Posts Tagged ‘TaxGrrrl’
Tuesday, March 26th, 2013 by Joe Kristan
Film tax credit scams are big news in the U.K. right now. An Irish actress, Aoife Madden, yesterday received a 54-month sentence in her role in scamming a U.K. film tax credit scheme. Irish Times reports:
The group successfully claimed £1.5 million in film tax breaks after they said they intended to make a film titled Landscape of Lives with a £19 million budget, funded by Jordanian backers.
Once they were arrested two years ago, the five hurriedly produced a film called, ironically, Landscape of Lies for just £90,000, which went on to win a Silver Ace award from last year’s Las Vegas Film Festival.
The film, which starred former EastEnders actor Marc Bannerman and Andrea McClean, told the story of a former British soldier’s attempts to discover the truth behind his friend’s murder in an apparent mugging.
Before suspicions had been aroused, Madden’s London film company, Evolved Pictures, told revenue and customs that millions had been spent on Hollywood A-list actors and film crew when it lodged a value added tax repayment application for £1.48 million. It received more than £1 million.
Lost in the coverage is Iowa’s pioneering role in film tax credit scams. A little-known film producer from Minnesota came here and showed the Brits just how it’s done:
Take Iowa. A start-up called Polynation Pictures came looking for backing for a sci-fi flick so lame it would have embarrassed Ed Wood. With a financing scheme worthy of Max Bialystock, the con these folks pulled was nearly as inept as the film they made, but Iowa’s film office was too starry eyed to notice.
…
The $767,250 production Polynation Pictures proposed eventually came in at $3.7 million. This was achieved in part with preposterous expenses. Producers claimed they paid $1,350 to rent six orange road cones. The use of two 6-foot ladders supposedly cost the company $900 (a bargain, as Polynation claimed to have spent another $900 to rent a single 8-foot ladder). Among production necessities was a new Mercedes. The partners set up an array of separate companies and used them to bill themselves extravagantly for work supposedly done on the picture. These were presented to Iowa as “deferred payments”—to be paid if the movie made money (which the enterprise was sure to do when Iowa handed the tax credits over). The only thing missing was a staged rendition of “Springtime for Hitler.”
Polynation mastermind Wendy Weiner Runge received 10 years for her star turn in the film credit program.
The film credit program was touted as a way to make Iowa a leader in the film world. And, in a way, it did.
You might be interested in this interview with Ms. Madden about her role in the film, knowing what we know now. She said this:
This project has been a crazy but wonderful challenge!! I’ve always wanted to produce a feature, and have a number of projects in development, but this was the one I just wanted to lift off the page. I think the biggest challenge was sourcing finance, which is no surprise for an independent film company. We were extremely lucky to find international investors and lobby them to back the project, but this was a lengthy process and has always been a challenge.
A challenge, yes, but I’m not sure they turned out lucky.
Snatching defeat from the jaws of victory. Now that the courts have saved the IRS from itself by shutting down the misguided preparer regulation system, the Senate rides to the rescue to screw everything up again, Accounting Today reports:
The two leaders of the Senate Finance Committee, Chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, have begun developing proposals for reforming the U.S. Tax Code, including giving the Internal Revenue Service the clear statutory authority to regulate tax preparers in case the IRS loses its appeal of a recent court case invalidating its Registered Tax Return Preparer regime.
The IRS can’t answer its phones. Its pockets are being picked to the tune of billions by semi-literate South Florida grifters. And the Senate thinks that preparers are the problem? Preparer regulation is a market-share enhancement program for the national franchise tax prep outfits; the rules were written by a former H&R Block CEO. If Senators Baucus and Hatch want to re-enact these anti-competitive and useless rules, it just shows who they really represent. (Via Going Concern).
Howard Gleckman, Congress Has Not Passed A 2014 Budget, and Probably Won’t (TaxVox). Why do that, when Henry and Robert have other chores for them?
Joseph Henchman, Senate Votes on Tax Proposals, Including State Taxation of Internet Commerce. (Tax Policy Blog) Amazon taxes seem inevitable. Otherwise Wal-Mart can’t compete with a guy selling things from his basement on the Internet.
Brian Strahle, The Marketplace Fairness Act: Is It Really Fair?
Kay Bell, Online sales tax a step closer with Senate budget amendment
Thanks, you’ve helped enough already. A New Proposal to Promote American Manufacturing (Martin Sullivan, Tax.com).
Jack Townsend, Supreme Court Will Decide Whether B____t Tax Shelters with Basis Overstatements Draw the 40% Penalty
Tony Nitti, What Are Your Odds Of Being Audited By The IRS?
TaxGrrrl, Taxes From A To Z (2013): N Is For Notice Of Deficiency
Missouri Tax Guy, Social Security Benefits, are they taxable?
Patrick Temple-West, Proposals to tax trades spark financial firm lobbying, and more (Tax Break)
Peter Reilly, Has Scalia Already Thrown In The Towel On Same Sex Marriage ?
Dan Meyer, “Where No Tax Rate Has Gone Before…”
Trish McIntire, That Reminder – 2013. “Your Failure to Plan Is Not My Emergency!” The tax preparer April battle cry.
Tags: Anthony Nitti, Brian Strahle, Dan Meyer, film credits, Going Concern, harold hill, Howard Gleckman, Jack Townsend, Joseph Henchman, Kay Bell, Martin Sullivan, Max Baucus, Missouri Tax Guy, Orrin Hatch, Patrick Temple-West, Peter Reily, preparer regulation, tax crime, TaxGrrrl, Trish McIntire
Posted in Tax Roundup | 1 Comment »
Monday, March 25th, 2013 by Joe Kristan
Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)
Heresies of the Cargo Cult. When some remote societies encountered the industrial world in World War II, they had trouble grasping what they were seeing. Wikipedia explains:
Cargo cult activity in the Pacific region increased significantly during and immediately after World War II, when the residents of these regions observed the Japanese and American combatants bringing in large amounts of matériel. When the war ended, the military bases closed and the flow of goods and materials ceased. In an attempt to attract further deliveries of goods, followers of the cults engaged in ritualistic practices such as building crude imitation landing strips, aircraft and faux radio equipment out of bamboo or whatever materials they had at hand, and mimicking the behavior that they had observed of the military personnel operating there.
While it’s easy to mock an islander for building a refrigerator-like box in hopes of conjuring up an icy six-pack, cargo cult behavior also occurs in modern societies. Without describing it as such, tax historian Joseph Thorndike writes about the cargo cult of the 1950s, where modern policy wonks try to conjure up 1950s-style growth through a ritualistic process of duplicating tailfin-era totems. For example, Timothy Noah thinks the crushing stated top marginal rates of that era might help generate those Happy Days results. Mr. Thorndike sees problems with that approach:
We still don’t know if high statutory rates and (relatively) high average rates were a drag on growth. And we can’t know, because we also can’t know what growth might have been in a different tax climate.
Moreover, a range of nontax factors were probably more important in shaping growth patterns in the 1950s. In particular, the economic disruptions of World War II had left the United States in a uniquely dominant position; by one estimate, U.S. manufacturing output constituted 60 percent of the world’s total in 1950.
In other words, it takes more than a bamboo box to conjure up that beer.
After all, the tax system of the Eisenhower era was not a very good one: It paired notionally sky-high rates with a deeply flawed tax base and created distortions both coming and going.
I understand that progressives like Noah are fighting a different battle: They are trying to beat back the rate-cutting mania that often serves as a definition of tax reform these days. But I think we might take a lesson from the tax experts of the 1950s, who understood the problems bedeviling their own tax system. As economist Harold Groves said at the time, “The impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that makes these rates specious.”
Mr. Thorndike is more sympathetic to high rates than I ever will be. Doing taxes for a living, I see first-hand how high rates affect behavior, and I have no patience for academics who say otherwise. But he wisely notes that simply trying to recreate the totems of the 1950s, like high tax rates, misses all of the other things that put cold beer in the refrigerator. Same thing goes for other 1950s fetishes like tail fins, industrial unionism and defined benefit pension plans.
To serve and protect. Former Pittsburgh Police Chief Charged with Conspiracy, Failure to File Federal Tax Returns (FBI Press Release):
Former Pittsburgh Police Chief Nathan E. Harper has been indicted by a federal grand jury in Pittsburgh on charges of conspiracy and willful failure to file income tax returns, U.S. Attorney David J. Hickton announced today.
The five-count indictment named Harper, 60, of Pittsburgh.
According to the indictment, Harper was the chief of the city of Pittsburgh Police Department. From 2009 to 2012, he caused at least $70,628.92 in checks and cash received by the special events office of the department to be diverted to two accounts at the Greater Pittsburgh Police Federal Credit Union. Using Visa debit cards, Harper obtained more than $31,000 in ATM withdrawals and debit purchases, all for his personal benefit. Harper also failed to file federal tax returns for the years 2008 through 2011.
If he’s convicted, maybe the special events office can throw a little party for the occasion.
What could possibly go wrong? James Timothy Turner was convicted last week of masterminding a cunning plan. DothanEagle.com reports:
According to a U.S. Department of Justice press release, Turner was convicted of conspiracy to defraud the U.S., attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service, failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding.
The FBI began investigating Turner in 2010 after he and three other people sent packages to all 50 governors demanding they leave office.
Turner is the president of a group of what prosecutors called “sovereign citizens” known as the “Republic for the united States of America.”
Send “packages” to all of the governors telling them to resign? Well, at least they weren’t trying to hide what they were doing.
Turner toured the country in 2008 and 2009 teaching seminars that instructed attendees how to submit bonds to pay off tax debt.
According to prosecutors, these bonds were completely fictitious and often written for amounts in excess of $1 billion.
Silly man. Only the Federal Reserve can do that. Unless we’re talking about the $1 trillion magic coin…
Every theater needs a dirctor, including economic development theater. Economic development director accuses senator of engaging in “political theater” over Orascom deal (O. Kay Henderson, via TheBeanwalker)
William Perez, Penalty Relief Available for Some 2012 Federal Tax Returns
Jack Townsend, Ethicist Question About Tax Professionals Exploiting Loopholes:
So, for those tax professionals engaging in such transactions that they know violated a known legal duty, their conduct is illegal and unethical. For those transactions engaging in such transactions where they don’t know (perhaps are willfully ignorant) that the conduct is illegal (ultimately most of the b—-t tax shelters are found to be
illegal), then at least the ethical issues arise. These are smart professionals, paid (supposedly) to predict what a court will do with the b—–t tax shelter. Yet, in the prominent civil cases that swat down b—–t tax shelters, they fail miserably in their predictions.
Kay Bell, A tax lawyer has ethical problems with tax loopholes
Janet Novack, How Much Tax Will You Owe On A $320 Million Powerball Jackpot? A Lot More Than In 2012 . I knew I should have arranged to win that Powerball last year.
