Posts Tagged ‘TIGTA’

Tax Roundup, 9/30/14: IRS handling of uncollected taxes slammed. And: ISU TaxPlace goes live!

Tuesday, September 30th, 2014 by Joe Kristan

Priorities.  While allowing billions of false refunds to go to two-bit grifters via ID-theft refund fraud, the IRS also manages to not correctly follow up on billions of unpaid assessed taxes, according to a new report by the Treasury Inspector General for Tax Administration.  “Of a stratified sample of 250 cases reviewed, there was no evidence that employees completed all of the required research steps for 57 percent of the cases prior to their closing.”

How much money was potentially involved?  A chart from the report:

20140930-1

This is what happens when the tax law is treated as the Swiss Army Knife of public policy, rather than as a simple tax collection and enforcement mechanism. It doesn’t help when successive commissioners are more concerned with expanding the agency’s power and suppressing political opponents than with collecting revenue and properly issuing refunds.

The TaxProf has more.

 

20130114-1TaxPlace goes liveThe ISU Center for Agricultural Law and Taxation has launched TaxPlace:

We are very excited to introduce TaxPlace, a 24-7 resource for tax professionals, especially those preparing farm tax returns. For a limited time, we are offering a yearly subscription for the low introductory price of $150. 

What does that include?

This one-year subscription to TaxPlace entitles you and your staff to one calendar year of unlimited access to all TaxPlace materials and services, including:

A searchable database of timely articles and seminar materials explaining basic, new, and complex tax issues, with a particular emphasis on issues impacting farmers, ranchers, and ag-businesses.

Unlimited replays of recorded seminars and webinars addressing timely and challenging farm and urban tax and estate and business planning concepts.

Access to “Ask a Question,” a personal connection with a professional knowledgeable in farm tax requirements. (“Ask a question” is not a gateway for legal advice and does not substitute for services from a legal or accounting professional.)

Tables, charts, explanations of procedures and forms, and contact information to simplify your interaction with the Internal Revenue Service or state tax departments.

Access to a weekly blog and to future archives of “the Scoop,” a bi-monthly live webinar addressing new tax laws and procedures as they develop and providing attendees with an opportunity to ask questions.

A bargain for $150.

 

TaxGrrrlHow To Get Away With Tax Fraud. No, she hasn’t gone over to the dark side. She is outlining some rookie mistakes made by a Ms. Jackson, who tried to cash a $94 million tax refund check she received. Revenue agents were waiting for her at the grocery store where she tried to cash the check:

Among the basic mistakes TaxGrrrl points out is this:

 Unless you are due a lot of refundable tax credits (more on that later), you’ll want to make sure that your math makes sense. I didn’t see Jackson’s tax return. And I’m not licensed in Georgia. But even I can figure from peeking at the Georgia Department of Revenue’s web site that the highest income tax rate for individuals is 6%. To have paid in $94 million of tax, the amount of her refund claim, you’d have to have earned about $1.56 billion in income – in one year (assuming no carry forward or carry back). That kind of money should have landed Jackson on the newly released Forbes’ 400 Richest Americans list. Spoiler alert: she’s not on the list.

And no, it doesn’t appear that she sandbagged a little too much on her estimated tax payments.  Another basic mistake: real tax thieves prefer direct deposit. But, as a man once said to police here in Des Moines, “You don’t spend your days chasing geniuses, do you?’

 

Peter Reilly, New York Springs Sales Tax Trap On Passive LLC Members. Apparently New York is holding LLC members personally liable for sales taxes owed by the LLC. If the Empire State wants businesses and investors to stay far away, this is a pretty good step. Oddly, S corporation owners don’t have this problem.

 

Fresh Buzz is available from Robert D. Flach, including links to stories on retiree taxation and Roberts side project, The Tax Professional.

Carl Smith discusses The Congressman James Traficant Memorial Code Section at Procedurally Taxing.  Well, if it’s like most code sections, it will outlast all of us.

 

J.D. Tuccille, Yet More IRS Employees Busted for Stealing Taxpayers’ Identities (Reason.com):

Have I mentioned that people signing for health coverage under the Affordable Care Act are supposed to update the government on any major life changes, including marriage status, employment, finances…? Oh wait, yes I have.

I wonder if that information will be better protected.

