Posts Tagged ‘TaxGrrrl’

Tax Roundup, 6/17/14: Hiring witnesses to your tax crimes. And: some folks just aren’t into Valentines Day.

Tuesday, June 17th, 2014 by Joe Kristan

Programming note:  The Tax Update will be on the road the rest of this week, so this is probably the last tax roundup this week.  Unless I change my mind.

 

Via Wikipedia

Via Wikipedia

Sure, the more witnesses to my crime the merrier.  What could go wrong?  Every time I see a case in which an employer gets in trouble for evading payroll taxes by paying employees in cash, I have to wonder how much they thought things through.  Every employee becomes a potential informant, and it’s hard to imaging not having either a disgruntled employee turn you in or a careless one reveal the secret in the wrong place.

The Department of Justice yesterday announced a guilty plea yesterday:

   Sonny Pilcher of Casper, Wyoming, pleaded guilty to tax fraud today in the U.S. District Court for the District of Wyoming, the Justice Department and Internal Revenue Service (IRS) announced.  The sentencing hearing was set for Oct. 28, 2014 before U.S District Judge Alan B. Johnson.

 According to the charging document, Pilcher attempted to obstruct and impede the IRS.  Pilcher did this by claiming a false bad debt expense of $258,000 on his 2008 Form 1040 tax return, and by paying his employees in cash to evade paying employment taxes.  Pilcher faces a statutory maximum sentence of 36 months in prison, a $250,000 fine and may be ordered to pay restitution to the IRS. 

The inclusion of the “bad debt” in the charge is interesting.  You frequently see cases where people claim a non-business bad debt — which is a capital loss — as an ordinary fully-deductible business bad debt.  While you might see a civil penalty in such a case, I have never seen that called a criminal matter.  This presumably was something more serious than an argument over what kind of bad debt it was.

 

20120801-2If you have a full-time job, you probably aren’t a “real estate professional” who can deduct rental losses.  And if that’s so, don’t embarrass yourself in front of a Tax Court judge.  A taxpayer from California made that mistake in a Tax Court case issued yesterday.

Real estate rental losses are normally passive, meaning that they only are deductible to the extent of passive income (there is a special allowance for taxpayers with adjusted gross income under $150,000).  If you are a “real estate professional,” the losses are not automatically passive, but you have to meet two difficult tests to be one:

- You have to work at least 750 hours in the year in a real estate trade or business which you own, and

- your real estate business has to consume more of your time than anything else you do.

If you have a full-time day job, it is nearly impossible to rise to that standard (unless you have a pretty undemanding day job).  That didn’t keep the intrepid Californian who had three rental properties — all single-family houses — from giving it a try, as the Tax Court judge explains (my emphasis):

Even if we assume that petitioner worked 1,760 hours and 1,752 hours in 2009 and 2010, respectively, for Northrop Grumman, we do not accept his activity log coupled with this testimony relating to the rental activities as reliable or credible. A review of the activity log and testimony relating to the rental activities leads us to the conclusion the petitioner did not spend more hours at the real estate activity than at his full-time employment at Northrop Grumman. According to petitioner’s logs he spent almost every spare hour in those years working on the rental properties, including 10 hours on July 4 of each year, 12 and 10 hours on February 14, 2009 and 2010, respectively, and 9 and 10 hours, respectively, on December 25 of each year.

Hey, not everybody is a romantic.  And I’ll keep Christmas in my own way, thank you very much!

Although he managed three rental properties in each year, throughout 2009 alone petitioner’s records reflect that he repaired or worked on the sprinkler systems on any of the given properties on 64 separate occasions, and throughout 2010 he worked on sprinkler systems on 20 separate occasions. In addition, on March 16 and 17, 2009, the records reflect eight hours to prepare and deliver an eviction notice to be filed in court. Coincidentally, on March 15 and 16 of the next year, petitioner’s records reflect that he performed the very same activity for the same exact amount of time. A review of petitioner’s activity logs leads to the conclusion that the logs are inaccurate and exaggerated.

Maybe he just wasn’t very good at sprinkler systems?  Whatever you might think of Tax Court judges, you can be sure that they didn’t get their jobs by being gullible.

Cite: Bogner, T.C. Summ. Op. 2014-53.

 

 

20130114-1Kristy Maitre, Treasury Issues Changes to Circular 230 (Treasury Decision 9668):

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing.  Often the disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.

Treasury said they anticipate that the removal of the requirement will eliminate the use of a Circular 230 disclaimer in e-mail and other writings because Section 10.37 rules on written opinions don’t include the disclosure provisions in the covered opinion rules.

Good news.  I always thought the routine disclaimers were futile and I never used them.  They seemed like the email equivalent of a rabbit’s foot — it might make you feel better, but it still was mere superstition.  Yet I bet that we’ll still be getting emails from our fellow practitioners with the Circular 230 disclaimer years from now.

Russ Fox, Soon: No More Circular 230 Notices

 

Jason Dinesen, Iowa Taxes: Filing Separately and Allocating Dependents.  “In general, a typical married couple can allocate the dependency exemptions in whatever manner they choose.”

William Perez, Child and Dependent Care Tax Credit

Peter Reilly, Paul Reddam’s KPMG Tax Shelter Stunk In More Ways Than One 

TaxGrrrl, World Cup Mania: Figuring Out FIFA, Soccer & Tax.  So there’s a soccer tournament, I hear.

Robert D. Flach starts Tuesday with a Buzz!

 

20140513-1Martin Sullivan, Big Deal by Low-Tax Medtronic Has Even Bigger Implications (Tax Analysts Blog).  “The main benefit to Medtronic after the inversion will be that the billions of profits it generates outside the United States each year can now be deployed to pay dividends and to buy other U.S. companies without paying U.S. tax.”   Sounds like good corporate stewardship to me.

William McBride, Medtronic Embarks on Self-help Tax Reform (Tax Policy Blog).  “The high U.S. corporate tax rate is causing serious economic distortions, chasing away businesses, investment and jobs. The only way to deal with it effectively is to bring the corporate tax rate down to competitive levels, which is the path chosen by virtually every other country.”

 

Renu Zaretsky,  Tax Freedom, Tax Avoidance.  The TaxVox headline roundup covers the Medtronic inversion and internet taxes.

TaxProf, The IRS Scandal, Day 404

Kay Bell, IRS says possible Tea Party emails lost in computer crash. “Conspiracy or clowns?”

 

News from the Profession.  Here’s Your Authoritative Guide for Likening Game of Thrones to Public Accounting (Going Concern)

 

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Tax Roundup, 6/16/14: The dog ate my email edition. And: mail those estimates!

Monday, June 16th, 2014 by Joe Kristan

Mail your second quarter 1040 and 1041 estimates today! (Or pay them online).

 

Rose Mary Woods checks her e-mail in the Nixon administration.

Rose Mary Woods checks her e-mail in the Nixon administration.

If the IRS demanded your emails, and you said the computer “crashed” and ate them, they’d buy that, right?  

The IRS expects us to believe that they so monumentally incompetent at information technology that they can’t produce Lois Lerner’s emails from January 2009 through April 2011.  No backups?  No RAID duplication?  No way to reconstruct them out of the bad hard drive?

Even the best possible interpretation of this — taking the IRS at its word — is a damning indictment of the agency.  It would show that basic network hygiene used by the private sector since the last century still is too advanced for the biggest taxing agency in the world.

But you may be excused for suspecting evil instead of incompetence here.  Congressional investigators have been looking for these emails for months.  Evidence has been building of an interagency effort between the IRS and the Justice Department to shut down, and even prosecute, unfriendly organizations.  Now, suddenly, poof, no more emails.  I don’t buy it.

The IRS statement says “In the course of collecting and producing Ms. Lerner’s additional emails, the IRS determined her hard drive crashed in 2011.”  What email system does the IRS use where the emails live on individual hard drives, rather than an email server?  Do any of you readers use your PC as your email server?  If so, do you never back it up?

And if you buy the IRS story, then tell my why on earth this exceptionally inept agency should be responsible for administering the nation’s health insurance system through the ACA.  Or even the income tax, for that matter.

Sheryl Attkinson has some follow-up questions for the IRS:

Please provide a timeline of the crash and documentation covering when it was first discovered and by whom; when, how and by whom it was learned that materials were lost; the official documentation reporting the crash and federal data loss; documentation reflecting all attempts to recover the materials; and the remediation records documenting the fix. This material should include the names of all officials and technicians involved, as well as all internal communications about the matter.

Please provide all documents and emails that refer to the crash from the time that it happened through the IRS’ disclosure to Congress Friday that it had occurred.

Please provide the documents that show the computer crash and lost data were appropriately reported to the required entities including any contractor servicing the IRS. If the incident was not reported, please explain why.

Please provide a list summarizing what other data was irretrievably lost in the computer crash. If the loss involved any personal data, was the loss disclosed to those impacted? If not, why?

Please provide documentation reflecting any security analyses done to assess the impact of the crash and lost materials. If such analyses were not performed, why not?

Please provide documentation showing the steps taken to recover the material, and the names of all technicians who attempted the recovery.

Please explain why redundancies required for federal systems were either not used or were not effective in restoring the lost materials, and provide documentation showing how this shortfall has been remediated.

Please provide any documents reflecting an investigation into how the crash resulted in the irretrievable loss of federal data and what factors were found to be responsible for the existence of this situation.

For a phony scandal, it’s amazing how real they’re making it look.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Other Coverage:

Russ Fox, The Two Year Gap. “Either the IRS is deliberately lying or they have the worst IT department and policies of any company, organization, or government entity in the world.”

Ron Fournier, Did The IRS Really Lose Lois Lerner’s Emails? Let a Special Prosecutor Find Them.  “The announcement came late Friday, a too-cute-by-half cliche of a PR strategy to mitigate backlash. ‘The IRS told Congress it cannot locate many of Lois Lerner’s emails prior to 2011 because her computer crashed during the summer of that year,’  The Associated Press reported.

