Posts Tagged ‘TaxProf’

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

Thursday, March 10th, 2016 by Joe Kristan

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Update, 10:23 a.m. The Senate Ways and Means Committee cleared SSB 3171 this morning unanimously, according to the Iowans for Tax Relief Twitter feed. They also report that House Ways and Means is meeting now to discuss HSB 642, which I believe is identical to SSB 3171.

Update, 11:30 a.m. O. Kay Henderson posted Statehouse leaders announce tentative deal on taxes. Looking at the statements, it appears that the deal is between leaders of the two legislative chambers, with Governor Branstad as a bystander. Makes me nervous, but I assume they wouldn’t go to the trouble without having the Governor on board somehow.

A deal, maybe. A bill rumored as the outline of a bi-partisan deal coupling 2015 federal tax changes to the Iowa income tax law was introduced by chief Senate taxwriter Joe Bolkcom yesterday. SSB 3171 would allow taxpayers to deduct up to $500,000 of equipment purchases on their 2015 Iowa returns that would otherwise be capitalized and depreciated over a period of years. This would match up the 2015 Iowa maximum “Section 179” deduction to the amount enact in December for 2015 and beyond in federal law. It would also enact for 2015 Iowa returns a number of other “expired” provisions, 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 matching would only be for one year. The price to get Senate Democrats to go along would be repeal of the sales tax administrative rules for manufacturers set to take effect July 1. They would be replaced by a smaller sales tax break passed by the Iowa House in 2014 that died in the Senate.

Iowa is not expected to couple with federal bonus depreciation.

While rumors say that this is close, with legislative movement likely as early as today, there remains uncertainty. The Governor is said to be unhappy with the deal, and he will go along only grudgingly, if at all, according to people I’ve heard from.

Rod Boshart reports at TheGazette.com:

“We’re ready to move ahead with those three elements: the coupling, rescinding the governor’s rules and picking up the consumable supplies bill that the House passed in 2014. That would be in one package,” Bolkcom said.

Republicans who control the Iowa House and Democrats who hold a majority in the Iowa Senate also were working to resolve a dispute over state funding for schools with negotiators looking at a deal that could boost state aid in fiscal 2017 by 2.25 percent and provide other categorical increases that would bring the overall funding growth closer to 2.5 percent, according to legislators close to the talks.

“There’s no deal yet, but we are meeting with House Republicans on the big issues,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, who declined to discuss specific numbers. “The good news is we are meeting and talking.”

The sales tax exemption has been a sore point with Senate Democrats since it was proposed by the Department of Revenue. Going with the 2014 house-passed language (HF 2443) reduces the break, giving the Senate Leadership a symbolic victory. Still, the 2014 death of HF 2443 indicates that they really didn’t want to keep any of the rule changes.

I haven’t figured out exactly what parts of the sales tax exemption will be lost under the bill introduced yesterday. The exemptions for items such as jigs, tools, dies, coolants and lubricants would survive.

This issue will be back next session. Even if the compromise passes, the section 179 coupling issue will be up again next year. SF 3171 is only for one year, while the federal legislation makes the federal change permanent. There seems to be no discussion yet of cutting back corporate welfare tax credits to “pay for” the Section 179 deduction used by 25,000 Iowa farmers and small businesses. Maybe next year.

I will update this post today as events warrant.

 

Scott Drenkard, Nicole Kaeding, How High Are Sales Taxes in Your State? (Tax Policy Blog):

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Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain.

That’s the tragedy about scaling back Iowa’s manufacturing exemption. Rather than scaling it back, the legislature should be looking to expand it to other business inputs.

 

Paul Neiffer, Two Opportunities for Farm and Estate Tax Education. While Roger McEowen will sadly no longer be part of the Iowa State University Center for Agricultural Law and Taxation, he will continue to teach his summer seminars: this year in Alaska and North Carolina. These are excellent seminars in nice settings, and a nice way to mix continuing education with leisure.

