Posts Tagged ‘Tax Policy Blog’

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

Monday, December 28th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

See also

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

Related — weekend tax tips:

Altaring your tax planning

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

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

William Perez, Understanding Canceled Debt Income and Taxes

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

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

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


Seventh Avenue, Des Moines, this morning.

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

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

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

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


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

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

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

Unlikely indeed.


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



Tax Roundup, 10/21/15: The tax law doesn’t care where you are on the autism spectrum. And: Iowa sales tax rule change praised.

Wednesday, October 21st, 2015 by Joe Kristan

20151014-1No Asperger exception to Section 475. It’s heads they win, tails you lose for capital gains and losses. If you have capital gains, they’re happy to tax them, no matter how many you have. If you have capital losses, you are limited to gains plus $3,000 per year, with the remainder carrying forward — even if you have to outlive Methuselah to use them up at $3,000 annually. Many sadder-but-wider former day traders have found themselves with this problem.

Section 475 offers some taxpayers a way out. If you qualify as a “trader,” a Section 475 election makes your losses fully deductible. It makes your gains ordinary, rather than capital, and it requires you to recognize gains and losses on your open positions at year-end, but that’s not a big deal for day traders. They tend to trade short-term, and short-term gains are taxed at ordinary rates anyway, and marking-to-market isn’t normally a big deal to them.

But Section 475 has a strict election requirement. You have to make the election no later than the April 15 of the year you want the election to take effect. For example, a taxpayer wanting to make the election effective for 2015 tax returns would have to make the election on his 2014 timely-filed 1040 due April 15, 2015.

A New York man claimed he made the election on his 2003 1040. Unfortunately, he made two serious mistakes. See if you can spot them in the Tax Court’s summary:

In 2003 on the advice of his accountant, petitioner intended to file a section 475(f) mark-to-market election. Petitioner, however, did not retain a signed copy of any election or any evidence of mailing it. Petitioner filed his Federal income tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a statement that petitioner had made an election pursuant to section 475(f), but did not have a copy of Form 3115, Application for Change in Accounting Method, attached to it.

Error 1: Not keeping a copy of the election (assuming he made it).

Error 2: Not filing until over a year after the due date.

Other cases have shown that the IRS enforces the timely-filing requirements of Section 475 strictly, to keep taxpayers from making the election with the benefit of hindsight.

The Court ruled that he traded enough to qualify as a “trader” under the tax law, but that he blew the election (my emphasis):

We find that petitioner failed to comply with the requirements for the mark-to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner did not submit a copy of any executed version of Form 3115 or any evidence of mailing it. Respondent did not find any record of petitioner’s Form 3115 in his electronic database, but also admitted that in some years not all Forms 3115 received were actually entered in the database. Next, petitioner filed his Federal income tax return for 2003 on July 25, 2005, failing to comply with the filing deadlines.

There’s a lot in that paragraph. Perhaps the most important thing is that the IRS admits that it doesn’t always know what you file, so it’s wise to keep your returns forever in case something like this happens. The other thing is that the deadlines matter.

The taxpayer made an unusual argument to get out of penalties: that his Asperger Syndrome made it impossible to meet deadlines. The Tax Court wasn’t convinced:

For a number of years, including 2002 and 2003, petitioner worked as a high school teacher. There is no evidence in the record that at any time from 2001 through 2006 petitioner filed for a disability accommodation while he was employed as a school teacher. In 2007 petitioner was trading in securities. Petitioner’s work station was equipped with six monitors showing the status of his trades. Petitioner was able to collect, analyze, and organize information to base his trades on. Petitioner understood he had a duty to file tax returns but claims that in 2007 he was “despondent” because of the losses he suffered and could not organize himself to file a tax return timely.

We are sympathetic to petitioner’s plight. We cannot find, however, under these circumstances that petitioner’s mental condition prevented him from managing his business affairs.

This is consistent with other cases where the courts have found that if you are able to deal with the challenges of daily life, you are presumed to be able to file your returns on time.

The Moral: File your returns on time, and keep copies of your filings forever.

Cite: Poppe, T.C. Memo 2015-205

Related: TaxProf, Tax Court: Asperger’s Syndrome Does Not Excuse Taxpayer’s Failure To File Tax Return




David Brunori calls the Iowa proposal to broaden the definition of manufacturing supplies subject to exemption from sales tax The Best Tax Policy Proposal of the Year (Tax Analysts Blog):

Taxing what business entities buy is wrong for two important reasons. First, businesses will try to pass the tax they pay on to their customers in the form of higher prices. Almost all succeed. The customers incur the tax burden without knowing it. That’s wrong. Even for those companies that don’t pass the tax along to customers, some person is unwittingly paying the tax. Second, when consumers pay higher prices, they are sometimes subject to tax. Thus, the sales tax is imposed on a value that includes previous sales tax. You may know it as cascading or pyramiding. But it’s wrong.

And that’s why the Iowa proposal is so refreshingly right. It would expand the types of business purchases exempt from sales tax. My understanding is that there is a debate in Iowa about whether the Department of Revenue can expand the number of exempt business purchases administratively. I don’t know the answer to that. I do know that the proposal represents sound tax policy.

Governor Branstad says expects the proposal to be enacted, reports the Sioux City Journal in Branstad: House GOP won’t buck rule change.


Russ Fox, The Wagering Excise Tax and DFS:

I’m focusing on the tax aspects of daily fantasy sports (DFS) this week. It’s beneficial for DFS participants for the activity to be considered gambling. For political reasons (“gambling is a sin”) and regulatory reasons (gambling is regulated, skill contests are not), the DFS sites want to be considered skill games sites. There’s another reason that DFS sites don’t want to be considered gambling: the wagering excise tax.

Picking the right horse at the track is a skill, too, but I’m pretty sure it counts as gambling.


Paul Neiffer, What is a Marginal Tax Bracket. A useful explanation for the non-specialist of how tax brackets work.

Kay Bell, Increased e-filing security planned for 2016 filing season. Better at least five years too late than never, I suppose.

Jim Maule, Beachfront House Rental Deduction Washed Out. When you try to deduct what looks like a beach party, you’d better have excellent documentation.

Eric Rasmusen, Law Suit for Billions Against Citigroup Because of Treasury’s 2009 Waiver of Section 382’s Rule about Losing NOL’s after an Ownership Change. The Administration put the fix in for its friends at Citigroup, and now another taxpayer is suing.




Tax Policy Blog, A Comparison of Presidential Tax Plans and Their Economic Effects.

Renu Zaretsky, “There’s no cut like a tax cut… There’s no cut like a tax cut…” Today’s TaxVox tax headline roundup covers the continuing fiscal pain in Kansas and the IRS patting itself on the back on ID theft after letting it spiral out of control for years.


TaxProf, The IRS Scandal, Day 895



Our media outlets dismiss the opponents of the Ex-Im bank or people who want to wind down Freddie and Fannie as Tea Party nut cases. If you want to stop crony capitalism, what we need are fewer influential media outlets and more Tea Party nut cases.

Arnold Kling



Tax Roundup, 12/21/2012: Plan B breaks, Tiger tamed.

Friday, December 21st, 2012 by Joe Kristan

20121221-1Plan C through Z?  House Speaker Boehner’s effort to pressure the White House into compromise with “Plan B,” a proposal to retain 2001 tax rates on incomes below $1 million, died last night.  The Speaker cancelled a vote on the plan when it was clear that it lacked enough support to pass.  The Wall Street Journal reports:

After pulling his bill without taking a formal vote, Mr. Boehner  unexpectedly disbanded the House until after Christmas, leaving behind
uncertainty about whether Congress and President  Barack Obama would be able to avoid $500 billion in spending cuts and tax increases that begin in January.

So what now?

