Posts Tagged ‘TaxProf’

Tax Roundup, 3/25/16: Who is qualified to appraise your old laundry? And: Dept. of Revenue explains coupling.

Friday, March 25th, 2016 by Joe Kristan
Flickr image courtesy Jen Waller under Creative Commons license.

Flickr image courtesy Jen Waller under Creative Commons license.

Why you really don’t want a $10,000 deduction for that trip to Goodwill. Some taxpayers view the deduction for donations of stuff you can’t sell at a rummage sale as a standard deduction by other means. How likely is it that the IRS is going to look at the $250 deduction I’m claiming for dropping those bags at Salvation Army, anyway?

The poison is in the dose. Just yesterday we discussed the magic words you need to get from any charity for gifts of $250 or more. If your gift of property exceeds $500, you have to notify the IRS by filing Form 8283. And if your donation goes over $5,000, you have to get a “qualified appraisal.”

How does that affect your trip to the thrift store? One taxpayer who cleaned out his late mother’s possessions found out the hard way. The Tax Court describes the donations:

These items allegedly included seven sofas, four televisions, five bedroom sets, six mattresses, a kitchen set, a dining room set, a china cabinet, and three rugs. For charitable contribution purposes, petitioner placed a value of $11,730 on these items.

Petitioner testified that he also donated to AMVETS during 2009 numerous items of clothing belonging to him and his children. These items allegedly included 180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters, nine overcoats, and seven suits. For charitable contribution purposes, petitioner placed a value of $14,487 on these items.

You have to group “similar items” to see whether you exceed $5,000 and trigger the need for an appraisal. IRS Publication 561 describes what “similar items” means (my emphasis):

The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return.

So splitting up your donations between Goodwill and Salvation Army doesn’t help. But carefully identifying your donation and keeping each category (eg, books, china, silver) under $5,000 can work. Be sure to carefully document what you are donating; pictures are a good idea.

The taxpayer who went to Tax Court with his AMVETS donation ended up getting a zero deduction for his trouble. You don’t get a “partial” deduction when you claim a >$5,000 property charitable deduction and fail to get a proper appraisal. You get nothing.

Now if you can even find an appraiser for your old laundry, be sure you get one that counts. A qualified appraiser has to meet certain requirements for independence and expertise. For example, neither the donee nor the person who sold you the property qualifies.

You can’t wait for the IRS examination to find the appraiser. The appraisal also has to be timely, made not more than 60 days before the donation and not later than the extended due date of the return claiming the deduction. So if you don’t have that appraisal yet for your 2015 donation, it may not be too late — if you extend your return.

This is another of our irregular series of 2016 filing season tips. Collect them all!

 

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The Iowa Department of Revenue, Immediate income tax changes for Iowa taxpayers:

Effective with the enactment of House File 2433 on March 21, 2016, Iowa tax provisions are coupled with federal provisions retroactive to January 1, 2015 for tax year 2015 only.  The most common federal provisions with which Iowa is now coupled are listed below.

 NOTE: Iowa did not couple with the bonus depreciation provisions allowed for federal tax purposes for the 2015 tax year

 For Tax Year 2015 Only:

For Individual Income Tax Filers Only:

-Deduction of educator expenses
-Tuition and fees deduction for higher education
-Election to deduct state sales/use tax as an itemized deduction in lieu of state income tax
-Treatment of mortgage insurance premiums as qualified residence interest
-Tax free distribution from an IRA to certain charities for individuals 70½ and older

For Individual Income Tax Filers as well as Corporate Income Tax (including S Corporations), Partnership, Fiduciary and Franchise Tax:

-Section 179 limit for Iowa for the 2015 tax year is $500,000, which is the same as the federal section 179 limit. The phase-out threshold is $2 million.

The Department will update online forms, instructions, and web pages accordingly. Taxpayers impacted by these provisions who have already filed tax year 2015 returns should review information provided on the Department’s website at https://tax.iowa.gov about how to file an amended return.

These aren’t the only provisions coupled, of course.

 

TaxGrrrl, Worried You Might Run Out Of Time To File Your Taxes? Get An Extension. It’s always better to extend than to file late. It’s always better to extend than amend.

Annette Nellen, ACA Complexity Evident in IRS Incomplete Tax Tip. “For the past few weeks, the IRS has been publishing Health Care Tax Tips.  The one I received by email today was troubling because it includes an error or at least not enough detail to be entirely useful.”

Jack Townsend, TRAC Offerings on IRS and DOJ Criminal Tax Enforcement. “The data reported shows that referrals by the IRS to DOJ Tax peaked in the early 90s at 20 per million of population and are about 9 per million in fy 2015.”

Carl Smith, CDP Notice of Determination Sentence Causing Late Pro Se Petitions. “At the very least, it is time for the IRS to redraft the CDP notice of determination sentence so that it does not anymore trick pro se taxpayers into filing late.”

Kay Bell, Attention White House wannabes: the IRS audits presidential tax returns every single year.

 

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Joseph Thorndike, Face It: Americans Just Don’t Like the Estate Tax (Tax Analysts Blog) “At what point do liberals need to consider the possibility that something besides ignorance and stupidity is necessary to explain the popular distaste for the estate tax?”

TaxProf, The IRS Scandal, Day 1051

Howard Gleckman, The Gulf Between the Presidential Candidate Tax Plans Is Historic (TaxVox). “Calling it a gap hardly does it justice. It is an ocean of difference.”

News from the Profession. However the Presidential Election Goes, CPAs Probably Not Moving to Canada (Caleb Newquist, Going Concern)

 

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Tax Roundup, 3/24/16: Executors get until June to file basis reports. And: Don’t foot-fault that charitable deduction!

Thursday, March 24th, 2016 by Joe Kristan

20160122-3Now it’s June. The IRS has again delayed (Notice 2016-27) the new requirement for executors of taxable estates to notify beneficiaries of their basis. The rule is meant to keep the IRS from being whipsawed by having taxpayers use lower values for estate tax filings than for income tax filings.

The rule, which would require the executor to provide Form 8971 to the IRS, has been delayed several times now. The form includes a schedule for each beneficiary of the assets they are inheriting, along with the asset basis reported on the Form 706 filed for estate tax purposes. Each beneficiary is to receive a copy of their own schedule.

The filing is mandatory for estates required to file an estate tax return when the return is filed after July 31, 2015. It had been due March 31. The deadline is now June 30, 2016.

 

Charitable contributions: paperwork or bust. The law isn’t willing to take your word for charitable contributions any more. If you make a charitable contribution of $250 or more, the tax law now says no deduction is allowed unless you have magic words in writing from the charity. From IRS.gov:

The written acknowledgment required to substantiate a charitable contribution of $250 or more must contain the following information:

-Name of the organization;

-Amount of cash contribution;
-Description (but not value) of non-cash contribution;
-Statement that no goods or services were provided by the organization, if that is the case;
-Description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution; and
-Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

In addition, a donor may claim a deduction for contributions of cash, check, or other monetary gifts only if the donor maintains certain written records.

