Posts Tagged ‘TaxGrrrl’

Tax Roundup, 10/1/15: Carried interests are good for you. State tax incentives aren’t.

Thursday, October 1st, 2015 by Joe Kristan

Public domain image via WikipediaSympathy for the Devil. The devil is “carried interest” taxation of partnerships interests. Megan McArdle discusses this devilry in Sure, Debate Carried-Interest Taxes. Or Something That Matters.:

It’s fundraising gold for Democrats, and a perennial talking point for liberal columnists: hedge funders pay taxes on some of their income at the lower rate for capital gains, rather than the higher rates assessed on “ordinary income” (read: money you earn by working).

If you only know about it from politicians, you get the idea that the only beneficiaries of the carried interest are hedge fund managers who light their cigars with $100 bills. If you see it in tax practice, though, it looks different.

The “carried interest” is really a profits interest, or a preferential allocation of profits, to an employee or manager of a partnership. A private equity manager might get no current equity in an investment, but a portion of the profits. The same rule lets a partnership give an interest in future earnings to the business’s managers or employees. It’s a partnership version of stock options (options are allowed for partnerships, but the differences between partnership and corporation taxation makes options less attractive in partnerships).

Carried interest opponents find this “abusive” when the business does well and gets sold. The result is a portion of the gain on the sale of the business goes to the managers and employees with carried interests, who may have not put cash into the business. But it’s the same total amount of gain taxed. It’s just that some of it gets allocated from the investors to the managers. The investors are presumably fine with it because they have gain to share — that’s why they cut the managers and employees into the deal in the first place.

But isn’t this abusive because it treats “compensation” as capital gain rather than ordinary? Not really — the investors are forgoing the same ordinary deduction, so the net effect is the same. There’s no conceptual reason why a profits interest — which by definition has no value when granted — can’t generate capital gain. (Of course, I think taxing capital gains in the first place is the real abuse). And in many cases the carry includes an allocation of ordinary business income in tax years prior to the sale, so for that part of the deal, there’s not even a conceptual abuse.

Ms. McArdle is puzzled about the attention the issue gets:

The carried interest issue is thus a convenient way for Democrats making stump speeches to claim that they’re really going to do something about inequality and cronyism, and maybe fund some important new spending on hard-working American families. With the entrance of Jeb Bush and Donald Trump into the arena, it is also a way for Republicans to seem tough on rich special interests while simultaneously proposing tax plans that will help affluent Americans hold on to a lot more of their income and wealth.

As with most Washington Issues, my actual level of concern about carried-interest taxation hovers somewhere between “neighbor’s bathroom grout drama” and “Menudo reunion tour.” Nonetheless, I’m beginning to wish that Congress would get rid of it without demanding anything in return, just to force politicians to talk about something that actually matters.

I’m less willing to just go along. Any “reform” of carried interest will complicate an already byzantine partnership tax law. It will inevitably create traps that will cause tax pain for people just trying to run their business and put beans on the table. At worst, it can become a potential nightmare like the Section 409A rules, which were enacted to punish long-defunct Enron, but which now menace any employees who have a deferred comp deal with their employer.

And of course any carried interest “reform” won’t shut up those who want to jack up taxes on “the rich” for more than a moment before they find another hate totem.

Related, but not agreeing: Peter Reilly, President Obama Could End Special Tax Treatment For Two Twenty Guys



Don Boudreaux, a blogging economics professor, makes a good case against the Export-Import Bank that works just as well against state “economic development” subsidies and tax credits (my emphasis):

Second, subsidies doled out by governments weaken, not strengthen, their economies.  To see why, suppose that other governments conscript all 22-35 year olds within their borders and force these conscripts to work at subsistence wages for the industries located within those countries.  Further suppose that the results are beneficial for corporate shareholders in those countries: their companies export more and rake in higher profits than they would without such conscription.  Should Uncle Sam therefore follow suit? 

Economically, the only difference between export subsidies as they exist today in reality and the above hypothetical is that real-world export subsidies are less extreme than is conscription.  Yet no essential economic difference separates real-world subsidies from such hypothetical conscription: each is a government policy of forcibly seizing resources from some people in order to bloat the purses and wallets of other people.

Substitute “economic development tax credits” for “subsidies” and “other states” for “other countries,” and you have the case against the tax credits paid for by Iowa taxpayers to lure and subsidize their competitors.


David Brunori, A Word of Advice for Legislators of All Stripes (Tax Analysts Blog). You should read the whole thing, but I especially like this: “That politicians can impose economic policy through tax incentives is more akin to a Soviet five-year plan than to anything Adam Smith ever said.”



Russ Fox, TIGTA: “IRS Can’t Track International Correspondence.” IRS: “So What.” “It turns out that the IRS doesn’t know what happens to much of the mail the agency sends overseas.” And it doesn’t much care.

TaxGrrrl, Government Shutdown Avoided For Now: Funding Bill Only Temporary.

Kay Bell, Federal government funded for 10 more weeks




TaxProf, The IRS Scandal, Day 875. Today’s installment features Robert Wood on newly-revealed bonuses to IRS employees:

As you read about bonuses, you might recall other reports saying that 61% of IRS employees caught willfully violating the tax law aren’t fired, but may get promoted.

And people wonder why anyone might not want this organization regulating tax preparers.


News from the Profession. Accounting Had a Toxic Culture Before It Was Cool (Leona May, Going Concern). “As ‘The Great Email Chain of 2013’ demonstrates, the public accounting workaholic culture has spawned a whole bunch of work-obsessed, white-collar monsters.”

Well, our little firm isn’t so monstrous. If you feel abused and would like to live in Central Iowa, drop me a line. We might be able to improve things for you.




Tax Roundup, 9/30/15: Taking from rich doesn’t give to the poor; state incentives favor the big.

Wednesday, September 30th, 2015 by Joe Kristan

Today we have two instances where policy tanks that I usually disagree with make important tax policy points.

TPC logoFirst, The center-left Tax Policy Center, a project of the Brookings Institution (which I castigate below), makes an important observation about the overrated problem of income inequality in their paper, Would a significant increase in the top income tax rate substantially alter income inequality? The summary (my emphasis):

The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

I have zero hope that politicians will heed this. Just because you take from the rich doesn’t mean it goes to the poor. It goes to the well-connected, as in the next item.

Second, the not-so-center-left Good Jobs First takes the side of the angels in the battle against state tax incentives, with a survey of small businesses called In Search of a Level Playing Field:

A national survey of leaders of small business organizations reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. 

I think they have this exactly right. It’s not start-ups that get the big deals from the legislature and the Economic Development bureaucrats. It’s the well-connected and wealthy companies that know how to work the system. The rest of us get to pay for it.




Jason Dinesen, The Iowa School Tuition Organization Tax Credit. “Iowa offers dozens of obscure tax credits. The one I get asked about most is the tax credit available for donations to a ‘school tuition organization’ or STO.”

Kay Bell, Maryland issuing court-ordered county tax credit refunds. If you don’t want to repay illegal taxes, don’t collect illegal taxes.

Russ Fox, How to Wynne Your Money Back in Maryland

Paul Neiffer, IRS Provides List of Counties Eligible For Additional Extension on Livestock Replacement

Jim Maule, Taxation of Prizes, Question Two. He quotes a post from a sweepstakes message board:

 I won concert VIP tickets, there is no value on the tickets, so I can’t sell them. If no value is on them, why am I paying taxes on them? 

Mr. Maule explains that there is a value. If there isn’t, then why didn’t the winner give them away?





InsureBlog, Yes, The New York Obamacare Co-op [squandered*] $340 Million. *The actual headline uses a more colorful term.

Robert Wood, Hillary Backs Cadillac Tax Repeal


TaxProf, The IRS Scandal, Day 874. Today’s edition features IRS agents abusing their power on everyday taxpayers. But we can trust them to regulate their tax preparer adversaries, right?

Arnold Kling, Hypocrisy and Cowardice at Brookings. Arnold addresses the firing by the Brookings Institution of Robert Litan, a scholar accused by Senator Elizabeth Warren of “writing a research paper to benefit his corporate patrons.” He is appalled:

1. Robert Litan is one of the most decent individuals in the whole economics profession.

2. Giving Litan’s scalp (sorry for the pun) to Elizabeth Warren does nothing to bolster the integrity of Brookings. It amounts to speaking cowardice to power.

There’s more. The episode is appalling, and it shows the totalitarian tendencies that are barely beneath the surface of Senator Warren’s populism.




Alan Cole, Donald Trump’s Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances (Tax Policy Blog)

Jeremy Scott, Trump’s Tax Plan Is Pretty Much GOP Orthodoxy (Tax Analysts Blog)

Matt Gardner, How Donald Trump’s Carried Interest Tax Hike Masks a Massive Tax Cut for Wealthy Money Managers (Tax Justice Blog)

Peter Reilly, Trump Tax Plan Would Increase Deficit By Over $10 Trillion

Tony Nitti, Love Trump, Hate Romney, But Their Tax Plans Are One And The Same

Renu Zaretsky, Thirty days, goodbye September, shutdown talks—maybe in December. Today’s TaxVox headline roundup covers shutdown politics, plans to use reconciliation procedures to pass bills repealing pieces of Obamacare, and tax Trumpalism.


See you at Hoyt Sherman Place tonight!



Tax Roundup, 9/25/15: IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.

Friday, September 25th, 2015 by Joe Kristan

binIRS says not farming is just like farming, for self-employment tax purposes. Last year the Eighth Circuit Court of Appeals ruled that non-farmers are not subject to self-employment tax on conservation reserve program payments received for not planting land. The IRS yesterday announced (AOD 2015-02) that it disagrees with the decision. It said that it will follow the decision only within the Eighth Circuit, and even there only for pre-2008 payments.

The Eighth Circuit panel said that CRP payments are properly treated for non-farmers as rentals from real estate, which are not subject to SE tax. The IRS says it still disagrees, and it said that a 2008 law change “clarified” things (my emphasis):

In addition, the 2008 amendment to section 1402(a)(1) to treat CRP payments made to Social Security recipients as rentals from real estate effective for tax years beginning after December 31, 2007, served to clarify that other CRP payments are not excluded as rentals from real estate. Congress neither enacted a blanket exclusion with respect to CRP payments (or CRP payments made to non-farmers) nor evidenced any disagreement with the analysis of the Sixth Circuit in Wuebker. Although the statutory amendment does not apply to the years at issue in Morehouse, the implication is that prior to the amendment, CRP payments to farmers and non-farmers alike are not excludible from self-employment income as rentals from real estate. If these payments were already excluded as rental payments then the amendment would have been unnecessary. After the amendment, the implication is that CRP payments to farmers and non-farmers alike are not excludible from self-employment income unless made to Social Security recipients.

That conclusion may not go unchallenged. Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation had a different take after the Eighth Circuit decision came down:

For CRP rents paid after 2007, the question is whether the recipient is a materially participating farmer.

That means the IRS can be expected to reject refund claims for SE tax paid by those not receiving Social Security payments. From the AOD:

We recognize the precedential effect of the decision in Morehouse to cases appealable to the Eighth Circuit. Accordingly, we will follow Morehouse within the Eighth Circuit only with respect to cases in which the CRP payments at issue were both (1) paid to an individual who was not engaged in farming prior to or during the period of enrollment of his or her land in CRP and (2) paid prior to January 1, 2008 (i.e., the effective date of the 2008 amendment to section 1402(a)(1)). We will continue to litigate the IRS position in the Eighth Circuit in cases not having these specific facts. We will also continue to litigate the IRS position in all cases in other circuits.

