Posts Tagged ‘TaxGrrrl’

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

Monday, December 28th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

See also

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

Related — weekend tax tips:

Altaring your tax planning

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

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

William Perez, Understanding Canceled Debt Income and Taxes

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

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

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

 

Seventh Avenue, Des Moines, this morning.

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

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

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

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

 

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

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

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

Unlikely indeed.

 

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

 

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Tax Roundup, 12/23/15: The wisdom, or not, of paying taxes by year-end. And: Deep thoughts at Think Progress.

Wednesday, December 23rd, 2015 by Joe Kristan

dimeIs it wise to prepay deductible taxes? Paying 4th quarter estimated taxes before December 31 is a standard piece of the year-end tax planning toolkit. Sometimes taxpayers go further and pay in December all of their taxes that would be due in the following April. Is it wise to pay all of your taxes 3 1/2 months early to move a deduction up a year?

The first question you have to answer, with regard to payments of state and local taxes deductible on your federal return, is whether you will be paying alternative minimum tax this year or next year. For example, a taxpayer with an unusual lump of income this year who waits until next year to pay state taxes may trigger AMT next year, wasting those state tax deductions. On the other side of the coin, taxpayers who are in AMT this year get no value from prepaying deductible taxes, so they might as well put the money to work until the taxes are due.

If the taxes are just as deductible in either year, it’s a time value of money question. What is the present value of spending a dollar now to get a fraction of that back as a tax benefit a year earlier? I’ve run some numbers, using the top Iowa marginal tax rate and the rates at the different federal brackets:

2015 year-end payments pv2

This shows a benefit at all brackets from prepaying estimates due in January, but prepaying taxes due in April only makes sense at higher brackets, and it never works to prepay September property taxes in the prior year if AMT is not a factor.

This is another installment of our 2015 year-end planning tips series

 

Think Progress is an openly partisan agitation outfit, so we shouldn’t expect it to know much about taxes. Still, it is a regular source of talking points for a certain breed of politicians who promise to spend everything on everyone, all to be paid for by someone else. That makes it worthwhile to occasionally correct it for saying something half-baked like this (my emphasis):

There may be some truth to the, as no one has accused Apple of doing anything illegal. But while Cook has advocated for lowering the corporate tax rate and closing loopholes, corporate taxes are already a shrinking portion of the government’s revenue, getting replaced instead by payroll taxes paid by working people.

Yes, corporate taxes are a shrinking portion of government revenue. But it’s not because the corporate tax law has suddenly become lax. It’s because most businesses are no longer taxable as corporations in the first place.

entity forms chart

Source: Tax Foundation

The 1986 tax reforms made it sensible for most closely-held businesses to be partnerships or S corporations. Unlike C corporations, which pay corporation taxes, these “pass-through entities” don’t pay taxes; instead, the income is reported on their owners’ 1040s.

Think Progress says the C corporation taxes are being replaced by “payroll taxes on working people.” That’s demonstrably wrong. C corporation taxes are being supplanted by business taxes paid on 1040s, which are generally paid at high tax brackets. Perhaps Think Progress has developed a strange new respect for hard-working high-bracket individuals.

Tax foundation Distribution of Federal Taxes in 2014

Chart Courtesy Tax Foundation

Cracking down on C corporations, as Think Progress advocates, will do nothing but confirm the trend away from C corporation taxation. I suppose then they’ll just continue the beatings until morale improves.

Related: Individual Tax Rates Also Impact Business Activity Due to High Number of Pass-Throughs (Scott Hodge, Alex Raut)

 

WOWT.com, Former Omaha IRS Agent Arrested for Tax Fraud Scheme. And yet we are told that these people need to regulate preparers to stop tax fraud.

 

Jared Walczak, States Lag Behind Federal Government on Small Business Expensing (Tax Policy Blog). “Forty-five states and the District of Columbia allow first-year expensing of small business capital investment under Section 179. Of those, thirty-four states are in conformity with the now-permanent $500,000 federal expensing level.”

William Perez, How Do You Claim a Sales Tax Deduction on Your Federal Taxes?

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #3. Thoughts on the Quill decision.

Kay Bell, Home energy tax breaks are extended, just in time for the arrival of, for many, an unusually warm winter

Jack Townsend, U.S. Taxpayer Seeks Declaratory Judgment that Goevernment Must Prove Willfulness for the FBAR Willful Penalty by Clear and Convincing Evidence. Given the stakes, it seems only fair, but the IRS prefers to be able to cause financial ruin with cloudy and unconvincing evidence.

 

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Jason Dinesen, From the Archives: Taxpayer Identity Theft, Part 2

Jim Maule asks Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit? I say its a revenue grab combined with moral preening.

Stephen Olsen, Summary Opinions for November (Procedurally Taxing). A roundup of tax procedure headlines.

Robert Wood, 5 Things To Know About Year-End’s Massive Tax Bill

TaxGrrrl, Real Housewife Teresa Giudice Released From Federal Prison

Tony Nitti, Moving? Don’t Forget The Tax Deduction. “At 23 years old I packed up my life, and in a move made popular by members of the witness protection program, fled New Jersey for the quiet of the Colorado mountains.”

Robert D. Flach talks about priorities in A YEAR-END TAX QUESTION FROM A CLIENT

 

Cheer up! Social Security is Still Going Broke (Arnold Kling)

TaxProf, The IRS Scandal, Day 958

Howard Gleckman, Trump Would Slash Taxes for the Top 0.1 Percent By An Average of $1.3 Million, Add Nearly $10 Trillion to the Debt (TaxVox)

 

Thanks a bunch, Prof. Avi-Yonah. CBS News:  Vanguard Investors, Your Fund Fees Could Quadruple If Michigan Tax Prof Reuven Avi-Yonah Is Right (TaxProf). A great example of how with a little corporation-bashing, busybody do-gooders would screw millions of small investors.

 

Holiday Giving News from the Profession. This Flask-Calculator Is the Perfect Gift for the Accountant Who Drinks Everything (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 12/22/15: If you want a 2015 qualified plan, time to fly! And lots more.

Tuesday, December 22nd, 2015 by Joe Kristan
The view from Tax Update world headquaters yesterday.

The view from Tax Update world headquaters yesterday.

10 days to get a qualified plan in place. Some of the best deductions for sole proprietors and one-owner corporations are found in the tax law’s “qualified plan” rules. A payment to a qualified pension or profit-sharing plan is deductible now, grows tax free, and is only taxable on retirement. For one-employee companies, it’s a deduction for taking money from one pocket and putting it in another.

One of the best of these opportunities is the “Solo 401(k),” which allows a deduction of up to $53,000 for contributions to a solo owner-employee’s retirement plan. But there’s one little catch: the plan has to be in place by December 31 of this year to allow a 2015 deduction.

If that sort of deduction sounds attractive, you should consult a qualified plan professional. Some brokerage houses can steer you the right way, as can the Vanguard mutual fund company.

Remember, though, that once money is in a qualified plan, expect it to stay there. Early withdrawals face a 10% penalty, as well as income tax liability. 401(k) plans generally can’t be investors in or lenders to the plan owner’s business. There are annual compliance costs that inevitably reduce the tax benefits. Still, for an annual deduction that size, some inconvenience can be tolerated.

This is the second installment of our 2015 year-end planning tips series. Collect them all!

 

Kay Bell, Upcoming filing season will start on time: Jan. 19, 2016. Almost none of my clients are ready by then. While I’m glad that the season isn’t delayed by a failure to pass an extender bill, I think identity theft requires a later start to issuing tax refunds. They shouldn’t be processed until W-2 and 1099 information is in the IRS system – preferably with special W-2 codes like those the IRS is experimenting with this season to catch fraudulent claims. 

Of course, that means the government will sit on overpayments longer. That should be addressed by changing the “I got a big refund!” culture. That could be done by lowering to 75% the amount of taxes that have to be paid in by April 15 to avoid a penalty and by changing the withholding tables to make refunds less likely.

 

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Robert D. Flach comes through with a “meaty” Christmas Week Buzz, with lots of Extender bill discussion and a hint of perhaps the most unusual Christmas Eve tradition ever.

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #4 – Who Can Qualify As A Real Estate Pro?

Russ Fox, Are Tips (Gratuities) at the Poker Table Deductible? “As long as the tip is reasonable, it’s clear that a professional poker player can deduct the tip as a business expense.” You’ll have to read the post to see whether it works for amateurs.

William Perez, All About the Earned Income Tax Credit. “The easiest way to find out if you qualify for the earned income credit is to use an application found on the IRS Web site called the EITC Assistant.”

Andrew Mitchel offers a True / False Quiz on FAST Act Passport Revocation Provisions

Hank Stern, Major O’Care Disappointment (Insureblog). “Now that the (disastrous) first phase of the 2016 Open Enrollment season is behind us, lets’ take a look at what a huge disappointment it was.”

Carlton Smith, Tilden v. Comm’r: Postal Service Tracking Data Determines Timeliness of Tax Court Petition (Procedurally Taxing)

TaxGrrrl, 12 Days Of Charitable Giving 2015: PACT For Animals

 

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Scott Greenberg, Fact-checking Hillary Clinton on Millionaires’ Taxes (Tax Policy Blog). “There are very few millionaires in the U.S. that pay “10 percent to nothing” in taxes.”

TaxProf, The IRS Scandal, Day 957. Today’s link goes to a Washington Post story that says “There is no love lost between Republicans in Congress and the Internal Revenue Service, whether it’s their dislike for the tax code, the current tax commissioner or their fury at the agency’s treatment a few years ago of conservative groups.” If you want to see increases in the IRS budget, you want Commissioner Koskinen to resign.

Howard Gleckman presents The TaxVox Lump of Coal Awards for the Ten Worst Tax Ideas of 2015. While I might quibble with one or two of the choices, it’s a strong list. For example:

8. Tax credits for what ails you. Hillary Clinton has taken a page out of Bill Clinton’s fiscal playbook: Identify a kitchen table problem and propose a modest tax subsidy to relieve the pain. She has tax credits for families burdened by the high costs of education, caring for aging parents, and high medical costs. And she’s proposed another credit to encourage employers to give workers a stake in their companies. My TPC colleague Gene Steuerle has a name for this: tax deform.

It’s more than a federal problem, for sure.

 

Matt Gardner, What Apple’s Tim Cook Gets Wrong About Its Tax Avoidance (Tax Justice Blog). Mr. Cook has the temerity to think that he has a duty to shareholders, instead of to grasping politicians.

 

Career Corner (or, News from the Profession). Former EY Employee Who Liked Secretly Filming People in the Bathroom Given Four Years to Think About His Choices (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/21/15: Winter’s here, along with a new tax law. Fixed-asset planning time!

Monday, December 21st, 2015 by Joe Kristan

20151211-1It’s the darkest day of the year, but with the signing of the Extender Bill, H.R. 2029, we are no longer in the dark for year-end fixed asset tax planning. The “PATH” act has some important fixed-asset provisions:

A permanent (and inflation-indexed) $500,000 annual limit for Section 179 deductions. This provision lets qualifying taxpayers deduct currently fixed asset costs that would otherwise have to be capitalized and depreciated over multiple years.

“Bonus Depreciation” is extended through 2019. This provision allows taxpayers to deduct 50% of the cost of depreciable property in the first depreciable year, with the remaining cost depreciated over the property’s normal tax life. Unlike Section 179, it cannot be taken for used property, but unlike Section 179, it can be used to generate net operating losses.

-15-year depreciation is made permanent for “Qualified Leasehold Improvement Property , Qualified Restaurant Buildings and Improvements, and Qualified Retail Improvements. These rules enable taxpayers to depreciate these items over 15 years, rather than the usual 39 year life for commercial buildings.

In theory, this provides a great opportunity to knock down your 2015 tax bill with last-minute purchases of fixed assets. But there’s a catch. It’s not enough to buy and pay for new fixed assets to deduct them this year. They also have to be “placed in service” by year end. From the IRS publication on depreciation:

You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.

Example 1.

Donald Steep bought a machine for his business. The machine was delivered last year. However, it was not installed and operational until this year. It is considered placed in service this year. If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year.