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Mr. Boehner said in a written statement after a brief meeting with House Republicans. “Now it is up to the president to work with Senator Reid on legislation to avert  the fiscal cliff.”

Is it time to panic?  Will we see a filing season delayed until the end of March, a big 2012 AMT hit, and tax increases all around?  Joe Weisenthal at Business Insider says we aren’t over the cliff yet:

Indeed. If Boehner couldn’t even get the GOP to support a law that would let taxes revert on millionaires, how is he going to get GOP support on a deal that would let taxes revert on those making $250K or $400K, as the President would like to sign?

Here’s the thing with that. Boehner doesn’t need to get all of his caucus, because in the end, if Obama supports the ultimate compromise, then it’s safe to say that the Democrats will bring about 100+ votes in the house to support the bill. And this was always true. It was always the case that the eventual compromise would see Boehner lose 70 or more Republicans, to be made up with Democrat support. So nothing changes on that front.

There’s 10 days left before 2012 expires.  Even then it’s possible that they will make a retroactive deal next year with the new Congress.  The legislative and leadership malpractice continues.

Fiscal Cliff Notes:

TaxProf,  The Competing Obama and Boehner Tax Plans

Kay Bell, Republicans reject Boehner’s fiscal cliff Plan B, House breaks for Christmas

TaxGrrrl, Boehner Fails To Push Through Plan B Before House Walks

Christopher Bergin,  Fiscal Surrender (

So, I would suggest that while General Boehner wants things to look like  he is negotiating a budget deal, he is actually seeking the best surrender terms that he can get. And if the President is a good enough general to understand his position, he will not try to over-exploit it.

Paul Neiffer,  Farmers Might Delay Higher Tax Rates for Three Years?  Thanks to income averaging, a trick available only for farmers,  “…you might be able to earn $1 million from farming and have most of it still subject to the old lower tax rates” if rates go up next year.

Nanette Byrnes,  Blue states lose: how avoiding the U.S. fiscal cliff hits some states harder than others (Tax Break)

Tax Policy Blog, Tax Cut Expiration Would Impact States Unevenly

Janet Novack,  A Closer Look At Boehner’s Plan B: Tax Hikes For Parents And Workers

Howard Gleckman,  Should Working Class Families Pay Higher Tax so High Income People Can Pay Less? (TaxVox)

Jim Maule, The Postponed Pain of Foolish Tax and Spending Decisions


St. Louis area preparer “Tiger” Zerjav pleads guilty to tax crimes.  A St. Louis-area CPA who survived an IRS effort to shut down his practice through a civil suit lost a much bigger fight yesterday.  Frank “Tiger” Zerjav pleaded guilty to four tax crime counts in Federal District Court. Courthouse News Service reports:

Frank L. “Tiger” Zerjav Jr., 39, of Wildwood, Mo., pleaded guilty to  four counts of tax evasion from 2001 to 2004, prosecutors said.
     He  and his father, Frank L. Zerjav Sr., were principals in two entities:  Zerjav & Company, a full service accounting firm, and the Advisory  Group USA, which offered tax planning and asset protection strategies.      Zerjav admitted that he funneled his income into several S-corporations and failed to include that income on his tax returns.

The IRS attempted to enjoin the Zerjavs from tax practice in 2008, alleging that they set up S corporations for their clients and then deducted personal expenses on corporation tax returns — including a “Precious Moments” figurine collection.   The Zerjavs settled under what appeared to be favorable terms in 2010.

The plea agreement is not yet public.  Sentencing is set for March 26RelatedCopy of indictment.


Jason Dinesen, New Preparer Requirements on Earned Income Credit = Higher Fees for Clients.  That’s on top of the increase in fees that will result from the massive contraction of the preparer industry that we may be in for thanks to the IRS preparer regulation regime.

News you can use:  Pot Business May Be Legal In Washington State But There Are Still Rules (Peter Reilly)


The Critical Question:  Are Holiday Weddings a Form of Tax Planning? (Jana Luttenegger, Davis Brown Tax Law Blog):

Your  marital status for tax purposes is determined as of December 31. That means if you get married on New Year’s Eve, you are considered married for the entire year and can file as a married couple. Likewise, if a divorce is finalized by the end of the year, you will be considered unmarried for the entire year. Trust me, I am not the  only one that has wondered if certain people getting married on New Year’s Eve did it for tax purposes.

It’s a special Friday Buzz at Robert D. Flach’s place!

Madoff’s brother sentenced on tax charges (Wall Street Journal, via Going Concern)


Not so Fat Joe not so good at taxes.  A rapper who performs as “Fat Joe” is in tax trouble, reports AP.  The story says Joseph Cartagena pleaded guilty yesterday to not reporting nearly $3 million in income over two years.

Oddly, he’s not so fat, according to the story:

Wearing a navy suit, Cartagena looked fit and considerably slimmer than the former size that had earned him his rapper nickname. He has been very public about his efforts to shed weight after fellow rap stars died from obesity-related issues and was recently in Newark to speak to schoolchildren about health and fitness.

It’s nice that the schools find such good role models for the kids.



Tax Roundup, 8/27/12: Verify, then trust. Plus the tenant-free landlord!

Monday, August 27th, 2012 by Joe Kristan taxes: Trust a little, verify a lot.   Sad stories all around in Binghampton, New York, after an executive at a payroll service provider admitted stealing tax deposits, rather than remitting them to the IRS and the state.  From WBNG.Com:

“It was almost like being kicked in the stomach because I had already paid the taxes and we were told we had to pay them again,” said President of Silo Restaurant Gary Kurz.

Kurz was another victim. He says he had to borrow money to pay the IRS a second time, in addition to cutting hours for employees, and working hard to save on electricity bills.

All of this in an effort to to fill a sudden $24,000 loss for the restaurant, a loss that’s still affecting his business.

Outsourcing payroll processing can be a good business decision, but it leaves a business horribly vulnerable if the processor has a thief on board.  That’s why even businesses that outsource their payroll should enroll in the Electronic Federal Tax Payment System.  EFTPS lets you go online to make sure that the payroll taxes you are sending to your payroll service provider are truly getting deposited on time.  It might seem like extra work, but it’s a lot easier than paying your payroll taxes twice.


Being a landlord is so much easier without tenants.  But it has its downsides, as a Connecticut attorney named Joseph Colbert has learned.  From the Wilton Patch:

According to court documents and statements made in court, Colbert  filed false federal tax returns in 2006, 2007 and 2008. In  each of the returns, Colbert falsely claimed that he had sustained  thousands of dollars in losses on a rental property in New Jersey when,  in fact, the New Jersey property was not a rental property, but was  exclusively for his personal use. In total, Colbert underpaid his federal tax obligation by more than $133,000.

Folks, this sort of thing isn’t hard for the IRS find.  If you have a Schedule E property that year after year shows little or no rental income and lots of expenses, the IRS computers are likely to notice.  That’s especially true if you find a way deduct those losses, which will normally be non-deductible “passive” losses absent other passive income.

Of course, there are times in real life when commercial properties go a long time without being rented.  Residential rental properties, though, aren’t likely to sit empty for three years in most markets.


Bad tax ideas of the northlands.  An Alaska couple apparently didn’t take their tax evasion conviction well.  From the Alaska Dispatch:

According to documents filed in court Thursday, Lonnie and Karen Vernon, of the so-called “241” militia trial, are planning to enter guilty pleas to some of the eight counts against them, the Fairbanks Daily News-Miner reports.

The couple faces charges related to tax evasion, weapons possession and conspiracy to commit murder.

Independent of the “241” militia trial, the Vernons are charged as a couple for allegedly plotting to kill an Internal Revenue Service agent and U.S. District Judge Ralph Beistline following the outcome of their tax evasion trial. Judge Beistline was allegedly targeted because he ruled against the Salcha, Alaska, couple.