 

Robert Wood, Cayman Companies Plead Guilty To U.S. Tax Evasion, Handing Over American Accounts. Bank secrecy is still dead.

Jason Dinesen, More on Business Proactive Planning in the Real World. “The thing the “experts” miss is, most of us are trying to be proactive … but it’s hard when the client won’t be an active participant in the process.” I find that some clients want you to be pro-active, as long as you don’t charge any time for it.

Tony Nitti, With Summer Olympics Nearing: Should Athletes Pay Tax On Their Winnings?. “Few people realize this, but with an Olympic medal comes a cash payout: $25,000 for a gold, $15,000 for  a silver, and $10,000 for a bronze.” Somehow I doubt that it covers costs for, say, the Modern Pentathlon champions.

Kay Bell, Is Trump ‘poor’ enough to get NY property tax break?:

Crain’s New York Business may have shed some light on why Donald J. Trump doesn’t want us to see his tax returns.

The magazine reports that the billionaire real estate developer got a property tax break designed for New Yorkers making less than $500,000 a year.

People with a lot of wealth in real estate investments can have surprisingly low taxable incomes, after depreciation and interest deductions. Of course, so can people who aren’t really so wealthy.

 

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Jeremy Scott, Romney Cared About the 47 Percent Because He Cared About Deficits (Tax Analysts Blog). “Unlike 2016’s candidates, Romney was trying to push economic and tax policy that didn’t add too much to the national debt, and made Democrats seem financially irresponsible.”

TaxProf, The IRS Scandal, Day 1036

Cara Griffith, Should Tax Settlement Agreements Be Publicly Available? (Tax Analysts Blog). “Yet if it is conventional wisdom that good cases settle while bad cases go to trial, isn’t there a lot that could be learned if lawsuit settlements were made available for public scrutiny?” The good thing is that it would shine light on “secret” law. The bad news is that it might make deals harder to reach.

Renu Zaretsky, Schemes, Scams and States’ Fights. Today’s TaxVox headline roundup says some big company payroll departments fell victim to ID-theft scam emailers mimicking CEOs asking for employee information. Be careful, people.

 

Career Corner. Most Managers Would Prefer If You Could Just Read Their Minds (Caleb Newquist, Going Concern). We would, you know.

 

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Tax Roundup, 3/9/16: A College Savings Iowa contribution today can reduce 2015 Iowa tax. And: Shoot more jaywalkers!

Wednesday, March 9th, 2016 by Joe Kristan

csi logoYou can still make a College Savings Iowa 2015 contribution. While Section 529 plans provide tax-free earnings for college for taxpayers in all states, Iowans can get an extra tax break for them. 2015 contributions to College Savings Iowa or Iowa Advisor Sec. 529 plans can generate a deduction on Iowa state 1040s up to $3,163 per donee.

For the first time, Iowans can make their 2015 contributions as late as the April 30, 2016 due date of their 2015 tax return. In prior years you had to make the contribution by December 31 to get the deduction.

The $3,163 limit is per donee, per donor. That means a couple with 2 children can get four full deductions for 2015 529 contributions totaling up to $12,652. For a couple at the 8.98% top Iowa rate, that’s a savings of $1,136 on their Iowa return.

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

 

Jack Townsend, Report on Remarks of AAG Tax and Practitioner Regarding Nonwillfulness and Foreign Account Enablers:

Ciraolo and Bryan Skarlatos questioned whether foreign account holders can remain nonwillful about foreign account reporting obligations at this stage.  The article quotes from her prepared comments (linked above) as follows:

After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well-received. 

This is so wrong. Something that is a big deal in the IRS enforcement bureaucracy can be invisible to a person going about their business, maybe taking a temporary position overseas or getting a U.S. green card.

People get in IRS trouble for having an interest in a foreign account they aren’t even aware of. One practitioner I know had to deal with an immigrant from India who paid thousands of dollars in penalties for not reporting an interest in a foreign bank account that her parents back home put her name on as a joint owner without her knowledge, and without her receiving any income from it. Others find themselves in hot water after get an inheritance overseas that they don’t learn about until after the reporting deadline.