It’s not enough to have a new machine in crates on the loading dock. It has to be set up and ready to go. If you are buying a farm building, having it in pieces waiting for assembly doesn’t get you there.

That’s why year-end purchase of vehicles and farm equipment are popular. Once they arrive, they are pretty much ready to go. But you have to actually take delivery. “On order” isn’t enough. And remember that there are limits on the amount of Section 179 deduction and depreciation for passenger vehicles.

This is the first installment of our 2015 year-end planning tips series

 

6th avenue 1910

 

Russ Fox, Once Again, the IRS Doesn’t Start by Calling You:

My mother received a phone call on Saturday morning at 6 am from “Agent Smith” of the IRS demanding immediate payment of her taxes or she would find herself “thrown in jail.” Yes, the scamsters are still out there.

Now imagine you’re a senior citizen, and you get a phone call waking you up telling you to pay the IRS or you’ll find yourself in prison. It doesn’t take a genius to know that these scamsters can intimidate their victims.

Remember, if the caller demanding payment and saying the police are coming says he’s from IRS, he’s not from IRS.

Tony Nitti, Tax Court: Luring Pigs To Untimely Demise With Kool-Aid Counts As Material Participation. Sooey!

Robert D. Flach, THERE IS STILL TIME TO TAKE ADVANTAGE OF A “QCD” FOR 2015!

 

Paul Neiffer, Wind Energy Credits Extended and Phased-Out

Annette Nellen is counting down the “Top Ten Items of Tax Policy Interest for 2015.” #1 is non-tax bills used to change the tax law; #2 is IRS Funding Challenges. Anybody who is serious about improving IRS funding should be demanding the resignation of Commissioner Koskinen. Nobody’s going to trust him with extra funding.

Jason Dinesen, From the Archives: Insolvency and Canceled Debt: Make Sure You Can Prove It!

Jim Maule, Winning Back Your Tax Payments. “A reader made me aware of a recent suggestion that every taxpayer who files a timely and honest tax return, along with timely payment, be entered into a lottery.” It a way, that’s already true.

Leslie Book, Extenders Bill Gives IRS Additional Powers to Impose Penalties on Preparers and Disallow Refundable Credits (Procedurally Taxing). “Under the new law,  the accuracy-related penalty can be applied to any part of a reduced refundable credit subject to deficiency procedures.”

Peter Reilly, Bernie Sanders And The 90% Income Tax Rate That He Does Not Call For. ” Bernie Sanders wants us to have an economy like it was in the sixties and early seventies, when a summer of hard work could pay a year’s tuition and there were plenty of factory jobs that would support a family.” Maybe Bernie should reconsider his nostalgia.

Robert Wood, New Law Says Money For Wrongful Convictions Is Tax Free

TaxGrrrl, 12 Days Of Charitable Giving 2015: Wounded Warrior Project

Kay Bell gets into the holiday spirit with Christmas gifts for tax and financial geeks

 

old walnut

 

TaxProf, The IRS Scandal, Day 954Day 955Day 956. Coverage of the limits on IRS power included in the extender and omnibus legislation.

Alex Tabarrok, Subsidies Increase Tuition, Part XIV (Marginal Revolution):

Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay.

So naturally the Extenders bill made the American Opportunity Tax Credit permanent.

Jared Walczak, The Opening Salvo of 2016’s Soda Tax Battle (Tax Policy Blog). “Soda taxes are poised to be on the agenda in many cities in 2016, an effort spearheaded by former New York City Mayor Michael Bloomberg.” I propose a tax on people who can’t mind their own business.

Renu Zaretsky, Promises, Hopes, and Complaints. Today’s TaxVox headline roundup covers Hillary promises, Nevada trolling for ribbon-cuttings with taxpayer money, and Apple’s CEO tax code thoughts: “He wants changes to the US tax code, which ‘was made for the Industrial Age, not the Digital Age… It’s backwards. It’s awful for America.'”

 

News from the Profession. Let’s Help Deloitte Global CEO Punit Renjen With His First Tweet (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/18/15: 2016 standard mileage rates are out. And: Extender bill clears House.

Friday, December 18th, 2015 by Joe Kristan

Accounting Today newsletter visitors: The post about fines and penalties is here.

54 cents

54 cents. The IRS yesterday released the new standard mileage rates for 2016:

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.

Gas has come down. Blame the speculators!

Related: William Perez, How to Deduct Car and Truck Expenses on Your TaxesKay Bell, Business mileage deduction rate to drop in 2016Russ Fox, 2016 Standard Mileage Rates Released

 

Extender bill moves to Senate. The House of Representatives yesterday approved the permanent extender bill, H.R. 2029, on a 318-109 vote. The bill moves to the Senate. The Hill reports:

In the Senate, support for the tax measure is more bipartisan than it is in the House. Senate Finance Committee ranking member Ron Wyden (D-Ore.) joined with the Republican chairmen of the House and Senate tax-writing committees in announcing the deal.

The Senate’s third-ranking Democrat, Charles Schumer (N.Y.), released a statement Wednesday praising the fact that the bill would cement a tax benefit for mass transit commuters in a win for his state.

The Extender bill will be considered as part of a package in the Seanate, reports Tax Analysts ($link):

House GOP leaders worked throughout the day to build support for passage of an omnibus appropriations bill for fiscal 2016. The $1.1 trillion spending measure, which is also an amendment to H.R. 2029, is scheduled for a vote on December 18. Lawmakers expect that both the tax and spending measures will be combined into one bill and move to the Senate later that day, where it is expected to pass with bipartisan support. 

The Hill reports the Senate vote may happen as soon as today.

Related: Scott Greenberg, The Twelve Most Important Provisions in the Latest Tax Bill (Tax Policy Blog). #1 on the list is the permanent $500,000 Section 179 ceiling.

 

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Fresh Friday Buzz! From Robert D. Flach.

Gretchen Tegeler, Change is difficult, as failed suburban services merger showed (IowaBiz.com).  “First, never assume anything when it comes to change, even if it seems like reasonable change. Always expect active opposition.”

Jim Maule, You Mean That Tax Refund Isn’t for Me? Really?. Judge Judy deals with a tax refund spent by an ex-girlfriend.

Peter Reilly, Venus Flytraps And Elusive Gator On Golf Course Not Worth Millions In Tax Deductions. A conservation easement goes very bad.

Robert Wood, Supermodel Bar Refaeli’s Alleged Tax Evasion On Gifts: Must You Report Yours? Gifts aren’t taxable income in the U.S., but the IRS doesn’t have to believe that money you receive is actually a gift, rather than compensation. It even has a form to report large gifts from overseas (Form 3520) so they can second guess whether amounts really are “gifts.” Large fines apply if you don’t file the form for years you receive such gifts.

TaxGrrrl, Tax Preparer For Mike ‘The Situation’ Sorrentino Pleads Guilty To Tax Fraud Conspiracy.

 

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Renu Zaretsky, Will they or won’t they? Today’s TaxVox headline roundup covers prospects for the extender bill, among other things.

TaxProf, The IRS Scandal, Day 953

Richard Phillips, Tax Wars: 3 Lessons about Tax Policy from the Star Wars Universe (Tax Policy Blog). “The Star Wars universe has problems with corporate tax enforcement and shell companies.”

News from the Profession. Big 4 Firms Still Getting Used to This Whole Regulation Thing (Caleb Newquist, Going Concern)

 

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Tax Roundup, 12/15/15: Is today the day we see an extender bill? And: carrybacks and other legends.

Tuesday, December 15th, 2015 by Joe Kristan
This happened in 2008. It's raining again.

It’s flooding again!

We may see extender legislation today. Or tomorrow. Or maybe never. Congressional negotiators haven’t given up on passing a “permanent extension” of some of the perpetually-expiring tax breaks. The breaks died at the end of 2014, and Congress needs to re-enact them to enable taxpayers to claim them on 2015 returns.

The only people who really know the status of negotiations are in Washington back rooms. The Hill, a publication whose business is to haunt those back rooms, reports that negotiations on a permanent extender package are coming to conclusion at the same time as a trillion-dollar “omnibus” spending bill:

The debate has become intermingled with the battle over the separate tax extenders proposal. After a series of short-term extensions, lawmakers in both parties want to make many of those tax breaks permanent. But Pelosi and House Democrats say the tax package, in its current form, is both too big and tilts too heavily in favor of corporations at the expense of individuals and federal revenues.

Pelosi has pushed to index the child tax credit to inflation, which Republicans oppose. Even then, Pelosi has warned, the package would have trouble finding support among House Democrats.

Tax Analysts reports ($link)

Senate Finance Committee Chair Orrin G. Hatch, R-Utah, told reporters December 14 that the omnibus bill and the extenders bill could pass Congress by December 18 — or December 17, “if we are lucky.” He added that he thinks the two will remain separate, but that ultimately, that is up to congressional leadership.

Hatch said he was still hoping for a permanent extenders deal. “We are assiduously working on it. I think we will get it done. I think it will be fair to both sides,” he said. “And hopefully it will be a very important bill.”

According to The Hill, House Speaker Ryan promises to offer legislative language three days before any vote. The report that may see such language today, with a vote Thursday or Friday. If a bill becomes available, I will update this post with a link.

Failure is always an option. There seem to be many ways to sink a permanent extender bill. A two-year extender bill has been introduced as a Plan B, but even that isn’t a sure thing. A Senate staff member was at the Ames tax school yesterday, and he said he expects a two-year extender bill, for what that’s worth. I still think that is the most likely result, but I would sure prefer to be proved wrong by a permanent bill.

Related: Paul Neiffer, One Year Later:

We are hearing from various sources that the tax extender bill will not be done until likely this Saturday which will be December 19.  Last year, the bill was signed on December 19, so if Congress passes it on the 19th and heads home, the tax extender bill this year will be even later than last year.  However, the good news that we continue to hear that it will be a two-year extension for both 2015 AND 2016.

A one-year bill is plan C. Complete failure is Plan D.

 

Jared Walczak, Corporate Net Operating Loss Carryforward and Carryback Provisions by State (Tax Policy Blog):

Net operating loss deductions are important because many businesses operate in industries that fluctuate greatly with the business cycle. They might experience considerable profits one year, but then be in the hole the next year. Net operating loss carryforwards and carrybacks help those businesses to “smooth” their income, so that the tax code is more neutral with respect to time.

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Iowa unfortunately doesn’t allow carrybacks. This increases the possibility that a corporation could pay state taxes in excess of its income over its lifetime. An easy example would be a corporation that makes $1 million in year 1, loses $2 million in year 2, and closes. The corporation would have paid around $100,000 to IOwa in year 1 and would never get it back, even though its lifetime income was negative.

Iowa does allow a 20-year loss carryforward, if the loss corporation lives that long.

 

buzz20150827Buzz! Today’s Buzz roundup from Robert D. Flach covers extenders and reasonable comp, and offers a trivia challenge and a Trumpian devotion.

William Perez, Moving? How to Tell the IRS about a Change of Address

Russ Fox, If a Professional Prepares Your Return, Are You Exempt from the Accuracy-Related Penalty? “If you’re signing a return with $1 million of income, isn’t it worth more than a few seconds to review it? I would certainly think so.”

Jason Dinesen, The EIC Isn’t the Only Place Tax Fraud Happens. “EIC clients who are trying to commit fraud are indeed dangerous to us tax pros … but so is the small business client who’s trying to commit fraud.”

 

Robert Wood, Foreign Banks Pay To Avoid Tax Evasion Charges As More Americans Disclose Offshore Accounts.

Peter Reilly, Solid Due Dilgence Shields Trucking Heirs From IRS Attack. “The Tax Court decision in the case of the John Alterman Trust  is one of the best positive examples I have seen of Reilly’s Fourth Law of Tax Planning – Execution isn’t everything, but it’s a lot – in a while.”

Christine SpeidelReview of the First Tax Year of the Affordable Care Act and Look Ahead: Part 1 (Procedurally Taxing).

Matt McKinney, 3 key differences between an Iowa LLC and a corporation (IowaBiz.com)

It’s not just Iowa. Another CO-OP foundering. “As the list of failing CO-OPs continues to grow, it’s beginning to seem like the model may, in fact, be fatally flawed.”

