Posts Tagged ‘Tax Justice Blog’

Tax Roundup, 6/12/14: Tax Credits run for governor. And: bad day for IRS in CRP tax case?

Thursday, June 12th, 2014 by Joe Kristan

20120906-1Crony tax credits have become an issue in Iowa’s race for Governor, reports The Des Moines Register:

The Republican Governors Association is out today with another TV ad attacking Jack Hatch.

The new ad accuses Hatch of sponsoring legislation to increase the availability of development tax credit while applying for tax credits for a real-estate project in Des Moines.

“Jack, isn’t that a conflict of interest?” the narrator asks.

It’s true that Mr. Hatch has been a successful player in the tax credit game.  It may be the merest coincidence that an awful lot of tax credits go to political insiders like Mr. Hatch and the spouse of Governor Branstad’s opponent in his first election.  But that’s not the way to bet.

While I’m all for anything that spotlights the inherent corruption of targeted tax credits, the Republican Governors Association may be inadvertently bringing friendly fire uncomfortably close to its own man.  For starters, the Governor is a five-term incumbent. If the system is set up to be played by political insiders, the Governor has had plenty of time to do something about it.

More importantly, political insiders can benefit richly from crony tax credits without claiming them on their own tax returns.  They benefit by claiming credit for the “jobs” generated by well-connected businesses that play the system to get the tax credits.  The Governor has played this game tirelessly.  Just off the top of my head

- The $80 million+ in tax breaks for fertilizer companies.

- The sales tax giveaway to the NASCAR track in Newton.

- The rich tax breaks for data centers.

MP branstad

Governor Branstad, pre-mustache

In deals like this, the politicians claim credit for the jobs “created,” with no regard whether the lucky recipients of the breaks would have behaved differently without them, or for the jobs lost by other companies who compete with the winners for resources and customers, or for the jobs that would have been created had the funds been left with taxpayers to use without direction from politicians.

So yes, Governor, by all means call down the artillery on crony tax credits.  Just be sure to keep your helmet on.

Related:

The joys of cronyism

LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

Governor’s press conference praises construction of newest great pyramids

 

20130114-1Roger McEowen, Eighth Circuit Hears Arguments in CRP Self-Employment Tax Case. “It would appear that the oral argument went well for the taxpayer.” 

Jana Luttenegger,  IRS Releases Taxpayer Bill of Rights.  “ These rights have always existed, but now the IRS has put the rights together in a clear, understandable list to be distributed to taxpayers.”  If they’ve always existed, they sure haven’t always been respected.

Peter Reilly, Your Son The Lawyer Should Not Be Your Exchange Facilitator.  Peter talks about the case I mentioned earlier this week, including another issue I left out.

 

Tax Justice Blog, Reid-Paul “Transportation Funding Plan” is No Plan at All:

Instead of taking the obvious step of fixing the federal gas tax, Reid and Paul propose a repatriation tax holiday, which would give multinational corporations an extremely low tax rate on offshore profits they repatriate (profits they officially bring back to the United States). The idea is that corporations would bring to the United States offshore profits they otherwise would leave abroad, and the federal government could tax those profits (albeit at an extremely low rate) and put the revenue toward the transportation fund.

Yeah, not a real fix.

Scott Hodge, Likely “Solutions” to Highway Trust Fund Shortfall Violate Sound Tax Policy and User-Pays Principle (Tax Policy Blog)

 

No Walnut STAndrew Lundeen, Higher Marginal Tax Rates Won’t Improve the World (Tax Policy Blog). “The Upshot and Dave Chappelle may be right that for someone with a $100 million that next dollar might not means as much as the first dollar. But that money doesn’t sit collecting dust. It is invested in the broader economy.”

Howard Gleckman, Did Multinationals Use a Foreign Earnings Tax Holiday To Burnish Their Financials Rather Than Reduce Taxes? (TaxVox)

Keith Fogg, Supreme Court’s Decision on Monday in Arkison Could Impact Kuretski Case and Constitutionality of the Removal Clause for Tax Court Judges (Procedurally Taxing)

Jack Townsend, BDO Seidman Personnel Sentenced for B******t Tax Shelter Promotion 

Kay Bell, NBA beats NHL in this year’s jock tax championship 

 

TaxGrrrl, Waffle House Refuses To Allow Waitress To Keep $1,000 Tip   

 

Share

Tax Roundup, 6/10/14: When doing a like-kind exchange, keep the kids away. And: Iowa biofuel credit claw-backs?

Tuesday, June 10th, 2014 by Joe Kristan

20120511-2Keep your friends close, and your relatives far away.  The tax law often assumes that any financial transaction between relatives is untrustworthy.  Many transactions that work just fine with a stranger become tax disasters when family is involved.  A New York man got a hard education in this yesterday in Tax Court.

The man was selling property at a $1.5 million gain, and he wanted to use the Section 1031 “like-kind exchange” rules to defer the gain by using the proceeds to acquire new property.  The tax regulations let you do so under the right facts as long as you follow rules on escrowing funds or using a “qualified intermediary,” and you meet deadlines for identifying and closing on the new “replacement property.”

For example (a very simplified example), if you sell an investment property and the proceeds are held by a “qualified intermediary,” and you identify the property within 30 days and close on it within 180 days, using the funds held by the intermediary in the purchase, the gain on the original property is transferred to the new property, to be only recognized if and when that property is sold.  But the IRS insists you go by the book.

These deals only work if you use a “qualified” intermediary.  The taxpayer in this case used his son.  Game over, said the Tax Court:

Petitioner acknowledges that there was no direct exchange of like-kind property; property A was sold and property B was purchased with proceeds from the sale of property A. Petitioner also acknowledges that the intermediary used in the transaction was his son. However, petitioner asserts that he meets the requirements of the regulation’s safe harbor because (1) his son is an attorney; (2) the funds from property A were held in an attorney trust account; and (3) the real estate documents refer to the transaction as a section 1031 exchange. We do not accept petitioner’s argument. The regulation is explicit: A lineal descendant is a disqualified person, and the regulation makes no exception based on his/her profession. Consequently, petitioner’s disposition of property A and subsequent acquisition of property B is not a deferred exchange within the purview of section 1031, and he must recognize income on the gain from the sale of property A.

There are a number of reputable firms that specialize in serving as intermediaries and escrow agents in like-kind exchanges.   They can make a potentially complicated deal go much more smoothly.  And they are probably not your son. Yes, they charge for their services, but when a $1,512,000 taxable gain is at stake, as it was here, it can be a real bargain.

Cite: Blangiardo, T.C. Memo 2014-110.

 

In other legal news, the Supreme Court declined to hear Wells-Fargo’s appeal of a 2013 decision striking down a lease tax shelter designed to generate a $423 million capital loss.

 

20120906-1Iowa wants some tax credits back.  Agweek reports:

 The Iowa Department of Revenue has warned at least one investor who owns shares in Energae LP of Clear Lake, Iowa, that tax credits for the company’s green energy production couldn’t be verified for 2012, and the credits must be paid back.

In a letter dated May 20, 2014, David Keenan, a revenue examiner for the compliance division of the Iowa Department of Revenue, told an unidentified taxpayer from Iowa to pay back $1,131.73. Victoria Daniels, public information officer for the agency, declined to comment on what might have disqualified the credits, or whether the denial affects only 2012. She also declined to comment on whether the department’s decision was focused on just one audited person or whether it will be extended to others who used the credits.

The Department has clawed back credits in cases where ethanol producers have failed or otherwise not met the requirements for the credits.

The article shows that the state subsidies encourage careless investing.  An attorney in a lawsuit on the matter is quoted:

“They offered a dollar-for-dollar tax credit, so people thought, ‘How can you lose?’ They may find out. I hope things come to a head soon because it seems to me there’s a lot of confusion and misinformation in the investing public. I think there needs to be some clarity.”

While this is only one side of the story, it’s easy to see where an investor might overlook due diligence when a “dollar-for-dollar tax credit” makes the deal seem like a free play.

 

The Onion is a satirical publication, but it’s hard to tell sometimes:   States Now Offering Millions In Tax Breaks To Any Person Who Says ‘High-Tech Jobs’

ST. PAUL, MN—In an effort to spur their local economies, many state governments are now offering tens of millions of dollars in tax breaks to any person who simply says the words “high-tech jobs,” according to a survey by the Pew Research Center published Monday. “We must do what it takes to draw potential innovators to the great state of Minnesota, which means granting lucrative tax credits and loan guarantees to any individual—whoever they may be—who utters the phrase ‘high-tech jobs’ in any context whatsoever,” said Minnesota governor Mark Dayton, whose office has reportedly joined numerous other states in doling out tax exclusions, low-interest municipal loans, full income tax exemption for 10 years or more, and other valuable incentives to thousands of people who have spoken such phrases as “biotech,” “innovation center,” “high-skilled workers,” and “tomorrow’s economy.”

If the story were written about Iowa, the magic words would include “renewables,” “wind-energy,” and “fertilizer.”

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 397.  The stories today mostly cover a huge illegal transfer of confidential 501(c)(4) taxpayer data to the FBI.  The House committee investigating the Tea Party scandal revealed  communications between Lois Lerner and FBI representatives arranging the illegal transfer.  This is a big deal, making it clear that the activities involving Ms. Lerner weren’t accidental, and were far more sinister than the “phony scandal” crowd would have you believe.

Russ Fox, Perhaps This Is Why Lois Lerner Is Taking the Fifth.  “Based on what I just read, if anyone is expecting the IRS’s budget to increase this year, well, that has as much chance as it snowing here in Las Vegas tomorrow. (The high is expected to reach just 105 F.)”

Leslie Book, Exploding Packages and IRS Disclosure of Confidential Tax Return Information (Procedurally Taxing)

 

Robert D. Flach brings your fresh Tuesday Buzz!

Kay Bell, Lowest U.S. property tax bill? Probably $2 in coastal Georgia

 

Jack Townsend, Court Holds Online Poker Accounts are FBAR Reportable:

The two issues were:  (1) whether the accounts with the three entities were “bank, securities or other financial account[s]” that must be reported on an FBAR; and (2) whether each of the three accounts was in a foreign country  The Court answered both questions yes.

A potentially expensive result for a lot of folks, if it holds up.

 

Gerald Prante, Deductions for Executive Pay Is Not a Subsidy. (Tax Policy Blog)  “Essentially, IPS and ATF are starting from a baseline that assumes all executive pay should be capped at $1 million and any deviation from this is a subsidy.”

 

taxanalystslogoJeremy Scott, Whistleblower Highlights Undue Influence at the IRS (Tax Analysts Blog)  “He claimed that granting credits for the use of black liquor was opposed by most of chief counsel, but that a few senior managers changed the policy, allowing paper manufacturers to take advantage of a true tax loophole.”

But we are supposed to trust them to regulate preparers without fear or favor.

 

Tax Justice Blog, State News Quick Hits: Keeping Score? Real Tax Reform 0. Tax Cuts 2

Martin A. Sullivan, How Not to Tax the Rich (Tax Analysts Blog).  “The liberal case for corporate taxation has been severely weakened by capital mobility.”

Renu Zaretsky, Repatriation, Havens, and Tax Reform Abroad.  The TaxVox daily headline roundup talks about extenders, tax havens and the costs of repatriation tax holidays.