Jim Maule, Tax Meets the Chicken and the Egg
Trish McIntire, Extensions
Patrick Temple-West, Athletes’ tough tax bills, and more
TaxGrrrl, Senate Passes Budget, Calls For Nearly $1 Trillion In Tax Increases
You are required to go to the party. The Affordable Care Act Turns 3 (Richard Morrison, TaxVox).
The Critical Question: Who Will Play Margaret Fuller When The Movie Comes Out ? (Peter Reilly)
Tony Nitti, IRS Employees’ Star Trek Parody Is As Wonderfully Awful As It Sounds
Russ Fox, To Boldly Go Where No IRS Employee Has Gone Before…
You mean it’s not a documentary? IRS Releases Gilligan’s Island Parody Training Video (TaxProf).
Frankly, they don’t give a dam. Beavers defiant after convicted of tax evasion (Chicago Tribune)
Tags: Anthony Nitti, Beavers, cargo cult, Jack Townsend, Janet Novack, Joseph Thorndike, Kay Bell, maule, O Kay Henderson, Patrick Temple-West, Peter Reilly, Richard Morrison, Russ Fox, soverign citizens, tax crime, tax protesters, TaxGrrrl, TaxProf, Timothy Noah, Trish McIntire, William Perez
Posted in Tax Roundup | No Comments »
Friday, March 22nd, 2013 by Joe Kristan
IRS waives late payment penalties for returns containing delayed forms. If you can’t file or pay taxes on time, it’s always better to extend your return while you round up the information or the cash. The penalty for filing a late unextended return is 5%, plus an additional 5% for every additional month of late filing. The penalty for paying late on a timely extended return, in contrast, is only 1/2%, plus 1/2% per additional month.
While penalties will be waived, the IRS will charge interest on amounts paid after the deadline.
The notice has a complete list of forms that allow taxpayers to qualify for the late payment exception. The most commonly-seen ones are probably Form 4562, for depreciable assets and the section 179 deduction, and Form 8582 for passive activities.
By issuing this notice early, the IRS has also given taxpayers a planning opportunity. If you have a big balance due on April 15, and you have one of the qualifying forms, you now are eligible for what amounts to a low-interest loan for up to six months, until the October 15 extension deadline. Many taxpayers accelerated income into 2012 to beat the 2013 tax hikes, and they loan might come in handy. The current IRS interest rates:
- three (3) percent for underpayments;
- five (5) percent for large corporate underpayments
But if you have the cash, you probably want to pay up on April 15. There aren’t many places left where you can get a 3% after-tax return on your money for six months.
In a just world, they could sue Congress and the IRS. TurboTax, other Intuit products, now OK to use in Minnesota; H&R Block facing lawsuits over filing snafu, refund delays (Kay Bell)
The tax law is still broken, though. Minnesota Revenue Department Announces TurboTax Problems Have Been Fixed (William Perez)
William McBride, UK Dropping Corporate Rate to 20 Percent, Half the US Rate (Tax Policy Blog). It makes a difference.
Peter Reilly, International Flight Attendant Does Not Score As Well As Sergio Garcia In Tax Court
Ben Harris, Automatic Retirement Saving Inches Forward (TaxVox)
Roger McEowen, Another Development In The Tax Implications of Insurance Company Demutualization
Janet Novack, New Study Using IRS Tax Data Shows Rich Are Staying Richer, Poor Poorer
Jim Maule, So How Does This Tax Plan Add Up?
Howard Gleckman, Why the Tax Cuts in the Senate Budget Don’t Add up (TaxVox)
David Cay Johnston, Level Playing Fields Under Attack. (Tax.com). Because we don’t want Wal-Mart to be at the mercy of some guy selling stuff from his basement.
Patrick Temple-West, Senate votes on tax hikes in budget, and more (Tax Break)
TaxGrrrl, You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure. I’m sure that makes other foreclosed folks feel better.
The road not taken. I left a national accounting firm to start a new firm. A (purported) alumna of the same firm took a somewhat different path. (Going Concern)
Guilty. Dam Guilty. Beavers Convicted: Loans Require Payback (Russ Fox).
Tags: Ben Harris, David Cay Johnston, extensions, Form 4868, Going Concern, Howard Gleckman, Janat Novack, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Roger McEowen, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Thursday, March 21st, 2013 by Joe Kristan
Most people would say that making low-income taxpayers pay a higher tax rate on each additional dollar they earn would be a funny way of “helping” the poor. Yet that’s just the approach of a bill passed yesterday by the Iowa Senate to raise Iowa’s earned income tax credit (SF 422). The bill would raise the Iowa earned income credit from current 7% of the federal credit to 20%.
The credit phases out as income increases; that means taxpayers who receive the credit have a high hidden tax rate on additional income — their regular tax rate, plus the lost earned income credit. That gives them higher tax rates than the highest earners on each additional dollar of income. Here is a new chart showing the marginal tax rates on an EIC recipient with three children as income rises under SF 422:
The marginal Iowa tax rate on EIC recipients would be around 10%. That compares with an effective rate of just over 6%, counting the deduction for federal taxes, for Iowa’s highest earners. Combined with the federal effective phase-out rate, the EIC earners face marginal rates over 50%. That makes the EIC a poverty trap.
The EIC is a “refundable” credit — which means that if you don’t have enough tax to use the credit, the government writes you a check for the difference. That makes it a welfare program, not a tax cut. Yet the press often gets this wrong:
Omaha.com: Iowa Senate OKs tax cuts for low-income families
KCRG.com: Iowa Senate Approves Tax Break for Low-income Families
Spending is still spending, even when it’s run through a tax return. This spending, though, is likely to get no further; even if the House passes this – very unlikely – the Governor vetoed a similar bill last session.
Cara Griffith, A Culture of Mistrust (Tax.com):
I recently spoke at a conference about transparency in state tax administration. Among other issues that were discussed, I suggested that there is a culture of mistrust between taxpayers and practitioners and state tax officials. When I suggested that the feeling was one of “us” vs. “them,” heads began to nod and many mouthed a silent yes. It
confirmed what I already knew: the culture of mistrust between taxpayers and state tax officials is very real.
…
But state tax authorities seem to perpetuate the culture of mistrust, in part because they have a tendency to play “hide the ball.” That is, they don’t let taxpayers in on the rules by which they are expected to play. The reason is that state taxing officials have a significant amount of discretion to adjust taxpayer incomes yet they don’t provide aroadmap for how and when that discretion will be used.
So true.
In other news:
Me: Taxpayer gets basis of 60% of IPO price in demutualized shares in Arizona case. Taxpayers don’t win it all, but still a defeat for the IRS.
Russ Fox, When a W-2G (or Other Information Return) Is Wrong. It happens.
Kay Bell, Tax penalty relief for some who file for an extension
TaxGrrrl, Taxes From A To Z (2013): K Is For Kidnapped Children
Donald Marron, TPC’s Upcoming Leadership Change (TaxVox)
Ellen Kant, U.S. Corporate Tax Rate Fails to Move with Competition (Tax Policy Blog)
Patrick Temple-West, Tax reform spurs bipartisan lobbying, and more
William Perez, Senate to Begin Tax Reform Hearings
Jack Townsend, Acquittal in Pflueger Involving Offshore Accounts.
David Brunori, Everybody Loves a Drone (Tax.com)
News you can use: Internal Controls Are of the Devil (Or: Why Stealing from the Catholic Church Is So Easy) (Going Concern)
Tags: Cara Griffith, Donald Marron., Earned Income Tax Credit, Going Concern, iowa tax policy, Jack Townsend, Kay Bell, Patrick Temple-West, Russ Fox, TaxGrrrl, William Perez
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Wednesday, March 20th, 2013 by Joe Kristan
Iowa cracking down on RV tax scofflows? Southwestiowanews.com reports:
Iowa lawmakers are putting the brakes on those who avoid paying registration fees when buying expensive vehicles.
Under a bill recently approved by the Senate, tax evaders using so-called out-of-state shell corporations to avoid paying registration fees on RVs or other luxury vehicles will face criminal charges and penalties.
Going to jail to save a few bucks on your vehicle registration seems like a bad bet.
More fertilizer! TheGazette.com reports Iowa, Illinois may have bidding war to land new fertilizer plant:
The (Decatur) Herald & Review reports that, according to Illinois officials, Iowa is offering Cronus Chemical LLC an estimated $35 million in taxpayer subsidies to build a plant in Mitchell County near the Minnesota border.
Illinois lawmakers are considering tax breaks in a proposal by state Rep. Adam Brown, a Republican from Champaign. The plant would be built near Tuscola in the east central part of the state.
Hey, Iowa Economic Development people: Illinois is broke. Busted. Played out. They’re not bidding. We don’t need to be bribing fertilizer plants to come here. Instead give us a tax system that’s not so awful that we have to pay people to like us.
Jason Dinesen, Why Would Any Enrolled Agent Support the RTRP Program? :
It baffles me that the National Association of Enrolled Agents is so in love with the RTRP program.
In their weekly newsletter to EAs last week, NAEA bizarrely referred to the unlicensed preparers who brought suit against the IRS over the RTRP program as people who want “the right to remain incompetent.”
NAEA also kissed the government’s butt by praising the “serious and vigorous” IRS attorneys who are appealing the court ruling that struck down the RTRP program. The flowery kissing-up continued as NAEA went on to opine that the government “delivered its A-game” in the appeal.
I have never seen anything good for enrolled agents in the IRS preparer regulations. Enrolled Agents have been around a long time, and they have to meet much higher standards than the RTRPs would. Yet the EA designation is not well understood by the public, and having the IRS officially sanction a lesser credential will probably make it even harder for EAs to get their story out.
William McBride, Tax Policy Center Espouses Minority View on Capital Income Taxes (Tax Policy Blog):
The preponderance of evidence points to corporate taxes being the most harmful to economic growth, followed by personal income taxes, consumption taxes, and property taxes. Notice a pattern? The corporate tax is the largest tax on capital income in most countries, while the personal income tax is the largest tax on labor although it also taxes
capital.
He’s referring to this post we linked on Monday.
Jeremy Scott, Paul Ryan Borrows a Page From Obama’s Playbook (Tax.com): “ Much like Obama, Ryan keeps releasing the same budget every year, knowing full well that it has no chance of becoming law.”
Howard Gleckman, What the Tax Policy Center Really Said About the Ryan Budget (TaxVox). “To the Democrats who so enthusiastically embraced our analysis, thank you for your support. However, we did not say what you wish we had said.”
Jana Luttenegger, Does the IRS Have Your 2009 Refund? (Davis Brown Tax Law Blog)
Kay Bell, 13-plus ways to cut your taxes without itemizing
Paul Neiffer, Don’t Forget Farm Income Averaging. Another break for farmers that nobody else gets.