Remain calm, all is well.

 

20130111-1Andrew Lundeen, Kyle PomerleauEstonia has the Most Competitive Tax System in the OECD. (Tax Policy Blog). The posts tells of a fascinating feature of the Estonian tax law:

Additionally, Estonia only taxes distributed profits and at a 21 percent tax rate. This means that if a business in Estonia earns $100 and pays that $100 to its shareholders, the business would be required to pay a tax of $21 on the distributed profit. Instead, if that business decides to reinvest that $100, the business would not have to pay tax on that $100.

Compare that to the U.S., where the corporations pay tax on income when it is earned, and potentially another tax if earnings are not distributed.  Still another tax is paid when the earnings are distributed; in Estonia, there is no second tax.

If you were designing a tax system to actually make sense, it would look a lot more like the Estonian setup than the U.S. income tax.  You also wouldn’t have the inversion problem people fret about so.

Martin Sullivan, Can Congress Pass Tax Reform That Would Stop Inversions? (Tax Analysts Blog). “Right now the U.S. tax system favors foreign owned corporations over U.S. owned corporations.”

 

Donald Marron, The $300 billion question: How should we budget for federal lending? (TaxVox)

 

TaxProf, The IRS Scandal, Day 509

 

Liz Malm, Businesses Paid Nearly $671 Billion in State and Local Taxes Last Year (Tax Policy Blog)

 

Career Corner. Let’s Waste Some Chargeable Hours Comparing Chargeable Hour Goals (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 8/15/14: Sell Iowa land, pay Iowa tax. And: more inversion diversion!

Friday, August 15th, 2014 by Joe Kristan

20120920-3

Accounting Today visitors, the ALEC story link you want is here: Tax Roundup, 8/11/14: Don’t you dare agree with me edition.

 

It’s not just Iowa.  If you sell land for a gain, the state where the land is will want to tax you.  A Letter of Findings (Document 14201016issued by the Iowa Department of Revenue this week  gave the bad news to a Wisconsin man.  From the letter:

Your income tax assessment for 2002 was based upon the fact that you sold property in Iowa for that year and the gain from the sale of that property was never reported as taxable income in Iowa.  Your Protest seems largely based on the argument that you are not a citizen or resident of Iowa.

You don’t have to live in a state to be taxed there.  States can tax income from non-residents if it has enough connection to the state.  The letter explains:

 Despite the fact that you are currently a nonresident, you still owe Iowa income tax on the capital gain related to the sale of property in Iowa. 

This is important to a lot of non-Iowans who have inherited farmland here.  Farmland values have spiked in recent years, making it tempting to cash out.  The Department of Revenue will be looking for its cut.

 

Kyle Pomerleau asks How Much Will Corporate Tax Inversions Cost the U.S. Treasury? (Tax Policy Blog):

The Joint Committee on Taxation in May released their estimate of the revenue gained from passing the “Stop Corporate Inversions Act of 2014.” This law alters rules and makes it harder for corporations to invert and move overseas. The JCT estimates that this will raise approximately $19.5 billion over fiscal years 2015 and 2024.

Compare this to the Congressional Budget Office’s fiscal outlook that estimates that the corporate income tax is estimated to raise approximately $4.5 trillion over the same period.

That is a 0.4 percent loss to our corporate tax base due to corporate inversions. Hardly the doom and gloom many in the press and Congress make it out to be.

Or, in handy graphical form:

20140815-1

 

The whole contrived inversion panic is best understood as a diversion, an attempt to create a hate totem to divert attention from the disastrous effects of other policies.

 

20140815-2Jim Maule isn’t taking inversions very well:

Furchtgott-Roth asks, “What is more American than doing what is best for your company?” The answer is, doing what is best for America no matter what it does to the company. That is what America did during World War II. If today’s generation of “capitalists” were the folks around back in the 1940s, we’d be speaking German or Japanese.

The good Professor Maule makes some basic mistakes here.  First, he assumes that people didn’t try to keep their taxes low back in the 1930s and 1940s.  I have boxes of dusty old tax casebooks that say otherwise.

A more fundamental mistake is his assumption that paying more taxes than the tax law requires is “best for America no matter what it does to the company.”  The President and our 535 Congressional supergeniuses have no magical insight on what’s “best for America.”  Reasonable minds may differ on “what’s best” without being traitors.