The IRS remains clueless about how many people go through their daily financial lives without pondering whether there is an obscure form lurking to ruin them for non-compliance. The system is broken, but the only answer the enforcers have is to continue the beatings until morale improves.

 

20120906-1David Brunori speaks wisely: If You Need Tax Credits, You Shouldn’t Be in Business (Tax Analysts Blog)

Here’s what got me thinking. Iowa — no paradise when it comes to good tax policy — gave 186 companies tax credits worth more than $42 million last year. Those credits were handed out as an incentive to conduct research and development. There are other credits available for businesses. Oh, and the credits are refundable because, like with poor families receiving the earned income tax credit, R&D credits provide a critical safety net. All right, I’m being facetious.

Iowa’s biggest welfare recipient was technology company Rockwell Collins Inc., which received $12 million. Rockwell is a great company, but it has $5 billion in revenue. Giving money to Rockwell isn’t quite the same as giving money to a shoestring nonprofit feeding the homeless in Des Moines.

In all, 20 companies claimed more than $500,000 in R&D credits, including DuPont Co., Deere & Co., and Monsanto Co. I ask them, where is your pride? Do you really want a government handout?

For a full-throated defense of tax credit corporate welfare, today’s IowaBiz.com blogger, Brent Willett, offers Job creation fuel: R&D policy move is important for Iowa. Not surprisingly, the cost of paying these subsidies in increased taxes on less fortunate and less influential Iowa businesses never comes up. The “job creation” part is also weakly defended.

 

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Russ Fox, Online Gambling Addresses Updated for 2016. Russ performs a valuable service in gathering street addresses of offshore online gaming websites. Online gaming accounts at these sites are “foreign financial accounts” for FBAR purposes, and you need a street address to fill out Form 114. They can be hard to find. Hat’s off to Russ.

TaxGrrrl, Tax Season Proving Confusing (Again) For Taxpayers Affected By Obamacare

Kay Bell, Have you received your Obamacare coverage forms yet? “Recipients of the B or C versions want to hang onto these forms as verification that they did have ACA required coverage, which they tell the Internal Revenue Service about by checking the appropriate box on their 1040EZ, 1040A or long form 1040.”

Michelle Drumbl, The Automated Substitute for Return Procedures (Procedurally Taxing) “The ASFR assessment process takes into account all income reported as earned by the taxpayer, but it ignores reported items that would reduce taxable income.”

Robert Wood, Erin Andrews Wins $55M Peephole Verdict But Faces Heavy IRS Tax Hit

Jim Maule, Buying and Selling Dependency Exemptions for Tax Purposes. “It’s too bad Congress cannot be indicted, convicted, and punished for making a mess of the tax system, continuing to make it worse, and refusing to clean it up.”

 

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Annette Nellen, AICPA Advocacy on IRS Funding. It’s hard to see how the IRS gets more funding when it does such an awful job with the funding it has.

TaxProf, The IRS Scandal, Day 1035. “The IRS doesn’t know if its data backups are deleted or not created, and doesn’t test to ensure backups can be used if information is lost, even after a “significant” December 2014 incident, according to a Treasury Inspector General for Tax Administration (TIGTA) report.”

Alan Cole, Tax Policy Must Be Proportionate to Spending Policy (Tax Policy Blog). “This gets to the heart of one of the principles of good tax policy: your tax policy should actually be able to fund the government you want. One way or another, Donald Trump will have to assent to this principle.”

Elaine Maag, Complicated Families: Complicated Tax Returns (TaxVox):

The law is built on the idea that a child lives in a traditional family – married parents with only biologically related siblings. The tax unit it is presumed to include the adults supporting the child.

But increasingly, children live in arrangements that belie that traditional family; children move between homes of divorced or never-married parents in formal and informal custody arrangements; children live with unmarried, cohabiting parents; children live in multigenerational households. In short, children are supported by adults in multiple tax units.