This means the whole issue will assuredly end up back in the courts sooner or later. For now, though, we are on notice that the IRS considers current CRP payments to be subject to SE tax in all circuits.

Robert D. Flach has a fresh Friday Buzz roundup of tax bog posts, with items including the awfulness of the coming tax season, state tax fairness, and the savers tax credit.

TaxGrrrl, 7 Budget & Tax Related Reasons We May Be Headed Towards A Government Shutdown.

Kay Bell, Bartering is a great — and taxable — way to buy and sell. A lack of cash doesn’t mean a lack of tax.

Jim Maule, In What Year Should a Prize Be Reported as Gross Income?. “The question is simple. When a person wins a prize, in what year should the person report the income on the federal income tax return?”

Sheldon Kay, “Judging Litigating Hazards – Another View” (Procedurally Taxing). “He [Keith Fogg] also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.”

Annette Nellen, Challenges of base broadening


Alan Cole, Cadillac Tax Working as Planned on Auto Workers (Tax Policy Blog). ”

The situation above is not a mistake in the Affordable Care Act; rather, it is the Cadillac tax fulfilling both of its intended goals.

The first goal is to encourage substitution from employer health benefits back towards ordinary compensation, like wages and salaries…

The second goal of the Cadillac Tax is to raise revenue.

By delaying the painful parts, the bill fooled enough people long enough to get enacted. Now the rubes are catching on, but it’s too late.

Robert Wood, Bernie Sanders And Republicans Both Urge Cadillac Tax Repeal




TaxProf, The IRS Scandal, Day 869

Norton Francis, The Trouble with State Tax Triggers (TaxVox). “Here’s how a tax trigger works: A state cuts taxes over a period of years. There may be an initial tax cut that takes effect right away but future reductions are tied to some other benchmark, typically (but not always) achieving an overall revenue target.”

Sebastian Johnson, Maine Republicans Double Down on Tax Cut Fervor (Tax Justice Blog).


If only he had been regulated by the IRS. Oh, wait… IRS Agent Busted for Extorting Money From Marijuana Dispensary Owner (High Times, Via the TaxProf)



Tax Roundup, 9/24/15: Small partnership, big late-filing penalties. And: tax tips from the Duke and the Yogi.

Thursday, September 24th, 2015 by Joe Kristan

20150813-1Didn’t file that 1065? The penalties can add up, even for small partnerships. Congress decided a few years ago that late-filed partnership returns could be an IRS profit center. They imposed a penalty of $195 per partner for returns filed even one day late — a penalty repeated for each additional month the return is late. Needless to say, a ten-person partnership can rack up a big bill.

When Congress enacted that penalty, it left in place an escape hatch. Back in 1984, the IRS issued a ruling providing a standard exemption from the late filing penalty for “small partnerships.” Rev. Proc. 84-35 allows partnerships composed only of individuals with straight-up allocations of income and loss to be excused from the late filing penalty. But there’s a catch: the penalties are excused only:

…provided that the partnership, or any of the partners, establishes, if so requested by the Internal Revenue Service, that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.

A Federal Court in South Dakota this week ruled that this catch means a late-filing small partnership is at the mercy of its least responsible partner to avoid penalties. One late-filing partner can cause penalties for the whole partnership.

Battle Flat, LLC filed its 2007 and 2007 Form 1065s over six months late. It requested a penalty waiver based on Rev. Proc. 84-35. Unfortunately, none of the six partners filed a timely 1040 for 2007, and three of them also filed their 2008 returns late — four years late in one case. The IRS denied the penalty relief because the partnership was unable to demonstrate “that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.”

The partnership argued that the requirement for timely-filed partner returns isn’t a requirement that the statute allows. On brief, the partnership argues:

Congress did not impose or even mention an intent to require that each individual partner’s (sic) must timely file his or her individual return in order for the partnership to qualify for a “reasonable cause” forgiveness of a late filing penalty. But, the IRS has engrafted such a requirement in Revenue Procedure 84-35.

20140321-4The IRS disagrees, and so does the Federal Judge (citations and footnotes omitted, emphasis added):

The IRS’ position is persuasive. Although § 6698 does not expressly impose a timeliness requirement by which partners in a “small” partnership must file their personal income tax return in lieu of filing a partnership tax return, this is exactly the type of interpretative question left to the discretion of the IRS in implementing our nation’s tax laws. The IRS’ interpretation that partners in a “small” partnership timely file their personal income tax returns is reasonable and is a highly practical aid in its assessment of the tax consequences of a partnership for a given year and on a year-over-year basis. IRS’ interpretation is consistent with the legislative history of § 9968 in that it strains credulity to characterize a personal income tax return filed years after the reporting deadline as an adequate, full reporting of each partner’s share of the partnership’s income and deductions.

Conversely, Battle Flat’s interpretation that § 9968’s “reasonable cause” exception is satisfied so long as the partners in a “small” partnership file their personal income tax returns at some unspecified future date is unreasonable. The interpretation would result in a system where the tax consequences of a “small” partnership would go unassessed for years at a time. Furthermore, under Battle Flat’s interpretation, the IRS would be required to track the status of each partner’s personal income tax return until every partner’s tax return was received before it could accurately calculate the annual tax consequences of the partnership.

At least one commentator appears to argue that small partnerships are excused from annual 1065 filing requirements. That’s not how the judge ruled in this case. While this case may be appealed, partners should consider this a warning that the IRS and at least one federal judge aren’t on board with a blanket filing exemption for small partnerships. Considering how fast that $195 per partner, per month penalty can add up, filing timely 1065s for small partnerships seems like a prudent bet.

Cite: Battle Flat, LLC (USDC-SD, No. 5:13-5070-JLV)

Related: Roger McEowen, The Small Partnership Exception – A Possible Way to Avoid Failure to File Penalities, but Not Complexity


Liz Malm, Does Your State Levy a Capital Stock Tax? (Tax Policy Blog):


“In broad economic terms, capital stock taxes (referred to as franchise taxes in many states) are destructive because they disincentivize the accumulation of additional wealth, or capital, which distorts the size of firms.”



If you receive a balance due notice from the IRS or a state tax agency DO NOT AUTOMATICALLY PAY THE AMOUNT REQUESTED!

In my 40+ years of preparing tax returns I have found that more often than not (actually in my experience it is more like 75% of the time) a balance due notice from “Sam” or your state is wrong. And, again in my experience, notices from a state tax agency (at least when it comes to NJ and NY) are wrong more than ones from the IRS.

Robert speaks wisely. As scammers are getting more sophisticated — sometimes even mailing authentic-looking “IRS notices” — this advice becomes even more important.


Jason Dinesen, When Do I Have to Take My RMD? If you don’t start withdrawing from your retirement accounts on time, penalties can be ugly.

Tony Nitti, Tax Court: Drop In Property Value Does Not Create Deductible Loss. You usually have to sell out, as a real estate investor  learned the hard way this week in tax court.


TaxGrrrl, Profiting From Star Wars, Michael Jackson & Taylor Swift Memorabilia: There’s A Tax On That

Russ Fox, Are Turf Rebates Taxable?

Robert Wood, Why Churches Are The Gold Standard Of Tax-Exempt Organizations


Stephen Olsen, Summary Opinions for the Week Ending 8/21/15. It’s the Procedurally Taxing roundup of recent developments in the tax procedure world.

Kay Bell, How charitable are you and your neighbors? “Overall, ALEC’s analysis found that for every 1 percent increase in a state’s total tax burden, there is a 1.16 percent decrease in the state’s rate of charitable giving.”

Peter Reilly, Yogi Berra’s Sayings Worked Their Way Into Tax Decisions.



Renu Zaretsky, A lawmaker’s work is never done. Today’s TaxVox headline roundup ranges from Russian tax revenue problems to improper EITC credits, plus much more.

TaxProf, The IRS Scandal, Day 868


He was a quiet guy, but he seemed a little odd. Peculiar Man Indicted for Tax Evasion (Kansas City InfoZine). “Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Peculiar, Missouri, resident has been indicted by a federal grand jury for tax evasion.”



Tax Roundup, 9/21/15: If you step away from the Iowa business, Iowa rules say sell within five years.

Monday, September 21st, 2015 by Joe Kristan

20150811-1When you get out of the business, Iowa wants you to really get out.  Iowa has a tough tax environment for business, consistently ranking in the bottom 20% in the Tax Foundation’s Business Tax Climate Index. But there’s a pot of gold at the end of the road for entrepreneurs tough enough to stick it out for at least ten years.

The Iowa Capital Gain Deduction excludes from Iowa tax the capital gains on the sale of the assets of a business, or on real estate used in a business, if the business was held for at least ten years and the taxpayer “materially participated” in the business for ten years at the time of sale. And that’s the catch.

This rule tripped up a Johnson County, Iowa couple this month in the Iowa Court of Appeals. The couple ran a rooming house in Iowa city and ran it full-time from 1981 to 1994 — safely longer than ten years. In 1994 they contracted out the daily operation of the business. The couple continued to pay bills, approve major expenditures and renovations, and perform some maintenance activities. They sold out in 2005.

The “material participation” rules are the same as the federal “passive loss” rules under Section 469. Most of these rules are based on time spent in the business during the year. For example, if you spend 500 hours working in a non-rental business during a year, that means you materially participate.

Several material participation rules apply when a taxpayer retires from the business. One applies only to farmers: if you retire at the time you start collecting social security, and you have materially participated otherwise in at least five of the prior eight years, you are considered to materially participate for the rest of your life. Once you participate in a “personal service” business for three years, your material participation is set for life.

For all other businesses, you are considered to materially participate if you have met one of the hour-based requirements in five of the prior ten years. As a practical matter, that means a retiring entrepreneur who continues to own the business is still materially participating for five years after stepping down.

That’s where the taxpayers here failed the material participation tests. While they easily met the requirement to hold the property for ten years, they were not material participants at the time of the sale. The court held that they failed to prove material participation after 1994. That would mean they would have until 1999 to sell and still be material participants. After that, they failed the five-of-the-last-ten-years test.

The Moral: Taxpayers who step back from an Iowa business shouldn’t wait too long to sell if they want to avoid Iowa capital gains tax. If you meet the ten-year holding period and material participation requirement, you have five years to find a buyer.

Cite: Lance, Iowa Court of Appeals No. 14-1144 (9/10/2015).

Roger McEowen has an excellent discussion of this case for Tax Place subscribers. If you practice Iowa tax regularly, the $150 annual subscription is a great bargain.


Iowa Capital Gain Deduction: an illustration





Hank Stern of Insureblog discusses some Dubious 105 Tricks:

Here’s the concept in a nutshell (emphasis on “nut”):

My employer claims that signing up for this “105 Classic Plan” will allow me to make %30+ of my income tax free. The jist [sic] of it is that they will take $560 per (bi-weekly) pay period out of my check, somehow “make it tax free” and refund most of it back through some vague “loan” that I apparently don’t have to pay back.

