Posts Tagged ‘Taxpayer Advocate’

Tax Roundup, 3/7/14: Expanded Iowa 10-and-10 capital gain break advances. And: more rave reviews for Camp plan!

Friday, March 7th, 2014 by Joe Kristan

20130117-1Expansion of Iowa 10-and-10 gain exclusion advances.  The bill to expand the availability of Iowa’s super-long-term capital gain break cleared its first legislative hurdle this week, as a House Ways and Means subcommittee approved H.F. 2129.

Iowa allows an exclusion from state taxable income of certain capital gains when the taxpayer meets both a 10-year material participation test and a ten-year holding period test.  This exclusion is available for liquidating asset sales and the individual tax on corporate liquidations, but is not available if the taxpayer is selling partnership assets or corporation stock to a third party, or for sales of less than “substantially all” of a business.

H.F. 2129 expands the exclusion “to include the sale of all or substantially all of a stock or equity interest in the business, whether the business is held as  a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or other business entity.”

This would be a big change for Iowa entrepreneurs.  Consider how the current law affects a business started by two partners, with one older than the other.  The older partner retires more than ten years and pays full Iowa capital gain tax when he is redeemed out.  A few years later, the younger partner sells the business and retires himself.  The younger guy gets out with no Iowa capital gain tax under current law.  Under H.F. 2129, in contrast the 10-and-10 exemption would be available in both cases.

A “Fiscal Note” prepared by the Legislative Services Agency on the bill provides some statewide numbers:

Using State and federal tax returns of Iowa taxpayers, the Department of Revenue identified 369 tax returns reporting a capital gain for tax year 2012 where the taxpayer had participated in the business for a minimum of 10 years.

The total capital gain identified on those 369 returns that would be eligible under the capital gains exclusion expansion proposed in HF 2129 is $28.0 million.

Is this a good thing?  I think all capital gains should be tax-free, because they represent either a double-tax on the capital invested in them or, worse, a tax on inflation.  Anything that relieves this is arguably a good thing.  Still, it’s a complex carve-out for a limited class of taxpayers, one that creates a lot of errors by taxpayers who take the deduction erroneously or fail to use it when they are eligible; that sort of thing is almost a definition of bad tax policy. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would provide a much better approach.

 

O. Kay Henderson, Two tax cuts passed in 2013 showing up in February’s state tax report (Radio Iowa).  The increase in the Iowa Earned Income Tax Credit is properly understood as an increase in a welfare program and a poverty trap,  not a tax cut.

 

20140307-1Jason Dinesen, Glossary of Tax Terms: Passive Activity/Passive Activity Losses   

William Perez, Need to File a 2010 Tax Return? Deadlines and Resources.  Why 2010?  The statute of limitations for 2010 refunds expires April 15, 2014.

TaxGrrrl, Taxes From A To Z (2014): C Is For Clothing And Costumes.  Good stuff.    Related: Dress for success, but don’t look to the IRS for any fashion help.

Russ Fox, Your Check Might Not be in the Mail:

I used to live in Orange County, California. Earlier this week a US Postal Service caught fire as it was heading toward an airport after leaving the Santa Ana mail sorting center. So if you mailed something on Monday, March 3rd from ZIP Codes starting with 926, 927, 928, 906, 917 and 918, it might have been burnt to a crisp. All the mail the truck was carrying was destroyed (an estimated 120,000 pieces).

Another argument for electronic filing and payment.

Kay Bell, IRS criminal investigators are putting more tax crooks in jail.  If you are cheating on taxes big-time, you are a lot more likely to get caught than you might think.

 

taxanalystslogoThat means it must be a weekday.  More Arrogance and Secrecy From the IRS  (Christopher Bergin, Tax Analysts Blog):

I don’t know if these apparent political decisions were made by Lerner or others either inside or outside the IRS, because trying to get information out of that agency is like trying to get sweat out of a rock. Over the years, it has fought the silliest things. I’m only half kidding when I say that if you asked the IRS to see the kind of staplers it’s using, it would tell you it doesn’t have staplers.

The IRS will go to great lengths not to be scrutinized. And that breeds an atmosphere of no accountability — which leads to arrogance. We have seen that arrogance consistently throughout the congressional investigations of several IRS officials. And where will it lead us? Not to a good place, especially for those of us getting ready to file our yearly income tax returns. A tax collector that treats its “customers” as guilty until proven innocent is a tax collector out of control. That is precisely what the national taxpayer advocate has been warning about. If IRS officials don’t believe they are accountable to Congress, the rest of us don’t stand a chance.