Althouse, “Did The IRS Really Lose Lois Lerner’s Emails? Let a Special Prosecutor Find Them.”  “Give us a special prosecutor, because it’s not acceptable to tell us we’re supposed to believe this story of disappearing evidence….”

The Blaze, Veteran IT Professional Gives Six Reasons Why the IRS’ Claim That It ‘Lost’ Two Years of Lois Lerner’s Emails Is ‘Simply Not Feasible’

TaxProf, The IRS Scandal, Day 403, rounding up blog and big-media coverage.

Peter Reilly, Personal Goodwill Avoids Corporate Tax Exposure:

The IRS does not like the concept of “personal goodwill”, but courts have often approved it.  In the Tax Court decision in the case of Bross Trucking, the concept was confirmed again, helping to save the taxpayer from what appears to me to be a real overreach on the part of the IRS. 

An interesting case involving a group of family businesses.

 

Younkers ruins 20140610Robert D. Flach, FINE WHINE: WHY MUST WE PUT UP WITH LATE ARRIVING CORRECTED 1099-DIVs EACH TAX SEASON?

Kay Bell, A Father’s Day gift for single dads: 5 tax breaks

Jack Townsend, 11th Circuit Holds Clear and Convincing Evidence Required for Section 6701 Penalty; Can Reasoning be Extended to FBAR Willful Penalty?

Phil Hodgen, Maximum account value determination for trust beneficiaries for FinCen Form 114.   Useful information ahead of the June 30 FBAR deadline.

Andy Grewal, TEFRA Jurisdiction and Sham Partnerships — Again? (Procedurally Taxing).  A guest post by a University of Iowa law prof.

 

Howard Gleckman, The Strange Fruit of the House’s Bonus Depreciation Bill (TaxVox).  “If I had read the bill more carefully, I would have noticed that while it applied to fruit that grows on trees and vines, it inexplicably excluded fruit that grows on bushes. As a blueberry lover, I am shocked and outraged.”

TaxGrrrl, House Votes To Make Small Business Tax Break Permanent.  “The bill would make the [$500,000] cap retroactive to January 1, 2014.”

Scott Drenkard, Donald Sterling Might Not Be Able to Write Off $2.5 Million Fine as a Business Expense (Tax Policy Blog).

Going Concern, What’s a Day in the Life of a Typical Audit Intern?  You’ve been dying to know!

 

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Tax Roundup, 6/11/14: IRS Bill of Rights: just words? And: when your state got its income tax.

Wednesday, June 11th, 2014 by Joe Kristan

billofrightsTalk is cheap.  The North Korean constitution has a whole bunch of rights,  per Wikisource.  For example:

Article 70. Citizens have the right to work. All able-bodied citizens choose occupations in accordance with their wishes and skills and are provided with stable jobs and working conditions. Citizens work according to their abilities and are paid in accordance with the quantity and quality of their work.

Article 75. Citizens have freedom of residence and travel.

Article 78. Marriage and the family shall be protected by the State. The State pays great attention to consolidating the family, the basic unit of social life.

 

So written declaration of rights are just empty words when there is nothing behind them. That’s why I can’t get too excited about the big Taxpayer Bill of Rights announced by IRS Commissioner Koskinen and Taxpayer Advocate Olson yesterday.

Nothing to disagree with on the list, but what will the IRS do to make it more than empty words?  Going down the list:

The Right to Be Informed.  The IRS is infamously secretive.  Will they no longer require Tax Analysts to sue them to make public their positions and procedures?  Will the required compensation for S corproation employee- shareholders be only known to the whim of the examining agent?

The Right to Quality Service.  The IRS continues to get worse at answering taxpayer questions.  It seems like they are worse than ever at dealing with correspondence.  It has become nearly impossible to reach IRS personnel in D.C. by phone to ask technical questions. Is the Commissioner going to change any of this?

The Right to Pay No More than the Correct Amount of Tax.  The nearly-automatic assertion of penalties for every asserted deficiency will have to end for this to mean anything.

The Right to Challenge the IRS’s Position and Be Heard.  The consolidation of appeals offices and their seeming loss of independence will have to be reversed for this to mean something.

The Right to Appeal an IRS Decision in an Independent Forum.  See you in Tax Court…

The Right to Finality.  Does this mean IRS will enable offshore FBAR foot-faulters to come into compliance without facing financial ruin?

The Right to Privacy and The Right to Confidentiality. These are a big ones, and the IRS hasn’t been doing so well at them lately.

The Right to Retain Representation.  Yet the IRS wants to choose who gets to do this for you. When the IRS can shut down your representative, he may not be a really zealous advocate.

The Right to a Fair and Just Tax System.  This is something that the IRS can’t ultimately reach on its own — Congress designs the system — but it could sure do a lot better.  When the IRS routinely assesses $10,000 penalties for filing Form 5271 one day late, when they effectively loot foreign pension accounts of expats for inconsequential paperwork violations, it’s hard to see the fairness and justice.

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Other coverage:

TaxProf has a roundup.

Kay Bell, Would the newly adopted Taxpayer Bill of Rights have prevented the IRS Tea Party scandal?

Robert W. Wood, IRS Reveals Taxpayer Bill Of Rights

Joseph Henchman, IRS Approves List of Taxpayer Rights (Tax Policy Blog).  “My own addition is that much as requiring police to know and inform arrestees of “Miranda” warnings has increased awareness of those rights, so too will this.”

TaxGrrrl,  IRS Releases Much Anticipated ‘Taxpayer Bill Of Rights’  “With the wrap up of filing season, the IRS is now in its peak correspondence mailing season. This was, according to Koskinen and Olson, the perfect time to introduce the rights since they will be mailed out together with those correspondences.”

Russ Fox, IRS Adopts “Taxpayer Bill of Rights;” Will Anything Change?  “Until the IRS comes clean on the IRS scandal, what was released today makes a great sound bite but is otherwise nothing new. The IRS appears to have violated six of the ten rights, and is still stonewalling Congress on the scandal. The IRS’s budget won’t be increased because of today’s press release.”

 

Scott Drenkard, Richard Borean, When Did Your State Adopt Its Income Tax? (Tax Policy Blog):

20140611-1

No, they haven’t been around forever, it just feels that way.  Wisconsin was first.

 

Jason Dinesen, Same-Sex Marriage and Amending Prior-Year Returns.  “A broader way of asking the question is: if someone who’s in a same-sex marriage amends a prior-year return that they had previously filed as a single person due to the Defense of Marriage Act, must that amended return show a filing status of married?”

Tony Nitti, District Court: Lone Sale Of Undeveloped Land Generates Ordinary Income, Jeopardizing Land Banking Transactions   

William Perez, Home Office Deduction

Keith Fogg, Government Drops Appeal in Rand Case (Procedurally Taxing).  This is the case where the Tax Court ruled that a recovery of refundable credits in excess of income tax was not a “deficiency” for computing penalties.

Jack Townsend, Reminder: Category 2 Banks Will Serve Up Their U.S. Depositors .  Consider banking secrecy dead.

Brian Strahle provides a list of state and local tax blog resources. 

 

20140611-2Alan Cole, Japan’s Tax Reforms and its Blockbuster GDP Growth (Tax Policy Blog):

Paired together, theory would predict that these two tax changes create a structural shift in the Japanese economy; the more favorable corporate tax climate would encourage investment, and some income would be spent on that new investment instead of immediate consumption. Over the long term, this will boost Japanese wealth and productivity, and eventually allow for a higher standard of living than before.

The data fit this theory so far; private nonresidential investment grew at a “blockbuster” rate of 7.6% in the first quarter of 2014. 

 

David Brunori, A Coke and a Smile and a Tax (Tax Analysts Blog). ” It would tax a can of Coke, but if you went to Starbucks and dumped five teaspoons of sugar into your latte, there would be no additional tax.”

TaxProf, The IRS Scandal, Day 398

Going Concern, Ex-BDO Vice Chairman Given 16 Months to Think About His Choices. He will retire to a Bureau of Prisons meditation facility.

He was ashen after the sentence was announced.  Gray man sentenced to 18 months for tax evasion

 

 

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

Monday, June 9th, 2014 by Joe Kristan

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

 

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

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

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

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

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

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

Wikipedia image of Tams

Wikipedia image of Tams

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

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

 

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

 

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

Paul Neiffer reminds us that FBAR Filing Deadline is Near

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

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

 

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

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

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

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

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

 

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

 

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

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

Tuesday, June 3rd, 2014 by Joe Kristan

 

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

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

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

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

microsoft-apple

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

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

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

What should states do?  The report says:

Four policy implications for state governments follow from our analysis:

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

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

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

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

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

Other coverage:

Joe Carter, How Enterprise Zones Lead to Cronyism

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

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

 

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

 

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

Kay Bell, Tax moves to make in June 2014

Robert D. Flach has your fresh Tuesday Buzz!

 

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

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

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

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

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

 

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

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

TaxProf, The IRS Scandal, Day 390

 

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

 

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Tax Roundup, 6/2/14: Tax moralism and moral panics. And: IRS, abetter of theives, scourge of victims!

Monday, June 2nd, 2014 by Joe Kristan

taxanalystslogoTax Analysts’ Tax Notes and State Tax Notes are part of my healthy breakfast, and today they are especially delicious.  The only bad part, for me, is that they are subscription publications, making them hard to share in full.  I can give you morsels, though.

Joseph Thorndike has an excellent discussion of the hollow moralism of tax debates, though he ends up defending it.  In the course of discussing an article by Allison Christians on the role of moralism in tax debates, he comes up with gem after gem.  He quotes Learned Hand’s discussion of the issue, which I find conclusive:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

That never stops politicians, as Joseph points out:

     More recently, President Obama’s proposal for a “Buffett rule” clearly falls within that tradition of tax moralism (although in this version of the morality play, the billionaire plays the hero rather than the villain). Like the AMT, the Buffett rule is a rear-guard action to defend the fisc against the predations of aggressive avoiders.