Even if you have a cancelled check for your $250+ gift, if you lack the magic words, your deduction is zero. 

A taxpayer learned this lesson the hard way in a Tax Court opinion released yesterday. The taxpayer’s gift in this case was a conservation easement valued at $350,971. While there are complex additional requirements for deducting such property gifts, those weren’t the problem. The taxpayer never got past the magic words:

Although the conservation deed includes provisions stating that the intent of the parties is to preserve the property, those provisions do not confirm that the preservation of the property was the only consideration because the deed did not include a provision stating that it is the entire agreement of the parties. Without  such a provision, the IRS could not have determined by reviewing the conservation deed whether petitioners received consideration in exchange for the contribution of the conservation easement. We conclude, therefore, that the conservation deed taken as a whole is insufficient to satisfy section 170(f)(8)(B)(ii). Because petitioners’ contemporaneous written acknowledgment does not comply with section 170(f)(8)(B)(ii), petitioners are not entitled to any claimed carryover charitable contribution deductions,

Lacking the magic words, the deduction suddenly went from $350,971 to nothing. 

While this was a six-figure problem in this case, the rule is just as effective for a $250 gift to your church or your favorite charity.

I’ll just get the acknowledgment if I get audited. That doesn’t work. The acknowledgement has to be “contemporaneous.” Tax Court explains:

A written acknowledgment is contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date the return was filed or the due date (including extensions) for filing the return for the year in which the charitable contribution was made.

Many smaller charities, and even a few bigger ones, have been slow to realize the importance of these acknowledgements. If you don’t have one yet, it is wise to get it. If you want the charitable deduction, it’s worth extending your return for.

Cite: French, T.C. Memo 2016-53.

This is another of our irregular series of 2016 filing season tips. They’ll keep coming through the April 18 deadline!

 

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Paul Neiffer, Are You 70 1/2?. “If you have retirement or IRA accounts and you are approaching age 70 1/2, you must be careful to make sure to take your required minimum distributions (RMD) and April 1 can be a key deadline.”

Jason Dinesen, If I Turn 65 in August, Am I 65 on My Tax Return?

TaxGrrrl, Taxes From A To Z (2016): I Is For Inheritance

Robert Wood, Payroll Tax Violators Get Penalties Or Jail, And IRS Is Watching. “The IRS is especially vigorous in going after payroll taxes.”

Nicolas Xanthopoulos, Investigating Assets Prior to Submission of Collection Remedies (Procedurally Taxing). Important work from a practioner dealing with the hard end of the tax law, collections.

Jack Townsend, Interview of Acting Assistant Attorney General Ciraolo on Tax Enforcement. It sounds like they still want to shoot jaywalkers.

Kay Bell, $10,000 crowdsourcing prize available to designer of Future IRS taxpayer accounts website

 

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Howard Gleckman, Paul Ryan and The “Ridiculous Notion” of Tax Distribution (TaxVox):

Last week, House Speaker Paul Ryan said in a CNBC interview that the distributional analysis of tax plans done by the Tax Policy Center, the Joint Committee on Taxation, and others is based on the “ridiculous notion” that the effect of tax changes on different income groups  is important.

Mr. Gleckman thinks Speaker Ryan is wrong, that it is very important to show how much tax changes benefit “the rich.” While that is interesting information, Speaker Ryan is right in that notions of distributional fairness have an outsized impact on tax policy deductions. I get the impression from some people that they would be fine with executing people, seizing their property, and selling their families into slavery, so long as it only affected the top 1% of earners.

David Brunori, How to Save the Corporate Tax (Tax Analysts Blog). “First, get all the states in a big room and have them agree to end all targeted tax incentives.”

TaxProf, The IRS Scandal, Day 1050. Today’s link: Chipping Away at the IRS Stonewall: A Federal Court Scores the Agency For its ‘Continuous Resistance’

 

Humor impairment is a lifestyle, not a crime! White-Collar Crime Watch: Polygamists, Fixed Tennis Matches, An Unfunny Accountant (Leona May, Going Concern).

 

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Tax Roundup, 3/23/16: “Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.” And more!

Wednesday, March 23rd, 2016 by Joe Kristan

norcal logoNo Scandal here. The IRS has long history of hiding behind taxpayer confidentiality rules to avoid accountability. The Sixth Circuit Court of Appeals called the IRS on this yesterday in a harshly-worded opinion.

The case arose from the Tea Party scandal. NorCal Tea Party Patriots sued the IRS after the scandal emerged. The IRS has used every trick in the book to drag out the case, citing the “confidentiality” of the very taxpayers it abused. From the Sixth Circuit opinion (my emphasis):

The IRS argues that the “names and other identifying information of” organizations that apply for tax-exempt status — along with the applications themselves — are confidential “return information” under 26 U.S.C. § 6103. IRS Petition at 2, 16. The IRS argues further that the district court lacked authority to order disclosure of those names under a statutory provision for disclosure in judicial proceedings where “the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding[.]” 26 U.S.C. § 6103(h)(4)(B). The IRS contends that the district court’s discovery orders threaten to undermine statutory protections for taxpayer privacy, and that a writ of mandamus is therefore appropriate.

A “writ of mandamus” is “an extraordinary remedy reserved to correct only the clearest abuses of power by a district court.” The Sixth Circuit wasn’t buying. They reviewed the IRS foot-dragging:

To that end, the plaintiffs sought discovery in the form of basic information relevant to class certification, including the names of IRS employees who reviewed the groups’ applications for tax-exempt status and the number of applications from similar groups that had been granted, denied, withdrawn, or were still pending. On the record before us here, the IRS’s response has been one of continuous resistance. For example, the IRS asserted that the names of IRS employees who worked on the groups’ applications were taxpayer “return information” protected from disclosure by § 6103. The IRS eventually abandoned that position, but argued instead that § 6103 barred the Department of Justice’s attorneys from even reviewing the groups’ application files to find the names of the IRS employees who worked on them. That was true, the IRS asserted, even though § 6103(h)(2) — entitled “Department of Justice” — expressly allows the Department’s attorneys to review a taxpayer’s return information to the extent the taxpayer “is or may be a party to” a judicial proceeding. See 26 U.S.C. § 6103(h)(2)(A). The IRS further objected — this, in a case where the IRS forced the lead plaintiff to produce 3,000 pages of what the Inspector General called “unnecessary information” — that “it would be unduly burdensome” for the IRS to collect the names of the employees who worked on the groups’ applications. The district court eventually intervened and declared the IRS’s objections meritless. Yet the IRS objected to still other document requests on grounds of “the deliberative process privilege[.]” That privilege, the IRS acknowledged, can be waived in cases involving “government misconduct”; but in the IRS’s reading, the IG’s report “does not include any allegation or finding of misconduct.”

Many taxpayers and preparers wish the IRS would use such a generous definition of “misconduct” when the criminal agents come calling.