 

Peter Reilly, Confidence Games – How The Most Prestigious Accounting Firms Raided The Treasury: 

 Now thanks to Tanina Rostain and Milton C. Regan, Jr. you can read all about it in “Confidence Games – Lawyers, Accountants, and the Tax Shelter Industry”. It is a sad story with no heroes and only one villain, who is colorful enough to be engaging – Paul Dauugerdas, who is still awaiting sentencing on his second conviction (He got a do-over on his trial due to juror misconduct).  The book is a must read for all tax professionals and others may enjoy it too.  

Sounds like a buy to me.

 

Share

Tax Roundup, 6/9/14: The great Illinois privatized tax shakedown. And lots more!

Monday, June 9th, 2014 by Joe Kristan

The wedding was beautiful, and great fun.  Introducing the new married couple.

 

Illinois sealGreat moments in state taxation.  Tax Analysts has a disturbing story ($link) about how an Illinois law firm is using the “qui tam” recovery procedures of the state’s False Claims Act against out-of-state taxpayers.  In a “qui tam” proceeding, an outside party, known as a “relator,” can file a lawsuit alleging fraud against the state and then share in the recovery — up to 25%, according to the story.

And they actually may be hurting state tax collection efforts, according to the story:

“The cases have clearly interfered with the administration and enforcement of tax law and may have even ultimately cost the state money, though it’s impossible to quantify how much,” said Mark Dyckman, the Illinois Department of Revenue’s deputy general counsel for sales tax litigation.

The story says the firm involved “is responsible for 99 percent of the qui tam tax litigation in Illinois.”

The story says Illinois may encouraged the suits initially, apparently thinking it could get some easy money out of the deal.  In other states where the firm tried the same thing, state Attorneys General won dismissals of the initial suits, discouraging further efforts.  The firm is also incentivized by the ability of a relator to share in outsized false claim penalties:

Second, while the treble damages for back taxes under false claims acts naturally attract the most attention, [taxpayer attorney Jordan] Goodman said the civil penalty — generally $5,000 to $10,000 per false claim under the federal law and $5,500 to $11,000 per false claim under the Illinois statute — can be just as oppressive, depending on what counts as a false claim. If each monthly sales tax return is a false claim carrying a $10,000 penalty, and 12 returns are filed in one year, that’s a $120,000 penalty. If every failure to collect taxes on shipping and handling is a false claim, and the business averages 10 sales into the state per month for 120 false claims, that’s a $1.2 million penalty for the year, which can turn into $12 million for the 10-year period covered by the false claims act.

Wikipedia image of Tams

Wikipedia image of Tams

The story says that one tactic used by the Illinois law firm is to make out-of-state purchases over the internet, and then to file suits if no sales tax is collected.  As the law covering remote sales remains unclear, it’s difficult to consider these items “false claims.”  That’s especially true in suits in which the taxpayer either was following published guidance or an audit settlement with Illinois.

These cases have apparently been going on since 2002, and the legislature and the state have yet to stop what would appear to be a purely abusive and parasitic practice.  If there ever was a case for universal application of a “sauce for the gander” rule, in which a losing plaintiff had to pay the same amount of penalties asserted against the winning defendant, this would be it.

 

Alligator bait.  The New Orleans Advocate reports on a Film tax credit promoter sentenced to 70 months.  It’s remarkable what high quality entrepreneurs these state tax giveaways attract.

 

20130114-1The ISU Center for Agricultural Law and Education is setting up a “Tax Place” feature on its website.  They seek your input.

Paul Neiffer reminds us that FBAR Filing Deadline is Near

Peter Reilly, CPA Faces Prison For Letting Client Deduct Personal Expenses.  It makes you want to carefully consider the work you want to take on.

Russ Fox, Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts.  More incomprehensible foreign tax enforcement.

 

Cara Griffith, Protecting Confidentiality When Information Is Exchanged Between Tax Authorities  (Tax Analysts Blog)

TaxGrrrl, As NBA Finals Continue, Tax Incentives Lure 76ers Into New Jersey   

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

Kyle Pomerleau, CTJ and U.S. PIRG Mislead with New Report on Corporate Taxes (Tax Policy Blog):  “USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.

Tax Justice Blog, Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors.  Never let the facts get in the way of what is “widely known.”

 

Howard Gleckman, Are Domestic Partnerships A Way For Heterosexual Couples To Avoid The Marriage Tax Penalty?   (TaxVox) This sort of thing makes makes me question the usefulness of “nudge” strategies to use the tax code to encourage behavior.  There are always perverse unintended consequences.

 

News from the Profession.  Public Accounting Firms, Ranked by CEO Hotness (Going Concern).  A tallest midget competition.

Share

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

Wednesday, June 4th, 2014 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

 

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

Robert says something I agree with:

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

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

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

 

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

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

 

TaxProf, The IRS Scandal, Day 391

 

 

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

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

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

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

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

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

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

Joseph adds, wisely:

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

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

 

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

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

 

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

 

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

 

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

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

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

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

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

 

Share

Tax Roundup, 6/3/14: The joys of cronyism. And why Warren’s math is off.

Tuesday, June 3rd, 2014 by Joe Kristan

 

20120906-1When states “target” tax breaks, the little guy gets caught in the crossfire.  That’s the conclusion of a terrific new study on why special tax favors to special friends of the government hurt state economies and corrode good government.  The paper, by the free-market think-tank Mercatus Institute, is the best distillation of the case against luring businesses with special tax favors.

The study describes how big companies skillfully play state politicians for subsidies.  It shows how Wal-Mart has received at least 260 special tax breaks worth over $1 billion.  It describes the $370 million in North Carolina subsidies to Apple to create a whopping 50 jobs — $7.4 million each.  These come at the expense of small companies who pay full-ride on their tax bill as they lack the lobbyists and clout to play the system.

It discusses how the only way states can make a case for their special breaks is to ignore opportunity costs.  States assume that money spent to lure a well-connected company would otherwise be buried or something, generating no economic activity.  As the study says, “Labor and capital are scarce resources and they are rarely left idle.”  It’s a point Tax Update readers may be familiar with.

The study notes how the subsidies hurt the companies who don’t get the benefits, even if they are not direct competitors of the corporate welfare recipients: “When new companies receive extra money to invest, they raise the price of capital and drive up wages, which imposes an additional cost on unsubsidized companies in the state.”  This refutes the fallacy that “Smith’s tax credit doesn’t cost Jones a cent.”

microsoft-apple

They also point out how targeted tax breaks create a crony culture in statehouses.  The study cites the example of Texas (citations omitted, emphasis added):

As companies direct more of their resources to securing special benefits, they need more people who can lobby or who have other rent-seeking skills.  There is already a whole industry of “location consultants,” some of whom demand a commission of up to 30 percent on the subsidies that they can negotiate with local governments.  Consultant G. Brint Ryan in Texas is a good representative of this industry.  Texas allocates corporate benefits exceeding $19 billion per year, more than any other state.  Ryan realized the profit opportunity in serving as a consultant to companies seeking to obtain these benefits.  He has since secured benefits for ExxonMobil, Samsung, and Wal-Mart, among others.  Ryan also illustrates the importance of having political networks for securing targeted benefits.  In 2012, the Texas legislature set up a commission to evaluate the impact of state investments in development projects.  Ryan, who donated more than $150,000 to the campaign of the state’s lieutenant governor, was appointed to the commission by the lieutenant governor.

The same dynamic is playing out in Iowa, as the economic development bureaucracy has spawned a cottage industry of attorneys and consultants to tap into taxpayer funds.

What should states do?  The report says:

Four policy implications for state governments follow from our analysis:

- Allow for current targeted benefits to expire, and abolish state programs that grant them on a regular basis.

- Make sure that targeted benefits cannot be granted by individual policymakers on an ad hoc or informal basis

- Broadly lower tax rates to encourage company investments and obtain a more efficient allocation of resources.

- Cooperate with other states to form an agreement about dismantling targeted benefits.

Sounds a lot like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Other coverage:

Joe Carter, How Enterprise Zones Lead to Cronyism

Kenric Ward, Study: Cronyism Increasingly Lucrative for Politicians and Businesses

Related:  Governor’s press conference praises construction of newest great pyramids.

 

20140603-1Tax Justice Blog, State News Quick Hits: Gas Taxes, NJ Budget Woes, Madison Square Gardens’ Sizable Tax Break

 

Jason Dinesen has Yet Another Post About Regulation of Tax Preparers.  “Preparer regulation is a bad idea. ”

Kay Bell, Tax moves to make in June 2014

Robert D. Flach has your fresh Tuesday Buzz!

 

Andrew Lundeen, The Common Misconception about the Lower Rate on Capital Gains and Dividends (Tax Policy Blog):

What is not easily seen is that the $100 that Mr. Buffett earns in dividends has already been taxed at the corporate level. In fact, Mr. Buffett’s $100 didn’t start at $100, it started as $153.85.

To receive his $100 dividend payment, Mr. Buffett must own shares in a corporation, which we will call Company A. Company A earned $153.85 in profits on Mr. Buffett’s behalf. This $153.85 is then subject to the federal corporate tax of 35 percent, or $53.85.

The corporation pays the $53.85 to the federal government on behalf of Mr. Buffett and then passes the remaining $100 to him in the form of a dividend. This is the $100 we discussed earlier, on which, Mr. Buffett pays $23.80 in dividend taxes.

Warren Buffett knows this.  But raising individual rates helps keep down those small guys whose businesses report their taxes on the owner 1040s — and, incidentally, makes it easier for Warren’s insurance business to sell tax-advantaged products.

 

Jeremy Scott, Camp Waves the White Flag (Tax Analysts Blog). “Camp tried to reform the tax system — and failed.”

Martin Sullivan, Corporate Expatriations: More Deals Are Likely (Tax Analysts Blog).  ” It is unlikely that any known or yet-to-be-made-public deals will be slowed by Democrats’ efforts.”

TaxProf, The IRS Scandal, Day 390

 

TaxGrrrl, John Daly Relied On Tax Records To Figure $90 Million Gambling Losses.  “Despite tens of millions of dollars in gambling losses, Daly doesn’t seem to regret his behavior, saying, ‘I had a lot of fun doing it.’”

 

Share

Tax Roundup, 5/21/14: Practitioner Pitchforks and Torches edition. And: math remains hard!

Wednesday, May 21st, 2014 by Joe Kristan

20140521-1The new identification rules for remote signatures aren’t going over well.   (See update below.)  At a CPE event yesterday former IRS Stakeholder Liaison Kristy Maitre outlined the new e-filing identity match requirement we are supposed to meet (now!  for extended 2013 returns!).  These include “third-party verification” of identities of our long-time clients if they don’t visit the office.  The ones that visit, we only need to see their papers.

The 250 or so practitioners present didn’t appreciate the joke at all.  They asked the obvious question: how do we even comply with this?  It’s not at all clear how we get “third-party verification.”  I can pretty much guarantee that nobody is complying with that requirement now, because few are aware of it, and the ones that are don’t know where to start.

While the requirements are supposed to be part of the IRS war against identity theft, this effort is like responding to the attack on Pearl Harbor by bombing Montreal.  Identity thieves don’t waltz into tax prep offices and pay us to prepare fraudulent refund claims.  They prefer TurboTax.

Yet, there may be a method to the madness, suggested by one practitioner.  What if some outfit is gearing up to provide third-party verification services — say, one of the national tax prep franchises?  And the IRS has quietly created their revenue stream with this absurd rule?  You might say this preparer is cynical; I say he’s been paying attention.

So let’s fight.  Kristy is collecting comments and questions to send to her erstwhile IRS colleagues to try to stop this nonsense.  Send your comments to ksmaitre@iastate.edu.  I believe the IRS will back off if we brandish the electronic torches and pitchforks.