21st Century tax problems. Lawsuit Alleges IRS Denied Deduction For Fertility Treatments Because Being Gay Is A ‘Choice’. (TaxGrrrl)

 

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Donald Marron, Should Governments Tax Unhealthy Foods and Drinks? (TaxVox). “We find that a US tax on sugar-sweetened beverages would be highly regressive, imposing more than four times as much burden, relative to income, on people in the bottom fifth of the income distribution as on those in the top fifth.”

Sin taxes are sacrifices imposed on the poor to flatter the consciences of the nosy rich.

TaxProf, The IRS Scandal, Day 950

Joseph Thorndike, How Profit Sharing Sent Captain Ahab in Search of Moby Dick (Tax Analysts Blog). While Ahab had his problems, ERISA compliance wasn’t one of them.

News from the Profession. Don’t Worry Tax People, You Have a Lame Hashtag, Too (Caleb Newquist, Going Concern).

Every Bride dreams of this. Tax Profs Christine Allie  And Stuart Lazar Find Love At AALS, Marry At Tax Court (TaxProf)

 

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Tax Roundup, 12/11/15: Extender battle extended to next week; efforts to make some breaks permanent continue. And: Tina, Accidental American.

Friday, December 11th, 2015 by Joe Kristan

20151211-1Extending the week. Congress had been scheduled to go home today, but now it looks like the session will drag through the weekend while they try to agree on spending and tax legislation.

Whither the extenders? The Hill reports that hope lives for permanent enactment of several of the important Lazarus provisions that have repeatedly died – most recently at the end of 2014 — and that need to be revived to be used on 2015 returns. From the report:

I understand the current projection is for the House to post the omnibus Monday and vote on it by Wednesday,” Senate Republican Whip John Cornyn (Texas) told reporters. “The goal is to wrap things up by Wednesday evening.”

He said the omnibus would be linked to a package extending expiring tax provisions. Senate negotiators say that package is likely to make several important tax breaks open-ended and place a moratorium on two ObamaCare taxes.

“They seem to be linked, although I can’t tell you whether it will be one vote or two votes, but clearly they’re part of the overall negotiations,” he added.

What would be made permanent? At least the R&D Credit and the $500,000 Section 179 deduction. These would be accompanied by permanent, and maybe increased, earned income credits, child credits, and education credits. How likely is it? The Hill says “Senate sources on Thursday said the chances of reaching a deal on a major tax deal were greater than 50 percent.”

Nothing is certain, though. Tax Analysts reports ($link) Permanent Tax Extenders Deal Continues to Elude Lawmakers. It quotes Rep. Steve Israel (D-N.Y.) as insisting that the child credit be indexed to inflation, and that other obstacles to agreement remain:

Israel noted that ultraconservative Republicans object to including renewable energy tax credits and family credits in the extenders deal, so votes from House Democrats are still essential regardless of what deal Senate Democrats reach with Republicans.

Here I’ll just note that there appear to be no such thing as “ultraliberals” to reporters, while “ultraconservatives” abound.

Rep. Bill Flores, R-Texas, chair of the House Republican Study Committee, said December 2 that his group believes that renewable energy credits should be phased out. “Special interest giveaways like the wind production tax credit and the solar investment tax credit have overstayed their welcome and their usefulness,” he said.

Flores’s group also does not support family credits, which he called “stimulus legacy items” that should not be renewed without heightened verification and oversight.

These obstacles could result in another two-year extension of the expiring provisions, though complete failure remains an option.

Prior coverage:

Ways and Means Chair introduces a Plan B as permanent extender talks continue.

Extender week?

 

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Just how stupid is U.S. foreign taxation? This stupid. A heartbreaking and infuriating piece by Allison Christians shows the brain-dead Kafkaesque nightmare created by Congress and enforced by IRS to “crack down” on overseas taxpayers: Understanding the Accidental American: Tina’s Story. It tells the story of a 62 year-old woman who was born in the U.S. while her parents were students, but has lived all but her first six months in Canada. Ms. Christians makes a powerful case:

Related to that point, I think a taxpayer has a right to learn that her whole financial life is subject to harsh deterrents and penalties solely for the reason that it is not located in the United States, even and especially when she is not located in the United States. Again, I think she has the right to learn that not from blogs or word of mouth, but from the government that seeks to impose these rules on her. I think she’s got a right to be informed about a life-destroying force like PFIC by the government that seeks to unleash that force upon her, and a right to avoid that punishment by making different choices. And if that government can’t or won’t bother to inform her, or address the utter absurdity of stripping a person of their life savings as a consequence of inadequate form filling, I think she’s got a reason to complain that this is a pretty unfair administration of a very complex law — a law designed for millionaires with expensive tax accountants and not for Canadians carefully saving for retirement and not hiding anything from anyone.

When the IRS and the politicians crow about how effective their foreign enforcement efforts are, remember that a lot of it is coming out of the pockets of taxpayers like Tina.

(Via the TaxProf).

 

Kristine Tidgren, Iowa Court of Appeals Says LLC Corporate Veil Properly Pierced (The Ag Docket).

The court found that the trial court’s finding of inadequate capitalization was supported by substantial evidence. In so finding, the court noted the defendants’ history of moving funds between related entities, the lack of LLC assets and employees, and its failure to reduce losses to the plaintiff, despite knowing its funding was inadequate.

This sort of ruling will make businesses leery of using Iowa entities. An appeal to the Iowa Supreme Court is likely.

 

buzz 20151023-1Friday means Buzz day for Robert D. Flach. Today he covers the legislation requiring IRS to use private debt collectors, preparer regulations and more.

Jana Luttenegger Weiler, Delinquent Taxes May Mean No Passport. “ Imagine the problems for a taxpayer who is unaware of this new rule and not finding out until being stranded in the midst of traveling.”

Jason Dinesen, Choosing a Business Entity: Determining S-corporation Reasonable Salary. “A salary that’s considered reasonable for one corporation may not be reasonable for another corporation.”

Leslie Book, Tis the Season For Tax Procedure Legislation (Procedurally Taxing).  “Under the new legislation, the failure to file penalty may not be less than the lesser of $205 or 100 percent of the amount required to be shown as tax on the return (it used to be $135 or 100%).”

Robert Wood, Three Moves In December To Save Taxes Next April

TaxGrrrl, How Answering A Simple Question Makes You An Easy Target For Identity Thieves

 

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TaxProf, The IRS Scandal, Day 946

Nicole Kaeding, Proposed Tax Increases in Alaska. Alaska may get an income tax.

Steven Rosenthal, Hillary Clinton Proposes Tough New Curbs on Corporate Tax Inversions (TaxVox). The “beatings will continue until morale improves” approach.

News from the Profession. Grant Thornton Hoping to Bring Soul-Crushing Disappointment to Charlotte Hornets With New Sponsorship (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/9/15: Ways and Means Chair introduces a Plan B as permanent extender talks continue.

Wednesday, December 9th, 2015 by Joe Kristan

20151209-1Slow train to Extenderville. The House Ways and Means Chairman has introduced a two-year extender bill (H.R. 34) as Plan B as negotiations for permanent enactment of some temporary tax provisions continue. A summary of the bill is here. The bill would retroactively revive dozens of the Lazarus provisions that expired at the end of 2014. These include:

-The $500,000 limit for Section 179 deductions for otherwise capitalized capital expenditures. The limit will otherwise be $25,000.

-The research credit.

-Bonus depreciation

-The ability to roll up to $100,000 from an IRA directly to charity without it going through the 1040 first.

-The five-year “recognition period” for S corporation built-in gains.

The bill also includes substantial permanent restrictions on the spin-offs of corporate real estate into Real Estate Investment Trusts, along with some minor reform of the special “FIRPTA” withholding tax rules on foreign real estate.

The push for a longer-term extensions isn’t dead yet, though. The Hill reports that Hopes rise for major tax package:

Sen. Ron Wyden (Ore.), the senior Democrat on the Senate Finance Committee, painted an optimistic picture during a private meeting Tuesday of Senate Democrats.

“I think it went through a trough this weekend, and then, maybe, early yesterday afternoon a bit of a breakthrough,” said Sen. Tim Kaine (D-Va.). 

The core of a bigger deal would indefinitely extend the research and development tax credit and the Section 179 deduction for small-business expensing, two Republican priorities that have support from pro-business Democrats.

It would also make open-ended expansions of the child tax credit, the earned income tax credit and the American opportunity tax credit, central pieces of President Obama’s 2009 stimulus package.

The President has not committed to signing a either a permanent bill or a  temporary expiring provisions bill, so there’s no guarantee anything will happen. While they have always eventually passed an extender bill during this administration, failure remains an option.

Related: What are Real Estate Provisions Doing in the Latest Tax Extenders Bill? (Scott Greenberg, Tax Policy Blog). “All in all, there’s not much of a justification for the existence of FIRPTA in the first place.”

 

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Robert D. Flach, FOR MY FELLOW TAX PROFESSIONALS – A SPECIAL REQUEST. Robert would like to see a unified advocacy organization for tax pros.

TaxGrrrl, Cloudy Security: What Your Advisor Doesn’t Know About Cloud Computing Could Hurt You. Using a cloud service provider doesn’t waive your obligations to protect client data.

Kay Bell, California has $28 million in unclaimed state tax refunds

Jason Dinesen, Glossary: Draws. “In tax terminology, the term “draw” refers to money taken out of a sole proprietorship by the proprietor, or out of a partnership by a partner.”

Keith Fogg, Requesting an Offset Bypass Refund and Tracing Offsets to Non-IRS Sources (Procedurally Taxing). “Under the right circumstances the IRS will apply administrative procedures to override the general rule required by IRS 6402 to offset the refund of a taxpayer to satisfy an outstanding liability.”

 

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Hank Stern, UHC Doubles Down on Comp (Insureblog). United Healthcare is losing money on its ACA exchange policies, so it no longer is paying brokers to sell them. I’ve never heard of such a thing, and it is compelling evidence that the economics of Obamacare are unsustainable.

Dave Nelson, The human element of information security (IowaBiz). “Social engineering is nothing more than a hacker attacking a human rather than a computer.  They use their knowledge of human behavior to con a user into giving them information over the phone, clicking links in emails or giving them physical access to systems or data.”

Jack Townsend, One More Bank Obtains NPA under DOJ Swiss Bank Program

TaxProf, The IRS Scandal, Day 944. A fellow law professor shows a thin skin.

Howard Gleckman, Bush’s Tax Plan Would Add $6.8 Trillion to the National Debt, Benefit High-Income Households (TaxVox).

 

Career Corner, Accounting Firms Should Get Rid of Managers (Going Concern). If your firm has some to spare, send them my way.

 

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Tax Roundup, 12/8/15: Extenders, fourth and long. Also: No Iowa tax reform expected in 2016. And: Finland!

Tuesday, December 8th, 2015 by Joe Kristan

20150811-1Time to punt? Congressional taxwriters may be on the verge of giving up on passing any permanent extensions of the perpetually-expiring tax provisions this year. It is reported they may go for a two-year extension this week. Tax Analysts reports on comments from House Ways and Means Chairman Kevin Brady ($link):

House Ways and Means Republicans are expected to introduce a two-year tax extenders bill as talks continue on a permanent extenders package without a clear solution, committee Chair Kevin Brady, R-Texas, told reporters on December 7.

“The clock is ticking. We are not going to let the extenders fail before we leave town,” Brady said. Republicans want to make sure they are ready this week with a “fallback” if an agreement isn’t reached between the parties, he said earlier.

They are scheduled to adjourn and leave town Friday, so things will need to happen quickly. The story reports that Senate Finance Committee Chairman Orrin Hatch expects the House to pass a two-year extension.

They had been working to permanently extend at least the research credit and the $500,000 Section 179 deduction, but the Democratic negotiators insistence on expansion of the earned income credit as part of any deal may doom the permanent effort.

Some of the Lazarus provisions that died at the end of 2014 and need to be extended to be available for 2015 filings include:

-The $500,000 limit for Section 179 deductions for otherwise capitalized capital expenditures. The limit will otherwise be $25,000.

-The research credit.

