Posts Tagged ‘The Critical Question’
Friday, May 24th, 2013 by Joe Kristan
Via Wikipedia
In its usual last-minute frenzy, the Iowa General Assembly passed a bill (HF 625) to extend the popular School Tuition Organization credit. The credit is 65% of the amount contributed to organizations that subsidize private elementary and secondary tuition. When combined with the federal tax deduction for the donation, there is very little out-of-pocket cost for the donations. The amount of the credit is limited, so it has been oversubscribed in recent years. the bill increases the cap starting in 2013.
The bill has a surprising amendment that passed yesterday: it now creates “affiliate nexus” in Iowa (my emphasis):
(1) A retailer shall be presumed to be maintaining a place of business in this state, as defined in paragraph “a”, if any person that has substantial nexus in this state, other than a person acting in its capacity as a common carrier, does any of the following:
(a) Sells a similar line of products as the retailer and does so under the same or similar business name.
(b) Maintains an office, distribution facility, warehouse, storage place, or similar place of business in this state to facilitate the delivery of property or services sold by the retailer to the retailer’s customers.
(c) Uses trademarks, service marks, or trade names in this state that are the same or substantially similar to those used by the retailer.
(d) Delivers, installs, assembles, or performs maintenance services for the retailer’s customers.
(e) Facilitates the retailer’s delivery of property to customers in this state by allowing the retailer’s customers to take delivery of property sold by the retailer at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in this state.
(f) Conducts any other activities in this state that are significantly associated with the retailer’s ability to establish and maintain a market in this state for the retailer’s sales.
(2) The presumption established in this paragraph may be rebutted by a showing of proof that the person’s activities in this state are not significantly associated with the retailer’s ability to establish or maintain a market in this state for the retailer’s sales.
This ratifies the aggressive approach of the Iowa Department of Revenue on intangible nexus, and will likely trigger more audits of out of state companies. The Supreme Court and Congress really need to either reaffirm the Quill decision or set new rules.
Tax Justice Blog, Tax Credit for Working Poor Survives Iowa Tax Compromise. Remember, it’s also a thief subsidy. Just because it’s supposed to go to the “working poor” doesn’t mean it does.
Christopher Bergin, The IRS Is Broken, But That’s the Symptom (Tax.com):
The IRS is broken, that’s for sure. But the IRS is a symptom. The “disease” is the tax code. I think that’s absolutely right. And for me, this latest “scandal” concerning the IRS is going to make it impossible to reform our tax code anytime soon.
More difficult, but more necessary.
TaxProf, The IRS Scandal, Day 15
Kay Bell, IRS places Lois Lerner on administrative leave in latest fallout from Tea Party tax exemption review snafu
Joseph Henchman, Congress Asks Organizations Targeted by the IRS to Come Forward and Tell Their Story
Tax Trials, See You on Tuesday: IRS Furloughs Impact Certain Filing Deadlines & Services
Linda Beale, Does Apple’s Cook Cook the (U.S. tax) Books?
Jack Townsend, IRS Reminders for Foreign Income Reporting
Robert D Flach is Buzzing!
The Critical Question: Could State Taxes Cause Dwight Howard To Flee L.A. For Houston? (Anthony Nitti)
Breaking news from my neighborhood: Woman Allegedly Brandishing Knife ‘Welcomes’ New Neighbor. How my neighbors are living out the pages of The Onion.
News you can use: Apparently It Doesn’t Take Much for an Accountant to Get Kidnapped and Beaten These Days… (Going Concern)
Always trust tax advice from rappers. Fat Joe Blames His Tax Evasion Problems On ‘Fancy Guys In Bow Ties’
Tags: Anthony Nitti, Christopher Bergin, Going Concern, Jack Townsend, Joseph Henchman, Kay Bell, Linda Beale, Robert D Flach, tax crime, Tax Justice Blog, TaxProf, The Critical Question
Posted in Eye on the Legislature, Eye on the Legislature 2013, Iowa Tax Law, Tax Roundup | No Comments »
Wednesday, May 8th, 2013 by Joe Kristan
Search for the Tax Fairy leads to federal prison. The Tax Fairy, in the imagination of believers, appears in the form of magical legal maneuvers that make your taxes all go away. Your drinking buddies may even claim to have seen it, or that their tax guy knows her.
It can hurt when you find that there is no Tax Fairy. It must hurt for one South Dakota surgeon. From RapidCityJournal.com:
Friends and family described Dr. Edward Picardi as a compassionate, highly skilled surgeon, but the accolades failed to spare the doctor a five-year prison sentence for income tax evasion on Tuesday.
Despite the good the Sturgis man was proclaimed to have done in his life, Picardi, 56, is the same man a federal jury convicted of 13 felonies last October, U.S. Chief District Judge Jeffrey Viken said when he sentenced the doctor.
Picardi was charged with income tax evasion after an exhaustive federal investigation of his financial practices spanning 10 years from 1999 through 2009. He used an elaborate network of dummy corporations and several foreign banks to divert thousands of dollars in income.
The indictment says the scheme was hatched with the aid of a Maryland attorney who set up a phony employee leasing scheme to suck taxable income to shell companies, which the surgeon tapped for cash as needed. This worked fine, until one day it didn’t, and now it’s a five-year unpaid vacation, plus tax, interest and penalties.
There is no Tax Fairy.
Jana Luttenegger, Disclaiming an Inheritance (Davis Brown Tax Law Blog). Sometimes it’s better estate planning to turn down an inheritance and let it go to your kids or some other beneficiary. But you have to do it right:
Most importantly, the disclaimer must be made before you accept any benefit in the gift, and it must be an unqualified disclaimer. (No, you can’t have a party at the house and then decide you don’t want it.) Once the disclaimer is made, it is irrevocable — you can’t change your mind. If you properly disclaim, the property will pass as if you predeceased (you do not get to direct where the property goes).
Arden Dale, A Strategy for Business Owners to Avoid Investment Tax (Wall Street Journal:
Financial advisers have a simple question for some of their clients who own businesses: Are you an active or passive owner?
For the clients whose businesses are set up as S corporations, the answer is crucial if they want to avoid paying a new 3.8% tax on their income.
So what’s the strategy? Not being passive. Easier said than done. (via Tax Break)
Joseph Thorndike, A Lost Age of Fiscal Heroes? Not So Much. (Tax.com):
The looming debate over the federal debt limit is a depressing reminder that we’re living in the Age of the Manufactured Crisis. And it encourages a sort of political nostalgia – a yearning for that bygone era when tough lawmakers made the tough decisions that kept federal debt at manageable levels. Well, sorry to tell you, but there were never any fiscal heroes.
Just politicians who show by their actions that they are happy to spend us to Greece.
Jason Dinesen, Same-Sex Marriage, Community Property, And Multi-State Income — Part 1. ”Indeed, some of the most complicated tax returns I’ve ever prepared have been for same-sex couples that moved from California (a community property state) to Iowa (not a community property state) during the middle of the year.”
Clint Stretch, Will DOMA Issues Doom Tax Reform? (Tax.com)
Howard Gleckman, The Joint Committee’s Report on Tax Reform: Must-read for Policy Geeks:
Think of it as the ballpark program you pick up before a baseball game. You can watch the game without it, but it is much more fun if you can keep score and know a little something about who plays for the visiting team.
Except much less interesting than baseball, and the players are uglier and less skilled.
Kay Bell, Is the online sales tax bill unstoppable? The House will decide
Joseph Henchman, Senate Approves Expanding State Tax Authority on Internet Sales (Tax Policy Blog)
David Brunori, Go Big or Go Home — Tax Reform in Maine (Tax.com)
Russ Fox, California Leads the Way (as Worst State for Business). Iowa is 23rd in the rankings in Chief Executive Magazine.
Jack Townsend links to an Article on Prosecuting Tax Professionals to Leverage Deterrence
Patrick Temple-West, Airline industry’s tax troubles, and more (Tax Break)
Robert D. Flach, GETTING READY FOR SUMMER – FILLING OUT FORM W-4 FOR A SUMMER JOB. With excellent advice about using a Roth IRA for your hard-working kid’s summer work.
The Critical Question: How Difficult Is It to Count Tax Words? (Jim Maule)
But maybe he won’t anyway. Maybe Mitt Romney Can Recommend a Savvy Tax Planning Professional for Al Gore (Going Concern)
Tags: Clint Stretch, David Brunori, Going Concern, Jack Townsend, Jana Luttenegger, Jason Dinesen, Joseph Henchman, Joseph Thorndike, Kay Bell, maule, Patrick Temple-West, Russ Fox, tax crime, The Critical Question
Posted in Tax Roundup | No Comments »
Wednesday, May 1st, 2013 by Joe Kristan
New U.K. film tax credit indictments. It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. Ic.Scotland.co.uk reports:
Five people are to be charged in connection with a film industry tax relief fraud which cost the public purse around £125 million, the Crown Prosecution Service said.
The group allegedly abused a tax relief that allows investors in the British film industry to offset losses against other tax liabilities in order to cheat the public revenue.
“Around £125 million” translates to around $194 million. And in Iowa film producers are serving time for stealing merely single digits of millions. It just goes to show what you can accomplish with a national effort.
Boo. House bill would give IRS authority to regulate tax pros (Kay Bell) The power grabbers at IRS and their buddies at the national franchise tax prep firms have been thwarted by the courts. Now they are using their congresscritter friends to put in the fix.
Kay sadly falls for it:
The quality independent tax professionals are following tax law changes, staying up to date and providing their clients with reliable tax services. Down the street, however, an inept preparer is undercutting their prices and mucking up the system for all of us — the IRS, tax pros and taxpayers alike.
The IRS can’t regulate anybody into competency. They can make people pass a “competency” test that really is a literacy test. They can make people pay for CPE. But they can’t make anybody competent who wouldn’t be otherwise. What they can do is drive little preparers out of the business with nagging paperwork, red tape and hassles that the big boys can just assign to their compliance departments, and, when necessary, to their lobbyists. This reduces the supply of preparers, increasing the cost of preparation for taxpayers.
The real problem with tax errors isn’t preparers; it’s the horrendous tax law and the inept legislators who make it happen.