Update, 11:30 a.m.  I received a call from an IRS representative this morning saying that they have been getting phone calls as a result of this post (well-done, readers!).  She tried to reassure me by telling me that the third-party verification doesn’t apply to in-person visits.  I knew that.  I told her that as I read the rules, there are either “in-person” or “remote” transactions, with no third category of, say, “I’ve worked with this client for many years and they’re fine.” She didn’t disagree, though she still thinks I’m overreacting.  She did say IRS field personnel are  “elevating” the issue and seeking “clarification” from the authors of these new rules, including what “authentication” means for in-person visits and what a “remote transaction” is that would require third-party verification.  Keep it up, folks!

Related:

Russ Fox, Yes, Mom, I Need to See Your ID

Jana Luttenegger, Updated E-Filing Requirements for Tax Preparers

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine 

Me, Welcome back, loyal client. IRS says I have to verify that you aren’t a shape-shifting alien.

 


20140521-2TaxProf, 
The IRS Scandal, Day 377.

News from the Profession.  Crocodile Injured By Falling Circus Accountant in Freak Bus Accident (Going Concern)

Kay Bell, National Taxpayer Advocate joins fight to stop private debt collection of delinquent tax bills.  I’d rather she fight to keep the IRS from implementing its ridiculous e-file verification rules.

TaxGrrrl, Congress, Ignoring History, Considers Turning Over Tax Debts To Private Collection Agencies

Jim Maule, It Seems So Simple, But It’s Tax.  “People are increasingly aware that the chances of getting away with tax fraud are getting better each day.”

Missouri Tax Guy,  NO! The IRS did not call you first.

 

Tax Justice Blog, Legislation Introduced to Stop American Corporations from Pretending to Be Foreign Companies.  How about we just stop taxing them?

Kyle Pomerleau, Tom VanAntwerp, Interactive Map: Where do U.S. Multinational Corporations Report Foreign Taxable Income and Foreign Income Taxes Paid? (TaxPolicy Blog).  Holland does well, as does Canada.

Howard Gleckman, Tax Chauvinism: Who Cares Where a Firm is Incorporated?

So we are left with a sort of financial chauvinism. It is important to some politicians to be able to say that a company is a red-blooded American company. But when it comes to multinational firms in a global economy, why does that matter? 

Because, ‘Merica!

 

Andrew Mitchel now has some online tax quizzes for your amusement.  If they are too tough, the next item might restore your self-esteem.

 

20120905-1If you can’t answer these questions, taxes are the least of your problems.  Tackle these quizzlers (via Alex Taborrok):

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow.

More than $102. Exactly $102,. Less than $102? Do not know. Refuse to answer.

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy.

More than, exactly the same as, or less than today with the money in this account? Do not know. Refuse to answer.

3. Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund.’

T. F. Do not know. Refuse to answer.

I won’t give away the answers, but I shouldn’t have to.  Sadly, most people find these questions hard.  From Alex Taborrok:

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

At least that helps explain Vladimir Putin’s popularity.

 

Share

Tax Roundup, 5/16/14: Iowa Alt Max Tax resurfaces. And: Alimony madness.

Friday, May 16th, 2014 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

The Iowa Alternative Maximum Tax Trial Balloon rises again.  From O. Kay Henderson, ‘Flat tax’ likely on GOP legislators’ agenda in 2015:

The top Republican in the Iowa House says if Republicans win statehouse majorities in the House and the Senate this November, one item on his wish list for 2015 is a “flat” state income tax. House Speaker Kraig Paulsen, a Republican from Hiawatha, spoke early this morning at a breakfast meeting of central Iowa Republicans.

Paulsen and his fellow House Republicans endorsed a “flat” tax proposal last year, but it was not considered in the Democratically-led Iowa Senate. The proposal would have allowed Iowans to continue filing their income taxes under the current system or choose the alternative of a 4.5 percent flat tax on their income, with no deductions.

I call this an “alternative maximum tax” because taxpayers will compute the tax both ways and pay the smaller number.  That contrasts with the alternative minimum tax, where you compute taxes two ways and pay the higher amount.  It has the obvious drawback of adding a new layer of complexity to the current baroque Iowa income tax.

20120906-1The proposal is likely an attempt to enact a lower rate system in a way that doesn’t upset fans of Iowa’s deduction for federal income taxes — particularly the influential Iowans for Tax Relief.  Because the deduction would rarely provide a better result than the alt max tax, support for the old system would wither away, maybe.

I’m probably too much of a tax geek to read the politics correctly, but I’m not convinced adding a new computation to the Iowa 1040 will fire up the electorate.  I think something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be easier to run on.  Eliminate all the crony tax credits and well-intended but futile tax breaks.  Get rid of the job-killing, worst-in-the-nation Iowa corporation income tax.   Drastically lower rates, increase the standard deduction, and limit the role of the income tax to funding the government.   This would get my vote anyway, and it would at least be awkward to argue instead for the current system that sends millions to some of Iowa’s biggest corporations as subsidies on the backs of you, me and small businesses.

Related: The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

I always thought enforcing the tax rules for alimony would be about the easiest job the IRS could have.  When you pay alimony, you get an above-the-line deduction, but only if you list the name and social security number of the recipient ex-spouse.  Just match the deduction with the income and generate notices when they don’t match.

This information systems problem is apparently too much for the IRS.  Peter Reilly reports:

According to the TIGTA report there were 567,887 Forms 1040 for 2010 that had alimony deductions.  The total claimed was $10 Billion.  When they compared the corresponding returns that should have recorded the income, there were discrepancies on 266,190 returns including 122,870 returns that had no alimony income at all reported.  There were nearly 25,000 returns where the income recognized was greater than the deduction claimed which produced a bit of an offset ($75 million).  On net, deductions exceeded income by $2.3 billion.  In her piece “Alimony Tax Gap is $1.7 BillionAshlea Ebeling goes into more details on the report, so I’m going to get a little more into what I see as the big picture here.

While I’ve never been a huge fan of the IRS, over my career I had developed a grudging respect for the organization’s competence and professionalism.  That’s been mostly drawn down over the last few years.

 

taxanalystslogoChristopher Bergin, A Warning About the IRS That We Should Heed (Tax Analysts Blog):

As I wrote almost a year ago, the IRS is in trouble. Punishing it will do no more good than ignoring what has happened over the last year. The former seems to be the plan of House Republicans; the latter appears to be the White House plan. We need to fix it, and that is harder than either of the above two approaches.

This is correct.  Unfortunately, the IRS became a partisan organization in the Tea Party scandal, and it’s proposed 501(c)(4) regulations only make that official.  The impasse won’t be broken until the IRS does something to reassure Republican congresscritters.  Withdrawing the proposed rules is probably a necessary start.

 

Kay Bell, Johnny Football’s Texas residency can cut his NFL income tax.

Lyman Stone, The Facts on Interstate Migration: Part Five (Tax Policy Blog):

On the whole, these high-inward migration states tend to have lower tax burdens. North Carolina and Idaho have periodically had higher than average tax burdens, but most, like Tennessee and Nevada, have consistently low tax burdens. Again, this doesn’t conclusively prove that taxes drive migration, as no doubt other living costs are lower in these states too: but it does suggest that taxes cannot be discounted out of hand.

 

Jason Dinesen, Glossary of Tax Terms: Asset

TaxGrrrl, Tesla Continues To Roll Out Tax Strategies For Consumers .  An auto company with a marketing pitch built around tax credits seems like a bad thing to me.

Stop by Robert D. Flach’s Place for a solid Friday morning Buzz!

 

20140516-1

 

Howard Gleckman, Are Multinationals Getting Tired of Waiting for Corporate Tax Reform? (TaxVox).  They seem to be taking a do-it-yourself approach more and more.

Tax Justice Blog, States Can Make Tax Systems Fairer By Expanding or Enacting EITC.  I think this is wrong, at least the way the earned income tax credit works now.  Arnold Kling has a much-more promising proposal that would replace the EITC and other means-tested welfare programs.

Kyle Pomerleau, Flawed Buffett Rule Reintroduced in Senate (Tax Justice Blog).  Of course, that’s the only kind.

 

Cara Griffith, In Search of a Little Guidance (Tax Analysts Blog). “If informal guidance is the only guidance available to practitioners and taxpayers, can they rely on it?”

TaxProf, The IRS Scandal, Day 372.  Guess what?  It wasn’t just a few rogues in Cincinnati.

 

News from the Profession.  Alleged “Touch It For a Buck” Creeper CPA Got His License Revoked For Felony Creepiness (Going Concern).

 

Share

Tax Roundup, 5/13/14: UPS Ground grounds late filer. And: how “voluntary” would “voluntary” preparer regulation be?

Tuesday, May 13th, 2014 by Joe Kristan

UPS 2nd-dayUPS Grounded.  E-filing is the best way to make sure your filing is timely, but sometimes it’s just not available.  If you do an old-fashioned paper filing, you can rely on the “mailbox rule,” which says that a tax filing postmarked by the deadline is considered filed on-time.  The mailbox rule used to only apply to returns sent via the U.S. Postal Service, but the IRS expanded it to private carriers like UPS and Federal Express. The availability of private delivery services for timely last-minute filing has been a boon to procrastinators.  Few post offices stay open late anymore to receive last-minute tax filings, but there are 24-hour FedEx and UPS stores.  Unfortunately, the IRS rules on private delivery services are tricky, and they tripped up one taxpayer in Tax Court yesterday. The IRS lists qualifying private delivery services in Notice 2004-83.  The notice identifies specific services for DHL, UPS and FedEx that qualify for the mailbox rule.  The UPS services that qualify:

UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The taxpayer in yesterday’s case sent his package via UPS Ground, and while sent before the 90-day deadline for Tax Court filings, it arrived after the deadline.  The Tax Court said that didn’t work:

 UPS Ground has not been designated by the Commissioner as a private delivery service. Notice 2004-83, supra. Thus, the timely mailing/timely filing rule of section 7502 does not apply to “UPS Ground” service… In so holding we acknowledge that the result may appear harsh, notwithstanding the fact that petitioner had nearly 90 days to file his petition but waited until the last moment to do so. However, the Court cannot rely on general equitable principles to expand the statutorily prescribed time for filing a petition.

The Moral?  If you use a private delivery service, make sure you use one that qualifies.  If you are filing with an IRS service center, be sure to use the correct street address, as the private delivery services can’t deliver to the service center post-office box addresses.

Cite: Sanders, T.C. Summ. Op. 2014-47

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProfThe IRS Scandal, Day 369.  This edition links to the TaxProf’s own USA Today piece, The Media Ignore IRS Scandal:

Today’s news media are largely ignoring the IRS scandal, and it is impossible to have confidence in the current investigations by the FBI, Justice Department, and House committee. I am not suggesting that the current scandal in the end will rise to the level of Watergate. But the allegations are serious, and fair-minded Americans of both parties should agree that a thorough investigation needs to be undertaken to either debunk them or confirm them. Step one should be to give Lois Lerner full immunity from prosecution in exchange for her testimony. And then let the chips fall where they may.

True all around.   Journalists don’t care to investigate their own team.

 

Leslie BookABA Tax Section Procedural Highlights and Cohen APA Teaser:

Even without legislation, OPR Director Karen Hawkins stated that IRS will take a narrow interpretation of Loving insofar as it relates to its ability to regulate practitioners. As to the policy relating to regulating preparers, Director Hawkins announced that IRS will soon begin a voluntary testing and education plan that will provide some benefits to preparers who opt in to a regulatory regime.