But only one tax unit gets to claim the earned income credit for each child.

 

News from the Profession. Apparently Accountants Are Terrible on the Phone (Caleb Newquist, Going Concern).

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Tax Roundup, 3/8/16: Getting robbed, and again. And: IRS allows retroactive WOTC certification for 2015.

Tuesday, March 8th, 2016 by Joe Kristan

walnutstreet20160308It’s not enough to get robbed; you have to time it right. A “pump-and-dump” securities fraud victim claimed a theft loss deduction. The IRS said “yep, you were robbed.” But they also said that they didn’t time their robbery deduction properly, and therefore were out of luck. And, it turns out, they were.

Court of Federal Claims Judge Sweeney explains (my emphasis, citations and footnotes omitted):

There is no dispute that plaintiffs discovered the theft loss in 2002.31 And, neither plaintiffs nor defendant disputes that in 2002, there existed “a claim for reimbursement with respect to which there [was] a reasonable prospect of recovery Plaintiffs filed their arbitration claim against Donald & Co., Mr. Stetson, Mr. Volman, and Mr. Ingrassia in February 2002, and by the end of that year, they had neither sought to adjourn the proceedings nor withdrawn their claim. Accordingly, in light of the ongoing arbitration proceedings, plaintiffs could not claim a theft loss deduction in 2002. Instead, they were required to delay their deduction until the “year in which it [could] be ascertained with reasonable certainty whether or not” they would receive reimbursement of their losses from their arbitration claim. Plaintiffs determined that the proper year to claim their theft loss was 2004, and filed amended federal income tax returns reflecting the deduction. The IRS disallowed plaintiffs’ refund claim, and takes the position in this litigation that 2004 was not the proper year for plaintiffs to claim their theft loss deduction.

The court said the victims didn’t prove that they were entitled to the deduction:

Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovering on their arbitration claim. However, under the factual circumstances presented in this case, the test is not whether plaintiffs had a reasonable prospect of recovering on their arbitration claim in 2004, but is instead whether, in 2004, plaintiffs could have ascertained with reasonable certainty that they would not recover on their arbitration claim. To satisfy their burden under the latter test, plaintiffs were required to produce objective evidence that they abandoned their arbitration claim in 2004. They failed to do so. In the absence of such evidence, plaintiffs are not entitled to a theft loss deduction for the 2004 tax year.

The opinion doesn’t say whether the victims filed protective refund claims for subsequent years to preserve their refund rights. It would be another robbery if they were unable to get their theft loss deduction because they got the year right. The statute in such cases should allow taxpayers to recover in the proper year if the IRS successfully second-guesses the timing of a theft loss.

The Moral? If you are a fraud or theft victim, the timing of the loss deduction is very important. If the IRS disputes the loss on examination, be sure to file protective refund claims for open years to protect your rights.

Cite: Adkins, Ct. Fed. Claims No. 10-851T.

 

Speaking of getting robbed twice: IRS shuts down ID-thief assistance portal. A week after The Tax Foundation pointed out that the IRS IP-PIN online portal made identity theft victims vulnerable to being victimized a second time, the IRS has temporarily shut it down:

As part of its ongoing security review, the Internal Revenue Service temporarily suspended the Identity Protection PIN tool on IRS.gov. The IRS is conducting a further review of the application that allows taxpayers to retrieve their IP PINs online and is looking at further strengthening the security features on the tool.

Nothing to see here, move along.

 

Work Opportunity Credit guidance updated for retroactive 2015 credits. Congress re-enacted the expired Work Opportunity Tax Credit retroactively for 2015. To claim the credit for hiring certain classes of hard to employ workers, employers have to get the employee eligibility verified within 28 days. As this was impossible for an expired credit, the IRS yesterday gave employers until June 29 of this year to get the certification for 2015 hires (Notice 2016-22)

 

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Russ Fox, What Part of “Permanent Injunction” Didn’t You Understand? “Mr. Herrera is being held at ClubFed until he closes his business and complies with the injunction.” That should do it.