The Sixth Circuit rejected all of the IRS arguments:

Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.

Words that should be chiseled over the entrance to IRS headquarters.

Cite: United States v. NorCal Tea Party Patriots et al.; CA-6, No. 15-3793.

More coverage:

TaxProf, IRS Scandal, Day 1049:  6th Circuit Slams IRS Treatment Of Tea Party Group

Russ Fox, A Bad Day for the IRS in Court

 

Scott Drenkard,New Study on Electronic Cigarettes Released Today (Tax Policy Blog):

To some, vapor products are an exciting innovation that offers a new, less harmful alternative to traditional incinerated cigarette use. By contrast, tobacco control groups are concerned about youth use of the products.

Meanwhile, politicians are concerned about losing their sweet tobacco revenues if people stop gassing themselves with the real thing. Hence the moral panic.

This map is in the study:

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“Vapor products are generally found to have a much lower risk profile than traditional incinerated cigarettes.”

 

Paul Neiffer, Expanded Cost Basis Reporting is Here! Are you Ready? “The Surface Transportation and Veterans Health Care Improvement Act of 2015 (those two don’t really go together) added new tax laws that require executors to file cost basis information with the IRS.  This is required only when there is a taxable estate.”

Kay Bell, IRS releases Top 10 identity theft, tax fraud cases. 2015 only. 

Jack Townsend, IRS Publicizes Success in Prosecuting Identity Theft Refund Fraud

The IRS’s message from the selected 10 examples is that identify theft is serious and draws serious sentencings, with the principals involved receiving over 70 months (some well in excess of 100 months) incarceration (persons with lesser roles receive lesser, but still significant sentences).

That’s appropriate, but it’s not enough. Even though the thieves highlighted by the IRS report will rot for a long time, the millions they have stolen aren’t coming back. The petty grifters hightlighted in the report are probably not the type of folks who carefully weigh consequences when they can get free money right now. Nor will long sentences aren’t going to bother Russian organized crime networks, who have no intention, and little prospect, of facing U.S. justice.

Improved IRS processes that stop the crimes before they happen are what’s needed.

 

William Perez, How Much Can You Deduct by Contributing to a Traditional IRA? “Updated for 2016 contribution limits.”

Leslie Book, Filing a Day Late Can Be Timely Under Tax Court E-Filing Rules and So is Filing an Income Tax Return Ten Days Later After E-File Rejection. Good to know.

Robert Wood, Does Extending April 15 Deadline Increase Odds Of IRS Audit?. “It is worth saying it again: there is no increased audit risk to going on extension.” But there is definitely an increased risk if you mess up a return by doing it hastily, or by leaving off a late-arriving K-1.

Tony Nitti, Tax Geek Tuesday: Death Or Retirement Of A Partner In A Partnership. “Importantly, when a partner’s interest is to be liquidated by a series of distributions, the interest will not be considered liquidated until the final distribution has been made.”

 

TaxGrrrl, How To Survive Tax Season (Or Any Busy Work Day) In 10 Easy Steps.

Peter Reilly, IRS Bounty Hunters Should Not Waste Time On FBAR Penalties. In too many cases, that’s true of the IRS too.

 

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Donald Marron, Britain Builds a Better Soda Tax (TaxVox). Better at stupid is still stupid.

Annette Nellen, Taxing Candy and Snacks – That’s a Good Start. At meddling in places where the government has no business.

 

Career CornerAccounting Talent Demanding Everything Shy of the Moon, Your First Born (Caleb Newquist, Going Concern). “If I may speak for myself and many, many other people, I’d be “history” after a few days of being treated like family. The nagging questions, the guilt, the constant phone calls, the passive aggressive suggestions about marriage/kids/life direction/bad habits.”

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Tax Roundup, 3/22/16: Iowa couples to 2015 federal Sec. 179 and other changes, except bonus depreciation.

Tuesday, March 22nd, 2016 by Joe Kristan

CouplingcrescoSee you next year. 81 days after 2015 ended, Iowa finally has its 2015 tax law. Governor Branstad yesterday signed HF 2433, adopting federal tax law changes for 2015, including the $500,000 Section 179 limit, but not including bonus depreciation.

While Congress enacted the $500,000 limit permanently last year — and indexed it for inflation — Iowa’s coupling is for one year only. That sets up a fight in the 2017 General Assembly not only over bonus depreciation, but over all of the other “expiring provisions” that Congress re-enacted in December.

How we got here. While Iowa’s income tax is based on federal income tax rules, it doesn’t automatically adopt federal tax law changes. Every spring the General Assembly passes a “coupling” bill where they choose whether to adopt federal tax changes made in the prior year. The Congressional habit of enacting important tax provisions for one or two-year periods — to pretend they cost less — has made the annual coupling bill an important part of the legislature’s work.

Since 2010, Iowa has adopted all federal tax law changes except for bonus depreciation. These have included the $500,000 Section 179 deduction for new asset purchases that would otherwise have to be capitalized and depreciated over a period of years — usually three to seven years. In recent years the coupling bill has been one of the first bills to go to the Governor.

This year is different. Governor Branstad surprised the Iowa tax world when he announced on January 13 that there would be no coupling for Section 179 for 2015, on the grounds that the state budget required the revenue. It soon came out that he opposed coupling for anything but the federal research credit. That would have made a major mess out of Iowa tax filing season, affecting a broad range of deductions, including:

Exclusion for IRA distributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

His Republican partisans in the Iowa House of Representatives rebelled. A coupling bill that included Section 179 passed the Iowa house by month-end, 82-14. Notably, not only did all voting Republicans support the bill, but so did a large majority of Democratic representatives.

Yet the prospects for coupling at the time looked grim. Citing the Governor’s opposition, Senate Majority Leader Gronstal (D-Council Bluffs) was set to keep the House-passed bill from ever coming to a Senate vote.

coupling20160213But the natives were restless. The legislators heard from a lot of their constituents that they were unhappy to lose the deduction, which could be worth around $40,000 for many taxpayers. The Des Moines Register reported that “only” 25,000 taxpayers would have lost deductions under that, but that comes out to 250 grumpy business constituents and farmers for every Representative, and 500 per senator. It seems most of them got on the phone and called their legislator. Business groups such as the Iowa Association of Business and Industry pushed for coupling, as did Iowans for Tax Relief.

The message got through. By February 22, Governor Branstad reversed himself and decided Iowa could afford Section 179 coupling for one more year. That left Senator Gronstal as the remaining roadblock to coupling. He extracted a face-saving reduction in the sales tax exemption for manufacturing supplies that the Department of Revenue put into place last year — by accepting a version of the break that he blocked in 2014.

Now it’s time to catch up. The software vendors will scramble to update their tax prep programs to include the coupling, and we can finally start to move all of the Iowa tax returns that have been on hold awaiting the coupling.

Unfortunately, this coupling bill is only for one year — even though $500,000 Section 179 is now a permanent federal tax provision. We can expect both the Governor and Senator Gronstal to oppose Section 179 coupling in the next General Assembly. They have other priorities.

