Posts Tagged ‘tax crime’

Tax Roundup, 2/4/14: Sometimes the tax crime isn’t the worst crime. And the Carnival moves on.

Tuesday, February 4th, 2014 by Joe Kristan

WashingtonRule 23 of George Washington’s Rules of Civility has a lot going for it:

When you see a Crime punished, you may be inwardly Pleased; but always show Pity to the Suffering Offender.

Yet even the Father of His Country might have had a hard time suppressing a smile over a federal tax sentencing in California yesterday.  From the Contra Costa Times:

A former San Ramon family law attorney was sentenced to two years in prison Monday for evading taxes and illegally eavesdropping on a client’s estranged spouse with the help of a now-incarcerated private investigator who set up divorcing men for drunken-driving arrests.

Mary Nolan, 62, of Oakland, already relinquished her law license and paid $469,000 in back taxes Sept. 27 after she pleaded guilty to four counts of tax evasion and one count of illegal eavesdropping.

Nolan represented the ex-wives of two men who were arrested after [the private investigator's] attractive female employees lured them into drinking and driving. Those convictions were expunged after the scheme became known in 2011, when Butler and jailed former Contra Costa Narcotics Enforcement Team Commander Norman Wielsch were caught selling drug evidence and admitted to pimping and robbery, among other crimes.

Oddly, the sentencing judge not only failed to impose the 33-month sentence requested by the prosecution, but he also seemed to think the tax charge was more serious than the honey-trap thing, reports Concord Patch:

Breyer told Nolan during the sentencing today, “To eavesdrop on conversations that clearly weren’t intended for an adversary to hear is a
very unfair thing to do.”

But he said he was especially concerned about the failure of Nolan, as a lawyer, to pay the taxes due.

“What I find most troubling is the fact that you were a lawyer. Lawyers have that special responsibility not just to know the law but to follow it,” he told Nolan.

Yes, evading $400,000 of taxes is a bad thing, whether or not you are a lawyer.  Still, ruining lives setting up and framing people to win divorce cases strikes me as worse than making the IRS work hard for its money.   Maybe when you’re a federal judge, things start to look a bit funny.

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Well, technically “a bunch” isn’t “a smidgeon.”   ‘Not Even a Smidgeon of Corruption’ at IRS, Obama Says.  (Tax Analysts, $link).   If so, it sure is funny how Lois Lerner was so quick to invoke her 5th amendment right against self-incrimination.  

Clint Stretch, Dumb Mistakes Aren’t Crimes.  (Tax Analysts Blog)  He says “IRS employees will not knowingly do someone’s political bidding.”  History shows otherwise.

 

 

TaxProf, OMB: EITC Is 4th Most Error-Prone Federal Program, With 22.7% Error Rate.  If it makes you feel better, the three worse ones are all Medicaid or Medicare.  Makes you want the government and IRS to pay in a bigger role in health care, for sure.

 

Minnesota:  Come for lovely winter weather, and stay for the annual tax hit!  The Minnesota Center for Fiscal Excellence has computed the annual cost for a high-earning individual of life in the tundra.  It’s not cheap:

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Of course, beautiful Iowa doesn’t have a lot to crow about, as it looks good only by comparison with Minnesota.  While the hypothetical taxpayer could only buy a nice new sedan annually for the savings of moving from Minnesota to Des Moines, she could buy some really nice wheels every year with a move to Sioux Falls.

 

Tony Nitti, Tax Geek Tuesday: Reasonable Compensation In The S Corporation Arena:

The IRS Fact Sheet provides “The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property…did go to the shareholder…the level of salary must be reasonable and appropriate.”  This language would seem to indicate that there is no requirement that compensation be paid to a shareholder-employee provided the shareholder also foregoes distributions. Even with that bit of guidance from the IRS, it is prudent advice to encourage a profitable S corporation to start making reasonable salary payments to its shareholder-employees as soon as it has the means to do so.

Unfortunately, the IRS has shown that it will attempt to force a salary even when the means are lacking.

Paul Neiffer, You Can File Income Tax Returns Now (Maybe)

 

Jeremy Scott, Making Tax Reform a Partisan Issue (Tax Analysts Blog):

And it isn’t hard to see why. Linking tax reform to the debt ceiling risks making it a partisan issue. Forcing Congress to take up reform is a GOP victory, because it causes Democrats to give up on a clean bill. So Democrats, many of whom are sympathetic to the tax reform process, will have to oppose tax changes because Republicans have politicized the debate, defining tax reform as a win for their side.

Ah, the majesty of government.

 

Lyman Stone, New Study: High Excise Taxes Drive Cigarette Smuggling in Boston, New York, Providence (Tax Policy Blog).  That has to be the most predictable news of the day.

Sad news from Kay Bell “The time has come, however, to put the Tax Carnival on hiatus.”  It’s a lot of work to put one together.  Thanks, Kay, for all of the help you’ve given tax bloggers over the years with the Carnival of Taxes.  So until she feels like reopening the Carnival, let’s have one last ride on the Midway.

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Going Concern, Here Is a Short List of People Less Deserving of Bonuses Than IRS Employees.  Hard to argue with the list, especially the first two, but I would throw in the other branches as well.

 

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Tax Roundup, 1/13/14: They’re back edition. And: tax fairy doesn’t show up at appeals court.

Monday, January 13th, 2014 by Joe Kristan


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The 2014 session of the 85th Iowa General Assembly begins today.
 It doesn’t look like much tax legislation will pass.

The Governor abandoned a plan to allow taxpayers to choose between the current byzantine Iowa income tax and a lower-rate version with fewer deductions and no deduction for federal taxes paid even before the session started.  He instead will focus on lame feel-good initiatives in an election year, reports Omaha.com:

Gov. Terry Branstad is set to unveil his agenda Tuesday during the Condition of the State address. He said his priorities will include expanding broadband Internet access, fighting school bullying and curtailing student loan debt.

The Governor’s opposition will block any tax reform that isn’t sufficiently punitive to the “rich” — which means any reform worthy of the name.  They will try to change some of Iowa’s worst corporate welfare giveaways, reports the Des Moines Register, but the Governor, an inveterate smokestack chaser and ribbon-cutter, can be expected block any restrictions on using your money to lure and subsidize your competitors.

Meanwhile, trial balloons about increasing the gas tax have already deflated.  That means we can expect a quiet session on the tax front, and a continuation of Iowa’s insanely complex and worthless tax system for another year.  But if they change their minds and want to do something useful, it’s always a good time to talk about The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

tax fairyTax Fairy seeker loses appeal.  A South Dakota surgeon who looked across the ocean for the Tax Fairy found only grief — and the grief wasn’t alleviated on appeals.  The Eighth Circuit Court of Appeals last week upheld the conviction that led to a five-year sentence for Dr. Edward Picardi.

The doctor used a scheme where he “leased” his medical services to an offshore company he controlled to artificially reduce his income by stashing earnings in offshore accounts.  The scheme was promoted to him by an attorney-CPA who has been acquitted of criminal charges in another employee leasing case.

Other taxpayers have avoided fraud penalties from employee-leasing to offshore entities (see here), but not taxes and penalties.  When the best you can say about a tax plan is that you avoided fraud penalties, it’s not much of a plan.  There is no tax fairy.

Prior coverage here.

 

Kay Bell has Important January tax dates, deadlines

 

Lyman Stone, Should Nebraska Follow the Example of Illinois or Indiana?  “The case of Illinois is a great example of how higher taxes can contribute to a worsening business climate, which leads to less jobs.”

Annette Nellen, Marijuana and the Tax Law.  Despite appearances, there is no evidence the lawmakers are smoking something when they write tax laws.

TaxGrrrl, Top 10 Most Litigated Tax Issues.  Number one is penalties.

TaxProf, The IRS Scandal, Day 249

Robert D. Flach offers a SPECIAL OFFER FOR ITEMIZERS!

 

TaxTrials, Famous Fridays: Wesley Snipes, A Lesson in Listening to Bad Advice.  Did he ever.

 

The Critical Question: Massages May Feel Nice, But Can You Deduct Them at the Poker Table? (Russ Fox)

News from the Profession: KPMG Upgrades Its Female Interns From Necklaces to Camisoles  (Going Concern)

 

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Tax Roundup, 12/16/2013: Ames! And: if you’re explaining, you’re losing.

Monday, December 16th, 2013 by Joe Kristan

It’s a cold day In Ames, Iowa, but it’s toasty warm with 315 or so eager participants in the last session of this year’s ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools!  

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The Ames Crowd!

It’s a fun school, with lots of good attendees with great, challenging questions.  I’ve enjoyed working on the Day 1 panel with emcee Roger McEowen and IRS Taxpayer Liason Kristy Maitre

 

20120906-1“In economic development, if you’re explaining, you’re losing.”  An article at WCFcourier.com makes an often-overlooked point about how economic development spiffs that complicate the tax law end up backfiring:

A simpler tax system may top all other requests from the business groups, said Steve Firman, director of government relations for the Greater Cedar Valley Alliance and Chamber.

Firman pointed out that Iowa ranked 40th among states in the Tax Foundation’s 2014 tax climate comparisons because it is tough to explain the complexity of federal deductibility that blurs Iowa’s true tax picture.

Firman, explaining his position, pulled out a line he said he likes to use:

“In economic development, if you’re explaining, you’re losing,” he said.

Iowa’s byzantine tax system, with its dozens of special breaks, requires a lot of explaining.  The Tax Update’s Quick and Dirty Tax Reform Plan, with low individual rates and no corporate tax, would be a much better sell.

 

William Gale,  The Year in Taxes: From the Fiscal Cliff to Tax Reform Talks (TaxVox):

Although Camp and Baucus do not appear to have reached agreement on how much revenue should be raised or on how to raise it, the two leaders have nonetheless raised some interesting ideas. But the sorry state of tax reform can probably best be summed up by a small business owner who attended the New Jersey stop of a listening tour that the two chairmen held last summer. She urged the two leaders to “get rid of the deductions that don’t affect me.” As long as that attitude prevails, meaningful tax reform will not happen.

The same dynamic is at work in Iowa.

 

TaxGrrrl, Budget Faces Challenge From Senators Wary Of Spending, User Fees To Taxpayers   

William Perez, Use Fundsin a Health Care Flexible Spending Account (Year-End Tax Tips)

Kay Bell, Tax deductible mileage rate drops a half-cent in 2014

Annette Nellen, What’s My Rate? Challenges of Understanding 2013 Federal Taxes

Paul Neiffer, How Many 2013 Tax Brackets

 

IrwinIrwinIrwinirwin.jpgPeter Reilly, Euro Pacific Capital’s Peter Schiff Defends His Tax Protesting Father Irwin Schiff   Peter has a lot of interesting background on tax protester Irwin and his controversial, but much more prudent, son. And: “I can’t blame Peter Schiff for sticking up for his dad.  I would too, if I still had one.”

 

 

Irwin

TaxProf, The IRS Scandal, Day 221

Jack Townsend, Article on New Sentencing Guidelines on Unclaimed Deductions and Credits

 

Robert Rizzo

Robert Rizzo

Russ Fox, Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems:

 In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.ta

Just a humble public servant.