This will reduce my income taxes pretty massively… but not only that, the company making my money untaxable claims it will pay 75% of all my out of pocket medical expenses up to $12,000.

It’s sort of an underpants gnome tax plan:

  1. Take money out.
  2. ?
  3. Tax free!

It of course doesn’t work. There is no Tax Fairy.


Russ Fox, A 0% Chance of Success Didn’t Deter Him! “Well, one fact that I’ve mentioned in the past is that IRS Criminal Investigations looks at all allegations of employment tax fraud. The reason is obvious: The IRS doesn’t like the idea of people stealing from them.”

Kay Bell, How do fantasy sports differ from gambling? As far as I can tell, gambling takes less time.

Robert D. Flach, REQUIRED NEW YORK STATE CONTINUING EDUCATION FOR TAX PREPARERS. “To be perfectly honest all of the four-hours of sessions were a total waste of my time.” Senators Hatch and Wyden want to spread the time-waste nationwide.

Peter Reilly, Presidential Race – Let’s Talk Religion Politics And The IRS.

Robert Wood, IRS Delays FATCA To Help Banks, But Offshore Account Disclosures Continue




TaxProf, The IRS Scandal, Day 863864865


TaxGrrrl, Coca-Cola Says IRS Wants $3.3 Billion In Additional Tax Following Audit

Caleb Newquist, Coca-Cola Can’t Beat the Feeling That Its Taxes Are Just Fine (Going Concern). “Coca-Cola Co. is learning that the IRS side of life includes a challenge to its transfer pricing method.”



Tax Roundup, 9/17/15: Senators say preparer reg provision killed ID-theft markup. And: Transporation industry per-diem rates issued.

Thursday, September 17th, 2015 by Joe Kristan

20150917-1And we’d have gotten away with it, if it hadn’t been for those meddling kids! Tax Notes comes through this morning with confirmation ($ link) that opposition to the preparer regulation provision caused the Senate Finance Committee leadership to postpone the markup of the ID-theft bill scheduled for yesterday.

“I think there’s probably a way in which that [bill] could get back on track,” said Senate Finance Committee member John Thune, R-S.D. The pending legislation’s proposal to grant Treasury and the IRS authority to regulate paid tax return preparers “was probably the principal concern” of some senators, Thune said.

“I think more of it, the whole issue, was whether or not to give the IRS more authority — more power, more people, more resources, all that,” Thune added.

20130121-2Apparently both Chairman Hatch and ranking minority member Wyden favor reviving the preparer regulation power grab, derailed by the courts in 2013. So does the head of the National Association of Enrolled Agents. A petulant Senate staffer blames the CPAs:

A Senate staff member, speaking on condition of anonymity, told Tax Analysts that the “AICPA once supported common-sense efforts to regulate unenrolled paid preparers — an important effort, given that unregulated tax preparers are largely responsible for a wide range of tax filing mistakes that occur at the expense of taxpayers.”

“But now,” the staffer continued, “it seems the group has now lobbied hard in opposition to the bill, ostensibly on the grounds that the bill should be changed to impose limitations on IRS’s authority to require preparers to obtain” preparer tax identification numbers.

I would argue that the AICPA is serving the interests of its members and the general public. I would  also say they are serving the EA’s interest better than their own organization. I think another IRS-approved preparer designation could be fatal to the already-struggling Enrolled Agent brand.

I also hate when people invoke “common sense” when pushing through a bad idea. It’s another way of saying “shut up, peasant.” Unless, of course, it’s “common sense” to give an IRS that is failing at its job while abusing its power more to do.




IRS issues special per-diem rates for the year starting 10/1/15 (Notice 2015-65). The rates include the special transportation industry per-diems the incdental expenses-only rate, and the rates and lists of “high-low” localities.

Andrew Mitchel, Is the IRS Missing Names From Its Quarterly Publication of Expatriates? “It is possible that the IRS is only including the names of individuals who have renounced their U.S. citizenship. Perhaps the IRS is not including the names of individuals who have relinquished and not including the names of former long-term green card holders.”

Robert Wood, IRS Hunts Belize Accounts, Issues John Doe Summons To Citibank, BofA. If you’re tax planning is based on offshore bank secrecy, you should rethink your plans.


Robert D. Flach has issued his 2015 YEAR END TAX PLANNING GUIDE. $3 for pdf, $4.50 in print.

TaxGrrrl, 2016 Tax Rates, Brackets & Exemption Amounts May Result In Lower Bills

Scott Schumacher, Getting to Yes, Sooner (Procedurally Taxing). “Whatever the [Tax] Court can do to encourage pro se petitioners to participate in a settlement conference as early as possible will benefit all parties involved.”

Kay Bell, Ways & Means considers more tax extenders, health care bills




TaxProf, The IRS Scandal, Day 861

Roberton Williams, Despite Promises, Jeb Bush’s Tax Plan Wouldn’t Eliminate Marriage Penalties (TaxVox).

How many auditors does the Pope have? Pope Francis Weighs In on Tax Policy (Scott Greenberg, Tax Policy Blog).

Now, Pope Francis has also made a foray into tax policy, calling for churches and religious orders that conduct regular business activities to pay taxes on their income…

However, in the United States, a church that operated a hotel would likely be subject to the Unrelated Business Income Tax, which applies to tax-exempt organizations that conduct business operations that are unrelated to their tax-exempt purpose. So, the Pope would likely be satisfied with current U.S. law, which requires church-operated businesses to pay taxes on their profits (with a few notable exceptions).

Blessed be the 990-T. 


Bob McIntyre, Congress Is Working to Revive Rules That Make Corporate Tax Avoidance Easier (Tax Justice Blog). That’s Tax Justice talk for “working on extender legislation.”

Career Corner. Do Millennial Accountants Golf? (Caleb Newquist, Going Concern).



Tax Roundup, 9/15/15: Today is a big due date. Also: more on preparer regulation, and Outlaw outlawry!

Tuesday, September 15th, 2015 by Joe Kristan

e-file logoExtended corporation, partnership and trust returns are due today! E-file is the best way to be sure to timely file. If you can’t, or won’t, e-file, Certified Mail, Return Receipt Requested, does the trick; save the postmark.

If you don’t get to the post office before they take their last smoke break for the day, you can go to the Fed-Ex or UPS store and use a designated private delivery service; be sure the shipping method you select is one of the “designated” ones at the link. Make sure the shipping bill shows that you dropped it off today, and make sure it is addressed to the proper IRS service center street address, as the private services can’t use the P.O. box service center addresses.

Third quarter estimated tax payments are also due today for calendar year filers.

Related: Paul Neiffer, September 15 is Worse Than April 15, “Most people who wait to file on September 15 or October 15 are, shall we say, not quite so efficient with their record keeping and thus, it is much tougher for us to get information and to get the tax return done.” Paul is absolutely right.


20130121-2Russ Fox, The NAEA Won’t Like This Post:

I’m a member of the National Association of Enrolled Agents. Generally, I’m supportive of their policies. However, I am not a fan of mandatory preparer regulation. Other than giving the IRS more money and getting rid of the lowest hanging of the bad preparers, preparer regulation won’t accomplish many positives for the general public.

The NAEA’s support of preparer regulation is baffling. The idea of the IRS certifying all preparers strikes me as a deadly threat to the Enrolled Agent brand.

Right now, EAs are the only professionals who have to pass an IRS administered test, one much more rigorous than the one in the abortive Registered Tax Return Preparer plan under the defunct preparer regulations. EAs also have much more serious continuing education rules.

For all this the EA designation is not nearly as well-known as the CPA designation, which isn’t even a tax-specific credential. The RTRP designation threatens to further obscure the EA brand.  Both EAs and RTRPs will be “IRS approved,” and given their failure to establish the EA brand so far, it’s likely to be impossible to get clients to appreciate the superior EA credential.


buzz20150804Buzz! With Robert D. Flach, a fresh tax blog roundup with Robert’s own inimitable style. Topics include this year’s slow-walk of the extenders legislation and the Senate push to regulate preparers.


TaxGrrrl, Congress May Give IRS Authority To Regulate Tax Preparers:

It’s my feeling that the bad guys are the bad guys: forcing you to take ethics courses doesn’t change that. Incompetent and lazy preparers are incompetent and lazy: forcing someone to sit through continuing education courses (likely while text messaging, trust me, I’ve been a speaker at these things) doesn’t make that person smarter or more conscientious. 

It’s another “bootleggers and Baptists” play. Prohibition was supported by do-gooders who naively thought they were making the world a better place, and by bootleggers, who profited from prohibition. Here the Baptist elder is Taxpayer Advocate Nina Olsen, and the bootleggers are the big national tax prep franchise outfits.


Robert Wood, IRS Offshore Account Penalties Expand, More Banks Sign.

Jim Maule, A New Tax Specialty: Porn:

 According to this report, the Alabama House Ways and Means Committee, trying to deal with a budget shortfall, has approved legislation imposing a 40 percent excise tax on, well, it depends on whose explanation is accepted. Some are calling it a tax on porn.

Well, at least they won’t have trouble recruiting auditors.

Jack Townsend, Another B   S   Tax Shelter Bites the Dust. Fill in the blanks.

Kay Bell, 3 ways to navigate estimated tax penalty safe harbors


TaxProf, The IRS Scandal, Day 859

Huaqun Li, Stephen J. Entin, China to Remove Dividend Tax for Long-Term Shareholders (Tax Policy Blog)




Well, they were called the “Outlaws.” David Allen Coe was part of the “Outlaw” country music movement led by Waylon Jennings, Willie Nelson, Johnny Cash, and Hank Williams Jr. Now, like Willie, Mr. Coe has some tax problems. reports:

Country singer David Allan Coe owes the IRS nearly a half-million dollars for taxes due as far back as 1993. The singer pleaded guilty to one count of obstructing the due administration of the IRS on Monday (Sept. 14) and could face three years in prison plus a $250,000 fine.

Coe, known for his hit “Take This Job and Shove It,” owes more than $466,000, according to the Cincinnati Enquirer. This includes taxes from 2008 to 2013 when he either failed to file income tax returns or didn’t pay taxes owned. Interest and penalties are part of the figure.

Mr. Coe had a little run-in with the law at a Des Moines area casino a few years back (arrest video here), but the disorderly conduct charges were dismissed. This outlawry promises to be a little more troublesome, but now all he needs is mom, pickup trucks, trains and a drink for a perfect country and western song.



Tax Roundup, 9/11/15: The pitfalls of putting loss generators in a tax-exempt entity. And: Robert remembers a client.

Friday, September 11th, 2015 by Joe Kristan

20150911-2When the income isn’t taxable, the losses aren’t deductible. Some stockbrokers like to buy publicly-traded natural resource partnerships as IRA investments. I dislike them because those partnerships can trigger Unrelated Business Income Tax in an otherwise tax-exempt IRA.