But those sorts of Rube Goldberg tax contraptions are an admission of failure. They take for granted that the existing tax base and its statutory rate structure cannot be defended. But the efficacy of those second-best tax systems — at least when measured in terms of fairness — is anything but self-evident. And their costs in terms of complexity and opacity are substantial. 

If you move away from the law, to a system of “morality” in paying taxes, you lose your way.  Who decides what is moral?  Politicians?  Don’t make me laugh.  It’s hard enough to follow the law, given its ridiculous complexity.  If you then require taxpayers to meet subjective standards of whatever pressure group feels like calling a press conference that day, you make taxes pretty much impossible.

One point not mentioned is the conflicting moral obligations of taxpayers.  A rich individual has moral responsibilities to his children, his business and his own community.  The IRS can’t be the supreme moral agent.  And a corporation has moral and legal obligations to its shareholders, customers and employees that conflict with any “moral” obligation to the fisc.  Given that pensions are mostly invested in corporation stock and bonds, their “moral” obligation to give politicians more money for buying votes is hard to take seriously.

 

e-cigFor dessert, David Brunori chimes in on e-cigarettes and politicians

 I get the rationale for tobacco taxes. You smoke, you get sick, society has to pay for your medical care. That’s consistent with the classic rationale for excise taxes. Those taxes are legitimate only if used to pay for externalities — that is, the societal costs that aren’t borne by the market.

Of course, cigarette taxes in particular have never really been about externalities. If they were, every penny of revenue would go to smoking-related healthcare. Instead, dozens of states earmark some cigarette tax revenue for education (I still can’t believe teachers who rely on cigarette tax revenue for their raises aren’t leaving cartons of Lucky Strikes on their kids’ desks). 

Ah, but giving away cartons of cigarettes on a teacher’s salary?  Of course, my mom was a teacher, and I remember as a kid buying her cigarettes at the store.  But she never shared them, and I never picked up the habit.

David adds:

Taxing e-cigarettes is a money grab. If people use e-cigarettes instead of real cigarettes, the state loses money. The vested interests like the public employee unions and the myriad government contractors can’t have that. But proponents won’t admit the money-grabbing motive.

Iowa, like many other states, is a partner in the tobacco industry as a result of a shakedown settlement agreement with the big tobacco companies.  The industry continues to operate, with the politicians getting a cut of the revenue (nice vice racket you got there, hate to see something bad happen to it).  The moral panic over e-cigarettes is really about protecting this franchise.

 

20130419-1We’ll let them steal your money, and then we’ll punish you for it.  IRS freezes tax ID theft victims’ return – then hits them with late penalties. (Cleveland.com)

Pat Pekarek and her husband, Roger, discovered someone filed taxes using Roger’s Social Security number last year, after the IRS rejected their e-filed joint return.

The Pekareks, who live in Parma Heights, dutifully followed the IRS’ instructions to send their return by mail with documentation proving they were the real Pekareks. The IRS immediately froze their account, along with a credit that Pat Pekarek expected to use toward this year’s taxes.

A year later, the account remains in the IRS deep freeze – along with the credit. And now, even though it was the IRS freeze that kept the credit on ice, the agency is demanding the Pekareks cough up back taxes and pay late penalties.

The IRS has let identity theft get completely out of control, while spending its time and energy trying to regulate law-abiding preparers and harassing uncongenial political groups.  And they’ve managed to neglect and abuse the victims while doing so.  Good thing they are responsible for our health insurance system too.

 

William Perez, Foreign Bank Accounts due June 30th.  New form, and now you have to e-file.

TaxGrrrl, Las Vegas Man Cheated IRS, Taxpayers Using False Home Buyer Credits:  “Refundable credits are traditionally a magnet for fraudulent claims and this one was no different: initial reports indicated that nearly 100,000 refunds were perhaps inappropriately distributed, with $600 million of taxpayer credits labelled “suspicious” in 2009 (despite those numbers, Congress kept extending the credit).”

Jack Townsend, Accountant Sentenced For Tax Crimes; Conduct Included FBAR violations .  “The gravamen of Duban’s conduct is that he assisted the persons related to the automobile dealership in running nondeductible personal expenses through the corporation.”

Scott Schumacher, Winning the He-Said-She-Said Case (Procedurally Taxing)

Tony Nitti, S Corporation Shareholder Must Reduce Basis For Non-Deductible Corporate Loss 

 

20140401-1Lyman Stone, Response to Politico: Taxes and the Texas Miracle (Tax Policy Blog):

But long-term tax policies do matter. Stable, neutral, non-distortionary tax policies, offering low tax rates on broad tax bases, can support economic growth. Firm site selection is one channel, through which taxes affect economic decisions on the margin. There is robust evidence that taxes (while certainly not the only or even the largest factor) do matter for site selection. And, as one of the few site selection variables policymakers can directly control, it makes sense for them to be concerned about the role of taxes.

But not in the form of paying people to be your friends via tax credits.

 

Annette Nellen, Is tax reform on or off? Odd activities in the House last week

Kay Bell, Debate continues about tax havens and punishment fairness

 

Renu Zaretsky, Holes, Holidays, Hurricanes, and Tax Bills (TaxVox).  “The Illinois legislature passed a budget with revenue holes and no spending cuts.”

 

TaxProf, The IRS Scandal, Day 388

Me, 2 million served.  An arbitrary milestone, achieved!

 

Russ Fox, No, Fido & Lulu Can’t Own Your Business:

All corporations have to have a Board of Directors. That board handles various business items of the corporation. Now, in a tightly controlled corporation you might just have one board member–yourself. But Mr. Zuckerman elected a strategy that I haven’t seen before (and I doubt I’ll see again): He named his pets as board members.

They were probably as independent as any number of human board members.

 

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Tax Roundup, 5/29/14: Supreme Court ponders crediting city income taxes on state returns. And: more jeers for “voluntary” preparer regulation.

Thursday, May 29th, 2014 by Joe Kristan

supreme courtThe U.S. Supreme Court will decide a case on whether states must allow a credit for taxes paid to municipalities.  The Supreme Court yesterday agreed to hear an appeal of Maryland v. Wynne, where a Maryland court ruled that the state must allow a credit against Maryland taxes for taxes paid in non-Maryland cities by Maryland residents.

State generally allow their residents credits for taxes paid to other states, to the extent the taxes don’t exceed resident-state tax on the same income.  Iowans compute this credit on Form 130.  This keeps residents with out-of-state income from doubling-up their state taxes.  Municipal taxes don’t necessarily get the same treatment.  An Iowa Department of Revenue representative outlined the state’s position:

Iowa Code section 422.8(1), which provides for the out-of-state tax credit, only refers to tax paid to another state or foreign country.  “State” is defined in Iowa Code section 4.1(32) as including the District of Columbia and its territories.  Therefore, based on the Iowa statute, Iowa would take the position that the out-of-state tax credit is not allowed for municipal taxes.

I have no idea how the court will rule on this.  Both Maryland and the Obama administration urged the court to take the case, which might indicate the court is sympathetic to them.  Or it might not.  For its own reasons, the Court may be looking for a vehicle to clarify the law of multistate income tax.

A brief from an organization of municipality attorneys describes the Maryland holding being appealed:

1. First, in order to avoid substantial interference in interstate commerce, the dormant Commerce Clause of the United States Constitution requires every state and subdivision thereof to give its residents a full tax credit for all income taxes paid in another state or subdivision; and

2. Second, the receipt of Subchapter S pass-through income in Maryland is “interstate commerce” which is being substantially affected by Maryland’s tax structure, in violation of the dormant Commerce Clause.

Both of those points seem perfectly reasonable to me.  If the court rules against the taxpayer, states may try to raise money be limiting their credit for taxes paid to other states.

In any case, it would be prudent for Iowans who have paid taxes to non-Iowa municipalities to file protective refund claims for open years.  For taxpayers who extended 2010 returns, that year is still open; otherwise, 2011 is the earliest open year.  The court will hear the case in its term beginning in October.

The TaxProf has a coverage roundup.  TaxGrrrl reports in Supreme Court Agrees To Hear Landmark Case On Whether States May Tax Income Earned In Other States, with a good discussion of the history of the case.

 

20130121-2Another supporter of preparer regulation comes out against “voluntary” certification.  The American Institute of Certified Public Accountants came out against the IRS “voluntary” preparer certification system this week.  Now the National Association of Enrolled Agents, which like the AICPA was a fan of the now-defunct IRS mandatory preparer regulation scheme, has also come out against the “voluntary” program proposed by Commissioner Koskinen.  Robert D. Flach reports:

It appears that the main objection of NAEA to the current IRS proposal is the replacement of the original initial competency test used in the pre-Loving mandatory RTRP program with a “50-question ‘knowledge based comprehension test’ to be created by individual CE providers”.

It goes on to say -

“CE by itself, even in combination with a ‘knowledge based comprehension test’, fails to provide a taxpayer with any assurance that the person preparing his or her return is even minimally competent to do so.”

I think this is just another way for the IRS to help its friends at the national tax prep franchises to get something to put on their windows without helping taxpayers.  Considering its limited financial resources, it is absurd for the IRS to be taking on a new program.  Taxpayers can already choose CPAs or Enrolled Agents if they want “certified” preparers, and nothing stops unenrolled preparers from setting up their own system.  You have to have a lot of unwarranted faith in IRS goodwill to believe that the “voluntary” program won’t really be mandatory, as the IRS gives little perks to the “volunteers” and little hassles to everyone else.

 

 

Kay Bell, Actual auto expenses or standard mileage rate? Which business deduction method will cut your taxes more?

William Perez, IRS.gov’s Direct Pay.  “Unlike the Electronic Federal Tax Payment System (EFTPS), people using Direct Pay do not need to register to use the service.”

 

20140328-1Russ Fox, Punt Blocked; National Audit Defense Network Heading to ClubFed.