Jim Maule, The Aggravation of Tax Paperwork
Peter Reilly, Only Modest Valuation Discounts Allowed On Estate Artwork
TaxGrrrl, States, Local Governments Consider Aggressive Tax Collection Efforts To Plug Budget Holes
Joseph Thorndike, It’s Not Too Late for a War Tax (Tax.com)
The Ellen DeGeneres constituency. I thought it funny to see Peter Reilly’s Ellen DeGeneres Speaks Out For Spanish-American War Widowers . But it’s not as far-fetched as I thought. From today’s Des Moines Register:
There are 10 living recipients of benefits tied to the 1898 Spanish-American War at a total cost of about $50,000 per year.
The Civil War payments are going to two children of veterans — one in North Carolina and one in Tennessee — each for $876 per year.
Remember the Maine!
Tags: corporate welfare, economic development, Howard Gleckman, Jana Luttenegger, Jason Dinesen, Jeremy Scott, Joseph Thorndike, Kay Bell, maule, Paul Neiffer, Peter Reilly, TaxGrrrl, William McBride
Posted in Tax Roundup | 2 Comments »
Friday, March 15th, 2013 by Joe Kristan
Calendar-year corporation returns are due today! They are easy to extend on Form 7004 if you can’t finish them today. If you don’t extend an S corporation return and you file late, the penalty starts at $195 for each late K-1, and $195 each for every additional month the return is late.
If Iowa’s tax law were a car, it would look like this.
Joseph Henchman, Iowa House Passes Alternative Maximum Tax: Income Tax Option Clear of Carveouts (Tax Policy Blog). Joseph has some good things to say about the Iowa alternative tax that passed the house this week (HF 478):
I’ve never filled out an Iowa income tax form but it looks like one of the harder state tax returns. Iowa allows you to deduct what you pay in federal income tax, which is nice but is that much more calculation work (and probably drives up tax rates). There are lines for the lump-sum tax, the minimum tax, the K-12 textbook credit, the school district surtax, the motor fuel tax credit, and the earned income tax credit. I’m sure each one of these has their explanations of necessity but together it sounds like a lot of paperwork, record-keeping, and Tax Filing Day frustration.
…
Hence, I’m impressed by a bill passed yesterday (House File 478) by the Iowa House which would offer an alternative to all Iowa taxpayers: a 4.5 percent tax on all income above about $15,000, which no further deductions or exemptions. It’s not perfect: our friend Joe Kristan pointed out that a credit for taxes paid to another state and a deduction for federal interest are probably constitutionally required, and offsetting deductions to certain kinds of income (allowing gambling losses if you tax gambling winnings) is good policy. But as Joe said, the bill “is a welcome step towards improving Iowa’s income tax.”
I’m hoping it’s a step towards the Tax Update Quick and Dirty Iowa Tax Reform Plan.
It’s a myth, so they’re cracking down on it!
Huffington Post, The Millionaire Migration Myth: Don’t Fall for This Anti-Tax Scare Tactic.
Bloomberg News, States Crack Down on Top Earners Who Flee as Levies Rise: Taxes
If they feel have to “crack down” on something, maybe there’s something to that myth.
The Ultimate Swiss Army Knife. Flickr Image courtesy redjar under Creative Commons license.
Janet Novack, Blame Congress, As Well As H&R Block And IRS, For College Tax Credit Mess. Oh, I do! From the article:
Far be it from me to let either the Internal Revenue Service or tax prep giant H&R Block off the hook for the current mess which has delayed refunds for more than 600,000 taxpayers claiming college tax credits by up to eight weeks. In addition to their operational missteps, both did a poor job (at least initially) of communicating with taxpayers who desperately need those refunds to pay tuition or other bills.
But let’s put some of the blame where it rightly belongs: on the Washington politicians. For more than two decades, Congress has been expanding “tax expenditures” with little regard for how complicated such provisions might be for taxpayers to use and for the IRS to administer, let alone for whether they do enough good to justify their cost and the economic distortions they create. A new 1065-page Congressional Research Service compendium lists 250 different tax expenditures. Happy reading.
Every little break like this diverts IRS resources from actually collecting income taxes and makes the income tax a little less effective and useful. Yet Congress still sees the tax law as the Swiss Army Knife of public policy.
Jim Maule, Tax Depreciation: Do the Math:
No matter how well a student in the basic tax course masters the depreciation deduction to the extent it is studied, that student knows that the total depreciation with respect to a property cannot exceed its cost. All of the students would find themselves bewildered by the proposition that depreciation deductions on a property that cost $34,799 would total $56,000.
So was the Tax Court.
Tony Nitti, Golfer Sergio Garcia Comes Up Short In Tax Court, But Is The Decision A Victory For Other Athletes? He won on his endorsement royalty income, so while he may not have had an undisputed win, he did OK, like a PGA golfer who gets second-place prize money.
William Perez, Delays in Issuing Tax Refunds Related to Education Tax Credits
Going Concern, IRS Won’t Be Sorry If You Never Get Around to Claiming Your Refund. Over $900 million in 2009 refunds will be out of reach of their rightful recipients after April 15, when the 3-year window for claiming them expires.
Trish McIntire, Don’t Lose Your 2009 Refund
Paul Neiffer, Will Large Farmers Be Able to Use Cash Method in the Future?! Farmers should get the same tax rules and breaks everyone else does, no less and no more.
Kay Bell, Will a relationship neutral tax code save traditional marriage?. Not every problem is a tax problem.
Howard Gleckman, The Ideological Chasm Between the House and Senate Budgets
William McBride, Dave Camp Floats a Rewrite of Small Business Tax Rules (Tax Policy Blog)
Jack Townsend, U.S. Taxpayer Pleads to FBAR and Tax Perjury Violation
Brian Mahany, IRS Agent May Be Headed To Prison For Info Leak – Whistleblower Protection
Brian Strahle, State Tax Revenues: Corporate Income Tax Not That Important?
Oh, Goody. Applying for Obamacare Subsidies Will Be as Complicated as Doing Your Taxes (Megan McArdle)
Argo pay your taxes. It turns out Iowa isn’t the only government whose film tax credits attract scammers. From London comes this via Boston.com:
In some ways ‘‘A Landscape of Lies’’ was a typical indie film, with a tiny budget, a B-list cast and an award from an American film festival.
What made it special is that it was created solely to cover up a huge tax fraud.
…
In fact, officials say, the project was a sham, set up to claim almost 1.5 million pounds in goods and services tax for work that had not been done, as well as 1.3 million pounds under a government program that allows filmmakers to claim back up to 25 percent of their expenditure as tax relief.
No word on whether Leo Bloom prepared the fraudulent returns.
News you can use: Polish Up Your Guccis. (Christopher Bergin, Tax.com).
Will there be tax reform? I think there has to be. But I don’t think it will look like theTax Reform Act of 1986 because, in short, it’s not 1986, and we don’t have the same problems or even the same tax system. That doesn’t mean there aren’t a lot of lessons to be learned from the ’86 experience. But I don’t think tax reform will happen soon. And a few of the reasons I think that come right out of “Gucci Gulch.”
I have a copy of Showdown at Gucci Gulch, the book about how the 1986 tax reforms were enacted. I haven’t brought myself to open it; it seems too much like reading about my job.
TaxGrrrl, Arrest of Dancing Mascot Puts Liberty Tax Wavers In The Spotlight
He should have hidden the cash across the pond. Opening statements underway in Beavers tax evasion trial (WGNtv.com)
Tags: Anthony Nitti, Beavers, Brian Mahany, Brian Strahle, Christopher Bergin, film tax credits, Going Concern, Howard Gleckman, iowa tax policy, Jack Townsend, Janet Novack, Joseph Henchman, Kay Bell, maule, megan mcardle, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, TaxGrrrl, Trish McIntire, William McBride, William Perez
Posted in Uncategorized | 1 Comment »
Thursday, March 14th, 2013 by Joe Kristan
The Iowa House of Representatives approved an Alternative Maximum Tax yesterday. It won’t get anywhere in the Iowa Senate. But that’s probably not the point.
The 4.5% tax on AGI, with no credits and no deduction for federal income taxes, would be an alternative to the current multi-rate, high-loophole system. Taxpayers could choose which way to file.
Of course, taxpayers would compute their taxes both ways and pay the lower amount — making it an Alternative Maximum Tax. With the Alternative Minimum Tax, taxpayers compute their tax two ways and pay the higher amount. It would add one more complication to an already complex system. And, as I have noted, AGI is a flawed measure of taxable income.
The bill has just about no chance in the Iowa Senate, absent some incriminating photos of Democratic senators falling into Republican hands. Bill opponents made dreary but predictable soak-the-rich arguments against the bill:
Democrats, however, criticized the bill for affecting just a fraction of Iowa taxpayers or for providing far more benefits to high-income earners.
Citing the Department of Revenue data, they noted about 5,000 income earners making more than $500,000 stand to save as much from the flat tax – around $90 million – as the 326,000 earners making less than $90,000 a year.
They aren’t saying that the lower earners don’t benefit. They are just saying that the high earners benefit too much. Of course, it means the high income earners pay a lot more tax than the lower earners right now. It’s a silly argument — even sillier if you consider that state taxes are an awful tool for income redistribution. My analysis indicates the bill would benefit most filers, not just the “rich.”
I don’t believe the Alt Max Tax was seriously intended to become law. I think it was designed to try to keep the cause of income tax reform alive in a year that the Governor has no interest in it. It may also be a trial balloon to see if a proposal that lacks federal tax deductibility would draw fatal fire from the powerful lobbying group Iowans for Tax Relief. So far, no. While the bill (formerly HF 3, now HF 478) is flawed, maybe it advances the debate. Maybe next year, they’ll take up something like The Quick and Dirty Iowa Tax Reform Plan.
IRS extends certification rule, making Work Opportunity Credits available for all of 2012. Congress retroactively extended the Work Opportunity Credit to 2012 at the beginning of 2013. Unfortunately, one of the qualifications for taking the credit is to certify that an employee qualifies for the credit within 28 days of hiring. That made the credit useless for most of 2012.
The IRS has now given employers until April 29, 2013 to file the necessary paperwork with the local Job Service offices. Notice 2013-14 has the details. Accounting Today has more.
If they can’t keep their own in line, how well would they do at regulating preparers? Jury convicts former IRS worker of tax fraud (philly.com)
Andrew Lundeen, Deficits Per Person Expected to Fall, Then Rise over Budget Window (Tax Policy Blog). With charts:
Cara Griffith, Will Tax Free Shopping Be a Way of the Past in Oregon? (Tax.com)
TaxGrrrl, Ask the taxgirl: Paying For Kindergarten
Phil Hodgen, Apartment security deposits and Form 8938. Is a security deposit a foreign financial asset?