An attorney in Virginia illustrated another problem with IRA partnership investments in Tax Court yesterday. From the opinion by Judge Haines:

Petitioner maintained a traditional IRA during 2009 and used it to buy and sell various securities, including shares of two master limited partnerships that were involved in the oil and gas pipeline and storage industry–Atlas Pipeline Partners, L.P. (Atlas), and Crosstex Energy, L.P. (Crosstex). Petitioner received a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., from Atlas reporting a $66,075 ordinary business loss for 2009. The Schedule K-1 indicated “Trad IRA VFTC as Custodian” and stated that the partner was an “IRA/SEP/KEOGH”. Petitioner reported this loss on the Schedule E,  Supplemental Income and Loss, attached to his 2009 Form 1040, U.S. Individual Income Tax Return. Petitioner received a Schedule K-1 from Crosstex reporting a $22,793 ordinary business loss for 2009 and stating that the partner was an “IRA/SEP/KEOGH”. Petitioner also reported this loss on the Schedule E attached to his 2009 Form 1040.

This would have been a remarkable result, if it worked. Individual owners of publicly-traded partnerships have their K-1 losses automatically disallowed under the passive loss rules. Unlike other passive losses, those from publicly-traded partnerships can’t offset other passive income; they can only offset future income from the same partnership, until the partnership is sold.

Within an IRA, though, the losses are never allowed. The tax law allows IRAs to earn income without current tax. The idea is to help taxpayers accumulate funds for retirement. Any tax is deferred until you withdraw funds from the IRA. The downside of this is that losses are also deferred. The only way to deduct a loss from IRA investments is to completely close out the IRA. That only works if you have made non-deductible contributions to the IRA, giving you basis. From, Publication 590b:

If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.

Your basis is the total amount of the nondeductible contributions in your traditional IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Our attorney was having none of that. From the Tax Court:

Petitioner argues, in part, that an IRA has “all of the attributes of a grantor trust and is therefore a pass through entity which makes all items of income, deduction and credit treated as belonging * * * [to him] and reportable on * * * [his] individual tax return”.

I’m sure he would have taken that same principled position if those K-1s generated a bunch of taxable income.

Petitioner advances various tax policy arguments which he believes support this position. For example, he contends that restricting an IRA holder’s ability to deduct a loss that occurs when an investment held by  the IRA is sold thwarts congressional intent to encourage individuals to save for retirement. He also claims that requiring retirees to completely liquidate their IRAs in order to recognize a deductible loss is “unreasonable, arbitrary, capricious and completely unworkable for savers dependent upon IRA/SEP income for their retirement.”

Unfortunately, heads-I-win, tails-you-lose only works for the IRS. Again from the Tax Court:

While petitioner may not agree with the way the law is written and may have reasons that he believes support changing the law, we cannot do that for him.

Silly lawyer. Only the Supreme Court can rewrite tax law.

The Moral: IRA investments in partnerships can give you the worst of both worlds. You can make a tax-exempt entity taxable (or much worse, if you invest in the wrong partnership), but your losses are almost never useful.

Cite: Fish, T.C. Memo 2015-176.


Jared Walczak, Liz Malm, Where Does Your State Stand on State & Local Debt Per Capita? (Tax Policy Blog):


This is one measure where Iowa looks pretty good.


MOE BARRYRobert D. Flach, NEVER FORGET. Robert remembers a client who died 14 years ago today in New York.

Kay Bell, Fantasy football payouts mean real income taxes. Don’t worry, it’s made up for by the lowered income taxes of employers resulting from lost productivity during Fantasy season.

Jim Maule, Tax Client and Tax Return Preparer Meet Up in People’s Court.  “[A] preparer ought not accommodate a client who wants a return that does not comply with the law. It’s that simple.”

Peter Reilly, Jeb Bush And The Spirit Of 1986. “Somebody should tell Jeb Bush that tax accountants don’t write the Internal Revenue Code and it is a lot shorter than he thinks it is.”

Keith Fogg, IRS Inaction in Prior Years Provides Path to Penalty Relief for Substantial Understatement Penalty – Fire and Rain (Procedurally Taxing).

Robert Wood, Marijuana Taxes Go Up In Smoke On Sept. 16. In Colorado, for one day only. Mark your calendars!

TaxGrrrl, Over 2,000 Businesses Send Letter To Congress Demanding Attention To Tax Extenders Bill. They’ll get to it when they get to it, peasants!

Russ Fox, How Should Multiple Buy-Ins for a Poker Tournament be Handled on a W-2G? I have no idea what he’s talking about, but I’m sure many of you do.

Jack Townsend, Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program. If you want to skip taxes with the help of offshore bank secrecy, it’s not likely to work.



Joseph Thorndike, Don’t Bother Fixing the Tax Code Unless You Fix the IRS Too (Tax Analysts Blog). “Because even a good tax law will fail when administered by a bad agency.”

Howard Gleckman, The Cost of the Bush Tax Cuts, and What It Might Mean (TaxVox). “My colleagues at the Tax Policy Center plan to have their own estimates of the distributional and revenue cost of his plan soon. But there is no doubt the plan is a huge tax cut.”

Bob McIntyre, Bush and Trump’s “Populist” Tax Rhetoric Is All Talk (Tax Justice Blog).


TaxProf, The IRS Scandal, Day 855

News from the Profession. AICPA Survey: College Students Overconfident, Exaggerate, Delusional, Etc. Etc. About Their Personal Finance Skills (Caleb Newquist, Going Concern)



Tax Roundup, 9/10/15: True crime edition; or, how to get the IRS to pay attention.

Thursday, September 10th, 2015 by Joe Kristan

IMG_0603How to make sure the IRS comes looking for your tax fraud. A Minnesota man will have 6 years to ponder mistakes he made diverting employment and excise taxes he owed to finance good times. From

Fifty-seven-year-old Bartolemoea Montanari, formerly of Bayport, was sentenced Wednesday. Montanari was also ordered to pay mandatory restitution of $100,000 and, additionally, to pay more than $1.5 million as a special assessment for the taxes, interest and penalties owed.

According to court documents, from 2009 until January 2012, Montanari willfully evaded the payment of employment and excise taxes owed by him and the three businesses he controlled: St. Croix Development, Emlyn Coal Processing, and Montie’s Resources.

He was convicted on the three counts of an indictment accusing him of diverting funds to a shell company from his legitimate businesses, and then withdrawing funds from the shell company to finance, well, stuff:

During sentencing, the judge noted Montanari used the money he stole to finance an “incredibly flamboyant lifestyle,” that this was “not a single error of judgment,” and that Montanari had “many chances” to correct his behavior, but did not. 

The indictment says the lifestyle included a $1.4 million home in Tennessee and “numerous personal vehicles.”

The defendant would seem to have made two mistakes to help ensure that the IRS would come snooping. First would be the “incredibly flamboyant lifestyle.” Taxgrrrl notes a Pennsylvania tax investigation apparently started when federal agents noticed a fancy house from the air. If the feds don’t notice themselves, envious or annoyed neighbors or associates might bring their questions about a flamboyant lifestyle to their attention.

More importantly, he failed to pay over employment taxes. His employees certainly  wouldn’t have failed to report their W-2 wages and claim their refunds. Despite its information processing shortcomings, the IRS can and does notice that. The main difference between committing employment tax fraud and confessing to it is the amount of work the IRS has to do before pressing charges.




Speaking of foolproof crimes: Hot Lotto rigger sentenced to 10 years (Des Moines Register). The case involved an alleged inside job by an IT professional at the Multi-State Lottery:

The case has enthralled Iowans and gained national attention since late December 2011, when a New York attorney tried to claim — just hours before it would expire — a Hot Lotto ticket worth $14.3 million on behalf of a trust incorporated in Belize. The identity of the original ticket purchaser was a mystery.

Authorities with the Iowa Division of Criminal Investigation began looking into Tipton after several people identified him as the hooded man in a video showing the ticket being purchased at a Des Moines QuikTrip. At the time, Tipton was the information security director for the Urbandale-based Multi-State Lottery Association that provides games such as Hot Lotto to lotteries nationwide.

[Assistant Attorney General] Sand told jurors at trial that Tipton installed a self-deleting software program, called a rootkit, onto lottery drawing computers to manipulate the outcome of a Dec. 29, 2010, draw. Tipton then filtered the winning ticket he bought through a friend, Robert Clark Rhodes II, from Texas in an attempt to claim the money, Sand said.

There’s a reason lottery workers aren’t allowed to play the lottery. The lawyer and Belize trust didn’t help the whole thing slip by unnoticed.


Tony Nitti, How To Talk About The Yahoo Spin-Off Without embarrassing Yourself. A walk through the mysteries of tax-free corporate separations.

Russ Fox, IRS Removes Social Security Number from Some Notices But…:

The reason for this is the problem of identity theft. And I give kudos to the IRS for this. Unfortunately, the IRS hasn’t executed this that well.

Today I opened an IRS notice that was sent to a client. The good: The social security number in the header had only the last four digits. The bad: Right below the header the IRS put in a bar code–presumably to make processing of the return mail easier. Below the bar code in relatively small print (but easily readable by me, and I wear glasses) was the deciphering of the code. Of course, it contained the social security number.

The IRS, protecting your identity since 1913.

Jason Dinesen, From the Archives: Will Obamacare Tax Your Home Sale?

Paul Neiffer, Don’t Forget Those Fuel Tax Credits. “Most farmers obtain dyed diesel without having to paying federal and in most cases state excise taxes.  However, there can be many other uses on the farm that will allow a farmer to claim a fuel tax credit on Form 4136.”

Kay Bell, Tax diplomas, computer games and soap operas. “Will informing folks about the role of taxes in their countries, especially starting at an early age, help create more tax responsible citizens?”

Jim Maule, It’s a Failure of Some Sort, But It’s Not a Tax Failure. The professor reminds us not to believe everything you read on the internet.






TaxProf, The IRS Scandal, Day 854

Howard Gleckman, Jeb Bush’s Tax Plan: High Marks for Transparency But Key Questions Remain (TaxVox). “At first glance, GOP presidential hopeful Jeb Bush’s tax reform plan is a standard lower-the-rates, broaden-the-base overhaul of the revenue code. But a closer look shows a something-for-everyone stew filled with interesting ingredients—most basic GOP fare but seasoned with a few surprising ideas.”


Well, it’s not my thing, but if it’s for the kids…  Let’s Get High for the Children (David Brunori, Tax Analysts Blog):

Every proposal, like the one in Arizona, calls for dedicating marijuana tax revenue to schools, which is a terrible idea. Perhaps everyone will be stoned and won’t care, but aren’t schools important enough to pay for with real, broad-based taxes on income, sales, or property?

Politicians might look for a way to legalize slavery if they thought it would give them more revenue.

Joseph Henchman, Colorado Suspends Marijuana Tax for One Day on September 16 (Tax Policy Blog).


News from the Profession. Rihanna and 50 Cent Need New Accountants (Going Concern)



Tax Roundup, 9/9/15: Meredith HQ stays in Iowa despite taxes. And: Walter Mitty, Chiropractor — not Ghostbuster.

Wednesday, September 9th, 2015 by Joe Kristan



A part of the Meredith campus in Downtown Des Moines.

Meredith Corporation will keep its headquarters in Des Moines, reports the Des Moines Register. The Des Moines-based media company yesterday announced its acquisition by Media General, a Virginia-based company. From the Register report:

Virginia-based Media General will acquire Meredith in a cash-and-stock sale, forming a new company — Meredith Media General — that will combine Meredith’s list of women-focused magazines and 17 local TV stations with Media General’s 71 TV stations and digital media assets.