 

News from the Professon:  Grant Thornton Employees Break Out Dynamic Christmas Sweaters for Holiday Party

Jason Dinesen,  North Dakota Taxes, Same-Sex Marriage, And a Really Bizarre Twist 

The party’s over.  Unemployed German couple accused of tax fraud after caught hosting sex parties.   They had a $250, er, cover charge.

 

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Tax Roundup, 12/6/2013: Fools Gold Edition. And: corporations can have their identity stolen too!

Friday, December 6th, 2013 by Joe Kristan


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We’ve all had narrow misses with bad ideas.  For example, the general manager of the Yankees and Red Sox owner went out drinking and negotiated a trade of Ted Williams for Joe DiMaggio, only to call it off in the light of day.  Think of the time you almost went into business with your brother-in-law.  Fortunately, we usually think better of it in time to avoid disaster.

Not Robert Kahre.  He got this great idea to pay employees in gold and silver coins, which are worth far more than their original face value, while reporting the income and paying taxes at the face value.

Kahre met John Nelson (Nelson), who authored books and taught classes about the IRS and the monetary system, and Nelson’s ideas influenced Kahre to develop the payment system at issue.

According to Kahre, he developed his gold payroll system because the United States government had debauched the national currency and utilized inflation to confiscate the wealth of U.S. citizens. Kahre relied on court cases and the Gold Bullion Coin Act of 1985 that approved gold coins as legal tender. Kahre devised the independent contractor agreements to reflect that the IRS was a foreign agent for the World Bank and the International Monetary Fund (IMF). In Kahre’s view, by collecting taxes for the IRS, employers illegally served as foreign agents for the World Bank and IMF. Kahre relied on several federal statutes, regulations, and “Presidential Documents” in the process of developing his payroll system to avoid the collection of taxes on behalf of foreign agents.

How do you suppose that worked out?  Well, the above description comes from a federal appeals court decision upholding a 190-month prison sentence for Mr. Kahre, if that’s any indication.   More from the decision:

Appellants contend that the district court erred in denying their motions to dismiss the indictments because they did not know that their use of gold and silver coins for payroll payments was illegal under the tax laws. Appellants specifically maintain that the district court’s tax valuation predicated on the fair market value of the gold and silver coins unfairly imputed criminal intent to their unknowing actions.

A footnote helps show why the court wasn’t persuaded (citations omitted, emphasis added.):

Appellants contend that gold and silver coins are statutorily valued at face value. However, this appeal does not really concern the statutory value of gold and silver coins when utilized as legal tender. Instead, this appeal addresses Appellants’ payment of wages in gold and silver coins in a scheme to avoid payroll taxes, as evidenced by the facts that Kahre’s employees were required to immediately return the coins for cash and, that if an employee retained the coins, his wages were reduced by the fair market value of the coins.

Oops.

The moral?  The tax law isn’t required to believe every ridiculous thing you read, and there is no Tax Fairy.

Cite: Kahre, CA-9, NO. 09-10471

 

TIGTAIt’s not just individual identity theft.  TIGTA: IRS Issues $2.3 Billion/Year in Fraudulent Tax Refunds Based on Phony Employer Identification Numbers. (TaxProf). Considering this, and the identity theft epidemic, and their worsening taxpayer service, their wish to devote resources to regulating preparers is hard to take.

 

Now there’s a shocker.  Democrats, liberals pan Gov. Terry Branstad’s flat tax idea (Jason Noble).  If you can’t get the cooperation you need to pass even a half-way plan, you can at least change the terms of the debate by going bold.

 

Jason Dinesen, Stock Losses and Taxes:

Beware of “wash sales.”  A wash sale occurs when you sell stock at a loss and then buy the same stock within 30 days before or after the sale.  (Example:  you sell Stock A at a loss on August 1 and then re-purchase Stock A on August 15.  This is a wash sale and the August 1 loss is not currently deductible but instead adjusts the basis of the stock you purchased on August 15.)

Year-end loss sales are a common tax planning move, but you need to be willing to do without the shares for 30 days.

 

Kay Bell,  Low corporate tax rates don’t guarantee more jobs.  No, but you won’t convince anybody that high corporate taxes help.’

Kyle Pomerleau, New Report on Corporate Income Taxes and Employment Doesn’t Come Close (Tax Policy Blog).  “Their conclusion is akin to blindly picking two jellybeans from a bag of 1,000, getting two red ones, and then concluding that the rest of the jellybeans in the bag must be red.”

 

Dueling cronyism.  Missouri Lawmakers to Washington: We’ll See Your $8.7 Billion, And… (Tax Justice Blog)

William Perez,  Year End Deduction Strategies for the Self Employed

 Andrew Mitchel,  New Resource Page: Monetary Penalties for Failure to File Common U.S. International Tax Forms.  They’re quite ugly.

 

Elaine Maag,  Analyzing Taxes and Transfers Together (TaxVox)

Keith Fogg,  What is a return – the long slow fight in the bankruptcy courts (Procedurally Taxing)

Jack Townsend,  Economic Substance Uncertainty in Civil Cases

Tax Trials, Supreme Court Adopts IRS Position on Jurisdiction and Application of Partnership Penalties

 

Courtesy Gateway Pundit.

Courtesy Gateway Pundit.

Fiduciary Income Tax Blog,  Valuation of Indirect Ownership Through a Trust

Brian Strahle,  UDITPA REWRITE NECESSARY, BUT WILL STATES LISTEN?

TaxProf, The IRS Scandal, Day 211

 

Robert D. Flach has a meaty Friday Buzz!

TaxGrrrl,  Flushing Out The Toilet Paper Tax Exemption   

News from the Profession.  Former CPA and Procrastinator Ordered By the State to Get Around to Removing “CPA” From All Her Stuff (Going Concern)

 

Happy St. Nicholas Day!

 

 

 

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Tax Roundup, 11/11/13: Sheldon edition. And: masterminds!

Monday, November 11th, 2013 by Joe Kristan

 

Greetings to our Veteran readers for Veteran’s day!  Though perhaps “greetings” doesn’t summon the best memories.

The Tax Update comes to you today from sunny Sheldon, Iowa:

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Well, it’s sunny indoors at Northwest Iowa Community College, where I am participating in the Sheldon Session of the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School.  I’m the “urban” part.  Seats at the remaining schools are going fast, so register today!

 

Joseph Henchman, FBI Says California State Senator Accepted Bribes to Support Film Tax Credits (Tax Policy Blog).  He cites the LA Times:

 According to the affidavit, posted on Al Jazeera’s website, [State Senator Ronald] Calderon [D-Montebello] allegedly accepted $60,000 in bribes from an undercover FBI agent posing as a movie executive and $28,000 more from a medical company owner in exchange for efforts to affect legislation on tax credits for the film industry and on workers’ compensation claims.

That tells you that California is a little more sophisticated than Iowa.  The California guy (allegedly) required money to deliver the keys to the treasury to the film industry.  All the Iowa legislature required was a few autographs and photo-ops with starlets.  Iowa has learned from its mistakes, a little, and now favors jailing filmmakers to subsidizing them.

More from Russ Fox, Another Film Tax Credit Scandal

 

"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbasion, Instant Tax Service CEO.

TaxGrrrl, Fourth Largest Tax Prep Business In The Country Shut Down By Feds  “U.S. District Judge Timothy S. Black found that ITS had a culture of “fraud and deception.”

My coverage of Instant Tax Service here.

 

Phil Hodgen,  Distributions from foreign grantor trusts and U.S. paperwork.  “This is a Form 3520 “research in a box” blog post for you, BP. Because you asked.”

William Perez, Social Security Wage Base Increases for 2014

Kay Bell, 12 charitable groups that would love to take your tax-deductible Typhoon Haiyan relief donations

Fiduciary Income Tax Blog, Federal Unified Credit for 2014.  $5,340,000.

Jack Townsend, Swiss Bankers Expect to Share Data for Tax Purposes

Robert W. Wood, Lawyer For NFL Players Sidelined Permanently…True Chicago Style?

Annette Nellen, Growing support for lower corporate rate and territorial system.  Good, but remember that the corporate rate doesn’t even cover most business income.

Tax Justice Blog, GE-Sponsored “Territorial” Study Promotes Agenda of Tax Avoidance

Stephen Olsen, Summary Opinions aka Procedure Roundup for 11/08/13.  Excellent roundup for procedure fans.

 

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Robert D. Flach, I HATE K-1s!  Robert adds what I will call Flach’s Iron Law: “All K-1s usually arrive late.”  He then proceeds into a fine rant:

While I have not done any specific calculations, I firmly believe that often the additional costs to properly prepare the federal and state income tax returns for taxpayers with K-1 investments is as much as or more than the actual income, or tax benefits if any, generated from the investment.  If the money invested in these limited partnerships were instead invested in related mutual funds I expect the investor would do better.  His/her tax preparation costs would certainly be less.
 
Of course brokers never tell their clients this when selling them the investment.

While K-1s from closely-held businesses are normal and healthy, Robert is exactly right about the kinds of K-1s often seen in investment accounts.

 

Nicotine withdrawal.  Iowa tobacco tax revenue has declined, report says (KTIV.com)

 

Great moments in economic development.  Miami Replaces Tampa As IRS Tax Fraud Capital

 

The Critical Question.  An Isley Brother In Tax Court – Does Tax Crime Pay?  (Peter Reilly).

 

“Mastermind”?  I think the term is overused.  Example: “Mastermind of tax fraud scheme pleads guilty” (Examiner.net).  How did the prosecutor describe the diabolically clever scheme at issue?

“This scheme was based on a nonsensical formula that any honest person would instantly recognize was patently absurd and fraudulent,” U.S. Attorney Tammy Dickinson said in a statement. “Fortunately, the vast majority of these refund claims were detected by the IRS and denied.”

They need a new term for somebody who organizes a really dumb crime.  Disastermaster? Blunderbrain?  Any ideas are welcome in the comments.

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Tax Roundup, 11/4/13: The price of being acquitted. And more on the Hatch Iowa tax plan.

Monday, November 4th, 2013 by Joe Kristan

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Chilling effects.  Tax Analysts story ($link) about last week’s conviction of tax shelter figure Paul Daugerdas, and the acquittal of the former chairman of BDO on related charges, has a sobering final paragraph:

Regarding Field, Edward M. Robbins Jr. of Hochman, Salkin, Rettig, Toscher & Perez PC noted the difficulty in obtaining an acquittal in the face of multiple tax-related conspiracy counts in federal court. “I looked at the . . . docket sheet for the entire case and wondered how much it cost Mr. Field for his acquittal,” Robbins said. “I’d say at least a couple of million dollars. That’s what it takes to beat a case like this at trial.”

It doesn’t help at all when the government freezes your assets before trial, as they did here.  And if justice can only be had for $2 million, what chance does somebody have who lacks the the kind of wealth these defendants have?