Jack Townsend, Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance
Patrick Temple-West, Senate Democrats propose new taxes, and more (Tax Break)
Paul Neiffer, When Congress Says “Simplified” Watch Out!. “WARNING – THIS IS MY LONGEST POST EVER”
Kay Bell, Cap tax deductions, says former Reagan economic adviser
Daniel Shaviro, Corporate tax reform?
It was the profanity. One of them said “dam.” Judge puts gag order on attorneys in Beavers case (Chicago Tribune)
Tony Nitti, District Court Rules That TurboTax Can Continue Making Fun Of H&R Block In Its Commercials (Again)
Going Concern, A CPA’s Guide to a Successful Observance of St. Patrick’s Day. I prefer to observe it from a safe distance.
When you are running a big criminal tax conspiracy, never hit “reply all”. From Bloomberg News:
Everybody knows the danger of sending things inadvertently in an e-mail. Beda Singenberger’s case shows you also have to be pretty careful when you mail things the old-fashioned way.
Over an 11-year period, federal prosecutors charge, Swiss financial adviser Singenberger helped 60 people in the U.S. hide $184 million in secret offshore accounts bearing colorful names like Real Cool Investments Ltd. and Wanderlust Foundation.
Then, according to a prosecutor, Singenberger inadvertently mailed a list of his U.S. clients, including their names and incriminating details, which somehow wound up in the hands of federal authorities.
Via the TaxProf.
Corporate returns are due tomorrow. That means you have to queue up your extension or balance due payments on EFTPS today!
Tags: Andrew Lundeen, Anthony Nitti, Cara Griffith, Daniel Shaviro, Going Concern, HF 478, HF3, iowa tax policy, Jack Townsend, Kay Bell, Patrick Temple-West, Paul Neiffer, Phil Hodgen, Quick and Dirty Iowa Tax Reform Plan, tax crime, TaxGrrrl, TaxProf
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Wednesday, March 13th, 2013 by Joe Kristan
I will fight for the right to tax you to subsidize other people. Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant. Radio Iowa reports:
“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”
Never mind the high possibility that the plant would have been built without our tax money. Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders. Never mind that political allocations of investment capital are always and everywhere unwise. Forget the lost opportunities for taxpayers to spend the money on their own projects. Jobs!
The Governor also hinted at darker forces opposing the tax credits, reports KCCI.com:
And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.
So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers. Who knew?
The EITC is a refundable credit, which means the tax man writes checks to folks with no taxes. Naturally EITC fraud is rampant.
TaxGrrrl, Hundreds Of Thousands Of Taxpayers Thought To Be Impacted By Education Credit Snafu
IRS agent pleads guilty to charges resulting form selling out a whistleblower. Jack Townsend has the scoop.
Kay Bell, 2013 tax filing season gets crazier for some H&R Block, TurboTax customers
Jason Dinesen, Small Business Health Insurance Credit, Part 2
Elizabeth Malm, Texas Considering Drastic Modifications to Margin Tax (Tax Policy Blog). Good.
Patrick Temple-West, Yankees embrace frugality to dodge tax, and more. Who says taxes don’t influence behavior?
Jeremy Scott, Carl Levin Changed the Face of Tax Enforcement (Tax.com)
Howard Gleckman, Taxes and Paul Ryan’s Budget (TaxVox)
William Gale, A Carbon Tax is a Win-Win for the Economy and the Environment (TaxVox)
David Brunori, Things to Read, Sites to Visit. (Tax.com). He shares some online resources, but tragically fails to mention the Tax Update.
Peter Reilly, No Fans Of Sister Wives At The IRS ? As far as I’m concerned, the possibility of consolidated individual returns should be all the argument needed against polygamy.
The Critical Question: Why Is My Refund Short? (Trish McIntire)
News you can use. Note to Drivers: All Wheel Drive Does Not Give You Superpowers, Just a Dangerous Overconfidence (Megan McArdle).
So you think you’re having a bad busy season? It could be worse: Upstanding San Leandro Accountant Finds Himself on Oakland’s Most Wanted List. Going Concern has the news of law enforcement gone awry.
Tags: Branstad tax policy, corporate welfare, David Brunori, Earned Income Tax Credit, economic development, Elizabeth Malm, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Jeremy Scott, Joe Bolkcom, Kay Bell, megan mcardle, Patrick Temple-West, Peter Reilly, TaxGrrrl, The Critical Question, Trish McIntire, William Gale
Posted in Eye on the Legislature, Eye on the Legislature 2013, Uncategorized | 1 Comment »
Tuesday, March 12th, 2013 by Joe Kristan
It just doesn’t work. The “Tax Honesty Movement” got excited a few years back when Louisiana attorney Tom Cryer was acquitted on criminal tax charges. For example:
The Internal Revenue Service has lost a lawyer’s challenge in front of a jury to prove a constitutional foundation for the nation’s income tax, and the victorious attorney now is setting his sights higher.
“I think now people are beginning to realize that this has got to be the largest fraud, backed up by intimidation and extortion and by the sheer force of taking peoples property and hard-earned money without any lawful authorization whatsoever,” lawyer Tom Cryer told WND just days after a jury in Louisiana acquitted him of two criminal tax counts.
There’s just one problem with the idea that this struck a death blow to the income tax: he still owes the taxes. Even though he’s dead. Being aquitted in a criminal tax case doesn’t make it legal to not pay taxes any more than the O.J. Simpson acquittal legalized multiple homicides in Brentwood.
The Tax Court yesterday ruled that Mr. Cryer owes taxes, interest and civil fraud penalties for tax years for which he didn’t file income tax returns. From the Tax Court:
In essence, Mr. Cryer claimed that the income he received during the tax years at issue from certain “sources” was taxable under Louisiana law, but not under Federal law. In United States v. Clayton, 506 F.3d 405, 412 (5th Cir. 2007), the Court to which an appeal would lie in this case, cited and followed its prior unpublished opinion holding that “the argument that income derived from sources within the United States” is not taxable under Federal law is “patently frivolous” and “absurd”.
The moral: No matter how convincing they are on the Internet, “Tax Honesty” arguments don’t work. They will not keep the IRS from taxing you. When “winning” means staying out of jail but paying 75% civil fraud penalties, you set the bar for victory too low.
Cite: Cryer, T.C. Memo. 2013-69
Related: Daniel B. Evans, The Tax Protester FAQ
Prior Coverage: ‘NOT GUILTY’ DOESN’T MEAN ‘NOT TAXABLE’
Nick Kasprak, Weekly Map: State and Local Sales Tax Rates, 2013 (Tax Policy Blog)
Peter Reilly, Carried Interest Debate Heats Up Without Much Light . A reasonable outline of the issues involved in the so-called “loophole” for private equity:
If “carried interest” were really just a loophole it would not need such an elaborate fix. In fact, it is based on fundamental principles of partnership taxation.
I don’t think it’s a problem, so I don’t think it needs fixing. Related: New York Times Dealbook, Why Carried Interest Is a Capital Gain.
Tony Nitti, Contrarian Tax Planning: Increasing Income To Take Advantage Of The AMT
Missouri Tax Guy, Is that Gift Taxable?
Martin Sullivan, Showdown in Kansas: Realtors vs. Governor (Tax.com). Will Kansas eliminate the home mortgage deduction on its state returns?
Jeffrey M. Kadet, Tax And Territoriality: The Corporate 99% Versus The Law School 1%
William Perez, IRS Plans Spending Cuts Due to Sequestration. They can’t answer their phones, but they still want to regulate preparers.
Kay Bell, NYC soda ban overturned. Would a soda tax have been better? Maybe better, but still unwise.
TaxGrrrl, Former Detroit Mayor Found Guilty On Multiple Counts, Including Tax Charges. Poor Detroit.
Tax News from the Animal Kingdom.
Beavers’ tax-evasion trial to begin (WGNTV.com)
Former Bear Chris Zorich charged in tax case (WGNTV.com)
Fmr. Eagle Freddie Mitchell pleads guilty in tax scheme (6ABC.com)
Remember, Calendar 2012 1120 and 1120-S returns are due Friday!
Tags: Anthony Nitti, Jeffrey Kadet, Judge Goeke, Kay Bell, Martin Sullivan, Missouri Tax Guy, Nick Kasprak, Peter Reilly, tax court, tax protesters, TaxGrrrl, William Perez
Posted in Tax Roundup | No Comments »
Monday, March 11th, 2013 by Joe Kristan
The 1040 filing deadline is five weeks from today. The 1120 and 1120S deadline is this Friday. The penalty for filing an 1120-S late is $195 per shareholder, with the penalty repeated each additional month the return is late. Proceed accordingly.
A Des Moines tax lawyer lets us know what we are in for: Just a Little Bit More? Yeah Right. Get Ready to Pay More Taxes in 2013 (William Brown). He illustrates what will happen to one of his clients, “Fred,” when he pays his 2013 taxes:
Fred’s federal taxes have increased by 9% with no change in his earnings. If Fred does not increase his distributions from his business to pay these increased taxes, his disposable income will decrease by 19%. Might these increased taxes have no substantial impact on the prospects of his small business and its employees? Not a chance.
Read the whole thing. Related: Phil, we have altered the deal. Pray we don’t alter it further.
David Cay Johnston pushes for harsher accumulated earnings tax. As I predicted, we’re starting to see people pushing for enforcement of the Accumulated Earnings Tax to deal with the pretend problem of corporations “hoarding” cash. Mr Johnston takes the podium in an (unfortunately gated) article in Tax Notes:
American nonfinancial corporations held more than $2.2 trillion of cash and near cash offshore at the end of 2010 in current dollars, IRS and Federal Reserve data shows. And that is on top of the almost $1.7 trillion of liquid assets owned by firms and subsidiaries with U.S. addresses that we will see when the 2012 corporate income tax data becomes available in a few years. That global cash and near cash pile of almost $4 trillion came to $12,600 per American — well more than triple the $3,500 in per capita federal income tax revenues that year.
There is no possible business justification for that much cash. As Tax Court Judge David Laro wrote in Haffner’s Service Stations Inc. v. Commissioner, T.C. Memo. 2002-38 “a need to retain earnings must be directly connected with the needs of the corporation itself and must be for bona fide business purposes.”
No “possible” business justification for that much cash? It’s pretty easy to come up with potential justifications. If you are a corporation sitting on a lot of cash, you have a lot to think about. You have unusual opportunities, which you need to evaluate carefully. The imposition of the shareholder-level tax on earnings is certainly a factor. Does that mean I trust corporate management and boards? No. But I trust them a lot more than second-guessers at the IRS.
The Judge Laro cite that Mr. Johnston uses only restates the legal background of the accumulated earnings tax — not the economics of it.