What does it take to teach some people?  You got whipped, IRS.  The courts ruled that you grossly overreached.  How do you find a “narrow interpretation” of that?  It sounds to me like they will make their new program “voluntary” in the same way the national accounting firm I used to work at made United Way contributions “voluntary” —  they always had 100% participation.

 

Russ Fox, Florida Doctor Does Much Wrong on her Way to ClubFed:

She (and allegedly her husband) created nominee accounts at UBS and other foreign banks; of course, that income didn’t find its way to her tax return. Her half of the sale of the medical schools also didn’t find its way to the tax return. Those nominee accounts were at foreign banks; she didn’t file a Report of Foreign Bank and Financial Accounts (FBAR). And the money was used for conspicuous consumption: an airplane and three homes.

If you cheat on your taxes, it’s not wise to call attention to your wealth.

 

Wikipedia image

Wikipedia image

Jack Townsend, When is Booker Variance Too Much? Per DOJ, Certainly in the Ty Warner Case.  “What I draw from the sentence is that, when the hypothetical client is in the criminal cross-hairs asks the hypothetical reasonably welleducated and experienced criminal tax attorney with good judgement whether he [the client] will be treated as well as Ty Warner, the right answer is likely to be: ‘You’re not rich enough to get that quality of justice.’ “

 

Janet Novack, Prosecutor: Beanie Babies Billionaire Tax Cheat Didn’t Deserve `Get-Out-Of-Jail’ Card 

 

TaxGrrrl: What If Congressional Elections Were Run Like The NFL Draft?.  Well, a large percentage of football players are broke within three years of being drafted.  I’d favor that for congresscritters.

Kay Bell, IRS getting sneakier in tracking tax cheats.  ” If you’re bragging on Facebook about buying a Ferrari but reporting only $30,000 in annual income on your Form 1040, your social media comments will probably prompt the IRS to take an interest in you.”

 

It’s Tuesday Buzz-time!  At the Robert D. Flach emporium.

20140513-1

Lyman Stone, The Facts on Interstate Migration: Part One (Tax Policy Blog):

CBPP’s new report says that “State taxes have a negligible impact on Americans’ interstate moves,” and so falls pretty comfortably in the “taxes don’t affect migration” camp.What we’ve consistently argued at the Tax Foundation is that taxes matter on the margin, but that they’re just one of many factors. After reviewing Mazerov’s main arguments, this theme will be apparent: that his analysis doesn’t address the effect of taxes on the margin.

Any practitioner has dealt with cases where taxes do make a difference where people choose to live.  It’s painfully obvious when you live in a high-rate state with a zero-rate state (South Dakota) next door.  And to assume taxes don’t matter is to assume incentives don’t matter, which is like assuming gravity doesn’t hold things down.

Renu Zaretsky, Pizza, Expats and Drugs.  The TaxVox headline roundup covers today’s expected senate vote on extenders, take and bake pizza, and the high costs of FATCA for foreign companies who hire Americans abroad.

 

That’s clupeida roseus to you, Judge. States’ Failed Tax Policies Have Some Governors Throwing Red Herrings (Tax Justice Blog). 

Career Corner.  Helicopter Parents are Hitting Alumni Groups on LinkedIn to Find Junior a Job Now (Going Concern)

Share

Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

Share

Tax Roundup: April 30, 2014: Force of nature edition. And: Extenders move in U.S. House.

Wednesday, April 30th, 2014 by Joe Kristan

Iowa 1040s are due today!  If you are 90% paid in, they extend automatically with no filing.  If you need more time and need to pay in something, use IA 1040-V.

 

20130113-3House votes to make permanent six “expiring” provisions.  The House Ways and Means Committee voted to permanently extend six of the perpetually-expiring tax breaks that Congress renews every year or two.  They include:

  • A simplified version of the research credit
  • The five-year built-in gain tax recognition period for S corporations
  • The $500,000 Section 179 deduction limit
  • A provision reducing the net basis reduction for S corporation donations of appreciated property to the basis of the property.

The committee also voted for two international extenders.

The votes were mostly along party lines, which means they are unlikely to be passed in this form by the Democratic-controlled Senate. The Senate Finance Committee has already approved its own temporary extender package, and my guess is the final extenders package will look like the Finance Committee bill.

Tax Analysts reports ($link) that the committee isn’t done with extenders, but it isn’t clear when it will look at Bonus Depreciation.

The “no” votes for the House package objected to the lack of offsets to the revenue “lost” by the package.   I’m less upset.  While I oppose the research credit on principle, these provisions are permanent anyway; the whole “extender” process is a sham, conducted only to pretend that the tax breaks aren’t permanent so they “cost” less under Congressional accounting rules.  It’s the sort of thing that would be a felony in the private sector, but just another day for our leaders.  At least the House bill drops the pretense that these things won’t get passed every time they expire.

 

Additional coverage available at Accounting Today.

Related:

Tax Justice Blog, Rep. Dave Camp’s Latest Tax Gambit Is “Fiscally Irresponsible and Fundamentally Hypocritical”

Clint Stretch, Dreams of Tax Reform (Tax Analysts Blog)

 

 

20130117-1No gas tax boost this year.  Sioux City Journal reports that a last-gasp attempt to boost Iowa gasoline taxes died last night as the General Assembly continues its pre-adjournment frenzy.

 

David Brunori, Sad Pragmatism and Tax Incentives (Tax Analysts Blog).  “If tax incentives are an unavoidable reality, we should make them as transparent and accountable as possible.”  True, but that doesn’t excuse the politicians who take your money and give it to their special friends.

 

The Iowa State University Center for Agricultural Law and Taxation has released its 2014 summer seminar schedule.  It includes a slate of webinars on topics from Ethics to ACA mandates.  There will also be two big out-of-town events, in West Baden Springs, Indiana, and West Yellowstone, Montana.  I’m not able to participate this year, but they are a hoot and a great learning experience.

 

TaxGrrl, Widow Loses House Over $6.30 Tax Bill.  “A Pennsylvania woman has lost her home for little more than the cost of a Starbucks Frappuccino.”  The law in all its majesty.

Kay Bell, File IRS Form 1040X to correct old tax mistakes

Peter Reilly, Graduation Contingency Kills Alimony Deduction.  It’s very easy to screw up an alimony deduction with bells and whistles, as Peter explains.

 

20120531-1Jason Dinesen, Preparer Regulation and Judging Preparers Based on Size of Refund.  “Anyone who’s worked in this business has experienced the irate client who thinks the preparer screwed up because their refund was less than their friend/co-worker/hair dresser, etc.”

 

TaxProf, The IRS Scandal, Day 356

Jack Townsend, U.S. Congressman Indicted for Tax Related Crime

Joseph Thorndike, Airlines Say Ticket Taxes Would Be More Visible if They Were Better Hidden (Tax Analysts Blog)

Alan Cole, What Gift Cards Can Teach Us About Tax Policy (Tax Policy Blog)

Renu Zaretsky, Funding Tax Breaks, the IRS, and Public Pensions, Safety, and Schools.  The TaxVox headline roundup.

 

News from the Profession.  EY Is Tackling the Important Issue of Dudes’ Need for Flexibility (Going Concern)

 

Clear error is a standard used by appellate courts to review some lower court decisions.  A Tax Court case decided by Judge Paris dealing with horse losses yesterday involved purported destruction of records by an old girlfriend.  Here’s where the clear error comes in:

The wrath of a former girlfriend may be a formidable force, but it is not analogous to a hurricane-like natural disaster, and it does not constitute a reasonable cause outside petitioner’s control.

I’ve met Judge Paris, and I strongly suspect she’s never dealt with a bitter former girlfriend. Anyone who has would never have written such a thing.  But as she pointed out that the petitioner provided no evidence that such destruction occurred, so you oughta know that the case probably still is on solid ground.

 

Cite: Roberts, T.C. Memo 2014-74.  Additional coverage from Paul Neiffer, Partial Taxpayer Victory on Horse Farm Case

 

Share

Tax Roundup, 4/28/14: No connection found for Iowa broadband credit. And: it can take a long time to recover from tax season.

Monday, April 28th, 2014 by Joe Kristan


20120906-1
Truly we live in the age of wonders.  
A new set of economic development tax credits made it to the floor of the Iowa House on a Friday — and failed.  It’s a wonder that they actually showed up on a Friday — and to reject corporate welfare, to boot.

Before we get excited, it would be wrong to believe that the Iowa General Assembly has suddenly come to its senses about tax incentives.  It appears that many of the “no” votes on HF 2472 were from people who felt it wasn’t a big enough giveaway, reports the Des Moines Register:

Democratic leader Mark Smith, D-Marshalltown, said his members voted against the bill because they felt it didn’t go far enough in incentivizing and stimulating the expansion of high-speed Internet service.

Governer Branstad was unhappy:

“Rather than coming together to pass common sense legislation to increase broadband access in rural Iowa, Iowa House Democrats have turned their backs on rural Iowans and those who are under served,” Branstad said. “Today, the Iowa House Democrats played the worst of political cards; the Washington, D.C., hand of ignoring what is in the best interest of the taxpayers for political purposes.”

But nine Republicans also voted no in the 44-51 vote against the bill: Heartsill (Marion), Mawell (Poweshiek), Pettengill (Benson), Salmon (Black Hawk), Shaw (Pocahontas), Sheetas (Appanoose), Upmeyer (Cerro Gordo), Vander Linden (Mahaska), and Watts (Dallas).  If four of them had voted with the Governor, the bill would have passed.   The Des Moines Register didn’t bother to ask the Republicans why they voted no, but O. Kay Henderson did:

Representative Guy Vander Linden of Oskaloosa was among the nine Republicans who voted no.

“The ‘Connect Iowa’ bill, in my mind, doesn’t connect any Iowan, let alone every Iowan,” Vander Linden said.

Vander Linden faulted the bill for the way it handed out tax breaks to companies.

“We don’t say they need to meet any requirements in terms of our capacity, speed — anything. All we say is: “If you will put broadband infrastructure in place in any unserved or underserved area…we’ll give you all these benefits,” Vander Linden said. “That, to me, sounds like a blank check that I’m not willing to sign up to.”

Lack of standards and accountability hasn’t stopped tax credit giveaways before.  And they actually worked on a Friday, too. Yes, it truly is an age of wonders.

 

20140307-1Jason Dinesen, I Get Very Sad When a Client Gets Involved in Multi-Level Marketing.:

The reason I get sad nothing to do with taxes or fears that the client will be over-aggressive with deductions.

The reason I get sad is: so few of them actually make money.

 

Russ Fox, Your Dependents do have to be Your Dependents…

Kay Bell, Storm season 2014 arrives with a vengeance. Disaster victims should seek tax recovery help after the skies clear

TaxGrrrl, Now That Tax Day Has Passed, How Long Should You Keep Those Tax & Financial Records? 

Paul Neiffer, Are You Still Running Windows XP?! I finally upgraded to Windows 8.1 at home this weekend — a virtual machine on an iMac running Parallels Desktop.  It was the smoothest Windows installation I’ve ever done — it actually went without a hitch the first time through.

 

 

TaxProf, The IRS Scandal, Day 354

Renu Zaretsky, Tax Shelters, Tax Fights, and One Way to Reform a Zombie.  The TaxVox headline roundup includes an update on House taxwriter plans to work on an “extenders” bill this week.