Cara Griffith, How Much Knowledge Is in an Audit Manual? (Tax Analysts Blog).  “Yet while the IRS and several states make their audit manuals available online, other states, including Louisiana, do not. Taxpayers should not have to make a public records request to obtain manuals that will provide guidance on how a state conducts an audit. ”

Leslie Book, TEFRA Outside Basis and Tax Court Jurisdiction (Procedurally Taxing). “Periodically, like a kid forced to eat spinach, I will tackle TEFRA developments.”

Peter Reilly, Z Street Suit On IRS Israel Targeting Can Move Forward. “This lawsuit much like Teapartygate confirms me in my view, that the evaluation of whether an organizations purposes should allow it exempt status is not something that the IRS should be doing.”

Jack Townsend, Zwerner Jury Verdict — FBAR Willfulness for 3 Years

TaxProf, The IRS Scandal, Day 385

 

guillotineAndrew Lundeen, France’s 75 Percent Tax Rate Offers a Lesson in Revenue Estimating (Tax Policy Blog):

Since elected, French President Francois Hollande has raised the income tax, corporate tax and VAT. The government forecasted that these tax increases would lead to an increase in revenue of 30 billion euros.

As reported by the BBC, those estimates were off by about half:

“The French government faces a 14bn-euro black hole in its public finances after overestimating tax income for the last financial year.”

You can’t expect people just to stand still for something like that.

 

Adele Morris, Three Options for Better Climate Policy (TaxVox) Carbon Taxes, State carbon taxes, or no carbon tax.

 

Going Concern, IRS Throws Hissy Fit About Not Being Able to Regulate Preparers, Gives Up On Everything.

 

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Tax Roundup, 5/28/14: Tax Fairy isn’t handicap-accessible. And: Why you should let your tax guy do the talking.

Wednesday, May 28th, 2014 by Joe Kristan


tax fairy
Audit defenders can’t defend themselves.  
There is something deep in our DNA that enables us to believe in the supernatural, at least when it comes to taxes. Otherwise sensible people act as if they believe in a Tax Fairy who can wave a magic wand to make taxes go away.  Operators offer themselves as intermediaries to the tax spirit world, taking real money to generate pretend tax breaks.

It had to take a real leap of faith to pay good money to the National Audit Defense Network.  Members of this Nevada group were convicted in Las Vegas yesterday of tax charges that included an implausible tax credit scheme.  They set up a “shopping” web site called Tax Break 2000 that was inaccessible to handicapped users.  They would then sell Tax Fairy adherents a “modification kit” to make the web site handicap-accessible for $10,475 — 20% down, and the rest payable on a promissory note “when they had no expectation that the customers would make payments on the promissory notes.”  They then told their clients that this generated a $5,000 tax credit.

How many Taxafarieans paid the $10,475 tithe?  According to the indictment, they sold 21,610 kits.  Assuming they collected 20% of the sales price, that grossed them $45,272,950.

Any attempt to commune with the Tax Fairy runs into snags.  The first big snag here was a letter from their own internal “dream team” of tax advisors telling them this wouldn’t work.  The indictment says the NADNers went opinion shopping and found accommodating attorneys who said it might work.  Good enough!

They had more difficulty clearing the next obstacle: a permanent injunction against selling Tax Fairy access.  But that’s the least of their problems now.

This case has attracted a little extra attention because of the involvement of a former NFL punter, who apparently decided to ignore his professional training and go for it.  When trick plays fail, they fail badly, and the participants now may face long prison terms.

And there is no tax fairy.

 

Wind turbineTony Nitti, Tax Geek Tuesday: Hot Assets And The Sale Of Partnership Interests

Kay Bell, Federal workers, including members of Congress and Treasury employees, owe Uncle Sam $3.3 billion in back taxes

No.  Does Warren Buffett Practice What He Preaches? (Paul Neiffer)  “The cost to Warren individually of raising his individual income tax bracket by 10% annually may cost him personally a couple of million or less, while his company saves over $400 million in tax by using energy tax credits.  I would make the trade-off any time.”

 

 

TaxProf, The IRS Scandal, Day 384

Joseph Thorndike, Bad Ideas Are Like Bad Pennies (Tax Analysts Blog).  He’s talking about private collection of IRS debts.  Considering that the IRS isn’t exactly blemish-free in its debt collection practices, I don’t share the objections to private collection of undisputed tax debts.

Joseph also raises this point: “But it’s also expensive to pander, since every dollar invested in IRS collection can return up to $20 in new revenue.”  I think that’s hugely unlikely as a marginal return, based on what I see in the field and the way the IRS misdeploys resources (preparer regulation, anyone?).

 

Not Senator Wyden

If there is something wrong with our tax exemption, then there is something wrong with America.  I won’t stand here while you badmouth our country!

David Brunori, Taxing Togas and Keggers (Tax Analysts Blog).  “States should consider ending the absurd practice of granting property tax exemptions to charitable organizations.”

Andrew Lundeen, The Economic Effects of Bonus Depreciation (Tax Policy Blog). “Permanently extending bonus depreciation would spur investment, lift wages, grow the economy, and increase federal revenue.”

Howard Gleckman, Turning Carbon Tax Theory Into Reality (TaxVox).  Don’t hold your breath for this to be enacted, even if it would keep that carbon in your lungs.

 

Do you ever wonder why practitioners like to do the talking when the IRS gets involved? Yes, by all means stand up for your rights when dealing with the IRS.  But there’s a line where you should stop.  Going Concern tells us of a Mr. Calcione who went way over the line:

Three days after the agent left the voicemail, Calcione left a couple voicemails of his own. One of the messages contained a threat made by Andrew Calcione that if the agent called him again he would show up at the agent’s home and torture the agent, then rape and kill his wife and injure his daughter while the agent watched, before killing the agent. A second message left by Calcione requested that Calcione disregard the first message, which Calcione said was left in error.

Oh, you didn’ t mean my wife and daughter?  Well, OK, then!

Mr. Calcione was convicted of threatening an IRS agent.  Whatever tax problems he had before, that voice mail made things much, much worse.

Related: Man Convicted Of Threatening To Assault & Kill IRS Agent, Family Over Audit Proceedings  (TaxGrrrl)

 

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Tax Roundup, 5/27/14: IRS not so severe on e-file identification? And driving the extra mile to save on taxes.

Tuesday, May 27th, 2014 by Joe Kristan

e-file logoThe IRS may end up less ridiculous than they appear to be in writing.  We mentioned last week the new IRS Publication 1345 rules for e-file tax firms that by their terms appear to require practitioners to card their in-office clients and run credit checks on clients who mail or upload their tax information.  Our local “stakeholder liaison (the IRS representative who works with practitioners) called me and said she has been told by higher-ups that the requirements will be less severe than they look.  She also called Jason Dinesen, who reports:

This IRS this afternoon confirmed to me and other practitioners who had been making the IRS’s lives miserable the last few days that: the new e-file rules apply only to electronically signed e-file authorizations. And “electronically signed” means signed by some means other than pen-to-paper.

I hope this is true, but I will feel better when the IRS puts it in writing.  After all, you aren’t protected form penalties by oral advice.  But even if it is true, it seems even sillier than the original rule.  The whole idea is to prevent identity theft, but it’s a rare ID thief who hires a practitioner to steal identities.  It would be rarer still for one to go through the trouble of using an e-signature return.  That’s why I’m not fully convinced by the liaison; it just would create a requirement so onerous for a narrow set of returns that few people will file that way.

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

 

20140527-1TaxGrrrl, On Memorial Day, A Look At Surviving Family Military Benefits   

If you’re a serious poker player, you might want to check out Staking and the 2014 WSOP: Nothing Has Changed.

TaxProf, The IRS Scandal, Day 383

Lyman Stone, New State-Level Price Data Shows Smaller State Real Income Differences (Tax POlicy Blog):

Federal tax progressivity has strange consequences. People who are “poor” in one state could be “rich” in another without changing the dollar amount of their income. So the progressive nature of the federal income tax can lead to poor- or middle-class people in high-price states paying taxes equivalent to what significantly richer (in real, standard-of-living terms) people would pay in low-price states.

It costs more to be rich in New York than Des Moines.

 

Renu Zaretsky, The ACA, Extenders, and More Swiss Banks.  The TaxVox headline roundup includes a link to a NY Times piece on a recent IRS ruling to prevent “dumping” of employees on state exchanges through tax-free reimbursement plans. Just one more hasty patch on a leaky system.

Robert D. Flach comes back from a long weekend with your Tuesday Buzz!

News from the Profession. California Board of Accountancy Says the Early Bird Gets the CPA Exam Worm (Going Concern)

 

20140527-2Going the extra mile to save on taxes.  An Alaska doctor should get points for endurance, anyway, even if it turns out that he is a tax cheat.  The Justice Department accuses Michael Brandner, an Anchorage doctor, of evading taxes through offshore accounts.  According to the Department press release, the physician literally was operating under-the-radar (my emphasis):

According to court documents, Brandner engaged in a scheme to hide and conceal millions of dollars of assets from the Alaska courts and from his wife of 28 years who was divorcing him.  Shortly after the divorce was filed, Brandner left Alaska and drove to Central America after converting assets into five cashier’s checks worth over $3,000,000.

Driving from Alaska to Panama isn’t for the faint-hearted.  Driving their with $3 million in cashiers checks — that’s impressive, in a crazy sort of way.  If he is convicted, his sentence should include time served on the road.

 

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Tax Roundup, 5/22/14: IRS teams up with Bernie Madoff. And: more on the new e-file ID rules.

Thursday, May 22nd, 2014 by Joe Kristan
Bernie Madoff

Bernie Madoff

The IRS wants in on Bernie Madoff’s action.  The Tax Court is going to think about it.