TaxProf, Daugerdas (Jenkens & Gilchrist) Convicted, Field (BDO) Acquitted in Tax Shelter Case

Jack Townsend,  On Retrial, Daugerdas Convicted and Field Acquitted

 

Source: The Tax Foundation

Source: The Tax Foundation

Kathie Obradovich:  Hatch tax-cut proposal has winners, losers (Des Moines Register):

The second thorny issue is that Hatch has decided to raise taxes significantly for the highest income groups. For people making between $250,000 and $1 million, the percentage increase is in the range of 33 percent to 45 percent. That’s a major sticker shock for high-income Iowans. That’s less than 5 percent of taxpayers. But even if it were 1 percent or less, Hatch loses the ability to argue that he won’t raise Iowans’ taxes.

Hatch says he’s trying to make Iowa’s income tax fairer, not just lower. The highest wage-earners are paying a lower percentage of their income, he said. His plan also increases the per-child deduction from $40 to $500 and gives married couples who are both employed a credit of $1,000.

That’s attractive, to be sure, but a plan that at least held higher-income Iowans harmless would have broader political appeal. The arguments about the wealthy paying their fair share just don’t resonate the same way during a time of budget surpluses as they do on the national level in the face of enormous debt.

Of course, a tax on “the rich” means a tax on “business.”  A 33 to 45 percent increase on taxes on Iowa businesses doesn’t promise much in the way of either “fairness” or employment growth in Iowa.

It could be a good thing to have Iowa’s horrible income tax system be a big campaign issue.  It would be nice to get a mandate for serious tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  Probably too much to hope for.

 

Andrew Lundeen, Scott HodgeTop One Percent Pays Twice Income Tax Rate of All Taxpayers (Tax Policy Blog):

20131104-1Despite conventional wisdom that the Bush-era tax cuts disproportionately benefited the wealthy, the reality is that the tax burden on the bottom 99 percent has been falling for more than two decades. Indeed, the average tax rate for the bottom 99 percent of taxpayers is now below 10 percent—well below the average for all taxpayers—thanks to years of targeted tax cuts aimed at the middle class. Meanwhile, the top 1 percent of taxpayers still pays an effective tax rate that is roughly twice the average for all taxpayers.

But politicians insist that raising taxes on “the rich” is always somehow “fairness.”

 

#Paul Neiffer,  Some Thoughts on Section 179 & Bonus Depreciation:

Remember that Section 179 is allowed for new AND used equipment, while bonus is only on NEW equipment.  You cannot take Section 179 on trade-in basis of old equipment, but can use it for bonus.  Section 179 applies to farm equipment and single purpose farm structures and land improvements.  Bonus applies to all farm assets including buildings.

I give about a 60% chance of 2013 bonus depreciation being extended into 2014, and about 80% on Sec. 179.  For planning purposes, though, it’s wise to try to get the assets in service in 2013 if you can.

 

Peter Reilly,  When Planning Never Forget The Alternative Minimum Tax:

I’m hoping that I get some commenters who tell me that they keep meticulous track of all AMT carryovers for their clients and do a detailed reconstruction whenever they take on a new client.  I bet they floss regularly too.

Well, yes and yes.

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax   

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TaxGrrrl, 11 Uses For Leftover Halloween Candy (And The Resulting Tax Consequences)

Russ Fox, Bubba Paris Sacked, Pleads Guilty to Not Filing a Tax Return

Robert D Flach, 2014 INFLATION-ADJUSTED NUMBERS.  Also, his Friday Buzz last week went up late, but is always worth the wait!

 

Phil Hodgen’s series on expatriate taxation: Chapter 5 – Mark-To-Market Taxation 

Janet Novack, IRS Says Race Car Driver Juan Pablo Montoya Used Sham To Wrongly Deduct Millions

TaxProf, The IRS Scandal, Day 179

Tax Justice Blog, Paul Ryan Says No to Any Revenue Increase, Again.  Good.

 

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Tax Roundup, 11/1/13: Unhappy Halloween for tax shelter maven. And: clunk!

Friday, November 1st, 2013 by Joe Kristan

 

tax fairyGuilty again.  Former Jenkens and Gilchrist tax shelter wizard Paul Daugerdas was again convicted on tax crime charges yesterday arising out of the great tax shelter frenzy of the Clinton and Bush II years.   A previous conviction was overturned on grounds of juror misconduct.  Bloomberg Businessweek reports that he was convicted on seven of 16 counts.

A co-defendant, former BDO Seidman CEO Denis Field, was acquitted.

Mr. Daugerdas built a fortune around tax shelters with clever names like “HOMER,” “CARDs” and “BLISS.”  The shelters typically involved offsetting investment positions, with losses allocated to shelter customers and gains allocated to tax-indifferent offshore entities.  The shelters have fared poorly on exam and in the courts, with a nearly unbroken record of failure in litigated cases.

Mr. Daugerdas built a fortune around selling access to the Tax Fairy, the magical sprite who waves her wand to make tax problems go away.  The news that there is no tax fairy proved costly to his clients, and probably also to him.

Link: Prior Tax Update Daugerdas coverage.

 

20121212-1Clunk.  Cash for Clunkers was an expensive boondoggle, reports the Brookings Institution.  The study estimates that the program cost $1.4 million per “job created” while destroying thousands of perfectly good vehicles and raising transportation costs for those who rely on used cars.

Related:  Braley: “Cash for Clunkers” phenomenally successful (Radio Iowa)

Kyle Pomerleau,  Cash for Clunkers: Not Much of a Stimulus (Tax Policy Blog)

 

TaxGrrrl, IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More   

 

Paul Neiffer,  Calculating Cost Basis Wrong Can Be Costly!

Peter Reilly,  Actuary In Tax Court Beats Northwestern And IRS On Accuracy Of 1099-R.

Janet Novack, Top Social Security Tax To Rise 2.9% In 2014; Benefits Going Up 1.5%

Tax Trials, IRS Resumes Field Exams & Collections.  The shutdown is truly over.

Phil Hodgen’s  series on the expatriate exit tax continues with Chapter 4 – Are You A Covered Expatriate?

TaxProf,  The IRS Scandal, Day 176

Robert D. Flach is celebrating his 60th birthday with a sale.

 

Howard Gleckman,  As Budget Talks Start, Beware the Bogus Revenue Hikes (TaxVox) “But behind the scenes, Washington’s wink-and-nod crowd thinks it has a solution: Raise new tax revenue—at least on paper—without actually increasing taxes. In fact, some of the gimmicks on the table create even darker Halloween magic.”

Tax Justice Blog, Kansas: Dispatches from a Failing Experiment

 

Going Concern,  Career Conundrum: Is a Master’s Degree Worth It?  It’s all relative.  To me it was, because my it was in Accounting, while my  B.A. was in History — a noble field, but one with grim employment prospects.  If you have an undergrad degree, I’m not so sure it’s worth forgoing a year or two of salary.  If you don’t have a job anyway, it may be the edge you need.

 

Kay Bell, A colorful way to ease IRS notice fears:

Adam Chodorow, however, has an idea of how to ease such tax correspondence induced panic attacks.

Chodorow, a professor at Arizona State’s Sandra Day O’Connor College of Law, suggests color-coding so that taxpayers will immediately know the amount of tax trouble they are in. This, he says, could abate taxpayer stress.

If the IRS could be relied on to issue accurate notices, that would be lovely, but incorrect “red” notices would probably induce a rash of taxpayer heart episodes.

 

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Tax Roundup, 10/30/2013: Beggars night day edition! And why IRAs are scary as start-up investors.

Wednesday, October 30th, 2013 by Joe Kristan
MST3K-2 lantern

Stop by for treats tonight. You can find us by Son’s MST3K-themed pumpkin.

The Des Moines area has an unusual tradition for trick-or-treating on October 30, rather than October 31.   On our “Beggars Night,” it’s customary for the little monsters to tell a joke.  A perennial favorite:

What’s a pirate’s favorite restaurant?

Aaaarghh-bys!

So drive carefully tonight!

 

Speaking of scary, think of having your IRA disqualified and taxed currently, with penalties, for engaging in a prohibited transaction.  That’s what happened to a Missouri man in Tax Court yesterday.

The taxpayer, a Mr. Ellis, rolled $320,000 out of his 401(k) and put it into a self-directed IRA.  The IRA than bought 98% of a corporation (an LLC that elected to be taxed as a corporation) to open a used-car lot, where he began working as the general manager.  It went badly.  From the Tax Court opinion:

In essence, Mr. Ellis formulated a plan in which he would use his retirement savings as startup capital for a used car business. Mr. Ellis would operate this business and use it as his primary source of income by paying himself compensation for his role in its day-to-day operation. Mr. Ellis effected this plan by establishing the used car business as an investment of his IRA, attempting to preserve the integrity of the IRA as a qualified retirement plan. However, this is precisely the kind of self-dealing that section 4975 was enacted to prevent.

The result? $163,000 of taxes and penalties on the $320,000 invested in the used car lot — which, of course, may well not be very liquid, seeing that it’s all invested in a closely-held corporation.

This case has an interesting twist to those of us who follow tax cases too closely.  The IRA plan was apparently the work of  a Kansas City law firm whose attempt to make their practice income largely tax-exempt by funneling it through an ESOP-owned S corporation was shot down in Tax Court in 2011.  I’m just guessing here, but the IRS may have taken a look at that firm’s clients after seeing how aggressive the firm was in using retirement plans to shelter business income.

It’s tempting to have your IRA invest directly to avoid the current tax and 10% penalty that can apply to an early withdrawal.  The results, though, can be a lot scarier than any trick-or-treater.

Cite: Ellis, T.C. Memo 2013-245.

 

59pdhyefMore scary.  Econoblogger Arnold Kling has thoughts on whether Healthcare.gov might be saved:

My opinion of the distribution of likely outcomes is that it is bimodal. There is a high probability that the exchanges will be working at the end of November. I think that there is an even higher probability that they will be working never.

The public pledge where the new savior of the site impresses Mr. Kling, but he thinks the design issues might be intractable.

Andrew Lundeen, Scott Hodge,  The Income Tax Burden Is Very Progressive (Tax Policy Blog):

About half of the nation’s income is reported by taxpayers who make less than $100,000, and half is reported by taxpayers who make more. However, taxpayers who make less than $100,000 collectively pay just 18 percent of all income taxes while those who make more pay over 80 percent of all income taxes.

They have a chart, of course:

20131030-2

 

Howard Gleckman, Who Benefits from Muni Bonds? It’s More Complicated Than You Think (TaxVox) “…while most of the benefit of the tax-exemption goes to high-income investors, lower-income households who hold taxable bonds in their 401(k)s also receive some advantage.”

 

But they’re ready to regulate preparers! TIGTA: IRS Cannot Account for 23% of its IT Assets (TaxProf).

 

Jason Dinesen asks Is There a Way to Protect Yourself from Tax Return Identity Theft?   Use common sense — but if someone in your family dies, ID thieves may be able to get government-published information enabling them to steal the deceased’s identity no matter what you do.