Other coverage:

Gazette.com, Branstad signs tax-policy compromise

Des Moines Register, Branstad signs tax policy compromise

Maria Koklanaris, Iowa Governor Signs Exemption, Federal Conformity Bill

Paul Neiffer, Iowa Governor Branstad Finally Signs Coupling Bill.

 

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Kay Bell, Figuring the tax value of goods you give to charity

TaxGrrrl, The 9 Most Common Tax Filing Mistakes – And How To Avoid Them. “Rushing tends to result in mistakes – and those errors can slow processing of your tax return, resulting in delayed tax refunds or worse, a second glance from Internal Revenue Service (IRS).”

Jason Dinesen, Success Comes Too Easily for a Side Business. “In my experience, most of us who try taking a side business full time end up overwhelmed. A few of us make it through.”

Peter Reilly, AICPA Versus Block Advisors In Spat I Hope They Both Lose. “The reason that the H&R Block ‘Who actually prepares your return?’ question is the money shot is that at many national and large CPA regional firms, the answer will be ‘Somebody in India‘”  All Roth & Company returns are 100% U.S. content, by the way.

Leslie Book, Clarke Case Finally Comes to End: Eleventh Circuit Orders Enforcement But Also Leaves Door Open For Allegations of Improper Purpose (Procedurally Taxing).

Jack Townsend, Ruminations on Inconsistent Verdicts. “The issue of inconsistent verdicts is a big issue.”

 

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Joseph Henchman, U.S. Supreme Court Declines to Hear Case Challenging Colorado Marijuana Law (Tax Policy Blog). “The U.S. Supreme Court today turned down an attempt by Nebraska and Oklahoma to challenge Colorado’s legalization of marijuana, without explanation.”

Renu Zaretsky, Are Presidential Candidates’ Tax Plans Getting Closer Looks? Today’s TaxVox headline roundup covers the millionaires who want to pull up the ladder behind themselves in New York, polling on the Bernie plan, and more.

TaxProf, The IRS Scandal, Day 1048

Jeremy Scott, Scotland Makes the Case That Taxes Pay for Things People Want (Tax Analysts Blog) “The Conservatives were quick to point out that she was essentially putting a ‘higher taxes here’ sign on the border that would encourage migration and tax planning.”

Ajay Gupta, Trump Only Threatens a Trade War, But Obama Might Actually Start a Tax War (Tax Analysts Blog)

 

News from the Profession. This 8-K From Valeant Is Something to Behold (Caleb Newquist, Going Concern).

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Tax Roundup, 3/18/16: The income tax difference between gifts and compensation, illustrated. And: twins!

Friday, March 18th, 2016 by Joe Kristan

Twins! I’m delighted to report that Abby Croll, a Roth & Company Tax Manager, delivered twins yesterday, a boy and a girl. All are well.

 

20160215-1Too darn busy to file? There are many good reasons to stay current on your tax filings. One compelling reason is that failure to file can draw unwanted attention from the IRS. Returns that aren’t there can stand out.

That seems to be how it worked for an entrepreneur in Northwest Iowa, a Ms. Fairchild. An Eighth Circuit panel yesterday upheld her 33-month sentence on tax charges. The court takes us back to the beginning of the investigation (any emphasis is mine):

In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004.

With no returns with which to start, Agent Wright did a little digging:

Agent Wright obtained records from Fairchild’s two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier’s checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild’s accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.

That was enough to pique Agent Wright’s interest. Meanwhile, Ms. Fairchild wasn’t exactly ignoring her tax issues:

In July 2010, Fairchild and her husband filed joint income tax returns for 2005, 2006, 2007, and 2008, apparently unaware of the ongoing IRS investigation. Fairchild, a professional adult entertainer, reported income in each of the respective years as $122,345; $120,000; $120,000; and $151,325. The total income reported of $513,670 was far less than the $1,153,647.84 that Fairchild received from Karlen and Pietz during that same time span. Additionally, the returns did not identify any of Fairchild’s cash deposits during those years as income.

Perhaps a false move, considering that Agent Wright already knew about the deposits. Before long the IRS got copies of these returns to him, and he arranged a chat with Ms. Fairchild:

Agent Wright interviewed Fairchild about her tax returns on July 13, 2011. During that interview, Fairchild explained “that she actually thought all of the money, that every single cashier’s check she received from Mr. Karlen was a gift, but that she had reported some of it to take some of the tax burden off of him.

Very thoughtful.

To determine how much income to claim, Fairchild told Agent Wright that she “ballparked” the amount. In the same interview, Fairchild also claimed that the money from Pietz was a gift and that he had told her that he reported the gift on his income tax return. Even though $30,000 of the money from Pietz was included as income on her 2008 income tax return, Fairchild maintained that it was really a gift that her accountant had mistakenly included as income.

I suppose most people don’t know that gifts don’t show up on income tax returns. Still, one may doubt that gift tax returns were filed for any of these amounts under the circumstances.

In order for a payment to be considered a “gift,” and therefore exempt from income tax, it has to be paid out of “disinterested generosity.” It appears that the benefactors had, um, interests:

According to Karlen, he met Fairchild in 2003 or 2004 while she was dancing. He tipped her money when she danced on stage and paid for private dances inside the club in a private room. Fairchild gave her phone number to Karlen and would call him to tell him when and where she would be dancing. In 2005, Karlen went to watch Fairchild dance at a club; while there, Fairchild asked Karlen if he was interested in paying for sex with her outside of the club. Karlen testified concerning the first time that he met with Fairchild for a “private meeting outside the club.”

You can read the opinion if you care for more details, but they can be condensed into this:

When asked how he “treat[ed] the money that [he] gave to [Fairchild],” Karlen replied, “[f]or her service. . . . For sex.” When asked whether the 37 payments were all for sexual services, Karlen replied, “[e]very one of those.” He later confirmed that “[t]he whole $1.1 million was for sex” and that “[e]verything was for sex.”

Generous, maybe, but not disinterested. It appears that her other benefactor had similar interests.

Ms. Fairchild had an explanation for her late filing:

Fairchild admitted that she did not file income tax returns for 2005 through 2008 until 2010, but she claimed that the delay was due to problems that she experienced during the construction of her new home.

Probably not “reasonable cause,” to IRS thinking. In fairness, it seems she was busy on other things.

20150813-1Now let’s move on to her visit with her tax preparer:

In May 2006, after filing requests with the IRS to file the income tax returns late, [preparer] Anderson met with Fairchild to determine her income. Because Fairchild had no other documentation of her income, she reviewed her bank statements with Anderson to determine which deposits were income. Anderson testified, “I went through and had Veronica [Fairchild] read off the deposits to me, and I ran a tape on my calculator of the number of deposits that she would tell me.

He ran a tape! There’s no school like the old school.