This is part of an excellent and thoughtful post, written more in sorrow than anger by a long-time observer of the agency; you really should read the whole thing.  I’ll add that all of these seemingly endemic problems in IRS should warn us off the Taxpayer Advocate’s awful idea of giving IRS more control over the tax preparers who help taxpayers deal with the out-of-control agency.

 

Jack Townsend, Fifth Amendment and Immunity in Congressional Hearings.  Good discussion of the law, in spite of his calling the Issa investigations a “witch hunt.”  It’s the job of Congress to oversee federal agencies, especially an agency that has already admitted gross misbehavior here.

TaxProf, The IRS Scandal, Day 302

 

20130113-3More rave reviews for the Camp “Tax Reform” plan:

William McBride, Camp and Obama Gang up on Savers

Kyle Pomerleau, Are Capital Gains and Dividend Income Tax Rates Really Lower Under the Camp Tax Reform Plan?  “If you take into account all the phase-outs of deductions and benefits in the Camp plan, marginal tax rates on capital gains and dividends are higher than current law at certain income levels.”

Tax Justice Blog, House Ways and Means Committee Chairman Dave Camp Proposes Tax Overhaul that Fails to Raise Revenue, Enhance Fairness, or End Offshore Tax Shelters

 

Roberton Williams, A Web Tool to Calculate ACA Tax Penalties  (TaxVox).  ”It is often said the tax is $95, but for many people it will be much more.”

News from the Profession.  Some CPA Exam Candidates Skeptical the Illinois Board of Examiners Can Tell Time (Going Concern)

 

Peter Reilly, Could You Make Tax Protester Theories Work For You?:

If you are willing to entirely discount the quite remote chance of criminal prosecution, it may well be a decent percentage play particularly if you are just about maximizing your current lifestyle rather than accumulating net worth and entirely amoral when it comes to meeting tax obligations…

I still think it is a really terrible idea to enact Hendrickson’s strategy, but that’s just me.

No, it’s not just you, Peter.  And unless your income is generally not subject to third-party reporting like W-2s or 1099s, you will be caught, and then clobbered by back taxes, penalties and interest.

 

 

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Tax Roundup, 1/10/2014: Taxpayer advocate rips IRS penalties and foreign account enforcement. Also: the Code still stinks!

Friday, January 10th, 2014 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

The Taxpayer Advocate’s Annual Report directs some well-deserved fire on two of the worst IRS practices: the penalty-happy approach to examinations and the shoot-the-jaywalkers approach to offshore enforcement.

The report says this about penalties:

The IRS’s decision not to abate inapplicable penalties illustrates its resource-driven approach to them. As we have described in prior reports, the IRS too often proposes accuracy-related penalties automatically when they might potentially apply — before performing a careful analysis of the relevant facts and circumstances — and then burdens taxpayers by requiring them to prove the penalties do not apply.

The IRS should identify and abate all of the accuracy-related penalties that should not apply. It should minimize taxpayer burden when administering the IRC § 6676 penalty (e.g., by not proposing it automatically) and work with the Treasury Department to support a reasonable cause exception.

Amen.  The tax law is hard, and when a taxpayer does what a reasonable person — not a reasonable tax lawyer — should do to pay the right amount, there shouldn’t be an automatic 20% mistake penalty.  Too bad the advocate doesn’t seem to have embraced my “sauce for the gander” penalty, which would make the IRS pay taxpayers the same 20% penalty when the IRS makes an unjustified assessment.

Regarding foreign account enforcement, the report faults the IRS shoot-the-jaywalker approach (my emphasis):

In the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly six times the tax on their unreported income. Among unrepresented taxpayers with small accounts it was nearly eight times the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about three times their unreported tax. When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70 percent of the unpaid tax and interest. Given the harsh treatment the IRS applied to benign actors, others have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process. Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.

20121129-1Shooting the jaywalkers so you can slap the bad actors on the wrist.

The IRS should expand the self-correction and settlement options available to benign actors so that they are not pressured to opt out or pay more than they should; do more to educate persons with foreign accounts (e.g., recent immigrants) about the reporting requirements; consolidate and simplify guidance; and reduce duplicative reporting requirements.