TaxGrrrl, Somebody’s Watching Me: IRS Criminal Investigations Ramp Up Efforts To Thwart Tax ID Thefts   

 

David Brunori offers Tax Advice for State Legislators of All Parties (Tax Analysts Blog).  There’s a lot there, including this:

Both parties should also give serious thought to greater reliance on the property tax. Yes, I know people hate that tax. I also know that politicians find it advantageous to attack it. But the property tax revolts of the late 1970s and the 1980s have badly damaged the fiscal structure of state and local governments.

Don’t expect either party to heed the advice.

 

William Perez,  47% of Individual Taxpayers Earn Under $30,000

TaxProf, The IRS Scandal, Day 174

High-fiber diet.  Tax identity thief who ate debit card evidence is convicted (Kay Bell)

From Phil Hodgen’s series on expat taxes: Chapter 2 – Are You An Expatriate?

Carlton Smith, Byers v Comm’r – CDP Venue In Courts Of Appeals May Be Upended (Procedurally Taxing)

 

Joseph Thorndike, It’s Time to Give Up on Tax Reform (Tax Analysts Blog):

Tax reform? Don’t bet on it. Not this year, and probably not next year either. Tax reform, like everything else in Washington, is on hold pending the resolution of a broader, highly polarized debate about the role of government in American society.

 

Robert D. Flach has his Tuesday Buzz on Wednesday this week.

 

 

20131025-237-yard month penalty for former Eagle Mitchell.  The sentence was handed down yesterday in a Florida federal courtroom, reports the Orlando Sentinel.

The former NFL wide-receiver blamed brain injuries suffered on the field after pleading guilty to a plot where he helped convince Milwaukee Bucks player to use a Florida preparer to file a refund claim, which would be split between the NBA player, Mr. Mitchell, and the preparer.  The claim was fraudulent, and the NBA player wasn’t charged.  Mr. Mitchell also allegedly used an LLC to conceal other fraudulent tax claims.  Brain injuries are funny things.

 

News from the Profession: Dancing Accountant Nearly Thrown Out of a Bank For Dancing To “Money, Money, Money”  (Going Concern)

 

 

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Tax Roundup, 10/24/13: Payroll tax grief in Cedar Rapids. Also: suits, geeks, and Obamacare.

Thursday, October 24th, 2013 by Joe Kristan

bureauofprisonsNever borrow withheld taxes. A little story out of Cedar Rapids this morning has a big lesson for business owners: Former owner of Cedar Rapids security firm sentenced on tax charge (Dar Danielson, Radio Iowa).  In its entirety:

A former eastern Iowa business owner will spend over two years in prison on a tax violation. Forty-six-year-old Eric Holub of Clarence pled guilty to failing to forward withholding taxes he took out of his employee’s checks to the IRS.

Holub admitted to failing to send $460,000 in withholding taxes from January 2008 to December of 2009 for Premier Security, a private business he owned in Cedar Rapids. Holub was sentenced to 30 months in prison and three years supervised release.

Two paragraphs – just enough to tell an alert reader a story of financial catastrophe.    Court documents tell a bit more of the defendant’s story.  He had to use a public defender, so he’s broke.  He’s married with six kids, three under 10.  Even though he’s going away for 2 1/2 years, he still has to pay the IRS $438,426.17 somehow.  Small wonder he’s being treated for depression.

What we don’t learn is why he didn’t pay over his payroll taxes.  I handled payroll in the early days of our firm, and there were times when it sure would have been handy to not remit the payroll taxes right away, given other pressing cash needs.  Maybe cash was tight, and it seemed like a good way to pay vendors.  Maybe he figured he’d get caught up someday, but when the IRS didn’t react immediately, catching up seemed like it wasn’t so important.

In any case, it’s a huge mistake to not remit payroll taxes on time.  Penalties start running up immediately, and bankruptcy or using a corporation will not make the liability go away.  And more and more, the government isn’t satisfied the with getting the cash; they want jail time too.  30 months plus principal, interest and penalties for “borrowing” payroll taxes makes car title loans look like a bargain.

Links:

Indictment

Judgement

 

20130320-1Iowa R.V. Owners come in from the cold.  Iowa’s amnesty for R.V. owners who had skipped Iowa registration fees by registering their vehicles in Montana ended yesterday with “dozens” of settlements and “just over $100,000″ in fees collected, reports the Des Moines Register.  The idea that you could use a Montana LLC to skip registration fees in Iowa never seemed remotely plausible to me, but people will believe just about anything if it might save them a few bucks.

 

 

Arnold Kling, The Obamacare Suits/Geeks Divide:

In response to the WaPo story, I wrote a letter to the editor, which they published (mine is the third letter on this page). This is not a technical screw-up, and it will not be fixed by technical people. It is an organizational screw-up. And until that is recognized, it probably will get worse. I write,

In my experience, communication failures between technical staff and management reflect an atmosphere of fear and lack of mutual respect.

I call this the suits-geeks divide. I saw it during the financial crisis, when it was evident that many mortgage credit-risk geeks warned of problems at their firms but management went out of the way not to listen. Merrill Lynch and Freddie Mac were particularly well-documented cases.  

It’s starting to look like a delay of the individual mandate — the key tax provision that holds Obamacare together — is inevitable.   It may take some time yet for the administration to swallow this bitter pill, just after they shut down the government rather than accept a GOP-sponsored delay.

 

Megan McArdle,  Why Obamacare Is Like Three Mile Island. “All the pieces are interdependent, so a failure in one part is apt to cascade throughout the market. This is not a system where you want to start pulling out one piece to see how well the rest can get along without it.”

 

Des Moines Register, Lawmakers are warned of unfunded liabilities in pensions:

Iowa’s public employee pension funds face billions of dollars in unfunded liabilities, and tough scrutiny is needed to ensure taxpayers and public employees are protected, state lawmakers were told Wednesday.

Public defined benefit plans are lies.  The only question is whether the beneficiaries are being lied to with promises that won’t be kept, or the taxpayers are being lied to by politicians hiding the real cost of government payroll.  Probably both.

20130419-1TaxGrrrl,  IRS Issues More Guidance On Post-Shutdown Operations 

Kay Bell, IRS seeks volunteers for tax-exempt advisory panel.  I bet they get some Tea Party applicants.

 

William Gale,  The Illogic of the McConnell Debt Limit Rule (TaxVox)

TaxProf, TIGTA: Hundreds of Employees of IRS Contractors Owe Millions in Taxes

Dan Mitchell, Welfare Fraud Is another Reason to Replace the IRS with a Flat Tax.  More on the TIGTA EITC report we mentioned yesterday.

William McBride,  Ripe for Reform: Improper EITC Payments Exceed $11 Billion per Year (Tax Policy Blog)

Tax Justice Blog,  Illinois Ruling Strengthens Case for a Federal Solution to Online Tax Collection

Cara Griffith, In Defense of State Treasurers (Tax Analysts Blog)

 

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Tax Roundup, 10/21/2013: Obamacare and Iowa small business. And the spiritual side of tax credit fraud!

Monday, October 21st, 2013 by Joe Kristan

Tomorrow is the 27th Anniversary of the Internal Revenue Code of 1986.  I assume many of you will leave work early today to prepare for the festivities.

20121120-2Things may not be going well for Obamacare when the Des Moines Register finds itself  coping with the concept of unintended consequences, in Few small businesses sign up for tax credits:

 The Affordable Care Act offers a tax credit to entice more small businesses to offer health insurance. But few small-business owners have taken advantage of it so far. And the law could have the unintended effect of prompting small businesses to drop coverage, which would make their employees eligible for individual subsidies on the new health insurance exchanges, insurance experts and business owners told The Des Moines Register.

The article gives a surprisingly realistic view of how Obamacare looks to employers, and why the much-touted small employer tax credit doesn’t work for many employers:

Jesse Patton, a West Des Moines insurance broker and president-elect of the Iowa Association of Health Underwriters, said the tax credit’s confusing rules narrow its appeal.

The credit is available for employers that have fewer than 25 employees making an average of less than $50,000.

“But you start to get a reduction in that credit if you’re over 10 employees and over $25,000 income,” he said.

Also, business owners can’t take the credit for any family members, and many small firms include relatives. Patton’s eight employees include himself, his wife, his son and his daughter-in-law.

“That’s typical for a small business,” he said.

And jumping through the hoops isn’t free:

“Unfortunately, when everybody gets through all of that formula, which is complicated, and pay their accountant $600 to do it, they’d be better off to just take the normal tax deduction versus the credit,” Patton said.

When even the Des Moines Register is starting to get the point about the unintended consequences of Obamacare, it’s in trouble.

 

Megan McArdle has an excellent summary of the current state of the Affordable Care Act in Four Things We Think We Know About Obamacare.  It’s worth reading the whole thing, but this tax nugget is important:

The penalty for being uninsured next year is $95. Again, this is partly true. In fact, the penalty for being uninsured next year is $95 or 1 percent of your income, whichever is higher. So if you make $75,000 a year and you decide to go without insurance, the penalty will be $750. There are a number of things you can do to avoid having to pay it, from deliberately getting your utilities shut off to under-withholding taxes from your paycheck so that they don’t have a refund from which to take out the penalty. But that number is what will go on the books at the Internal Revenue Service, not the $95 you’ve probably heard.

If it remains somewhere between difficult and impossible to buy through the exchanges, this poses an obvious problem.

 

amazon

Joseph Henchman, Illinois Supreme Court Strikes Down “Amazon Tax” (Tax Policy Blog):

Most of the legal challenges to these laws have focused on whether the state power exceeds constitutional limits under the Commerce Clause, but the Illinois Supreme Court focused on this disparity between Internet advertisers and traditional advertisers. Ultimately, the court concluded that because the law requires Internet-based performance marketers to collect tax, but does not require that of traditional performance marketers, it is a discriminatory tax on Internet-based commerce in violation of the federal Internet Tax Freedom Act…

Janet Novack, Illinois High Court Shoots Down Amazon Sales Tax Law; Will SCOTUS Step In?   

 

Paul Neiffer, IRS Releases List of Counties Eligible for Another Year of Livestock Deferral

Kay Bell,  IRS is back and asks for patience as it reopens its doors.  Hey, IRS, do unto others…

Jana Luttenegger, IRS Back to Work, What to Expect (Davis Brown Tax Law Blog):

After 16 days of not opening mail, not processing returns, and not answering phone calls, the IRS is expecting it will take some time to get back to “normal” operations. In fact, the IRS issued a statement urging taxpayers with non-urgent matters to wait to call the IRS. I can only imagine what the call traffic will be like after a 16-day shutdown.  

Not to mention whether the answers you get when you call will be any more accurate.

 

Howard Gleckman, One Modest Path to a No-Drama Budget Deal (TaxVox)

Jack Townsend, Swiss Bank Frey to Close

Brian Mahany, FATCA, FBAR and Opt Outs

 

Leslie Book, Larry Gibbs on Loving v IRS.  Shockingly, a former IRS commissioner thinks IRS commissioners should have all the power they want.

Russ Fox,  One Down, One to Go: DOJ Gets an Injunction, Asks for Another.

One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”

They just want to be able to do it by themselves without any of that messy due process stuff.