Bernard Kessell died in July 2006.  He might have died content believing he was leaving a healthy investment portfolio for his heirs.  After all, just one part of the portfolio had issued its most recent month-end statement showing a value of $3,221,057.  That statement was issued by Bernie Madoff.

Of course Mr. Madoff was arrested in 2008 and is now residing in federal prison on charges arising from the Ponzi scheme that victimized Mr. Kessell and so many others.  The real value of the securities in Mr. Kessell’s Madoff portfolio was zero.

But the IRS isn’t letting that get in the way.  The agency says Mr. Kessell’s estate should pay estate tax on the value that Mr. Kessell died thinking he owned, rather than the zero actual value.  It wants to piggyback on Mr. Madoff’s fraud to tax an estate value that wasn’t there.

The IRS asked the Tax Court for summary judgment that the asset to be taxed was the account itself, not the vaporous underlying assets, and that because Mr. Madoff hadn’t been unmasked, a willing buyer would pay full sticker for the lying value on the Madoff statements.  The Tax Court court wasn’t willing to go along on summary judgement:

We cannot say on the record before us, however, whether that agreement constituted a property interest includible in Decedent’s gross estate separate from, or exclusive of, any interest Decedent had in what purported to be the assets held in the Madoff account. This question is best answered after the parties have had the opportunity to develop the relevant facts at trial. We will therefore deny respondent’s motion on this point.

As to the issue of the value, Judge Kroupa had this to say (citations omitted).:

     Respondent argues that a Ponzi scheme, by its very nature, is not reasonably knowable or foreseeable until it is discovered or it collapses. Respondent notes Mr. Madoff’s particular skill and that his Ponzi scheme was not disclosed until it collapsed in December 2008. Respondent then reasons that Mr. Madoff’s Ponzi scheme was knowable or foreseeable only at the point when it collapsed — when the amount of money flowing out of Madoff Investments was greater than the amount flowing in. For purposes of this motion, at least, we disagree.

Some people had suspected years before Mr. Madoff’s arrest that Madoff Investments’ record of consistently high returns was simply too good to be true. Whether a hypothetical willing buyer and willing seller would have access to this information and to what degree this information would affect the fair market value of the Madoff account or the assets purportedly held in the Madoff account on the date Decedent died are disputed material facts.  Thus, we will deny respondent’s motion on this point as well.

The rule on how assets are valued is in Reg. Sec. 20.2031-1(b):

 The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

Most folks would consider the fact that the account was invested in a Ponzi scheme to be one of those relevant facts.  I guess that’s why most of us don’t work at IRS.

Cite: Estate of Bernard Kessel, T.C. Memo. 2014-97.

 

20130121-2The AICPA doesn’t care for the “voluntary” IRS preparer regulation proposal.  The Hill.com reports:

That system, the AICPA argues, would create implied government backing for those preparers who comply with the standards, while punishing those who do not.

“The proposed voluntary system would undoubtedly leave the impression among most taxpayers that certain tax return preparers are endorsed by the Internal Revenue Service (IRS),” according letter.

Further, nonbinding standards would fail to root out bad actors, according to the group.

“As a practical matter, any voluntary regime constructed would still not address the problems with unethical and fraudulent tax return preparers,” the group contends.

All excellent points.  The AICPA has figured out that the “voluntary” program would eventually be voluntary like United Way contributions were “voluntary” when I was a green staff accountant at a national accounting firm.  They were voluntary, but amazingly, participation in the drive was always 100%.  Maybe the AICPA leaders still remember their staff accountant days.

I would add one more point.  Commissioner Koskinen and Taxpayer Advocate Olson never tire of telling us how underfunded the IRS is.  If so, why are the diverting some of their already inadequate resources to start a new nonessential program?  The obvious answer is they are trying a back door power grab now that the courts have barred the front door.

Going Concern: The AICPA Voiced “Deep Concerns” About the IRS’ Voluntary Tax Preparer Proposal.  “This means war…”

Larry Gibbs, Recent Developments in the IRS Regulation of Return Preparers (Procedurally Taxing).  A long guest post by a former IRS Commissioner about the power grab he never tried.

 

Russ Fox, New Identification Rules Go Over Like a Lead Balloon:

In this morning’s post, Joe Kristan told his readers to call the IRS. I agree; I urge all tax professionals to speak to or email their IRS Stakeholder Liaison.  

Russ quotes a new post by Jason Dinesen, I Was Wrong: We SHOULD Be Outraged About the New IRS E-File Requirements, which Jason followd up with Questions to Ponder About New IRS E-file Requirements.  I love Question 8: “How many ID thieves use a tax pro?”

Robert D. Flach has a special Thursday Buzz!, which includes Robert’s take on “voluntary” preparer regulation and the new IRS e-file requirements.

 

20140321-3TaxGrrrl, Still Looking For Your Tax Refund? Errors, 4464C Letters And Other Explanations

Peter Reilly,  Tax Court Threatens To Sanction Courtroom Commando Mac MacPherson.

Kay Bell, NYC arena Madison Square Garden pays no property taxes

Me, IRS Releases Applicable Federal Rates (AFR) for June 2014

 

William McBride, High U.S. Corporate Tax Rate Chases Away Companies, Jobs and Tax Revenue (Tax  Policy Blog).  If it didn’t, it would be a fascinating case of economic actors failing to respond to incentives.

TaxProf, The IRS Scandal, Day 378

Renu Zaretsky, Relief, Credits, Cuts, and Roads.  The TaxVox daily headline roundup talks about new tax relief for Minnesotans and the continuing worthlessness of film tax credit programs for everyone but filmmakers.

Cara Griffith, Should Taxpayers Challenge States if They Fail to Enact Rules? (Tax Analysts Blog):

State regulations are often vague or ambiguous, and authorities can use that to their advantage. But states should not be permitted to simply take the position that is in their best interest. They should be required to provide guidance and clarification on the positions they intend to take and, even better, clear-cut examples of how that position will be applied. And if a position will be applied to an entire industry, the state should issue a rule.

States prefer Calvinball rules.

 

Tax Justice Blog, Junk Economics: New Report Spotlights Numerous Problems with Anti-Tax Economic Model.  I suspect the biggest problem is that TJB doesn’t care for any model that doesn’t justify infinitely-high tax rates.

 

Des Moines, sometimes you are just adorable:

adorable des moines

Des Moines has started posting commute travel times, just like a big city.  On a bad day, it could be as much as 2 minutes to downtown from here.

 

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Tax Roundup, 5/19/14: The Roth dilemma. And: risks in enlisting the bookkeeper in your tax crimes.

Monday, May 19th, 2014 by Joe Kristan

IRAIs it better to get a tax benefit now and pay taxes later on retirement income, or vice-versa?  Bloomberg econobogger Megan McArdle ponders the question in To Roth, or Not to Roth:

In theory, the calculation is easy: Figure out whether your tax rate is likely to be higher now or in the future. If you’re young, the answer is likely to be “future”; if you’re in your peak earnings years, you’re probably looking at a lower tax rate when you’re retired.

But while the theory is simple, in practice, things are considerably more complicated. Personal finance is less about math than psychology . . . and tax policy, in this case. What will the tax rate on your income be when you retire — higher or lower than your current tax rate?

“Roth” IRAs and 401(k)s offer no current tax reduction, but if the account is left untapped long enough, there is never an income tax on the earnings.  It’s not always a tough choice.  Many young people face a marginal income tax rate of zero.  To the extent a low-earning young taxpayer benefits from a 401(k) plan or saves in an IRA, you might as well go with a Roth version, as there is little or no current benefit anyway.

As you climb the income ladder, it quickly becomes a more difficult decision.  When my company first had a Roth option, I opted in for a year.  Then it occurred to me that I was making a bet on much higher tax rates in the future at much lower income levels.  That seemed like a losing bet (but see this) and I switched back to the traditional 401(k) with current tax savings.

Megan also notes a real, if hard to quantify, problem with betting on future benefits (my emphasis):

We’re running some substantial deficits, and we’ve made some big promises to retirees. Those obligations will have to be paid for somehow, and by “somehow,” I mean “With higher taxes on someone.” What are the chances that you’ll be that someone? Pretty high, if you save a lot for retirement.

That makes a Roth sound like a pretty good bet. But unfortunately, the same logic that suggests higher income taxes in the future also suggests that a hungry-eyed Congress might settle on all those fat tax-free retirement accounts as a way to balance the books. What Congress giveth, Congress can taketh away. Can you really count on that income being tax-free when it’s finally time to collect it?

If you think no politician would be so brazen, just remember:  “If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.

 

20121120-2Good thing the ACA solved the problem of the uninsured.  Report: 230,000 Iowans still lack health care coverage (Des Moines Register).  Good thing we destroyed the health insurance industry and imposed a whole series of punitive and complicated taxes.

 

Russ Fox, Deadlines for Us, But Not for Them (Part 2), “Later this week it will be seven months since my reply was received. Another nine-week hold has been put on collection activities as the IRS admits that there is correspondence waiting to be reviewed. If we go nine more weeks it will be over nine months since I responded.”

Another reason for a sauce-for-the-gander rule, applying the same rules to the IRS that they apply to us.

Robert D. Flach has a similar state-level example from New Jersey in THE DFBs!

We are told (highlight is mine) -
“New Jersey wrongly notified about 2,000 taxpayers that they underpaid their 2013 taxes, but the state won’t notify them about the error unless the taxpayer asks, possibly causing taxpayers to send the state money that wasn’t owed.”

Tar and feathers.

 

20140507-1Peter Reilly, Real Estate Dealer Or Investor – Can’t Switch At Drop Of Hat.  ” One of the more challenging questions in income taxation of real estate transactions is whether a taxpayer is a dealer or an investor.”  Investors get capital gains, dealers don’t.

TaxGrrrl, Tax Extenders Bill Stalled In Senate.  The latest move in the dance to the inevitable last-minute re-extension of the perpetually-expiring tax breaks.