The IRS should follow the lead of the states that allow non-resident taxpayers who voluntarily disclose past non-compliance to file and pay five years of prior taxes, with only interest and no penalties — reserving the penalties for those who wait until they are caught.  Tax Analysts quotes one lawyer as saying this would be unfair to the already-wounded jaywalkers:

“It’s very hard to make the program more lenient now without going back and adjusting thousands of [prior] taxpayers’ resolutions since 2009,” he said. That is something the IRS is likely unwilling to do, he added.

Too bad.  That’s exactly what they should do.

 There’s a lot more to the report, including a call for a new taxpayers bill of rights (good) and a renewed call for IRS preparer regulation (a waste of IRS and preparer time).

Related: 

Lynnley  Browning, IRS top cop says the agency is too hard on offshore tax dodgers.  I can’t imagine she wrote that headline.  Any lazy headline writers who call an inadvertent FBAR violator a “tax dodger” should have half their bank account balances seized if they ever forget to report a 1099.

TaxGrrrl, Report To Congress: IRS Is Increasingly Unable To Meet Taxpayer Needs

Jack Townsend,New Taxpayer Advocate Report to Congress Addressing, Inter Alia, OVDI/P Concerns

 

TaxProf, IRS Releases FY2013 2006 Enforcement Stats:

The IRS has released Fiscal Year 2013 Enforcement and Service Results, showing among other things:

  • Individual audit rate:  0.96% (lowest since 2005)

  • Large corporation audit rate: 15.8% (lowest since 2009)

  • Revenue from audits:  $9.8 billion (lowest since 2003)

  • Number of IRS agents:  19,531 (lowest since pre-2000)

  • Conviction rate:  93.1% (highest since pre-2000)

It’s hard to see where the IRS has the resources for making compliant preparers waste their time on preparer regulation busywork.

 

William Perez, Fourth Estimated Tax Payment for 2013 Due on January 15

Paul Neiffer, How Low is Too Low For A Rental Arrangement?  “We had a reader ask the following question: ‘Does leasing cropland to a family member for substantially less than fair market value become “gifting” subject to taxes for value above gifting limit?’”

Jason Dinesen,  Review Your Small Business Operations as Part of Year-End/Year-Beginning Planning

Leslie Book, NTA Annual Report Released (Procedurally Taxing)

 

 

Christopher Bergin, The Tax Code in 2014 – It Still Stinks (Tax Analysts Blog):

I’ve always believed in progressive income taxation. This isn’t it. The conservatives have sold us on the notion that tax is a dirty word, and the liberals have sold us on the notion that class envy is a healthy state of mind.

And that, folks, is why the tax code stinks. And it won’t get any better in the new year.   

There’s more to the stink than that, but it’s a good start.

 

Scott Hodge, Millionaire Taxpayers Tend to be Older.  Well, that’s one good thing about aging, I guess.

20140110-1

Howard Gleckman, Pay to Extend Unemployment Benefits? Why Not Pay to Extend Temporary Tax Breaks Too?  (TaxVox)

Tax Justice Blog,  Reasons Why Congress Should Allow the Deduction for Tuition to Remain Expired

Kay Bell, Marijuana sales, tax collections good for Colorado coffers.

 

The Newest Cavalcade of Risk is up!  Hank Stern participates with an Overseas ObamaTax Conundrum

 

Robert D. Flach brings the Friday Buzz!

Career Corner: This Year, Resolve to Finally Decide What You Want To Be When You Grow Up in Public Accounting (Going Concern)

 

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Tax Roundup, 6/27/2013: All apologies edition. And DOMA Carnival!

Thursday, June 27th, 2013 by Joe Kristan

 

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Apology payments? The Taxpayer Advocate’s office issued a special report yesterday blasting the IRS treatment of 501(c)(4) exemption applications.  The report also said the IRS apparently violated the law, and its own internal procedures, by having unpublished secret internal guidance on handling the Tea Party cases.The report raises the idea of allowing the issuance of $1,000 “apology payments” for taxpayers who are mistreated by the IRS.

Not a bad start, but far better would be a “sauce for the gander” approach, where the IRS could be subject to penalties for late processing, delays and unjustified positions on the same basis as taxpayers.  If a little charity can be hit with a $100-per-day penalty for not filing a Form 990, the IRS could pay $100 per day for sitting on a 501(c)(4) exemption.  If the IRS takes an unsupported position on an examination, it should pay to the taxpayer 20% of the tax it would have collected through its bogus position.