Professor Maule seems to make the default assumption that whatever gives more revenue to the government is “best for America no matter what it does to the company.”  By that logic, corporations should liquidate and turn their proceeds over to the IRS.  Forget the products those corporations make, the needs they meet, the jobs they provide.  Screw the pensioners with pension plans funded with corporation stock.  Because America!

 

TIGTA reports Some Contractor Personnel Without Background Investigations Had Access to Taxpayer Data and Other Sensitive Information.  Remember how everyone was all up in arms that a private company was hired to call on tax delinquents that the agency couldn’t be bothered with, on privacy and security grounds?  Good thing confidential tax data is secure now.

 

20120620-1TaxGrrrl, TIGTA, IRS Warn Phone Scam Continues As Fraudsters Rake In Millions   

William Perez, How to Make Sure Your Charity Donation Is Tax-Deductible.

Kay Bell, California tax deduction bill aimed at former NBA owner Donald Sterling advances.  California forgets that not every problem is a tax problem, and being a jerk isn’t a taxable event.

Russ Fox, Lawsuits Against FATCA in Canada

It’s Friday, so Robert D Flach has fresh Buzz!

 

Arnold Kling points out this from the Wall Street Journal:

Employers in many countries are reluctant to hire on permanent contracts because of rigid labor rules and sky-high payroll taxes that go to funding the huge pension bill of their parents.

He adds: “Don’t think it couldn’t happen here.”  It’s already starting to.

Because giving money to politicians is more important than your retirement. Amazing Waste: Tax Subsidies To Qualified Retirement Plans, (Calvin Johnson, at Tax Analysts, via the TaxProf): 

Qualified plans are ineffective or counterproductive for their given rationales, which makes them a rich source of revenue when the United States needs money.

Mr. Johnson has a strange hobby of finding ways to give more of your money to the government by making tax rules even worse.  Apparently he is convinced that politicians and bureaucrats have better things to do with your money than you do.  (via the TaxProf)

 

TaxProf, The IRS Scandal, Day 463

Kelly Davis, Hey Missouri, You’re the Show Me State, But Don’t Follow Kansas’s Lead.  (Tax Justice Bl0g).  Shouldn’t that be “so,” no “but?”

 

Share

Tax Roundup, 5/14/14: Earned income credits, still busted. And: extenders advance.

Wednesday, May 14th, 2014 by Joe Kristan
The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

Nope.  Still busted.  From WashingtonExaminer.com comes an update on what some call America’s most successful anti-poverty program:

The Treasury Department has released its latest report  on the fight against widespread fraud in the Earned Income Tax Credit program. The problem is, fraud is still winning. And there’s not even much of a fight.

“The Internal Revenue Service continues to make little progress in reducing improper payments of Earned Income Tax Credits,” a press release from Treasury’s inspector general for Tax Administration says. “The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.”

Wait.  Didn’t the President sign a bill in 2010 to fix all this?

The new report found that the IRS is simply ignoring the requirements of a law called the Improper Payments Elimination and Recovery Act, signed by President Obama in 2010, which requires the IRS to set fraud-control targets and keep improper payments below ten percent of all Earned Income Tax Credit payouts.

Whatever the EITC does to help the working poor, it is a boon to the Grifter-American community.  Fraudulent EITC claims are a staple of ID theft fraud and low-tech tax cheating in general.

It’s worth noting that the high rate of improper EITC payouts has not gone down in spite of the ever-increasing IRS requirements for preparers who issue returns claiming the credits.  This should give pause to folks who think IRS preparer regulations will stop fraud, though it won’t.

It’s also notable that Iowa recently increased its piggyback EITC to 15% of the federal credit — increasing the annual cost of the credit by an estimated $35 million.  Assuming Iowans are just as honest as other Americans, that means about $8 million of additional stimulus to the Iowa grifter economy.

Finally, the phase-out of the EITC functions as a hidden high marginal tax rate on the program’s intended beneficiaries, the working poor.  The effective marginal rate in Iowa exceeds 50% at some income levels.  Combined with other income-based phase-outs, the EITC becomes a poverty trap.

 

Related: Arnold Kling,  SNEP and the EITC. “My priors, which I think are supported by the research cited by Salam, is that trying to use a program like the EITC for social engineering is a mug’s game.”