 

Jack Townsend, Booker Variances are More Common in Tax Crimes. Why? And Do They Disproportionately Benefit the Rich?   He discusses variations from federal sentencing guidelines, including the shockingly-light sentence given Beanie Babies tycoon Ty Warner.

TaxProf, The IRS Scandal, Day 375

William McBride, Top 10 things to Know about Investment and Tax Policy.  (Tax Policy Blog).

Number 2: “Investment in the U.S. has yet to fully recover from the recession and remains near a record low.”

Number 10: “Of the ways to change tax policy to improve investment, expensing generally provides the greatest “bang-for-the-buck” because it applies strictly to new investment.”

 

Renu Zaretsky, Tax Mistakes, Collections, and Breaks.  Today’s TaxVox headline roundup covers a proposal to revive the use of private collectors in federal tax collection and “Affordable Care Act subsidy mistakes now could mean huge tax confusion later.”

Annette Nellen asks What’s missing from Camp’s tax reform proposal?  She has suggestions.

 

20120517-1The new Cavalcade of Risk is up at Waterwayfinancialgroup.com.  The venerable roundup of insurance and risk-management posts includes Hank Stern on the possible perils of ride share. There is risk in letting other people use your car, as anyone who has seen Animal House knows, and those risks may not be covered under your car policy.

 

 

News from the Profession.  Another EY Associate Taking a Stab at Reality TV (Going Concern)

Honor among fraudsters.  Owners of a nostalgia-themed restaurant chain in Pennsylvania and New Jersey went up the river on tax charges last year.  Now comes word that the inside accountant who (allegedly) helped them cheat on taxes also (allegedly) helped himself.  From Philly.com:

An indictment unsealed today charges 58-year-old William J. Frio, of Springfield Township, with conspiracy, filing false returns, loan fraud, and aggravated structuring of financial transactions.

Prosecutors say Frio, who has been providing accounting services to Nifty Fifty’s since 1986, conspired with the popular chain’s owners in a scheme that used skimmed cash to help themselves and associates avoid paying taxes.

He also allegedly used his role as Nifty Fifty’s accountant to embezzle hundreds of thousands of dollars from the organization.

Aside from the obvious risk of going to jail, there are other complications that arise when businesses cheat on their taxes.  Unless your business is tiny, you need some help from your accounting staff.  When your bookkeeper is willing to defraud the government, don’t be shocked if he isn’t perfectly honest with you.

 

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Tax Roundup, 5/12/14: There is no Tax Fairy in Des Moines. And: the Brewster’s Millions prophecy.

Monday, May 12th, 2014 by Joe Kristan


tax fairy
Principal’s $291 million loss struck down in Claims Court.  
Des Moines’ largest employer had a bad day at the U.S. Court of Federal Claims Friday when the court ruled against a $291 million loss taken on tax returns in 2000 and 2001.  That was a time when many big companies took up the search for the Tax Fairy, the mythical sprite who can make millions in taxes go away with incantations and fancy wandwork.

The Principal deductions were from a “strip” transaction, where Principal Life Insurance Company purchased money-market funds, and then split them between the right to income and the, er, principal.   The company retained the right to earnings for 16 to 18 years (there were multiple transactions), and sold the remaining value of the securities.  It allocated all of its basis in split securities to the part it sold, generating the losses.

The IRS had a number of objections to the deduction, may of which can be found in a memo discussing similar transactions — perhaps these transactions.  The Claims Court judge honed in on one: Treasury Regulations that seem to require basis to be allocated between the components of stripped securities (Reg. Sec. 1.61-6(a)):

[w]hen a part of a larger property is sold, the cost or other basis of the entire property shall be equitably apportioned among the several parts, and the gain realized or loss sustained on the part of the entire property sold is the difference between the selling price and the cost or other basis allocated to such part.

The judge didn’t care for Principal’s arguments that it properly allocated all basis to the sold piece of the securities (my emphasis):

VLUU L310 W  / Samsung L310 W It asserts, in effect, that the regulation has a tacit exception, that is, it does not address situations in which an income interest is carved out from a financial instrument. In that situation, PLIC  claims, the proper tax treatment is governed not by the Treasury Regulations, but by “80 years of common law, which Congress and the Treasury have knowingly left in place.” PLIC cites, as evidence of this, a line of authority that it claims demonstrates not only the existence of carve-out interests, but also the fact that the normal basis allocation rules do not apply to them. It contends that this lineament well-illustrates that the basis allocation performed by PLIC here — in which all of its cost in acquiring the Perpetuals was allocated to the residual equity interest — was quite appropriate. But, as will be seen, PLIC’s invocation of these cases — and the supposed “common law” rules they embody — turns out to be something of a clupeidae roseus (or perhaps a school of them). 

Clupeidae roseus must be what judges call “red herrings” when they talk to each other.  In this case, the judge found the PFG arguments wanting and ruled for the IRS.  It deferred its decision on whether penalties would apply pending further proceedings.

While this transaction looks like something that might have been marketed to Principal by a big law or accounting firm, the opinion doesn’t say so.   The case also involved income items where IRS challenged Principal’s exclusion of $21 million from other stripped securities — a part of the case the company also lost.

The moral?  I think the judge put it well: “Only in a parallel universe, where the ‘too good to be true’ rule of taxation reigns not, should the result be different.”  Or as I might put it, there is no Tax Fairy.

Cite: Principal Life Insurance Company and Subsidiaries v. United States, 1:07-cv-00006 (Fed. Cl. 2014)

 

 

20140307-1William Perez, Tips for Starting a Business

TaxGrrrl, On Mother’s Day, What Happens When You’re Taking Care Of Mom (And Not The Other Way Around)?   

Kay Bell, Are child-related tax breaks appropriate, fair?

Jason Dinesen, Taxpayer Identity Theft — Part 19.  Jason links to a summary of his client’s battle with ID theft, including the 10-thumbed IRS treatment she received.

Russ Fox, When Two Intelligent Individuals Reach the Opposite Conclusion… “Welcome to the brave new world of signature documents.”

Robert D. Flach, MORE CLIENTS SCREWED BY THE TAX CODE.  I’d say pretty much all of them.

Stephen Dunn, Foreign Accounts? Don’t Rush Into OVDP.

 

William McBride, How Best to Prevent the Corporations from Leaving? (Tax Policy Blog):

Most industrialized countries largely exclude foreign earnings from the corporate tax base. Most industrialized countries let businesses write-off investments faster than they can in the U.S. These are not “loopholes” but broad-based ways in which these countries compete for business investment and jobs. 

 

TaxProf, The IRS Scandal, Day 368

 

20140512-1The “Brewster’s Millions” tax strategy.  IMDB has the plot summary from this 1985 Richard Pryor vehicle:

Brewster is challenged to either take $1 million upfront or spend $30 million within 30 days to inherit $300 million. If he chooses the former, the law firm becomes executor of the estate and divides the money among charities (after taking a sizable fee). In the latter case, after 30 days, he must spend the entire $30 million within one month…

Brewster gets the idea to join the race for Mayor of New York and throws most of his money at a protest campaign urging a vote for “None of the Above”.

India’s Economic Times reports that on the Subcontinent, Brewster’s Millions is apparently a prophecy:

Made a huge profit selling your property and wondering how to avoid paying tax? Form a political party and “donate” your sale proceeds to it. And if you were worried the taxman will come knocking, just relax, it is perfectly legit. You and your party can claim 100% tax exemption too. “Many political parties are fronts for income tax fraud,” says former chief election commissioner N Gopalaswami . That explains the burgeoning political party registrations. There are about 1,600 political parties in India, but only 100-150 actually contest elections.

It doesn’t work that way in the States.  Here, politics is just a way to blow money.  Unless, of course, you are a humble career public servant from Iowa.

 

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Tax Roundup, 5/8/14: No, Virginian, there is no travel expense Santa Claus. And more!

Thursday, May 8th, 2014 by Joe Kristan

20120801-2News Flash: Tax Court Judges didn’t just fall off the turnip truck.  That insight might have occurred to a Virginian after yesterday’s Tax Court decision denying $64,775 in 2010  “car and truck expenses” for a “mobile advertising business” that grossed $7,200 in revenue.

The Virginian worked full-time for Verizon while traveling up a storm — 129,550 miles in 2010, by his own account.  Special Trial Judge Dean questioned The Virginian’s work ethic (my emphasis):

The number of hours petitioner worked for Verizon and purportedly drove for his mobile advertising business simply strains credulity. Petitioner’s monthly mileage for 2010 ranged from 7,419 miles to 17,864 miles. Petitioner testified that he drove at approximately 60 miles per hour. If it is possible that he could average 60 miles per hour in the month that he drove 17,864 miles, he spent at least 300 hours on the road that month or almost 10 hours a day. All this while working full time for Verizon.

The judge also has doubts about the business model:

Furthermore, petitioner’s extensive driving does not appear to be ordinary and necessary to his mobile advertising business. Petitioner claims that he drove all over the United States to post fliers and to advertise his own mobile advertising business, even though most of his clients were local clients except one online refinancing company. All the while, petitioner had very little income in relation to the excessive costs he incurred driving to put up flyers. Furthermore, the advertising for his own business appeared to be fruitless, as he never made a profit in any of the six years he engaged in the business, despite incurring great costs traveling to advertise mobile advertising business.

20140508-2But ultimately none of that mattered, because The Virginian failed to cross the initial threshold for deducting any sort of travel expenses — Section 274:

Notwithstanding whether petitioner’s excessive driving was ordinary and necessary for his mobile advertising business, he simply did not satisfy the strict substantiation requirements of section 274(d) for claiming car and truck expenses… Petitioner had no backup receipts and no beginning and ending mileage for the automobile he allegedly used. 

Section 274(d) requires taxpayers to document travel expenses “by adequate records or sufficient evidence”

-the amount of expense,

-the time and place of the travel, and

-the business purpose of the trip.

For travel, that means receipts where possible (e.g., hotels), and contemporaneous calendars or logs documenting mileage.  Without that, your work ethic and business model doesn’t even come into play.