Maybe this has something to do with long winters.  A few years ago Minnesotan Robert Beale got in trouble for similar reasons.

I’ll be the last person to discount the seriousness of tax convictions.  Nothing disrupts personal plans like a stretch in the federal can.  Yet, according to the story, this couple owed about $180,000 —  good for maybe a three year stretch before you can resume your previously-scheduled programming.  Conspiring to kill a federal judge will extend that time away considerably, without any chance of making the original sentence go away.  Poor move, north or south.



It’s Guest Post Week on Taxgirl!

Russ Fox ponders Jason Dinesen’s series on identity theft and asks, Why Is the Death Master File Still Available?  Why, indeed?

William McBride, Sweden’s Corporate Rate is 13 Points Lower than Ours, and Going Lower (Tax Policy Blog)

Jack Townsend,  Prominent Neurosurgeon Convicted for Offshore Accounts.  A Milwaukee case.

Janet Novack, Romney’s Taxes: It’s The Carried Interest, Stupid

Jim Maule, Using Taxes to Measure Generosity

Christopher Bergin,  Taxing With the Stars

Robert D. Flach has a new Buzz on.

Isn’t that what Hell is for anyway? Pennsylvania Court Gives No Relief To Investor In Tax Shelter From Hell (Peter Reilly)


Tax Roundup, 8/23/2012: Can tax breaks go to the poor when only the rich are taxed? Plus IRS agent as video game hero!

Thursday, August 23rd, 2012 by Joe Kristan

William McBride has sound thoughts on tax policy with Stuck in Neutral on Tax Reform (Tax Policy Blog):

But more importantly, it makes little sense to pursue distributional neutrality when we have the most progressive income tax system in the industrialized world.  The top 20 percent of households pay 94 percent of federal income taxes.  The bottom 40 percent have a negative income tax rate, and the middle quintile pays close to zero.  Negative tax rates are the result of refundable tax credits, such as the earned income tax credit and the child credit, which have grown 10 fold since 1990, from $12 billion in 1990 to $120 billion in 2010 (see chart below).

Constantly pursuing distributional neutrality, we have achieved record high levels of progressivity.  And there are reasons to think it has constrained economic growth.  It is time to aim for something more tangible: a competitive tax system with low rates and a broad tax base.

For this to happen, politicians have to stop giving away tax credits to buy votes (wind energy, anyone?) like they were Tootsie Rolls.  In Iowa, it would look something like The Quick and Dirty Iowa Tax Reform Plan.


Russ Fox questions the fiscal wisdom of a proposed mandatory state-run pension system for private employers: Sheer Stupidity in the Bronze State

TaxGrrrl, You’ve Got Mail: E-Bills for Taxes Could Be Headed Your Way

Kay Bell, Writing off home refinancing points

Brian Strahle, The State and Local Tax Burden of Inc. 500 Companies

Farm Tax Blogger Paul Neiffer hits Iowa on his corn and bean sightseeing: The International Flavor of the Crop Tour

Dan Shaviro, Did Romney engage in abusive foreign tax credit-generating transactions?  I don’t know.  Did Harry Reid?

What time is it? It’s Time to Get Your EFIN (Trish McIntire)

Anthony Nitti provides Six Reasons My Kid is Better Than Your Kid.  Oh, yeah?


Screen shot from “Alligators on a Bridge”

The first video game where nobody has even tried to reach the second level.  Via Going Concern comes news of a video game where the player tries to get an IRS agent safely through peril:

It’s April 15th and Tim the IRS Agent is nearly finished checking the tax forms he’s been assigned. Tim has had to deal with reading multiple languages (such as Spanish, French, and American), terrible hand writing, and paper cuts, in addition to a missing a tax form (which he has to venture deep within the Vermont Jungle to retrieve). As if his day couldn’t be worse, while crossing a log bridge in the Vermont Jungle Tim looks down to see an army of zombies, green starfish, and self aware Vermontese Alligators advancing towards him. Now Tim has to defeat the waves of enemies so that he can continue his journey to collect the missing tax form. And guess what, all that he has to stop them is rocks!

What, no permanent injunctions?  No accuracy-related penalties to smite the taxpaying trolls?  No identity theives to subsidize?  Lame.


Tax Roundup, 8/20/2012: Meet the criminal masterminds that outwit Doug Shulman’s IRS.

Monday, August 20th, 2012 by Joe Kristan

Doug Shulman, protecting the taxpayer

You are sending $5.2 billion annually to identity thieves, courtesy of Douglas Shulman’s IRS.  What sort of criminal masterminds are outwitting IRS internal controls to pick your pockets? tells the story of one modern-day Professor Moriarty:

More than 10,000 people remain on a waiting list for federally subsidized housing in Hills­borough County.

Not LaSandra Gamble, 27-year-old mother of five.

Last summer, between housing, utilities and food stamps, she drew benefits of $2,363 a month, Tampa Housing Authority files show.

Yet, in August 2011, she put down $9,000 on a black 2006 Lexus GS430, police said. Three days later, they said, she put down another $9,000, this time on a red 2007 Lexus ES 350. Combined, the monthly payments were nearly $2,000.

Gamble, in an interview, said police have it wrong. She said she got the cars because she was involved with the car dealer.

“I didn’t have to put nothing down,” she said. “We were in a relationship.”

Legally, she was in a relationship with her husband, 33-year-old Angelo Juan Pedrosa, whom she had married a year earlier.

Police got involved Oct. 8, when they stopped Pedrosa driving the black Lexus. Pedrosa is a convicted cocaine dealer. Along with marijuana residue, the officers reported finding $6,000 and a dozen debit cards in other people’s names.

Reloadable debit cards, sold online, carry Visa or MasterCard logos. Some people use them to shop on the Internet, control spending or get around poor credit. Tax thieves use them to collect refunds from the IRS.

Police filed a report with the IRS.  Ms. Gamble denies any involvement with tax fraud.

The gist of the story is that the multi-billion dollar refund fraud — much of which is based in Tampa — is largely the work of thieves who are also collecting money from you through public assistance, and a motley array of petty thieves.   And Doug Shulman’s IRS is helpless to stop them.

Or maybe they just have priorities other than protecting your tax money.  Priorities like expanding the power of the bureaucracyAn opinion piece in today’s Wall Street Journal by Chip Mellor of the Institute for Justice (via the TaxProf):

Under new regulations imposed last year—without congressional approval—the IRS now requires all paid tax preparers to become “registered tax return preparers” by paying extra fees, passing a government exam, and taking continuing-education classes annually. (Exempted from the mandate are attorneys, CPAs and politically powerful “enrolled agents.”) Big tax-preparation firms such as H&R Block and Jackson Hewitt supported the licensing scheme, as did lobbying groups representing CPAs and others who are exempted from new regulation. 

So while petty thieves loot the Treasury, rest assured that Doug Shulman’s IRS is doing what it can for the well-connected.  For a taste of what it Doug Shulman is doing for those whose identities are being stolen (darn little), check out the newest installment in Jason Dinesen’s saga of a client’s identity theft nightmare.


Billy Hamilton of State Tax Notes has a fine history of the Iowa Film Credit up today.  Unfortunately at the moment it is only available to State Tax Notes subscribers (here).  He uses a “film noir” theme to tell the story:

Unless all of the main characters are dead, life continues past the closing credits, and in Johnny’s case, that means arrest and a return to the Big House. But filmmakers and audiences seldom bother with what is, in effect, the story after the story.

     That probably helps to explain why there was minimal press attention when opening arguments began on July 23 in the trial of the last of 10 defendants charged in the Iowa film tax credit scandal that erupted three years ago and was a hot topic at the time in Iowa, in the movie community, and in tax circles.