 

 

Extenders advance in Senate.  Tax Analysts reports ($link)

Legislation that would extend for two years nearly all the tax provisions that expired at the end of 2013 cleared a procedural hurdle in the Senate May 13.

Senators voted 96 to 3 to invoke cloture on the motion to proceed to H.R. 3474, a bill to exempt from the Affordable Care Act’s employer mandate employees with healthcare coverage through the Veterans Benefits Administration or through the military healthcare program TRICARE.

The bill is the legislative vehicle for the tax extenders. It will be amended to include the text of the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014 (S. 2260) and likely that of the Tax Technical Corrections Act of 2014 (S. 2261), both of which the Senate Finance Committee passed April 3 via voice vote.

The bill that passes will probably look much like the Senate bill.  The House has advanced bills to make some of the perpetually-expiring provisions permanent, but the President, pretending that they won’t get passed every year anyway, says permanent extension is fiscally irresponsible.

Among the provisions to be extended yet again, mostly through 2015, are the research credit, new markets credits, wind and biofuel credits, bonus depreciation, and increased Sec. 179 deductions.  The five-year built-in gain tax recognition period is also extended through 2015.

Related: TaxGrrrl, Senate Moves Forward To Extend Tax Breaks For 2014

 

20120906-1O. Kay HendersonKnoxville Raceway ceremony for state tax break of up to $2 million:

Governor Terry Branstad went to Knoxville today to sign a bill into law that gives the Knoxville Raceway a state tax break to help finance improvements at the track.

“This is a great facility,” Branstad told Radio Iowa during a telephone interview right after the event. “Last year, in 2013, they attracted 211,000 visitors, so it’s a big tourism attraction and it’s a good investment and it’s great for the state to partner with the community for a project of this magnitude.”

Here’s how that partnership works: the racetrack will charge sales tax to its customers, and keep the money.  Only two other businesses are special enough to get this sweet deal.  Tough luck for the rest of us who don’t have the good connections and lobbyists.

 

Walnut st flowersJana Luttenegger, Updated E-Filing Requirements for Tax Preparers (Davis Brown Tax Law Blog).  “The handbook is not exactly clear.

Jason Dinesen, Things Tax Preparers Say: S-Corporation Compensation.  “But too many business owners — and their accountants — treat S-corps like a magic wand that can just make taxes disappear completely.”

Kay Bell, IRS fight to regulate tax preparers officially over…for now

Peter Reilly, Can Somebody Explain Tax Shelters To Thomas Piketty?  In the unlikely event that the Piketty recommendations are ever enacted, Peter notes that “there will be a renaissance of shelter activity.”  Peter provides a “Cliff Notes” summary of this year’s big forgettable book I’ll never read, which I appreciate.  Also: Peter uses the tax-law-as-Swiss Army Knife analogy that I am so fond of.

Robert D. Flach, STILL MORE CLIENTS SCREWED BY THE TAX CODE.  “The list of taxpayers screwed by our current Tax Code is not a short one.  Today I add taxpayers with gambling winnings.”

 

20130110-2Howard Gleckman, How “Dead Men” Fiscal Policy Is Paralyzing Government (TaxVox).  He reviews a new book, Dead Men Ruling, by Gene Steurle:

“We are left with a budget for a declining nation,” Gene writes, “that invests ever-less in our future…and a broken government that presides over archaic, inefficient, and inequitable spending and tax programs.”

All this has happened due to a confluence of two unhappy trends: The first is what the late conservative writer Jude Wanniski memorably described almost four decades ago as the “Two-Santa Theory.”

The Santas are the two parties, each of whom pick our pockets to fill our stockings.

 

Alan Cole, The Simple Case for Tax Neutrality (Tax Policy Blog).  “When states give preferential rates of sales tax to certain goods, the most visible result is the legal bonanza that follows from trying to re-categorize goods into the preferred groupings. ”

David Brunori, Repealing the Property Tax Is an Asinine Idea (Tax Analysts Blog). “Public finance experts are almost unanimous in their belief that the property tax is the ideal way to fund local government services… Most importantly, the property tax ensures local political control.”

William McBride, What is Investment and How Do We Get More of It? (Tax Policy Blog).  “Full expensing for all investment, according to our analysis, would increase the capital stock by 16 percent and grow GDP by more than 5 percent.”