-Bonus depreciation

-The ability to roll up to $100,000 from an IRA directly to charity without it going through the 1040 first.

The full list is here.

Failure, of course, remains an option. The pre-recess crush makes getting anything done uncertain. House Majority Leader McCarthy is quoted as saying that he has a “fear” that the extenders won’t pass. In that case, we may have a retroactive package passed in January, delaying filing season, or no extender bill at all.

Related: Kay Bell, Uncle Sam faces another shutdown if Congress doesn’t reach spending agreement by Dec. 11

 

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No Iowa Tax Reform again this year. That’s the word from the Iowa Taxpayers Association annual legislative forum, reports the Waterloo-Cedar Falls Courier:

At the Iowa Taxpayers Association’s annual legislative leadership forum, held Friday at Prairie Meadows in Altoona, Democratic and Republican leaders said there is not sufficient state revenue to support new tax breaks or policy changes that would remove money from the budget pie.

“Obviously, when you’re working on tight budget margins, the opportunity for tax reform becomes increasingly difficult,” said Rep. Chris Hagenow, R-Windsor Heights, the new House Majority Leader.

“I’m just going to be very frank: I don’t see this session producing any tax policy changes,” Jochum said. “In terms of any big, new policy changes in taxes … I truly do not see any of that happening.”

That’s no surprise. The continuing split of control between the parties, the resulting ability of either side to veto any tax reform efforts, and seemingly irreconcilable views on tax policy would probably doom any tax reform effort regardless of the budget numbers. The best we can hope is that work continues behind the scenes for when the political climate for tax reform improves. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready whenever they are.

 

buzz20150804Robert D. Flach has fresh Tuesday Buzz, with links including discussion of the futility of regulating the law-abiding to stop the crooks, a lesson with broad application.

Paul Neiffer, Additional De-Minimis Election Update. “Therefore, if a sole proprietor farmer or rancher purchases a large amount of assets that individually cost less than $2,500 AND these assets are likely to appreciate in value, it may be better to not make the de-minimis election for that year.”

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #5- The Role Partnership Liabilities In Foreclosures,

Robert Wood, IRS Private Debt Collectors Are Now Legal: 10 Things You Should Know

TaxGrrrl, Wal-Mart Sues Puerto Rico Over ‘Astonishing And Unsustainable’ Tax Increase. To go with astonishing and unsustainable government spending.

Leslie Book, Summons Enforcement For Undisclosed Offshore Accounts: The I Don’t Have Em Defense Is Not an Easy One to Win

Jack Townsend, New Transportion Bill, FAST, Adds Some Tax Provisions

Of course it does. State Wants Its Share Of The Sharing Economy (Peter Reilly) “This appears to be one of the rare instances where I am providing you breaking news on a matter otherwise neglected by the tax blogosphere.” Au contraire, Pierre Peter!

 

20150731-1Finland is considering replacing its vaunted welfare regime with a guaranteed annual income;

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out €800 ($870) per month—to everyone.

This would deal with the problem of high implicit marginal tax rates that make it too expensive for low-income Finns to go to work — a problem that also exists in the U.S., as Arnold Kling and others have noted.

It may sound counterintuitive, but the proposal is meant to tackle unemployment. Finland’s unemployment rate is at a 15-year high, at 9.53% and a basic income would allow people to take on low-paying jobs without personal cost. At the moment, a temporary job results in lower welfare benefits, which can lead to an overall drop in income.

Related: Tyler Cowen, A guaranteed annual income for Finland?Arnold Kling, Libertarian Scandinavian Welfare State?

 

TaxProf, The IRS Scandal, Day 943. Paul Caron telegraphs an end to this important series. Even when the Tax Prof’s daily coverage ends, the scandal remains unresolved, and Commissioner Koskinen and the administration continue to run out the clock, to the continuing damage of the IRS and to taxpayer service.

Scott Greenberg, A Lesson of Hanukkah: It’s Difficult to Determine Asset Lives: “To spell out the lesson of the story more slowly – the Maccabees came into possession of an asset (a jar of oil). They thought it would lose its value over a certain time period (a single day). However, the asset actually took much longer to depreciate (eight days).”

 

Stop the presses. Donald Trump Tweeted Something About Tax Shelters (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/3/15: Bedbugs and Cadillacs, and tax uses for old-fashioned index cards.

Thursday, December 3rd, 2015 by Joe Kristan
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Drive all night. Mr. Charley told me so. An old joke says that you should spend for nice wheels because after all, while you can’t drive a house, you can always sleep in a car.  A case in Tax Court yesterday involves a taxpayer who may have taken that advice to heart. Fortunately, he also took to heart the tax rules that require you to document your business miles.

The taxpayer, a Mr. Charley, had a business (“LubriDyne”) that involved devices used to clean hydraulic oil used by injection molders. He bought a used Cadillac with a trunk big enough to hold his demonstration equipment and traveled in it far and wide, according to Judge Paris (my emphasis):

The most effective way for Mr. Charley to pitch LubriDyne was to drive to clients and demonstrate how the equipment worked. He began most trips from his home where he officed and stored his equipment. All of Mr. Charley’s business trips were made in the Cadillac. Many of LubriDyne’s clients were within a four- to five-hour radius of Mr. Charley’s Missouri home although he also visited clients in Colorado, California, and Wisconsin. If Mr. Charley did not return home at the end of each day, he would either spend the night in his car or drive through the night.6When he did stay overnight somewhere, he stayed with friends at their houses. Mrs. Charley did not accompany Mr. Charley on any of his business trips in 2010.

Footnote six explains the aversion to motels:

6 Mr. Charley testified that petitioners had spent $2,500 to rid their home of bed bugs after one hotel stay. Since then, he does not stay at hotels when he travels.

Whether or not you sleep in your car, the tax law requires extra substantiation for travel expenses. From the Tax Court opinion (citations omitted):

Under section 274(d), a taxpayer must satisfy strict substantiation requirements before a deduction is allowed. To deduct expenses related to travel, meals and entertainment, gifts, or listed property, the taxpayer must “substantiate by adequate records or by sufficient evidence corroborating the taxpayer’s own statement”: (1) the amount of the expense (i.e., mileage); (2) the time and place of the expense; (3) the business purpose of the expense; and (4) in the case of entertainment, the business relationship between the taxpayer and the person being entertained. Listed property includes passenger automobiles. To satisfy the requirements of section 274(d) by adequate records, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each element of an expenditure or use.

Flickr image courtesy dave_7 under Creative Commons license.

Flickr image courtesy dave_7 under Creative Commons license.

This means the “Cohan Rule,” which enables courts to estimate expenses that are otherwise inadequately documented, cannot be used for car expenses. The IRS said Mr. Charley’s substantiation fell short. The Tax Court explained the taxpayer travel records:

Mr. Charley recorded the point-of-contact, telephone number, date he visited the client, and the client’s business address on an index card. Each index card was created at the time of the travel to that client. Although the mileage from Mr. Charley’s home to each client was not included on the index cards, most of his client’s business addresses included the city and State where the client was located. Some of the index cards record visits to multiple clients in the same geographical area.

The opinion doesn’t say why the IRS objected to the records — perhaps because he didn’t keep an actual travel log in the car? In any case, Judge Paris said the records were good enough (citations again omitted):

The Court finds that Mr. Charley substantiated that he had business mileage expenses for 2010 through his index cards and testimony — although not the amount reported on petitioners’ return.While Mr. Charley’s travel schedule may have been extreme, such extremity is not a bar to deducting otherwise properly substantiated expenses.

Mr. Charley left from his home office to begin each business trip. He would return home that day, drive through the night to return home the following day, or continue to another client in the same geographic location as the first client on the  business trip. Mr. Charley’s index cards contain the business address for almost every client his visited in 2010. Allowing Mr. Charley the mileage for the shortest routes between his home office and his clients’ addresses, the Court finds that petitioners are entitled to car and truck expenses for 13,731 business miles for 2010.

While fewer miles than claimed on the return, it was 13,731 miles more than the IRS allowed.

The Moral: You have to be able to substantiate your travel to deduct it, but there’s more than one way to skin a Cadillac. While IRS loves auto logs, a detailed calendar  or a smartphone app capturing the same information will work. So will old-fashioned 3×5 cards.

Cite: Charley, T.C. Memo 2015-232.

 

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Gang Truce. Congress Reaches Deal on Five-Year Highway Funding Bill (Kyle Pomerleau, Tax Policy Blog). I find bipartisanship often is as helpful to the rest of us as an agreement to split crime proceeds between rival street gangs. The Highway bill is that sort of bipartisanship, with awful revenue raisers including a provision to revoke passports of “delinquent” taxpayers.

Anybody who has worked with the IRS knows that IRS recordkeeping is only getting worse. It can take years to fix an IRS mistake. Inevitably, some taxpayer will fall victim to a computer burp while overseas and be stranded and unable to sort out the mess for weeks. I just hope it’s a Congressman.

 

Robert D. Flach, YEAR-END AND HOLIDAY CHARITABLE CONTRIBUTIONS. “You can no longer say you put a five or ten dollar bill in the collection plate each week.” Not if you want a deduction, anyway.

Russ Fox, Third Party Transcript Requests Reportedly Will No Longer be Processed by the IRS. ” This policy has not been officially published anywhere by the IRS, but based on IRS actions it appears that this policy was put in place because of identity theft concerns.”

Robert Wood, EU Hunts McDonald’s No-Tax Secret Sauce, Could End Love For Tax-Free Royalties

 

Keith Fogg, Legitimate Claim of 5th Amendment on Tax Return Should not Result in Frivolous Return Penalty (Procedurally Taxing). “Citing the 5th amendment on a tax return is something that a tax protestor might do which is why such an assertion makes the list, but it is also something that someone with a legitimate fear of prosecution should do.”

Jason Dinesen, Glossary: Section 179. “As usual, Congress continues to dither on any tax extender bill for 2015.”

Paul Neiffer, A Slow Slog to the Finish Line on Section 179

Jack Townsend, In Summons Enforcement Proceeding, Court Rejects Taxpayer’s Lack of Possession Defense For Foreign Account Documents

Kay Bell, December! Time for shopping, holiday parties and taxes! A good discussion of some standard year-end planning techniques.

 

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Roberton Williams, The ACA Penalty Tax Is Going Up If You Don’t Get Health Insurance. (TaxV0x).

Peter Reilly, What Art Of The Deal Tells Us About Donald Trump And His Tax Views

TaxProf, The IRS Scandal, Day 938

 

The Critical Question. What’s Next for Microsoft After Some Expensive Table Pounding? (Tax Analysts Blog)

News from the Profession. Fake Occupants Caused Some Problems in Grant Thornton’s Audit of Assisted Living Concepts (Caleb Newquist, Going Concern). Yeah, fake customers are probably not a good thing to find in an audit.

 

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Tax Roundup, 12/2/15: A defender of tax credits makes his case. Also: escalating the war on offshore taxpayers.

Wednesday, December 2nd, 2015 by Joe Kristan

 

20120906-1Bribe them and they will come. The Atlantic asks Why Are There So Many Data Centers in Iowa?. “When I’ve asked data center operations managers, the answer has varied from approximately forty characteristics to a blunt four: ‘Networks, land, power, and taxes'” By “taxes,” that generally means “tax incentives,” or special breaks unavailable to the rest of us.

In a post at IowaBiz.com, Brent Willett makes an unabashed argument for more of the same in Economic development has an image problem (IowaBiz.com). It’s an interesting piece. Its premise is that people think that special tax deals to lure companies are shady, but that we would feel otherwise if incentive boosters just made a better case.

For an attempt to make the case that incentives are a good thing, the post is  short of actual evidence. It instead makes flat assertions that incentives are necessary and proper, and are obviously good because everybody does them. For example (emphasis in original):

Incentives play a fundamental role in securing job- and wealth-creation projects for communities in every corner of this country and in many countries of the world. This is pure, unadulterated fact.

If it were pure unadulterated fact, you might think that it would be easy to marshal some data that says so. Yet in the only attempt ever made by Iowa to quantify the value of its dozens of tax credit giveaways, by a blue-ribbon committee appointed in the wake of the Iowa Film Tax Credit fiasco, failed to identify a single tax credit that clearly was worth more than it cost.