“We have our corporate headquarters in Des Moines, my management team … we all live in Des Moines, our staff are in Des Moines. We will continue to be in Des Moines,” Lacy said. He will serve as CEO and president of the new company.

Meredith Media General will be incorporated in Virginia, but have corporate offices in both Richmond, Va., and Des Moines.

It’s an interesting compromise. With the CEO of the combined company already located in Des Moines, it’s unsurprising that he will run things from here, everything else being equal.

Yet not everything is equal. Des Moines is an expensive place tax-wise to run a corporate headquarters, according to the Tax Foundation’s Location Matters report. Iowa is the 4th most expensive state in which to locate a corporate headquarters, while Virginia is the 12th cheapest. 20150901-1

Fortunately for Des Moines, non-tax factors apparently outweighed the tax issues. These might include the in-place infrastructure for Meredith’s publishing arm, including Better Homes and Gardens and Martha Stewart Living. Still, those 900 Des Moines Meredith jobs might be more secure with a better tax environment. Quick and Dirty Iowa Tax Reform Plan, anyone?


Tony Nitti, Child’s Unauthorized Incorporation Of Father’s Business Proves Costly In Tax Court. “Raising kids comes with some well-known hazards: sleepless nights, spit-up stained clothes, and of course, the occasional flailing elbow to the genitalia. What you probably don’t anticipate upon the miracle of childbirth, however, is that one day your kid will take it upon himself to incorporate your business via the internet, costing you tens of thousands in tax deductions.”

Robert D. Flach, THE NATP TAX FORUM AND EXPO IN PHILADELPHIA – PART I. “The one thing that is missing from the NATP Tax Forum offering is the IRS perspective.”

Kay Bell, Tax scam callers now spoofing telephone numbers

TaxGrrrl, IRS To Refuse Checks Greater Than $100 Million Beginning In 2016


Scott Greenberg, The Carried Interest Debate is Mostly Overblown (Tax Policy Blog). Mostly? Almost entirely.

TaxProf, The IRS Scandal, Day 854

Career Corner. 5 Ways Accountants Can Protect Themselves from the Accountapocalypse (Chris Hooper, Going Concern)




Who knew being a Chiropractor could be so exciting? James Thurber created the character Walter Mitty, “… a meek, mild man with a vivid fantasy life: in a few dozen paragraphs he imagines himself a wartime pilot, an emergency-room surgeon, and a devil-may-care killer.”

A Minnesota chiropractor, a Mr. Laudon, seems to have reprised the Mitty role on his tax return. If his Tax Court testimony is to believed, chiropractic practice can be pretty exciting. From the Tax Court:

He said that his patients often called him a psychiatrist, chauffeur, physician, peace officer, or even a pheasant hunter.2 Some of Laudon’s stated reasons for making these trips strain credibility: for example, driving to a “schizophrenic” patient who was — on more than one occasion — “running scared of demons” down a rural Minnesota highway, or driving to a patient’s home in a Minneapolis suburb — expensing 261 miles — because he had received a call from police that she had overdosed on OxyContin prescribed by her physician. Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform.

Laudon contends that the Commissioner failed to classify certain deposits as nontaxable, including insurance payments for damage to several vehicles, one of which was involved in a “high speed police chase” with a man “high on meth and cocaine.”

IMG_1583Note that footnote 2, we’ll get to that in a minute. I never knew that a chiropractor could have such an exciting life. Law enforcement, mental health, high-speed chases — even exorcism, it seems.  Is there anything he couldn’t do? Well, back to footnote 2:

But not a ghostbuster. The Commissioner rhetorically asserted that some of Laudon’s trips might have made more sense if he was claiming to be a ghostbuster. Laudon then disclaimed any employment as a ghostbuster. In his reply brief the Commissioner conceded that Laudon was not “employed or under contract to perform work as a ghostbuster during the tax years at issue in this case.” We therefore need make no finding on the existence of a market for “supernatural elimination” in west-central Minnesota. See “Ghostbusters” (Columbia Pictures 1984).

In case you couldn’t tell, this is a Judge Holmes opinion.

Walter Mitty’s dreams didn’t go well, as his fantasy life had him in front of a fantasy firing squad. Things went badly for our chiropractor too. The court found both his documentation and his credibility lacking, including this about his mileage logs:

Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform. Even his testimony about multiple entries in the logs where he wrote “DUI” was not credible: He claimed that these were not references to being stopped by police while under the influence, or driving while his license was suspended, but instead were his misspellings of a patient named “Dewey” — a supposed patient of his. He testified that he took one business trip to pick up a patient left stranded due to a domestic dispute with his girlfriend. And he even testified about trips he made to test his patients’ urine:

    Absolutely we do * * * [test urine]. It’s part of the — I believe it’s Federal, you know, that they have — we have to abide by that. It’s specific gravity. You’re basically, looking for sugar, let alone height, weight, blood pressure. Make sure they’re not drunk, doing illegal drugs.

We find Laudon not credible in his testimony regarding his business mileage, and this finding affects our views of his testimony’s credibility on every other issue in the case.

The taxpayer reported taxable losses from 2007-2009 ranging from $60,000 to $84,000. That alone is a challenge to credibility. The IRS added $346,000 to his income for the three years, and the Tax Court upheld the IRS with only minor changes. Among the disallowed expenses were “a Microsoft Xbox 360, Nintendo Wii, and numerous pieces of hair-salon equipment.” So, a barber, too.

The Moral? There might be more to that mild-mannered chiropractor than you imagined. But if there is, he needs to keep good records when the IRS comes calling.

Cite: Laudon, T.C. Summ. Op. 2015-54

Russ Fox is also on the case: Ghost Hunter, Pheasant Hunter, or Deduction Hunter: No Matter, He Loses at Tax Court




Tax Roundup, 9/8/15: One Week to the 15th. And: First-world tax payment problems.

Tuesday, September 8th, 2015 by Joe Kristan

20150803-1September 15 is one week away. If you have extended partnership, corporation or trust returns, time is running short. There are many reasons to file on time:

  • Tax elections made on a late return, including automatic accounting method changes, may not count. With all of the “repair regulation” method changes this year, that could be a big deal.
  • If you owe money, late filing turns a 1/2% per month late-payment penalty into a 5% per month (up to 25%) late filing penalty.
  • If you have a pass-through entity, late-filing triggers a $195 per K-1 per month penalty.

Remember to e-file, or to document timely paper filing via Certified Mail, return receipt requested, or with a shipping bill from an authorized private delivery service.


Gretchen TegelerDART: A property tax funded amenity ( Disturbing trends on the inability of the Des Moines-area public transportation service to cover its operations through fares: does appear the service expansions are generating more ridership  However, as was noted last year, property taxes are basically covering the cost of these additional riders. Total operating revenue was 10.1 percent below projections for the year that closed June 30th, 2015; with fixed route operating revenue being 8.65% percent short of budget.

The overall trends have not changed much from a year ago. Total operating revenue is still less than it was four years ago despite substantial service expansions and improvements since that time. Basically, as it weighs future improvements for DART, the community will need to decide if it is willing to continue to raise property taxes to fund them.

The post includes this chart:


That doesn’t include the cost of the recently-completed $18 million Palace of Transit.


TaxGrrrl, Mega-Mansion Attracts Notice By Feds, Results In Criminal Charges:

According to local sources, federal agents flying in and out of Pittsburgh noticed the size and scope of a mansion belonging to Joe Nocito, Sr., and started asking questions. Those questions eventually led to a guilty plea last week from Ann E. Harris, the personal assistant, secretary and bookkeeper for Nocito, in a tax evasion scheme thought to involve as much as $250 million.

If you are a tax evader, it’s unwise to flaunt your wealth, especially to the point of attracting attention from passing aircraft. But maybe that would take the fun out of the thing.




Russ Fox, The Family that Commits Tax Evasion Together Goes to ClubFed Together. “This is yet another reminder for everyone who uses a payroll service to join EFTPS and make sure your payroll deposits are being made. Trust but verify is excellent practice in payroll.”

Kay Bell, Labor Day tax tip: Union dues might be tax deductible

Scott Greenberg, This Labor Day, How High is the Tax Burden on American Labor? (Tax Policy Blog). “In 2014, the average wage worker saw his or her labor income decrease by 31.5 percent due to federal, state, and local taxes, according to the OECD.”

Tony Nitti, Tax Geek Tuesday: Excluding Gain On Sale Of Home, And Recognizing Gain On Repossession

Jason Dinesen, From the Archives: Tax Implications of the Unlicensed Daycare Provider

Jim Maule, “Who Knows Taxes Better Than Me?” Professor Maule notes that Donald Trump’s understanding of tax law and economics might not be all that Mr. Trump thinks it is.

Peter Reilly, From Russia With Built In Losses. “There is a certain irony to the whole thing as it seems like financiers were too focused on looting the US treasury with phony shelters to see the probably larger upside of distressed Russian assets.”

Robert D. Flach, DONALD TRUMP FOR PRESIDENT IS A LOT LIKE OBAMACARE, That isn’t meant as a compliment.




Leslie Book, Tax Court Opinion Reaffirming Validity of Regulations Addressing Foreign Earned Income Exclusion Illustrates Chevron Application (Procedurally Taxing)

Robert Wood, IRS Gets Tax Data From India As Black Money Hunt Hits Americans Too

Jack Townsend, IRS and DOJ Tax Conferences Before Indictment. That doesn’t sound like fun at all.

TaxProf, The IRS Scandal, Day 849850851852


Renu Zaretsky, Deals, Dreams, and Data. Today’s TaxVox headline roundup covers the ground from A (Amazon’s sweet Illinois tax credit deal and Apple’s Irish strategy) to Zaretsky.

Cara Griffith, Why Is It So Hard to Find Information on the Sharing of Taxpayer Information? (Tax Analysts Blog). “Taxpayers are expected to blindly provide massive amounts of information to tax authorities, but are then not allowed to know the process through which one state or municipality shares information with another.”


I’ll make sure not to have this problem when I file in April:

Effective January 1, 2016, the IRS will not accept any payment greater than $99,999,999.00. Two or more checks will be required, or we recommend that the taxpayers use Fed Wire to make their payments.

If I did owe more than $100 million, I would be tempted to write one of the checks for $99,999,999.01, just to see if they are serious. Not to give away my income secrets, but I’m pretty sure my 2015 taxable income will spare me the temptation.

Cite: Announcement 2015-23.



Tax Roundup, 9/3/15: How to cut the IRS in on your foreign inheritance. And more!

Thursday, September 3rd, 2015 by Joe Kristan

20150903-1Uncle Heinrich from the old country left you a bundle. Congratulations! Make sure to tell the IRS.

Why, you ask, should I tell them? Inheritances are tax-free, after all.

Well, yes. But the IRS still wants to know about them. And if you don’t tell them, you may be cutting the IRS in on 25% of the gift.

The tax law requires you to file Form 3520 to report gifts or bequests from a foreign source if they exceed $100,000 (or $13,258 if received from a foreign corporation or partnership). This return is due at the same time as your income tax return, including any extensions, but it is filed separately. The penalty for not reporting is 5% of the unreported amount per month, up to 25%.

What if Uncle Hans gives you $75,000, and his wife Aunt Anne-Sophie gives you another $75,000? Then the gifts are counted together and exceed the reporting threshold.