Tax Justice Blog, Lawmakers Will Move Tuesday to Approve Hundreds of Billions in Business Tax Breaks — and Still No Help for the Unemployed.

William McBride, Corporate Exits Accelerating, Taking Jobs with Them (Tax Policy Bl0g).  Rates matter.

 

IMG_2493U.S. residents must pay U.S. tax, regardless of celestial citizenship.  A Minnesota couple hasn’t gotten the message, according to PioneerPress.com:

Living in the “Kingdom of Heaven” will not get you out of paying taxes, according to federal prosecutors.

On Tuesday, Tami Mae May, 55, was indicted in U.S. District Court in Minneapolis on 15 counts of filing fraudulent tax returns and a single count of obstruction of due administration of internal revenue laws, according to the U.S. attorney’s office.

Through 2013, she claimed “zero income,” signed under altered certifications, said both she and her husband were not citizens of the United States but were instead permanent residents of the “Kingdom of Heaven,” and reported false withholdings in an attempt to claim “hundreds of thousands of dollars in fraudulent … refunds,” the U.S. attorney’s office said. 

I need to research where the Bible says you can recover cash from the IRS as a result of a divine passport.

 

20140330-1Practitioners everywhere are putting their lives together after another tax season.  Yes, it’s rough, but it’s unlikely you will still be sorting out this tax season two years from now, like an Iowa woman who is just getting her 2012 tax season put to bed.

Here’s what this North Liberty tax practitioner faced in 2012:

The co-owner of a local tax service has been accused of using more than $22,000 from the business’s savings account to cover her credit card bills and her husband was arrested for allegedly causing a drunken disturbance at a local elementary school.

According to an Iowa City police criminal complaint, an investigator met with a co-owner of C & M Tax Service. The other co-owner is 31-year-old Melissa M. Frost of North Liberty.

But it was worse than that:

Police said Frost’s husband, 33-year-old Cory A. Frost was also arrested on Friday. Cory Frost went to North Bend Elementary in North Liberty at 2:45 p.m. to confront an employee there concerning a “situation with his wife,” according to North Liberty police Lt. Diane Venega. It is unclear if that situation is related to Melissa Frost’s arrest.

[…]

When police found Frost, he smelled of alcohol and appeared to be intoxicated. Police said Frost had a blood-alcohol content of .204 percent. He was previously convicted of public intoxication.

KCRG provides an update:

A North Liberty woman accused of stealing money from her own business entered an Alford plea as part of a plea deal with prosecutors.

Melissa Frost, 34, entered the pleas on two separate counts of tampering with records last week, according to online court records. Under the Alford Plea, Frost admits no guilt but acknowledges there is likely enough evidence to convict her.

As part of the deal, Frost received a sentence of probation and deferred judgement, which means she could have the conviction expunged from her record if she fulfills the terms of her probation.

So however bad your tax season was, this is a reminder that somebody, somewhere, probably had it worse.

 

Share

Tax Roundup, 4/25/14: Why the move to tax return selfies? And: Iowa’s unhappy high ranking.

Friday, April 25th, 2014 by Joe Kristan


Supply and demand curves

Supply and demand curves

IRS stats show more people are preparing their own returns, reports Tax Analysts ($link):

The IRS’s latest data, released April 11, show electronic filing from paid tax professionals fell 0.3 percent from the same time last year. That follows a 1.8 percent drop in April 2013, and a 1.7 percent drop in April 2012. By contrast, the IRS said, self-prepared e-filing of returns rose 4.5 percent through April 11 compared with last year, 3.1 percent in April 2013, and 5 percent in April 2012.

It seems like an odd trend.  It’s not like the tax law is getting any easier.  One possibility raised in the story is that it’s those wacky youngsters:

 Self-preparation may be a response to a younger generation’s ease with computers and software, said [retired Enrolled Agent Sandra] Martin. “That’s more of a permanent reason why people aren’t using preparers,” she said.

She also raises a much less logical possibility:

Martin said the IRS’s inability to regulate return preparers makes matters worse. Taxpayers are not only uncertain about the qualifications of their preparers, she said; some are afraid, haunted by stories of fraudulent preparers ripping off return filers and deciding the do-it-yourself path may be safest.

I think the failed IRS preparer regulation power grab is a big part of the cause, but not for the reasons cited by Ms. Martin.  As Dan Alban, slayer of the preparer regulations, testified before the U.S. Senate taxwriting committee:

In fact, IRS data released last summer shows a dramatic drop in the number of tax preparers in recent years — a sudden loss of more than 200,000 preparers from 2010 to 2012 — following the recent imposition of a series of burdensome IRS regulations on preparers (the e – file mandate and the Return Preparer Initiative, which included both the PTIN registration requirement and RTRP licensing)

If your preparer gets out of the business, maybe you will stop using a preparer.  With fewer preparers, the law of supply and demand predicts that costs will rise.  As costs rise, consumers seek substitutes.  It’s what I predicted back in 2010:

Rather than pay the increased costs, some taxpayers will stop getting help on their returns altogether and either self-prepare or drop out of the system. These dropouts certainly won’t see improved service, though the regulators will never admit responsibility for that.

Supply and demand: it’s not just a good idea, it’s the law!

 

Supply and Demand

Lyman Stone, Joseph Henchman, Richard BoreanTop State Income Tax Rates in 2014 (Tax Policy Blog):

20140425-1

The colors on the map get darker as the rates get higher.  You’ll notice that Iowa’s 8.98% top rate gives it quite the purple tan.  It’s misleading, in that the effective rate is closer to 6% taking deductiblility of federal taxes into account; that would give Iowa a more lovely lavender tint, like Missouri and Louisiana.  Yet Iowa refuses to build the federal deductibility into lower rates.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would address that.

 

Christopher BerginThe IRS and the Tax System: Integrity and Fairness for Whom? (Tax Analysts Blog):

The IRS’s mission statement couldn’t be clearer:

    Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

If some of the tax cops aren’t playing by the rules – and getting bonuses for it – how does that provide us taxpayers “top quality service” and help us understand and meet our tax responsibilities? The two most important words in this mission statement are “integrity” and “fairness.” The one thing largely missing from our tax code is fairness. And the one thing now beginning to disappear from the agency charged with administering that tax code is integrity.   

Nah.  Compliance is for the peons, not the overlords.

 

Howard GleckmanLen Burman’s Brief for a Health Care VAT:

Len, the director of Tax Policy Center (and, thus, my boss), argues that a dedicated—and fully transparent–health care VAT would increase public support for efforts to slow the growth of medical costs. That’s because the VAT would rise, for all to see, with increases in government health spending.

I have another idea: let’s sever the link between employment and healthcare, authorize interstate sales of high-deductible health insurance, and have people pay for routine care out-of-pocket.  We don’t have to resort to a VAT to keep prices down for, say, beer and groceries — or for non-covered health costs, like LASIX procedures.  Removing the layers between consumer and payment just might work for other health costs too.  Seeing increase in your spending from your own pocketbook is a lot better motivator to reduce costs than watching government budget numbers.

 

Gene Steurle, Dave Camp’s Tax Reform Could Kill Community Foundations:

The proposal would effectively eliminate most donor advised funds (DAFs), the major source of revenues to community foundations, so they could no longer provide long-term support for local and regional charitable activities. Instead, those funds would need to pay out all their assets over a period of five years.

Iowa has a special tax credit for gifts to community foundations, which is often oversubscribed.

 

 

20140411-1Kay Bell, Doctors are target of an income tax fraud scheme; the rest of us need to watch out for a new e-file phishing attempt

TaxGrrrl, Payback Is Forever: Tax Refund Offset Law Remains On The Books 

Or anybody else.  Piketty’s Tax Hikes Won’t Help the Middle Class (Megan McArdle)

Tax Justice Blog, Trend Toward Higher Gas Taxes Continues in the States

TaxProf, The IRS Scandal, Day 351

Robert D. Flach brings the Friday Buzz!

 

Going Concern, Now We’re Creatively Interpreting Sarbanes-Oxley to Include Fish.  Well, the whole thing has always been fishy.

Keith Fogg, Collection of Restitution Payments by the IRS (Procedurally Taxing)

 

Share

Tax Roundup, 4/22/14: $418,000 per-job edition! And: AGI and farm subsidies.

Tuesday, April 22nd, 2014 by Joe Kristan

20120906-1Iowa Watchdog reports Iowa to give Microsoft millions in exchange for 86 jobs:

The West Des Moines City Council on March 24 approved asking the IEDA to award Project Alluvion $18 million in sales tax rebates, the maximum amount possible under the IEDA’s High Quality Jobs Program.

Neither the city nor the IEDA questioned why Microsoft, which had $24.5 billion in revenue and $8 billion in profits in the most recent fiscal quarter, needed taxpayers’ support to build its data center.

By the time the new data center opens for business, Microsoft will have received from the state and the city more than $418,000 for each of the 86 jobs it says it will create.

There’s a good argument that businesses shouldn’t have to pay sales taxes on their purchases. There’s no good argument that only businesses who know how to pull strings in city hall and at the statehouses should be able to avoid sales tax on their inputs.  Yet that’s what Iowa’s “economic development” policy is all about: special deals for special friends.  The rest of you suckers without lobbyists and pull, pay up!

Related: LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

Tax Justice Blog, State News Quick Hits: Tax Breaks for Expensive Artwork and Apple Inc.

microsoft-apple

 

Roger McEowen, Farm Service Agency Adjusted Gross Income Calculation Could Influence Choice of Entity:

Beginning with the 2014 crop year, producers whose average adjusted gross income (AGI) exceeds $900,000 are not eligible to receive payments or benefits from most programs administered by FSA and the Natural Resources Conservation Service (NRCS). Previous AGI provisions distinguishing between farm and non-farm AGI are no longer utilized.  Average AGI for crop year 2014, for example, will be based on a producer’s AGI from 2010, 2011 and 2012.

This is an incentive for business owners receiving substantial farm subsidies to use C corporations, which don’t increase AGI, at least not immediately.  But C corporations do increase the effective tax rate on business income for most people who have enough AGI to worry about this problem.  It would be a lot easier to get rid of the subsidies and let farmers just grow what the market demands.

 

Yesterday was the national commemoration of The Tax Foundation’s Tax Freedom Day.   Not surprisingly, it’s later than last year.

Tax Freedom Day is “the day when the nation as a whole has earned enough money to pay its total tax bill for year.”  It varies by state.  Iowa’s day was April 13.  Connecticut and New Jersey will be the last states to finish paying their tax bill, on May 9.

Tax Freedom Day 2014 Map_0

 

TaxProf, GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

Jeremy Scott, The Misleading Debate About the Corporate Income Tax (Tax Analysts Blog):

Congress must consider passthroughs when discussing business tax reform. You can’t complain about high U.S. corporate tax rates or declining corporate tax revenues without looking at how the shift to passthrough entities is affecting the U.S. tax system. Passthrough reform is just as critical as corporate reform, even if it doesn’t receive nearly as much attention in congressional speeches or front-page news stories.

It won’t happen until the inane quest to hammer “the rich” is decisively rejected in tax policy debates  – because with pass-throughs, taxing “the rich” means taxing away employment.  Yet the same high-tax redistribution schemes have led to disaster over and over are enjoying a new vogue among people who just can’t stand other people having more money.

 

20140321-3Jack Townsend, GE Ducks Any Penalty for Its (BS) Tax Shelter — For Now 

Brian Mahany, Is the IRS Whistleblower Program a Failure?