The TaxProf has more.

Joseph Thorndike, So the IRS Hounded Liberals Too – But We’ve Still Got a Problem (Tax Analysts Blog) I still await tales left-side organization applications left to languish for years or subjected to the grilling applied to the Tea Party groups.

 

Lots of reaction to yesterday’s Supreme Court decision striking down the Defense of Marriage Act. 

Jason Dinesen owns this issue.  He has an extensive practice in Iowa same-sex married couples, and he posted up a storm yesterday:

DOMA Ruled Unconstitutional:

It means couples in same-sex marriages no longer have to jump through the following hoops to meet their tax obligations:

  1. Prepare and file separate federal tax returns as two single people and applying tax law as it applies to single people.

  2. Prepare a “mock” federal return employing tax law as it applies to married people, to see what their tax situation would have looked like if the federal government had recognized their marriage.

  3. Use that “mock” return to prepare their state return as a married couple.

Also, DOMA Done, But Complications Live On and More DOMA Musings — Married But Living in a Non-Recognition State:

IRS Revenue Ruling 58-66 says marital status is determined at the state level and does not change even if you move to a state that doesn’t recognize your marriage… But would this Revenue Ruling from 1958 regarding common-law marriage apply to same-sex couples from states like Missouri or Nebraska who drive to Iowa to get a marriage certificate but who actually live in Missouri or Nebraska, or some other non-recognition state?

The IRS will have to come out with guidance on this and other issues, including:

- A standard procedure for amended returns from same-sex couples who want to obtain joint filing benefits.

- Guidance on the mandatory nature of joint returns for same-sex married couples, and whether it is retroactive.  If same-sex married couples get to choose for open years whether to file jointly or single, is it also an equal-protection violation to deny that choice to double-sex couples?  I doubt it, but that would be fun.

Jason also offers a DOMA Tax News Roundup today.

 

Tony Nitti, Tax Implications Of The Supreme Court’s DOMA Decision: Same-Sex Couples To Be Subject To Marriage Penalty:

The Supreme Court’s ruling is clearly a victory for equality. And from a tax perspective, the decision stands to save meaningful dollars for same-sex couples who will now be defined as married for purposes of the federal estate and gift laws; because the marital deduction will now apply to these couples, spouses will be permitted to transfer assets to each other tax-free during their lifetime or at death.

Kay Bell, DOMA is dead: The effect on same-sex married couples’ taxes

Len Burman, What Will Supreme Court Decision on DOMA Mean for the IRS? (TaxVox)

Let’s assume that half of the newly recognized couples receive bonuses, which means that roughly 50,000 couples might benefit from filing amended income tax returns for 2012, 2011, and/or 2010. If all 50,000 filed amended returns for an average of 1.5 years out of the three this would yield 75,000 amended returns.

Roberton Williams, DOMA’s Demise and Federal Taxes (TaxVox)

Russ Fox, DOMA Done, But Don’t File that Joint Return Just Yet:

The US Supreme Court ruled today that the federal Defense of Marriage Act (DOMA) was unconstitutional.  That makes it appear that same-sex couples should be able to file joint tax returns.  There’s only one problem: The IRS computers likely would reject such a return if it were filed today.

TaxGrrrl, Supreme Court Rules DOMA Unconstitutional (And It Was A Tax Case!)

Nick Kasprak, Joint Filing in the Tax Code (Tax Policy Blog):

Despite the possibility of a penalty, joint tax returns generally provide tax relief, and they’re probably one of the biggest benefits that gay couples can now take advantage of (along with the estate tax exemption, which was at the center of the Supreme Court case).

Joseph Henchman, Supreme Court Decides Same-Sex Marriage Estate Tax Case (Tax Policy Blog)

Robert D. Flach, THE DEATH OF DOMA

Tax Trials, DOMA Doomed by Estate Tax Refund Claim

Linda Beale, Gay Marriage Decisions– As Expected, A Step Towards Full Civil Rights for Gays

 

In other news:

Russ Fox, Loving Appeal to be Heard on September 24th

Jack Townsend, New Taxpayer Advocate Discussion of Problems with IRS OVDI/P Program.  Still shooting jaywalkers.