Jacob Sullum on the Burden of Online Sales Taxes (Reason.com):
In a 2011 paper published by the Mercatus Center at George Mason University, Veronique de Rugy and Adam Thierer recommended “an ‘origin-based’ sourcing rule for any states seeking to impose sales tax collection obligations on interstate vendors.” Under that rule, which mirrors what happens when you buy something while visiting another state, each business collects sales tax on behalf of the state where it is based, no matter where the customer happens to be.
The beauty of this approach is that it treats all retailers equally, eliminates the daunting challenge of dealing with many different taxing authorities, and respects state policy choices while encouraging tax competition between jurisdictions. Evidently the idea makes too much sense for Congress to consider.
That would motivate online sellers to locate in low tax jurisdictions, which is why congresscritters from high-tax places will never allow it to happen.
Scott Drenkard, California Considers Soda Tax in 2013, Forgetting Resounding Defeat in 2012 (Tax Policy Blog)
Joseph Thorndike, When Tax Reform Means Soaking the Rich (Tax.com)
Eric Toder, How to Improve the Tax Subsidy for Home Ownership. (TaxVox). Maybe by eliminating it?
Jack Townsend, John Doe Summons Issued to Wells Fargo for Records of CIBC FirstCaribbean International Bank Correspondent Account
Patrick Temple-West, FATCA hurts Americans abroad, and more (Tax Break)
J.D. Tuccille, If High Cigarette Taxes Fuel a Booming Black Market, What Will High Marijuana Taxes Do? (Reason.com).
David Brunori, Pancho Villa and Three Hundred Million Joints (Tax.com)
News you can use: How Not to Deduct 85,491 Miles (Russ Fox)
The Critical Question: Has Microsoft Excel Ruined the World? (Going Concern)
Tags: David Brunori, Eric Toder, film tax credits, Going Concern, harold hill, J.D. Tuccille, Jack Townsend, Joseph Thorndike, Kay Bell, Patrick Temple-West, preparer regulation, Russ Fox, Scott Drenkard, The Critical Question
Posted in Tax Roundup | No Comments »
Monday, April 22nd, 2013 by Joe Kristan
Sharing your drink with the state. The Tax Foundation maps how happy your state is when you wet your whistle:
Iowa is #6.
Just because an LLC is taxed like a partnership doesn’t mean that every LLC owner can act like a general partner, as Colleen MacRae explains:
Last week the Iowa Court of Appeals in Three Minnows, LLC v. Cream LLC, held that a non-managing member did not have the authority to bind an LLC to a contract the member signed on behalf of the limited liability company.
Not every LLC member can obligate an LLC.
TaxProf, IRS to Close to Public for Five Days Due To Employee Furloughs. That doesn’t mean the Public can close to the IRS for five days, unfortunately. Yet another example of how the preparer regulation initiative is a colossal waste of agency resources needed elsewhere. Related: David Cay Johnston, IRS To Close for Five Days (Tax.com).
Peter Reilly, IRS Not Screening Informant Reports Well . They have other priorities than dealing with the tax collection opportunities dropped right in their laps.
Jim Maule, The “Rain Tax”?
Kay Bell, World governments mounting global effort against tax evasion.
TaxGrrrl, As Many Celebrate 4/20, Feds Still Won’t Budge on Regulation and Taxation of Marijuana. As long as Sec. 280E keeps even legal pot dealers from deducting expenses, it will be a tough business to make a living in, after tax.
Martin Sullivan, Horse Racing and International Tax (Tax.com)
Russ Fox, Bayern Munich Head Reports Self for Tax Evasion. Swiss bank accounts are involved.
Tax Trials, IRS Announces Special Filing Extension for Boston Area Taxpayers
The Critical Question: Is There Such Thing as a Free Lunch? (Ellen Kant, Tax Policy Blog)
Tags: Colleen MacRae, David Cay Johnston, Ellen Kant, Jason Dinesen, Kay Bell, Martin Sullivan, maule, Nick Kasprak, Peter Reilly, Russ Fox, Tax Trials, TaxGrrrl, TaxProf, The Critical Question
Posted in Tax Roundup | No Comments »
Wednesday, March 13th, 2013 by Joe Kristan
I will fight for the right to tax you to subsidize other people. Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant. Radio Iowa reports:
“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”
Never mind the high possibility that the plant would have been built without our tax money. Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders. Never mind that political allocations of investment capital are always and everywhere unwise. Forget the lost opportunities for taxpayers to spend the money on their own projects. Jobs!
The Governor also hinted at darker forces opposing the tax credits, reports KCCI.com:
And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.
So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers. Who knew?
The EITC is a refundable credit, which means the tax man writes checks to folks with no taxes. Naturally EITC fraud is rampant.
TaxGrrrl, Hundreds Of Thousands Of Taxpayers Thought To Be Impacted By Education Credit Snafu
IRS agent pleads guilty to charges resulting form selling out a whistleblower. Jack Townsend has the scoop.
Kay Bell, 2013 tax filing season gets crazier for some H&R Block, TurboTax customers
Jason Dinesen, Small Business Health Insurance Credit, Part 2
Elizabeth Malm, Texas Considering Drastic Modifications to Margin Tax (Tax Policy Blog). Good.
Patrick Temple-West, Yankees embrace frugality to dodge tax, and more. Who says taxes don’t influence behavior?
Jeremy Scott, Carl Levin Changed the Face of Tax Enforcement (Tax.com)
Howard Gleckman, Taxes and Paul Ryan’s Budget (TaxVox)
William Gale, A Carbon Tax is a Win-Win for the Economy and the Environment (TaxVox)
David Brunori, Things to Read, Sites to Visit. (Tax.com). He shares some online resources, but tragically fails to mention the Tax Update.
Peter Reilly, No Fans Of Sister Wives At The IRS ? As far as I’m concerned, the possibility of consolidated individual returns should be all the argument needed against polygamy.
The Critical Question: Why Is My Refund Short? (Trish McIntire)
News you can use. Note to Drivers: All Wheel Drive Does Not Give You Superpowers, Just a Dangerous Overconfidence (Megan McArdle).
So you think you’re having a bad busy season? It could be worse: Upstanding San Leandro Accountant Finds Himself on Oakland’s Most Wanted List. Going Concern has the news of law enforcement gone awry.
Tags: Branstad tax policy, corporate welfare, David Brunori, Earned Income Tax Credit, economic development, Elizabeth Malm, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Jeremy Scott, Joe Bolkcom, Kay Bell, megan mcardle, Patrick Temple-West, Peter Reilly, TaxGrrrl, The Critical Question, Trish McIntire, William Gale
Posted in Eye on the Legislature, Eye on the Legislature 2013, Uncategorized | 1 Comment »
Monday, March 11th, 2013 by Joe Kristan
The 1040 filing deadline is five weeks from today. The 1120 and 1120S deadline is this Friday. The penalty for filing an 1120-S late is $195 per shareholder, with the penalty repeated each additional month the return is late. Proceed accordingly.
A Des Moines tax lawyer lets us know what we are in for: Just a Little Bit More? Yeah Right. Get Ready to Pay More Taxes in 2013 (William Brown). He illustrates what will happen to one of his clients, “Fred,” when he pays his 2013 taxes:
Fred’s federal taxes have increased by 9% with no change in his earnings. If Fred does not increase his distributions from his business to pay these increased taxes, his disposable income will decrease by 19%. Might these increased taxes have no substantial impact on the prospects of his small business and its employees? Not a chance.
Read the whole thing. Related: Phil, we have altered the deal. Pray we don’t alter it further.
David Cay Johnston pushes for harsher accumulated earnings tax. As I predicted, we’re starting to see people pushing for enforcement of the Accumulated Earnings Tax to deal with the pretend problem of corporations “hoarding” cash. Mr Johnston takes the podium in an (unfortunately gated) article in Tax Notes:
American nonfinancial corporations held more than $2.2 trillion of cash and near cash offshore at the end of 2010 in current dollars, IRS and Federal Reserve data shows. And that is on top of the almost $1.7 trillion of liquid assets owned by firms and subsidiaries with U.S. addresses that we will see when the 2012 corporate income tax data becomes available in a few years. That global cash and near cash pile of almost $4 trillion came to $12,600 per American — well more than triple the $3,500 in per capita federal income tax revenues that year.
There is no possible business justification for that much cash. As Tax Court Judge David Laro wrote in Haffner’s Service Stations Inc. v. Commissioner, T.C. Memo. 2002-38 “a need to retain earnings must be directly connected with the needs of the corporation itself and must be for bona fide business purposes.”
No “possible” business justification for that much cash? It’s pretty easy to come up with potential justifications. If you are a corporation sitting on a lot of cash, you have a lot to think about. You have unusual opportunities, which you need to evaluate carefully. The imposition of the shareholder-level tax on earnings is certainly a factor. Does that mean I trust corporate management and boards? No. But I trust them a lot more than second-guessers at the IRS.
The Judge Laro cite that Mr. Johnston uses only restates the legal background of the accumulated earnings tax — not the economics of it.
If you want to really encourage corporations to free up their cash, end the double-taxation of corporate income by allowing full deductibility of dividend payments — with an excise withholding tax on non-profit and non-U.S. distributees to ensure the income is taxed once. That will give corporations a powerful incentive to distribute cash they aren’t using – one that will work a lot better than beefing up the IRS Second-Guess Division.
Update: Mr. Johnston e-mails:
I have written in favoring of restoring tax-free dividends for modest sums or encourage savings, partly because most Americans have little saved in the tax system and even though only one in four gets dividends directly: [$link Ed.]
And I called for a two-year test of dividend deductions in this column a few months later, arguing that dividends have the virtue of separating actual value-added managers from those who play accounting games since you need need cash to make dividend payouts. [gated links here and here. Ed.].
Unfortunately I don’t have links to free versions of the original articles.
Related: Garett Jones, Redistributing from Capitalists to Workers: An Impossibility Theorem, on why the economically-optimal rate of tax on capital is zero. (Econlog)
No more paper Internal Revenue Bulletins. The IRS has discontinued its old paper Internal Revenue Bulletin, where it published tax guidance. From Announcement 2013-12:
The IRB is available on IRS.gov before printed copies are available. Also, the majority of items (about two-thirds) that appear in the IRB are released with a News Release about a month ahead of when the item appears in the IRB. Since all items in the IRB are available electronically, almost a month in advance of being available in the printed IRB, we are eliminating the printing of paper copies of the IRB, which are distributed directly from the IRS. The cost savings to printing and postage would be $148,000 annually.