But old school or new, it was all income as far as the IRS was concerned, and it wasn’t reported. Indictment and conviction followed in due course, and yesterday the appeals court upheld a 33-month prison sentence for the underreporting. It perhaps didn’t help that while she didn’t report all of the deposits as income on her 1040, she did report it all to several banks when she applied for loans.

The moral? There are several lessons we can draw. First, file timely. She might have never attracted Agent Wright’s attentions had she filed, unless he was a strip club patron.

Next, beware the tendency to believe what you want to believe about taxable income. Just because the nice man gives you money doesn’t mean he’s doing it because he’s a nice man.

Finally, level with your preparer. The court seems to have held it against her that she didn’t.

Cite: Fairchild, CA-8, No. 14-3517

Prior coverage here.

 

KCRG.com, Iowa Businesses Spend Billions In Tax Coupling

Specifically, agriculture businesses and farms use it for high cost equipment. In 2012 through 2014, agriculture applied that tax law to around 38 percent of their investments. More than twice of any other industry.

In terms of dollars, across all small businesses in Iowa, that’s about $2.7 billion in 2012, $2.7 billion in 2013, and $2.2 billion in 2014. Of that, farm returns claimed between 54 and 66 percent over those three years.

Those numbers come from a white paper by Roger McEowen, a professor of Ag Law at Washburn University and the Midwest Tax Director of CliftonLarsonAllen in West Des Moines.

But what good is it if it never lets a politician issue an economic development press release?

 

The Critical Question: How High Are Beer Taxes in Your State? (Scott Drenkard, Tax Policy Blog). This high:

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Peter Reilly, IRS And Liquor By The Wink. Wherein a glorified bar isn’t a tax-exempt social club.

TaxGrrrl, You Can Thank Excise Taxes For Guinness Stout. That wouldn’t have occurred to me.

Jason Dinesen, Glossary: College Savings Iowa. “It’s a type of529 Plan, where money going into the plan is not tax deductible (for federal taxes) but money coming out not taxed as long as it’s used for qualifying expenses.” And it has an Iowa tax benefit.

Robert Wood, Confusing Personal With Business On Your Taxes Can Mean IRS Penalties Or Jail. Expecially when “confusing” means “pretending.”

Kay Bell, Alexander Hamilton will remain on redesigned $10 bill. Phew.

 

Picture by Dan Kristan

Picture by Dan Kristan

 

William Gale, Taxes on the Rich May Change a Lot in 2017 (TaxVox)

Alex Durante, The U.S. Tax and Transfer System is Very Progressive, New Paper Confirms (Tax Policy Blog). But it is also whimsical: “However, due to the complex system of phase outs of certain tax credits and government transfers, poor households may face marginal tax rates as high as some middle and upper-income households.

All points bulletin! Beware the Slayer of Tax Reform Fantasy (Robert Goulder, Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 1044

Stuart Gibson, Two Steps Forward, Three Steps Back for Europe? (Tax Analysts Blog) “Unfortunately, every time it looks like Europe will unify behind certain tax policies, the member states start circling the wagons and shooting inward.”

News from the Profession. Cyber Extortion: Leprechauns vs. Accountants (Megan Lewczyk, Going Concern)

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Tax Roundup, 3/17/16: Brokering mortgages isn’t “real estate activity,” says Tax Court. And: Irish scenery!

Thursday, March 17th, 2016 by Joe Kristan
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All photos today courtesy Dan Kristan

Sometimes training isn’t enough. A taxpayer whose case was decided this week in Tax Court seems well equipped to fight the IRS:

Petitioner holds a bachelor of science degree in accounting and a master’s degree in tax law. During each year in issue petitioner was licensed in California as a real estate broker and was qualified to represent taxpayers before the Internal Revenue Service (IRS) as an enrolled agent.

A specialized tax degree and an E.A. designation is pretty strong background, but credentials don’t always get the job done.

The taxpayer’s business involved mortgage brokerage, real estate brokerage, and tax preparation. The taxpayer argued that the time he spent as a mortgage broker counts as a “real estate trade or business,” enabling him to treat rental losses as non-passive and therefore deductible.

Some background. The tax law treats rental losses for most taxpayers as automatically passive, and therefore deductible only to the extent of “passive” income or at the time the “passive activity” is sold.

Business activities other than real estate rental are not automatically passive. Taxpayers can avoid the passive loss rules if they “materially participate” in the activity. This is based on the amount of time spent on the activity.

If you qualify as a “real estate professional,” your real estate losses are not automatically passive; they are tested as passive or non-passive based on the tests used for other businesses. But it is hard to be a real estate pro under these rules:

-You have to spend at least 750 hours a year working in a “real estate” trade or business, and

-Your real estate time has to exceed the time you spend doing non-real estate work.

This second test keeps most people from being real estate pros, as its hard to convince the IRS or the courts that you have a 2000-hour full time job but that you spend more time than that managing real estate.

The taxpayer in this case said his mortgage brokerage was a real estate business:

According to petitioners, petitioner’s mortgage brokerage activity is a “real property trade or business” within the meaning of section 469(c)(7)(C). Petitioners go on to argue that because petitioner spent more than 750 hours providing services in connection with his mortgage brokerage business for both years in issue, and because he spent more time in that business than he did in any other trades for business during each of those years, for both years in issue he is a [real estate professional]…

This is the first time I’ve seen mortgage brokering treated as a “real estate” trade or business. The Tax Court ponders the question (my emphasis):

Section 469(c)(7)(C) defines a real property trade or business to mean “any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.” Petitioners focus on the word “brokerage” contained in that section and argue that petitioner’s mortgage brokerage business is contemplated by the statute. We disagree. Petitioners’ argument ignores the words “real property” that precede the specific activities listed in the statute; those words modify each of those activities. While petitioner’s mortgage brokerage activity constitutes a “brokerage” trade or business, it does not constitute a “real property brokerage” trade or business. Petitioner was not during either year in issue brokering real estate; he was brokering financial services.

The court was unconvinced that the taxpayer met the 750-hour test without counting the mortgage brokerage time, so the rental losses were passive and disallowed. The issue was novel enough, though, for the taxpayer to avoid penalties.

The Moral? Credentials are helpful to a tax preparer, but they aren’t always enough to convince the Tax Court to see things your way.

Cite: Guarino, T.C. Summ. Op. 2016-12.

 

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Scott Drenkard, Sights and Sounds from Kansas as they Consider Bill to Eliminate Pass-through Carve-out:

Kansas is on the right track by broadening its tax base and lowering its rates, but should be cautious about favoring some businesses over others. A better path to encouraging economic growth is creating a tax environment that is not overly burdensome and treats all businesses well. Further, while tax reductions can have positive economic benefits, they will cost revenue and will ultimately have to be paid for either by cutting spending or increasing taxes elsewhere.

If Iowa ever gets around to much-needed business tax reforms, Kansas will provide a good bad example.

 

TaxGrrrl, 7 Options To Consider When You Can’t Pay Your Tax Bill In Full. With this importand advice: “What if you know that you can’t pay what you owe? File anyway.