Cite: Abelitis, T.C. Summ. Op. 2014-44.

 

20130114-1Roger McEowen, IRS Says Agents Acting Under Power of Attorney Subject to FBAR Reporting.  “The agent (along with the principal) is subject to the FBAR filing requirements if the POA gives the agent signature authority over a foreign account that exceeds the dollar threshold.” 

 

TaxProf, The IRS Scandal, Day 364.  Big day tomorrow.

TaxGrrrl, UPDATED: Timeline Of IRS Tax Exempt Organization Scandal.  It started with a planted question to try to blunt the impact of the impending TIGTA report that pointed out the targeting.

Kay Bell,  Lois Lerner held in contempt of Congress, ramping up next phase of midterm election year political posturing.  Yes, posturing is occurring — that’s what politicians do.  But Sam Ervin’s posturing — and he did his share — didn’t make Watergate less a scandal.

 

Cara Griffith, Transparency Versus Disclosure of Taxpayer Information (Tax Analysts Blog)  “…the disclosure of documents that contain taxpayer information, whether required by state law or the result of litigation, does not encourage transparency in tax administration.”  I agree; unfortunately, the IRS hides behind dubious assertions of confidentiality to cover up its own questionable behavior.

 

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine.  No, don’t.  It’s still outrageous.

20140508-1Peter Reilly, Nonrecognition On Divorce Transfers Hurts Receiving Spouse .  It did in this case, when the recipient spouse had to pay tax.   Taxpayers receiving property in divorce receive the other spouse’s basis, and the other spouse doesn’t have a taxable sale.  But it’s still good policy.  Property settlements are contentious enough without hitting somebody giving up property with income tax on that dubious privilege.  Also, if the IRS got a cut, there would be less marital property to split in the first place.

Alan Cole, Failing by its Own Standard: What DC’s Insurance Tax Tells Us About its Obamacare Exchange (Tax Policy Blog)

Tax Justice Blog, What’s the Matter with Kansas (and Missouri, and …). “An anti-tax, Republican super majority in the Missouri Legislature claimed victory yesterday in a year-long battle with Gov. Jay Nixon over taxes by voting to override Nixon’s veto of a $620 million income tax cut.”

Do tell.  California Legislative Analyst’s Office Raises Concerns with Film Tax Credits (Lyman Stone, Tax Policy Blog).

Renu Zaretsky rounds up tax headlines for TaxVox with Contempt, Audits, Health Care, and Highways.

Janet Novack, Mansion Tax Kills Some Million Dollar Home Sales, Study Concludes.  Taxes always matter.

Jack Townsend, Another Foreign Account Sentencing.

 

Quotable:

The practice of regularly renewing the extenders package is unfortunate and should be stopped. It distorts the budget process, encourages legislative rent seeking, and invites highly particularistic legislative provisions that are better characterized as windfalls and wasteful government spending rather than well-targeted tax incentives.

Victor Fleischer,  Tax Legislation in the Contemporary U.S. Congress (Via the Taxprof)

News from the Profession: Grant Thornton Tries to Motivate With the Human Centipede, or Something (Going Concern)

 

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Tax Roundup, 5/6/14. Welcome back, loyal client. IRS says I have to verify that you aren’t a shape-shifting alien.

Tuesday, May 6th, 2014 by Joe Kristan


e-file logo
It’s not enough that you’ve done business with me forever.  I need some ID.  
The invaluable Russ Fox yesterday threw light on new requirements for electronic filing from the IRS.  These requirements, found in their new Publication 1345, were issued with no public comment period or consultation with practitioners, as far as I can tell, and they sure look that way.

Let’s start with clients who come into our office – a minority of my clients, by the way, as most of my clients either mail in tax information or send it electronically.  Words are from Publication 1345, but emphasis is mine:

The ERO must inspect a valid government picture identification; compare picture to applicant; and record the name, social security number, address and date of birth. Verify that the name, social security number, address, date of birth and other personal information on record are consistent with the information provided through record checks with the applicable agency or institution or through credit bureaus or similar databases.

So I have clients I have been working with since 1985.  When retired gentleman comes in, a little slower than last year, with his cane, but still as charming as ever, I have to say “hold it right there, partner.  You may look like the client I’ve been working with for 28 years, but you might be a clever shape-shifting alien scum looking to defraud our government.  I need to see some picture ID.  Then excuse me while I call the credit bureau.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Oh, but it isn’t that bad:

For in-person transactions, the record checks with the applicable agency or institution or through credit bureaus or similar databases are optional.

Oh, I only have to run credit checks on my long-time clients who don’t come into the office.  Gee, that’s mighty kind of you, IRS.

Examples of government picture identification (ID) include a driver’s license, employer ID, school ID, state ID, military ID, national ID, voter ID, visa or passport.

“National ID?”  I guess that must be next in the IRS off-plan business plan.

You’re thinking, “calm down, Joe.  Surely you are overreacting.  The IRS doesn’t really want you to card your longtime clients, right?”  Well, wrong:

If there is a multi-year business relationship, you should identify and authenticate the taxpayer.

You may think they are longtime clients, but you don’t know if you’ve been fooled by imposters all along!

Of course, this is all a reaction to the identity theft epidemic that the IRS has allowed to spread virtually unchecked for years.  The IRS, an agency too clueless to notice that 655 refunds are going to the same apartment in Lithuania, is now responding to the riot it incited by firing at the bystandersqea0hm77.  It is creating an enormous new and uncompensated burden on preparers and their clients that will do nothing to eliminate ID theft.

Rashia didn't use these bundles of cash at a CPA office.

Rashia didn’t use these bundles of cash to pay preparers.

Why won’t this work?  Most ID thieves work like Rashia Wilson, the self-proclaimed “Queen of IRS Tax Fraud.”  She used store-bought software to claim millions in tax refunds belonging to other people whose identities she had stolen.  ID thieves don’t walk into legitimate tax shops and pay to have fraudulent refunds claimed.  

 

Oddly, none of this applies to paper filings.  If the IRS is really serious about these rules, they can expect preparers  to sabotage the e-file process in self-defense by charging for the non-trivial new time and hassle of e-filing.  While preparers are required to e-file unless otherwise directed, taxpayers are allowed to choose paper.  Nothing says we can’t inform them of that right.  If even 10% of taxpayers respond by choosing to revert to paper, it will badly strain IRS facilities.  If 20% revert to paper, it will be a debacle for the agency.  And they’ll richly deserve it.

 

Other Coverage:

Russ Fox follows up with A Better Idea on Identity Theft. “The IRS should check each tax return’s address to verify it matches the address on file for the taxpayer.”  What a radical thought.

Robert D. Flach notes the Russ Fox post in today’s Buzz and adds, “Thankfully I am not an ERO – and after reading this I never will be!”

 

Flickr image by Christian under Creative Commons license.

Flickr image by Christian under Creative Commons license.

Kay Bell, 5 tax tips for Cinco de Mayo

Tony Nitti, Tax Geek Tuesday: Determining A Shareholder’s Basis In S Corporation Stock and Debt

TaxGrrrl, She’s Just Not That Into You: 11 Reasons Your Tax Pro Wants To Call It Off .  ” You need to tell your tax professional the truth. No matter how ugly it is.”

Keith Fogg, When One Spouse Files Bankruptcy How Should the Court Split the Refund Resulting from a Joint Return between the Estate of the Debtor Spouse and the non-Debtor Spouse (Procedurally Taxing)

Jason Dinesen, Tax Refunds and “Not Owing Tax”, Part 2 . “So if you get a refund, it’s possible that you “didn’t owe taxes,” but only if your “total tax” before refundable credits equaled zero.”

Margaret Van Houten, Anti Money Laundering Initiatives and Lawyers: What We Need to Know (Davis Brown Tax Law Blog).  “Unfortunately, however, not all well-intended actions are effective.”

 

20140506-1TaxProf, The IRS Scandal, Day 362.  What the IRS was busy with while the ID-theft fraud epidemic was getting rolling.

Howard Gleckman, Special Tax Penalties on Donald Sterling are a Personal Foul (TaxVox).  Not every foul has to be a tax issue.

Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)

I reject this false choice.  Investment, GDP Slow in First Quarter: Bad Weather or Bad Tax Policy? (Stephen J. Entin, Tax Policy Blog)

 

News from the Profession.  BREAKING: CPA Exam Candidate Passes AUD  (Going Concern)

 

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Tax Roundup, 5/5/14: The Iowa Legislature’s tax grade: D minus, again.

Monday, May 5th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

The Iowa Legislature has gone home to get re-elected.  As usual, they left the Iowa tax law a little worse than they found it.  They did pass a few new special breaks for their friends and for politics, but they did nothing to simplify Iowa’s high-rate, high-complexity system full of hidden treats for the well-lobbied.

The bills passed include:

A refundable $2,500 adoption credit (HF 2468).  Refundable credits are always a bad idea.  There was apparently no discussion over whether the credit is really needed, or a better use of money than alternate programs, but because a legislator had an expensive adoption, it became a priority.

Sales tax rebates for the Newton racetrack (SF 2341and the Knoxville Raceway (HF 2464).  The bills let each track keep sales taxes they collect — a sweet deal, and an advantage for two taxpayers over every other taxpayer.

Biodiesel tax credits.  SF 2344 gives biodiesel producers two cents per gallon of taxpayer money, in the form of refundable credits, through 2017.  The credit was to expire at the end of 2014.  This is necessary to keep taxpayer dollars flowing to producers until the next time the credit is set to expire, when they will extend it again, just one more time, I promise.

20120906-1HF 2448 passed, providing for easier qualification for the “High Quality Jobs Program” tax credit and a new “Workforce Housing Tax Incentives Program,” which will provide tax credits to housing developers meeting certain conditions designed, no doubt, by one of their lobbyists.  This will do away with the hobo camps that have not sprung up around job sites around the state.

