to several thousand dollars, depending on the car battery kilowatt capacity, purchases must be completed by Dec. 31.

The credit is available for carts that are street legal, and they have to be faster than standard carts:
To qualify for the tax credit, the plug-in electric vehicles must have maximum speeds between 20 and 25 miles per hour — nearly twice that of traditional golf carts.
“They’re probably overqualified for golf courses, but that’s probably where a lot of these are going to end up at,” Mills said.

So when you pay your tax bill next April – and a lot of people will find themselves paying — you can at least have the consolation that you are paying so some old guy at the country club could get a great deal on his own personal super-cart.
Photo attribution:
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‘If they think this is just UBS, they’re mistaken’

Tuesday, September 29th, 2009 by Joe Kristan

The IRS has extended the offshore account reporting amnesty by another two weeks. Lee Sheppard reports in Tax Analysts ($link) that folks whose offshore accounts aren’t with UBS shouldn’t ignore the amnesty:

Another folk belief is that customers of banks other than UBS will get away with tax evasion. “If they think this is just UBS, they’re mistaken,” said [DOJ attorney Kevin] Downing. “UBS is not an anomaly. This is just the beginning. We’re going after foreign banks and professionals.” Countries the government is interested in include Hong Kong, Panama, and Singapore.

If you are interested in the amnesty, act now. Lawyers have been overwhelmed with amnesty cases, and they might not be able to take new clients who wait until the last minute.
UPDATE: Criminal tax defense attorney Jack Townsend has a cynical (but likely accurate) view:

DOJ Tax is on a public relations blitz to drum up business / revenue by incentivizing taxpayers with unreported offshore bank accounts to join the IRS voluntary disclosure initiative ending 10/15. A key facet of the blitz is the high profile indictments recently obtained. At last week’s ABA Tax Section meeting, DOJ Tax rolled out its mouthpiece, Kevin Downing himself at the forefront of the prosecution side of this juggernaut, to remind practitioners and, through them and the press attending, the public that they should pony up in the voluntary disclosure program.

If you have offshore accounts, the amnesty looks wise, but I suppose you don’t have to like it.

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Silly quote of the day

Monday, July 20th, 2009 by Joe Kristan

David Cay Johnston on health care spending in Tax Analysts ($link):

Other countries have all realized that buying healthcare wholesale, through government, is cheaper than buying it retail through a hodgepodge of employer-based plans that create the illusion that healthcare is a tax-free benefit.

You mean, like Medicare? Yes, that’s sure a fiscal winner.
Will Wilkinson gets it right:
Of course, the government, like individuals and families, has a limited budget. So if the government is going to pay for medical care, it has to ration. And that very fact is an argument for limiting the government to only paying for the care of people who are unable to pay for a minimum of care themselves.

Unless, of course, you want the Bureau of Surgery to decide that your mother doesn’t really need that hip replacement, because she has a perfectly good wheelchair.
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