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-B, Proceeds From Broker & Barter Exchange Transactions

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

Keith Fogg, Making Claims and Spending Refunds in Bankruptcy. “The 9th Circuit recently affirmed the district court opinion granting summary judgment to the IRS in a case brought by Mr. Stanley Burrell aka M C Hammer seeking to equitably estop the IRS from collecting on taxes for two years which it failed to include on the proof of claim in his bankruptcy case.”

Jack Townsend, Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals

 

Tony Nitti, Would Hillary Clinton’s Tax Plan Kill The Incentive Stock Option?. Actually, AMT has done that pretty well already.

Robert Wood, President Hillary Won’t Cut Tax Deductions To Charities Like Clinton Foundation. Of course not.

Peter Reilly, Chasm Of Class And Privilege – Clinton Tax Plan Hits Top 1% – Sanders Plan Hits Top 5%. “What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.”

Kay Bell, Trump is last holdout as Kasich releases tax returns

 

Jason Dinesen, 6 Things You Might Not Know About Enrolled Agents. “2. We Don’t Work for the IRS

 

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Renu Zaretsky, Budget Chaos, Tax Breaks, Loopholes, and Incentives. Today’s TaxVox headline roundup covers EU tax investigations of multinationals, IRS tax investigations of multinationals, and scoundrels “patriotic millionaires” against carried interests.

TaxProf, The IRS Scandal, Day 1034

Stuart Gibson, Competition Policy and Tax Policy in The Twilight Zone (Tax Analysts Blog). “From a tax perspective in the U.S. (and probably Europe), this is simply a garden-variety case of a taxpayer negotiating a good deal with a foreign tax authority. From a European competition perspective, the answer is a bit more complicated.”

 

News from the Profession. Why Accountants Suck at Marketing (Blake Oliver, Going Concern)

 

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Tax Roundup, 3/7/16: “Only” 25,000 Iowa filers hit by not coupling Sec. 179. And more late news!

Monday, March 7th, 2016 by Joe Kristan

Note: Our web server has been having a bad day, which is why this is “late” news.


coupling2016021325,000 to 8.
The Des Moines Register covered the Section 179 coupling controversy over the weekend, but missed a big part of the story:

The debate pits two conflicting priorities against each other.

On one hand is the legislature’s
desire to support small business owners and farmers who could use any extra money from the tax break to buy more equipment, make renovations or hire more employees.

On the other hand is the concern that Iowa needs to tighten its belt financially and focus on bolstering other priorities such as school funding, rather than giving away tax revenue.

What other priorities might there be for the $95 million or so “lost” to Section 179 besides school funding? How about this:

Iowa credits fy 2017

The Register article includes this item that attempts to show that Section 179 isn’t a big deal:

Only about 25,000 Iowa taxpayers in 2014 made a Section 179 claim of more than $25,000, according to numbers from the Iowa Department of Revenue. About 12,000 were farmers.

By comparison, the state Department of Revenue processed 1.58 million individual income tax returns for 2014.

“Only” 25,000? That works out to 252 businesses in every county that are seeing a tax increase to feed that $95 million to the Iowa treasury. Meanwhile, the state pays about $42 million in actual cash subsidies through the Iowa Research Activities Credit to a handful of businesses that each claim over $500,000 in credits. Of that, about $29.5 million goes to only eight taxpayers. 25,000 is a lot more than 8.

With its focus on spending, the Register story misses a huge point: the Iowa income tax favors well-connected insiders who know how to play the tax credit game, to the detriment of the 25,000 smaller businesses that would benefit from Section 179 coupling. Rather than remedying the inherently corrupt tax credit game, the state is giving out more special interest credits left and right.