Paul Neiffer, A Lease Qualifies For Like Kind Treatment But Watch the Fine Print

William McBride, Reducing Tax Avoidance by Reducing Economic Activity: New Zealand’s Failed Experiment with Ending Deferral (Tax Policy Blog)

 

Extortion Watch.  Tennessee Man Indicted for Romney Tax Return Fraud and Extortion Scheme (Department of Justice Press Release)

Legal extortion watch.   Police investigate damage to red light camera.  (Des Moines Register) It’s a tragedy that somebody might have gotten away with not quite coming to a complete stop at an empty intersection.

 

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Tax Roundup, 1/10/2013: Taxpayer Advocate says we need tax reform. No kidding!

Thursday, January 10th, 2013 by Joe Kristan

20130110-1So preparer regulation wasn’t really the solution?  Taxpayer Advocate Nina Olson says tax complexity is the biggest problem for taxpayers in her annual report:

The most serious problem facing taxpayers — and the IRS — is the complexity of the Internal Revenue Code (the “tax code”). Among other things, the tax code:

-Makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns;

- Requires the significant majority of taxpayers to bear monetary costs to comply, as most taxpayers hire preparers and many other taxpayers purchase tax preparation software;

- Obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay;

- Facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and by providing criminals with opportunities to commit tax fraud;

- Undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply; and

- Generates tens of millions of telephone calls to the IRS each year, overburdening the agency and compromising its ability to provide high-quality taxpayer service.

What do you suppose clued her in?

The byzantine complexity of the tax law is indeed the biggest problem facing the taxpayer.  She also prominently mentions the identity theft epidemic, preparer fraud and IRS funding.  One item not identified as a serious problem?  Unregistered tax preparers.

Just a few short years ago, Nina Olson had this to say:

 I have recommended the regulation of unenrolled return preparers since my 2002 Annual Report to Congress, and reiterated and supplemented that recommendation in successive reports.  My office was very much involved in  the analysis and discussions resulting in the IRS report, and I applaud Commissioner Shulman’s leadership in undertaking this significant review.

So what has that accomplished?  The IRS has tacitly admitted the program isn’t working by waiving the continuing education requirement.  The population of preparers is poised to crash.  That will raise the cost of tax preparation, forcing many to self-prepare and driving others out of the system entirely.  Meanwhile, one reason IRS resources are unavailable for taxpayer service is that they are directed to mismanaging preparer regulation.

The problem has always been tax complexity, and it continues to get worse.  No preparer regulation will change that.  The Taxpayer Advocate’s previous preparer regulation efforts only served to enrich the national tax prep franchises and distract from the real problem of complexity while damaging the ability of the IRS to serve taxpayers.

More on the Taxpayer Advocate report:

Robert D. Flach, NINA OLSEN ON THE DREADED AMT

Russ Fox, “The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft”

Jack Townsend,  TA Report Identifies IRS’ OVDP / OVDI As Problem

 

20130110-2Scott Drenkard, Nobel Laureate James Buchanan Passes Away at 93 (Tax Policy Blog):

Buchanan’s model of government action was based on a theory of “politics  without romance,” which contended that policymakers act in their own self-interest the same way that market actors do. This means that politicians are not enlightened, selfless despots, and respond to the incentives of the political sphere, making policy that will help get them re-elected. Often the best way to do that is by catering to special  interests. The longer I work in this city, the more I see this observation as true to life.

This is (to me) the essence of the “Public Choice” analysis of government, created by Mr. Buchanan and Gordon TullockIt explains why passing a law or creating a regulation rarely solves the problem, and instead enables the well-connected to use the government as a club against their rivals.  The tax preparer regulations, literally authored by a former H&R Block CEO, are a classic example.  James Buchanan’s legacy is a valuable and too-little-heeded caution against increasing the role of government.

More: Alex Tabarrok,  James Buchanan (1919-2013), Appreciations; David Henderson, Further Notes on James Buchanan

 

TaxGrrrl, Leadership Shakeup At Treasury May Signal Change in Obama’s Fiscal Strategy

Courtney Strutt Todd:  Buying a House in 2013? You Could Qualify for a Federal Tax Credit up to $2,000 a Year for the Life of Your Mortgage! (Davis Brown Tax Law Blog)

Paul Neiffer,  IRS Announces When Returns Can Be Filed

Kay Bell, IRS will begin accepting 2012 tax returns on Jan. 30

William Perez, When Can You Begin Filing Your 2012 Federal Tax Return?