TaxGrrrl, Higher Or Lower: How Do You Think Your U.S. Tax Burden Compares To Other Countries?   

Steven Rosenthal, A Flash Tax for the Flash Boys (TaxVox).  Never mind that high-frequency traders make for more efficient markets and lower transaction costs for other traders.  We need to screw up the capital markets even more.

Annette Nellen, Tax Day – April 15, 2014 – It Can Be Easier.  It sure could be.

TaxProf, The IRS Scandal, Day 348

 

William Perez, Obamas, Bidens Release 2013 Tax Returns.  I still say they should have had to prepare them by themselves in a live webcast — as should all congresscritters.

Russ Fox, If You Can’t Get the Refund, Why Not File Some Liens?  After all, it is a foolish and futile gesture, so go for it!

Peter Reilly, Court Approves Tax Sale Of New Mexico Property For Less Than 1% Of Its Value.  Peter sheds light on the sleazy practice of what amounts to stealing property to pay petty amounts of tax.

Jason Dinesen, On Schedule C’s and Setting Rates.  If your 1040 is really a business return, you can’t expect to pay the same as a 1040A filer.   In many ways Schedule C’s are harder, because they rarely have a balance sheet to provide a reality check.

 

20120620-1

Robert D. Flach’s Buzz is Back!  Welcome back, Robert!

Kay Bell, How are you spending your federal tax refund?

Jana Luttenegger, Are You Curious How Your Tax Dollars Were Spent? (Davis Brown Tax Law Blog)

News you can use.  Timely Filing a Tax Court Petition from Prison (Carl Smith, Procedurally Taxing)

Breaking!  Millennials Don’t Like Grunt Work, Says Millennial Grunt (Going Concern).  Hey Millennials, the rest of us aren’t so crazy about it either.  That’s why they have to pay us to do it.

 

Share

Tax Roundup, 4/9/14: Common K-1 problems. And: if the preparer doesn’t have a brain, give him a diploma!

Wednesday, April 9th, 2014 by Joe Kristan

S-SidewalkSo you read yesterday’s post and you’re still preparing your own return?  You’ve answered the questions you need to ask yourself before starting to put numbers from your S corporation/Partnership/Trust (collectively, “thing”) K-1 onto your 1040 schedules?  OK, if you are intrepid enough to be doing your own return here, you are mostly on your own.  Don’t shortcut it.  This is one chore where you really should read the instructions (S corporation, Partnership, Trust), rather than just opening the box and putting pieces together.

There’s no point in me trying to walk through the whole K-1 with you; that’s what the instructions are for.  I will point out a few items on the K-1 (or left out) that frequently cause errors and trigger questions.

On the partnership K-1 the ending capital account is probably not your “basis.” The capital account is frequently useless in measuring basis.  It might be the same as your basis if the “Tax basis” box is checked, but the only sure way to track your basis is to keep your own running basis schedule year-by-year.  S corporation shareholders can find their basis computation schedule here.

Don’t double-count your gains.  The “Unrecaptured Section 1250 gain” in Box 8c of your S corporation K-1  (9c of the partnership return) is a part of the “Net Section 1231 gain” (S corporation box 9, partnership box 10).  The total income is the Section 1231 gain, not the sum of the unrecaptured 1250 and 1231 amounts.  You use the “Unrecaptured 1250 gain” on your Schedule D worksheet to figure out how much of your Section 1231 gain is taxed at a 25% rate, rather than the normal 20% top capital gain rate.

Don’t double count “investment income.”  If you have interest, dividends or capital gains on your K-1, the partnerships is required to tell you how much of that is “investment income” with a code “A” in the “other information” box on the K-1.  You only need that number if you are computing an investment interest expense deduction on Form 4952.  You don’t add it as additional income on your return.

Beware the “net investment income” disclosure, code “Y” in the “other information” section.  The partnership and S corporation instructions for computing this came out late, and this number is likely to be wrong.  If you have to fill out Form 8960 to compute your Obamacare net investment income tax, you shouldn’t count on this number, especially for a K-1 with trade or business income.  Use instead the separate items from the K-1 that are investment income for Form 8960 purposes.

Be careful out there, and come back tomorrow for a new 2014 filing season tip!

 

20140307-1Russ Fox, Bozo Tax Tip #5: Procrastinate.  You mean waiting won’t solve my tax problems?

Tony Nitti, Tax Geek Tuesday: Are Those S Corporation Distributions Taxable?

 

William Perez, Tax Freedom Day 2014.  April 21.

Kay Bell, Being DIFferent could prompt a tax audit.  Kay points out things that can attract IRS attention on your 1040.

Jeremy Scott, Audit Electability (Tax Analysts Blog).  “However, a taxpayer’s choice of entity can have broad tax ramifications, including some consequences unintended even by the complicated U.S. tax regime.”

Stephen Olsen, Summary Opinions for 4/4/2014.  (Procedurally Taxing), A good roundup of some recent tax cases, including coverage of the Ohio accounting firm’s unpleasant breakup that we covered last week.

 

20140409-1The IRS Commissionerwho apparently can’t regulate his own employees sufficiently to provide subpoenaed documents to Congress, still wants to regulate tax preparers.

The idea is no more than what the Wizard of Oz told the scarecrow: regulated preparers wouldn’t be any smarter, but they would have a diploma.  An IRS-issued Doctorate in Thinkology doesn’t make an inept preparer competent, any more than granting a CPA or a JD makes somebody a good tax preparer.  I would much sooner have uncredentailed Robert D. Flach do my 1040 than any number of fully-credentialed CPAs and attorneys I know.   All regulation would accomplish would be to raise prices, lining the pockets of the big tax prep franchises while driving many taxpayers to self-prepare or stop filing.

TaxGrrrl, House Committee Gunning For Criminal Charges In IRS Scandal

TaxProf, The IRS Scandal, Day 335

 

Roberton Williams, If You Have High Income, Your Taxes Are Going Up (TaxVox)

Tax Justice Blog, “Tax Extenders” Would Mean Even Lower Revenue than the Ryan Plan

Jim Maule, How Shocking is Tax Evasion?

Radio Iowa, Senator Grassley says fouled up tax system is depressing.  He’s depressed?  As a senior taxwriter for most of the last three decades, he’s answerable for a lot of the depression.

 

Share

Tax Roundup, 4/7/14: Where’s my K-1? And why you should e-file that extension.

Monday, April 7th, 2014 by Joe Kristan

1040 2013The deadline for 2013 1040s is a week from tomorrow, so we may as well start our annual Filing Season Tips feature.  

Many folks arrive here with a search engine query that goes something like “why don’t I have my K-1, should the partnership go to jail?”  A quick reminder of what a K-1 does, and why they often arrive late in the tax season.

K-1s come from partnerships, S corporations and trusts.  Partnerships and S corporation businesses don’t pay the tax on their income.  The income is instead taxed on your 1040.  They have to compute their own taxable income first — as you might imagine, a more complex process than doing the average 1040.  They then have to sort the income into a bunch of different bins so that all the pieces end up on the right spot on the owner 1040s.  The K-1 is best understood as the collection bins for your shares of the various pieces of the business’ income and expense items.

Furthermore, many businesses and trusts that issue K-1s are awaiting K-1s of their own.  Even if they have their own tax information ready, if the business is still waiting on a K-1, it can’t issue yours.

But, but! Aren’t K-1s supposed to be out by January 1?  You’re thinking of 1099s.  K-1s are due with the S corporation returns (March 15) or the partnership returns (April 15), but they can be, and often are, extended to as late as September 15 — legally.

So what to do?  If you don’t have your K-1 yet, try to at least get an idea of what the income will be, and extend your own return accordingly.  It’s always better to extend than to amend.

This is the first 2014 filing season tip — come back for one each day through April 15!

 

Russ Fox, Bozo Tax Tip #6: Just Don’t File

 

e-file logoKristy Maitre, IRS Change in Extension Processing Makes E-Filing That Extension Critical.

The campus could take up to 6 weeks to process a [paper] extension, and it will not show up on the transcript until processed. With that time delay, it is helpful to have the acknowledgement of an e-filed extension.

With the delay in processing of the extensions, remember if you file a return within that 6 week timeframe, it may not show the extension on the module, and your client could get a penalty for filing late if there is a balance due. This will also have an impact on refund returns if they are later picked up for audit, a balance due results, and the extension was not processed properly.

And why, if you do paper file, you shouldn’t bundle extensions for your family or clients to save postage.

TaxGrrrl, Not Ready To File Your Taxes? Don’t Stress Out, File For Extension 

William Perez, Federal Tax Relief for Victims of Washington State Mudslide and Flooding

Jana Luttenegger, DIY Will is a ‘Cautionary Tale’ (Davis Brown Tax Law Blog). “As a result, two of Ann’s nieces received property that it appears clearly from the will and attempted amendment was meant for Ann’s brother instead.”

 

20140321-3Kay Bell, 3 popular refundable tax credits: Are they worth it?  Good question, and no.

Peter Reilly, Easement Valuations Not So Easy Anymore

Keith Fogg, Reliance on Counsel to Avoid Tax Liability.  (Procedurally Taxing).  Not likely to work.

 

TaxProf, The IRS Scandal, Day 333.  Featuring the Washington Post “fact checker” calling shenanigans on IRS Commissioner Koskinen for denying that IRS had “targeted” Tea Party groups.  It’s safe to say Mr. Koskinen has botched his entrance.

Andrew Lundeen, Senate Finance Committee Passes $85 Billion Tax Extenders Bill (Tax Policy Blog)

20121120-2Tax Justice Blog, Five Key Tax Facts About Healthcare Reform.  Ones they like that I despise: “Only two percent of Americans will pay the tax penalty for not having insurance and  “95 percent of the tax increases included to pay for health reform apply solely to businesses or married couples making over $250,000 and single people making over $200,000.”

This attitude is exactly what is awful about the TJB mindset.  No matter how fickle, arbitrary,   unworkable or economically harmful a tax is — and the Obamacare taxes are all of those — we’re supposed to be OK with them as long as they apply only to “the rich.”  Carried to the logical conclusion, it would be just fine to execute the 1-percenters, confiscate their property, and sell their families into slavery — it only affects the rich anyway, and they don’t count.

 

Arnold Kling has a little reminder for folks hung up on inequality, quoting Lawrence Kotlikoff:

The US fiscal gap now stands at an estimated $205 trillion, or 10.3 percent of all future US GDP. Closing this gap is imperative, and requires a fiscal adjustment of an immediate and permanent 37 percent reduction in spending (apart from servicing official debt), an immediate and permanent 57 percent increase in all federal taxes, or some combination of the two. The necessary size of this adjustment increases the longer it is put off.

And remember, the rich guy isn’t picking up the tab.

 

O. Kay Henderson, No traction for increasing state gas tax.  Not happening this year, apparently.

 

haroldJennifer Carr at Tax Analysts has a good summary of the research as to the economic effect of state film tax credits:

The film industry and lawmakers doubtless believe that film credits are a great deal for everyone involved — and that would be fantastic if it were true — but the most credible studies don’t reflect that.

Her article (unfortunately available only to State Tax Notes subscribers) discusses the funky analysis that film credit boosters use to justify the subsidies.  The boosters like to overstate the tourism effects of films and assume fantastical “multiplier” effects of film spending.  They also ignore opportunity costs — assuming that if the taxpayer money was not spent on Hollywood, it would just crawl in a hole and die.

 

Career Corner.  Crime May Not Pay But Whistleblowing Certainly Does (Going Concern)

 

Share

Tax Roundup, 4/2/14: CPA Revenge edition! And more.