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TaxGrrrl, Understanding Your Tax Forms 2016: SSA-1099, Social Security Benefits

Peter Reilly,How Much Personal Use Of Airplane Is Too Much For Tax Free Exchange? “One of the tricky things about 1031 is the ‘trade or business or held for investment requirement’ – let’s call it the ‘held for’ requirement for short.”

Kay BellIRS ‘Future State’ plans and service, security concerns “The IRS is working on what it calls its Future State plan, an outline of agency activities in five years and beyond. One of the plan’s central components is online taxpayer accounts.”

Jim Maule, What Gets Taxed If the Goal Is Health Improvement? Trick question. The goal is moral preening and revenue-raising, not public health.

TaxProf, The IRS Scandal, Day 1031, 1032, 1033. Day 1032 covers the bizarre award given to awful Commissioner Koskinen: “IRS Chief John Koskinen Honored With an Award For ‘Excellence in Public Service’. Yes, That Guy. Yes, Really.”

Russ Fox, Koskinen Wins Public Service Award; Chaffetz Gets It Right:

I have to ask the NAPA: What were you thinking? Yes, Mr. Koskinen has served for many years, and he may have generosity of spirit. But as Congressman Jason Chaffetz said, “If obstructing a congressional investigation and misleading Congress merits an award, then it seems like they have the right guy. I guess I define excellent public service differently.”

In fairness, I think he’s doing exactly what the man who appointed him wants him to do.

Scott Greenberg, Four Million Taxpayers are Subject to the AMT. Who Are They? (Tax Policy Blog). “As these statistics show, the AMT basically functions as a surtax on high-income taxpayers in high-tax states with children.”

Norton Francis, The Perils of Tax Incentives for Economic Development (TaxVox). “And if every state is offering subsidies, one wonders whether they are engaged in a form of economic mutually-assured destruction, where the subsidies are pure windfalls to firms that have little effect on their decisions to move.”

News from the Profession. Let’s Review: Performance Art, Productivity, Binge-Watching (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/4/16: Discussing tomorrow’s obscure deadline today! And: Iowa think-tanker whiffs on Section 179.

Friday, March 4th, 2016 by Joe Kristan

Accounting Today Newsletter visitors, click here for “One year for you, forever for them.”

20151209-1Today is Day 64. Tomorrow is one of the more obscure deadlines in the tax law. Complex trusts have until tomorrow to make distributions to their beneficiaries that can be considered 2015 distributions under the “65-day rule” of Section 663(b).

“Complex” trusts are those that are taxed as separate entities, and which are not required to distribute all of their income at least annually. That is in contrast with the other two kinds of trusts:

“Simple” trusts, which are treated as separate taxpayers from their beneficiaries but which have to distribute their income at least annually; and

“Grantor” trusts, the earnings of which are taxed directly to the person who funded it, regardless of whether the earnings are distributed. The typical estate planning “living trust” is a grantor trust.

Complex trusts pay their own taxes under a system similar to the individual tax system, but with some important twists:

-The brackets are very compressed. Complex trusts pay the 39.6% top rate starting at $12,300 of taxable income in 2015. Single individuals don’t hit that rate until taxable income reaches $413,200, and joint filers go to $464,850.

-Trusts pay the 3.8% “net investment income tax” on “investment” income to the extent their adjusted gross income exceeds $12,300. The cutoff is $200,000 for single filers and $250,000 for joint filers.

-When complex trusts make a distribution, taxable income follows the distribution. While it’s a little more complicated than this, for this discussion assume that a distribution to a beneficiary of $100 reduces trust taxable income by $100 and increases the recipient beneficiary’s taxable income by the same amount.

Together, this means complex trusts are often highly motivated to distribute their taxable income, at least to the extent that it exceeds $12,300. This is true when beneficiaries are not top bracket taxpayers, and it’s especially true if their AGIs are below the 3.8% NIIT cutoff. Shifting taxable income from the highest trust tax bracket to the lower individual brackets can save taxes overall.

The 65-day rule is a mulligan for complex trusts. It gives them some extra time after the end of the year to distribute some cash — and some of that prior year taxable income — to their beneficiaries.