I will be talking about these and other easy-to-overlook  international reporting requirements that can arise in estate planning and administration at the ISU Center on Agricultural Law and Taxation September Seminars. They are September 17 (Agricultural Law Seminar) and September 18 (Farm Estate and Business Planning Seminar). My talk is on the 18th.  Register by September 10 for an early-bird discount!


20150903-2Robert D. Flach, AICPA CONTINUES TO PROMOTE THE URBAN TAX MYTH. “There is absolutely nothing about possessing the initials CPA that in any way, shape, or form guarantees that the possessor knows his or her arse from a hole in the ground when it comes to 1040 preparation.”

TaxGrrrl, Owner Of ITS, Formerly Fourth Largest Tax Prep Biz In Country, To Face Criminal Charges. “Readers sent me numerous emails advising that ITS was still in business for the 2014 tax season, despite the court order.”

Robert Wood, Report Cites Flawed IRS Asset Seizures, And Ironically, Sales Are Handled By ‘PALS’

Kay Bell, Tax moves to make in September 2015. Worth visiting for the accompanying autumn leaves picture alone, but lots of other sound advice too.

Stephen Olsen, Summary Opinions for August 1st to 14th And ABA Tax Section Fellowships (Procedurally Taxing). Recent happenings in the tax procedure world.

Jack Townsend, Ninth Circuit Affirms False Claim Convictions for Tax Preparer. “The false claims statutes involved, however, are not complex statutes.  All that is required is that the defendant know that the claims are false.”

Annette Nellen, 50th Anniversary of Willis Commission Report. “This is likely the most comprehensive study and report ever done on state and multistate issues covering income tax, sales and use tax, gross receipts tax, and capital stock tax.”




Scott Greenberg, Every Tax Policy Proposal from the 2016 Presidential Candidates, in One Chart (Tax Policy Blog). “While some presidential candidates have issued tax reform proposals that touch on almost all of these areas of the tax code, other presidential candidates are not listed as having offered any tax policy proposals at all.”

Renu Zaretsky, The Case of the Unreturned Call for Tax Code Simplicity (TaxVox)  “Are taxpayers clamoring for a simpler, faster, and cheaper filing experience? Well, they are, and they are not.”

Richard Phillips, Ben Carson’s 10 Percent Flat Tax is Utterly Implausible (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 847. Today’s installment links to an update on the status of the scandal by James Taranto of the Wall Street Journal: “In any case, it’s unreasonable for government officials to expect us to trust their assurances when they take such pains to prevent their verification.


News from the Profession. Here’s a Guy Wearing a PwC T-Shirt Giving Weird Street Massages (Caleb Newquist, Going Concern)



Tax Roundup, 9/1/15: If the taxman takes your car, recode your garage door. And: jobs, $211,111 each.

Tuesday, September 1st, 2015 by Joe Kristan
1974 mercedes

A 1974 Mercedes scheduled for IRS auction 8/31/15 at Bama Jammer Storage, Huntsville, AL.

As if having your car seized by the taxman wasn’t bad enough. The Treasury Inspector General for Tax Administration, in a report on IRS handling of property seized for tax nonpayment, notes a potential problem if the IRS takes your car:

However, during our discussions with IRS employees involved in the seizure process, we determined that there was no guidance on what actions to take if seized vehicles are equipped with installed navigation or garage door opening systems. Additionally, except for one employee, everyone we spoke with had not considered what actions to take if they seized a vehicle with one of these systems. While we do not have any examples in our case reviews of this situation occurring, it is in the taxpayers’ and Government’s best interest that employees are prepared if seizures involve these types of systems. If these systems are not reset to the original factory settings, there is a risk that the third-party purchaser of the vehicle can gain access to the taxpayer’s personal information or property. For example, the purchaser could use the vehicle navigational equipment to locate a taxpayer’s residence and then use the garage door opener to gain access to the home.

I have to admit, it wouldn’t have occurred to me either. It’s easy to forget that cars are also more and more data systems. Still, computerized data probably wasn’t an issue with the 1974 Mercedes pictured above that was scheduled for auction by the IRS yesterday in Huntsville, Alabama.


O. Kay HendersonBranstad defends state tax incentives for new Kum & Go headquarters:

Governor Terry Branstad today called the “Kum & Go” convenience store chain a “great…family-owned”, Iowa-based business and he has no objection to the nearly $19 million in state tax incentives it will get for moving the company headquarters to downtown Des Moines.

The convenience store chain is moving its headquarters about 10 miles from West Des Moines to Downtown Des Moines. It is getting $6.33 for every Iowan for its trouble. I’m sure Kum & Go is a perfectly nice company, and I don’t blame them for taking money the state is giving away, but there are lots of nice employers who don’t get $211,111 in state tax breaks for each new job they create. The unfortunate ones have to pay some of the highest business tax rates in the country to help pay for those who do benefit from tax breaks.

For perspective, check out Jared Walczak, Location Matters: Effective Tax Rates on Corporate Headquarters by State (Tax Policy Blog). “Today we’ll take a look at states’ effective tax rates on new and mature corporate headquarters.”  Have a look:


For this ranking, Iowa is the fourth worst. Giving millions to one company doesn’t fix it for everyone else.


Robert D. Flach has fresh Buzz for us today. Robert buzzes about blog posts he’s found about higher taxes, due dates, and the “Cadillac tax” on high-cost health plans — which seems to be most of them nowadays.

Russ Fox, The Hospital’s Closing; Who Will Notice the Missing Charity Money? Apparently one of the doctors, with unfortunate tax results.

TaxGrrrl asks Which State Has The Highest Property Taxes In America?

Kay Bell, IRS gets so-so rating so far on Yelp. Well, I’d never eat there.

Leslie Book, Legislative Language Directs IRS To Make Self-Prepared EITC Claims More Burdensome (Procedurally Taxing).




TaxProf, The IRS Scandal, Day 845. Today the Prof links to Robert Wood’s Court Orders IRS To Reveal White House Requests About Taxpayers. The White House will surely appeal, waiting until the last minute to file for it, and drag the process out as long as possible. This is good news, though: “Finally, though, the court ruled that the IRS cannot hide behind a law used to shield the very misconduct it was enacted to prohibit.”

The stonewalling doesn’t mean there was misconduct. By stonewalling everything, the administration makes it hard to unearth misdeeds; as an added bonus, when a painful and drawn out process finally forces the administration to yeild innocent information, it makes the investigators look silly while sapping their resources.


Jeremy Scott, Trump’s Lack of Specifics on Tax Is Hardly Unique (Tax Analysts Blog). ” There are many reasons to dislike Trump and his ill-defined platform (which seems mostly based on nativism and reality-show-style demagoguery), but his lack of policy details at this stage of the game is hardly unique.”


News from the Profession. AICPA Lays the Smackdown on Dear Abby (Greg Kyte, Going Concern)



Tax Roundup, 8/31/15: Low income taxes don’t mean high excise taxes. And: planning for President Bernie.

Monday, August 31st, 2015 by Joe Kristan


I would expect states without an income tax to have high excise taxes, but it’s not so. Liz Malm, How Much Does Your State Collect in Excise Taxes Per Capita? (Tax Policy Blog).


Minnesota, with ridiculously high tax rates, also is the third biggest excise tax collector. South Dakota, with no income tax, is only the 26th highest.


TaxProf, The IRS Scandal, Day 842843844. There is a lot about the current administration’s approach to transparency. An administration that promised to be “the most transparent in history” resists every information request, even when there is no obvious reason to do so. It is cynical and effective. If after a long fight they finally turn over information that shows no evidence of wrongdoing, they make the investigators look silly. And when wrongdoing does come out, the administration says it’s “old news” — because they did their best to make it so.

More on this from John Hinderaker, Obama’s Stonewall Tactics: A Case Study (Powerline Blog), on the ongoing effort to determine whether administration officials illegally accessed the tax information of the Koch brothers for political reasons.

Related: Russ Fox, Sergeant Schultz to the Rescue!




Peter Reilly ponders Tax Planning For The Risk Of A Bernie Sanders Win. He makes the Vermont socialist sound moderate with this:

The funniest thing about the tax proposals is that this candidate who is as far left as you can go without getting into Green Party territory is promoting a  tax package that would pretty much bring us to the second half of the Reagan administration  when it comes to income and estate tax.

So Bernie Sanders favors a maximum 28% individual rate? No evidence for this in the article. In fact, his campaign, like most of them, offers little specific in the way of tax policy. What it does offer is awful — taxing offshore earnings of U.S. companies, confiscatory estate tax rates, and a financial transactions tax that will only drive trading overseas while making markets less efficient and more costly. I started tax practice in the second half of the Reagan administration, and I’m pretty sure that a Sanders administration tax system would not dramatically lower individual tax rates.

That said, Peter’s article does offer some sound tax planning tips, many of which are worth considering regardless of who wins the White House next year.


Jason Dinesen, Due Date of Iowa Partnership and Corporate Tax Returns Unchanged. The Department of Revenue says these will be Due April 30, despite federal due date changes.

Kay Bell, Cadillac tax repeal on Senate’s post-recess to-do list.

Keith Fogg, Time Stands Still for Snow – Expanding Section 7503 on the Last Day to Timely Complete a Task. The issue in this case is interesting: whether a Tax Court petition is considered late if it is delivered late because the Tax Court is closed for weather. It also reinforces the importance of buying the correct delivery method when using an authorized private delivery service.




Robert Wood, Trump As Tax Code King And Hedge Fund Slayer. He’s a floor wax. He’s a dessert topping. He’s whatever you hallucinate him to be.

TaxGrrrl, Ho, Ho, Oh No! Santa’s Office Threatened With Closure Due To Tax Woes. Well, I never understood his business model.

Jack Townsend, Interest and Penalties Issues At Sentencing


Renu Zaretsky, Thirty Days Hath September: Stay tuned for tax plans to remember? The TaxVox headline wrapup talks about taxes in the election campaign and Brazil abandoning a planned financial transaction tax. Brazil is a leftist country with a soul-sucking business tax system. Even they realize a transaction tax is unwise, making them more sensible than Bernie Sanders.




Tax Roundup, 8/26/15: The Twins defeat the IRS, so IRS may try to change the rules. Also: EITC fraud, and more!

Wednesday, August 26th, 2015 by Joe Kristan

20150826-2The Minnesota Twins have won five in a row. Six, if you count a recent IRS victory by the family that owns the ballclub. It is recounted by Ashlea Ebeling, Estate Of Late Minnesota Twins Owner Carl Pohlad Settles With IRS (via the TaxProf):

The main issue in the estate tax case was how to value Pohlad’s stake in the Minnesota Twins at the time of Pohlad’s death in January 2009 (he was 93). The Pohlad estate valued it as just $24 million for tax purposes, while IRS auditors pegged it at $293 million. Pohlad used typical wealth transfer techniques to limit estate taxes: splitting ownership and control of assets to theoretically reduce what an unrelated buyer would pay for them. 

But the administration doesn’t approve of valuing split interests based on their actual value:

Estate planning with family entities (family limited partnerships and limited liability companies) and the accompanying availability of valuation discounts is in the spotlight. Advisors have been warning clients all summer that the Treasury Department may be coming out with proposed regulations curtailing discounts by next month, and that the new rules could be effective immediately.