 

Peter Reilly, Was JD Salinger Facing A Major Estate Tax Problem ? 

TaxGrrrl, How Twitter Hopes To Reduce Its Tax Bill (In 140 Characters Or Less)   
The cobbler’s children always go barefoot.   Attorney Who Claimed Tax Expertise Sentenced to 20 Months in Jail for Understating His Income (TaxProf)

The Critical Question:  Would You Prepare Your Home For A Disaster If It Were Tax Deductible? (Tony Nitti)

 

 

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

The sacred side of earned income tax credit fraud.  A Washington tax preparer found an unusual way to get in touch with the spirit world, reports seattlepi.com.  Cleo Reed is scheduled to be sentenced today for preparing fraudulent returns claiming imaginary earned income credits:

Writing the court, Assistant U.S. Attorney Arlen Storm noted Reed had many of his clients claim income for “household help” while claiming to be self-employed. Reed did so for two undercover IRS agents and three fake clients.

During their encounter, Reed explained he pays his recruiters $500 for each young woman with a new child they bring to him, Storm told the court. Agents identified three recruiters who’d brought Reed dozens of clients.

Investigators later determined Reed filed at least 1,305 fraudulent returns in three years, and that the IRS paid out $4.3 million on those claims, Storm continued.

Refundable tax credits are a magnet for fraud, but they are also a path to holiness, it seems:

Writing the court, Reed has denied paying others to recruit clients and claimed he operated in “an ethical manner.” He went on to claim he was only helping his clients “achieve the American dream.”

“I had a spiritual calling to give aid, support, and guidance to the underemployed, disabled, and veterans of this great land,” Reed said in his letter to the court.

Somehow I think this is one religious belief system that the Bureau of Prisons won’t feel compelled to accommodate.

 

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Tax Roundup, 10/14/2013: Tomorrow’s the day for filing extended 1040s! And Pope Francis won’t get you off the hook.

Monday, October 14th, 2013 by Joe Kristan

20111040logoTomorrow’s is it.  Extended 1040s are due tomorrow.  There are no further extensions available. Get ‘er done!  As Russ Fox says, It’s One Minute Before Midnight….  Russ has some excellent advice for last minute filers.

Related:

TaxGrrrl, Shutdown Or No, IRS Filing Deadline Remains October 15.

Kay Bell, 4 Oct. 15 tax deadlines: 1 filing, 3 retirement related

 

Some folks have, well, unorthodox ideas of how the tax law works.  Destry James Marcotte of Illinois, for example.  Mr. Marcotte was indicted on charges of claiming improper tax refunds.  As part of his defense he filed an “AFFIDAVIT” that testifies to his approach to taxes.   It starts off:

20131014-1

There are 14 pages of this sort of thing, including:

20131014-2

And:

20131014-3

The Pope Francis thing is an innovation in the tax law, but too much of one for the U.S. District Court of Illinois, where Mr. Marcotte was found guilty of tax charges.

The Moral:  Mr. Marcotte went through a lot of work here.  All in all, it would have been easier to file his returns correctly.  No matter how much crazy he put into his tax filings, it wasn’t enough.  He’s likely to get some time in federal prison to ponder his next tax planning moves.

 

 

2014 State Business Tax Climate IndexLyman Stone, Taxes and Economic Outcomes: Indiana and Wyoming Edition (Tax Policy Blog)

At least for this sample, when we look at apples-to-apples comparisons of similar states, taxes matter. They aren’t the only variable, something we make clear in the Index report, but they are a significant variable that legislators can control directly. 

Taxes may not be everything, but it defies everything we know about economics to say they are nothing.

 

Tax Trials, Tax Court Reverses Itself on Qualified Appraisals for Façade Easements

TaxProf, The IRS Scandal, Day 158

Jack Townsend,  HSBC Depositor Convicted.  Bank secrecy isn’t what it once was.

Brian Mahany, It’s Too Late To Close Your Foreign Account – FATCA Post

Stephen Olsen,  Procedure Roundup for 10/11/2013 (Procedurally Taxing)

 

Robert D. Flach has a special Monday Edition Buzz.

The Critical Question: Judge Orders Man To Stay Dead Despite His Insistence He’s Alive: Could You Be Next? (TaxGrrrl) and Jim Maule, Do Dead People Pay Taxes?

 

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Tax Roundup, 10/4/2013: Anniversary. And… the Chromaro!

Friday, October 4th, 2013 by Joe Kristan

Wilson___________ Anniversary.  The worst president of the 20th century signed the income tax into law 100 years ago yesterday.  The TaxProf notes that New York Law School Hosts Symposium Today on The 100th Anniversary of the Income Tax.  Sounds like a rockin’ time.

Related: 

Is Today – the Anniversary of the Income Tax – the Worst Day in American History? (Daniel Mitchell)

Don Boudreaux, Don’t Toast This Centenary

William Perez,  100th Anniversary of the Revenue Act of 1913

Kay Bell, Happy official 100th birthday federal income tax.  Happy?

 

 

William Perez, Deducting Home Office Expenses. “New for 2013, the IRS allows for a simplified method of calculating home office expenses at a rate of $5 per square feet up to 300 square feet of office space.”

Paul Neiffer, Is 2013 The Last Year to Deduct Sales Tax

 

Jack Townsend,  Court of Federal Claims Holds that Unlimited Civil Statute of Limitations Requires Taxpayer’s Fraud 

 

Russ Fox,  Some Things Still Work; Others Don’t (IRS Shutdown) “A piece of bad news:

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Automated Underreporting (AUR) Notices will continue. They’re automated, so there’s no stopping them.”

Tax Justice Blog, Understanding the Government Shutdown and Debt Ceiling Debates

Andrew Lundeen, Obamacare Exchanges Are Open But Sign-up Numbers Are Low (Tax Policy Blog):

The White House says some applicants have signed up, but didn’t say how many. Rumors in the insurance industry hover in the single digits; several health plans say they are unaware of anyone signing up for their plan. BlueCross BlueShield of North Carolina says it has enrolled one person.”

But more than one person will be paying for it.

Donald Marron, Actually, the United States Has Defaulted (TaxVox): “The United States defaulted on some Treasury bills in 1979 (ht: Jason Zweig). And it paid a steep price for stiffing bondholders.”

 

 

They work for picking motorists pockets.  IDOT to Sioux City: Show us proof traffic cameras work.  (via The Beanwalker)

 

TaxProf, The IRS Scandal, Day 148

Hans A. von Spakovsky, Protecting the First Amendment from the IRS

Robert D. Flach has your Friday Buzz!

 

TaxGrrrl performs a valuable bit of journalism by posting a photo of the chrome-plated Camaro (Chromaro?) famously bought by Maurice Larry, the business partner and not-boyfriend of Rashia Wilson, the self-proclaimed “Queen of IRS tax Fraud.”  Here it is:

chromaro

20130717-1

 

TaxGrrrl gives us the specs:

The car featured a red leather interior, 48 speakers, five flat screen TVs and 32-inch Forgiato wheels (the kind sported on the likes of Chris Brown’s BMW, Akon’s Lamborghini, Steve Novak’s Mercedes, and Will.I.Am’s Bentley). It was made to attract attention – and it certainly did.

Mr. Larry denies that he was the Queen’s consort, but with her platinum locks, she’d have been fabulous in this ride.  Sadly, after she serves out her 21-year prison sentence, she may be more silver than platinum.

 

 

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Tax Roundup, 10/3/2013: Three-day shutdown retroactively responsible for 8-month ID theft refund delay! And… standards!

Thursday, October 3rd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Never mind the last eight months, it’s the last three days that are the problem.  KCRG.com reports:  Government Shutdown Holding Up Tax Refund for Local Family:

A Cedar Rapids woman and her family have been waiting for a $3,250 tax refund for 8 months now, and with late bills piling up, she doesn’t know how much longer she can hold out.

The problem is that during a government shutdown, there’s no way for her to contact the Internal Revenue Service to find out where her check is.
The troubles began for Autumn Alicea when she filed for her tax return back in February. A while later, she discovered someone in Florida had stolen her identity. Alicea said it took the IRS several weeks to investigate and verify that she was the real Autumn Alicea. “So they said it would take about 8 weeks to process my return now that they knew the one from Iowa was indeed the valid return, and the one from Florida was not.”

So the shut down for the last three days is responsible for the late refund?  Not likely.  It can take a lot longer than eight weeks for the IRS to get a stolen refund back in the right hands in the best of times.  It took 121 weeks to for Jason Dinesen’s widowed ID theft client to get hers.

It’s fascinating what the government considers “essential.”  Paying people to keep 90-year old veterans away from an unstaffed open-air memorial and to barricade private businesses is “essential,” but getting money it fairly owes to honest taxpayers after carelessly mailing it to two-bit grifters, well, that’s strictly optional.

 

More shutdown coverage:

William Gale, It’s Groundhog Day Over the Debt Ceiling

Christopher Bergin, ‘Your Voice at the IRS’ Silenced (Tax Analysts Blog).  Like I said, interesting priorities.

Kay Bell,  ‘Essential’ Representatives, Senators get paid during shutdown.  If they paid truly essential politicians, the federal payroll would go to about zero.

 

 

20131003-1Casey Mulligan, How ObamaCare Wrecks the Work Ethic (Wall Street Journal)

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.

Like many other “anti-poverty” programs, it fights poverty by punishing efforts to escape poverty.

(Via Greg Mankiw)

David Brunori, State Taxes and the Poor (Tax Analysts Blog): “As importantly, ITEP highlights the problems with states reducing their earned income tax credits”  I think the high implied marginal tax rate of EITC phaseouts on taxpayers trying to escape poverty is underappreciated.

 

TaxProf, IRS Waives Individual Mandate for Americans Living Abroad.  Finally a portion of the tax law where Americans abroad actually get better treatment than the rest of us.

 

Wikipedia image

Wikipedia image

It’s official.  Beanie Babies Creator Pleads Guilty to Tax Evasion (Wall Street Journal).  The article cites Tax Crimes Blog proprietor Jack Townsend: 

An analysis done earlier this year found U.S. courts have been more lenient in cases tied to the government crackdown on secret offshore accounts. The average sentence in criminal offshore cases has been about half as long as in tax shelter schemes, according to a comparison of Internal Revenue Service statistics and data compiled by Houston attorney Jack Townsend, who publishes the Federal Tax Crimes blog. In many cases, judges are also opting for shorter sentences than recommended under federal guidelines.

He will have to pay $53.6 million in FBAR penalties under the plea agreement.

 

Related: Jack Townsend, Ty Warner, Beanie Babies Creator, Pleads Guilty

Slightly related:  Green card received in 2006? Give it up in 2013 (Phil Hodgen)

 

Me, Creativity fails to protect custom homebuilder from capitalizing costs.  Section 263A snags custom homebuilder.

Andrew Lundeen, Blank Slate Tax Reform Could Damage Economic Growth (Tax Policy Blog)

Why partisan tax law enforcement is always a scandal.   Vietnam dissident Le Quoc Quan jailed over tax evasion (BBC).  I think “dissident” is key to understanding the “jailed” part.