The two magic words omitted by defenders of tax credits are “opportunity cost.” They point to projects that receive tax credits, assert they would not have happened anyway, and ignore the idea that the money used for the credits would have been used elsewhere. They also ignore the cost to all businesses of the tax law complexity and high rates that inevitably accompany special interest tax breaks.

It’s not just accidental that tax incentives have a bad image. They are like a guy who takes his wife’s purse to the bar to buy drinks for the girls. The girls might accept the free drinks (development success!), but it doesn’t help the person who foots the bill. Nor is it impressive, and any of the girls won over by this tactic aren’t likely to be real prizes. In any case, his image is unlikely to be helped by a better explanation when his wife finds out.

Related: Local CPA Firm vows to swallow pride, accept $28 million

 

Best done by not giving them in the first place. States Can Avoid the Fiscal Risks Tax Incentives Create, Pew Report Says (LexisNexis Legal Newsroom).

Jim Maule, Tax Credit Giveaways Don’t Deserve Credit, “If the Michigan tax credit had done what it was promised to do, the increased tax revenues should have more than offset the cost of the credit. But that hasn’t happened, as evidenced by the budget deficits that were spiraling out of control on account of the tax credit giveaway.”

 

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Andrew Mitchel, The Escalation of Offshore Penalties Over the Last 20 Years. An excellent summary of the unconscionable increase in foot-fault penalties for paperwork violations of foreign reporting rules. He describes the same “violations” taking place in 1995 and now.

In 1995, the individual was only required to file two forms (the FBAR and Form 5471) and would be subject to penalties totaling $2,000. In 2011, the same individual was required to file six forms (the FBAR, Forms 3520, 3520-A, 5471, 8865, 8938) and would be subject to penalties totaling $70,000.

Read the whole thing.

Peter Reilly, IRS Trying To Make It Harder To Qualify As Real Estate Pro. An excellent, in-depth discussion of a taxpayer victory in the eternal IRS war against deducting real estate losses.

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return

Kay Bell, Charitable donation tax deduction rules apply on Giving Tuesday and year-round. A good summary of rules on year-end charitable giving.

Amanda Klopp, A Snow Holiday? Not if the IRS Can Help It. (Procedurally Taaxing).

TaxGrrrl, Congress Moves Towards Granting IRS Authority To License Tax Preparers. “Representatives Diane Black (R-TN) and Pat Meehan (R-PA) have introduced H.R. 4141, the Tax Return Preparer Competency Act.”  When taxwriters demonstrate competency, then they can complain about preparers.

Russ Fox, My Love/Hate Relationship with the FTB. “Yet for all the excellence in how the FTB communicates some of the FTB’s practices leave a lot to be desired.”

Robert D. Flach, NEW JERSEY LLC FAQ

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #6 – More Bad News For The Marijuana Industry.

 

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Jeremy Scott, Congress Gives Up on Paying for Extenders . . . And That’s Fine (Tax Analysts Blog). “Taking a few of the most popular extenders off the table by making them permanent would only help with a limited legislative calendar, which could give some juice to tax reform efforts or at least end the silly end-of-the-year, Mock Turtle-like dance Congress has performed for most of the last 30 years.”

Renu Zaretsky, The Case of the Mislabeled ABLE Account (TaxVox). “Here’s the catch: There’s a good chance that by the time she reaches 18 the value of her account will exceed $102,000. If her nest egg tops that amount, the state would suspend her SSI benefits until her account fell below that threshold.”

TaxProf, The IRS Scandal, Day 937.

Richard Phillips, Congress Should Embrace the International Consensus to Crack Down on Corporate Tax Avoidance (Tax Justice Blog). Um, no.

News from the Profession. Tax Nerds Set Record Straight on Tax Code vs. NFL Rulebook Complexity (Caleb Newquist, Going Concern).

 

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Tax Roundup, 11/25/15: Don’t bother depreciating things up to $2,500. And: Have a great Thanksgiving!

Wednesday, November 25th, 2015 by Joe Kristan

20141226-1$2,500 is the new $500. The IRS yesterday announced (Notice 2015-82) that it was increasing the maximum “safe harbor” expensing amount from $500 per item to $2,500 for taxpayers without an “applicable financial statement” — that is, most taxpayers. Taxpayers with an AFS can elect to expense items up to $5,000. These safe harbors enable taxpayers to not worry about capitalizing and depreciating items up to these amounts.

The new safe harbor takes effect for years starting January 1, 2016 and later.

The safe harbors are authorized by treasury regulations for taxpayers who have in place at the beginning of the tax year “accounting procedures treating as an expense for non-tax purposes” that expense such “per invoice (or per item as substantiated by invoice)” So make sure you write down somewhere that you have a policy of expensing everything up to $2,500 before December 31.

This is a good, if small, step towards allowing taxpayers to expense capital costs. I object to the “applicable financial statement” requirement for the $5,000 amount, as the tax law shouldn’t care whether you have a CPA-certified audit or that you have to report your financials to a government agency, but at least this closes the gap some.   I should be happy, I suppose, that it gives my auditing brethren a small sales tool.

Related: Russ Fox, IRS Increases De Minimis Expense Threshold to $2,500 from $500 for 2016 OnwardTony Nitti, IRS: Taxpayers May Immediately Deduct The Purchase Of Assets Costing Less Than $2,500.

 

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William Perez, Year End Tax Planning Ideas for Self Employed Persons.

Robert Wood, Passports Required For Domestic Travel In 2016, But IRS Can Revoke Passports For Taxes. Giving IRS control over passports is a horrible idea. They make so many errors, and the errors can be so hard to fix.

Robert D. Flach, MORTGAGE INTEREST LIMITATIONS. “But the Court of Appeals ruled that [unmarried] co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.”

 

Annette Nellen, Sales Tax as a Penalty? “A proposed California initiative may surprise you.  It calls for a 1000% sales tax on ‘political advertisements.'”

Kay Bell, IRS should focus tax audit efforts on richer taxpayers. Willie Sutton might agree. 

Paul Neiffer, FAFSA Reporting Changes. “The Department of Education has issued new rules that make this process be much less of a hassle; however, you have to wait until 2017 to take advantage of it.  Beginning in that year, your required FAFSA income tax return will be a whole year in arrears.” About time.

Jason Dinesen, From the Archives: Home Offices, Principal Place of Business, and Mileage Deductions

Carl Smith, New, Additional Proposed Innocent Spouse Regulations Issued (Part 1), (Part 2) (Procedurally Taxing)

TaxGrrrl, Don’t Try This At Home: Avoid These 10 Money Missteps That Landed Reality TV Stars In Trouble.

 

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TaxProf, The IRS Scandal, Day 930. Today’s link on the “investigation” of the scandal by the Justice Department.

 

Scott Hodge, The Simple Solution to the Pfizer Deal: Cut the Rate and Move to a Territorial Tax System (Tax Policy Blog). So, you could actually do something like this that makes sense, or you could listen to….

Richard Phillips, Congress Must Act Now to Stop Pfizer and Other Companies from Inverting (Tax Justice Blog). The “continue the beatings until morale improves” approach.

News from the Profession. A Surprising Number of Accountants Think Accountants Are Incredibly Corrupt (Caleb Newquist, Going Concern).

 

Programming Note: The Tax Update will be taking the rest of the week off to celebrate Thanksgiving. I am thankful for the many fine tax bloggers I get to read when putting the Tax Roundups together, and I am especially thankful for those of you who stop by to read the Tax Update. Enjoy your Thanksgiving, and maybe start with Jim Maule’s holiday musings: Thanks Again! “For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things.”

 

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Tax Roundup, 11/24/15: Another Kansas medical practice ESOP blows up. And: tax credits for everything!

Tuesday, November 24th, 2015 by Joe Kristan

20151124-1When you fund an employee stock ownership plan, be sure you have an employee. Another strange ESOP failure out of Kansas emerged from the Tax Court yesterday. A Wichita doctor, whom we will call Dr. F, funded an ESOP for his practice with over $400,000 in 2004, supposedly rolled over from his IRA. But, according to the tax court, the doctor wasn’t qualified to participate, and there was no evidence of a rollover. From the Tax Court (emphasis added, citations omitted, doctor’s name shortened by me):

Dr. F. received no compensation from, and was not employed by, petitioner in 2004 or 2005. A total of 53.06 shares of petitioner’s stock was allocated to his account in these years. Respondent determined that these contributions exceeded the section 415(c) limitation because Dr. F. received no compensation from petitioner in 2004 or 2005. Petitioner alleges that the amounts in Dr. F.’s accounts were rollover contributions from Dr. F.’s individual retirement account and should not be considered for purposes of section 415(c).

In order for a distribution to be considered a rollover contribution, the entire amount received must be paid into a qualified trust for the distributee’s benefit no later than the 60th day after the day that the distribution is received. Petitioner has not provided evidence that a valid rollover took place. Further, because the ESOP trust did not have a bank or brokerage account from May 13, 2004, through December 31, 2009, it was not possible for the distribution from Dr. F.’s individual retirement account to have been paid into an account held by the ESOP trust.

Details, details. But details are everything. The IRS cited multiple reasons for the ESOP revocation, and as the court notes, “Any one of the reasons cited in the final revocation letter would be sufficient alone to cause the ESOP and the ESOP trust to fail…” The ESOP also failed to get a qualified appraisal.

This is the second physician ESOP out of Kansas to fail this year in Tax Court. Iowa has long been the capital of flaky ESOPs, but Kansas seems ready to challenge our dubious supremacy. In fairness, though, the trustee of both ESOPs appears to operate out of Northeast Iowa, so we’re keeping our hand in the game.

The Moral? ESOPs are useful for limited purposes, primarily as a succession vehicle for a closely-held business, but they are complex and dangerous, requiring meticulous compliance to avoid catastrophe. They are a poor tax shelter for a closely-held business when the owner wants to maintain control.

Cite: Fleming Cardiovascular PA, T.C. Memo. 2015-224

 

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

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

Joseph Thorndike, Tax Credits Are Easy – And a Loser’s Game for Liberals (Tax Analysts Blog):

Hilary Clinton’s presidential campaign is still churning out tax proposals at a furious pace. Over the weekend, she proposed a new credit for caretakers—intended, according to her campaign, to “provide support for the millions of families paying for, coordinating, or providing care for aging or disabled family members.”

That sounds great – just like every other tax break Clinton has suggested in the past several months. After all, caring for family members can be hard, and it’s often expensive. Caretakers could definitely use a hand.

But is the tax system the best way to provide it? Probably not.

Home caregivers are wonderful people. But Mr. Thorndike notes the problems with such feel-good credits:

Using tax incentives as a form of hidden spending merely serves to further erode support for more direct forms of government action. Small-bore tax breaks breed more small-bore tax breaks. But they don’t foster any serious rethinking of the role of government.

Nor do they produce meaningful results, even for the narrow problems they target.

There’s another argument that the tax-credits-for-everything crowd glosses over. Each feel-good credit throws another social program to an IRS that is collapsing under its current workload. They can’t really want IRS agents evaluating at-home care, yet it’s baked into that cake. If you don’t audit a lucrative tax credit, it becomes a fraud magnet. So IRS, meet Grandma.

 

Howard Gleckman, Clinton’s Caregiver Credit Adds To Her List of Tax Breaks, Sharpens Her Contrast With The GOP. “The likely Democratic presidential nominee, Hillary Clinton, would aggressively use the tax code to achieve social and economic goals, cut taxes on many middle-income people, and raise taxes on high-income households. Every Republican presidential hopeful would eliminate most existing tax subsidies, lower rates, and give big tax cuts to those with high-incomes.”

 

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Robert D. Flach has fresh Tuesday Buzz! Lots of links, and spicy observations on the use of the tax law to run social programs.

Tony Nitti, Tax Geek Tuesday: Reminding You That The Gain On That Sale Of Stock May Be Tax Free. “C corporations are like pit bulls and prostate exams — they carry quite the stigma,  but they’re not nearly as bad as they’re made out to be.”