Robert Wood, Before Filing Your Taxes With IRS, Consider This. “As you start preparing to file your tax return this year, consider what will happen if you are audited.”

Keith Fogg, A Different Type of Offset Fight – Illegal Exaction (Procedurally Taxing). “In the end, this type of case appears extremely difficult to win which is why so few of these cases make it to published opinions.”

Paul Neiffer, IRS Interest Rates Finally Start to Rise. “It seems like forever that the interest that the IRS will pay or collect on tax refunds/underpayments has been stuck at 3%.  The IRS just announced today that beginning April 1, 2016, the interest rate will rise to 4% for most taxpayers.”

Kay Bell, New tax scam alert: Cons posing as fake IRS agents now calling to ‘verify’ filers’ tax return information

 

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TaxProf, The IRS Scandal, Day 1043

Renu Zaretsky, Caution, Cuts, and a Chunk of Change. Today’s TaxVox headline roundup covers budget battles in Minnesota and proposed corporate tax cuts in the U.K., among other things.

 

Career Corner. Study: Women Even Less Willing to Put Up With Crappy Pay Than Men (Caleb Newquist, Going Concern)

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Tax Roundup, 3/16/16: Coupling heads to the Governor. And: Trainwrecks, brackets, and that dreaded DNA!

Wednesday, March 16th, 2016 by Joe Kristan

coupling20160213Almost Coupled. Both houses of the Iowa General Assembly passed the bill to couple the Iowa tax law to federal tax law for 2015, with the exception of bonus depreciation (HF 2433). The House of Representatives vote was overwhelming, and the Senate was unanimous.

The debates before the votes featured complaints about how school funding is suffering because businesses get the same Section 179 deduction on their Iowa returns as on their federal returns. Yet not one school-funder mentioned any other ideas about finding additional $97.6 million funding lost to the Fiscal 2016 budget. For example:

Iowa credits fy 2017

So apparently school kids are important, but less so than, say, the Geothermal Heat Pump tax credit. (Related: What Iowa considers more important than Sec. 179.)

The bill also repeals the manufacturing supplies sales tax rule set forth by the Department of Revenue that was set to take effect in July. It replaced it with the manufacturing supplies tax exemption passed by the house in 2014, only to die in the Iowa Senate.

In addition to Section 179 coupling, the bill also allows on Iowa 1040s a number of other provisions enacted by Congress in December, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

The Des Moines Register coverage of yesterday’s votes makes it appear that the Governor is on board, though he hasn’t said so in so many words. It quotes spokesman Ben Hammes:

“As the chief executive, it is the governor’s job to look at how this bill fits into the bigger budget picture and how it will impact jobs and Iowa taxpayers and he will review it accordingly. The governor is pleased that the Legislature was able to come together and find resolution on these key issues,” Hammes said.

So he doesn’t exactly say he’ll sign. I think he will, but I will feel better when he does.

Unfortunately, the bill only applies to 2015, so we have to do it all again next year.

 

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Hank Stern, More (bad) trainwreck news (InsureBlog):

As we mentioned at the end of January, Open Enrollment v3.0 was pretty much doomed from the start:

“About 6 million people have signed up for health coverage that will take effect on Jan. 1 in the states that use the [404Care].gov enrollment.”

That was way off the (implausibly) predicted 21 million anticipated to sign up. But it’s also only part of the story…

It’s not affordable, and they don’t care.

 

Mitch Maahs, Tax Brackets: Revisiting the Tax on Gambling Winnings just in Time for the NCAA Tourney (Davis Brown Tax Law Blog). “Note however that losses may only be deducted to offset gambling winnings, and are only deductible up to the amount of winnings for the year.”

William Perez, New Rules for Deducting Repairs and Maintenance. “The IRS increased the threshold for deducting repairs and maintenance expenses under the safe harbor election from $500 to $2,500.”

TaxGrrrl, FBAR, FATCA Filings Top 1 Million As IRS Increases Scrutiny On Foreign Accounts. “The penalties for noncompliance may, under the law, result in civil penalties, criminal penalties or both: the list of potential penalties that may apply is distressingly long. It’s all very draconian but it’s also very real.”

 

Jack Townsend, Tax Court Holds FBAR Penalty Collected Is Not in the $2,000,000 Threshold for Whistleblower Award under § 7623(b)

Jason Dinesen, What is a 501(c)(3) and What’s the Big Deal? “First of all, the terms not-for-profit and tax-exempt are not interchangeable.”

A. Levar Taylor, Update On The “Late Return” Dischargeability Litigation: 9th Circuit To Hold Oral Argument in Smith Case (Procedurally Taxing)

Robert Wood, What To Provide When IRS Requests Documents

 

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Caleb Newquist, That Time One of Donald Trump’s Companies Got in Trouble for Reporting Ludicrously Deceptive Non-GAAP Results (Going Concern).

TaxProf, The IRS Scandal, Day 1042. Timely thoughts of what happens when the power to abuse taxpayers goes to a new abuser-in-chief.

David Brunori, Immigrants Continue to Be Good for Us (Tax Analysts Blog). “In a report, the Institute on Taxation and Economic Policy says immigrants who entered the country illegally paid roughly $11.6 billion in state and local taxes in 2013.”

Renu Zaretsky, Budget Battles Continue. Today’s TaxVox headline roundup covers federal proposed budget and Pennsylvania’s no budget, among other news.

 

If you are perplexed by voter choices this year, this may help explain things. 80% of Americans Support Mandatory Labels on “Food Containing DNA” (Ilya Somin)

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Tax Roundup, 3/15/16: Deadline Day, Coupling Vote Day. And: Arnold Palmer’s worst golf partner goes to Tax Court. (Updates)

Tuesday, March 15th, 2016 by Joe Kristan

coupling20160129Coupling day in the General Assembly. The bills to couple Iowa’s 2015 tax law with federal 2015 tax changes (HF 2433 and SF 2303) are scheduled for debate today in the Iowa House and Senate. I expect them to pass easily. The Governor is on vacation in Florida, but GlobeGazette.com reports that he “is expected to return to Iowa later this week” and sign the bill. We will update this post if and when the votes come down.

Update, 3:40 p.m.: The Senate passes the House bill without amendment, 50-0. On to the Governor.

Update, 1:09 p.m.: A glitch? The Iowa Society of CPAs twitter feed reports:

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I know nothing more, but if they approve an amended version, it has to go back to the House for a re-vote. I’ll monitor and update if I learn more.

Update, 10:26 am: coupling bill HF 2433 passes Iowa House, 78-17. On to Senate later today.

 

Deadline day! Corporation returns are due today. Also due are two key international tax forms, for trusts and withholding on interest, dividend and other non-business income paid to foreign taxpayers. Russ Fox has more on that.

e-file logoTake care to document that you are filing your returns or extensions timely. E-file is best if you can, as you have no worries about mail truck mishaps. If you file on paper, Certified Mail, Return Receipt Requested, is the tried-and-true way to prove you filed your returns on time.