That will surely lead to litigation, as it isn’t clear the IRS has that power. It does add great uncertainty to succession planning, which is uncertain enough to begin with.




The St. Louis Post Dispatch reports on tax preparers indicted on allegations of earned income tax credit fraud. The charges say the operators of a business known as Tax King are alleged to have:

…trained Tax King employees how to falsify certain information to maximize returns.

Clients, for example, were allegedly encouraged to fill in false business information in order to qualify for earned income credits. They were allegedly also instructed to submit false education expenses, as well as inaccurate information regarding fuel taxes in order to qualify for tax credits.

Up to 25% of earned income tax credits are paid “improperly.” We are regularly assured that “improperly” doesn’t mean “fraudulently.” Taxes are hard, and all that. Well, if they aren’t stolen, it’s not for lack of effort.


William Perez, What to Do if You Contributed Too Much to Your Roth IRA. “There are four ways to fix this problem that are all pretty straightforward.”

TaxGrrrl, Making Sure You Eat: Paying Yourself As A Small Business Owner

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part II –The Mixing Bowl Rules. “If a partner contributes property with a built-in gain or loss to a partnership and the partnership later distributes the property to a partner other than the contributing partner within seven years of the contribution, the contributing partner recognizes gain or loss equal to the built-in gain or loss…”

Kay Bell, NRA lawsuit takes aim at Seattle’s new gun and ammo taxes. A “gun violence” tax on guns and ammo makes as much sense as “drunk driving tax” on all alcohol purchases. It doesn’t tax what it purports to tax.

Peter Reilly, About That Kenneth Copeland Mansion You Saw On John Oliver. On abusive parsonage allowances.

Carl Smith, Tenth Circuit Hook Opinion: Interest and Penalties Must Also Be Paid to Satisfy Flora Full Payment Rule (Procedurally Taxing).  You can’t sue for a refund of a tax you haven’t paid.

Jack Townsend, Category 2 Banks under DOJ Swiss Bank NPA Program. A listing of the Swiss banks that have cut deals with the U.S. tax authorities.



Scott Greenberg, Four Tax Takeaways from the Most Recent CBO Report (Tax Policy Blog).

Over the last fifty years, on average, the federal government has collected 17.4% of GDP in revenues. Yet over the next ten years, the federal government is expected to take in 18.3% of GDP in revenues, nearly a whole percentage point higher than the historical average. The CBO forecasts that, in 2016, the federal government will collect 18.9% of GDP in taxes, higher than any year since 2000.

I don’t think that’s a good thing.


Howard Gleckman, Should College Endowments Be Taxed? (TaxVox).

But why not just make the endowments taxable and use some of the huge revenue windfall to boost tuition assistance and other supports for those students who really need it?

Maybe taxing amounts that aren’t used to reduce tuition. A rich university shouldn’t be saddling its students with debt — or asking for more federal subsidies — while its money managers are living high.


TaxProf, The IRS Scandal, Day 839. Toby Miles figures prominently.

Robert Wood, IRS Reveals Lois Lerner’s Secret Email Account Named For Her Dog.


The dangers of premature tweeting:


Oops. An hour later, the Dow closed down another 204 points.


Jim Maule, A Rudeness Tax?:

Modern American tax policy, which is in tatters, is of such a wrecked nature that it is only a matter of time before someone proposes a refundable politeness credit. The form would be fun, would it not? “How many times during 2017 did you hold a door open for another person?” Even better, the audits and the Tax Court litigation.

Prof. Maule is right: not every problem is a tax problem. Yet the politicians propose a tax solution for every problem anyway.



Tax Roundup, 8/25/15: Capital losses, your portfolio disaster silver lining. And: Introducing Toby Miles!

Tuesday, August 25th, 2015 by Joe Kristan
Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So how’s the market doing? Recent days have been unkind to many stock portfolios. Can you make tax lemonade out of the sour lemons in your portfolio?

Let’s make clear that I am in no way saying you should sell your losing stocks right now. If I were smart enough to call the market, you wouldn’t find me doing tax returns in Des Moines in January, as lovely as it is. But I can explain what stock losses do to your income taxes, and how to do it.

First, tax losses are generally useful only when they occur in a taxable account. If your IRA or 401(k) portfolio takes a hit, you are normally out of luck.

Second, you have to actually sell the losing stock to deduct a loss. Just as you don’t pay taxes on appreciated stocks you don’t sell, you don’t get to deduct losses on shares you don’t cash out.

Third, you can’t buy back the shares you sell at a loss for 30 days, under the “wash sale” rules. So if you think that loser is going to bounce back right away, you can’t just buy back other shares of the same stock you sold at a loss if you want the deduction. Nor can you buy the other shares of the same stock in the 30 days before you take the loss. The IRS says buying the offsetting shares in a nontaxable IRA account also triggers wash-sale disallowance.

Finally, individuals may only deduct their capital losses to the extent of capital gains (long-term or short-term), plus $3,000 ($1,500 for married-filing-separately taxpayers). That means you get no tax benefit from overdoing taking losses; the excess of losses of $3,000 carries forward to offset future taxable gains.

But if you have cashed out gains already in your taxable portfolio, it may make sense to sell enough losers to offset the gain, if you have them. Otherwise, you are in effect paying tax on the gains voluntarily — assuming you can live without the loser stock for 30 days.


TaxGrrrl, As Stocks Tumble, Understanding When A Loss Isn’t Really A Loss, Topic 409 – Capital Gains and Losses



Toby Miles, IRS.

Toby Miles, IRS.

TaxProf, The IRS Scandal, Day 838. Today’s installment links to revelations of another Lois Lerner personal account used to conduct official business:

“In addition to emails to or from an email account denominated ‘Lois G. Lerner‘ or ‘Lois Home,’ some emails responsive to Judicial Watch’s request may have been sent to or received from a personal email account denominated ‘Toby Miles,’” Mr. Klimas told Judge Emmet G. Sullivan, who is hearing the case.

It is unclear who Toby Miles is, but Mr. Klimas said the IRS has concluded that was “a personal email account used by Lerner.”

The linked Washington Times story also has this:

The use of secret or extra email accounts has bedeviled the Obama administration, which is has tried to fend off a slew of lawsuits involving former Secretary of State Hillary Rodham Clinton and her top aides, the White House’s top science adviser, top Environmental Protection Agency officials and the IRS.

That’s not quite right. It’s not the use of the email accounts that has “bedeviled” the administration. Enough have come to light to make clear that such use is standard operating procedure. It’s the getting caught that does the bedeviling.




Paul Neiffer, IRS Delays New Inherited Property Reporting Requirements Until February 2016. Statements showing the basis of inherited property will not have to be filed with the IRS before the end of February, 2016, at the earliest.

Russ Fox, How to Commit Tax Fraud 101. “Until the IRS makes it far more difficult for the fraudsters, this epidemic will continue. As I’ve said, why rob banks?”

Robert D. Flach, TRY TO REMEMBER . . . End of summer tips on home mortgage interest, alternative minimum tax, and more.

Robert Wood, 10 Ways Trump Is Right About Taxes. When you say random things without regard to other random things you’ve already said, you are likely to be right occasionally. Unlike Mr. Wood, I think the “hedge fund loophole” talk is foolish nonsense.

Kay Bell, Trump trashes tax breaks for ‘paper pushing’ money managers. Featuring the Trump Squirrel.

Peter Reilly, Sending IRS Against Phony Churches Is Bringing A Knife To A Gun Fight. “Fundamentally the IRS cannot base its enforcement actions on the content of an organization’s beliefs.”



Stephen Olsen, Summary Opinions for July (Procedurally Taxing). Coverage of recent happenings in tax procedure.

Jason Dinesen, Does a Sole Proprietorship Need a Balance Sheet? Technically, no, but it’s foolish not to keep one.

Career Corner. Former Ryan Principal Made a Helluva Career Limiting Move (Caleb Newquist, Going Concern).



Tax Roundup, 8/24/15: School’s in! And: state taxes just might matter.

Monday, August 24th, 2015 by Joe Kristan


20150824-2School starts here today. In my mind, the day school starts will always mark the end of summer, regardless of where the sun is in the sky, and it always makes me a little sad.




Do state taxes matter? Some policymakers say that states can tax “the rich” as much as you want, and they’ll just sit still and take it. According to Clean Slate Tax blog, IRS migration data implies otherwise:


Florida and Texas were in the top ten for state business tax climates in 2013, while New Jersey, New York and California were in the bottom five. California had the highest state income tax rate, at 13.3%. New York and New Jersey are in the top ten. Texas and Florida have no state income tax.

We live in a complex world, and many factors affect migration patterns. But the weather in California is at least as nice as in Texas, yet people are fleeing California. It’s hard to believe taxes don’t have something to do with it.

Via the TaxProf.


20150819-2Robert D. Flach has a special Monday Buzz! roundup today, covering self-employment tax and saving for college.

Kay Bell, Tax fraud gangsters celebrate their crimes in song. IRS has made ID-theft fraud so easy, even a street gang can do it.

Russ Fox, Former Oklahoma State Senator Embezzled $1.2 Million & Committed Tax Fraud:

Over a ten-plus year period Mr. Brinkley had fraudulently obtained over $1.2 Million from the Better Business Bureau. Mr. Brinkley was President and CEO of the organization; he created phony invoices and used the money for personal expenses and to support his gambling habit. He also admitted to not reporting $148,390 in income on his 2013 tax return.

Elected officials don’t lose their human failings when they become elected officials. In fact, public office may attract people with certain kinds of failings.


TaxGrrrl, Debt, Equity and Startup Money. “Repayment of debt is tax-free but associated interest is taxed as ordinary income.”

Peter Reilly, Paul Hansen Receives Below Guideline Sentence – End Of L’affaire Kent Hovind?  The never ending saga of the tax trouble of the guy who things humans co-existed with dinosaurs.


20150824-3Jack Townsend, When a Prosecutor’s Questions Turns the Prosecutor Into a Witness

Keith Fogg, My Dad and the Tax Court are Almost the Same Age (Procedurally Taxing)

They’re, like, totally rad, too. Marijuana Taxes Swell, Not Up In Smoke After All (Robert Wood).



Scott Greenberg, Clean Energy Credits Mostly Benefit the Wealthy, New Study Shows (Tax Policy Blog). ” The credit for electric vehicles is most skewed towards high-income households, with the top 20% of taxpayers claiming 90% of all electric vehicle credits.”

Renu Zaretsky, Plans, Problems, and Production. This TaxVox headline roundup covers the Rubio tax plan, the Walker ACA replacement, and more.



TaxProf, The IRS Scandal, Day 835Day 836Day 837.

News from the Profession. Going Concern Is Now Part of AccountingflyCaleb Newquist takes the Boeing.



Tax Roundup, 8/21/15: Court says the IRS can’t cause a negative gift. And more Friday links!

Friday, August 21st, 2015 by Joe Kristan

20150821-1Gee, thanks. Few of us ever have to pay gift tax. Logically, more people should. Taxable gifts avoid tax when compared to passing an asset through a taxable estate because only the amount given to a donee is subject to gift tax, while the estate is taxable on its whole value — not just the amount that goes to the donee. Confusing? Let’s try a quick example, assuming a 40% estate and gift tax rate.