If you get a chance, read the whole thing.


Peter Reilly, Should We Care About Romney’s Unreleased Tax Returns?:

The business culture that both Romney and Warren Buffett have  operated in, as have I at a much less ethereal level, considers overpaying taxes to be irresponsible.  That is the story of Romney’s tax returns.

I’ve not encountered a business culture that considers overpaying taxes to be “responsible.”  Peter’s post is worth reading for the “It’s a Wonderful Life” references alone.


Tax Policy Blog: Usain Bolt Serves the UK an Olympic Hangover and At least 90 Percent of Americans Have a Lower Income Tax Rate than Romney

Kay Bell: Romney’s tax returns take 2

Robert D. Flach has been busy, with a new “Buzz” and a look at RYAN’S TAX RETURNS.

Anthony Nitti, Tax Policy Center Fights Back

Jack Townsend, Swiss Banks Rat Out Their Employees to U.S.

TaxDood, Usain Bolt Serves the UK an Olympic Hangover

TaxGrrrl is moving her offices this week, so she makes the best of it with Moving Right Along: Deducting Work-Related Moving Expenses

Good news for Iowa’s Mississippi River towns: Illinois Adopts Strip Club Tax (Russ Fox)


Tax Roundup, 8/9/12: IRS scolded for carelessly issuing ID numbers. Plus stupid vs. criminal, hitting bottom and digging.

Thursday, August 9th, 2012 by Joe Kristan

IRS Commissioner Douglas Shulman

IRS discouraged fraud detection in ID program (Huffington Post):

The Internal Revenue Service has been looking the other way instead of rooting out fraud when people apply for taxpayer identification numbers, Treasury Department investigators said Wednesday, exposing a shortfall with both financial and national security implications.

A member of Congress who sits on the House’s tax-writing committee responded to the report by calling on IRS Commissioner Douglas Shulman to resign, claiming the IRS is helping illegal immigrants defraud the government.

He wants the Commissioner to resign for that?  Considering that the Commissioner oversees the mailing of $5 billion annually to thieves, that he has terrorized and financially ruined otherwise law abiding Americans for footfault paperwork violations, and that he has, with questionable authority, imposed an expensive and futile preparer regulation scheme, this new outrage needs to take a number.

More coverage from the Wall Street Journal, Linda Beale and the TaxProf; read the TIGTA report here and a TIGTA press release here.

Instapundit on state film tax credits:

REPEAL THE HOLLYWOOD TAX CUTS!  (LOCAL EDITION):  La. film tax break program needs limits, budget group says.   “Louisiana has spent more than $1 billion over the past decade to attract movie productions to the state, but hasn’t received much in return besides the prestige of hosting big-name Hollywood actors, according to a report released today.  The left-leaning Louisiana Budget Project suggests state lawmakers should put tighter limits on the generous film tax break program, lessening the credits offered and capping the amount of money it can cost the state each year.”  Actually, it should be abolished, as should similar programs in almost every other state.  And this is something state Tea Party groups might even make common cause with lefties on.

A sadder-but-wiser Iowa repealed its version of the film credits this year after it collapsed in scandal and disgrace and the State Auditor reported that 80% of the credits were issued improperly or lacked documentation.  But in defense of the program, two filmmakers are moving to Iowa for up to ten years thanks to the film tax credit!

It’s time to register for this year’s ISU Center for Agricultural law and Taxation Farm Tax Schools!  I will be on the Day 1 panel at all eight sessions, starting with the October 29 school in Mason City.

We’re vacationing in the mountains this year, kids. The Plot Thickens for Swiss Bankers Involved In U.S. Evasion: (Jack Townsend):

Swiss bankers whose names were delivered to the United States in April as part of the crackdown on US tax evaders face the risk of arrest while travelling in some European countries, not just on US soil.

Well, the Alps are nice…

Stupidity is no crime: Were Reid’s Remarks About Romney’s Returns Unlawful? (TaxGrrrl)

We’re just getting started!  Have We Reached the Nadir of Tax Policy Discourse? (Going Concern)

“Bipartisan” means they’re ganging up on us: Wind energy tax breaks are bipartisan in Iowa (Ames Tribune)

Kay Bell has a new Carnival of Taxes for State Fair week!

Tax Policy Blog:  Misunderstanding Tax Reform: The Case of The Olympic Tax Elimination Act


Tax Roundup, 8/7/12: sales taxes, Olympian taxes, California fever dreaming.

Tuesday, August 7th, 2012 by Joe Kristan

Iowa’s sales taxes are right in the middle, per this map from the Tax Policy Blog:


Roger McEowen: 2012 Drought Raises Questions About Deferring Crop Insurance, Livestock Sales and Cash Forward Grain Contracts 

California ponders suicideCalifornia’s Proposition 30 would raise top income tax rate, sales taxes  (Kay Bell)  California already has one of the highest tax burdens in the nation, but the bill would raise the top marginal rates to 12.3% on income over $500,000 — with no deduction for state taxes.  In a state where over 12,000 public employee retirees have pensions over $100,000, the problem probably isn’t that taxes are too low.

Brian Strahle, Texas “Fresh Start” Amnesty Program Ends August 17, 2012 – What Should You Do?

TaxGrrrl, President Obama Supports Tax Exemption for Olympic Athletes.  It’s too bad that the expats and others victims of the current jaywalker-shooting policy of enforcing offshore reporting requirements never learned to run fast, do gymnastics, or play basketball.   Andrew Mitchel reports that 189 U.S. citizens expatriated in the second quarter of 2012.  No doubt IRS harassment was behind some of these.

TaxTV: The Truth on Taxation of Olympic Gold Medals

Dan Meyer, “And Uncle Sam and his IRS Revenue Agent Buddy Step to the Podium”

Is there a gold medal for this? The Title of Most Awful Accountant in the World Is Spoken For (Going Concern)


Tax Roundup, 8/3/2012: Sales tax holidays, $5 billion in refund fraud, and smoked pot clinic deductions.

Friday, August 3rd, 2012 by Joe Kristan

Flickr image courtesy K@t marsh

Hey, the Iowa Sales Tax Holiday on clothes runs today and tomorrow. Take a cue from our state tax holiday spokesmodel and get a nice outfit to wear to South Carolina later this year for their annual sales tax holiday on guns.

Harry Reid needs to prove he isn’t stealing identities to claim fraudulent refunds.   TIGTA: IRS to Issue $21 Billion in Fraudulent Tax Refunds From Identity Theft Over Next Five Years  (TaxProf).   From the TIGTA report:

Our analysis of tax returns using characteristics of identity theft confirmed by the IRS identified approximately 1.5 million undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates the IRS could issue $21 billion in potentially fraudulent tax refunds resulting from identity theft over the next five years.

$5.2 billion in one year.  To put that in perspective of other (ridiculous and shameful) tax evasion assertions, the IRS is giving to thieves a fortune equal to about 21 times Mitt Romney’s net worth every year.  So just maybe passive losses for Rafalca aren’t the biggest tax issue this season.

The Wall Street Journal has more.

Howard Gleckman, Why Romney’s Tax Agenda Doesn’t Add Up, Even if it Isn’t a Middle-Class Tax Hike. Not that the system we have exactly adds up either. (TaxVox)

That’s one way to park your money offshore.  The London Daily Mail Online reports:

The billionaire L’Oreal heiress has sold a Seychelles island for £39 million in the middle of a tax evasion case, the island’s government have said.

Liliane Bettencourt, France’s richest woman sold the tiny island in the Indian Ocean to offshore company Save Our Seas Foundation (SOSF), a Swiss-based campaign group, for £27.7 million more than she bought it for in 1997.

French authorities have also ordered her to pay £85.8 million in unpaid taxes after her island ownership came to light along with a number of undeclared accounts.