If you don’t get to the post office on time, you can file up until midnight at the UPS Store or Fed-ex store, but be careful. Make sure you use one of the IRS-approved shipping services (for example, UPS Ground doesn’t qualify, but “Next-Day Air does). Make sure that you shipping slip has a pre-midnight time stamp. And you have to use the street addresses of the IRS service centers, rather than their P.O. boxes.

Related: William Perez, How to Mail Tax Returns to the Internal Revenue Service

 

(also see [1]). Direct image URL [2], Public Domain, https://commons.wikimedia.org/w/index.php?curid=2199960

By U.S. Coast Guard – U.S. Coast Guard historical photo

Worst Golf Partner Ever. Arnold Palmer, the famous golfer, did less well in the auto business, thanks to a partner involved in a Tax Court case released yesterday. The companies, BOH and APAG, were funded in part by Mr. Palmer. Judge Nega sets the stage:

Petitioner began siphoning money from Arnold Palmer Motors, Inc., as early as October 1985. When one dealership ran short on cash, petitioner transferred money from another dealership to cover the shortfall. Rather than transferring funds directly between dealership accounts, petitioner routed transfers through his personal bank account. Petitioner routinely kept some of the transferred funds in his own account instead of transferring them to the appropriate dealership. Messrs. Palmer and McCormack did not authorize petitioner to take money from the dealerships.

The bad partner diversified into stealing from other S corporations funded by Mr. Palmer and others, but in which he held a 1/3 interest. After some time he was caught, and the tax man came calling.

The taxpayer took a bold tax return position. You need basis in an S corporation to take losses. Loans you make to an S corporation can create basis for taking losses. The taxpayer said that he made loans to the corporations he was stealing from, giving him basis.

The Tax Court found this improbable (my emphasis):

The record contains no evidence reliably establishing petitioners’ bases, if any, in the Arnold Palmer dealerships or their entitlement to NOLs arising therefrom. Petitioners have not provided any Forms 1120S, U.S. Income Tax Return for an S Corporation, or Forms 1065, Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., for any of the Arnold Palmer dealerships in which petitioner was a one-third shareholder. They contend that he contributed “significant funds” to the dealerships but do not identify any specific dollar amounts contributed. In contrast, the record reflects that petitioners misappropriated amounts in excess of $6 million from the Arnold Palmer dealerships during the late 1980s which they did not report on their 1988 or 1989 income tax return.

As you may guess, the Tax Court ruled against the taxpayer, big time, with 75% civil fraud penalties.

I assume, dear reader, that you aren’t stealing from your employer. If you are, you should be reading another tax blog. But even non-thief readers can draw a lesson. You need basis to take an S corporation loss, and you need the records to show it. The taxpayer here was claiming losses from net operating loss carryforwards created by alleged S corporation losses. He failed to provide sufficient records from the loss years to convince the Tax Court.

The Moral? If you are claiming loss carryforwards, you need to preserve the tax records for the years in which the losses arise, and all intervening years, to document your right to the losses. That’s true even though the statute for limitations for the loss years has expired. Net operating losses carry forward for 20 years. That means you may need to maintain the records for the loss years for 23 years — and for all of the years in between — if you take 20 years to use them up.

Cite: O’Neal, Jr., T.C. Memo 2016-49.

 

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TaxGrrrl, IRS Alerts Taxpayers To New Tax Season Related Phone Scam:

Here’s how the new scam works. The scammer calls you and says that are with the IRS and have your tax return. They then say they need to verify some information to process your return. Those details generally involve asking for your personal information such as a Social Security number or personal financial information, such as bank numbers or credit cards.

To make the scam appear legitimate, scammers often alter caller ID numbers to make it look like the IRS or another government agency is calling. The callers may refer to IRS titles, fake names and fake badge numbers. They may know your name, address and other personal information that they offer to make the call sound official.

Be careful, and remember: if the caller says he’s from the IRS, he’s lying.

 

Peter Reilly, Sales Tax Collection By Out Of State Vendors May End Up At Supreme Court Again. “The reporting requirements may have created a situation illustrative of Reilly’s Second Law of Tax Planning – Sometimes it’s better to just pay the taxes.”

David Vendler, Can a Receiver Take Advantage of the Claim of Right Provisions to Benefit Defrauded Consumers? (Procedurally Taxing)

Paul Neiffer, When Not To Take A Discount? “When a farmer has a taxable estate, we usually try to obtain a discount by splitting up land ownership into “fractional” ownership.”

Kay Bell, How long are you willing to wait for your tax refund? I.D. theft has forced tax agencies to slow down refunds to keep them from going to thieves.

 

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TaxProf, The IRS Scandal, Day 1041.

J.D. Tucille, Poor Americans Will Be Stuck With the Tab for Bernie Sanders’ Generous Promises (Reason.com). “At the end of the day, grandiose promises of massive government programs are cheap. But paying for them has a high price tag—and it will be shouldered by those with the fewest means to afford the cost.” In other words, the rich guy isn’t picking up the tab, because he can’t.

Kyle Pomerleau, It Was Not A Good Week For The Patent Box (Tax Policy Blog):

A patent box, or “innovation box,” is a tax policy that provides a lower tax rate on income related to intellectual property. The stated goal of a patent box is to promote research and development, encourage companies to locate intellectual property in the country with the incentive, and to make a country’s tax code more internationally competitive.

Just as the research credit is an incentive to call more of what you do “research,” the patent box would end up broadening the definition of intellectual property income. The only innovation it would generate would be on the part of the same sort of specialty companies that make their living doing research credit studies.

Renu Zaretsky, Only Thirty-three days till Tax Day! Today’s TaxVox headline roundup covers tax refund statistics so far this season and the hiring by H&R Block of a former senator as a lobbyist for increasing barriers to competition and H&R Block profits through regulation of (other) tax preparers.

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Tax Roundup, 3/14/16: Coupling week! And: remember your March 15 federal and state deadlines.

Monday, March 14th, 2016 by Joe Kristan

coupling20160213Coupling! We expect the Iowa General Assembly to pass the 2015 tax coupling bills this week, and the Governor is expected to sign. You can follow their progress at the General Assembly site. The extender bills have been renamed SF 2303 and HF 2433.

We will be following the developments and will post news as it happens.

 

March 15 looms. Tomorrow is the first real big deadline of the filing season. Corporate 1120 and 1120-S corporation returns are due.

If you can file on time, you should extend. The penalties for late filing without an extension can be painful, and you may miss the opportunity to make important elections that are only available on a timely-filed original return.

But it’s not just federal returns. While many states, like Iowa, have April due dates for corporations returns, 23 states  want the returns on March 15. Even if you are filing an S corporation return, where the corporation itself doesn’t file, many states require payment anyway — either as a misbegotten corporation tax, as in California, or as withholding on individual income taxes of non-resident shareholders.

Source: RIA Checkpoint.