Brian Strahle,  Medical Device Excise Tax:  Ready or Not, It’s Here!

Nanette Byrnes, Virginia plan to end gas tax quickly panned (Tax Break)

The Critical Question: What Is It About Hollywood? (Cara Griffith, Tax.com)

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Tax Roundup, 11/30/2012: IRS makes life difficult for ID-theft victims and Americans abroad, but they make compliance hard for foreigners too!

Friday, November 30th, 2012 by Joe Kristan

When your identity is stolen, the IRS will be happy to bounce you around the bureacracy.  The Taxpayer Advocate testified yesterday at a House hearing on identity theft.  The IRS, which does a bang-up job of rapidly mailing fraudulent refunds, is less streamlined when it comes to helping taxpayers whose identities are stolen:

“Yet today the IRS is moving backward toward a decentralized approach, creating specialized identity theft units within 21 separate functional areas,” Olson told the House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management. “If, as seems likely, the IRS reduces the role of the IPSU and directs taxpayers to deal directly with the 21 specialized units, I am deeply concerned that we will revert to back where we were in 2008, with large numbers of taxpayers that have cross-functional issues unable to get their problems resolved without multiple contacts with multiple functions, and that would in my opinion be a disaster for the victims.”

She says that the IRS will have to choose between fast refunds and stopping fraud:

Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly. Under current circumstances, I have come to the conclusion that it is simply not possible for the IRS both to process legitimate returns rapidly and to combat refund fraud effectively at the same time.

So it’s too much to ask for the IRS to make better use of existing resources by not wasting them on the futile and expensive return preparer registration program — a program unwisely supported by the Taxpayer Advocate.


IRS makes doing business in the U.S. even more of a hassle for foreigners.  The IRS and Congress are doing their best to make it impossible for Americans to do business abroad with FATCA and the offshore compliance jihad.  Now they are doing a bit of the same for foreigners trying to do business here with new rules for International Tax Identifiction Numbers (ITINs).

ITINs are needed when foreigners invest in US real property or other assets where a US tax identification number is needed.  U.S. taxpayers just use their Social Security numbers.  The process is a hassle, with exacting documentation requirements that often require applicants to send passports to the IRS for extended periods while the IRS processes the paperwork.

While the new rules provide more options for applying for the paperwork, they now make the ITINs expire after five years, requiring taxpayers to repeat the whole process to stay in tax compliance.  This hassle isn’t just an issue for offshore taxpayers; it also makes compliance more difficult for U.S. taxpayers with offshore investors.  Just another little effort by the IRS does to make staying legal as difficult as possible.

Related: Trish McIntire,  Finalized ITIN Rules

 

The injunction didn’t go through, so on to the indictment.  A few years ago the IRS tried to close down the practice of a St. Louis-area tax preparer after making spectacular allegations of malfeasance.  The effort ended in a settlement that looked much like a victory for the preparer.  The IRS apparently didn’t take that well.  Stltoday.com reports:

Frank L. “Tiger” Zerjav, Jr., 39, of Wildwood, has been indicted for allegedly submitting four years of false tax returns and trying to dodge $182,000 in taxes, the U.S. Attorney’s office said Thursday.

Zerjav was indicted on four charges of federal income tax evasion for the returns covering 2001-2004. He also faces an obstruction of justice charge for allegedly producing altered computerized accounting records after receiving a grand jury subpoena.

They couldn’t put Mr. Zerjav out of business through civil procedures.  A tax fraud conviction would do the trick.  They’ll need to make a much more convincing showing than they apparently were able to do on the injuction effort.   This does remind us that if you get on the bad side of the IRS, your own filings had better be squeaky clean.

 

Better this fiscal cliff than the next, bigger one?  Bring On the Fiscal Cliff! (Megan McArdle):

Unless something changes, we’re headed toward one of two uncomfortable places. Either we veer over the fiscal cliff and the economy crashes—or we keep going down the road we’ve been taking for more than a decade, delaying hard choices while assuring voters that no really hard choices need to be made. That road probably ends in an even nastier smashup.