That’s one asset that they won’t find  by subpoenaing your Swiss bank.

Is the IRS handing out an illegal tax credit under Obamacare?   (Michael Cannon,

Priorities, people.  Going For Tax-Exempt Gold: Bill Introduced to Eliminate Tax on Olympic Medals  (TaxGrrrl). That will make all of the people forced to pay huge penalties for inadvertent offshore paperwork violations feel a lot better.

Tax Policy Blog: The Two Hardest (But Most Important) Sales Tax Reforms.  No, they don’t involve Amazon.

In November, Michigan voters will decide whether future tax increases will require a two thirds vote of the legislature. It will pass. The people of Michigan are increasingly weary of taxes and the inefficiencies of government.

We should try that here in Iowa, except we’re too busy trying to buy prosperity with tax credits.

News you can use.  Better Move Quick If Your Cataracts Are Acting Up: Tax Court Strikes Blow to Medicinal Marijuana Industry (Anthony Nitti).  Russ Fox has more.


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Tax Roundup, 8/2/2012: You pay for everything. If you pay less, where’s my benefit? Plus beating the sales tax holiday to death, but missing the film credit story again.

Thursday, August 2nd, 2012 by Joe Kristan

TPC: Romney Plan Would Cut Taxes for Rich, Raise Taxes on Middle Class and Poor.  (Tax Prof).  Some news, folks: if spending doesn’t come down drastically, taxes are going up for the middle class and the poor anyway.  If you raised the rates on “the rich” to 100%, it still wouldn’t cover what the government is spending now.

How Did the Tax Code Get So Progressive? (William McBride, Tax Policy Blog) talks about the TPC study:

The main thing missing here is the context of our current federal income tax code.  Imagine a society with 5 people, where the two richest people pay all the taxes, the middle person pays nothing, and the two poorest people actually have a negative tax rate, meaning the rich are paying them through the tax code.  Then any cut in the tax rate will disproportionately benefit the rich guys.  This is the federal income tax code, in a nutshell.  According to the CBO, the top 20 percent of households pays 94 percent of federal income taxes.  The bottom 40 percent actually have a negative income tax rate, and the middle quintile pays close to zero. 

An illustration:


If “the rich”  pay all the taxes, then of course tax cuts will disproportionally benefit them.

We’ve cut government spending to the bone!  The bone just seems to keep getting bigger (Donald Marron, TaxVox)

 If you look at the two lines on the chart, you can see that spending on “goods and services” isn’t going up much.  That means they’re just taking a lot more of your money to give to their friends.

Still no media coverage of the last film tax credit trial.  Seeing that the Des Moines Register just jacked up home delivery for my usually-unread papers to $25 per month, it would be nice if they actually covered something.  Well, there’s this: Celeb tweets to Gabby Douglas.  Of course, they all missed the real story when the film tax credit was enacted, so at least they’re consistent.

Missouri Taxpayers paying taxes to cover the K.C. Royals payroll taxes.  (, via Going Concern)

In case you haven’t heard, Iowans, the Annual sales tax holiday is Friday and Saturday (Dar Danielson, Radio Iowa). It applies for clothes and shoes. Jason Dinesen reminds us about Back to School Supplies and the Iowa Tuition and Textbook Credit.

Big charitable contribution, no deduction?   My new post at covers traps in appreciated property charitable contributions.

Phil Hodgen is back from a scouting trip to Quetico Provincial Park, the Canadian side of the Boundary Waters wilderness, with Basis step-up on assets inherited from nonresident

Sort-of related: more pictures from my recent Boundary Waters scout trip.

Peter Reilly, IRA Rollovers – Let’s Be Careful Out There

Patrick Temple-West, Essential reading: Payroll tax cut on track to quietly expire (Tax Break)

Trish McIntire, Drought, Farms and Taxes.

TaxGrrrl, Marriage Or Divorce Can Be A Name Changer

Kay Bell, Tax moves to make in August 2012

The New Jersey Tax Guy is fleeing to Pennsylvania.  Good luck with the move, Robert!

Asking the tough questions: Why Am I Paying for a Prancing Horse? (Christopher Bergin, and  Should Our Olympic Heroes Pay Tax on Their Winnings? (Anthony Nitti)


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

Tuesday, July 24th, 2012 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Tax Roundup, 7/6/2012: Conserving public funds; worse things than lost deductions; undermining Obamacare

Friday, July 6th, 2012 by Joe Kristan

Taking care of public funds.  An Oregon woman was arrested yesterday for claiming (and receiving) a $2 million tax refund that she didn’t deserve.  While this is a serious crime, if the charges are true, it’s possible that the defendant may not be the worst steward of public funds out there:

TurboTax (I think it was probably Oregon – ed) issued a Visa debit card to Reyes with $2.1 million on it, and she spent more than $150,000 before her arrest, the statement says. Items she bought included a 1999 Dodge Caravan for $2,000 and $800 worth of tires and wheels for it.

A 1999 Caravan, and new tires?  Would a state agency ever be that thrifty?

Incomplete: House sales not enough; Kenny Stabler owes $265,000 to IRS (, Via Woodrow E. McNair)

The Real-World Middle Class Tax Rate: 75%”  (Charles Hugh Smith).  Some of this makes sense, but calling medical costs a “tax” loses me.  (Via Instapundit.)

Obamacare: Seven New Taxes on Citizens Earning Less than $250,000 (Robert Allen Bonelli,, via Instapundit)

Obamacare’s New Taxes, And How You May Be Affected (Philip Dittmer, William McBride, Tax Policy Blog):

A week ago today, the Supreme Court ruled that Obamacare’s individual mandate is a legitimate use of Congress’ power to tax (see our response here). In the wake of the ruling, the House Committee on Ways and Means produced this useful chart (reproduced below), which outlines this and 20 other taxes comprised in the law. Collectively, these new revenue measures are expected to increase taxes/penalties by at least $800 billion over the next 10 years, according to the Joint Committee on Taxation (JCT). 

Follow the link to see the chart.

Will Enough People Enroll in Obamacare?  (Howard Gleckman, TaxVox).  If they don’t, Mr. Gleckman has a goat in mind:

I also suspect that some tea party-types may organize protests against the ACA—encouraging people to refuse to buy insurance or pay the tax. And imagine commercial products aimed at the same goal: “Learn the Secret of  Beating the Obamacare Tax. Send $29.95 now.”

Would such a movement drive enough people to reject insurance so prices for the rest of us would rise significantly? Probably not, but it is hard to know.

If they fail to enroll, it’s not because of the influence of the sinister Tea Partiers, any more than it is the fault of the Masons or the Illuminati.  They will fail to enroll for the same reasons that millions of people go without health insurance now — cost, hassle,  lack of perceived need, etc.  On top of that, the Obamacare rule against pre-existing condition policy restrictions will make it easier to go without insurance.  That way you can just wait until you are sick to go to the insurance company.  People don’t need the Tea Party to tell them that.  Then again, maybe this is Howard Gleckman’s coming out as a Tea Partier himself: “Bottom line: Notwithstanding the nutty Internet rumors that the IRS is hiring 20,000 revenue agents to collect the tax, most people who really want to game the system will probably get away with it.”

TaxProf: IRS Goes on ‘Hiring Frenzy’ After Supreme Court Ruling Upholding Affordable Care Act

Kay Bell: 12 midyear tax moves for 2012

Anthony Nitti, Tax Court: Third Party Loan to S Corporation Does Not Give Shareholder Debt Basis

Yes, it can. Worker Classification Issue Can Be Worse Than Disallowed Deductions (Peter Reilly)

News you can use: Canada Has Some Very Nice Farmland (Paul Neiffer)



Tax Roundup, 7/3/2012: A solution to ID-theft refund fraud? Plus lots of Obamacare, and Zombies!