Wednesday, April 2nd, 2014 by Joe Kristan

20140330-1Mutually assured destruction.  Accounting firm breakups can generate bad feelings.  Bad feelings can generate bad ideas — like filing bogus 1099′s on your erstwhile colleagues.  That went badly for an Ohioan in a U.S. District Court case reported in today’s Tax Notes ($link). 

When Waldman, Pitcher and Co. broke up, it wasn’t amicable. Lawrence Waldman felt ill-used by departing partners Kenneth Pitcher  and Michael Enders.  Some background from the District Court judge:

This case arises from the acrimonious break-up of the successful accounting firm Waldman, Pitcher, and Co., P.S.C. The individual parties in the present case were formerly partners in that firm. The break-up has spawned numerous related lawsuits, various audits by the Internal Revenue Service (“IRS”), numerous complaints of improper conduct to various professional oversight groups, and protracted contentious litigation of the present case.

Mr. Waldman apparently attempted to enlist the IRS in his fight, using an assignment of uncollected receivables in the break-up agreement (footnotes and other references omitted):

In January 2010, Waldman & Co. issued 1099-MISC forms to Pitcher and Enders personally for tax year 2009, for non-employee compensation in the amount of $111,535.00 for Pitcher and $13,260.00 for Enders. It is undisputed that Waldman and his company had not collected any of the AR/WIP money reflected on those 1099 forms (doc. no. 134, ¶¶ 18-19). Waldman was admittedly angry at Pitcher and Enders and has repeatedly characterized their departure as effectively “stealing” two million dollars from him. As a prominent and experienced CPA, Waldman was familiar with the matching program of the IRS and knew that issuing these 1099s to Pitcher and Enders personally would likely result in IRS audits of their personal income tax returns. Waldman & Co. benefitted by taking a corresponding tax deduction for the reported amounts.

The unhappy 1099 recipients fought back:

In February and March of 2010, Pitcher and Enders complained to the IRS’s Office of Professional Responsibility (“OPR”) that Waldman had issued 1099s containing information that Waldman knew to be inaccurate. They asserted that Waldman had done this “to exact a revenge that he couldn’t otherwise exact during our negotiations.” They filed similar complaints with the Accountancy Board of Ohio and Ohio Society of CPAs . Those groups declined to take disciplinary action against Waldman.

20120509-1It then got even uglier:

In February 2011, Waldman & Co. issued “corrected” 2009 1099s to the plaintiffs, reflecting “zero” for their nonemployee compensation. At the same time, he issued “corrected” W-2s to Pitcher and Enders reflecting increased amounts in Box 1 . For Pitcher, an additional $199,290.00 of reported income was included, reflecting the $111,535.00 for the accounts receivable assigned to KPE, $27,755 for the amount paid to KPE by Waldman & Co., and $60,000.00 for attorney fees paid by Waldman & Co. to plaintiffs’ attorneys… For Enders, an additional $13,260.00 was included, consisting of $13,260.00 for the accounts receivable assigned to KPE. Waldman & Co. took a tax deduction for the increased amounts listed on the corrected W-2s, even though such returns indicated that no federal income taxes had been withheld.

I suppose if you are going to make up compensation on W-2s, you may as well be consistent and deduct the pretend expense.

Much litigation later, the District Court ruled for the departing accountants Pitcher and Enders:

Given his education, knowledge, and business experience as a CPA, [Mr. Waldman] could not have reasonably believed that these information returns were proper to file. He filed these information returns “willfully” in order to obtain tax benefits and harass the plaintiffs. Despite having “settled” a previous lawsuit over the plaintiffs’ departure from the firm, Waldman was dissatisfied and stubbornly believed the plaintiffs had “stolen” two million dollars from him by leaving his firm with clients. In taking on the role of whistleblower, he deliberately misused the IRS reporting system.

A lot of good it did them.  They were each awarded $15,000 in damages, but not attorney fees:

In light of the unusually hostile litigation history between the parties, the Court observes that plaintiffs have certainly played a significant role in creating the bitter circumstances of this case. This case has also been marked by needlessly contentious discovery battles, repetitive briefing, and unfortunate personal attacks. In view of the animosity between the parties, the Court in its discretion declines to award attorneys’ fees to the plaintiffs. The Court is aware that, absent such an award, this may be a Pyrrhic victory for plaintiffs. Nonetheless, the Court is convinced that this is a just result under the unusual circumstances of this case.

It’s hard to believe that the plaintiffs came out ahead on this, especially when their time is taken into account.

The Moral: breaking up is hard to do, even for accountants.

Cite: Kenneth B. Pitcher et al. v. Lawrence Waldman et al., DC-SD Ohio, No. 1:11-cv-00148

 

20140307-1Jason Dinesen, Life After DOMA: Estate Tax   

Kay Bell, No April Fools’ joke: No capital gains taxes for some investors

William Perez, Extended Time for Choosing When to Deduct Colorado Flooding Losses

TaxGrrrl, Taxes From A To Z (2014): R Is For Royalties   

Leslie Book, What is a Fair CDP Hearing: Courts Push Back on IRS

 

William McBride, French Economist Wants Top Tax Rate of 80 Percent to Fix Inequality (Tax Policy Blog).  No, it’s not an April Fools joke, and some people who should know better take this serously.  The “French economist” is Thomas Picketty, who is big into the whole “inequality” hand-waving being used to distract us from our real problems.   The post illustrates the folly of the whole war on millionaires with this chart:

20140402-1

He could have added that an increasingly progressive tax system has coincided with increasing inequality.

 

Howard Gleckman, House Republicans Punt on Tax Reform (TaxVox): “…it effectively turns its back on the tax reform plan drafted by Dave Camp, the GOP chairman of the House Ways & Means Committee.”

Tax Justice Blog, ITEP Predicts Illinois Tax Reform Debate…and Then Puts Crystal Ball Away

 

TaxProf, The IRS Scandal, Day 328

Name that Party!, tax edition.  Instapundit has a recurring gag poking fun at news stories of corrupt politicians whose political affiliation is left mysteriously unstated.  Here’s an example from the tax world: Gary councilman sentenced to prison.

 

Share

Tax Roundup, 3/28/14: Trusts beat IRS. And: Seven-bedroom poverty!

Friday, March 28th, 2014 by Joe Kristan

Trusts won big over the IRS yesterday.  The Tax Court ruled that trusts can “materially participate” in business activities.  Taxpayers who materially participate in an activity don’t have to pay the Obamacare net investment income tax on income from the activity.  I have a full writeup, Tax Court decision cuts 3.8% Obamacare Net Investment Income Tax for many trusts.  

 

20120912-1FATCA: giving the government more ways to shoot jaywalkers.

 We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.

After all, you have to shoot the jaywalkers so you can slap the real international tax evaders on the wrist.

Quoted text from “Submission to Finance Department on Implementation of FATCA in Canada” by Allison Christians and Arthur Cockfield, via the TaxProf.

 

William Perez, Tips for Same Sex Married Couples Filing Their Tax Returns.

Kay Bell, Donating and deducting gifts to current, past disaster victims

TaxGrrrl, Taxes From A To Z (2014): N Is For Name Change and Taxes From A To Z (2014): O Is For Overpayment

Steven Rosenthal, You Could Owe Capital Gains Taxes When You Spend Bitcoin (TaxVox)

Tax Trials, IRS Releases Guidance on Convertible Virtual Currency: Bitcoin Treated As Property for Federal Tax Purposes

Scott Schumacher, Does Equity Have a Role in Offers in Compromise? (Procedurally Taxing)

20140328-1

William McBride,New Study Finds U.S. Multinationals Pay Extremely High Effective Tax Rate. (Tax Policy Blog). Since Iowa corporate rates are the highest in the U.S., that makes us number 1 in the world, baby!

TaxProf, The IRS Scandal, Day 323

Tax Justice Blog, Tax Cuts Fall Flat in Idaho

False choice.  The Drive for Tax Reform: Hitting the Breaks or the Gas?  (Renu Zaretsky, TaxVox)

Career Corner.  The More Money Your Parents Made, the Less Likely You Are to Become an Accountant (Going Concern)

 

monk mountainIf all poverty were like this, monasteries would be more popular.  A Pennsylvania taxpayer is accused of trying the old “I’m a church” dodge.  From Lehighvalleylive.com:

Erik Von Kiel, formerly of Macungie, falsely told the federal government he was a minister with a Utah-based religious organization, and that he had renounced any interest in property or income, authorities said.

He did so while concealing his salary and assets, including a seven-bedroom Macungie home he bought with his wife in 2006 and later sold for $175,000, according to court documents.

Seven bedrooms?  Not bad for poverty.  Probably more accessible than many monastic residences, too.

 

Share

Tax Roundup, 3/26/14: Using Bitcoins regularly will get you a really long Form 8949. And: underpants!

Wednesday, March 26th, 2014 by Joe Kristan


Bitcoin
Bitcoins may act like money, but IRS says they aren’t.  
The IRS yesterday announced how that it will treat Bitcoin “virtual currency” as property, rather than currency, for tax purposes.  Notice 2014-21 lays out the IRS treatment of Bitcoin and similar virtual money.  Some key points:

- As property, gains and losses on Bitcoin are normally capital gains and losses, unless the taxpayer is a dealer in Bitcoins.  That means losses are limited to capital gains plus $3,000 for individuals.  This contrasts with currency transactions, which normally generate ordinary income and loss under Section 988.

Transactions in virtual currency will normally generate gains and losses:

If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.

That makes using Bitcoins a hassle for taxpayers who try to follow the law.  Everytime you buy something with Bitcoin, you will have a capital gain or loss, depending on fluctuations in the Bitcoin market.  Imagine if you had to record a little capital gain or loss based on the currency markets anytime you bought anything with cash.  If you use Bitcoins every day you’ll have a horrifying Form 8949 to report all of your gains and losses.

The basis in virtual currency is its value on date of receipt, if you acquire it in a transaction.  That same value is the amount you use to compute income if you are paid in virtual currency

- They point out the obvious:  “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” Also, payments in virtual currency are subject to information reporting, same as cash.

Virtual currency “miners” generate ordinary income.  If they do it as a trade or business, it’s subject to self-employment tax.

The TaxProf has more; Accounting Today also has coverage.  Peter Reilly has Bitcoins Not Tax Fairy Dust – Second Life Still A Tax Haven?, wisely noting that the virtual currency isn’t generated by the Tax Fairy.  And TaxGrrrl weighs in with IRS Says Bitcoin, Other Convertible Virtual Currency To Be Taxed Like Stock .

 

Ashlea Ebeling, Supreme Court Says FICA Tax Due On Severance Pay:

What the Supreme Court decision means for employers is that what had long been the case –severance pay is subject to FICA tax—remains the case. And for employees who are laid off, it means that they will continue to get a little less in “take-home” severance because it’s dinged for their share of FICA tax.

It seemed like a reach to say otherwise, but now it’s not even that.

 

 

A hard-working fictional student.

A hard-working fictional student.

O. Kay Henderson, Legislators ponder tax credit for student loan payments.  A truly awful idea.  This credit doesn’t encourage getting higher education; it encourages borrowing to pay for higher education.  As an unintended but obvious consequence, it discourages saving to pay for college — there’s no tax credit for foregoing current consumption to pay for college later.  It’s stunning that lawmakers actually want to encourage more student debt when many students already are entering a brutal job market with crushing loan obligations.