Tax Justice Blog,  State News Quick Hits: Andrew Cuomo Loves Tax Cuts, So Does ADM, and More

Cara Griffith, Floating on a State Tax Revenue Bubble (Tax Analysts Blog):

According to a report by Lucy Dadayan and Donald Boyd of the Rockefeller Institute, the record income tax receipts are a “temporary ‘bubble.’” 

Related: Iowa tax revenue up 4.1 percent past three months (Des Moines Register)

 

 

Robert D. Flach,  STANDARDS? DON’T MAKE ME LAUGH:

I had to laugh at the H+R official referring to “the same standards as we do”.  I am not aware of any evidence of such standards.  In fact the evidence is to the contrary.

They have high standards of placing their people in high places in the IRS, at least.

 

Speaking of high standards:

Cop used his job to commit identity theft, feds say. (sun-sentinel.com)

Ex-W. Pa. deputy faces fed tax evasion sentence (AP)

 

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Tax Roundup, 9/26/2013: Can dead horses carry preparer regulations? Also: rodent sentences.

Thursday, September 26th, 2013 by Joe Kristan

20130121-2Further reports of the appeals court arguments about the IRS preparer initiative are out, and they bode well for consumers and taxpayers.  The judges seem to have been unimpressed by the arguments that an 1884 law gave the IRS the authority it needs to impose a comprehensive regulatory regime on preparers.  TaxGrrrl explains:

 During arguments, the judges appeared skeptical of the IRS’ reliance on an 1884 statute, the “Enabling Act of 1884,” also referred to as the “Horse Act of 1884″ as sufficient authority to regulate tax preparers. The statute was the result of a post-Civil War concern about the abuse of the claim process for the value of dead horses and lost property during the war. To stem the tide of abuse, Congress granted the Secretary of the Treasury the authority to regulate the admission of agents representing claimants before the Treasury Department (the rise of the modern day Enrolled Agents), and to penalize those who failed to comply with the regulations.

The IRS argues that the law still allows for regulation of tax preparers. The statute predates the modern income Tax Code which was codified in 1913…

The amount of time that passed from the 1884 case and now didn’t go without notice in front of the panel. Consider this brief exchange between Justice Department Tax Division lawyer Gilbert Rothenberg and the panel:

Panel: That’s how many years?
Rothenberg: That’s about a century.
Judge: And then after a century, Treasury suddenly decides these words empower us to do this…?

Whatever the legality of the IRS regulation initiative, it’s bad policy.  TaxGrrrl wisely interviewed a voluble commentator on these issues:

Shortly after the amicus brief in support of the plaintiffs was filed, I called up one of the parties, Joe Kristan, to ask him about his participation. Kristan is a CPA and authors the informative and entertaining Tax Update Blog. He doesn’t have an actual dog in this fight: CPAs are exempt from most of the regulations. So why, I asked, was he involved? He offered a laundry list of reasons: it’s bad law, bad policy and bad for the consumer.

During our call, we both agreed that there are bad tax preparers out there but Kristan used that fact to seize upon one of the main criticisms of the IRS scheme: there are ways of dealing with bad acts and these regulations won’t keep the bad preparers honest. It doesn’t, for example, deal with the issue of fraud in the industry. And, he says, those who can manipulate the system will now have the equivalent of a “seal of approval” from IRS, giving consumers a false sense of security.

But what about those education requirements and the competency exams? Kristan shrugs off the notion that some testing keeps taxpayers safe, saying that the test is a “literacy test, not a competency test.” 

Other coverage:

Russ Fox,  No Loving for Dead Horses in DC Court of Appeals

Chris Stephens, Court of Appeals Not Loving IRS Arguments (Tax Policy Blog)

Kay Bell, IRS’ ‘dead horse’ tax preparer regulation argument doesn’t appear to move federal appeals court: “The consensus of practitioners who heard the arguments, during which the judges were much more critical in their questioning of Rothenberg than Loving attorney Dan Alban, is that the panel will give the tax preparers fighting regulation another victory.”

Link: Audio of oral arguments at the Federal Circuit.

 

“Affordable” Care Act.  So all of the disruption, complexity and higher taxes of Obamacare are worthwhile because it makes health insurance more affordable and available, right?   Andrew Lundeen at the Tax Policy Blog maps out the, um, savings: Obamacare Increases Premiums by As Much As 305 Percent.

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But it’s a better deal as you get older, right?

Some costs are even higher for 40-year-olds. In North Carolina, a 40-year-old man could see an increase of 305 percent and 288 percent in Nebraska. A 40-year-old woman will face increases over 200 percent in both North Carolina and Nebraska as well.

Such a deal.

 

#Tony Nitti, Lost: $67 Million. If Found, Please Return To IRS:

“The IRS has seen its summer from hell extended into autumn, as a report issued today by the Treasury Inspector General for Tax Administration (TIGTA) revealed that the Service cannot account for $67 million that was set aside in a slush fund to help pay for Obamacare.”  

Yup. That’s $67 million of taxpayer dollars that were spent on, well…nobody is quite sure what it was spent on, other than it appears to have used for employee workspaces and technology. In other words…Grand Theft Auto V for everyone!

Remember, we need to increase IRS funding.

 

Cara Griffith, The Rush Is on to Obtain Forgiveness (Tax Analysts Blog). “On Monday, September 23, Louisiana and Connecticut launched tax amnesty programs.”

Jason Dinesen, Glossary of Tax Terms: FICA   

TaxProf, The IRS Scandal, Day 140

Robert D. Flach,  TAX BLOGOSPHERE BUDDIES – JIM BLANKENSHIP

 

Great moments in Economic development.  A story about the wonders of TIF financing from East St Louis, via stltoday.com:

A former Alorton and Fairmont City cop, convicted in state court in April for pulling over a female motorist and compelling her to perform oral sex on him, pleaded guilty in federal court here on Wednesday to wire fraud and tax evasion.

Court documents show that Harry A. “Dink” Halter, 53, admitted to misusing public funds paid to his business, Town & Country Towing of Alorton.

In 2009, Halter got a $24,900 tax increment financing grant to construct a new fence around his business, court records show. Halter admitted in court that he used about $19,000 of the grant for personal expenses.

Halter also failed to report employee wages to the IRS and acted to conceal his income.

I’m sure his neighbors who are paying for the tax break appreciate what the TIF grant did to make Alorton a better place.

 

Pickup lines that never work.   Let’s Have Dinner and Talk About Death (TaxProf)

News from the profession:  PwC Acquired an Interactive Marketing Company Because Why the Hell Not? (Going Concern)

 

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Tax news from the pond:

Beavers Fined, Sentenced To Six Months In Prison For Tax Crimes (Progress Illinois)

Government: Beavers’ sentence too light (WICS.com)

Muskrats ask that sentence not be served during winter.  “They hibernate then anyway.”

 

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Tax Update, 9/25/2013: Preparer regulation has a bad day in court. And the royal consort clarifies the record.

Wednesday, September 25th, 2013 by Joe Kristan


20130121-2
Bad Day for preparer regulation at appeals court? 
Tax Analysts reports ($link) that the judges hearing the IRS appeal of the D.C. District Court’s shutdown of Doug Shulman’s preparer regulation power grab do not appear inclined to reverse it:

The D.C. Circuit during September 24 oral arguments in Loving v. IRS, No. 13-5061 (D.C. Cir. 2013), expressed skepticism that the IRS possesses the statutory authority to implement its tax return preparer program. Stuart J. Bassin of Baker & Hostetler LLP said that the oral arguments did not go well for the government and that it didn’t appear as if the court was “buying what the government was selling.” 

I’ve heard the same thing from two attorneys who attended the session.  Preparers who have followed the story of selective enforcement of tax laws in the Tea Party scandal can’t relish the idea of giving the IRS more control over their practices.  It looks as though we may be spared that, until and unless Congress does something stupid like authorizing such preparer regulation.

Robert D. Flach has more, as does Kay Bell.  I have joined an amicus brief against the preparer regulations in this case.

 

20130925-1Incentives gone wild.  While Iowa’s state-level politicians love taking your money to lure and subsidize your competitors, the politicians in Coralville have taken it to Detroit-like levels, reports IowaWatchdog.org:

The City Council of Coralville has piled up about $280 million in debt in recent years, the highest debt per capita for a city in Iowa.

The $14,511 burden for each of its 19,219 residents is seven times higher than Des Moines or Iowa City. It’s enough to pay for 38 Iowa Hawkeyes football season tickets or three semesters of tuition at the University of Iowa.

Moody’s Investors Service, after having downgraded the city’s debt four times, was, in a recent report, particularly tough on Coralville’s “history of issuing debt of non-essential government purposes, including the construction of a hotel, golf course, performing arts center and brewery, all of which are city owned.”

All in the name of “economic development,” of course.  Or, as the department store ads used to say, the more you spend, the more you save!  Unless you are one of the unlucky owners of the 60% of property in Coralville that isn’t in a tax-priviliged TIF district.

 

Jason Dinesen, IRS Guidance on FICA Refunds for Same-Sex Married Couples   

Jack Townsend,  Government Refusal to Grant Immunity Shifts Burden of Proof to IRS in Tax Court Case.  But he isn’t sure it will do the taxpayer any good.

 

TaxProf, The IRS Scandal, Day 139

Tony Nitti,  Understanding The Impact Of Legalized Recreational Marijuana On State Tax Revenue   Well, it might not seem to matter so much.

William Perez,  Average Child Tax Credit by State

William McBride,  America Loses another Fortune 500 Company due to High Corporate Taxes (Tax Policy Blog).  A US company, Applie Materials, Inc., acquires a Japanese company, and they move combined headquarters to… Holland:

 The U.S. and Japan have the highest statutory corporate tax rates in the developed world, and by most measures the highest effective corporate tax rates as well. In contrast, the Netherlands has a statutory corporate tax rate of 25 percent, compared to 39 percent in the U.S. and 37 percent in Japan. The Netherlands also has the most generous capital allowances for plant and machinery in the developed world, which is particularly important for these two manufacturing firms. Lastly, unlike the U.S., which taxes foreign earnings on a worldwide basis, the Netherlands uses a territorial tax system, which largely exempts foreign earnings from domestic taxation.

Howard Gleckman, An Upcoming Debate on Whether Private Equity Should Pay Higher Taxes.  (TaxVox) Yes, this country needs nothing more than lower returns to capital.   Just ask the people at Applied Materials.

 

David Brunori, Marriage and Religious Freedom Act Promotes Neither (Tax Analysts Blog):

The tax laws should be neutral when it comes to politics. Personally, I would end all tax exemptions for all political groups — gay, straight, or in between. The IRS rightfully took considerable heat when it singled out conservative groups for scrutiny. But the Marriage and Religious Freedom Act isn’t the answer.

More legislation seldom is, unless it just repeals old legislation.