So how are Iowa’s congresscritters dealing with this nasty reality?  “Senator Harkin says the “fiscal cliff” doesn’t exist.” (Radio Iowa)

Howard Gleckman,   What to Read While Hanging Out at the Fiscal Cliff (TaxVox)

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

Martin Sullivan,  How To Limit the Deduction for State and Local Taxes (Tax.com)

Jim Maule, Tax Rates and Deduction Caps

 

Jack Townsend,   Major CA2 Decision on E&Y Tax Shelter Convictions.  Two E&Y guys go free.

Jana LutteneggerTax Implications of Holiday Bonuses (Davis Brown Tax Law Blog)  Don’t think that Wal-mart gift card for the employees is tax-free.

Kay Bell,  Lottery dreams and tax realities

The Critical Question:   How Much Tax Would You Owe On A $550 Million Powerball Jackpot? (Janet Novack)

Brian Strahle,   DC Combined Reporting and the Real Estate Investment Industry:  Unintended Consequences?

Tax Trials,  Michigan Court of Appeals Rejects IBM’s MTC Election

 

Robert D. Flach, at his “The Tax Professional” blog, is not thrilled with the “due dilegence” requirements for returns with the Earned Income Tax Credit:

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.

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IRS Commissioner Shulman: you obey the law. Me, that’s different.

Monday, February 20th, 2012 by Joe Kristan

The IRS hasn’t been known for sympathy for inadvertent violators of the foreign account reporting rules. Americans inheriting foreign property from distant relatives, young Americans who moved abroad to start a career, children born in the U.S. who have lived abroad since infancy — all face stern wrath, and big fines, for not filing foreign financial account disclosures that they had no idea existed.
You would think that a Commissioner so stern about punishing foot-faults would be extra careful about obeying the rules itself, if he had a smidgen of shame or self-awareness. Apparently not.
Tax Analysts reports that IRS Commissioner Doug Shulman will simply ignore his statutory duty to respond to a Taxpayer Advocate Directive on abuses of offshore taxpayers in the Offshore Voluntary Disclosure program. From the story ($link):

IRS Commissioner Douglas Shulman has no plans to respond in writing to National Taxpayer Advocate Nina Olson’s taxpayer advocate directive (TAD) on the IRS offshore voluntary disclosure program (OVDP) despite a statutory requirement that taxpayer advocate recommendations be responded to within 90 days, Olson said February 17.
According to Olson, who spoke at the Individual and Family Taxation session of the American Bar Association Section of Taxation meeting in San Diego, Shulman told her that section 7803(c), which requires the commissioner to formally respond to any taxpayer advocate recommendation within three months of its submission, applies only to the taxpayer advocate’s annual report and not to recommendations made through TADs or taxpayer assistance orders (TAOs).

How convenient for him. Let’s see what Section 7803(c) says:

(3) Responsibilities of Commissioner
The Commissioner shall establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the National Taxpayer Advocate within 3 months after submission to the Commissioner.

That’s “all recommendations.” Not “all recommendations submitted in the annual report of the Taxpayer Advocate.” Not “all recommendations under this Section.” Just “all recommendations.” If there was a 50% annual penalty assessed on the balance of the Commissioner’s bank and retirement accounts for failing to respond on time — the same penalty that he is gleefully assessing on offshore account non-reporters — I bet he would have responded. After all, unlike the unwitting victims of the offshore compliance jaywalker hunt, it’s clear the Commissioner is well aware of this requirement.

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Taxpayer Advocate starts blog

Tuesday, January 31st, 2012 by Joe Kristan

The TaxProf and Peter Pappas note that Nina Olson, the National Taxpayer Advocate, has a blog.
Ms. Olson has done good work pointing out the absurdity complexity of the tax law and the foolish ways in which the rules are enacted. Her record is marred by her advocacy of increased preparer regulation, which the IRS is botching with gusto.
So far she has made two posts since the blog opened on January 11. That’s one more than Clarissa Potter has managed since she started Academically Taxing, one of the early tax blogs, in 2004, but she’s a long way short of the TaxProf’s productivity.

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Taxpayer advocate tries to distract the jaywalker shooters

Friday, January 6th, 2012 by Joe Kristan

Practitioners, including me, have been saying that the IRS administration of the offshore disclosure “amnesty” has been cruel and incompetent. Apparently Taxpayer Advocate Nina Olsen agrees, reports Tax Analysts in a shocking, and unfortunately gated, report:

Arguing that IRS examiners treated some participants in the 2009 offshore voluntary disclosure program (OVDP) unfairly, the national taxpayer advocate has invoked a rarely used administrative tool to try to force the IRS Large Business and International and Small Business/Self-Employed divisions to change their audit procedures. That dispute has escalated and now awaits a final decision by IRS Commissioner Douglas Shulman.
At issue is whether the IRS must revoke a March 1, 2011, memo directing examiners to stop accepting less than the 20 percent offshore penalty as apparently permitted in OVDP FAQ 35 and instead instruct those examiners to assume a violation was not willful unless they can prove otherwise.