Joseph Henchman has two posts at Tax Policy Blog that should be read together: Wisconsin Approves Income Tax Reduction, Business Tax Reforms and Who Would Pay a Higher Illinois Income Tax?  Not the folks that move to Wisconsin, for sure.

 

Jason Dinesen, More on the 0.9% Medicare Tax and Iowa Tax Returns

Paul Neiffer, Schedule F Reporting Update:

I got some feedback on my previous post on Tax Reform and low Schedule F reporting of income. Several sources of farm income does not show up on a Schedule F. This includes many common sales of farm assets such as breeding stock and equipment. Most of the expenses associated with this income is deducted on Schedule F, however when these assets are sold, none of the gains appears on Schedule F.  Rather, this income is usually reported on Form 4797.

That still doesn’t change the fact that these simple farmers play the cash method like a violin to achieve tax results other businesses can only dream of.

Tony Nitti, Tax Geek Tuesday: Demystifying The Deduction Rules For Accrued Liabilities   

William Perez, Identity Theft and Your Income Taxes

Kay Bell, IRS gives Colorado flood victims until Oct. 15 to file 2012 or 2013 tax returns claiming disaster losses

Janet Novack, Gotcha! Tax Court Penalizes IRA Rollover That IRS Publication Says Is Allowed   

 

David Brunori, Hang On to Your Wallets (Tax Analysts Blog)

Howard Gleckman, Dave Camp’s Plan for the Expired Tax Provisions: An Almost-Good Idea (TaxVox)

TaxProf, The IRS Scandal, Day 321

Tax Justice Blog, State News Quick Hits: To Cut or Not to Cut?

 

Joseph ThorndikeRaising Taxes on the Rich Won’t Balance the Budget — But It’s Still Important (Tax Analysts Blog):

 The modern American fiscal state is predicated on a bargain. During World War II, lawmakers were forced to expand the personal income tax to help pay for the fighting. Over the course of just a few years, they added millions of middle-class Americans to the tax rolls for the first time, transforming the income tax from a rich man’s burden to a middle-class millstone. In return, however, these same lawmakers offered the middle class an implicit (and sometimes nearly explicit) guarantee — rich people would be asked to pony up, too.

Cool story.  Let’s see how that works nowadays:

Top 1 pays more than bottom 90

Chart by Tax Foundation

So now the “rich” aren’t paying their “fair share,” they’re picking up most of the tab.  How does it work if you break it down further?

20131030-2

So not only do “the rich” pay their share of the freight, they pay a lot more than their share of earnings.  And when you take government benefits into account, the whole “fair share” argument is tough to support:

givers and takers

Chart by Tax Foundation

I don’t buy Joseph’s “social contract” thinking.  The whole emphasis on inequality being peddled by the administration is a diversion, an attempt to change the subject from the manifest failures of Obamacare and foreign policy blundering.  No matter how hard they hit “the rich,” or how bad doing so is for the overall economy, there is never a point where the politicians will say the rich are being hit enough.

To the extent “inequality” persists, it’s clearly not a direct function of the tax code or government spending.  Politicians, though, find it useful to encourage the belief that they can spend on whatever pleases the crowd by just by making the rich pay their “fair share” — as if they weren’t already.  It’s the flip side of the widespread belief that the government can just balance the budget by cutting foreign aid.   It’s just an attempt to fool the gullible long enough to win another election.

 

Going Concern, Thrift Shops Issue Specific Guidance on Deduction Amounts for Used Underpants.  I didn’t know there was a deduction for toxic waste.

 

Share

Tax Roundup, 3/21/14: Reforming S corporations to a frazzle. And: cleaning up at the laundromat!

Friday, March 21st, 2014 by Joe Kristan

S-SidewalkThe legislative process has been likened to sausage making.  Sausage doesn’t get more appetizing if you keep looking at it closely over a period of weeks, and neither does the Camp “tax reform” plan.  Andrew Lundeen and Kyle Pomerleau at the Tax Policy Blog today highlight some gristly features of the grand effort by the head GOP taxwriter:

The proposal leaves in place high tax rates for many S corporations, subjects them to additional payroll taxes, creates new distortions between types of industries, and produces two tax rate bubbles.

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

Camp’s tax reform package introduces complication with a new 10 percent surtax for non-manufacturing income. To make things more complicated, the additional 10 percent surtax would be calculated on a different income scale: modified adjusted gross income or MAGI. This essentially creates two side by side tax codes, a la the AMT, and individuals and businesses would have to calculate their AGI for one and their MAGI for the other.

As I noted, it doesn’t simplify the code by getting rid of the economically foolish Section 199 production deduction; it just moves it to a different section.

20140321-1

The Difference between Active and Passive Shareholders

The difference between active and passive shareholders is important for determining the marginal tax rates for S corporations under Chairman Camp’s plan.

That’s true now, but you’d expect a “reform” plan to get rid of this sort of gratuitous and difficult-to-enforce difference.

20140321-2

Changes to Self-Employment Taxes: the 70/30 Split Rule for SECA Taxes

Under current law, the IRS requires business owners to pay themselves a reasonable wage in order to prevent people from gaming this income distinction in order to avoid the extra 15.3 percent payroll tax hit.

Camp’s plan would replace the current reasonable wage standard with a 70/30 split, changing the rules for active shareholders. The rule would require that active shareholders of S corporations report 70 percent of their total earning as wage income.

I think it’s just one step on the way to a 100/0 split.

Tax Rate Bubble

Another element of Camp’s tax plan is the creation marginal tax rate bubbles. This occurs when a marginal tax rate, for example, goes from 10 percent to 15 percent and back down to 10 percent. We have a post that discusses the marginal tax rates under Camp’s plan, which you can find here.

When a “reform” plan comes with so many phase-outs and distortions, it’s not actually reforming anything.  I think the Camp plan will come to be seen as a false move and a lost opportunity.

 

TaxGrrrl, Taxes From A To Z (2014): K Is For Keogh Plans   

20140321-3TaxProf, The IRS Scandal, Day 316

William Perez, Average Sales Tax Rates by State: 2014, highlighting a Tax Policy Blog analysis.

Annette Nellen, Revenues versus tax collections.  “A recent blog post on LinkedIn’s Sales and Use Tax Legislative Updates included a comment from B.J. Pritchett suggesting that what governments collect in taxes should not be called “revenues” because it is not from selling goods and services.”

Tax Justice BlogState News Quick Hits: Don’t Expect Much from Congress.  Always a good idea.

Kay Bell, Senate Finance plans tax extenders vote for week of March 31.  She links to an article quoting a Senate Finance spokeswoman as saying “No decisions have been made on the content of the measure or the timing for a committee session and vote.”

Howard Gleckman, Fiscal Reality Check: Will Congress Pay for the Tax Extenders and the Doc Fix?  Extenders themselves are a scam.  Congress passes them over and over a year at a time so they can pretend that they cost less than they do — funky accounting that would get a public company CFO jail time, but standard procedure in Congress.

 

Jack Townsend, U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion 

 

A new Cavalcade of Risk is up at Insurance Regulatory Law.  The Cavalcade is a venerable roundup of insurance and risk-management posts.  Hank Stern’s contribution, an interview with Neal Halder of Principal Financial Group about their “accelerated underwriting” process for life insurance, is a great read.

Jason Dinesen, Fair Warning: More Baseball Posts to Pop Up this Year.  That’s a good thing.

 

20140321-4Think he reported this income?  Man With Deep Pockets Busted Stealing a Lot of Laundry Money (Going Concern):

Just how many loads of laundry could one do with $460,000 in stolen quarters?

That’s probably not the question asked by public works inspector Thomas Rica, who pleaded guilty this week to stealing that much in quarters from the meter collection room of the New Jersey town for which he worked.

At the laundromats I used back in school, that would have been nearly enough quarters to get your clothes dry.

 

Share

Tax Roundup, 3/13/14: Looming Payday Edition. And: incentives galore!

Thursday, March 13th, 2014 by Joe Kristan

20130104-1Deduction day looms.   March 15 is the deadline for calendar-year corporate return filings and payments.  It’s also an important deadline for accrual-basis taxpayers for another reason:  compensation accrued at year-end by a calendar-year accrual-basis taxpayer has to be paid by March 15 of the following year to be deductible in the year accrued.

As every first-year accounting student learns, accrual accounting tries to match expenses with the period in which the income is earned.  If a bonus is based on calendar-year sales or profits, it normally can’t be paid until after year-end, when the numbers are sorted out; still, the bonus is related to those sales, so accrual accounting counts the expense against that year’s income.

The tax law has many limits on accrual accounting.  For example, accrued expenses to “related parties,” typically owners and their families, can’t be deducted until the expenses are actually paid.  The tax law gives accrual businesses 2 1/2 months after year-end to pay accrued compensation to non-related employees.  Otherwise, the deduction is deferred until the year in which the employee is paid.

Does the compensation have to be paid by Saturday, or can I wait until Monday?  The tax law provides that when tax returns are due on a weekend, the deadline is extended to the following monday.  That’s why 2013 calendar-year corporation returns  are due March 17, 2014 – March 15 is on Saturday this year.

But the IRS says that doesn’t work for compensation.  Rev. Rul. 83-116 holds that it only applies to “acts required to be performed in connection with the determination, collection, or refund of taxes”  – things like filing returns.  So, according to IRS, the March 15 deadline still stands for payment 0f 2013 accrued compensation.  It’s not clear that the IRS would win in court on this — they have lost on a similar issue — but you don’t want to be the test case.  If you want to deduct 2013 accrued compensation on your 2013 return, pay it by Saturday.

 

 

haroldIncentives!  Coralville Likely on the Hook for Large Chunk of Von Maur Taxes.  Coralville marches to the beat of its own drummer, who apparently is heavily medicated.

Hey, let’s pay $34 million to build a Des Moines Convention Hotel!  Brian Gongol reports “The city financed the hotel to help spur convention business…but now it’s in danger of losing money.”  You don’t say.

Tax Justice Blog, Film Tax Credit Arms Race Continues: “Saying “no” to Hollywood can be a difficult thing for states, but here are a few examples of lawmakers and other stakeholders questioning the dubious merits of these credits within the last few weeks”.

Good.  Iowa doesn’t seem to have been badly hurt since it turned from subsidizing filmmakers to jailing them.

Related: Robert Wood, Film Taxes Ensnares Beckhams, Bob Geldof, Andrew Lloyd Webber, Annie Lennox & More

 

TaxGrrrl, Taxes From A To Z (2014): F Is For Foreign Tax Credit.  “For many taxpayers, it’s more advantageous to claim income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit than as a deduction.”

William Perez, Chart: Total Refundable Credits from 1990 to 2011.  There are more of them now.

Peter Reilly, Hedge Fund, TEFRA And Community Property Give Woman Tax Nightmare

Russ Fox, The IRS Needs Volunteers for the Taxpayer Advocacy Panel

 

Cara Griffith, States’ Perspectives on Federal Tax Reform (Tax Analysts Blog)

Joseph Henchman, Nebraska Legislators Approve Inflation Indexing But Drop Major Tax Overhaul (Tax Policy Blog)

Howard Gleckman, Mike Lee’s Tax Plan: An Intriguing Idea That Would Add $2.4 Trillion to the Deficit (TaxVox)

Kay Bell, House panel finally looking at Internet sales tax legislation

TaxProf, The IRS Scandal, Day 308

News from the Profession.  Tweeting a Lot About Audit Stuff Can Get You a Job at Deloitte.  (Going Concern)

 

Share