 

Is there anything tax law can’t do?  Russians Consider Boosting Divorce Tax, Citing ‘Moral And Demographic Decline’ (TaxGrrrl)

 

Tax Justice Blog,  ITEP Analysis: Cuccinelli Tax Plan Mostly Benefits Wealthy Virginians – and Cuccinelli.  When the rich pay most of the taxes, any tax cut will “disproportionately benefit the wealthy.”

Taking a stand: Does the Economy Need Stimulus or Austerity? Yes. (Joseph Thorndike, Tax Analysts Blog)

 

 

20130717-1The Royal Consort clarifies the record.  TBO.com reports that the partner-in-crime of Rashia Wilson, self-proclaimed “Queen of IRS tax fraud,” wants to set the record straight:

He may have been her partner in crime, joining forces to steal millions from federal taxpayers.

He may have spent time at her house and shared “romantic liaisons.”

But Maurice Larry wants people to know he most definitely was not the boyfriend of Rashia Wilson, Tampa’s notorious self-dubbed Queen of Tax Fraud.

Just a good friend with benefits.

Wilson, who became known for her brazen Facebook postings taunting authorities about the millions she was stealing from taxpayers through stolen identity tax refund fraud, was sentenced in July to 21 years in federal prison.

Larry, who spent $100,000 covering a Camaro in chrome, was sentenced Tuesday to 14 1/2 years in federal prison, a sentence he is to serve at the same time as an 8-year, 5-month sentence he received Monday in another tax refund fraud case.

A chrome Camaro?  I suppose it went well with Ms. Wilson’s platinum hairdo.

 

That means they aren’t eating at the right places.  Deloitte Study: Accountants Don’t Have Fire in Their Bellies (Going Concern).

 

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Tax Roundup, 9/13/2013: Good luck and honey traps edition.

Friday, September 13th, 2013 by Joe Kristan

20130415-1It’s Friday the 13th.  Do you know where your extended 1041, 1065, 1120, or 1120-S is? They’re due Monday!  If you have a pass-through return due, late filing penalties start at $195 per K-1.  E-file, or use certified mail, return receipt requested.  It makes for good luck if the IRS says you filed late.

 

 

Christopher Bergin, Tax Avoidance Just Isn’t What It Used To Be:

Setting aside for now the place of moral scruples in a tax rate, some are arguing that corporations have a higher duty to the countries where they do business and the citizens they sell to than simply paying the lowest amount of tax possible. That argument challenges other well-established theories, among them that corporations have a duty to maximize the investment of their shareholders. Well, is it the only duty of a multinational corporation to maximize value for its shareholders?  

Well, it sure isn’t to maximize value for its tax collectors.

 

Jason Dinesen,  Same-Sex Marriage and Minnesota Taxes.  “Effective with 2013 tax returns, same-sex married couples who file Minnesota tax returns will be required to file those returns as married.”

Phil Hodgen,   Electing Resident Alien Status Under Section 7701(b)(4).  “This election is used by nonresident aliens who become residents of the United States after the middle of the year, and do not hold a green card.”

 

csi logoTaxGrrrl,  Back To School: Paying For College With 529 Plans:

For federal income tax purposes, putting money in a 529 plan won’t result in a deduction (as it would with, say, an IRA). However, neither the earnings nor the distributions in 529 plans are taxable for federal income tax purposes.

I like Iowa’s Sec. 529 plan, College Savings Iowa.  You get  a deduction for contributions up to $3,045 per donor, per donee on your Iowa 1040; it works like a 6% negative load, and you get the usual federal Sec. 529 benefits too.

 

Russ Fox,  Bankruptcy Trumps a Deemed Sale.  California’s tax authorities don’t get to decide the tax implications of a bankruptcy by themselves.

Leslie Book,  CDP: When is a Document Establishing Liability Received? (Procedurally Taxing)

 

TaxProf, The IRS Scandal, Day 127

Kay Bell,  IRS investigations are baaaaack!

 

Tax Justice Blog,  State News Quick Hits: Missouri Legislature Fails to Override Governor’s Tax Cut Veto and More

Jack  Townsend, Swiss Bank Rahn & Bodmer Under DOJ Criminal Investigation 

William McBride,  “Red” China Taxes Capital Relatively Lightly (Tax Policy Blog)

Howard Gleckman,  Eight in Ten U.S. Households Pay Social Security and Medicare Taxes.   Yet those two programs are actuarial disasters, so they don’t even cover their benefits.  Mr. Gleckman’s use of this as a defense of exempting them from all income taxes is unconvincing.

Robert D. Flach has your Friday Buzz roundup of tax news!

 

No, it’s about restricting guild membership to keep salaries up.  Getting a PhD in Accounting Isn’t Really About Teaching (Going Concern)

News you can use.  To Enjoy Driverless Cars, First Kill All the Lawyers (Megan McArdle)

 

Sometimes taxes aren’t the most interesting part of the story.  Certainly not in a case reported by the Contra Costa Times about an attorney who apparently will plead guilty to tax charges:

Mary Nolan, 61, of Oakland, was indicted by a grand jury in September 2012 on six counts related to accusations that she failed to report $1.8 million in earnings to the Internal Revenue Service and placed eavesdropping equipment on the cars of her clients’ spouses with disgraced former Concord private investigator Christopher Butler. Court records show that she’s scheduled to enter a guilty plea before Judge Charles Breyer on Sept. 27, although no details as to her plea agreement have been made public.

Illegally bugging cars?

Nolan also is a defendant in two of the half-dozen civil lawsuits pending in state and federal court lodged by the targets of Butler’s “dirty DUI” stings in 2011 and 2012.

Butler’s employees, usually attractive women, would entice the estranged spouses of Butler’s clients to get drunk and drive, at which time Butler would encourage police to arrest the targets for DUI, giving his clients leverage in divorce and child-custody proceedings.

Nolan is accused of helping arrange the arrests of Concord aeronautics engineer Dave Dutcher and Clayton contractor Declan Woods, whose ex-wives, Susan Dutcher and Louise Woods, were represented by Nolan in family law court.

Somewhere a Mr. Dutcher and a Mr. Woods could be excused for enthusiastically toasting this turn of events alone and at home.

 

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Tax Roundup, 8/27/2013: This isn’t Butte edition. And: you’re not your mom!

Tuesday, August 27th, 2013 by Joe Kristan

Flickr image by Ellenm1 under Creative Commons licenseThe Great Iowa RV Roundup.  Iowa has caught on to recreational vehicle owners who have registered their units in Montana to save taxes and fees.  Now the Department of Revenue is giving these Iomontanans a chance to come clean and avoid harsh newly-enacted penalties for misregistration.

From the Des Moines Register:

State officials say the offer would require owners to pay a 5 percent vehicle registration fee, based on the purchase price. They also would pay a penalty of 10 percent of the fee.

So under the terms of the settlement, the owner of a $200,000 motor home registered in Montana would pay a $10,000 fee to properly register it in Iowa. On top of that, a $1,000 penalty would be assessed.

Violators who don’t accept the settlement could face fraud charges, ranging from a simple misdemeanor to a felony. They can also be hit with fines equal to 75 percent of the fee that was evaded. For example, if someone should have paid $25,000 on a plush $500,000 motor home, they could be slapped with total fees and penalties of $43,750.

I think you could buy a passable used camper for $43,750.

 

Richard Borean, Scott Drenkard, Monday Map: Combined State and Local Sales Tax Rates

c7ketyi3

 

Iowa’s just about in the middle.

 

You’re not your Momma.  While mothers love to help out their children, a St. Louis-area man seems to have expected too much of Mom when he filed his tax returns.  Stltoday.com reports:

To reduce his tax liability, he claimed $18.2 million in losses associated with a number of entities, including Morriss Holdings, MIC Aircraft, Tech Aircraft and MIC Real Estate, that were limited liability companies established for his mother. His mother had already claimed the losses for her own benefit in previous years, the U.S. Attorney’s Office said.

There are some things Mom just can’t do for you.  The man pleaded guilty to tax evasion charges yesterday.

 

Martin Sullivan, New Hampshire’s Value Added Tax (Tax Analysts Blog):

But where New Hampshire really shines is with its Business Enterprise Tax. Like the BPT, the BET applies to all business regardless of legal form. Newly-elected Republican Governor Steve Merrill was the driving force behind original passage of the tax in 1993. The original rate was 0.5 percent. It is now 0.75 percent. The tax base is the sum of: (1) compensation paid to employees; (2) interest paid on debt; and (3) distributions to shareholders and owners. Except for the exclusion of undistributed profits from the tax base, the sum of these components is a firm’s value-added tax.

I still prefer the Tax Update Quick and Dirty Iowa Tax Reform Plan.

 

Rapper “Fat Joe” reports to prison to serve a four-month tax crime sentence. (TMZ.com)

TaxProf,  The IRS Scandal, Day 110

Roberton Williams,  Honey, I Shrunk the AMT (But It’s Not Gone) (TaxVox):

So the AMT lives on, complicating the tax returns of more Americans every year. For many, it will come as a nasty surprise: new AMT taxpayers often learn about the bonus tax only when a letter from the IRS tells them they owe extra tax plus interest and possibly penalties. 

The AMT amounts to a big lie.  They pretend to give you a tax break, but then AMT makes it go away.

 

Jeremy Scott, Cruz’s Push to Defund Obamacare Could Derail Tax Reform (Tax Analysts Blog)

TaxGrrrl, IRS To Michael Jackson’s Estate: Who’s Bad?   A $700 million estate tax battle.

Paul Neiffer,  Installment Sale Update, clarifying the application of the Obamacare Net Investment Income Tax on active farmers.

Kay Bell, Spaniards hot under collar after government taxes the sun 

Me, Charity may begin at home, but not with the down payment.  A “down payment assistance” outfit comes to grief in Tax Court.

 

News you can use.  Open Atheists Already Collect Tax-Free Clergy Housing Allowances  (Peter Reilly)

Career tips: Partners Hate Nothing More Than Employees Skipping Training Because They’re Working, Nursing a Hangover (Going Concern)  It’s a good thing we don’t have national training at our firm!

 

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Tax Roundup, 8/15/2013: Turning on the revenue cameras honestly. And mink cashmere capes!

Thursday, August 15th, 2013 by Joe Kristan


gatso
But I thought it was about safety, not money.  
 The Des Moines Register reports:

The Clive City Council today is likely to reactivate its dormant red-light camera program, but only through June 30, 2014.

In his email, Weaver said it was necessary to reactivate the cameras to ensure the city’s financial health. But tonight’s vote, he wrote, will also set in motion the dismantling next year of the camera contract and of the city ordinance authorizing the use of red-light cameras in Clive.

Give them credit for being honest, at least, rather than insulting our intelligence by saying it’s about safety.

 

Chicago Congressmen’s wife gets 12 months on tax charges.  At the same hearing where her husband, former Congressman Jesse Jackson Jr., received a 30-month prison term for using $750,000 in campaign funds to live the good life, Sandri Jackson received a 12-month sentence on related tax charges.  Huffington Post reports:

Jackson’s wife, Sandra, was also sentenced Wednesday. She will serve one year in prison and was ordered to pay $22,000 in restitution, after pleading guilty to a related charge of filing false tax returns. U.S. District Court Judge Amy Berman Jackson, who is not related to the Jacksons, allowed the couple to stagger their sentences so their children would have at least one parent at all times. Jackson Jr. will go to prison first, followed by Sandra.