TaxGrrrl, Guilty On Tax & Conspiracy Counts, Couple Faces New Charges For Revenge. Violating the first rule of holes.

Robert Wood, Al Sharpton’s Charity Hikes His Pay 71%, But Tax Liens, Clinton Imprint Remain.

 

Farley Katz, Joseph Perera, Katy David, Important New Partnership Audit Rules Change Taxation of Partnerships (Procedurally Taxing)

Not only can the partnership owe income tax, the tax will not be based on the income for the year in question, but instead on one or more prior years’ income. Consequently, the economic burden of the tax could be borne by partners who had no interest in the partnership when the income was generated. Conversely, if a partnership overstated its income in a prior year, the benefit of correcting that overstatement will accrue to the current partners, not those who were partners in the earlier year. Finally, if a partnership elects out of the new provisions (assuming it is eligible), the IRS will no longer be able to conduct a centralized audit controlling each partner’s distributive share, but will instead have to audit each partner individually,

Excellent article. These new rules will change the dynamics of partnership exams a great deal when they take effect for 2017 filings.

Jack Townsend, Fifth Circuit Sustains Convictions Despite Trial Judge’s Refusal to Give Proper Cheek Willfulness Instruction

 

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Tyler Cowen, Against a financial transactions tax. He cites a paper documenting that such taxes are unwise:  “This is consistent with earlier findings on Sweden’s transactions tax, and that proposal continues to be one of the more overrated ideas in American Progressive political discourse.”

TaxProf, The IRS Scandal, Day 929

Peter Reilly, Foundation Of Big GOP Donor Loses Tax Court Case Over Political Ads

 

Career Corner. Let’s Discuss: Non-Equity Partners in Accounting Firms (Caleb Newquist, Going Concern)

 

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Tax Roundup, 11/23/15: Maquoketa! And, bought and paid-for at year-end insufficient for golf-cart credit.

Monday, November 23rd, 2015 by Joe Kristan
A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

Maquoketa! The Day 1 team of the  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools is in the northeast Iowa town of Maquoketa, known for its cave system and the 61 Drive-in theater, “one of the few remaining outdoor theaters in the United States.” We then get two weeks off before the penultimate session in Denison, on the other side of the state, and our December 14 final session in Ames. Register here for one of the final schools or for the webcast of the Ames session.

 

“Ordered” doesn’t cut it for year-end asset purchases. Among the many silly tax rules enacted in the panicked response to the 2008 financial crisis was the tax credit for “low-speed electric vehicles,” more conventionally known as golf carts. This led to panic buying of golf carts to claim the lucrative tax spiff. Last week the Tax Court disappointed one buyer who tried to get a tax credit purchase in under the wire. It provides a lesson for all taxpayers looking at year-end purchases to get a Section 179 deduction or bonus depreciation.

The credit was available only for carts “placed in service” in 2009. Judge Paris sets the stage (all emphasis mine, footnotes omitted):

Respondent determined a deficiency of $6,253 in petitioners’ Federal income tax for 2009. The issue before the Court is whether petitioners are eligible for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of $6,253 pursuant to section 30D for 2009. The notice of deficiency did not determine a penalty.

The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26 I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1, 2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of section 30D, which as of the date of the notice allowed a tax credit for qualified plug-in electric vehicles placed in service from January 1 to December 31, 2009. On October 7, 2009, the IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model “meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a Qualified Plug-in Vehicle.

$6,253 off if delivery taken by December 31, 2009!

$6,253 off if delivery taken by December 31, 2009!

So the Spark NEV-48 EX qualified — if it beat the deadline. Back to Judge Paris:

The electric vehicle was delivered to petitioners on June 8, 2010, even though petitioners placed an order for a low-speed electric vehicle reflecting their choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through its Web site FreeElectricCar.com on December 21, 2009.

On December 21, 2009, petitioners remitted full payment of $7,786.53 for the vehicle with a credit card and promptly commenced insurance on the vehicle on December 28, 2009.

For charitable contributions and cash-basis business expenses, this would normally be all that is necessary, as a credit card transaction is as good as cash to IRS. But not this time:

Petitioners argue they remitted payment and acquired title to a qualified electric vehicle on December 21, 2009. Petitioners assert that legal title passed to them on the date of purchase and therefore they are entitled to a PEVC for 2009 because the vehicle was acquired before December 31, 2009. However, the statute effective on the date of purchase also required a qualified motor vehicle to be placed in service on or before December 31, 2009. 

Petitioners entered into the transaction for purchase of the vehicle just before the close of the year. As previously discussed, they received a bill of sale, which contained a VIN, and a certificate of origin shortly after they remitted full payment. However, a bill of sale containing a description of the vehicle and a VIN is not sufficient to show the vehicle was ready and available for full operation for its intended use. Petitioners have not offered evidence to show the vehicle was available for their use, much less fully manufactured. In fact, the vehicle was not delivered until June 8, 2010, making it impossible for the vehicle to be available for use until that date. Even if the Court were to assume the vehicle was fully manufactured and operational while awaiting shipment to petitioners, Brown and Noell tell us that the vehicle could not be considered placed in service unless and until the vehicle was readily available to serve its assigned function for petitioners’ personal use on a regular basis. The Court finds that the low-speed electric vehicle was not available for its intended use on a regular basis until it was delivered on June 8, 2010. Consequently, petitioners did not place the vehicle in service in 2009 and are not eligible for a PEVC for that year.

So the taxpayer’s golf cart just went up $6,000 or so in price.

The lesson for year-end tax planning is that the same “placed in service” rule applies to year-end fixed asset purchases by taxpayers wanting Section 179 deductions or bonus depreciation. If your business races to buy a big SUV or a new tractor by year-end, it needs to be in your garage or barn by December 31. A new machine has to be on the shop floor, ready to go.  “Bought and paid-for” isn’t enough.

Cite: Podraza, T.C. Summ. Op. 2015-67.

 

 

Peter Reilly, Tax Court Denies Exempt Status To Group Using Trading Card Games To Promote Sobriety. Peter has an in-depth exploration of last week’s Gamehearts Tax Court case. It explains that the organization denied tax exemption in the case was involved in non-casino games, including “Magic: The Gathering and similar games such as Pokemon and World of Warcraft Trading Card Game.” I had assumed that it was more of a gambling thing. I have edited my original post on the case accordingly.

Peter does not agree with the decision:

This is another example to me of the IRS EO group being out of touch with the modern world.  Magic the Gathering has been a thing since 1993.  You will also see IRS giving a hard time to not for profits dedicated to open source software.  It also turned down a sorority that wanted to operate on-line and a group planning to provide free wi-fi.

The whole exempt organization function is in disarray.

 

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Kay Bell, Is Alaska getting closer to enacting a state income tax? The oil bust has clobbered Alaska revenues.

Jason Dinesen, From the Archives: Issuing 1099s to an Incorporated Veterinarian

Jim Maule, Old Tax Returns Have Value. I keep my tax returns forever; Prof. Maule explains why being a tax hoarder can be useful.

Robert Wood, Your Passport Could Be Cancelled If You Owe IRS. Because Congress apparently feels we need one more poorly-considered bill that will hugely inconvenience honest taxpayers and will be impossible to undo.

Russ Fox, The Turf Monster Striketh. With a caution against sending tax ID numbers via e-mail.

TaxGrrrl, Jay Z Loses On Alvarez-Cotto Boxing Bet As Charity Gets Big Win.

Robert D. Flach, YEAR-END TAX UPDATE WORKSHOPS. With some sound year-end planning reminders.

 

Me, How your calendar might help you beat the IRS. My newest post at IowaBiz.com, the Des Moines Business Record’s business professional’s blog, covers the importance of keeping track of your time to document “material participation” to take tax losses and to avoid the 3.8% Obamacare Net Investment Income Tax.

 

TaxProf, The IRS Scandal, Day 926Day 927Day 928, Day 926 discusses the ties between Lois Lerner and the architect of Wisconsin’s Kafkaeske partisan “John Doe” witchhunt.

 

Steven Rosenthal, Treasury Pulls its Punches on Earnings Stripping (TaxVox). “Treasury made only small technical changes to the definition of an inversion.  News reports suggested something much larger—namely limits on earnings stripping, which would have made inversions (and other combinations of U.S. firms with foreign corporations) much less profitable.”

 

Career Corner. Let’s Enjoy Some Intern Reviews of Various Accounting Firms (Caleb Newquist, Going Concern).

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Tax Roundup, 11/20/15: IRS issues workaround for absurdly complex “repair regs.” And: more good ACA news!

Friday, November 20th, 2015 by Joe Kristan

See update below. 

IMG_1218In a tacit admission that the new repair regs are nightmarishly complex, the IRS has issued a new “safe-harbor” procedure for allocating remodeling costs for restraurants and retail buildings between deductible repair costs and capitalized improvement costs.

Rev. Proc 2015-56 is available to most retail buildings and to restaurants.

(UPDATE: Brian Coddington notes correctly in the comments that this procedure only applies to taxpayers with an “applicable financial statement.” These are SEC statements, audited financial statements, or statements supplied to regulators other than the IRS. This seemingly gratuitous requirement greatly reduces the potential usefulness of this procedure. Why the IRS would restrict simplification to just those taxpayers least likely to need it is beyond me. I missed the applicable financial statement requirement in my initial take on the rule. My apologies, and my thanks to Brian for correcting me. Brian’s comment goes beyond this issue and is worth reading in full.)

It excludes vehicle dealers, gas stations, manufactured home dealers and “nonstore retailers.” It applies to business that own their own buildings and to landlords whose buildings hold qualifying businesses.

Under the procedure, 75% of “qualified remodel-refresh costs” are deductible, with the remaining 25% capitalized. The amount capitalized is depreciated over the life otherwise applied to the building. That generally means a 39-year life, but if the building is “qualified restaurant property” or “qualified retail improvement property,” the life can be as short as 15 years.

At first glance, it seems like a much more useful set of rules than the repair regs we were all fretting about this time last year. The biggest potential downside is that Rev. Proc. 2015-56 requires taxpayers to forego “partial disposition” treatment for buildings covered by the safe harbor. The taxpayer also has to elect “general asset account” depreciation for the building covered by the safe harbor.

The election will be made on Form 3115 as “automatic” accounting method change, as newly-designated automatic change number 222. It is available for years begining on or after January 1, 2014. As automatic changes have to normally be made with a timely-filed return, I don’t think we can change already-filed 2014 filings, but I will be digging into the lengthy procedure, and will amend this as needed as I get to understand it better.

 

The insurance markets aren’t doing what the President told them to do. 

First, Tyler Cowen, Further wounds for Obamacare: “To put it bluntly, I don’t think the mandate part of the bill is working.  These are mostly problems which decay and get worse, not problems which self-correct.”

Next, Megan McArdle, Obamacare Insurers Are Suffering. That Won’t End Well:

What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.

She adds:

This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.

I remember when we were told that the ACA would just get more popular over time as we all grew to love its benefits.

 

No, but they do make it easier to jack up tuition and administrative salaries. $23 Billion In Annual Federal Tax Credits For Higher Education Have No Effect On College Attendance (TaxProf). 

 

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Jana Luttenegger Weiler, Quiet Changes to Social Security Could Have Big Impact (Davis Brown Tax Law Blog):

The file and suspend option was and still is used by couples when one spouse, typically the higher earner, files for benefits but then suspends receiving his or her own benefits. This allows the other spouse to file and receive spousal benefits based on the higher earning spouse’s record for a certain number of years while the higher earning spouse delays benefits and earns delayed retirement credits. The result is larger benefits for the higher-earning spouse at age 70, but still allowing the lower-earning spouse to take benefits. This option has been eliminated — though there may still be time to file and suspend in the next 180 days and be grandfathered in for those who are currently eligible to do so.

Jana expects additional guidance soon.

 

Gretchen Tegeler, Many Iowa public employees are better off in retirement than working (IowaBiz.com). In some cases, we’re better off that they’re retired too.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #7: Decoding The Mortgage Interest Limitation, “Cohabitation, of course, is not limited to same-sex couples, and so the Ninth Circuit’s decision to allow each taxpayer who co-owns a house to claim an interest deduction on the full $1,100,000 of debt — provided they are not married filing separately — should be a welcome one for many.”