If you want to really encourage corporations to free up their cash, end the double-taxation of corporate income by allowing full deductibility of dividend payments — with an excise withholding tax on non-profit and non-U.S. distributees to ensure the income is taxed once. That will give corporations a powerful incentive to distribute cash they aren’t using – one that will work a lot better than beefing up the IRS Second-Guess Division.
Update: Mr. Johnston e-mails:
I have written in favoring of restoring tax-free dividends for modest sums or encourage savings, partly because most Americans have little saved in the tax system and even though only one in four gets dividends directly: [$link Ed.]
And I called for a two-year test of dividend deductions in this column a few months later, arguing that dividends have the virtue of separating actual value-added managers from those who play accounting games since you need need cash to make dividend payouts. [gated links here and here. Ed.].
Unfortunately I don’t have links to free versions of the original articles.
Related: Garett Jones, Redistributing from Capitalists to Workers: An Impossibility Theorem, on why the economically-optimal rate of tax on capital is zero. (Econlog)
No more paper Internal Revenue Bulletins. The IRS has discontinued its old paper Internal Revenue Bulletin, where it published tax guidance. From Announcement 2013-12:
The IRB is available on IRS.gov before printed copies are available. Also, the majority of items (about two-thirds) that appear in the IRB are released with a News Release about a month ahead of when the item appears in the IRB. Since all items in the IRB are available electronically, almost a month in advance of being available in the printed IRB, we are eliminating the printing of paper copies of the IRB, which are distributed directly from the IRS. The cost savings to printing and postage would be $148,000 annually.
It makes sense. Another bit of my accumulated tax training goes the way of the Dodo.
Russ Fox, If You’re a Sole Proprietor, Get an EIN…Now!. Otherwise it’s too easy to get your identity stolen.
William Perez, Minnesota Revenue Department Finds “Unacceptable” Errors in TurboTax.
TaxGrrrl, IRS Explains Delays In Processing Some Returns Claiming Education Credits
Kay Bell, Federal workers owe $3.5 billion in back taxes; Expect renewal of legislative efforts to fire federally-employed tax debtors. Some people don’t buy the “better to give than to receive” thing.
Brian Mahany, IRS Begins Rejecting OVDI Filings – Important News For Fence Sitters
Jack Townsend, Bank Leumi U.S. Clients Rejected from OVDP
Robert Goulder: Taxation & Morality: Odd Bedfellows (Tax.com)
Peter Reilly, Render Unto Caesar – Mormon Tithe Not A Necessary Expense In IRS Collection Case
Patrick Temple-West, Tax haven hunter Levin to retire, and more
The Critical Question: Who Are Your Tax Policy Friends? (Jim Maule)
Going Concern, No, We Can’t Help You Pass the Ethics Exam. When I took it, it was mailed to successful CPA candidates to do at home and mail in. No wonder there are no ethical problems with our generation. Oh, wait…
Tags: Accumulated Earnings Tax, Brian Mahany, David Cay Johnston, Garett Jones, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Robert Goulder, Russ Fox, TaxGrrrl, The Critical Question, William Brown, William Perez
Posted in Tax Roundup | 1 Comment »
Friday, March 8th, 2013 by Joe Kristan
Illegal procedure. Former Chicago Bear Chris Zorich has been flagged. CBS Chicago reports:
Zorich, 43, was charged Thursday with four misdemeanor counts of failing to file federal income tax returns, for the years 2006 through 2009, according to the U.S. Attorney’s office. During that time, he allegedly had an income of more than $1 million.
Federal prosecutors said Zorich was cooperating with the investigation and has agreed to plead guilty.
His lawyer says that he owes no more than $70,000 after withholding on the non-filed years is applied.
I wonder why he was charged. While it’s a bad idea, it’s not extremely rare for people to just get behind on filing their returns. It doesn’t usually lead to criminal charges. Much of his income for the years at issue was W-2 income, so it wasn’t as though the IRS would miss him.
Perhaps he did something to annoy an examiner enough to call in the Criminal Division. Maybe it’s because he is an attorney [update: he apparently never passed the bar exam]. Or maybe he’s just unlucky to be famous-enough for the IRS to use his celebrity to frighten the rest of us into getting our returns done. (Via Reason 24/7)
Update: This Chicago Tribune report suggests that self-dealing with his charitable foundation may have been a factor.
In other tax crime news:
Jack Townsend: Article on Deterrence Through Criminal Enforcement and Defining Tax Shelters
Miami Vice: Two Miami Officers Accused Of Tax Refund Fraud (CBS Miami)
William Perez, Tips for Preparing Form 1040-EZ
Janet Novack, IRS Yanks Criminal Amnesty Deal From Taxpayers With Secret Bank Leumi Accounts. If the IRS turns on taxpayers who turned themselves in under an amnesty, not many folks will participate in another one.
Russ Fox, When the IRS Changes the Rules Midstream in a Legal Matter…
J.D. Tuccile, As Government Grasps For Taxes, Brace for an Unwinnable War Against You (Reason.com). It’s a long-form essay on the way getting all sorts of social services from the government doesn’t make people happy to pay their taxes. This is interesting:
Those who think tax increases alone can solve our ongoing fiscal disaster are just kidding themselves.
Paul Neiffer, What Are W2 Wages for DPAD? You have to have paid W-2 wages to use the Section 199 deduction. But they don’t all work:
These wages cannot include wages paid to your children under age 18 (if a sole proprietor farmer) and commodity wages. However, wages paid in cash to spouses and children over age 17 are allowed as part of these wages.
If you are a schedule F farmer with no employees, the W-2 requirement makes the Section 199 deduction worthless.
Jim Maule, Selecting a Tax Return Preparer. All sound advice, including this:
Seventh, ask the tax professional about data security. Where and how is paper data stored while in the hands of the preparer? Where is the digital data stored? What precautions are in place to minimize the chances of a third party breaking into the office or the digital servers and obtaining information? If the individual hands over paper records without keeping copies, which is an unwise move, what happens if the tax professional’s office burns down?
Something to think about.
Nanette Byrnes, State defections impact U.S. interstate tax compact (Tax Break)
TaxGrrrl, Taxes From A To Z (2013): D Is For Disaster Relief
William McBride, Latest IRS Data Shows Taxable Returns Remain Below 1997 Levels (Tax Policy Blog). The income tax burden falls on fewer and fewer returns.
Howard Gleckman, Build America Bonds, the Medicaid Expansion, and Trust Between the States and the Feds
Tony Nitti, Congress Looks To The Wealthy To Bail Out Social Security. But the rich guy isn’t buying.
If you ever wonder why California is the Titanic of state governments, you might want to read Kay Bell’s latest, Tax on email suggested as way to help fund U.S. Postal Service:
Berkeley City Councilman Gordon Wozniak has tossed out the idea of an email tax to help save snail mail.
The financial straits of the U.S. Postal Service became an issue for Berkeley lawmakers when the paper mail delivery system proposed closing that northern California city’s downtown post office and selling the building.
It won’t happen, but a state where somebody who thinks it could happen can be elected to public office is pretty much doomed.
Tags: Anthony Nitti, Chris Zorich, Howard Gleckman, identity theft, J.D. Tuccile, Jack Townsend, Janet Novack, Kay Bell, maule, Nanette Byrnes, Paul Neiffer, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Thursday, March 7th, 2013 by Joe Kristan
Answering the wrong questions. The Iowa Chamber Alliance asked a consulting firm that makes money playing the corporate location incentives game whether Iowa should sweeten its corporate location incentives. Guess how they answered it.
From an Iowa Chamber Alliance press release:
“Iowa has a solid base of state - level economic development incentives tools upon which to build. However, to become more competitive, Iowa may wish to increase the funding level and flexibility of some of the State’s key incentive programs” states Darin Buelow, a Principal with Deloitte Consulting LLP.
It’s hard to imagine the study coming to a different conclusion considering what they were looking for:
At the request of the Iowa Chamber Alliance (ICA), Deloitte Consulting (Deloitte) benchmarked incentives programs in Iowa and in five alternate states, focusing on a high-level analysis of state-level incentive programs, their value, and overall effectiveness in attracting investors.
In other words, they were to look at whether Iowa has more and better giveaways than its neighbors.
I looked for the study in vain for any analysis of the value of Iowa’s tax credits to the economy vs. alternative uses for the funds — like lowering the tax rates of the rest of us who pay for them. There is no mention of “opportunity cost.” In looking at the “value” of the programs, it makes unsupported conclusions like this one about the “High Quality Jobs Program:”
Considered effective and competitive in providing benefits to mitigate corporate income tax, refunding sales tax for construction and providing a supplemental refundable research credit.
Considered effective by whom? On what basis? It doesn’t say.
The study says Iowa should enrich its data center corporate welfare — where the rest of us subsidize the infrastructure of Microsoft and Apple. They also recomment Iowa “consider allowing sale, refund or transfer” of tax credits.
A few years ago, after the film tax credit disaster, Governor Culver tasked a panel with reviewing the effectiveness of Iowa’s dozens of tax credits. Their report failed to come up with a clear benefit for any of Iowa’s tax credits. The panel also had this to say about transferable tax credits: (my emphasis)
Transferability of tax credits complicates the projection of revenues and the tracking of credits, creates uncertainty about when credits will be claimed because the purchasing entity may utilize a different fiscal year than the entity awarded the credit, and siphons resources from awarded entities through brokerage fees… Once tax credits are transferred, it creates limited recourse for the State to recover funds claimed in instances where the business awarded the original credit does not fulfill the contracted obligations or if the credit was awarded in error. Additionally, transferability has also resulted in abuses in some tax credit programs.
It would be better Iowa to not “compete” in taxing its current taxpayers to lure and subsidize their competitors. Instead Iowa should enact a tax system good enough that we don’t have to pay people to be our friends. The Quick and Dirty Iowa Tax Reform Plan would be better for Iowa businesses than any number of pocket-picking tax credits.
Poor legal move. From Bloomberglaw.com:
Former Kirkland & Ellis LP senior partner Theodore Freedman pleaded guilty to fraud in connection with the filing of false tax forms.
Freedman changed his plea yesterday from not guilty to guilty of four counts of tax fraud. U.S. District Judge Deborah Batts in Manhattan accepted the plea and set sentencing for Sept. 17. Freedman’s lawyers reached a plea agreement with U.S. attorneys.
Indicted in July 2011, Freedman misrepresented his income as a partner at the law firm by about $2 million, the U.S. said. He also claimed more than $500,000 in expenses for a sole proprietorship that didn’t exist, the government said.
It’s hard to imagine how he thought this would work. K-1s get matched against tax returns, at least occasionally. The IRS matching system is cumbersome and inefficient, but it works well enough that you can’t habitually ignore K-1s with six-figure income. Furthermore, claiming big bogus Schedule C losses like that is practically an engraved invitation for the IRS to visit your return.