Jackson Jr. pleaded guilty in February to using campaign funds to purchase an array of personal items, including Bruce Lee memorabilia, a $43,000 Rolex watch and a mink cashmere cape.

A mink cashmere cape?  Considering that the Congressman was elected as a Democrat in a district that hasn’t elected a Republican since the last mastodons moved out, I suppose he had to do something with the money.  I’m glad he used it to build a modest and dignified wardrobe.

TaxGrrrl has more.

 

Missed your S corporation deadline?  The IRS has issued a new Revenue Procedure that S-Sidewalkcombines in one place relief late or missed elections related to S corporation status.  From Revenue Procedure 2013-30, which takes effect September 30:

This revenue procedure expands and consolidates relief provisions included in prior revenue procedures that provide a simplified method for taxpayers to request relief for late S corporation elections, ESBT elections, QSST elections, QSub elections, and corporate classification elections intended to be effective on the same date as the S corporation election for the entity.

These relief provisions, which require no user fee, are a great friend to the taxpayer and the practitioner.  Still, it unfortunately continues the “reasonable cause” requirement, usually requiring some advisor to take one for the team.  Fortunately the IRS doesn’t seem to look at the reasonable cause disclosures very closely.

 

Speaking of S corporations:  S Election For Cash Basis C Corporation Fraught With Peril  (Peter Reilly).  The accumulated accrual-to-cash benefit is a built-in gain, taxable to the coproration.  From Peter’s post:

The only scenario I have been able to think of that might make it worthwhile to organize a professional practice as a C corporation is a sole practitioner who has the need to make very large out-of-pocket medical payments – a special school for a disabled child for example.  That would make a medical reimbursement plan worthwhile. 

And as Peter’s post illustrates, C corporations can be like lobster traps: easy to get into, difficult to live in, and painful to get out of. (apologies to Bittker and Eustice).

 

#Tax Justice Blog,  ITEP to Legislators: Business Tax Breaks Don’t Live Up to the Hype.  Of course they don’t.  They only exist to allow politicians to call a press conference or cut a ribbon.  From the post:

Among the reasons ITEP urged lawmakers to be skeptical of these special breaks:

  • Tax incentives often reward companies for hiring decisions or investments they would have made anyway. These “windfall” benefits significantly reduce the cost-effectiveness of every tax incentive.
  • State economies are closely interconnected, so the taxpayer dollars given to companies through incentive programs never remain in-state for very long.
  • Tax incentives require picking winners and losers. Incentive-fueled growth at one business usually comes at the expense of losses at other businesses – including businesses located in the same state.
  • Tax incentives must be paid for somehow, and state economies are likely to suffer if that means skimping on public services like education and infrastructure that are fundamental to a strong economy.

Exactly right.  It’s like taking your wife’s purse to the bar for money to pick up girls.  It’s not a great use of the money, the girls aren’t impressed, and any you get that way aren’t likely to be prizes.

Christopher Bergin, 15 Years of IRS Reform (Tax Analysts Blog):

Certainly, the IRS needs reforming, and has done some pretty bad stuff. That reform can come from within the agency or from lawmakers, but it needs to come from another place as well: a good place, a place of positive change not negative political expedience.

It’s hard to elicit “positive” thoughts for the IRS from legislators when it is clear that the agency was harassing their allies.

 

Kay Bell,  Unemployed? You still could face tax issues.  Unemployment comp is still taxable income.

Robert D. Flach,  DEFENDING THE DEDUCTIONS FOR TAXES AND MORTGAGE INTEREST.

David Shakow, The Taxation of Cloud Computing and Digital Content.   (Tax Analysts, via The TaxProf.  The rise of software-as-a-service creates a lot of challenges for the tax man.

TaxProf, The IRS Scandal, Day 98.

Cara Griffith, California’s Aggressive Position on Passive Income (Tax Analysts Blog)

 

Jason Dinesen,  Baseball and “Games Behind in the Loss Column”  For us Cubs fans, it’s an exercise in large numbers.

 

TaxGrrrl,  ‘Real Housewives’ Stars Plead Not Guilty As Bethenny Claims: I Don’t Feel Sorry For Them.   In case that matters.

The Critical Question. What’s Getting a PhD in Accounting Really All About? (Going Concern).  As far as I can tell, it’s about learning statistical techniques and writing things nobody will read over a long-enough time that you will forget any useful information you might have imparted to students from your pre-Ph.D career.  More importantly, it’s about restricting the pool of tenure-eligible candidates to maintain the salaries of the guild members.

News you can use.  E- Filing makes tax fraud easier (Myfoxhouston.com)

 

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The perils of an unorthodox approach to tax crime explained.

Wednesday, August 14th, 2013 by Joe Kristan

Miles J. Julison may need to re-read the tax criminal mastermind handbook, based on this Oregonian story.  A condensed timeline drawn from the story shows some rookie mistakes:

July 2008:  Taxpayer files a 2007 1040 showing $bureauofprisons583,151 in “other income” and the same amount as tax withheld.  From the story:

He claimed he was owed a refund of $411,773 based on these amounts, and the IRS mailed Julison a check for that amount.

Prosecutors say he used the money to pay $101,997 toward a home loan, $62,000 for a Mercedes-Benz, and $58,656 toward credit card bills. He also bought a boat.

Some internal controls you have there, IRS.  Nothing suspicious about that filing, eh?

October 2008: 

…for reasons that still baffle prosecutors, Julison walked into the criminal investigation division of the Portland IRS office to talk to federal agents.

“During this conversation, Julison stated several standard tax protestor/sovereign citizen positions,” prosecutors wrote in a trial brief. 

I don’t think consulting with criminal investigators who have yet to contact you is considered standard master criminal procedure.

January 2009: Not content to wait for his refund this time, he files a 2008 1040 showing interest income of $2.3 million and claiming a $1.5 million refund.  Alert readers may by now recognize this as the absurd 1099-OID “redemption” scam, based on the idea that the government is sitting on a bunch of money for each of us, waiting for our 1099-OID refund claims.

March 2009: 

…two IRS agents told Julison he was under criminal investigation. He responded by giving them a long interview to explain how he had prepared his 2007 and 2008 tax returns.

I believe exercising Fifth Amendment rights and engaging legal counsel is a more conventional approach in such situations.

The indictment soon followed.  Mr. Julison declined counsel, and the predictable conviction ensued.  Perhaps Mr. Julison never believed he was in real trouble, based on his behavior after he was found guilty:

Julison, who calls himself “a bond servant of Jesus Christ,” said he did not recognize the jurisdiction of Simon’s court. But he seemed to appreciate the two muscular deputy marshals who approached him with handcuffs. He went peacefully from the court wearing a dark, neatly tailored business suit.

Pro tip:  No matter how much you are convinced that the judge has no jurisdiction over you, it does you no good when the IRS, the appeals courts, the Federal Marshals and the Bureau of Prisons think otherwise.

 

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Tax Roundup, 8/12/2013: Good intentions edition. And the mysteriously-lucrative profession of German toilet attendant.

Monday, August 12th, 2013 by Joe Kristan

Good intentions don’t always mean good results.  That’s one of the lessons in Michael Schuyler’s post  Evaluating the Growth Effect of the Earned Income Credit at the Tax Policy Blog:

The Tax Foundation study concluded that while the EIC raises the incomes f low-income workers, its net result is to reduce both national output and total hours worked.  This result may seem surprising because the credit creates a strong incentive for workers with very low incomes who are within the EIC’s phase-in range to work more since each extra dollar of earnings brings a larger credit.  Unfortunately, for the larger number of low-to-middle income workers who are within the EIC’s phase-out zone, the loss of benefits with rising earnings generates a powerful deterrent against additional work effort.

 That “deterrent effect” results from the high hidden marginal tax rate on income in the EIC phaseout range:
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.

The credit was invented with the worthy intention of encouraging those with the lowest incomes to find work, but it has the unintended, though predictable, effect of discouraging those who already have jobs from moving up.  It does, however, have a fine stimulative effect on grifters, as up to 25% of the credit is issued improperly (examples here and here).

 

IRS, Disclosure Authorization and Electronic Account Resolution retirement delayed three weeks.  It’s nice of them to delay making it harder for tax pros to resolve client problems.

  

Richard Doak, Salesman in Chief: Governors today focus on handing out tax ‘incentives’:

In the early days of the Republic, many states got burned by canal-building schemes and other enterprises that well-connected corporations talked state governments into financing.

By the time the Iowa constitutions were written, in 1846 and 1857, people had become wary of states getting involved with corporations. Hence the restrictions such as those in the Iowa Constitution.

Today, the restrictions are easily gotten around, and the spirit of state-corporate separation expressed in the Constitution is ignored as government rushes into entanglements.

Politicians will sell their souls for a mess of ribbon cuttings and press releases.

 

Megan McArdle, Fixing the Mandate From Hell:

I’m kind of surprised to hear a lot of liberals agree that the 30-hour rule is bad policy, and even more surprised to hear that it would be easy to repeal or reform. In fact, while I opposed the law, I find it easy to see why they designed an employer mandate for all employers who worked more than 30 hours, and difficult to imagine how it could be reformed.

Welcome to the brave new world of 29-hour per week jobs.

 

Brian Strahle,  FEAR AND UNCERTAINTY:  ARE YOU PLAYING THE “WAIT AND SEE” GAME?  “In the world of state taxes, companies are faced with vast amounts of
‘uncertainty’ when applying multiple state rules that lack conformity to  their company’s situation.”  I don’t think you need to qualify the uncertainty with scare quotes.

TaxProf, The IRS Scandal, Day 95

Kay Bell, New York cop pleads guilty to identity theft, tax refund fraud

Jack Townsend, Is It the Defendant’s Burden to Prove Good Faith As a Defense to Willfulness?

Peter Reilly,  Windsor As A Precedent – Much More Than Taxes

TaxGrrrl, IRS Releases List Of Americans Hoping To Expatriate, Number Tops 1,000

Russ Fox, Once Again, Registration of a Tax Preparer Doesn’t Stop Him from Bad Behavior.   Tax preparer regulation just gives the bad ones a government seal of approval.

 

Look on the bright side! AICPA to CPA Exam Candidates: Hey, at Least You Don’t Have Kidney Stones! (Going Concern)

Flushing out tax crime.   Toilet attendant who kept £35,000 in loose change she made from tips faces tax evasion charges in Germany after investigators discover 1.4 tonne pile of coins in her garage (London Daily Mail).

It sounds like she was some sort of bathroom boss:

The website reported how the woman would drive to a number of toilets across the country in her Mercedes collecting the money.

Police started investigating the woman after she fell out with an employee.

Officers were called to one of the toilets after the pair started fighting but they later opened investigations into how the company was run after suspicions were raised.

It’s the price they pay, apparently, for not having savage unsupervised bathrooms like we deal with here.
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