It’s not encouraging that the decision rests in the hands of Commissioner Shulman, who hasn’t lifted a finger to intervene in a process that has infamously treated Americans abroad and U.S. residents with foreign accounts as presumed criminals, hitting minor and harmless violations of obscure rules with absurd fines.
The Tax Anaysts story explains that the Taxpayer Advocate Directive is the biggest gun in the Taxpayer Advocate’s arsenal, and is rarely used. It says the IRS overrode a provision in its own amnesty with a secret (now released) memo ruling out leniency towards inadvertent violators.
It remains to be seen whether Commissioner Shulman will start to undo the damage. It’s a big job. From the Tax Analysts story:

Practitioners echoed Olson’s concerns that the missteps in the OVDP have implications beyond the program participants. “It’s all about long-term compliance,” said [tax attorney Mark E.] Matthews. As a result of the hard-line approach in the OVDP and the OVDI, as well as the coming Foreign Account Tax Compliance Act reporting requirements, foreigners have become convinced that the IRS is liable to be unreasonable. “It is not going to be easy to fix that,” he said.

Once you start shooting jaywalkers, it’s hard to get the others to cooperate.
Related: We will continue to execute jaywalkers ruthlessly, for their own good.

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Two Taxpayer Advocates in one!

Thursday, January 7th, 2010 by Joe Kristan

Taxpayer Advocate Nina Olson came out with her annual report yesterday. She says of the IRS, “This level of service is unacceptable.”
Funny. Not long ago she led the charge to shut down the pilot program to have private collection agencies collect some overdue federal taxes. Based on her criticisms of private collection, you’d have thought IRS was the gold standard of customer service.

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Taxpayer advocate calls for raising taxpayer costs, reducing preparer supply

Thursday, July 2nd, 2009 by Joe Kristan

The National Taxpayer Advocate has issued her annual report. Along with a number of sensible recommendations is this clunker:

The Advocate reiterates her longstanding recommendation that the government do more to protect taxpayers by regulating unenrolled federal tax return preparers, including by requiring initial testing and continuing professional education, and recommends that the IRS step up enforcement actions against preparers who fail to perform due diligence or consciously facilitate noncompliance.

The report has a critical unstated assumption: that such regulation would do more good than harm. Not bloody likely. The predictable unintended consequences:
- The supply of preparers would go down as folks will not want to screw around with the bureaucracy for what is for many just seasonal work.
- Unenrolled tax preparers will go underground, not signing returns. It is, after all, legal for folks to do their own returns (for now, anyway). These folks will be very difficult to track. A single mom trying to figure out her earned income credit in a housing project isn’t going to lose sleep over whether the lady helping her with the paperwork in her apartment is licensed.
- Honest preparers will get caught up in paperwork mistakes of their own making, or made by the new IRS preparer bureaucracy, and will lose their seasonal income before the problems get ironed out.
- Resources that could be used to develop computerized enforcement tools to identify dishonest filing patterns will instead be used shuffling CPE paperwork and harassing preparers.
Finally, it is highly unlikely that all of this will result in a better product. We all remember when Fortune magazine would have a tax return preparered by different preparers and get as many results as preparers. The real reason for poor return prep quality is a poor quality of tax law. That root problem will exist until my modest reform proposal is finally adopted:

I have the answer to this problem, of course — require that all Congresscritters do their returns in public themselves via a live webcast. They can use Turbotax or the software of their choice, as long as all input screens and output are broadcast live on the web, with a sidebar for running viewer commentary. Or, perhaps, selected tax pros could do the kibitzing – think “Mystery Science Theater 3000,” tax geek version. Naturally, the whole comedy should also be available for playback on YouTube. I think this would have two useful results: Congresscritters would have a stake in tax simplification, and they would learn the difference between a deduction and a credit.

For a contrary view on the Taxpayer Advocate report, see Peter Pappas. Dan Meyer also has more.

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