Related: Former Kirkland & Ellis Partner Pleads to Tax Crimes (Jack Townsend)
The Colonel knows why your business might have to file returns in other states. My new post at IowaBiz.com, The Des Moines Business Record blog for entrepreneurs.
William McBride, The Carried Interest Debate: Funding Government for 3.1 Hours (Tax Policy Blog).
Patrick Temple-West, Cadbury gets tax bill in India, and more (Tax Break).
Daniel Shaviro, Skepticism about “fundamental tax reform”
Angie Picardo, Grads – Filing for First the Time (Missouri Tax Guy guest-post)
Brian Strahle, D.C. Combined Reporting – Transition Rules for 3/15 and 4/15!
Janet Novack, New IRS Data: Rich Got Richer, But Paid Lower Tax Rate As Stocks Gained
William Perez, Child Tax Credit for 2012
There’s a new Cavalcade of Risk up at Health Business Blog. It’s always worth the ride at the blog world’s roundup of insurance and risk management!
Is that an argument for or against intelligent design? The Sequester: ‘Designed to be Stupid’ (Cara Griffith, Tax.com).
Because they aren’t in a position to speak for themselves: Ellen DeGeneres Speaks Out For Spanish-American War Widowers (Peter Reilly).
The Critical Question: Why Is Amy Poehler Going To Hell? And What Does Taylor Swift Have To Do With It? (TaxGrrrl)
Programming note: This site was pretty much shut down part of yesterday afternoon. Our valiant hosting service says it was a comment spam attack on the pre-2012 archived posts. Sorry about that.
Tags: Angie Picardo, Brian Strahle, cavalcade of risk, corporate welfare, Daniel Shaviro, economic development, iowa tax policy, iowabiz.com, Jack Townsend, Janet Novack, Patrick Temple-West, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, tax credits, tax crime, TaxGrrrl, The Critical Question, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Wednesday, March 6th, 2013 by Joe Kristan
Tax tip: IRS doesn’t buy this numerology stuff. A strange story out of New York:
A tailor who counted star athletes including Rickey Henderson and Wilt Chamberlain among his clients has pleaded guilty to skirting about $2 million in sales and income taxes.
Mohanbhai Ramchandani pleaded guilty on Tuesday, state Attorney General Eric Schneiderman said. His company, Mohan’s Custom Tailors Inc., also has had local stars Patrick Ewing and Darryl Strawberry among its clients and made an appearance on Bravo’s “The Real Housewives of New York City.”
The charges say that he failed to pay $1.7 million in sales taxes starting in 2001, and he failed to pay $256,000 of income taxes from 2007 through 2009. I didn’t know tailoring could be so lucrative. But this is unusual:
Authorities said a whistle-blower first raised concerns over Ramchandani’s tax practices. They said one indication of fraud was the use of numbers on his tax forms that added up to multiples of 10, an outgrowth of his belief in numerology.
Once in a while you prepare a return that happens to foot to a round number somewhere. It looks funny, but it will happen occasionally just by chance. But when they are all round, apparently the tax people might notice.
As strange as Mr. Ramchandani’s approach to numbers is, Iowa gives him a run for his money. Iowa’s lead tax credit pusher, Debi Durham, has issued a press release touting the economic wonders of enormous tax credits granted Orascom, an Egyptian company, to build a fertilizer plant in Southeast Iowa. The release bases its conclusions on “ the Regional Economic Modeling Inc. (REMI) analysis for the Iowa Fertilizer Co. project.” From the release:
“The REMI analysis of the Iowa Fertilizer Co. project speaks for itself,” said Debi Durham, director of the Iowa Economic Development Authority (IEDA). “On the front end, Iowa Fertilizer Co. will inject $1.4 billion of capital investment into our state and create at least 165 permanent jobs and thousands of construction-related jobs. Now we know that the benefits of that project will serve Iowans for years to come.”
It speaks for itself and it says nothing. It says nothing about whether the project would have gone ahead without the credits, but Iowa’s claims that Illinois was hot after the plant with its own incentives lack credibility.
The analysis really betrays itself by omitting two key words: “opportunity cost.” It claims every projected benefit from the project without asking whether any benefits would be available if the money were used for something else. It certainly doesn’t say what Iowa loses by having a complex tax system with high rates to pay big subsidies to the well-connected.
I’ve said it before: using taxpayer money to lure businesses is like a guy taking his wife’s purse to the bar to buy drinks for the girls. It’s not impressive. They might let the guy buy the drinks, but they realize he’ll treat them like he is treating his wife if he gets the chance. And anybody he goes home with isn’t likely to be much of a prize.
Egypt taking a different approach to Orascom. The Orascom executives do better in Iowa than back home, reports SiouxCityJournal.com:
An Egyptian billionaire behind one of the largest and most controversial projects in the state is being investigated for tax evasion and has been barred from leaving his country.
According to an article published Tuesday in Construction Week Online, Orascom Construction CEO Nassef Sawiris and his father, Onsi Sawiris, are barred from travel until a resolution is reached regarding the sale of an Orascom subsidiary and the taxes from that sale.
As hard as it is to deal with Iowa and federal tax authorities, they are probably downright reasonable compared to Egyptian revenuers. I suspect that the “resolution” being sought is much like that sought by a kidnapper.
The TaxProf links to this from the New York Times Dealbook: Why Carried Interest Is a Capital Gain. It is as good an explanation as I’ve seen of why capital gain on private equity isn’t a crime against humanity:
Typically private equity investors are paid a 2% management fee, on which they pay ordinary income tax rates, and a 20% carried interest of the partnership’s profits that is only paid after limited partners receive a preferred return of 8%.
Carried interest, therefore, is the profits share on the sale of a capital asset and not “ordinary income” as some would have it treated. In other words, it is a capital gain within a partnership and is rightfully taxed at the long-term capital gains rate — provided that the asset, or company, is held for more than one year.
…
The underlying principle is no different than two friends who partner together to purchase a restaurant. One might bring capital and the other brings expertise. The restaurant could be in disrepair or a great concept that needs additional capital to expand. The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time. The friend has the capital to invest, but doesn’t possess the operational or investment skills to generate a return.
When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment. A private equity partnership works in the same way. This is Partnership Law 101.
Exactly. And it’s not like a salary, where somebody writes you a check. The private equity investor is taking a risk, and on any given investment is likely to get nothing. It’s not like, say, a tenured law school faculty paycheck that comes every two weeks.
It’s not just the rich guy? Obamacare Tax Increases Will Impact Us All (Andrew Lundeen, Tax Policy Blog).
Howard Gleckman, Changing Government’s Inflation Measure Would Raise Taxes as Much as it Would Cut Spending (TaxVox)
Jason Dinesen, Greatest Hits: Enrolled Agents, The Liechtenstein of the Tax World. ”When people hear ‘enrolled agent,’ they think either ‘what the hell is
that?’ or ‘he must work for the IRS, flee for your lives!’”
Anthony Nitti, Business Owners Could Find Their Tax Deferral Backfiring. Deferring income into higher-rate years works badly.
Russ Fox, Did the IRS Write Law? “I suspect the IRS has erred.” I agree, the IRS can’t change statutory rates to deal with budget issues.
Jack Townsend, Proposed New FBAR Form And Explanation
Brian Strahle, Will Maryland Match Virginia’s Corporate Income Tax Rate?
Patrick Temple-West, Tax-exempt bonds get scrutiny, and more
TaxGrrrl, Taxes From A To Z (2013): C Is For Carpooling
Robert Goulder, Will EITI Kill Transfer Pricing? (Tax.com). First ask yourself: what is EITI?
David Brunori, Remember the Alamo, Buy a Gun (Tax.com) On the unwisdom of sales tax holidays, even for guns.
ProTip: Don’t take your tax advice from rappers. This from Going Concern:
As you might expect, TMZ has the scoop and it quotes a number of artists who are currently considering tips for strippers as a legit deduction and therefore a serious tax strategy. And who doesn’t love creative tax planning? But how might they rationalize this idea?
Well, Bizzy Bone considers these young ladies to be like his family:
Bizzy Bone tells TMZ, “I’m giving charity to females who need their light bills paid. So, of course, that’s a write-off. You write off your kids, don’t you?”
Um, no. Mr. Bone might want to ponder the stories of Ja Rule, Fat Joe, and Beanie Sigel, to name a few, before he gets too smug about his tax deductions.
Tags: Andrew Lundeen, Anthony Nitti, Bizzy Bone, Brian Strahle, corporate welfare, David Brunori, Debi Durham, economic development, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Linda Beale, numberology, Orascom, Patrick Temple-West, Roburt Goulder, Russ Fox, tax credits, tax crime, TaxGrrrl, TaxProf
Posted in Tax Roundup | No Comments »
Tuesday, March 5th, 2013 by Joe Kristan
“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.
The Iowa income tax as Swiss Army Knife. The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week. The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.
SSB 1064 cleared the committee unanimously. After all, who would vote against the “Hire a Hero Tax Credit?” But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.
Nobody will hire an employee just to get a $1,500 tax credit. You hire somebody because you have work to do. Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500. It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.” Will the state really examine that? Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.
Still, why not make a nice gesture to show our voters how much we care? Because every feel-good tax break has a cost. It costs money to comply with and enforce. It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it. It makes a good tax system for everyone just a little bit harder.
The primary purpose of the tax law is to finance government operations. When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.
Swiss Bank corpse fined $58 million for tax cheating. The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes. Robert W. Wood has more.
Patrick Temple-West, Wegelin withers under U.S. tax scrutiny, and more (Tax Break)
While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards. While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:
In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”
What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.
Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.
Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.
William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog) “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”
Russ Fox, IRS Opens for All. We can e-file all the forms.
TaxGrrrl,IRS Now Accepting All Individual Returns
Paul Neiffer, IRS Announces They Are Processing All Remaining Tax Forms
Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s? (Tax.com). “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”
Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply
Linda Beale, Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work
Yes. Minnesota Tax Reform: Poorly Designed?? (Brian Strahle).
Kay Bell, Tax Carnival #114: March 2013 Tax Lions and Lambs
Good. Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern). If you want to do tax work for a living, why waste two years doing audit work that you hate?
I don’t condone the behavior, but I bet every bus driver dreams it. From WQAD.com:
Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.
According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.
The students were first graders from Iowa Falls. Nobody was hurt.
I might not make a very good bus driver. I’d probably always be racing…
Tags: Brad Birkenfeld, Brian Strahle, Going Concern, Grassley, iowa tax policy, Jack Tomwsend, Jeremy Scott, Kay Bell, Linda Beale, Patrick Temple-West, Paul Neiffer, Robert Wood, Russ Fox, Swiss Army Knife, TaxGrrrl, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, March 4th, 2013 by Joe Kristan
A federal judge Friday sentenced a key player in the once-lucrative Jenkens & Gilchrist tax shelter practice to eight years in prison. From the AP:
U.S. District Judge William H. Pauley III sentenced 52-year-old Donna Guerin, of Scottsdale, Ariz., after she pleaded guilty to conspiracy to defraud the United States and tax evasion. He ordered her to pay $190 million in restitution besides the $1.6 million she agreed to forfeit when she pleaded guilty in September.