Russ Fox, Update on the Future of Daily Fantasy Sports:

I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.

A very small number of states realize that fantasy sports aren’t one of the major problems plaguing the republic.

TaxGrrrl, ‘Real Housewives’ Stars Joe & Teresa Giudice Hit With Federal Tax Lien

Robert Wood, More Banks Spill Tax Evasion Secrets To Avoid Criminal Charges, Account Holders Beware. Bank secrecy is pining for the fjords.

 

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Stephen J. Entin, Michael Schuyler, Some Tax Trip-Ups in the Democratic Debate (Tax Policy Blog):

Senator Sanders was asked how high he would raise the top tax rate. He answered, jokingly, that he would boost it a lot, although perhaps not to the 90% top tax rate in the Eisenhower Administration; that he, the Senator, was not as much of a socialist as Eisenhower!  In fact, the top tax rate was 91%…

One result of Ike’s policies was that he presided over three recessions in his eight years in office. Presumably, the Senator would not want to repeat that outcome.

I think Bernie would be willing to take that price to stick it to the man.

William Gale, David John, Two Important New Retirement Savings Initiatives from the Obama Administration (TaxVox) These guys think the MyRA program is important.

TaxProf, The IRS Scandal, Day 925

 

Peter Reilly, Princeton University Will Have To Prove It Deserves Property Tax Exemption. I’d make them apologize for Woodrow Wilson first.

 

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Tax Roundup, 11/19/15: Play sober, play taxable (updated). And: Administration says no to permanent bonus depreciation.

Thursday, November 19th, 2015 by Joe Kristan

 

20150805-2Gaming while sober: maybe halfway right, but not even halfway exempt. See Update Below. Sobering up is hard to do for alcoholics. That’s why they’re alcoholics in the first place.

One of the hard parts is that many of the things you enjoy may be associated with alcohol.  That’s where GameHearts, A Montana Nonprofit Corporation, came in. The Tax Court picks up the story:

On July 14, 2010, GameHearts filed a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. In the Form 1023 GameHearts provided the following description of its activities:

    GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.

 

The IRS was unmoved:

In a June 3, 2013, letter respondent notified GameHearts of the conclusion that, on the basis of the information provided, GameHearts did not qualify for exemption under section 501(a) as an organization described in section 501(c)(3) because GameHearts was not organized or operated exclusively for exempt purposes. Respondent based this determination on the conclusion that (1) GameHearts failed to establish that it benefited a charitable class; (2) GameHearts’ nonexempt activities were more substantial than its exempt activities; and (3) GameHearts did not meet the requirements of section 1.501(c)(3)-1(d), Income Tax Regs., “because it did not limit activities to addicts with a low income.”

So the Tax Court got involved. Unfortunately for sober gamers in Montana, the court sided with the IRS:

While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and “boost the overall market shares of the industry”. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless, consistent with our holdings in Schoger Found. and Wayne Baseball, that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.

We therefore hold that GameHearts does not operate exclusively for charitable purposes within the meaning of section 501(c)(3). 

In other words, if there’s a market niche for sober gaming in Montana, it should be filled by somebody trying to make money.

Update: Peter Reilly has a well-researched post on this case, and he points out that the “gaming” involved was not casino gambling, which I incorrectly assumed in my initial reading of the article. I have made some modifications to my post to remove implications otherwise, and I thank Peter for his correction and for his in depth story.

Cite: GameHearts, T.C. Memo. 2015-218; No. 20303-13X

 

 

Administration opposes extending bonus depreciation. Tax Analysts reports ($link):

The Obama administration does not support a tax extenders package that would make bonus depreciation permanent, Treasury Secretary Jacob Lew told House Ways and Means Committee Democrats on November 18.

The administration is willing to consider making other tax extenders permanent, including the research credit and small business expensing, as long as the American opportunity tax credit and the expanded child tax and earned income tax credits are made permanent, according to House aides.

Secretary Lew didn’t rule out a “temporary” extension of bonus depreciation, and I suspect that’s what we’ll get.

 

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Russ Fox, IRSAC Report Has Hits and Errors:

IRSAC laments IRS funding. While I agree it would be nice to have the IRS fully funded, the problem was caused by the IRS (and especially Chairman Koskinen) and the IRS scandal. Until the IRS comes clean, Republicans in Congress rightly will not allow full funding.

This is why those who want IRS funding increased should insist on Koskinen’s resignation.

TaxGrrrl, Report Accuses IRS Of Encouraging Illegal Immigrants To File Using False Info, Identity Fraud. Well, increase their budget, then!

 

Jason Dinesen, Choosing a Business Entity: S-Corporation. “S-corporations share many of the same characteristics of partnerships. The biggest difference is, owners who work in the business day-to-day are paid a salary.”

Kay Bell, Start your retirement planning and saving ASAP. Starting in your 20s makes a huge difference as you approach your 60s. 

Robert Wood, Lawyer Faces Up To 50 Years Prison Over Payroll Taxes. Always remit your payroll taxes, no matter who else you need to stiff.

 

Dave Nelson, Preparing for a cyberattack or data breach (IowaBiz.com). “In today’s world of nonstop cyberattacks, companies must prepare for when, not if, they are attacked.”

Leslie Book, International Conference on Taxpayer Rights Kicks off Today. (Procedurally Taxing).

Peter Reilly, Ownership Through LLC Kills Local Charitable Property Tax Exemption. “Disregarded For Federal Purposes Does Not Mean Disregarded For Local Purposes”

 

 

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David Brunori, Business Entities Pay a Lot of State Taxes (Tax Analysts Blog):

In 2014 businesses paid about $142 billion in sales tax, or about 20.7 percent of taxes paid. More distressing is that they paid $5.8 billion more than in the prior year. The sales taxation of business inputs remains one of the greatest tax policy failings of the last 100 years. Business entities should not pay sales taxes on their services. Those taxes get passed on to someone else without their knowledge. Hiding the tax burden goes against every principle of transparent good government.

Iowa’s Department of Revenue has taken a small step to reduce the taxation of business inputs, to the outrage of all sorts of goodthinkers.

 

David Greenberg asks How Has Federal Revenue Changed Over Time? (Tax Policy Blog). This picture sums it up:

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The corporation tax continues to decline in importance with the spread in pass-through entities. That won’t change regardless of what economic illiterates would wish.

 

Howard Gleckman, Would Two Year Budgeting Help Break the Fiscal Impasse? I think it would just reschedule the impasses.

 

TaxProf, The IRS Scandal, Day 924

Carl Davis, Congress Searches the Couch Cushions for Road Funding Money (Tax Justice Blog).

 

News from the Profession. At Least One SEC Commissioner Has a Sense of Humor (Caleb Newquist, Going Concern).

 

20151119-2Things that happened on November 19. Today’s the 152nd anniversary of the Gettysburg Address, when President Lincoln dedicated the Gettysburg battlefield cemetery by saying: “The world will little note, nor long remember what we say here; while it can never forget what they did here.”

81 years later on November 19, another war claimed another young man. A little note and a little remembering here.

 

 

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Tax Roundup, 11/17/15: We’re #40! The new State Business Tax Climate Index comes out today.

Tuesday, November 17th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

Iowa rises out of bottom ten in State Business Tax Climate index. The Tax Foundation released its 2016 State Business Tax Climate Index today, and Iowa is no longer one of the ten-worst states in the index. Barely.

Maryland and Iowa changed places from last year in the index, making Iowa the 40th state in the annual index of business tax climates. Iowa’s overall score improved slightly, while Maryland got a little worse, especially in its unemployment insurance ranking. Iowa failed to improve its ranking in any of the five components making up the index. Its ranking fell in the sales tax, unemployment tax, and property tax categories, and it maintained its 32nd place individual tax and 49th place in corporation tax. Still, Maryland’s seven-place plunge in its unemployment tax rankings enabled it to crawl underneath Iowa in the index.

The result isn’t surprising, as Iowa’s tax law is nearly unchanged from last year. The split control of the Iowa legislature has blocked any significant tax legislation. I do suspect that the sales tax component will improve in the 2017 index based on the change in the definition of sales tax-exempt manufacturing supplies under an administrative ruling set to take effect July 1 of next year.

Iowa, in short, continues to have a bad system, one changed very little in structure since the 1970s, with high rates and a rat’s nest of feel-good deductions and special interest subsidies producing a hostile system for small businesses lacking expensive advisors and good friends at the statehouse. It’s a system crying for reform. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a huge improvement.

Map by the Tax Foundation

Map by the Tax Foundation

 

Fresh Buzz! Tuesday again brings a fresh Buzz roundup from Robert D. Flach, covering ground from accounting nostalgia to changes in this year’s W-2.

Robert Wood, Clinton Foundation Amends 4 Years Taxes, Admits Speech Fees Weren’t Donations. Ah, but better keep an eye on those sneaky Tea Partiers. The laundering of speech fees through the foundation, instead of through Clinton 1040s, seems inherently sketchy.

Jay A. Soled, Kathleen DeLaney ThomasThe Nonreporting of Modern Fringe Benefits (Procedurally Taxing). “But there is a strange phenomenon transpiring with respect to this new breed of fringe benefits. While they generally do not fall within the delineated scope of Code section 132’s enumerated exemptions, they are nevertheless not being reported as income by employers (nor by the employees, who follow suit).”

Jason Dinesen, Glossary: Review (Of Financial Statements). “In a review, the CPA examines a company’s financials to verify that they are free of deficiencies, but the firm does not review internal controls or fraud risks as in an audit.”

Jack Townsend, Is Jury Unanimity Required as to at Least One Obstructive Act for Tax Obstruction?

Paul Neiffer, Trends in Write-Offs of Farm Assets:

The Tax Foundation periodically comes out with good information on tax statistics.  They recently issued a report on corporate investment in equipment for tax year 2012.  My perception has been that most of the equipment purchased during 2012 was new equipment.  Based on this report, my perception may be in error (or not).

I think Paul is correct in believing that Section 179 is a bigger deal for most farmers than bonus depreciation.

Kay Bell, Cell phone service taxes average 18%, an all-time high

 


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Peter Reilly, Bernie Sanders Less Of A Socialist Than Dwight Eisenhower. Peter bases this (absurd) headline on the Sanders statement that he wouldn’t raise income tax rates to the 90% amount seen in the Eisenhower administration. I suspect Peter was being deliberately provocative or sarcastic, as I think he knows his history too well to actually believe that.

UPDATE: Peter corrects my speculation in the comments: “On the not as Socialist as Dwight Eisenhower thing, I was quoting Sanders (or paraphrasing) as I was live blogging the debates.” Peter has a much stronger stomach than I do to actually watch these things.

 

Jim Maule, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN.  While the good professor focuses on the size of the tax code, I think that’s just a reflection of a much bigger problem — one that would be corrected by my proposal that all politicians, and all candidates, be required to do their returns by hand in a live webcast. I would also require a comment bar so we could all help the politicians — “hey, do you really think your used briefs are worth $3 each?”

 

Annette Nellen, “Abolish the IRS” Distracts from Needed Reforms.

TaxProf, The IRS Scandal, Day 922. The Attorney General will get to explain why she concludes there were no crimes committed.

Renu Zaretsky, Maybe peace, definitely another patch, and many refunds… Today’s TaxVox headline roundup ranges from prospects for tax legislation this year to refunds of Cleveland’s “Jock Tax.”

 

News from the Profession. Some Audit Committee Members Just Ignoring Auditors Now (Caleb Newquist, Going Concern). Well, they’re used to it.

 

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Tax Roundup, 11/16/15: Mason City Monday. And: maybe using that disbarred tax guy isn’t such a great idea.

Monday, November 16th, 2015 by Joe Kristan

Right here in River City. The ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools are here in Mason City, the town that was the model for Meredith Willson’s “Music Man.” It’s rainy here today.

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Still, I’ll take that over what we had here last year:

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There remain three sessions in this year’s circuit, in Maquoketa, Denison, and Ames. The Ames school is also available as a webinar, in case the weather continues to deteriorate. Register today!