Tuesday, July 3rd, 2012 by Joe Kristan

And yet our leaders don’t lift a finger to stop it. Olson: Death master file data encourages tax fraud (

In making public the death master file, the Social Security Administration is actually facilitating tax-related identity theft, said Nina Olson, taxpayer advocate for the Internal Revenue Service. Olson testified June 28 before the House Judiciary subcommittee on crime, terrorism and homeland security.

There are some legal questions as to whether or not SSA can restrict access to the DMF, which includes recently-deceased individuals’ full names, social security numbers, dates of birth, dates of death, and the states and zip codes of the last address on record, said Olson.  

“For that reason, I strongly support legislation to restrict public access to the DMF. However, I believe the SSA has at least a reasonable basis for seeking to limit public access to the DMF and if legislation is not enacted, I encourage SSA to act on its own,” she said.

This has been common knowledge among practitioners for years.  Many parents have had the heartbreak of child death compounded by identity theives filing refunds for their dead kid off the master file, leading to long paperwork duels with the IRS.  Yet IRS Commissioner Shulman has been too busy creating a government-controlled class of tax preparers to care.

So maybe citizens are taking matters into their own hands?  “Signs of tax refund fraud found in home of man targeted in shooting” (Tampa Bay Times)  More from

Taxpayer Advocate Service Warns Congress About Late Tax Changes (Tax Policy Blog):

With wholesale changes to American tax law scheduled for January, many tax analysts are rightly concerned about the serious complications that will arise, both for individuals and the IRS. Tax Analysts published an article (subscription required) on June 28th covering a report by the Taxpayer Advocate Service, which argued that Congress’s “continual enactment” of tax law in late 2011 delayed millions of tax returns, a disturbing trend that threatens to add a significant compliance burden to the public at large. 

Just one more reason to require congresscritters to prepare their own returns in a live, archived webcast with a rolling comment bar to enable us to provide running commentary and, um, encouragement.  Update, 7/11/12: full article available here.

What the tax changes in Obamacare mean for entrepreneurs in 2013.  My latest post at, the Des Moines Business Record blog for entrepreneurs.

TaxGrrrl: Professionals Offer Thoughts, Perspective on Supreme Court Health Care Ruling

State 29: Obamacare Screws Families Who Use Health Flex Spending Accounts In 2013

Anthony Nitti: The Clock Is Ticking on the Investment Income Surtax. What Should You Do?

William Perez, Tax Impacts of the Supreme Court’s Health Care Decision

Martin Sullivan: The Economic Case for Unlocking Foreign Profits (

Peter Reilly, prepared for anything: Zombies And The Estate Tax – Law Professor Questions How Dead Are The Undead ?

Today in History: Union troops at Gettysburg broke Pickett’s Charge 149 years ago today, marking the “high water mark” of Vampire power in the U.S.

Because boredom isn’t frightening?  Yes Auditors, It Is Possible to Explain Your Job Without Scaring People Away (Going Concern)


Tax Roundup, 6/29/2012: Supreme Court Frenzy edition

Friday, June 29th, 2012 by Joe Kristan

 Janet Novack: How Health Insurance Individual Mandate Quacks Like A Tax:

Roberts concludes the mandate functions more like a tax than the “penalty” for not buying insurance the Patient Protection and Affordable Care Act labels it as, because in most cases “the amount due will be far less than the price of insurance,’’ and the IRS is “not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution,’’ to enforce it.

Because the penalty is so low as to be ineffective, it invites actuarial disaster.  Because insurers can’t reject you for a pre-exisiting condition, it will be cheaper to wait until you are sick to get “insurance.”

Peter Reilly: Julian Block On The Tax In The Health Care Act That Everybody Knew Was A Tax. He notes an anomoly in the wage and “unearned income” surtaxes:

Whether by design or inadvertence, Congress created rules that require a person to pay more Medicare surtaxes solely because he or she is married. Congress allows two cohabitating singles to each have up to $200,000 in wages without exceeding the threshold for the 0.9 percent tax. Congress penalizes them if they marry. Wages above $250,000 exposes them to the 0.9 percent tax. Similarly, two cohabitating singles each can have MAGI of as much as $200,000 without exceeding the threshold for the 3.8 percent tax. If they marry, MAGI above $250,000 exposes them to the 3.8 percent tax. Their reward for a walk down the aisle is that they could become liable for both surtaxes.

The question answers itself.   “So here’s my issue. What if our politicians are giving us a health care system that is as screwed up as our tax system? I’m just asking.”  (Christopher Bergin).

Unintended Consequences: Hank Stern explains the Obamacare “50th Employee problem” at Insureblog:

Here’s the problem: if you currently employ 49 people, you’re not going to be hiring that 50th guy, because that would cancel your exemption. Which means your current workforce is either going to have to work harder (to make up for that missing 50th employee), or you’re going to need to scale back even further.

The Eve of Destruction “The Supreme Court once acknowledged that the ‘power to tax is the power to destroy.’ Let the destruction begin!” (David Windish)

Howard Gleckman at TaxVox, The Supreme Court Says the Health Care Mandate is a Constitutional Tax:

But the Court rejected the White House’s main legal argument—that Congress has the authority under the Commerce Clause to require people to get insurance. It will be interesting to see how legal scholars read this in the coming weeks: Is the Court saying that tax policy is the only tool Congress has to enact certain social welfare programs? If so, it would put an already-stressed tax code under even greater pressure.  

I get an Instapundit mention No link, alas… (update: linked now, thanks Instapundit!)

And a floor wax and a dessert topping!  The Individual Insurance Mandate is Constitutional Because it is Both a Penalty and a Tax. Wait…What?  (Anthony Nitti)

Martin Sullivan: The Great Anti-Climax: Using Tax Law to Deliver Economic Incentive is Constitutional

Kay Bell: Tax component saves health care act

Paul Neiffer: ObamaCare Survives The Supreme Court!  “For  now, the most immediate effect facing farmers is the imposition of the Medicare Surtax on earned income and unearned income starting January 1, 2013.”

TaxGrrrl: When Is A Penalty A Tax? Sorting Through The SCOTUS Health Care Decision.

Tax Policy Blog has a Roundup of Reactions to Supreme Court Health Care Ruling

If you want to read about something besides yesterday’s Supreme Court decision:

Hiring the Right Accountants For Your Business (Missouri Tax Guy)

Russ Fox:  eFile an FBAR? Use Internet Explorer, Not Firefox or Chrome.  Remember, it’s due tomorrow.


Obamacare: it’s a tax!

Thursday, June 28th, 2012 by Joe Kristan

Flickr image of “The Ultimate Swiss Army Knife” by redjar

The Supreme Court surprised just about everybody today by holding that the Affordable Care Act was not a permitted exercise of C ongressional Commerce Clause power, but it was still valid as a tax.  That means the Act remains in place unless the other two branches pass a repeal.  As a practical matter, then, nothing changes.  All of the new taxes and penalties — oops, it’s all taxes now — will take effect as scheduled. 

The most important of these from a tax planning point of view may be the Act’s 3.8% tax on “unearned” income. This tax will apply to interest, dividends, rents and capital gains starting in 2013 for taxpayers with AGI over $250,000.  It also applies to “passive” income from pass-through trades or businesses.  Examples will include inactive family owners in a family business.  The law applies the “passive loss” rules in determining whether the 3.8% tax applies.  This will incentivize owners of profitable businesses to claim they are “materially participating” in the business.  Up to now, such taxpayers often didn’t have to take a stand on whether they were passive, as long as the business was profitable.   Look for a lot of family members with big K-1s to start pulling down W-2 income where they never had done so, to  bolster their case for being non-passive.