It makes sense. Another bit of my accumulated tax training goes the way of the Dodo.
Russ Fox, If You’re a Sole Proprietor, Get an EIN…Now!. Otherwise it’s too easy to get your identity stolen.
William Perez, Minnesota Revenue Department Finds “Unacceptable” Errors in TurboTax.
TaxGrrrl, IRS Explains Delays In Processing Some Returns Claiming Education Credits
Kay Bell, Federal workers owe $3.5 billion in back taxes; Expect renewal of legislative efforts to fire federally-employed tax debtors. Some people don’t buy the “better to give than to receive” thing.
Brian Mahany, IRS Begins Rejecting OVDI Filings – Important News For Fence Sitters
Jack Townsend, Bank Leumi U.S. Clients Rejected from OVDP
Robert Goulder: Taxation & Morality: Odd Bedfellows (Tax.com)
Peter Reilly, Render Unto Caesar – Mormon Tithe Not A Necessary Expense In IRS Collection Case
Patrick Temple-West, Tax haven hunter Levin to retire, and more
The Critical Question: Who Are Your Tax Policy Friends? (Jim Maule)
Going Concern, No, We Can’t Help You Pass the Ethics Exam. When I took it, it was mailed to successful CPA candidates to do at home and mail in. No wonder there are no ethical problems with our generation. Oh, wait…
Tags: Accumulated Earnings Tax, Brian Mahany, David Cay Johnston, Garett Jones, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Robert Goulder, Russ Fox, TaxGrrrl, The Critical Question, William Brown, William Perez
Posted in Tax Roundup | 1 Comment »
Thursday, March 7th, 2013 by Joe Kristan
Answering the wrong questions. The Iowa Chamber Alliance asked a consulting firm that makes money playing the corporate location incentives game whether Iowa should sweeten its corporate location incentives. Guess how they answered it.
From an Iowa Chamber Alliance press release:
“Iowa has a solid base of state - level economic development incentives tools upon which to build. However, to become more competitive, Iowa may wish to increase the funding level and flexibility of some of the State’s key incentive programs” states Darin Buelow, a Principal with Deloitte Consulting LLP.
It’s hard to imagine the study coming to a different conclusion considering what they were looking for:
At the request of the Iowa Chamber Alliance (ICA), Deloitte Consulting (Deloitte) benchmarked incentives programs in Iowa and in five alternate states, focusing on a high-level analysis of state-level incentive programs, their value, and overall effectiveness in attracting investors.
In other words, they were to look at whether Iowa has more and better giveaways than its neighbors.
I looked for the study in vain for any analysis of the value of Iowa’s tax credits to the economy vs. alternative uses for the funds — like lowering the tax rates of the rest of us who pay for them. There is no mention of “opportunity cost.” In looking at the “value” of the programs, it makes unsupported conclusions like this one about the “High Quality Jobs Program:”
Considered effective and competitive in providing benefits to mitigate corporate income tax, refunding sales tax for construction and providing a supplemental refundable research credit.
Considered effective by whom? On what basis? It doesn’t say.
The study says Iowa should enrich its data center corporate welfare — where the rest of us subsidize the infrastructure of Microsoft and Apple. They also recomment Iowa “consider allowing sale, refund or transfer” of tax credits.
A few years ago, after the film tax credit disaster, Governor Culver tasked a panel with reviewing the effectiveness of Iowa’s dozens of tax credits. Their report failed to come up with a clear benefit for any of Iowa’s tax credits. The panel also had this to say about transferable tax credits: (my emphasis)
Transferability of tax credits complicates the projection of revenues and the tracking of credits, creates uncertainty about when credits will be claimed because the purchasing entity may utilize a different fiscal year than the entity awarded the credit, and siphons resources from awarded entities through brokerage fees… Once tax credits are transferred, it creates limited recourse for the State to recover funds claimed in instances where the business awarded the original credit does not fulfill the contracted obligations or if the credit was awarded in error. Additionally, transferability has also resulted in abuses in some tax credit programs.
It would be better Iowa to not “compete” in taxing its current taxpayers to lure and subsidize their competitors. Instead Iowa should enact a tax system good enough that we don’t have to pay people to be our friends. The Quick and Dirty Iowa Tax Reform Plan would be better for Iowa businesses than any number of pocket-picking tax credits.
Poor legal move. From Bloomberglaw.com:
Former Kirkland & Ellis LP senior partner Theodore Freedman pleaded guilty to fraud in connection with the filing of false tax forms.
Freedman changed his plea yesterday from not guilty to guilty of four counts of tax fraud. U.S. District Judge Deborah Batts in Manhattan accepted the plea and set sentencing for Sept. 17. Freedman’s lawyers reached a plea agreement with U.S. attorneys.
Indicted in July 2011, Freedman misrepresented his income as a partner at the law firm by about $2 million, the U.S. said. He also claimed more than $500,000 in expenses for a sole proprietorship that didn’t exist, the government said.
It’s hard to imagine how he thought this would work. K-1s get matched against tax returns, at least occasionally. The IRS matching system is cumbersome and inefficient, but it works well enough that you can’t habitually ignore K-1s with six-figure income. Furthermore, claiming big bogus Schedule C losses like that is practically an engraved invitation for the IRS to visit your return.
Related: Former Kirkland & Ellis Partner Pleads to Tax Crimes (Jack Townsend)
The Colonel knows why your business might have to file returns in other states. My new post at IowaBiz.com, The Des Moines Business Record blog for entrepreneurs.
William McBride, The Carried Interest Debate: Funding Government for 3.1 Hours (Tax Policy Blog).
Patrick Temple-West, Cadbury gets tax bill in India, and more (Tax Break).
Daniel Shaviro, Skepticism about “fundamental tax reform”
Angie Picardo, Grads – Filing for First the Time (Missouri Tax Guy guest-post)
Brian Strahle, D.C. Combined Reporting – Transition Rules for 3/15 and 4/15!
Janet Novack, New IRS Data: Rich Got Richer, But Paid Lower Tax Rate As Stocks Gained
William Perez, Child Tax Credit for 2012
There’s a new Cavalcade of Risk up at Health Business Blog. It’s always worth the ride at the blog world’s roundup of insurance and risk management!
Is that an argument for or against intelligent design? The Sequester: ‘Designed to be Stupid’ (Cara Griffith, Tax.com).
Because they aren’t in a position to speak for themselves: Ellen DeGeneres Speaks Out For Spanish-American War Widowers (Peter Reilly).
The Critical Question: Why Is Amy Poehler Going To Hell? And What Does Taylor Swift Have To Do With It? (TaxGrrrl)
Programming note: This site was pretty much shut down part of yesterday afternoon. Our valiant hosting service says it was a comment spam attack on the pre-2012 archived posts. Sorry about that.
Tags: Angie Picardo, Brian Strahle, cavalcade of risk, corporate welfare, Daniel Shaviro, economic development, iowa tax policy, iowabiz.com, Jack Townsend, Janet Novack, Patrick Temple-West, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, tax credits, tax crime, TaxGrrrl, The Critical Question, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Wednesday, February 13th, 2013 by Joe Kristan
State of the union: raise taxes more. It will never be enough. If you think we don’t have a spending problem, or think we can solve it through “closing loopholes,” check out three charts gathered by Veronique de Rugy:
The President proposes nothing serious.
Breaking news from yesterday: Look for a Call to End Oil “Subsidies” in Tonight’s State of the Union (Andrew Lundeen, Tax Policy Blog)
Howard Gleckman, Obama’s State of the Union and the Great Deficit Smackdown (TaxVox)
How H&R Block guy got to write preparer regs. Civil Service! Tim Carney reports:
In 2009, the Obama administration hired Mark Ernst, the previous CEO of tax prep giant H&R Block, as IRS deputy commissioner. Ernst became a “co-leader” (in the words of an IRS spokesman) in drafting new regulations for tax preparers.
This seems to clash with President Obama’s executive order barring appointees from working on regulations directly affecting their former employers.
But thanks to a fine legal distinction, these rules didn’t cover Ernst. “Mark Ernst is a civil servant at the IRS; he is not a political appointee,” an IRS spokesman wrote me. “The Presidential Executive order on Ethics Commitments by Executive Branch Personnel only applies to political appointees.”
Nobody here but us chickens.
Jason Dinesen has a new installment about his client whose identity was stolen in the ID theft epidemic that really got rolling while the IRS was busy regulating preparers. “If you hired the best comedy writers and satirists in Hollywood, they couldn’t come up with a more farcical script about government ineptness.”
Speaking of government competence:
Not only will most farmers have to file after March 1, 2013 due to a delay in tax forms by the IRS, we now have an announcement that almost all form 1099s issued by the USDA for Natural Resources Conservation Services payments in 2012 are either wrong or were never issued.
via Paul Neiffer.
David Brunori, If You Hate or Love Excise Taxes Read this New Report:
A new working paper recently released by the Mercatus Center at George Mason University… finds that contrary to conventional wisdom, sin taxes are often not used to correct externalities but rather for general fund spending. My take on that is politicians don’t really care about externalities. They would like to raise money from people whose activities they despise. The report also found that the goal of “sin taxes” has changed from correcting market failures to protecting consumers from their own choices. That is, people are too stupid to run their own lives and they need help. Finally, the report finds that sin taxes are regressive, i.e., they punish the poor. Unfortunately, my liberal friends never get exercised over this issue. Maybe it’s as the great PJ O’Rourke surmised, liberals hate poor people.
If they would just not wear those icky Wal-Mart clothes and watch their weight, like they tell them to… (Tax.com)
Peter Reilly,Even Real Estate Salesman Has Trouble With Passive Loss Exception
Even accepting that he spent 520 hours working on his own properties, he still lost. Two of the properties were short-term vacation rentals and one was being readied for sale. The time spent on those properties could not be grouped with the time spent on properties dedicated to long term rentals.
As Peter notes, this becomes an even more important tax issue with the new 3.8% tax on “passive” income this year.