The only really useful thing they passed was the “code conformity bill (HF 2435) to conform Iowa income tax law to include federal tax law changes made in 2014.  In some years they have failed to do so until the end of the session, leaving taxpayers and preparers guessing at the tax law for most of the filing season.

Of course, it could have been worse.  Not every special interest bill passed.

The most prominent failure was that of HF 2472, a bill to provide tax credits for expanding broadband service.  This was a priority of Governor Branstad, killed by a coalition of Democrats who say they wanted bigger credits — but who may have just wanted to hand the Governor a defeat — and Republicans who thought the bill was badly designed.  S.F. 2043, which would have provided a special tax exemption to employee-held stock gains, failed to move.  A proposal to provide a tax credit for student loan payments went nowhere.  A crazy proposal  (H.F. 2270) to pay doctors with tax credits for “volunteering” — at their average hourly rate! — died.

Not everything that died was awful.  HF 2129, which would have expanded the Iowa “Ten and Ten” capital gains break to sales of business interests, never made it out of committee.  Nor did SF 2222, which would have repealed the Iowa inheritance tax.

 

They also failed to pass SSB 3216, the bill to update the Iowa tax appeals system and to remove the Director of the Department of Revenue from the process.  Maybe they can do better next time by also enacting an Iowa tax court.  It seems reasonable to have, say, three district judges from around the state convene as a tax court.  They could give taxpayers a shot at a judicial forum where the judges will have actually heard an income tax case before.

Most importantly, they didn’t even try to address Iowa’s highest-in-the-nation corporate tax rate, its high individual tax rate, or the baroque complexity of Iowa’s income tax for everyone -- other than by making it a little worse with a few new special breaks for special friends.  That means the legislature gets another D-, in my report card, with only the timely passage of the code conformity bill saving them from an F.

But who knows? Elections coming this fall could bring in a few more legislators less intent on taking your money and giving it to friends with lobbyists, to build on the tiny signs of progress seen this session.  Who knows, maybe someday a real tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, will actually get a hearing.

 

20140505-1The Iowa legislative summary took too long, so only a few quick links this morning — I’ll try to catch up tomorrow:

 

TaxProf, The IRS Scandal, Day 361

Russ Fox, Yes, Mom, I Need to See Your ID.  This one I will spend more time on — the IRS, without consultation, plans to make e-filing much more difficult and expensive for everyone, to punish us for their failure to stop ID-theft fraud.

Philip Panitz, Welcome to America, Now Give Us Your Money! (A guest post on Janet Novack’s Forbes blog).  An excellent summary of how the tax law clobbers immigrants, and one I should spend more time on.

Kay Bell, Representatives want to prevent Los Angeles Clippers’ owner Donald Sterling from deducting his $2.5 million NBA fine.  Not every problem is a tax problem, guys.

TaxGrrrl, Union: Privatizing The Sale Of Alcohol Will Kill Children, Lower Tax Revenue.

 

 

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

Thursday, May 1st, 2014 by Joe Kristan

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

2014 Corporate Income Tax Rates

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

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

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

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

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

 

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

 


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

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

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

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

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

 

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

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

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

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

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

 

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

 

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

 

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

 

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Tax Roundup, 4/29/14: Funding what we do anyway edition. And: the real IRS crisis.

Tuesday, April 29th, 2014 by Joe Kristan

Remember, Iowa 1040s are due tomorrow!  They extend automatically, with no need to file an extension, to October 30 if you have at least 90% of your 2013 tax paid in.  If you need to pay in some more, use Iowa 1040-V.

 

Via Wikipedia

Via Wikipedia

O. Kay Henderson reports on a New state tax break proposed for Iowa parents who adopt:

The legislature has voted to establish a new tax credit for Iowa parents who adopt a child. If the governor signs the bill into law, Iowans could claim a credit of up to $2500 per child for adoption-related expenses.

The bill would allow the credit for expenses like legal fees and the medical bills for the birth mother.

So the legislature is boldly addressing the lack of available parents wanting to adopt children by subsidizing the process.  Except there is no lack of willing prospective adoptive parents.  In fact, the high cost of adoptions is largely driven by the lack of U.S. babies available, forcing parents wanting to adopt to pursue expensive overseas adoptions.

Adoptive parents do a wonderful thing, taking a stranger’s child into their house as their own.  But all good things don’t necessarily need their own tax break.  This break pays people to do what they are already doing.  If the tax law needs to encourage something, is this the most important thing to do?  Should it instead encourage something people wouldn’t do otherwise?  Should people choose what to do without tax law involvement?  Is it really worth making the Department of Revenue an overseer of the adoption process?  Nobody cares, apparently, as HF 2468 flew through the Iowa Senate 48-0, and the Iowa House, 95-1.  Governor Branstad will come out against farmers before he vetoes this one.

 

I’m sure they are.  Iowa Renewable Fuels Group Pleased With Biofuels Bill Approval. More special favors for special friends.

 

A scene from the heydey of Iowa energy independence.

A scene from the heydey of Iowa energy independence.

 

Kay Bell, Maryland pays $11.5 million to keep House of Cards.  Some people never learn.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Janet NovackThere’s A Crisis At The IRS And It’s Not What You Think:

The IRS is, however, an insular, often tone deaf and sometimes bumbling bureaucracy which is being starved of the resources it needs to do its job.  Since 2010, its Congressional appropriations have fallen 7% —-and that’s in nominal dollars, before any adjustment for inflation. During the same period, its appropriations funded workforce has shrunk by 10%, with enforcement staff down 15%, according to numbers Congress’ Government Accountability Office released last week. Meanwhile, the tax agency’s workload has increased with the explosion of identity theft tax refund fraud; a 4% growth in returns filed; and new laws to administer, including the Affordable Care Act  (a.k.a. Obamacare).

That is precisely true.  It’s also mostly the agency’s own fault.   The agency been shown to have used its powers against political opponents of the administration.  It refuses to back off of proposed regulations that would make its political role permanent.  Until it swears off that approach, it can only expect short funding.  The House GOP would be fools to fund an agency dedicated to the other party.  Untill Commissioner Koskinen can rise above pro-administration partisanship and pull the proposed regulations, the agency will continue to be shorted.

 

Annals of Public Service.  Rep. Grimm charged with tax fraud, says he won’t quit (USA Today):

Republican Rep. Michael Grimm was indicted Monday on federal charges of tax evasion and perjury for allegedly hiding more than $1 million in revenue from a New York City restaurant he owned where, prosecutors said, he also hired undocumented immigrants.

Grimm, a former FBI agent who has been under federal investigation regarding campaign contributions, said he is the victim of a “political witch hunt” and said he would not resign his seat.

While you can’t rule out a political explanation, the man is a politician, so the charges are at least plausible.  If it is an unsupported political prosecution, that will become apparent quickly.

Even if the charges are supported, that doesn’t rule out political bias.  After all, Democrat Charlie Rangel was never indicted, in spite of failing to pay his taxes for years.  That’s why arguments that the Tea Party persecution was OK, because some Tea Party groups didn’t qualify for exempt status, are unconvincing.  When a law is enforced only against opponents,  it is a gross injustice, even if the selective enforcement catches some actual violators.

 

IMG_1944Peter Reilly, Tax Court Denies Amway Losses – Again.  Peter ponders the Amway couple I discussed last week.  Peter has actually attended an Amway presentation, and he explains how the program works – or doesn’t.

Tony Nitti, Tax Geek Tuesday: Tax Planning For Mergers And Acquisitions, Part II.  This post discusses the tax-free kind.

TaxGrrrl, Let’s Go Places: Toyota Workers Could Save Big Tax Dollars With Move.  Food for thought for those who think state taxes are irrelevant.

 

TaxProf, The IRS Scandal, Day 355

Tyler Cowen, Accounting for U.S. Earnings and Wealth Inequality.  “So much of the current Piketty debate is simply forgetting that…science exists and has already offered a wide range of insights on these topics, as well as having rendered some of the more extreme claims unlikely.”

Richard Borean, Does a Flat Income Tax Create Income Inequality? (Tax Policy Blog).  Short answer: no.

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Jeremy ScottThe Most Expensive Extenders (Tax Analysts Blog).  “Temporary tax policy is generally bad, but temporary policy that is designed to encourage long-term investment decisions is even worse. ”

 

It’s Tuesday!  That makes it Robert D. Flach Buzzday!

 

Russ Fox, It’s Probably Not Good for Your Case When the Court Considers Sanctioning Your Attorney.  When  your lawyer angers the judge, he may not be helping.

News from the Profession.  This Off-Kilter Accounting Firm Just Launched a New Website Begging to Be Judged (Going Concern)

 

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

Monday, April 28th, 2014 by Joe Kristan


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

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

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

Governer Branstad was unhappy:

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

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

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

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

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

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

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

 

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

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

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

 

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

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

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

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

 

 

TaxProf, The IRS Scandal, Day 354

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

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

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

 

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

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

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

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

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

 

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

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

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

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

But it was worse than that:

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

[…]

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

KCRG provides an update:

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

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

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

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

 

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

Friday, April 25th, 2014 by Joe Kristan


Supply and demand curves

Supply and demand curves

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

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

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

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

She also raises a much less logical possibility:

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

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

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

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

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

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

 

Supply and Demand

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

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

 

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

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

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

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

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

 

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

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

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

 

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

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

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

 

 

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

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

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

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

TaxProf, The IRS Scandal, Day 351

Robert D. Flach brings the Friday Buzz!

 

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

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

 

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

Tuesday, April 22nd, 2014 by Joe Kristan

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

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

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

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

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

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

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

microsoft-apple

 

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

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

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

 

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

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

Tax Freedom Day 2014 Map_0

 

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

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

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

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

 

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

Brian Mahany, Is the IRS Whistleblower Program a Failure?

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

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

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

TaxProf, The IRS Scandal, Day 348

 

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

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

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

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

 

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

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

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

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

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

 

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