Source: RIA Checkpoint.

Extensions can be tricky too. Many states either accept the federal extension or, like Iowa, automatically extend a return if the tax for the year is sufficiently paid by the original due date. But other states require a separate extension filing. States requiring a separate extension filing, even when no payment is due, include Arkansas, Connecticut, D.C., Florida, Massachusetts, Maryland, Michigan, Missouri, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, New York, New York City, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont and West Virginia.

It’s already late — don’t put off those extensions any longer.

 

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Gretchen Tegeler, Can taxpayers ever get a break? (IowaBiz.com). “Alas, even the best-intentioned measures can be twisted into an argument to compound the taxpayer burden.”

Kristine Tidgren, Iowa Utilities Board Has Approved Bakken Pipeline (AgDocket).

Kay Bell, Filing deadline for 2012 taxes — and almost $1 billion in unclaimed tax refunds — is April 18

Jason Dinesen, Glossary of Tax Terms: Pass-Through Entity, “In tax terminology, a pass-through entity is a business where the end results of operations ‘pass through’ to the owners and are reported on the owners’ personal tax returns.”

Jack Townsend, Tax Obstruction Conviction Permits Inclusion in Tax Loss of Penalties and Interest. “That issue was whether the conviction for obstructing the collection of tax could include penalties and interest within the scope of the financial harm Black intended to inflict on the IRS by his obstructive acts.”

TaxGrrrl, On Pi Day, A Peek At Your Piece Of The National Tax Pie. “You can see your personalized taxpayer receipt by the dollars from the White House by plugging in the tax you paid in 2014 here.”

Andrew Mitchel, Rev. Rul. 2016-8: Tax Aspects of the Cuban Thaw

Robert Wood, As U.S. Passports For Domestic Flights Loom, IRS Can Now Revoke Passports. What could go wrong?

Leslie Book, Using Craigslist to Fish For Bogus Dependents (Procedurally Taxing)

Jim Maule, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just A Need for More Revenue?. Come now. Putin is just concerned for the health of his beloved people.

 

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TaxProf, The IRS Scandal, Day 1038Day 1039Day 1040.

Howard Gleckman, The Challenges of Modeling Presidential Tax Plans (TaxVox) “How much do tax changes affect the economy, and, in turn, what do those economic effects mean for the revenue cost of a reworked tax code?”

 

Just what kind of CPA are you? Take this quiz from the AICPA and find out. You want to know!

 

 

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Tax Roundup, 3/11/16: Iowa Sec. 179 coupling advances in both chambers. And: the cost of not filing timely.

Friday, March 11th, 2016 by Joe Kristan

IMG_1291To the floor. Identical bills coupling Iowa’s tax law to federal changes enacted in December cleared the taxwriting committees in each house of the General Assembly yesterday, the day after the bills were introduced. The bills (SSB 3171 and HSB 642) will be eligible for floor vote next week.

The sudden breakthrough clears the way for thousands of Iowans to complete their tax returns with the full $500,000 maximum Section 179 deduction. Thousands more will get to take other benefits, including the $250 above-the-line deduction for educator expenses, deductions for student loan interest, and charitable distributions by IRAs for older taxpayers.

The Governor seems to be on board, reports O. Kay Henderson:

Republican Governor Terry Branstad is praising the breakthrough.

“It certainly is a significant step in the right direction,” Branstad told reporters this morning. “…I always reserve judgment until I see it in its final form, but it appears from what I’ve heard to be something that resolves some big differences of opinion between the two houses and hopefully will make it possible to move forward with our other priorities.”

The coupling process is unfolding as I predicted February 26, after Governor Branstad reversed his anti-coupling stand. It’s too bad we couldn’t have gotten this far much earlier, without disrupting filing season. Better late than never, though. Unfortunately, the coupling is for one year only, so we can look forward to a repeat show next year.

Other Coverage:

Jason Schultz, A Victory for Iowa Taxpayers (Caffeinated Thoughts)

Des Moines RegisterLegislators reach pact on key budget issues

TheGazette.com, Iowa tax coupling to benefit ‘tens of thousands’

Me, Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

Complete Tax Update coverage.

 

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File or extend that 1120-S on time! The returns for calendar-year S corporations are due on Tuesday. If you can’t file on time, be sure you extend, because the penalties have gone up. From the IRS online Form 1120-S instructions:

Late filing of return.   A penalty may be charged if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause…  For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. 

You can also get in trouble for filing, but not sending the K-1:

Failure to furnish information timely.   For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $260 penalty is increased to $520 or, if greater, 10% of the aggregate amount of items required to be reported.

Extending your return gives you until September 15 to get that information out. A 10-person S corporation incurs a $1,950 fine for being one day late, and it increases each month. The extension, filed on Form 7004, is automatic, and can be e-filed.

Rant: I despise the use of fines like this as a government funding method. Dinging a one-day timing violation is like the red-light cameras that ding you for not quite stopping before turning right at an empty intersection. No harm, no foul, but pay up, peasant.

 

Big companies get phished: Snapchat, Seagate among companies duped in tax-fraud scam:

The scam, which involved fake emails purportedly sent by top company officials, convinced the companies involved to send out W-2 tax forms that are ideal for identity theft. For instance, W-2 data can easily be used to file bogus tax returns and claim fraudulent refunds.

The embarrassing breakdowns have prompted employers to apologize and offer free credit monitoring to employees. Such measures, however, won’t necessarily shield unwitting victims from the headaches that typically follow identity theft.

Be careful out there, kids.

 

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William Perez, Tax Planning for Clergy

Kay Bell, Ways & Means chairman promises more Congressional scrutiny of IRS security procedures

Jack Townsend, DOJ Tax Promotes Employment Tax Criminal Prosecutions. Never “borrow” withheld taxes to pay other vendors. It can get very serious in a hurry, even in Iowa.

Keith Fogg, A Different “Angle” on Recovery of Costs and Attorney’s Fees. “As we have discussed before, allowing the government to wait until the time of trial or even after trial to concede a case and thereby avoid attorney’s fees frustrates the purpose of the qualified offer provisions.”

Robert Wood, Guilty Mo’ Money Tax Preparers Could Face 8 Years. Nothing says “professional” like “Mo’ Money.”

TaxGrrrl, Does The IRS Have Your Money? Nearly $1 Billion In Old Tax Refunds Outstanding

Jim Maule, Why Not Sell Losing Lottery Tickets? “The answer is simple. The person buying those tickets and representing that they lost the face value of those tickets would be committing tax fraud.”

Dang. Tax Court Holds That Family Vacations Are Not Deductible As Book-Writing Research (Tony Nitti).

 

Richard Auxier, Is your state’s tax system punching above or below its weight? (TaxVox).

TaxProf, The IRS Scandal, Day 1037

 

News from the Profession. CPA Accused of Jamming Cell Phones Just Wanted to Commute in Peace, YOU MONSTERS (Caleb Newquist, Going Concern).

 

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