Kay Bell, When will you get your tax refund? Whenever
Trish McIntire, Child Tax Credit Delays
TaxGrrrl, Spammers Target Taxpayers Expecting Tax Refunds. If you get an email about your refund from the IRS, it’s not from the IRS.
Jack Townsend, Another Bull**** Tax Shelter Bites the Dust
Roger McEowen, Another Court Issues Ruling on Tax Impact of Demutualization.
Tax Trials, Second Circuit: Co-Op Owner Is Entitled to Casualty Loss
Patrick Temple-West, Navigating between tax avoidance and evasion, and more
Gene Steurle, Desperately Needed: A Strong Treasury Department (TaxVox)
Robert Goulder, La Bella Italia: Fast Cars & Loose Taxes (Tax.com)
Jim Maule, When Spending Cuts Meet Asteroids: The Value of Taxes. Taxes and spending can never be too high because, you know, asteroids!
The Critical Question. Minnesota’s Sexiest Accountant Contest: Cute or Creepy? (Going Concern)
Tags: Andrew Lundeen, David Brunori, Gene Steurle, Going Concern, identity theft, Jack Townsend, Jason Dinesen, Kay Bell, maule, Obama Tax Policy, passive losses, Patrick Temple-Wet, Peter Reilly, preparer regulation, Robert Goulder, Roger McEowen, Tax Trials, TaxGrrrl, The Critical Question, Tim Carney, Trish McIntire, Veronique De Rugy
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Wednesday, February 6th, 2013 by Joe Kristan
Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):
The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.
But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”
State Tax Notes also tracked down Tax Foundation Economist Elizabeth Malm:
“Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”
Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.
“I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.
Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”
*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.
David Brunori, Who Pays? Who Cares? You Should (Tax.com):
No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.
None of these are incompatible with lower top tax rates.
Tracy Gordon, The Downside of States as Laboratories for Tax Reform (TaxVox)
Needed, but impossible. Tax Notes has a sad-but-true headline that brilliantly summarizes the state of our national tax policy: Urban Institute Panelists Agree Tax Reform Necessary but Unlikely. ($link)
Linda Beale, More on PTINs for previously unregulated tax return preparers:
We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.
The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”
Peter Reilly, Future Baseball Commissioner Tackles Tax Laws As Complex As Infield Fly Rule
Tough tax return choice for 2012: Pay more now to save later? My new post at IowaBiz.com, the Des Moines Business Record Blog for Entrepreneurs, discussing whether maximizing 2012 deductions is really a good idea.
Jason Dinesen, Taxpayer Identity Theft — Part 12 . More Kafkaesque obstacles to resolving an identity theft for his client.
William Perez, IRS Provides Further Disaster Relief for Hurricane Sandy
Kay Bell, Tax Carnival #112: Super Bowl of Taxes
Jim Maule, Tax Ignorance As Persistent as Death and Taxes
Missouri Tax Guy: Missouri does not mail Form 1099-G. You have to get it online. One more little blow to tax compliance for small taxpayers.
Trish McIntire, Low Cost Tax Preparation Options
TaxGrrrl, U.S. Postal Service To Eliminate Saturday Delivery: Will It Save Tax Dollars? Next they’ll shut down the Pony Express.
Patrick Temple-West, Waiting on the phone for the IRS, and more (Tax Break)
Ellen Kant, William McBride, Super Bowl Tax Bill (Tax Policy Blog)
Russ Fox, Will the Third Time be the Charm for Appeals? A case where the “independent” IRS appeals function failed twice.
Howard Gleckman, Can the Income Tax Fund the Government We Want? (TaxVox). I can’t speak for “we,” but it could easily cover all of the government I want.
The Critical Question: Et Tu, Sarkozy? (David Goulder, Tax.com)
If they can spell their address, tax cheating should be easy for them: Massapequa Restaurant Owners Sentenced for Tax Fraud (Massapequa Patch).
Isn’t that conspiracy? Tax fraud: We have a plan, authorities say (Myfoxtampabay.com)
Screwed either way. Taxpayer Sues IRS, Claims Agent Coerced Him Into Having Sex to Avoid Adverse Audit (TaxProf).
But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:
Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.
Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.
No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.
Tags: alternative maximum tax, David Brunori, David Goulder, David Osterberg, Elizabeth Malm, Ellen Kant, Howard Gleckman, iowa tax policy, iowabiz.com, Iowans for Tax Relief, Jason Dinesen, Kay Bell, Linda Beale, maule, Missouri Tax Guy, Patrick Temple-West, Russ Fox, TaxGrrrl, TaxProf, The Critical Question, Tracy Gordon, Trish McIntire, William McBride, William Perez
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Monday, February 4th, 2013 by Joe Kristan
Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order. The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal. The judge declined:
As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.
So where do things stand? The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them. Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.
More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.
You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday. They had a football game and everything to observe it. The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official. And yes, it is official. While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons. So, in any way that matters, it’s official. Still, I can’t bring myself to say “Happy” anniversary.
More from Richard Morrison: 100 Years of the Federal Income Tax (Tax Policy Blog)
Iowa’s oldest judge, age 90, steps down. Ruth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court. Happy Retirement, Judge Klotz!
Paul Neiffer, Many States Are Delaying Farmer Filing Deadline
Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS
Kay Bell, Tips are taxable income
TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It
Trish McIntire, Gambling 1099MISCs. They don’t make your winnings taxable, they just let the IRS in on the secret.
Patrick Temple-West, Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)
Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com). Strange question. If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?
Rudy Penner, The Risks of Dumbing Down Fiscal Goals (TaxVox). It’s hard to think they could get any dumber than they are now.
Jim Maule, Looking Again at Tax and Political Ignorance:
The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.
Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.
Linda Beale, Red state tax “reform” and “economic growth”
Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE
The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).
What this country needs is a good 25-cent sneaker. Illinois Proposes 25-Cent Sneaker Tax (TaxProf)
It’s the little things. The mark of a true craftsman is attention to detail. Two Ohioans’ alleged failure to mind the details has led to trouble. From the Columbus Dispatch:
Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.
But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.
So did misspelling some of the occupations they listed on the phony tax returns.
I bet they thought those spelling drills in grade school were pointless.
Tags: 16th Amendment, Institute for Justice, Jack Townsend, Kay Bell, Linda Beale, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, Richard Morrison, Robert D Flach, Robert Goulder, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
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Friday, January 11th, 2013 by Joe Kristan
Don’t forgive them, because they have no idea what they’re doing. Last night I taught a session on the Fiscal Cliff tax law and the Obamacare Net Investment Income tax to Iowa chapters of the Institute of Management Accountants over the Iowa Cable Network. Using the controls to talk to remote classrooms in Marshalltown, Dubuque, Marion and Cedar Falls was a challenge, but a piece of cake compared to working with the tax law.
When they passed the Net Investment Income Tax as part of Obamacare, there were only two concerns for the guilty congresscritters:
- Did it apply only to “the rich,” as defined that day? and
- Did it raise enough revenue for them to help them pretend that they weren’t raising the deficit?
Nobody who voted for the bill took the time to ask: “should we really set up an all-new tax, unlike anything we have ever done before, requiring all new regulations and recordkeeping requirements, just to collect 3.8% of something?” And that’s exactly what they did.
If you have any illusions that they have any clue what they are doing, a look at the new bracket schedule for 2013 for single filers should cure you of that:
If taxable income is: The tax would be:
-------------------- ----------
Not over $8,925 10% of taxable income
Over $8,925 but not $892.50 plus 15% of the
over $36,250 excess over $8,925
Over $36,250 but not $4,991.25 plus 25% of the
over $87,850 excess over $36,250
Over $87,850 but not $17,891.25 plus 28% of the
over $183,250 excess over $87,850
Over $183,250 but not $44,603.25 plus 33% of the
over $398,350 excess over $183,250
Over $398,350 but not $115,586.25 plus 35% of the
over $400,000 excess over $398,350
Over $400,000 $116,163.75 plus 39.6% of the
excess over $400,000
Notice something funky about that 35% bracket? It covers only $1,650. While you have to earn $215,100 to get through the 33% bracket, you skip through 35% to 39.6% with only $1,650 of additional income. Why? Because the administration wanted to only tax “the rich,” and they decided for that day that “rich” starts at $400,000 income, if you are single.
The only sure cure is to make congresscritters, the President, and the Cabinet prepare their own returns in a live webcast, with a comment bar for viewers to mock them. It would serve them right if they had to do it a la Robert Flach, with no computer.
TaxGrrrl, Tax Code Hits Nearly 4 Million Words, Taxpayer Advocate Calls It Too Complicated:
What could you do with six billion hours?
Think hard. That’s the equivalent of 8,758 lifetimes. Yes, lifetimes.
It’s also how much time taxpayers spend every year trying to comply with tax filing requirements. That, according to the 2012 annual report as prepared by the National Taxpayer Advocate Nina E. Olson.
It’s not getting easier, either.
Martin Sullivan, Tax Reform Muddle (Tax.com):
Having agreed to tax increases, Republicans are now more insistent than ever that tax reform must be revenue neutral.
The big change is from Democrats– who have become so adamant on the need for tax increases in addition to the $600 billion raised by the fiscal cliff deal, and who realize additional rate hikes are absolutely impossible–are hell-bent on preserving the most politically feasible loophole closers for raising revenue.
It’s a hopeless game. The deficit is too big to deal with by “loophole closers.” Behind the push to raise taxes by closing loopholes is a delusion that you can pay for our incontinent government spending just by hitting “the rich” harder. But the rich guy can’t cover the check. Either spending comes down or everyone pays a lot more tax.
Nick Kasprak, Chart: Effects of Marriage on Income and Payroll Tax Liability (Tax Policy Blog)
Deborah Jacobs, A Married Couple’s Guide To Estate Planning (Forbes, via the TaxProf)
Paul Neiffer, Section 179 Can Create a Farm Loss (In Certain Cases)
Kay Bell, Top taxpayer problem? Continuing tax code complexity
Christopher Bergin, Permanent Insanity: “Only in Washington would you find folks who would brag that they did a good thing by making permanent an unfair and indecipherable tax system that wastes billions of dollars to administer.” (Tax.com)
Norton Francis, What the Fiscal Cliff Deal Means for the States (TaxVox):
The good news for states is that American Tax Relief Act of 2012 will end much of the uncertainty that has plagued the income tax code in recent years. No longer will states have to guess what will happen to many provisions of the federal revenue code that were set to expire. The bad news is some states will lose revenue they were counting on from
scheduled changes in the federal estate tax that won’t happen.