James has $14 million. He wants to give it all in a taxable gift, saving enough to pay his taxes. He makes a $10 million gift, and he pays 40%, or $4 million in taxes.  

His sister Janet dies with the $14 million, the tax is 40% of $14 million, or $5.6 million. The after-tax inheritance to her beneficiaries is $8.4 million, instead of the $10 million received by James’s heirs.

The giver is supposed to file a gift tax return and pay the gift tax on Form 709.

But what if he doesn’t? Then the IRS will come after the recipients. That happened to the recipients of gifts from James Howard Marshall II, best known as the short-term husband of Anna Nicole Smith. He died without paying the gift taxes, and the estate couldn’t cover them. The IRS then went after the gift recipients, in a big way — demanding more in gift tax payments and interest than the value of the gift actually received.

The Fifth Circuit Court of Appeals ruled on whether the government could do that:

However, the Government brought suit seeking to hold the Marshalls personally liable for almost $75 million beyond the value of the gifts consisting mostly of interest accrued on the unpaid tax liability from 1995. The Marshalls argued that § 6324(b) limits their personal liability to the value of the gifts they received.

It wouldn’t be much of a gift if it cost you money. The Fifth Circuit ruled against the IRS:

A donee is “personally liable” only for “such tax” — the gift tax and accrued interest — “to the extent of the value of such gift.” The statute’s text does not support the Government’s position.

That seems fair, though fairness isn’t required in the tax law. I’m not sure there’s much tax planning to be done around this, other than maybe making sure Grandpa files a gift tax return when he gives it all away.

Cite: Estate of Marshall, CA-5, No. 12-20804.

The TaxProf has more: 5th Circuit: Donee’s Liability For Billionaire’s Unpaid Gift Tax And Interest Cannot Exceed The Amount Of The Gift




TaxGrrrl, Lawyers, Accountants and Administrators, Oh My! Putting Together A Professional Team. “I know what you’re thinking. A professional team costs money. And startups and small businesses are often short on money”

Kay Bell, Taxes as a weapon of mass destruction in historical thriller

Jason Dinesen, Glossary: Asset. “For individuals, an asset is things such as stocks; houses, buildings and land; investments in partnerships; and personal possessions (TVs, electronics, jewelry).”

Jim Maule, Be Careful With Divorce Tax Planning, Part II:

A simple sentence in the agreement, which the parties drafted without assistance of counsel, would have specified whether or not the payment obligation terminated if the former wife died during the 8-year period. There is no way of knowing if they considered the question. There is no way of knowing, if they considered the question, what they wanted the answer to be. There is no way of knowing if they thought that the answer did not require a provision in the agreement. What can be known is that it is risky to draft a divorce agreement without understanding the tax implications.

Risky, and foolish.

Keith Fogg, Who Gets to Decide What is Frivolous (Procedurally Taxing). “After all, if the IRS has unbridled discretion to determine what is frivolous, it could deny even those with arguably non-frivolous arguments from moving forward in the CDP process of seeking collection relief.”

Robert Wood, Trump Bashes $4 Billion In IRS Refunds To Illegals

TaxProf, The IRS Scandal, Day 834

Howard Gleckman, Scott Walker’s Replacement for the ACA Would Leave Many Uninsured. (TaxVox). Of course, so does the ACA.




Scott Greenberg, John Oliver Set Up His Own “Church” to Make a Point about the Tax Code (Tax Policy Blog). “To demonstrate his point, Oliver announced that he had founded his own church, Our Lady of Perpetual Exemption, showing how “disturbingly easy” it was to obtain tax-exempt status for a sham religious organization (the main mission of Our Lady of Perpetual Exemption is to collect donations).”

News from the Profession. Deloitte Doesn’t Want You Wasting Billable Hours Searching for Adulterer Profiles (Caleb Newquist, Going Concern)



Tax Roundup, 8/20/15: Can Iowa tax reform happen?

Thursday, August 20th, 2015 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.

Iowa Tax Reform – doable? I will spend much of today at the Iowa Association of Business and Industry Tax Committee meeting. The topic is Iowa tax reform. Regular readers know that I have strong feelings about the topic. Iowa’s income tax is a mess, and it doesn’t have to be.

Or does it?

There are always forces that push a tax system to complexity. I think any tax system will always have insiders trying to cut special deals for themselves. This leads to higher taxes on everyone else, but the insiders are good at protecting their special deals. Iowa’s dozens of incentive tax credits are classic examples.

Iowa has other factors that help stymie efforts to lower tax rates by eliminating deductions and special tax breaks. On the right side of the aisle, Iowans for Tax Relief has always opposed any tax reform that eliminates the deductibility of federal income taxes. This is almost unknown outside of Iowa, and its repeal is probably essential if we are going to significantly reduce Iowa’s very high 8.98% individual rate.

On the left side of the aisle, the politicians have an unhealthy focus on soaking the rich. With control of the state senate, Iowa Democrats have bottled up all efforts that would reduce Iowa’s high rates because they help “the rich” — better known as “employers.”

I think Iowa may overcome these obstacles. Elimination of corporate tax and much lower individual might persuade insiders to give up special deals, or at least make them not worth fighting for. I think Iowa business is tired of its perpetually poor business tax climate.  Iowans for Tax Relief may soften its stance on federal deductibilty, or legislators may find the arguments for reform more persuasive. And a broad-based tax simplification could have non-partisan appeal, especially if it has a large low-income exemption.

But I think it has to be ambitious. A small plan isn’t going to persuade anybody to give up their special deals, or to modify long-held views. That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan is a good place to start.


Scott Drenkard, State Sales Tax Holidays in 2015 (Tax Policy Blog):


“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.”


Kay Bell, Does your state have unusual, confusing tax laws? Probably.


Victor Fleisher, Stop Universities From Hoarding Money:

Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.

In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at four other endowments I researched: Harvard, the University of Texas, Stanford and Princeton.

For some reason, you hear less about inequality in college endowments than you do about income inequality.





Two Headlines from Tax Notes this morning (unfortunately links only work for subscribers):

Tax Community Questions Proposal to End IRS Union Representation

No Evidence of IRS Partisanship Has Been Found, NTEU Says

To me, the second headline pretty much confirms the error of the “tax community” cited in the first one. To read the Lerner emails and conclude that she was “non-partisan” indicates a reading comprehension problem. NTEU, the IRS employee union, gives 96% of of its donations to, er, non-Republicans. Sounds nonpartisan to me…





TaxGrrrl, LLCs, S Corps & PCs: Choosing A Business Entity:

Entity selection is more important than you think. Your choice of entity can affect the number and identity of shareholders and partners, equity structure, control and management, as well what kind of funding you might be eligible to receive.

If you can’t make up your mind, start with the most flexible one — an LLC not taxed as a corporation– so you can change your mind without too much pain and suffering

Peter Reilly, Does Ninth Circuit Mortgage Interest Decision Create Special Rights? Well, it creates an incentive for people with multi-million-dollar houses to get divorces.

Carl Smith, Tax Court Again Refuses to Apply One Part of Equitable Innocent Spouse Relief Rev. Proc. 2013-34 (Procedurally Taxing)

Paul Neiffer, Wo! Paul is seeing lots of 200-bushel corn in Southwest Iowa on his Midwest Crop Tour.

TaxProf, The IRS Scandal, Day 833



Tax Roundup, 8/18/15: Oh, THOSE 200,000 hacks — the Get Transcript debacle worsens. Also: Crips, blog tax, and more!

Tuesday, August 18th, 2015 by Joe Kristan
This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Get Transcript debacle, revised and extended. IRS Commissioner Koskinen’s perfect record of getting things wrong the first time rolls on. The man who famously assured us that there were no more Tea Party emails, and they weren’t backed up, only to be proven repeatedly wrong, now tells us that the hack of the “Get Transcript” hack was much worse than they had let on. Ars Technica reports:

More than three months after the Internal Revenue Service shut down its online tax transcript service because of a massive identity theft effort, the IRS is now acknowledging that the number of affected taxpayers is more than three times the agency’s initial estimate. And the number of affected taxpayers may continue to grow as the agency digs into logs of hundreds of thousands of connections to its Get Transcript application over the past year. 

Commissioner Koskinen was billed as a “turnaround artist” for a struggling IRS. I guess I just don’t understand art. The IRS continues to send billions of dollars to identity thieves, most far less sophisticated than the (presumably Russian) outfit that hacked the transcript application. For example:

Fourteen reputed gangsters from Plainfield, Elizabeth and Newark have been indicted on charges ranging from tax fraud to murder following a seven-month investigation into alleged financial scams that helped sustain their criminal organization.

All 14 members and associates of the Elizabeth-based 111 Neighborhood Crips street gang were charged under the state’s Racketeer Influenced and Corrupt Organizations statute, or RICO.

If you can’t keep the 111 Neighborhood Crips from electronic tax theft, you don’t stand much chance against Russian organized crime.

The TaxProf has a roundup. More coverage:

Caleb Newquist, IRS Was Just Kidding When It Said Cyber Criminals Tried to Access Tax Return Information for 225,000 Households. “It was quite a few more than that, actually.”

Russ Fox, IRS Data Breach Impacted 334,000, Not 100,000 as IRS First Said. “Being a cynic, I wonder if the IRS’s announcement last week regarding free credit monitoring services has to do with today’s announcement.

TaxGrrrl, IRS Releases Additional Statement On Illegal Access To Taxpayer Accounts

Kay Bell, Uncle Sam, watch TV! You need these kind of tech-savvy staffers to fight growing tax & government website hacking. Actually, it appears the IRS already relies on fictional characters to protect its systems.




Annette Nellen, Highway Trust Fund and Tax Reform

Robert Wood, A $35 Million Wedding? Yes, Before Taxes:

But suppose you’re all about business? Is it possible to write off the cost if you’re inviting all your clients and customers?

Dream on.

Patrick Smith,D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 2). On the bankers’ challenge to FATCA.

Peter Reilly, Travel Blogger Finds Sex, Drugs Even Some Museums But No Tax Deductions. Sex, drugs, but no tax rock ‘n roll.

Paul Neiffer travelblogs the First Day of the Midwest Crop Tour, looking at good corn in South Dakota and Nebraska. No word on how his deductions are doing.


Honey princesses at the Iowa State Fair.

Honey princesses hold court at the Iowa State Fair.


Jeremy Scott, Lessig Is Probably Wrong About Extenders (Tax Analysts Blog):

Maybe some would argue that all this is part of a grand conspiracy. The president, left-leaning think tanks, and Republicans conspire to create a debate over extenders that lets the GOP and its allies (many Democrats do in fact support permanent credits for research, state and local sales taxes, depreciation, and other items) constantly churn money from donors. But that doesn’t seem very plausible.

Maybe not, but it sure does get the lobbyists to show up for the summer golf fund-raisers.


TaxProf, The IRS Scandal, Day 831

News from the Profession. CPA Thought He Was Out, Gets Pulled Back In (Caleb Newquist, Going Concern).

If you were a CPA who testified in the trial of two NYPD officers dubbed the “Mafia Cops,” no one would doubt you if you said, “I could never ever, I will never ever, be a CPA again.”

But he did. It doesn’t appear to be going well.