Guerin, a former partner at Jenkens & Gilchrist, a Texas-based law firm with offices throughout the United States, had admitted that she helped market tax shelters from 1994 through 2004 to some of the world’s richest investors, including the late sports entrepreneur Lamar Hunt, trust fund recipients, investors, a grandson of the late industrialist Armand Hammer and one of the earliest investors in Microsoft Corp.
The biggest prosecution target at Jenkens, Paul Daugerdas, faces his second trial on the charges in September. His 2011 trial was voided because of juror misconduct.
Jenkens was one of the big players in the tax shelter industry that sprung up among big law and accounting firms in the 1990s. It shut down in 2007 after entering a non-prosecution agreement with the Justice Department.
Sort of related: Ernst & Young Admits That Some of Its Partners Were Running a Tax Shelter Factory (Going Concern); Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution (Janet Novack)
Robert Goulder, Questioning the Longevity of the Income Tax (Tax.com):
Dare we attempt to guess what the income tax might look like in another 100 years?
Personally I think it will still exist, but it will have company. The big question for policymakers is whether it should operate as a “mass” tax — as it strives to do today — or whether it will function as a “class” tax that applies only to the upper income strata. Given that roughly 47% of American households currently don’t pay the income tax (distinguished from payroll taxes, which almost everyone pays), one could argue it is already starting to resemble a class tax. Perhaps the future is already here.
I can state with some confidence that if there is an income tax in 2113, I won’t be preparing returns.
Jack Townsend, Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply. This is an ugly result caused by an in-house accountant who stole funds meant for payroll taxes. The Second Circuit overturned the Tax Court and held that the employee’s fraud meant that the employer’s statute of limitations never closed for tax assessment purposes.
Russ Fox has a helpful tip: A Sure-Fire Way to Get Indicted
There are many ways to get in trouble with tax law. As I have said in the past, if you want to get indicted it’s a bit harder. It helps to be a celebrity, have a very large tax debt, not report large amounts of funds in foreign financial accounts, or abscond with trust fund taxes. I need to add another item to that list: File liens against IRS employees who are investigating you.
For some reason, they respond badly to that.
William McBride, BEA: Personal Income Drops 3.6 Percent in January, the Most since the Clinton Tax Increase of 1993 (Tax Policy Blog). It wouldn’t be shocking if a lot of folks moved income up to 2012 to avoid the 2013 tax increases.
Kay Bell, Don’t forget about your traditional or Roth 401(k)
Paul Neiffer, When an UPREIT Might Make Sense
Trish McIntire, Catching Up On the News, a rundown of issues practitioners are running into during filing season.
TaxGrrrl, If You Qualify, File Your Taxes For Free
Tony Nitti, Competing Senate Bills Fail; Sequestration Is Here (For Now)
Howard Gleckman,Sequester, We Hardly Knew Ye (TaxVox)
Kaye Thomas, The Mindbending World of Wash Sale Calculations.
David Cay Johnston, Good News for Investors and Taxpayers (Tax.com)
Martin Sullivan, Red Hot REITs Fire-up Low Tech (Tax.com)
Peter Reilly, Time To Eliminate Joint Filing ? No, it’s not actually related to the next article.
News you can use. Leff: Medical Marijuana Providers Can Beat Oppressive Federal Taxes by Operating as Non-Profits. (TaxProf)
Tags: Anthony Nitti, David Cay Johnston, Ernst & Young, Going Concern, Howard Gleckman, Jack Townsend, Janet Novack, Jenkens & Gilchrist, Kay Bell, Kaye Thomas, Martin Sullivan, Paul Neiffer, Peter Reilly, Robert Goulder, Russ Fox, tax crime, tax shelters, TaxGrrrl, TaxProf, Trish McIntier, William McBride
Posted in Tax Roundup, Tax Shelter News | No Comments »
Friday, March 1st, 2013 by Joe Kristan
Post-sequester commuting.
So the sequester takes effect. That made my commute like “Mad Max,” where I threaded my car between craters on shattered, lawless roadways before picking up the office Friday bagels, ignoring les miserables begging for a bagel crumb outside the door.
Well, OK, it was like my usual Friday commute, but with snow. But we will keep our eyes open for the chaos we know is right around the corner!
Iowa Senate advances limited property tax bill. The Sioux City Journal reports:
Senate Study Bill 1136, which passed the Senate Ways and Means Committee on a 9-6 party-line vote, would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial property values above that threshold would be taxed at the current 100 percent rate.
$324,ooo isn’t really that much property for a business, even at Iowa property values. The Governor proposes to reduce the taxable value to 80% of the value for all commercial property over four years.
House GOP advances “flat tax” idea (Radio Iowa). The Iowa House Ways and Means Committee sent HF 3 t0 the House floor yesterday. The bill would enact an optional income tax of 4.5% of adjusted gross income; taxpayers could elect to file under the HF 3 system or Iowa’s current system.
I don’t see this as a serious effort to pass a bill, given the flaws in using AGI as a tax base that I have pointed out. It has next to no chance of approval in the Iowa Senate, controlled by Democrats. At best it’s an attempt to keep much-needed income tax reform alive at a time when the Governor seems only interested in property taxes. Maybe next time they’ll get serious and pursue The Tax Update Quick and Dirty Iowa Tax Reform Plan.
Russ Fox, Important Court Ruling for Entities Owned by Californians Located Outside of California. A California owner shouldn’t by itself make your corporation taxable there.
TaxProf, Dow Chemical Loses $1 Billion Tax Shelter Case
Brian Mahany, Dow Chemical Suffers Billion Dollar Tax Shelter Loss – Accounting Malpractice
Jack Townsend, Mr. Cummings’ Defense of Aggressive Tax Shelter Professionals
Kyle Pomerleau and William McBride, Another Misleading Analysis of Income Inequality (with Pictures!) (Tax Policy Blog). They call out David Cay Johnston.
Martin Sullivan, A Moral Obligation to Aggressively Lobby (Tax.com)
Signs of sequester apocalypse:
TaxProf, The Impact of Sequestration on the IRS
Kay Bell, Despite sequestration, IRS plans to continue filing season as planned, start accepting more updated forms next week
TaxGrrrl, IRS Won’t Delay Tax Season For Sequestration
Howard Gleckman, The Sequester is Not Too Big, It is Too Stupid
Patrick Temple-West, Obama sees leverage in tax fight, and more
Paul Neiffer, Farmers Should Be Able to File Tax Returns by Monday
The Saratogian, Rapper Ja Rule in New York City jail on tax evasion charges; scheduled for July release
Huffington Post: Matthew Bender, Detroit Tax Preparer, Charged with Fraud For Preparing False Returns. Really, since Lexis-Nexis pulled the plug, it’s been all downhill for him.
Going Concern, Let the sequester blamestorming begin!
Tags: Brian Mahany, Going Concern, Howard Gleckman, Ja Rule, Jack Townsend, Kay Bell, Kyle Pomerleau, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Russ Fox, sequestration, tax crime, TaxGrrrl, TaxProf, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Wednesday, February 27th, 2013 by Joe Kristan
Well, that commute was fun.
Seventh Avenue, Des Moines, this morning.
They said we wouldn’t get snow. It hasn’t really stopped since 7 am yesterday.
Kyle Pomerleau, Is Tax Migration a Myth? (Tax Foundation). Short answer: no. He comments on a much-noted article by James B. Stewart claiming otherwise:
Mr. Stewart is off the mark if he believes he has uncovered a myth. Besides the posturing of celebrities, no one claims that at the very moment someone whispers “tax increase” one thousand millionaires head to the border. What really happens is that these higher tax burdens cause wealth and income to flee to states and countries with lower burdens and higher economic growth over time. High-tax states such as Vermont, Michigan and Missouri have not been magnets for jobs over the long run. Look over at Europe, which is once again scaring investors. It is a continent with excellent climate, culture and an educated workforce, but its high taxes and spending have stalled population and economic growth for a decade or more. America will go that way if we continue down the same path, driving out investment, businesses, and jobs.
Over the years I have seen people move out of Iowa for tax reasons. Back in the 1980s, when Illinois was a low-tax state, I saw an S corporation owner pay for a fancy new house in East Dubuque in one year by the simple expedient of moving across the river from Dubuque. Tax isn’t always the decisive factor, but to say it’s not a factor at all ignores the most basic tenet of economics: incentives matter.
Their hopes are fulfilled. At least that second one. Wave the jazz hands and hope for the best-Politicians hope that voters are clueless about tax, writes Tim Harford
Richard Morrison, Happy Birthday to the Kennedy Tax Cuts (Tax Foundation)
Congress took up Johnson’s suggestion and passed what became the Revenue Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.
Clearly the old rates were on the far side of the Laffer Curve.
Jana Luttenegger, Unfortunate Reminder of the Need for Powers of Attorney (Davis Brown Tax Law Blog):
A recent news story in the Des Moines area covered a family looking for assistance to cover legal bills for a family member who is in a coma following a car accident. The family is unable to get access to bank accounts or insurance information, and unable to pay her bills (or even know what bills exist) as they come due. The only way for family members to get access to this information is to go through the court system and have the court appoint someone to take care of those matters.
This sort of planning isn’t just for rich people.
Paul Neiffer, How Step-Up In Basis Works. On the resetting of basis at date-of-death value when a farmer dies.
Jason Dinesen, A “Standard Deduction” for Sole Proprietors?
TaxGrrrl, 11 Changes You Must Know Before Filing Your Tax Return for 2012
Kay Bell, Tax reform is job 1. Well, HR 1, anyway.
Jim Maule, Special Low Tax Rates Hurt the Economy and Thus the Nation. He doesn’t like low capital gain and dividend rates. How about this, professor: lower the top rate to 20% for all income, allow a corporation dividends-paid deduction, and I’m good with getting rid of a capital gain break. Otherwise you are double-taxing earnings, and to the extent gains result from inflation, you are collecting a tax on treading water.
Andrew Lundeen, Buffet Rule Still Not a Good Solution. (Tax Policy Blog) Never will be:
The low rates we sometimes see from wealthy individuals is because they derive much of their income from investments, which is double taxed anyway. A capital gain or dividend is first taxed at the corporate level, as a corporate profit, then at the shareholder level. The result is a combined average tax rate of 56.7 percent in the United States – higher than every developed country in the world except, France, Denmark, and Italy. This creates a huge disincentive to invest, ultimately slowing economic growth.
David Brunori, Capital Gains from Copenhagen to Bakersfield (Tax.com)
Patrick Temple-West, EU financial transactions tax to go global, and more. Bad idea, as this New York Times piece explains.