Trish McIntire, Refund Loans
Patrick Temple-West, Public goals, private interests in ‘Fix the Debt’ campaign, and more
Jack Townsend, Bank Leumi Signals Cooperation with U.S. on Offshore Accounts. Israili bank ready to spill the beans on U.S. taxpayers with accounts there.
A Friday Buzz from Robert D. Flach.
The Critical Question: Shipping Wars’ Token Hot Chick Is a Former Accountant? (Going Concern)
Tags: Christopher Bergin, Deborah Jacobs, Going Concern, Jack Townsend, Kay Bell, marriage penalty, Martin Sullivan, Net Investment Income Tax, Nick Kasprak, Norton Francis, Patrick Temple-West, Paul Neiffer, Robert D Flach, tax policy, TaxGrrrl, The Critical Question, Trish McIntire
Posted in Uncategorized | 1 Comment »
Thursday, January 10th, 2013 by Joe Kristan
So preparer regulation wasn’t really the solution? Taxpayer Advocate Nina Olson says tax complexity is the biggest problem for taxpayers in her annual report:
The most serious problem facing taxpayers — and the IRS — is the complexity of the Internal Revenue Code (the “tax code”). Among other things, the tax code:
-Makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns;
- Requires the significant majority of taxpayers to bear monetary costs to comply, as most taxpayers hire preparers and many other taxpayers purchase tax preparation software;
- Obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay;
- Facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and by providing criminals with opportunities to commit tax fraud;
- Undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply; and
- Generates tens of millions of telephone calls to the IRS each year, overburdening the agency and compromising its ability to provide high-quality taxpayer service.
What do you suppose clued her in?
The byzantine complexity of the tax law is indeed the biggest problem facing the taxpayer. She also prominently mentions the identity theft epidemic, preparer fraud and IRS funding. One item not identified as a serious problem? Unregistered tax preparers.
Just a few short years ago, Nina Olson had this to say:
I have recommended the regulation of unenrolled return preparers since my 2002 Annual Report to Congress, and reiterated and supplemented that recommendation in successive reports. My office was very much involved in the analysis and discussions resulting in the IRS report, and I applaud Commissioner Shulman’s leadership in undertaking this significant review.
So what has that accomplished? The IRS has tacitly admitted the program isn’t working by waiving the continuing education requirement. The population of preparers is poised to crash. That will raise the cost of tax preparation, forcing many to self-prepare and driving others out of the system entirely. Meanwhile, one reason IRS resources are unavailable for taxpayer service is that they are directed to mismanaging preparer regulation.
The problem has always been tax complexity, and it continues to get worse. No preparer regulation will change that. The Taxpayer Advocate’s previous preparer regulation efforts only served to enrich the national tax prep franchises and distract from the real problem of complexity while damaging the ability of the IRS to serve taxpayers.
More on the Taxpayer Advocate report:
Robert D. Flach, NINA OLSEN ON THE DREADED AMT
Russ Fox, “The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft”
Jack Townsend, TA Report Identifies IRS’ OVDP / OVDI As Problem
Scott Drenkard, Nobel Laureate James Buchanan Passes Away at 93 (Tax Policy Blog):
Buchanan’s model of government action was based on a theory of “politics without romance,” which contended that policymakers act in their own self-interest the same way that market actors do. This means that politicians are not enlightened, selfless despots, and respond to the incentives of the political sphere, making policy that will help get them re-elected. Often the best way to do that is by catering to special interests. The longer I work in this city, the more I see this observation as true to life.
This is (to me) the essence of the “Public Choice” analysis of government, created by Mr. Buchanan and Gordon Tullock. It explains why passing a law or creating a regulation rarely solves the problem, and instead enables the well-connected to use the government as a club against their rivals. The tax preparer regulations, literally authored by a former H&R Block CEO, are a classic example. James Buchanan’s legacy is a valuable and too-little-heeded caution against increasing the role of government.
More: Alex Tabarrok, James Buchanan (1919-2013), Appreciations; David Henderson, Further Notes on James Buchanan
TaxGrrrl, Leadership Shakeup At Treasury May Signal Change in Obama’s Fiscal Strategy
Courtney Strutt Todd: Buying a House in 2013? You Could Qualify for a Federal Tax Credit up to $2,000 a Year for the Life of Your Mortgage! (Davis Brown Tax Law Blog)
Paul Neiffer, IRS Announces When Returns Can Be Filed
Kay Bell, IRS will begin accepting 2012 tax returns on Jan. 30
William Perez, When Can You Begin Filing Your 2012 Federal Tax Return?
Brian Strahle, Medical Device Excise Tax: Ready or Not, It’s Here!
Nanette Byrnes, Virginia plan to end gas tax quickly panned (Tax Break)
The Critical Question: What Is It About Hollywood? (Cara Griffith, Tax.com)
Tags: Brian Strahle, Cara Griffith, Courtney Strutt Todd, Gordon Tullock, Jack Townsend, James Buchanan, Kay Bell, Nanette Byrnes, Nina Olson, Paul Neiffer, Robert D Flach, Russ Fox, Scott Drenkard, TaxGrrrl, Taxpayer Advocate, The Critical Question, William Perez
Posted in Tax Roundup | 1 Comment »
Tuesday, January 8th, 2013 by Joe Kristan
Dave Jamison
Iowa issuing new certificates for federal mortgage interest tax credits. The Iowa Finance Authority yesterday announced that it will issue mortgage credit certificates that enable Iowans to qualify for the federal mortgage interest credit. O. Kay Henderson reports:
The Iowa Finance Authority is offering a new tax credit for new homeowners who fall under limits on annual income and the purchase price of their home. Iowa Finance Authority director Dave Jamison says it’s a credit linked to the mortgage interest new homeowners are paying.
“Yet another way that Iowans who meet our program guidelines can experience the many benefits of home ownership,” Jamison says.
Iowans with the certificates may be able to claim the federal credit on Form 8396. The IRS describes the credit here. They note that interest that qualifies for the credit does not qualify for the home mortgage deduction. You only qualify for the credit if you have a mortgage credit certificate from a qualifying agency; in Iowa, that agency is the Iowa Finance Authority.
The credit isn’t for everyone; there are limits based on income and home price. From the O. Kay Henderson story:
Eligibility guidelines are different for each Iowa county. In the state’s largest county, Polk County, a couple with an annual income of up to $75,000 could qualify for the credit on a home that was purchased for $250,000 or less.
More from WHOTV.com.
Nick Kasprak, Monday Map: Percentage of Taxpayers with AGI over $500,000 (Tax Policy Blog)
Fiscal Cliff Notes
TaxGrrrl, IRS Issues Statement On Tax Legislation, Makes No Promises About Start Of Tax Season:
The delay means that now, there are a lot of new forms to be printed, a lot of software programs to finagle. I’d be surprised – and wildly impressed, mind you – to see tax season kick off on time this year for all taxpayers. But fingers crossed, right?
I think the federal tax season won’t be too bad. With all of the retroactive conformity problems in the new law, though, a lot of states are likely to give taxpayers fits.
Kevin D. Williamson, You Cannot Raise Taxes on the Rich:
Tax hikes on the so-called rich may decrease the private sector’s share of income, but they probably will not do much to decrease the real income of high-wage workers and may in reality increase government revenue at the expense of low-wage workers in the long term, though it is very difficult to disaggregate the complex relationships between taxes, wages, and prices. But those who say that they are most interested in economic inequality would do well to follow Kenworthy’s example and look at transfers rather than taxes.
James Pethokoukis, New study undercuts Obama’s income inequality argument
Washington’s tax hike on wealthier Americans won’t accelerate economic growth, won’t create jobs, and won’t lower the debt by an more than a rounding error. So what was the point of all that debate about the fiscal cliff? Why did President Obama insist on those upper-income tax increases, especially when the economy continues to struggle?
Simple: It was a way — even if mostly symbolic — of addressing what President Obama views as America’s biggest problem: rising income inequality.
A falling tide lowers all boats.
Freakonomics, How Much Financial Inequality Is Due to Financial Illiteracy? Is that illiteracy of the people who are unequal, or those who think it’s a big deal.
Jeremy Scott, Both Parties Should Have Pushed Payroll Tax Cut (Tax.com)
Hani Sarji, More Estate Tax Changes Could Follow Fiscal Cliff Deal (via the TaxProf)
Patrick Temple-West, More tax revenue to IRS before cliff, and more
All the talk about the fiscal cliff and the inadequacy of the last-minute deal to avert it obscures one fact: It probably provided the government with tens of billions of dollars in unexpected tax receipts.
Many taxpayers accelerated income and deferred deductions anticipating the rate increases.
Wall Street Journal, The Stealth Tax Hike: Why the New $450,000 Income Threshold Is a Political Fiction:
Paul Neiffer, Fiscal Cliff Tax Bill May Increase Divorce Rate!
Russ Fox, The Problem with PEOs. No, not these PEOs.
Trish McIntire, More ITIN Info
Missouri Tax Guy, Married Filing ….
Jack Townsend, HSBC Depositor Pleads Guilty to Conspiracy
Kay Bell, Tax moves to make in January 2013
I like the first half. Let There Be Wine (And Taxes) (Jason Dinesen)
The Critical Question: Can You Distinguish a Tax from a Ransom Payment? (Robert Goulder, Tax.com)
I wasn’t serious about her anyway. Ex-KPMG Chief to Auditors: You Are All Flirting With Irrelevance (Going Concern)
Hope and change. A lot of change, if you use it to buy coffee. Should the President Mint a $1 Trillion Platinum Coin? (Megan McArdle)
Tags: Dave Jamison, Freakonomics, Going Concern, Hani Sarji, Iowa Finance Authority, Jack Townsend, James Pethokoukis, Jason Dinesen, Jeremy Scott, Kay Bell, Kevin Williamson, megan mcardle, Missouri, Nick Kasprak, O Kay Henderson, Patrick Temple-West, Paul Neiffer, Robert Goulder, Russ Fox, The Critical Question, Trish McIntire
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Monday, December 31st, 2012 by Joe Kristan
No cliff deal. As of this morning, the President and Congress continue to fail to to make a “fiscal cliff” deal. Rest assured, though, that even when they cobble together a lame and harmful deal, as they will today or weeks from now, they won’t even begin to address the real fiscal calamity — the government’s incontinent spending.