 

The Tiffany of tax prep. If you’ve been in the tax prep business for very long, you probably have lost a client along the way to an “aggressive” tax guy who promised much better results than a milquetoast like you would ever have. If a federal injunction order issued last week is to believed, a California preparer is the model for that kind of “aggressive” guy.

The case involves a Mr. Siegel, who the court says never answered the allegations against him. The order describes some amazing tax thinking (my emphasis):

For example, Siegel falsely advises his customers that to treat their home as an out-of-state corporate office for federal tax purposes, the customer’s Nevada “C” corporation (i.e., an entity entirely controlled by Siegel and the customer) must require as a condition of employment that its corporate officers (i.e., the same Siegel customer) live in the customer’s California home while working away from the corporation’s purported home state of Nevada (i.e., a state where the Siegel customer typically has no actual contact). Siegel has falsely advised customers by e-mail that this scheme is valid because: (a) the customers, as business owners, are necessarily “on call 24/7” while living or working from their out-of-state “business office;” (b) the customers can deduct [their] rent and other expenses through [their] corporation when [they] are on call for that corporation”; and (c) while “the internet was just getting hot for being on call” in 2002, “[w]ithout a question in 2013 when we are truly on call 24/7 working at home is a deduction for the corporation”

It takes a special kind of preparer to give that kind of advice. The kind htat has been disbarred, like this one. The Department of Justice press release adds some details:

For example, the complaint states that Siegel deducted on one couple’s tax returns purchases at Tiffany & Company, Royal Caribbean Cruise Lines, Louis Vuitton and Princess Cruise Lines.  Siegel allegedly attempted to conceal these fraudulent deductions from the Internal Revenue Service (IRS) by lumping them together and reporting them as large expenses for “supplies” or “medical records and supplies.”

Medical records? I suppose you could stash your medical bills in your Louis Vuitton handbag.

The injunction isn’t a criminal charge, but given the allegations, Mr. Siegel may hear more from the Department of Justice. Meanwhile, his clients may be wishing they had used a less “aggressive” tax guy.

Other coverage:

Russ Fox, Don’t Go to Lawrence Siegel to Have Your Taxes Done

Robert Wood: Court Bars Masquerade, No More America’s Next Top Tax Lawyer

 

Mason City Sundog Morning, 2014

Mason City Sundog Morning, 2014

 

William Perez, What to do if you see “RSUs” on Form W-2

Robert D. Flach, TRAPPED BY OUR CAPITAL GAINS ARE WE. “Never let the tax tail wag the economic dog.”

Kristine Tidgren, A Trial Court Has Much Discretion When Divorce Strikes the Farm (Ag Docket): “The court noted that ‘there are no hard and fast rules governing economic issues in dissolution actions.'”

Kay Bell, Cleveland could owe millions in jock tax refunds

Peter Reilly, Former IRS Commissioners Scold Congress For Gutting IRS Budget. If they really want an increased IRS budget, they should also urge Commissioner Koskinen to resign.

TaxGrrrl, Spend It Like Beckham: Tax Deal Could Bring MLS Soccer To Miami. Apparently Miami has solved all of its real problems if it can spend tax money on this.

 

 

Scott Greenberg, Bonus Depreciation Covers 2/3rds of Corporate Investment (Tax Policy Blog). Not if an extender bill doesn’t pass for 2015.

Richard Auxier, Marco Rubio’s gas tax cut would give state and local governments flexibility, and political fights (TaxVox).

TaxProf, The IRS Scandal, Day 919Day 920Day 921

News from the Profession. A Three-Page Tax Code Would Keep Accountants Plenty Busy (Caleb Newquist, Going Concern).

 

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Tax Roundup, 11/13/15: AirBNB, tax collector. Also: time to overpay for your PTIN!

Friday, November 13th, 2015 by Joe Kristan

20151113-1aAir-tax-BNB. Less than two weeks after Iowa issued a policy letter saying short-term home rentals are subject to the Iowa Hotel-Motel tax, the leading internet short-term rental matchmaker announced that it will cooperate in collecting lodging taxes in all jurisdictions where it is allowed to operate:

In those places that respect the right of people to share their home, we will work to ensure that the Airbnb community pays its fair share of taxes while honoring our commitment to protect our hosts’ and guests’ privacy. This includes helping to ensure the efficient collection of tourist and/or hotel taxes in cities that have such taxes. We will work to implement this initiative in as many communities as possible.

One city that fails to “respect the right of people to share their home” is my own town of West Des Moines, which succumbed to a one-man moral panic this summer to outlaw such short-term rentals. The West Des Moines lodging tax is 7%, on top of the state 5% rate. I suspect the Airbnb move will nudge municipalities like West Des Moines towards allowing short-term rentals. Nothing assuages a moral panic like revenue.

More coverage is available to TaxNotes subscribers: Airbnb Pledges to Collect Tourist and Hotel Taxes in All Cities (Jennifer DePaul)

 

PTIN renewal time. The IRS reminds us that it’s again time for preparers to overpay for their Preparer Tax Identification Numbers. The PTIN renewal page is here.

 

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It’s Friday, it’s Buzz Day! for Robert D. Flach. Today’s links feature year-end planning, mysterious IRS notices, and lots more.

Kay Bell, Extend your tax luck with these 13 year-end moves

Jason Dinesen, Was There Really a Good Old Days of Accounting? “So for accountants, is it really true that things were better with business clients ‘way back when’?”

Robert Wood, Beware Willful, Frivolous, Even Self-Incriminating Tax Filings. “So, can you just write ‘Fifth Amendment’ on your tax return and forget all your FBAR woes? Not hardly!”

TaxGrrrl, Tesla’s License Plate Mystery Raises Questions Ahead Of Tax Changes.

 

Carl Smith, Willson v. Comm’r: D.C. Cir. Holds Tax Court Lacks Refund Jurisdiction in Collection Due Process Cases. Agreeing with the Tax Court itself.

 

Gavin Ekins, Assumption About Global Capital Markets Explains the Differences Between the JCT’s and the Tax Foundation’s Estimates of Bonus Expensing (Tax Policy Blog). “The true peril to capital investment is not the U.S. deficits but excessive taxation of capital income and the resulting sluggish economic growth.”

TaxProf, The IRS Scandal, Day 918. Today’s link is on the unwisdom of wasting effort on impeaching the worthless IRS Commissioner.

Jeremy Scott, Netanyahu’s Economic Reforms and the Laffer Curve (Tax Analysts Blog). “A cursory examination of Israel’s financial situation shows that Netanyahu might have succeeded where President Reagan failed. His tax cuts did pay for themselves.”

 

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Peter Reilly, Ben Carson’s Tax Proposal Takes On The Mortgage And Charity Sacred Cows. “That makes the second thing I have learned about having in common with Doctor Carson this week.”

Howard Gleckman, Could We Get the Tax Code Down to Three Pages? Why Would We Want To? (TaxVox). “And keep in mind that the vast bulk of today’s law governs the taxation of businesses, not individuals. And businesses are very complicated.

Bob McIntyre. Ted Cruz’s Tax Plan Would Cost $16.2 Trillion over 10 Years–Or Maybe Altogether Eliminate Tax Collection (Tax Justice Blog).

 

Quotable:

The second ditty that I heard on NPR was a report in which a member of the DC city council worried aloud that money “will pollute our politics.”  Such a concern is akin to worrying that dropping a moldy bagel into a cesspool will pollute the contents of the cesspool.

Don Boudreaux

 

Career Corner. Accountants Earn More Than Philosophers (Barely) (Caleb Newquist, Going Concern).

 

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Tax Roundup, 11/12/15: W-2 trumps uncertain memory. And: more debate reaction.

Thursday, November 12th, 2015 by Joe Kristan

Day 4: Ottumwa! The big first week of The  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools concludes for the Day 1 teaching team of me, Kristy Maitre and Roger McEowen at Indian Hills Community College in Ottumwa, Iowa today. The Day 2 team of Paul Neiffer, Dave Repp and Patty Fulton will finish up in Red Oak this morning.

It’s been some driving this week:

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If you missed us, there are still four two-day schools left. We hit Mason City next Monday; Maquoketa November 23; Denison December 7; and Ames December 14. The Ames session is available as a webinar. Register today!

 

Sure enough. Few of us (generally only tax preparers) double-check the income reported on our W-2s. We take the employer’s word for it. So does the IRS. That’s the lesson a Californian learned this week in Tax Court.

The taxpayer faced some extra hurdles in filing his 2010 tax returns, according to the Tax Court:

Petitioner was arrested the second week of January of 2011 and was incarcerated until June 2012. Petitioner’s motorhome and van were seized, and he lost all of his records after his arrest and incarceration.

Petitioner did not file a timely return for 2010. On April 1, 2013, the Internal Revenue Service (IRS) prepared a substitute for return for 2010 under section 6020(b). The IRS issued a notice of deficiency for 2010 dated July 8, 2013.

Considering the circumstances, you can understand the non-filing, even while realizing he still needed to. But he was nagged by doubts (my emphasis).

As indicated, petitioner conceded all of the income determined in the notice of deficiency with the exception of wage income of $3,767 from Audio Visual Projection Services, Inc., and $404 from Swank Audio Visuals, LLC. These employers issued petitioner 2010 Forms W-2 for the respective amounts. Petitioner explained that because all of his records were lost and his employers often paid him late or not at all, he does not know whether he was paid for all of the work that he performed in 2010.

It’s an interesting defense. He didn’t say he wasn’t paid; he just wasn’t sure. But the court was sure enough (citations omitted, my emphasis):

In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income.  If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. The Forms W-2 from Audio Visual Projection Services, Inc., and from Swank Audio Visuals, LLC, are sufficient evidence to shift the burden of proof to petitioner.

We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is “a reasonable dispute.” This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.

Adding insult to uncertain memory, the Tax Court upheld penalties for late filing; being in jail is apparently no excuse.

Cite: McDougall, T.C. Summ. Op. 2015-65.

 

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TaxGrrrl bravely live-blogged the GOP debate this week. A handy place to check out what they had to say on taxes.

Kyle Pomerleau, Senator Ted Cruz’s Comment About His Border-Adjusted Tax, Explained (Tax Policy Blog).

Jenice Johnson, Candidates Tax Cuts Unequivocally Skew Toward the Wealthy (Tax Justice Blog). It’s just math. The wealthy pay pretty much all of the taxes, so they will “reap” any tax cuts.

Scott Greenberg, Carson Calls for Eliminating the Mortgage Interest and Charitable Deductions (Tax Policy Blog).

 

Paul Neiffer, When Will We Know Section 179 Amount?. My intrepid tax school colleague ponders the likelihood and timing of the “extender” bill for this year.

Tri-state sales tax webinar! The Iowa Department of Revenue will have a free webinar covering “Sales and Use Tax Basics” for Iowa, South Dakota and Nebraska. It’s easy to get nexus for sales tax. There are plenty of Iowa businesses that need to take care of sales taxes elsewhere.

Ying Sa, My IRS is little (IowaBiz.com). “Many immigrant-owned small businesses begin with a focus on just selling. The rest, such as an income statement, balance sheet and tax compliance, is sometimes unknown to them.”

Insureblog, Worse Insurance, Higher Cost. “The fact is, your insurance is going to get worse and you are going to pay more for it.”

Robert D. Flach, QUESTIONS ANSWERED. Robert answers a reader question on deducting state property taxes.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015, #8: Tax-Free Parsonage Allowance Gets A Second Life.

Russ Fox, The Real Winners of the World Series of Poker (2015 Edition). Hint: the winner’s first initial is “I.”

Janet Novack, Here’s How Congress Just Cut Social Security For Baby Boomer Couples. The end of “file and suspend.”

 

TaxProf, The IRS Scandal, Day 917,

Stuart Gibson, The European Predictability Paradox (Tax Analysts Blog). “Paradox will rule the European tax world, in which certainty will become uncertain and the predictability accorded by advance rulings will become entirely unpredictable.”

Renu Zaretsky, To make money you have to spend money…” Today’s TaxVox headline roundup covers the Dell-EMC merger, international tax reform hopes, and lots more.

 

News from the Profession. CPAs Admit That They’re Not Good Business People (Caleb Newquist, Going Concern).

 

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