Of course, some trusts will choose to take the tax hit. Some trusts exist specifically to keep income out of the hands of beneficiaries, perhaps because the person who set up the trust wants the beneficiaries to wait until they are older and wiser before they get the cash. But in many cases, the 65-day rule is a handy after-the-fact trust planning tool.

Related: Overview of Fiduciary Income Taxation (IRS, AICPA)

 

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WrongIn his post Unspoken budget choices for Iowa, Peter Fisher errs on an important fact about coupling Iowa’s Section 179 limit to the $500,000 federal amount. Mr. Fisher is an Iowa City academic with the leftish think tank Iowa Policy Project.* He says (my emphasis):

On the other hand, the bill would reward decisions already made and give those investors a break they had not expected. It’s not an incentive to do something they would not have done anyway — and it’s very costly.

They certainly did expect it. It was clear from early in 2015 that there was powerful motivation in Congress to extend the $500,000 limit for a year, and possibly permanently; the permanent extension is what happened. The $500,000 limit had been renewed year-by-year since 2009, and Iowa had adopted the $500,000 limit every year since 2010. While past performance is no guarantee of future results with politicians, all indications were for a repeat, both at the federal and state level.

There was no indication that Iowa would do anything different until Governor Branstad came out against coupling in January of this year — surprising taxpayers and practitioners all over Iowa. It is simply wrong to say $500,000 Section 179 coupling wasn’t expected. And it’s indisputable that the alternative $25,000 limit represents a year-to-year tax increase for 2015.

One thing Mr. Fisher does get right: failing to couple does represent an unspoken budget choice. He just wants to choose to spend the money on his favored projects. But failure to couple really represents a choice to favor cronies, big businesses and insiders over small businesses across Iowa who lack lobbyists and clout.

Related: Complete Tax Update coverage of coupling issue.

*Disclosure: I have been disagreeing with the Founding Director of IPP since he was an Economics professor at Cornell College and I was a coffee-guzzling history major. 

 

Tony Nitti, Taxation Of Lawsuit Awards And Settlements: Getting To The Origin Of The Claim. “Thus, when determining whether a taxpayer’s award or settlement payment is excludable under Section 104, you’ve got to get to the bottom of the original claim: what caused the taxpayer to sue in the first place?”

Russ Fox, Math Is Hard, IRS Addition. I see what you punned there!  “To my clients and anyone else who receives an IRS notice: IRS statistics show that two-thirds of IRS notices are wrong in whole or in part.”

TaxGrrrl, IRS Reports Fewer Tax Returns Received, Higher Average Refund As Tax Season Rolls. “With about six weeks to go in the 2016 tax filing season, more than a third of all taxpayers expecting to file a tax return have already submitted tax returns.”

Jason Dinesen, Do I Have to Pay Self-Employment/FICA Taxes If I Think Social Security Will Go Bankrupt? Three guesses.

 

Nicole Kaeding, State Gasoline Tax Rates in 2016 (Tax Policy Blog):

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Iowa is higher than most, but Pennsylvania is the worst.

 

TaxProf, The IRS Scandal, Day 1030 “…what we explore here is more subtle, more pervasive, and hence, more invidious and threatening. It is the way in which the unexamined assumption of tax exceptionalism – the idea that tax is different – has produced a situation in which the tax law and its administrators are viewed by tax professionals, and eventually by the taxpaying public, as interpreting and enforcing tax law in ways that are not understood, are therefore misperceived, and are ultimately judged illegitimate.”

Len Burman, TPC Updates  Analysis of Ted Cruz’s Tax Proposal To Reflect a Change in His EITC Proposal. “Senator Cruz’s plan would increase all phase-in and phase-out rates of the credit by 20 percent.”

Kay Bell, Former IRS chief says Trump should release tax returns

 

Career Corner. Is Our Productivity Obsession Counterproductive? (Megan Lewczyk, Going Concern). What is this “productivity” of which you speak?

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