The unforgivable sin of the current president, and the last one, and their Congressional enablers, is spreading the idea that the government can buy us all free stuff, and the rich guy will pick up the tab. Sorry. The rich guy isn’t buying.
Income taxes: the redheaded stepchild of Branstad tax policy? It looks more and more like the Branstad agenda for the 2013 Iowa legislative session won’t include income tax reform. From the Sioux City Journal:
Asked during a recent interview if there was room in all that for income tax reductions during the 2013 session, Branstad replied: “Probably not.”
“Honestly, property tax would be my priority and I’d love to do income tax, too, and maybe, if revenues exceed expectation, we could provide some income tax relief in addition,” Branstad said. “But I think I would rather focus and get something permanent done on the property tax. That’s the place where we’re the least competitive.”
That’s a shame. Given the economically unwise attitude of the Senate leader, maybe nothing is possible:
Senate Majority Leader Mike Gronstal, D-Council Bluffs, said he would need more details but at first blush he doubted it would go very far in the legislative process if it proved to be “just a way for the wealthiest Iowans to cut their taxes dramatically” while middle-class families picked up a greater share of the tab for the cost of state government.
That’s just silly. The rich guy isn’t buying for Iowa either. The wealthiest Iowans always can dramatically cut their taxes with a moving van, until Senator Gronstal figures out a way to keep them from escaping to zero-tax South Dakota or Florida.
Iowa’s income tax is way overdue for replacement. Instead, it will get more Bondo and bumper stickers.
If Iowa’s tax law were a car, it would look like this.
Fiscal Cliff Notes:
Greg Mankiw, New York Times:
When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.
Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans.
Think Finland. Unless we choose to be Greece or Argentina.
Gongol: Fiscal Cliff…not resolved. I note a false choice:
The people who make the decisions at the highest level in this republic are either dishonest or utterly economically incompetent if they don’t say the following out loud: “We are demanding more out of our government than we can presently afford. We need to pay more, get less, or both.”
“Either?” I say “both.”
Kay Bell: Senate ready for some football; adjourns Sunday without reaching fiscal cliff deal
TaxGrrrl, Budget Talks Stall As Reid Calls Latest GOP Move A ‘Poison Pill’
Kevin Drawbaugh, Fiscal cliff talks down to the wire (Tax Break)
Nick Kasprak, 2012 Likely to be First Year Without AMT Patch
Peter Reilly, Dysfunctional Congress – At Least They Are Not Maiming One Another. If they don’t, maybe we should.
The roundup:
Cara Griffith, What Will Become of Physical Presence? (Tax.com)
Paul Neiffer, Be Careful Of Fiscal Year Section 179 Issues!
Jason Dinesen, 6 Tax Predictions for 2012 — How Did I Do?
Tres Bien. French Court: 75% Tax Rate on Millionaires Is Unconstitutional (TaxProf)
Robert Goulder, Gérard Depardieu: Tax Exile (Tax.com)
TaxGrrrl, Congress Hasn’t Fixed The Budget Yet, Getting A Raise Anyway. Courtesy of the President, who maybe thinks they make him look good by comparison.
Chris Sanchirico, New Ways to Think About a Tax on Public Companies
Insureblog, Cavalcade of Risk #173: Post-Mayan Apocalypse Edition
Tags: Branstad tax policy, Cara Griffith, Chris Sanchirico, Finland, Fiscal Cliff, Gongol, greg mankiw, insureblog, iowa tax policy, Jason Dinesen, Kay Bell, Kevin Drawbaugh, maule, Mike Gronstal, Nick Kasprak, Paul Neiffer, Peter Reilly, Robert Goulder, TaxGrrrl, TaxProf, The Critical Question
Posted in Tax Roundup | 2 Comments »
Friday, December 21st, 2012 by Joe Kristan
Plan C through Z? House Speaker Boehner’s effort to pressure the White House into compromise with “Plan B,” a proposal to retain 2001 tax rates on incomes below $1 million, died last night. The Speaker cancelled a vote on the plan when it was clear that it lacked enough support to pass. The Wall Street Journal reports:
After pulling his bill without taking a formal vote, Mr. Boehner unexpectedly disbanded the House until after Christmas, leaving behind
uncertainty about whether Congress and President Barack Obama would be able to avoid $500 billion in spending cuts and tax increases that begin in January.
So what now?
“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Mr. Boehner said in a written statement after a brief meeting with House Republicans. “Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.”
Is it time to panic? Will we see a filing season delayed until the end of March, a big 2012 AMT hit, and tax increases all around? Joe Weisenthal at Business Insider says we aren’t over the cliff yet:
Indeed. If Boehner couldn’t even get the GOP to support a law that would let taxes revert on millionaires, how is he going to get GOP support on a deal that would let taxes revert on those making $250K or $400K, as the President would like to sign?
Here’s the thing with that. Boehner doesn’t need to get all of his caucus, because in the end, if Obama supports the ultimate compromise, then it’s safe to say that the Democrats will bring about 100+ votes in the house to support the bill. And this was always true. It was always the case that the eventual compromise would see Boehner lose 70 or more Republicans, to be made up with Democrat support. So nothing changes on that front.
There’s 10 days left before 2012 expires. Even then it’s possible that they will make a retroactive deal next year with the new Congress. The legislative and leadership malpractice continues.
Fiscal Cliff Notes:
TaxProf, The Competing Obama and Boehner Tax Plans
Kay Bell, Republicans reject Boehner’s fiscal cliff Plan B, House breaks for Christmas
TaxGrrrl, Boehner Fails To Push Through Plan B Before House Walks
Christopher Bergin, Fiscal Surrender (Tax.com):
So, I would suggest that while General Boehner wants things to look like he is negotiating a budget deal, he is actually seeking the best surrender terms that he can get. And if the President is a good enough general to understand his position, he will not try to over-exploit it.
Paul Neiffer, Farmers Might Delay Higher Tax Rates for Three Years? Thanks to income averaging, a trick available only for farmers, “…you might be able to earn $1 million from farming and have most of it still subject to the old lower tax rates” if rates go up next year.
Nanette Byrnes, Blue states lose: how avoiding the U.S. fiscal cliff hits some states harder than others (Tax Break)
Tax Policy Blog, Tax Cut Expiration Would Impact States Unevenly
Janet Novack, A Closer Look At Boehner’s Plan B: Tax Hikes For Parents And Workers
Howard Gleckman, Should Working Class Families Pay Higher Tax so High Income People Can Pay Less? (TaxVox)
Jim Maule, The Postponed Pain of Foolish Tax and Spending Decisions
St. Louis area preparer “Tiger” Zerjav pleads guilty to tax crimes. A St. Louis-area CPA who survived an IRS effort to shut down his practice through a civil suit lost a much bigger fight yesterday. Frank “Tiger” Zerjav pleaded guilty to four tax crime counts in Federal District Court. Courthouse News Service reports:
Frank L. “Tiger” Zerjav Jr., 39, of Wildwood, Mo., pleaded guilty to four counts of tax evasion from 2001 to 2004, prosecutors said.
He and his father, Frank L. Zerjav Sr., were principals in two entities: Zerjav & Company, a full service accounting firm, and the Advisory Group USA, which offered tax planning and asset protection strategies. Zerjav admitted that he funneled his income into several S-corporations and failed to include that income on his tax returns.
The IRS attempted to enjoin the Zerjavs from tax practice in 2008, alleging that they set up S corporations for their clients and then deducted personal expenses on corporation tax returns — including a “Precious Moments” figurine collection. The Zerjavs settled under what appeared to be favorable terms in 2010.
The plea agreement is not yet public. Sentencing is set for March 26. Related: Copy of indictment.
Jason Dinesen, New Preparer Requirements on Earned Income Credit = Higher Fees for Clients. That’s on top of the increase in fees that will result from the massive contraction of the preparer industry that we may be in for thanks to the IRS preparer regulation regime.
News you can use: Pot Business May Be Legal In Washington State But There Are Still Rules (Peter Reilly)
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The Critical Question: Are Holiday Weddings a Form of Tax Planning? (Jana Luttenegger, Davis Brown Tax Law Blog):
Your marital status for tax purposes is determined as of December 31. That means if you get married on New Year’s Eve, you are considered married for the entire year and can file as a married couple. Likewise, if a divorce is finalized by the end of the year, you will be considered unmarried for the entire year. Trust me, I am not the only one that has wondered if certain people getting married on New Year’s Eve did it for tax purposes.
It’s a special Friday Buzz at Robert D. Flach’s place!
Madoff’s brother sentenced on tax charges (Wall Street Journal, via Going Concern)
Not so Fat Joe not so good at taxes. A rapper who performs as “Fat Joe” is in tax trouble, reports AP. The story says Joseph Cartagena pleaded guilty yesterday to not reporting nearly $3 million in income over two years.
Oddly, he’s not so fat, according to the story:
Wearing a navy suit, Cartagena looked fit and considerably slimmer than the former size that had earned him his rapper nickname. He has been very public about his efforts to shed weight after fellow rap stars died from obesity-related issues and was recently in Newark to speak to schoolchildren about health and fitness.
It’s nice that the schools find such good role models for the kids.
Tags: Christopher Bergin, Fat Joe, Fiscal Cliff, Howard Gleckman, Jana Luttenegger, Janet Novack, Jason Dinesen, Jim Maule, Joe Weisenthal, John Boehner, Kay Bell, Nanette Byrnes, Paul Neiffer, Peter Reilly, preparer regulation, Robert D Flach, tax crime, Tax Policy Blog, TaxGrrrl, TaxProf, The Critical Question, Zerjav
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Monday, December 17th, 2012 by Joe Kristan
The expectant crowd gathers in Ames, Iowa for the final 2012 session of the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School.
350 practitioners are signed up, and the coffee’s on!