There is also a .9% additional surtax on salary income and self-employment income when wages exceed $250,000 on a joint return ($200,000 single).  This will increase the attraction of using S corporations and keeping the salary below these thresholds, sending out the rest of the income on the K-1 free from these penalties.

If the bill isn’t repealed, the penalty tax on individuals who fail to buy health insurance will take effect in 2014.  For the first year it applies at the greater of a laughably small $95 per year in 2014, or, if greater, 1% of “household income” — the aggregate incomes of all members of the household required to file tax returns.  That will rise to $695 per year by 2016 or 2.5% of household income, if greater, by 2016.  Strangely, the IRS can’t collect this tax without the taxpayer’s help.  If the taxpayer doesn’t fork it over voluntarily, or have a refund against which to apply it, the IRS can’t use its collection tools — levies, seizures and so on —  to collect it.  That means a lot of people will make sure to fiddle their W-4s  so they never have an overpayment on their 1040s.

 Maybe the most depressing aspect of the decision is the way it seems to endorse using the tax law as the Swiss Army Knife of public policy.  Things that Congress can’t enact any other way are now possible if they can somehow be crammed into the tax law.  The tax code is already groaning under its load of responsibilities for industrial policy, health policy, welfare policy and housing policy, for starters.  The IRS Commissioner is now sort of a super cabinet member with a portfolio that dwarfs most of the “real” cabinet departments.  Of course, the IRS is ill-suited to this role, resulting in poor policy administration and poor tax administration.  Thanks, Justice Roberts!


Tax Policy Blog: Supreme Court Problematically Defines Individual Mandate as “Tax” and Roundup of Reactions to Supreme Court Health Care Ruling

Althouse: Chief Justice Roberts writes an opinion limiting the commerce power and the spending power.

Philip Klein: The Supreme Court’s Obamacare ruling — abridged


Tax Roundup, June 28, 2012: Obamacare Judgement Day and other masterminded schemes

Thursday, June 28th, 2012 by Joe Kristan

Flickr image courtesy Evil Erin under Creative Commons license.

Haven’t filed your FBAR Form TD F 90.22-1 for foreign financial accounts?  File it now!  It’s due June 30.

Today is Judgement Day for the Supreme Court decision on the Affordable Care Act, AKA Obamacare.  Key tax-related provisions on the line:

– A .9% surtax on single taxpayer wages over $200,000 and joint wages over $250,000, effective in 2013.

– A 3.8 % surtax on “unearned” income – interest, dividends, capital gains and “passive” income from pass-through business activities, when AGI exceeds $200,000 for single filers and $250,000 for joint filers, effective in 2013.

– A $2,500 limit in flexible spending account contributions, effective in 2013

– Increase in the AGI floor for medical deductions starting in 2013 from 7.5% of AGI to 10%.  The increase will be deferred through 2016 for taxpayers over age 65.

– The IRS-enforced penalties for failure to buy health insurance, effective in 2014.

Of course, the 10% tax on tanning booths has been in effect for some time.  We will post on the decision later today.

Why are capital gains taxed at a lower rate? The Tax Policy Blog has a post appropriately-titled “Why Capital Gains are taxed at a Lower Rate.”

First, the tax is not adjusted for inflation, so any appreciation of assets is taxed at the nominal instead of the real value. This means investors must pay tax not only on the real return but also on the inflation created by the Federal Reserve.

Second, the capital gains tax is merely part of a long line of federal taxation of the same dollar of income.  Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains.  This puts corporations at a disadvantage relative to pass through business entities, whose owners pay personal income tax on distributed profits, instead of taxes on corporate income, capital gains, and dividends.  One way corporations mitigate this excessive taxation is through debt rather than equity financing, since interest is deductible.  This creates perverse incentives to over leverage, contributing to the boom and bust cycle.

Finally, a capital gains tax, like nearly all of the federal tax code, is a tax on future consumption.  Future personal consumption, in the form of savings, is taxed, while present consumption is not. By favoring present over future consumption, savings are discouraged, which decreases future available capital and lowers long term growth.

The capital gain rate is the biggest reason why the highest-income taxpayers have a lower effective rate.  The reason their income is high is usually becuase they have a once-in-a-lifetime windfall from the sale of a business or asset.  It is the biggest reason used for the push for the inane “Buffett rule.”  As the Tax Policy Blog post points out, though, the U.S. already has one of the highest effective tax rates on capital gains amoung the major economies, behind only Italy, Denmark and France.

Tax Court Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (TaxProf)  The Tax Court once again held that allowing a fire department to burn down a home is not the same thing as giving a home to the fire department.  The right to burn a building is a very different thing than full ownership of the building.  The decision should be no surprise, as we discussed back in February.  More from Anthony Nitti.

Why you should use the EFTPS program to monitor your payroll tax deposits online, even if you outsource your payroll function: Operator of Payroll Companies Charged in North Carolina with Federal Fraud and Money Laundering Crimes.  If your payroll service steals money  you set aside for payroll taxes, the IRS still wants you to pay up. 
Jason Dinesen, Planning for Alternative Minimum Tax in 2012.  If Congress doesn’t re-enact the “AMT Patch,” you might have an $8000 or so tax increase due in April.
Watching the watchdogs:  Tax Court Finds IRS Compliance Officer Liable for Civil Fraud Penalty (Jack Townsend).  She claimed deductions that the court decided were bogus.
Is it right to call somebody who organizes a really stupid crime a “mastermind?” From

A California man pleaded guilty Tuesday to a tax fraud scheme that federal prosecutors allege was masterminded by a Kansas City man.

The plea of John V. Perdido of Temecula, Calif., is the second among 14 defendants in the alleged conspiracy to receive nearly $100 million in fraudulent refunds from the Internal Revenue Service. Perdido received a refund of $805,749 and spent more than half of it on property and a car in the Philippines among other things.

The alleged conspirators filed for big federal refunds based on the idea that we all have huge amounts of cash on deposit with the federal government in our names, which we can tap if we file the right tax forms. Another Professor Moriarty, that mastermind.



Tax Roundup, 6/19/2012

Tuesday, June 19th, 2012 by Joe Kristan

20071101-5.jpgIowa cracks down on marshmallow scofflaws.  Radio Iowa reports:

Victoria Daniels, at the Iowa Department of Revenue, briefed a state legislative committee. “It’s very important that the department maintains its compliance pretty much to the letter and what this rule has to do with is the definition of candy,” Daniels says.

Under the revised guidelines, candy-coated fruit, candy-coated popcorn and marshmallows will now be called candy and taxed accordingly. One lawmaker asked about a snack he was munching on.

“That’s candy,” she says, laughing. “Chocolate-covered peanuts, that’s candy.” States can choose whether to tax groceries. Iowa does not. Retailers will also be advised that energy bars may need to be taxed if they don’t contain flour.

The distinction between candy with flour and candy without is a critical part of Iowa tax law, without which the whole edifice would collapse.  If Milky Way (with flour) and Milky Way Midnight (flour-free) were taxed the same, next it will be dogs and cats living together.

But government spending has been cut to the bone!  Tax Policy Blog releases an eye-opening map of the real increases in state spending from 2000 to 2010, inflation-adjusted, per capital.  Shockingly, Alaska’s real increase in state spending over that period was 17%.  More shocking:  That was the smallest increase in real spending by any state.  Iowa was #31, at a 34% increase in real state spending.  Oklahoma lapped the field with a real spending increase of 74%.

Map via Tax Policy Blog

Robert D. Flach interviews Enrolled Agent Trish McIntire.  Robert is also interviewing a lawyer and a CPA as he tours the universe of tax preparation. Trish has this useful observation:

There is no real hierarchy in the designations for a taxpayer when it comes to tax preparation. The ability and interest to do a type of return depends on the preparer and their practice. 

Robert will represent “unenrolled” preparers himself.