Howard Gleckman, What if the Outrage over Excessive Welfare Extended to the Tax Code? (TaxVox).
Me from earlier: Hoarders, wreckers and the Accumulated Earnings Tax. Will the administration use this tax law relic to force corporations to put their cash to work?
From yesterday: IRS issues 2013 vehicle depreciation limits
Mo’ Money might lead to Mo’ time in prison. Mo’ Money Taxes employee pleads guilty to fraud
In case you were wondering. 10 Ways To Become A Victim Of Tax Identity Theft (Janet Novack)
News you can use. Jewish law permits informing on tax evaders. And secular law can make it lucrative.
Tags: Andrew Lundeen, Buffett rule, David Brunori, Howard Gleckman, James B. Stewart, Jana Luttenegger, Janet Novack, Jason Dinesen, Kay Bell, Kyle Poerleau, maule, Patrick Temple-West, Paul Neiffer, Richard Morrison, tax crime, TaxGrrrl, Tim Harford
Posted in Tax Roundup | No Comments »
Tuesday, February 26th, 2013 by Joe Kristan
Close enough to zero. Monday Map: Corporate Income Tax Revenue as a Percentage of All State/Local Tax Revenue (Nick Kasprak, Tax Policy Blog):
IRS Field Attorney Advice: Bank must capitalize indirect costs of holding ”OREO” property under inventory capitalizetion rules. From FAA 20123201F (my emphasis)
Section 263A applies to property that is acquired for resale. If § 263A applies, the taxpayer must capitalize both the direct costs of acquiring the property and the property’s allocable share of indirect costs.
…
In this case, X clearly acquires OREO in foreclosure (or in lieu of foreclosure) with an intent to resell the property. Bank regulators restrict the holding period for OREO and expect banks to exercise good faith efforts to sell the property. As required by applicable state and federal policies and regulations, it is our understanding that X advertises its OREO properties for sale, including those properties which it rents out. X’s Year6 Annual Report confirms that assets acquired through (or in lieu of) foreclosure are held for sale. In addition, OREO is acquired and held in the ordinary course of X’s trade or business. X’s Year6 Annual Report acknowledges as much when it states that X may foreclose on and take title to properties securing loans “during the ordinary course of business.” X engages in OREO transactions with frequency, regularity, and according to an “OREO disposition strategy.” (Year6 Annual Report, p.17). Thus, the OREO held by X constitutes property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business.
“OREO” is “other real estate owned,” for you non-bankers. Bankers don’t care to hold much of that.
Joseph Henchman, Nebraska Governor Withdraws Tax Reform Proposal; Legislature Look to Commission to Develop Alternatives (Tax Policy Blog). But they aren’t giving up on tax reform. So should Iowa. The Quick and Dirty Iowa Tax Reform Plan is tanned, rested and ready!
Paul Neiffer, Must Have W2 Wages to Deduct DPAD. A hidden tax trap for the Schedule F farmer.
Great minds think alike:
TaxGrrrl, How Will Your State Be Impacted By Sequestration?
Kay Bell, How would your state fare under sequestration?
TaxProf, 3d Circuit Denies CARDS Tax Shelter. Another turn-of-the-century tax shelter fails.
Elaine Maag, Education Tax Credits Rival Pell Grant Program in Size: Reforms Proposed (TaxVox). The more you subsidize it, the more it costs.
Jeremy Scott, Taxing the Rich, Thenardier-Style (Tax.com):
But the influence of Les Miserables doesn’t just extend to the silver screen and stage. President Obama seems to be taking tax policy advice from the musical’s comical antagonist, Thenardier.
Well, that would explain many things.
Trish McIntire, Referrals – A Double Edged Sword.
Peter Reilly, What Were They Thinking ? Another example of the unwisdom of failing to remit payroll taxes.
Linda Beale, Private equity and real estate managers get a “costly and unjust [tax] perk”. Not really, but some people really hate carried interests.
Me: Identity theft tax fraud: women’s work?
Put the champaign back on ice. The Income Tax is NOT Turning 100 – Yet. (Joseph Thorndike, Tax.com).
One less metal home in town. Demise of Another Lustron House. (IowaBiz.com) These are funky steel houses, not mobile homes. They don’t build ‘em like that anymore.
Tags: Elaine Maag, iowabiz.com, Jeremy Scott, Joseph Thorndike, Kay Bell, Linda Beale, Lustron homes, Nick Kasprak, OREO, Paul Neiffer, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, TaxGrrrl, TaxProf, Trish McIntire
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Friday, February 22nd, 2013 by Joe Kristan
Enjoying a short winter commute in bicycle-friendly Des Moines.
We aren’t scaring them. Governor Branstad is making a trip to California to poach some businesses from the failing Golden State. He’s not scaring one Californian:
Iowa’s top state personal income tax rate is 8.98 percent, compared to 13.3 percent in California. Probably not enough of an improvement to lure millionaires from Pacific Palisades to Dubuque. By contrast, Texas offers zero percent.
The top state corporate income tax rate is 12.5 percent in Iowa, 8.84 percent in California and zero percent in Texas.
Earlier this year, Branstad said he would no longer pursue getting rid of Iowa’s corporate and personal income taxes. Instead, he’s going to focus on cutting property taxes.
Well, California’s property taxes already are fairly low thanks to Proposition 13. Although property prices here are triple those in Iowa and most other states because of our severe restrictions on building.
Bottom line: Iowa doesn’t offer enough incentives to attract many businesses and people to leave California. The Hawkeye State is the Golden State with bad weather.
Ouch. Well, Iowa’s solvent, too, unlike California, which is a fiscal disaster. We also have short commutes. Still, he makes a valid point: it’s not enough to compete with a basket case like California. Golden State refugees have plenty of places to choose from, many of which have better taxes, better weather, or both. I have no thoughts on fixing the weather, but The Quick and Dirty Iowa Tax Reform Plan would take care of the tax problems. With no corporate tax and a 4% individual rate, combined with good employees, education and quality of life, we’d see some Californians.
To C or not to C? The Wall Street Journal reports that taxpayers are revisiting whether to operate businesses as C corporations or pass-through entities. C corporations face a top rate of 35%, where individuals have top rates over 42% as a result of the ill-concieved fiscal cliff and Obamacare tax increases. From the article:
“Even though on the surface you’re looking at 35% versus 39.6%, it’s a deceptive comparison,” says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. “There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit.”
For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.
Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years.
At current rates, a switch to C corporation format is probably still unwise, if tempting, because of the double tax issue. You might have lower tax up front, but getting the money out involves either paying a second tax on the dividends or expensive tax gymnastics, often involving renting to a corporation or potentially “excessive” compensation. C corporations are the Roach Motels of the tax world: they’re a lot easier to check into than check out of. But if there is a significant reduction in corporation rates, the current tax savings will be enough to tip the balance for many taxpayers to C corporation status, double tax or no.
Hat tip: TaxProf Blog.
When Will Tax Complexity Cause a Collapse? (Jason Dinesen).
The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.
When will the complexity cause the system to collapse? And what, exactly, will collapse?
I think it would require a combination of things to “collapse” the tax law. If the perception becomes widespread that it is impossible to comply with the tax law without unreasonable effort, or the rates get intolerably high, and technical advances allow for cash transfers and banking that the government can’t trace, then the game is over.
Tax Analysts is having a conference today on whether, after 100 years, the income tax has run its race.
Elizabeth Malm, Holy Smokes! Washington Loses $376 Million to Cigarette Tax Evasion in 2012. Many states have raised tobacco taxes to a point where smuggling becomes attractive.
Howard Gleckman, Congress May Not Rewrite the Tax Code in 2013, But It Could Make It Simpler (TaxVox). If you can’t do everything, you might still do something.
Kay Bell, Education tax credit form, already pushed into February, now causing filer confusion and more delays in processing
Peter Reilly, Bill Romanowski’s Tax Court Loss Not A Typical Horse Case. We covered it here yesterday.
TaxGrrrl, About Those Leaked Wal-Mart Emails… Is IRS To Blame For Sluggish Sales? Are tax refund delays stopping consumer spending?
Teaching by bad example, Nebraska-style. I examine the tax troubles of a prairie-town lawyer.
Jim Maule, How Tax Falsehoods Get Fertilized. That “70,000-page tax code” really bugs him.
Want to raise the minimum wage? Then apply it to your interns, Congresscritters. (Donald Boudreaux).
Don’t bug Robert D. Flach with requests for free tax help.
It’s probably how he meets girls too. Berlusconi & The Lure of Tax Refunds (Robert Goulder, Tax.com).
CPA exam tip: Calm Down, This CPA Exam Practice Question Isn’t as Dirty as You Think (Going Concern)
Tags: Branstad tax policy, C corporations, California, Donald Boudreaux, Elizabeth Malm, Going Concern, Howard Gleckman, iowa tax policy, Jason Diensen, Kay Bell, maule, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, Robert Goulder, S corporations, TaxGrrrl, TaxProf
Posted in Tax Roundup | No Comments »
Thursday, February 21st, 2013 by Joe Kristan
I arrived from out-of-town late, so I’m off to a late start this morning, so the roundup is abbreviated today.
Russ Roberts, Why so many Americans pay no income tax. “I still think we should get rid of the payroll tax and raise income tax rates.”
TaxProf, Supreme Court Hears Oral Argument in PPL Corp. v. Commissioner, involving a foreign tax credit shelter.
Kay Bell, Travel tracking apps, website can help at tax time. Nothing says auto business logs have to be on paper.
Christopher Bergin, Leaving the IRS: A True Tax Pro (Tax.com) On the retirement of Deborah Butler.
Jim Maule, Tax Commercial’s False Facts Perpetuates Falsehood. If the ad’s error on the length of the Internal Revenue Code is the only thing wrong, that may actually be progress, sadly.
TaxGrrrl, Five Ways To Pay Your Taxes When You Don’t Have The Cash
Trish McIntire, OIC Calculator. When you absolutely, positively can’t pay.
William McBride, Bowles Simpson Call for More Taxes, More Growth
Patrick Temple-West, Sequester talks grow harsh, and more (Tax Break)
Sure the murder charges are serious, but don’t let them find out about the offshore bank accounts! Pistorius’ Brother and Lawyer Allegedly Removed Documents from the Crime Scene Related to Offshore Bank Accounts (Jack Townsend).
Paul Neiffer, Good News for Blackberry, Raspberry and Papaya Farmers. You know who you are.
A new Cavalcade of Risk is up at Nerd Wallet.
Today’s career tip: Bad Spelling Can Derail an Otherwise Promising Career in Fraud (Going Concern)
Tags: cavalcade of risk, Christopher Bergin, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Russ Roberts, TaxGrrrl, TaxProf, Trish McIntire, William McBride
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