Fiscal Cliff Notes
Because writing big checks in April is always popular. A few commenters have said that the Treasury Secretary can prevent Fiscal Cliff disaster by just setting the withholding tables to pretend that the tax law isn’t changing January 1. Marie Sapirie of Tax Notes says it’s not that simple ($link)
Commentators have suggested that Geithner may even be able to prospectively implement the administration’s policy of raising taxes on taxpayers making more than $250,000 per year by increasing withholding only on income above that level. That is almost certainly wishful thinking. Whatever the “most appropriate” amount of withholding to reflect the tax rates in section 1 may be, section 3402(a) does not give the Treasury secretary the power to create withholding tables that have no basis in current or recently expired law.
Of course Secretary Geither hasn’t always been big on following the tax law.
TaxProf, NY Times: Itemized Deduction Cap: Popular, But Unfair
KayBell, National Taxpayer Advocate Nina Olson discusses fiscal cliff tax complications
TaxGrrrl, Budget Resolution May Come Down To One Question
Steven Rosenthal, Paying Taxes on Capital Gains Early: How Investors are Avoiding Tax Hikes (TaxVox): “All of this planning suggests that sophisticated taxpayers are outracing Congress again.”
Nick Kasprak,Alternative Minimum Tax Increase Looming Over Fiscal Cliff Negotiations (Tax Policy Blog)
Robert D. Flach, WHAT FOOLS THESE POLITICIANS BE!
Remain calm, all is well. Deficit Hysteria and Debt Denialism (Joseph Thorndike, Tax.com)
TaxProf, Sullivan: Why the SALT Deduction Is Always Under Attack
Megan McArldle discusses an interesting pension funding approach:
Big news in pensions today: Silverdex, a major US-based conglomerate with fingers in just about every economic pie, from mining to solar cells, turns out to have been stuffing its main pension fund full of… it’s own corporate bonds
Just kidding.
I don’t really know how to say this, but sorry, I lied a little bit. I’m not talking about a private company at all, because of course, if a private company did this, it would be completely and totally illegal. Regulators would have shut this down decades ago and probably at least a few lower-level executives would have spent a little time in the pokey. Instead this is, of course, a description of how the United States Social Security “trust fund” works.
Like so many things: private sector does it, it’s scandal and ruin. Government does it, it’s Tuesday.
Courtney A. Strutt-Todd, Tax Law Blog: Attacks on the Exemption for Municipal-Bond Interest and Why it is Important to the Average Taxpayer (Davis Brown Tax Law Blog)
Paul Neiffer, Another Nice Feature of a Living Trust
Brian Strahle, D.C. Combined Reporting: How Much Will it Cost Your Company?
Missouri Tax Guy, Capital Gains, What you need to know
Trish McIntire links to the annoying new 2013 EIC Interview Sheet, so practitioners can double up as welfare caseworkers.
Russ Fox, What Happens When Cigarette Taxes go Through the Roof?
Martin Sullivan, Capital Gains Frustration for Tax Reformers (Tax.com). His “reformers” want to increase the problems inherent in capital gains taxes by increasing them. May their frustrations endure.
The Critical Question: Naming Spousal IRAs After Senator Hutchison – Is That A Priority ? (Peter Reilly) I still think Roth & Company should get royalties for the Roth IRA…
Linda Beale, Goggle’s Bermuda hideaway/HSBC’s too-big status: time to rein in the corporations! Too big, eh? Google’s entire market capitalization is about $234 billion this morning. That’s how much the federal government spends in 23 days. And it’s Google that’s too big?
Sorry, I think there’s already a mortgage on it. A New Way to Reduce Our National Debt – Sell Alaska. (Greg Mankiw)
Tags: Brian Strahle, Courtney Strutt Todd, Farm Tax School, Fiscal Cliff, greg mankiw, Joseph Thorndike, Kay Bell, Kick Kasprak, Linda Beale, Martin Sullivan, megan mcardle, Missouri Tax Guy, Paul Neiffer, Peter Reilly, Robert D Flach, Russ Fox, Steven Rosenthal, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
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Friday, December 14th, 2012 by Joe Kristan
Flickr image courtesy seriousbri under Creative Commons license.
Cause and effect: the Iowa Chamber Alliance can’t quite put them together. The umbrella group for Iowa’s chambers of commerce has issued its 2013 legislative agenda. The Des Moines Register reports (my emphasis):
TAXES: Iowa’s tax system is among the highest for businesses, the alliance contends, and commercial and property tax relief are needed. In addition, the group supports addressing unfunded mandates, public employee pensions and other measures to help offset rollback effects on local governments. The alliance also supports efforts to simplify and reduce corporate income taxes, and to streamline the personal income tax code.
So far, so good. But then:
ECONOMIC DEVELOPMENT: The Iowa Economic Development Authority needs money for flexible incentives to compete for investments and jobs, the allliance said. It backs a variety of tax credits to retain, grow and attract investments in Iowa, including restoration of the $185 million cap on economic development tax credits.
Let’s spell this out: Iowa’s tax code needs simplification because it is larded with “economic development” provisions, including dozens of “economic development tax credits.” The rates are high because if they weren’t, the special breaks would keep it from raising any revenue. To say you want lower rates, a simpler tax code, and economic development credits is like saying you want to lose weight and you want some more cookies.
There is a better way: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.
Fiscal Cliff Notes
Tax Offer for Firms Pits Big vs. Small (Wall Street Journal):
If ideas proposed by the White House take hold—a long shot—rates for big companies likely would fall next year while those paid by many small-business owners through the individual tax system would rise.
That potential gap could encourage more companies to organize as corporations. For now, the prospect is strengthening alliances between Democrats and big-company CEOs on the one hand, and Republicans and small-business groups on the other.
It’s Warren Buffett and Goldman Sachs vs. the entrepreneur — influence and pull vs. the rest of us.
Patrick Temple-West, Tax offer pits big companies against small, and more (Tax Break)
Martin Feldstein, The Tax Hike Canard (via Mankiw)
Janet Novack, Will Your Retirement Be Thrown Off The Fiscal Cliff?
Howard Gleckman, Why the Senate’s Tax Bill is No Way Out of the Fiscal Impasse
IRS reminds taxpayers of “Savers Credit” (IR-2011-121) This non-refundable credit matches as much as 50% of taxpayer contributions to their IRA or 4o1(k) accounts. It works on joint returns with incomes up to $57,500 and single filers with incomes up to $28,750. Savings made when young can do great things when compounded over a career, and this credit makes it painful. Giving your recent grad starting out in the world some cash to fund an IRA can help build a nest egg and net a nice tax refund.
Andrew Mitchel, Doctrine of Constructive Receipt. You can’t avoid the income this year by waiting until next year to cash the check.
Kay Bell, Reindeer year-end tax tip games 2012: Dasher says use up your FSA funds
Paul Neiffer, Some Interesting Ag Cooperative Facts. Iowa leads the nation with total co-op sales of $22.4 billion.
Jason Dinesen, This Accountant’s Idea for Eliminating Kickoffs in the NFL. Without kicking, where does the “F” in NFL go?
The Critical Question: When a Tax Argument is Nonsense, Why Not Say So? (Jim Maule?
Why not? The 2012 Holiday Kitchen Gift Guide (Megan McArdle)
I can quit any time. I just need six more drinks. “Wind Energy Association Says Industry Can Survive Without Tax Credit” (Tax Analysts, $link):
The wind energy industry could be self-sustaining over the long term if its primary federal incentive is renewed in 2013 and then gradually phased out over six years, the industry’s trade association said December 12.
Because the last 20 years of the tax credit just weren’t enough for a good buzz.
Tags: Andrew Mitchel, corporate welfare, economic development, greg mankiw, Howard Gleckman, iowa tax policy, Janet Novack, Jason Dinesen, Kay Bell, Martin Feldstein, maule, megan mcardle, Patrick Temple-West, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Savers Credit, The Critical Question
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Wednesday, December 12th, 2012 by Joe Kristan
What’s missing here? Governor Branstad had an interview with the Associated Press about his plans for the coming legislative year. Topics covered include
- Property tax reform
- Education reform
- “Accepting” higher spending.
Anything missing? Not a word here about income tax reform. The governor had been talking about income tax reform in the runup to the elections, but hasn’t said much about it since. I’m getting the feeling that Iowa’s chilly business tax climate isn’t warming up anytime soon.
What the current model of the Iowa tax law would look like if it were a car.
They could have thought about that before they voted for it. From Byron York:
Sixteen Democratic senators who voted for the Affordable Care Act are asking that one of its fundraising mechanisms, a 2.3 percent tax on medical devices scheduled to take effect January 1, be delayed. Echoing arguments made by Republicans against Obamacare, the Democratic senators say the levy will cost jobs — in a statement Monday, Sen. Al Franken called it a “job-killing tax” — and also impair American competitiveness in the medical device field.
You mean taxes matter? Who knew? (via Instapundit)
Warren Buffett calls for another tax increase on people who aren’t Warren Buffett. From CNBC:
Warren Buffett isn’t limiting his call for higher taxes to a minimum rate for very rich Americans who get a large chunk of their income from investments.
He’s also one of several dozen wealthy people who have signed a statement calling for a “strong tax on the largest estates.” It’s been released by a group called “United For a Fair Economy.”
Like the income tax hikes he supports, this increase wouldn’t affect him, because he plans to leave his pile to the Bill and Melinda Gates Foundation, where it will escape estate tax. I’ll take him seriously if he calls for reducing or eliminating the estate tax charitable deduction. Going Concern has more.
Peter Reilly, Warren Buffett And George Soros Want Higher Estate Tax Than Obama Proposes
In Iowa he’d have to collect sales tax too. The Tax Court yesterday told a Houston patrolman learned that he was in independent contractor when performing security services off-duty. From the decision (citations omitted):
An employment relationship is indicated when the service recipient has the right to control the details and means by which the worker performs the services. In contrast, independent contractor status is indicated where the opposite is true. This factor is generally critical in determining the nature of a working relationship. Petitioners did not demonstrate that the third parties maintained the requisite right to control Mr. Specks in the performance of the security services.