Trish talks about the Office in Home Deduction at her own blog.

Janet Novack: Target Date Funds And Do-It-Yourselfers Both Beat Brokers’ Advice In 401(k)

Kay Bell: Do you know how much you pay in federal, state and local taxes?


But it already is!Professor Todd Henderson supports the Buffett Rule but says it should be voluntary” (Peter Pappas). Nothing is stopping Warren from writing a big check to the Bureau of the Public Debt right now.


Tax Roundup, 5/31/2012: marketing your worries away; playing favorites in Kansas, and exciting new Section 83 regulations!

Thursday, May 31st, 2012 by Joe Kristan

Flickr image courtesy jnn1776 under Creative Commons license

The TaxProf notes a hilarious academic effort from Richard Lavoie, Akron University,  Patriotism and Taxation: The Tax Compliance Implications of the Tea Party Movement:

Given the rise of the tea party movement, which draws strength from the historical linkage between patriotism and tax protests in the United States, the role of patriotism as a general tax compliance factor is examined in light of the extant empirical evidence. The existing research suggests that patriotism may be a weaker tax compliance factor in the United States than it is elsewhere. In light of this possibility, the tea party movement has the potential to weaken this compliance factor even more. Further, when considered in light of the broader tax morale factors that contribute to tax compliance, the tea party movement also poses a risk of destabilizing the social contract framework that underlies our established taxpaying ethos. In order to strengthen the impact of patriotism on tax compliance and lessen any adverse impact of the tea party movement on the country’s taxpaying ethos, the government should take steps to disentangle American patriotism from its anti-tax roots. Important first steps in this regard are outlined in this Article, including the creation of a voluntary “Patriotic Remittance Tax.” Making such changes will strengthen the bond between taxpayers and the government and help promote a vision of American patriotism that is positively associated with taxation rather than antithetical to it.

That’s just wonderful.  If you think that spending the country into bankruptcy is a bad thing and you organize against it, it “poses a risk of destabilizing the social contract framework that underlies our established taxpaying ethos.”  So you just do some marketing.  A voluntary Patriotic Remittance Tax!   Strengthening the bonds between taxpayers and government!  That should be all it takes to convince the rubes that spending their grandchildren into penury is a terrific idea.

You want to know what really bonds the taxpayer and the government?  The IRS.  The federal prison system is full  of people who are truly bonded to the government like with Superglue, including that supervised release when they get out.


Tampa car dealer faces 32 tax counts related to identity theft:

A car dealer accused of nearly $9 million in tax refund fraud whose freedom vexed Tampa’s police chief for months was arrested Monday on 32 federal criminal charges

Authorities say Russell B. Simmons Jr., 42, owner of Simmons Auto Sales on North 34th Street, used the proceeds of tax fraud to buy a $60,000 Bentley coupe and a lot of diamond jewelry, including a $30,000, 18-karat gold Rolex perpetual date watch with a diamond dial; a 14-karat gold men’s bracelet with 2,420 diamonds; a 14-karat chain and “RS” pendant with 703 diamonds; and a 14-karat ring with 110 diamonds.

But rest assured, Commissioner Shulman will be right on this, as soon as he finishes shooting the offshore jaywalkers and administering the open-book competency tests to preparers.

Another Swiss bank customer pleads guilty: Plea for Defendant Charged with Tax Crimes (including FBAR) (Jack Townsend)

TaxGrrrl: Small Business Owners Weigh In On Tax Cuts, the Buffett Rule and the Election

TaxBreak, Tax Foundation: Kansas tax cut plays favorites

Anthony Nitti, Examining the Proposed Section 83 Regulations

Stacie Kitts, Foreign Filing Requirements – Forms 8938 and TD F 90-22.1 Handy Chart

News you can use: Get tax help covering combined business, pleasure travel (Kay Bell)

Peter Reilly, Couple Denied Homebuyer’s Credit – You Are Not Your S Corporation And Your S Corporation Is Not You.  It’s talks about the case I covered here.

Yes! Dewey Think an Accounting Firm Could Go Bankrupt? (Going Concern)

Yes again! Are New Yorkers Fleeing Higher Taxes? (Tax Policy Blog)


Tax Roundup, 5/23/2012: Investigate the IRS? Who pays corporate taxes? And fighting over $71 in Tax Court.

Wednesday, May 23rd, 2012 by Joe Kristan


Fortunately, it’s their offices, not yours.  IRS Announces 43 Small Offices to Close.  Trish McIntire has more.

To irrelevance and oblivion? We can only hope. IRS going the Postal Service route (Kay Bell)

Why I don’t like state tax administrators: Thanks for Visiting Washington State – That’ll Be $180,000 (Tax Policy Blog)

Robert D. Flach has the Wednesday Buzz.

It’s Time to Investigate the IRS (Fox news, via the TaxProf).  Yes it is.  There are too many wannabe politicians in the exempt organization branch, at least.

82% on capital, 18% on labor.  The Treasury Office of Tax Analysis says that’s how the burden of the corporate tax falls. (via the TaxProf)

Well, for that kind of money, it was worth litigating anyway.  Tax Court denies $71 in costs to prevailing taxpayer.

Remember, this is the outfit the IRS has hired to administer preparer “compentency” exams. CPA Exam Horror Stories: Trapped at Prometric For 6 Hours (Going Concern).

Jason Dinesen, The MC Tax Hangout, 5/22/12  I stopped by for awhile, once I figured out how to turn on my microphone.

Peter Reilly, Something To Watch Out For If You Have Investment Interest Expense – Possible Refund Opportunity

TaxGrrrl, Ask the taxgirl: Medical Expenses and Income Adjustments

Russ Fox, An Incorrect 1099-C Leads to Tax Court

News you can use: Slow Down on Those Cool Ranch Doritos, A Fat Tax May Be Coming. (Anthony Nitti) Actually, that would seem like a signal to hurry up on the Doritos, to beat the tax.

That would be convenient. A minister scheduled to go on trial on tax charges in June predicts the Second Coming for May 27.


Tax Roundup, 5/22/2012: here comes Taxmageddon! Social Security is very broke. And have a nice day.

Tuesday, May 22nd, 2012 by Joe Kristan

Martin Sullivan gives us something to look forward to:

A combination of spending cuts and tax increases could bring the economy to its knees at the end of 2012. By our count, the economy must deal with nine significant fiscal events that will be automatically triggered by current law if Congress and the president take no action. Together these events create a perfect storm of contractionary tax and spending policies that could push the already fragile American economy back into recession. Fed Chair Ben Bernanke dubbed it a “fiscal cliff.” The media calls it Taxmageddon.

What are the odds of our leaders coming up with a wise and prudent solution?  As a wise man might say, have a nice day.

Tax Policy Blog has a thought for David Cay Johnston: Hiding it Does Not Help: Social Security is Already Broke.  My thoughts here.

Alan Reynolds: Why Top Incomes Rose: Elasticity Not Corporate Executive Pay

IRS Announces a “more flexible” Offer-in-compromise” program.  Because a less flexible one would have been hard to achieve.

No Cert for You!  Supreme Court declines to hear appeal of disqualification of Waterloo dentist’s ESOP (Page 3 of link).  Background here.

When you get an IRS notice, think before you write a check.  Beware: Lots of Incorrect IRS Notices (Russ Fox)

 TaxGrrrl: Murder Suspect Allegedly Used Victim’s Identity to Commit Tax Fraud

Kay Bell: Making stock losses pay off at tax time

First death, then taxes: Tax Duties of an Executor (Jana Luttenegger, Davis Law Tax Blog)

Congratulations on your new partnership! Plan your breakup now. (Mike Colwell,

Shock! IRS Audits Cornell and Harvard, Finds Dangerously High Levels of Pretentiousness (Anthony Nitti)