Also, his employers clients didn’t withhold taxes from his payments. If there’s no withholding, that’s a strong clue that you are not an employee. Off-duty officers in Iowa are also expected to collect sales tax for their services. (Specks, T.C. Memo 2012-343)
Jack Townsend links to a study of plea agreements in federal criminal cases. While much of his post is of interest only to attorneys, this quote from the study should be read by anybody tempted to file a return (or not file) based on the idea that the income tax is unconstitutional (my emphasis):
These constitutional challenges do not work out well for defendants. Almost twenty years ago, the United States Supreme Court held that a considered, fundamental disagreement with the constitutionality of the tax laws does not represent a valid defense to a charge of tax evasion. Yet even with this guidance, many tax resisters remain unwilling to concede the point, and demand to take their cases to trial. One exasperated federal judge catalogued some of the “tired arguments” advanced by these defendants:
That defendants continue to press these arguments in court despite their nonexistent odds of success underscores how many parties simply do not behave as extrapolation from likely trial outcomes might predict.
There’s no point trying to convince tax protesters that they are wrong in theory. All you can point out is that their arguments never work when it matters.
Patrick Temple-West, Boehner tries to keep GOP ranks behind him, and more (Tax Break)
TaxGrrrl, Boehner, Obama Talks Heat Up But Still No Deal On Taxes, Spending
Jason Dinesen, What Couples in Same-Gender Marriages Should Be Doing, Tax-Wise, Before Supreme Court Ruling. I think it’s likely the court will require the IRS to recognize same-sex marriages, and Jason’s post is a must read for affected taxpayers.
Paul Neiffer, File Your Gift Tax Return. It gets the statute of limitations started.
David Brunori, Time To Get Rid of the Deduction for State And Local Taxes. (Tax.com) When the taxes arise from business income, like from S corporations and partnerships, I disagree. It any case, it should only come with rate reductions.
Brian Strahle, State Budgets and Taxes: What Will Happen in 2013?
Jim Maule, Ohio as Role Model for Tax Policy
Buzz time! It’s Wednesday somewhere, so Robert D. Flach has a new roundup of good tax stuff.
The Critical Question: Is your response to taxes genetic? (Kay Bell)
Tags: Branstad tax policy, Brian Strahle, David Brunori, Going Concern, Jack Townsend, Jason Dinesen, Judge Kroupa, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Robert D Flach, TaxGrrrl, The Critical Question, Warren Buffett
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Wednesday, December 5th, 2012 by Joe Kristan
Happy National Repeal Day!
Either we cut spending or everyone will pay more taxes. This post by Veronique de Rugy puts together in one handy package some points I have been trying to drive home about budget and tax policy. It’s all worth reading, but some key items include:
In my opinion, the problem with the fiscal-cliff debate has been that no one is acknowledging the fact that there is no way out of raising taxes on everyone eventually unless Congress gets serious about addressing our long-term fiscal problem, by restraining spending.
“The Rich” simply don’t have enough income to foot the bill. But borrowing temporarily hides the problem:
This, by the way, is why I thought the Bush years were so toxic. Cutting taxes while increasing spending dramatically — Bush increased real spending by 60 percent, as opposed to Clinton’s increase of 12.5 percent — is a recipe for large deficits leading more taxes later or certainly intense pressure to raise taxes.
What will taxes look like when the bill comes due?
This weekend, Mark Steyn gave us an idea of what that tax bill would look like. He writes:
A couple of years back, Andrew Biggs of the American Enterprise Institute calculated that, if Washington were to increase every single tax by 30 percent, it would be enough to balance the books — in 25 years. If you were to raise taxes by 50 percent, it would be enough to fund our entitlement liabilities — just our current ones, not our future liabilities, which would require further increases.
Finland shows how high taxes have to be to adequately fund a lavish welfare state, as I have noted:
Finland has an extensive welfare state and most years pays for it without budget deficits. It does so with income taxes that reach a 2012 top rate of 29.75% at €70,301, which is about $57,021 at current exchange rates. For a US taxpayer filing single, the 28% rate doesn’t start until taxable income reaches $85,651, and not up to $142,701 on joint returns. On top of that, Finns pay a 23% Value-added tax on most purchases — a tax that is not tied to income. But there’s more! There is a mandatory 4.7% payroll tax on employee gross wages, plus another 18.3% “paid” by the employer — but that necessarily reduces what they can pay the employee after-tax.
I’m not sure all that would go over well here, but that’s what we’re headed for. Anybody who says rich people can pay for all of the free government stuff is either clueless or lying. The rich guy isn’t buying.
Megan McArdle, Who Gets More Damaged If We Go Over the Fiscal Cliff? At least there’s a drink at the bottom.
At least the weather’s nice. Oh, maybe not… Top Federal Marginal Tax Rate Will Exceed 50% in California, New York, and Hawaii in 2013 (TaxProf)
Amy Feldman, Getting ready for the Medicare tax on investment income (Reuters)
Don’t think he actually plans to pay the higher taxes he supports. Warren Buffett Makes Money On Tax Breaks He Discredits (Steve Stanek, IBD)
Joseph Thorndike, Moral Abdication Dressed Up Like Hard-Nosed Realism (Tax.com)
But think of the intangible benefits of the Iowa film tax credit program! Film financier sues state over unpaid film credits (AP) The producer of one of the films involved in the suit pleaded guilty to felony chargesarising from tax credits for the film.
Joseph Henchman,New York Times Tells the Tale of Michigan’s Bankrupt State-Backed Film Studio (Tax Policy Blog) Oh, and Happy 75th Birthday to the Tax Foundation!
Kay Bell, Tax Carnival #109: Tax Stocking Stuffers
TaxGrrrl, 12 Days of Charitable Giving 2012: Be An Elf
Russ Fox,Nominations Due for 2012 Tax Offender of the Year. ‘Tis the Season!
Must be a Cubs fan. Hapless Mr. Williams Loses Again (Jack Townsend)
Nor do I. No, I Don’t Plan to Take the RTRP Exam (Jason Dinesen).
Jim Maule, The Hidden Government Spending Game. Spending doesn’t become something else just because you run it through a tax return.
Trish McIntire, Do You Have a Spare $2,350? You do? Good, you may need to send it to the IRS in April if Congress doesn’t “patch” the Alternative Minimum Tax for this year.
Peter Reilly, Hobby Losses – Need To Convince Tax Court You Love Money More Than The Game
Robert D. Flach has his Wednesday Buzz roundup of tax posts up!
Holistic auto healing? Cadillac chiropractor sent to prison for tax fraud (Mlive.com)
The Critical Question: Bartlett: The Fiscal Cliff and the Debt Limit — What Would Lincoln Do? (TaxProf)
Judge Holmes Quote of the day.
Allison T. O’Neil, the ex-wife of Michael J. O’Neil, does not want to pay a penny of their joint 2005 federal tax liability because, she says, it [*2] would be inequitable to make her do so.
2 Michael recalls providing Allison with $6,000 to $10,000 per month. Allison recalls getting only $6,000 per month.
Cite: O’Neil, T.C. Memo 2012-339
Tags: Amy Feldman, Bruce Bartlett, film credit fraud, film credits, Harel Goldstein, harold hill, Jack Townsend, Jason Dinesen, Jim Maule, Joseph Henchman, Joseph Thorndike, Judge Holmes, Kay Bell, megan mcardle, Peter Reilly, Robert D Flach, Russ Fox, Steve Stanek, TaxGrrrl, TaxProf, Templeton Rye, The Critical Question, the rich guy's not buying, Trish McIntire, Veronique De Rugy, Warren Buffett
Posted in Uncategorized | No Comments »
Monday, December 3rd, 2012 by Joe Kristan
The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday. I will do detailed posts on the in the coming days as I study them.
I’ll note two important items from my first overview of the proposed rules:
- The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. ”Passive” business activities are subject to the the 3.8% tax. Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
- The rules appear to allow you to pro-rate state income taxes in determining “net” investment income. That’s taxpayer-friendly, but it adds another level of complexity.
For an initial take on the rules, see Anthony Nitti at Forbes.
Related: Obamacare: it’s a tax!
David Brunori of Tax Analysts on the fiscal cliff discussion:
Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.
Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.
You can’t pay for mass welfare benefits with a class tax. The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required. The Rich Guy’s not buying.
Why the fiscal cliff is such a big fall. The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):
He adds:
And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.
Related: ‘Fiscal Cliff’ follies: Why it may pay to take deductions early. My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.
Nobody’s serious I: No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)
Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit
Iowa admits its capital gain forms were a mess. A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.
The taxpayer had excluded regular capital gains from a brokerage account on her tax return. Iowa properly rejected the deduction, but admitted her mistake was understandable:
Your position relies on the Department’s instructions for completing the tax return. We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above. In any event, the instructions are not controlling.
Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction. It’s a big improvement, but it should be better. There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.
The state examines every capital gain exclusion claim. Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.
Related: Iowa Capital Gain Break: how it works when you rent property to your business
NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness (TaxProf):
A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.
The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.
It’s a chump’s game, and we taxpayers are the unwilling chumps. These things are to economic growth what steroids are to long-term fitness.
When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up. A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS. They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment. From the Department of Justice Press Release:
Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.
No doubt it was of the best-quality. Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.
Doug Shulman is no longer IRS Commissioner, but his legacy remains:
ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report
Dayton Daily News, IRS says tax fraud attempts up 39 percent
Greg Mankiw, Some Advice on Tax Planning
Richard Morrison, The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)
The Critical Question: Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)
Kay Bell: Time to spend down your medical flexible savings account (FSA)
Paul Neiffer, Senator Baucus Urges Extension of Current Estate Tax Laws
Jim Maule, Passing the Tax Responsibility Buck
Peter Reilly, Who Should Be Accelerating Income Into 2012?
Patrick Temple-West, Most Americans face lower tax burden than in 1980, and more (Tax Break)
Robert D. Flach, DAMNED IF THEY DO AND DAMNED IF THEY DON’T.
Tragedy: Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)
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Tags: Anthony Nitti, David Brunori, Ed Krayewski, Elaine Maag, Fiscal Cliff, greg mankiw, Iowa capital gain deduction, Iowa capital gain exclusion, Iowa tax administration, Kay Bell, Lindsay Lohan, maule, Patrick Temple-West, Paul Neiffer, Peter Reilly, Richard Morrison, Robert D Flach, Shulman, tax crime, TaxProf, The Critical Question, the rich guy's not buying
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