 

TaxProf, The IRS Scandal, Day 370

News from the Profession.  AICPA Tackling the Important Issue of Male CPAs Wanting It All (Going Concern). 

 

Share

Tax Roundup, 12/18/2013: Have you made your College Savings Iowa gift? And: la loi, c’est IRS!

Wednesday, December 18th, 2013 by Joe Kristan


csi logo
Year-end is sneaking up on us.
 So it doesn’t catch us completely unawares, the Tax Update will provide a year-end idea each day through December 31.  Today we pass on a reminder that Iowans can deduct contributions to College Savings Iowa, the state’s Section 529 college savings plan, on their Iowa 1040s — but only if they fund their contributions before year-end.  From the State Treasurer:

Contributions to College Savings Iowa must be made by the end of the year to qualify for the 2013 Iowa state tax deduction. Account holders can deduct up to $3,045 for each open account and can contribute online at www.collegesavingsiowa.com.* Contributions sent by mail must postmark checks by December 31, 2013.

College Savings Iowa lets anyone – parents, grandparents, friends and relatives – invest for college on behalf of a child.  Investors do not need to be a state resident and can withdraw their investments tax-free to pay for qualified higher education expenses including tuition, books, supplies and room and board at any eligible college, university, community college or accredited technical training school in the United Sates or abroad.

It’s a great way to help your kids start out in life without a big student loan.

William Perez is doing yeoman’s work on year-end planning at his place; today he has Donating Cash to Charity at Year-End.  

Kay Bell offers Donating appreciated assets to your favorite charity

 

45R credit chartLa Loi, C’est IRS.  It’s not surprising that the IRS would disregard mere vendor rules when it believes it can pass out tax credits to taxpayers who clearly don’t qualify.  That’s exactly what they did yesterday when they announced that it will allow the (ridiculously complex) Sec. 45R small employer health insurance credit in Washington and Wisconsin in 2014, even though those states won’t have the required “Small Business Health Options Program” exchange in place.

The Code clearly requires allows the credit only to employers buying through the exchange starting in 2014, but the IRS has granted “transition relief” waiving that requirement.  Heck, why not just grant the credit to anybody who just has “health” next year.  You know, as a transition rule.

 

No.  Is Obamacare Really an Improvement on the Status Quo?  (Megan McArdle).  “Bob Laszewski, an insurance industry expert who has become the go-to guy for the news media on the rollout of the Patient Protection and Affordable Care Act (because the insurance industry is extremely reluctant to talk), tells the Weekly Standard that he thinks come Jan. 1, more people will have lost private insurance than gained it…”

 

William McBride, Economists Find Eliminating the Corporate Tax Would Raise Welfare (Tax Policy Blog).  That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan does just that.

 

 

TIGTALeft hand, meet right hand.   The Treasury Inspector General for Tax Administration reports “IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt“:

Federal law generally prohibits agencies from contracting with businesses that have unpaid Federal tax liabilities.

TIGTA reviewed the IRS’s controls over the integrity and validity of vendors receiving payments from the IRS, including the vendor’s tax compliance and suspension and debarment status. TIGTA also reviewed controls over the IRS’s Vendor Master File (VMF), which contains information about vendors that enables them to do business with the IRS.

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 IRS vendors (7 percent) had a combined $589 million of Federal tax debt as of July 2012, the most recent data for which information was available at the time TIGTA conducted the review. Few of the vendors had a current tax payment plan.

That means the IRS breaks its own rules in dealing with about one out of 15 of its vendors — another instance where the IRS breaks the rules with no consequence.  A “Sauce for the Gander” rule, one that would penalize IRS personnel who break rules just like they do for taxpayers, might help here.

 

Sometimes the IRS gets it right.  IRS Provided Some Good Tips this Morning (Russ Fox)

 

Tony Nitti, Tax Geek Tuesday: Profits Interests, Capital Interests, And Restricted Property:

 

In Crescent Holdings v. Commissioner 141 T.C. 15 (2013), the Tax Court doled out three lessons every tax advisor con learn from:

 

  1. How to differentiate between a profits interest and a capital interest in a partnership.

  2. Section 83 applies to the grant of a capital interest,

  3. If a capital interested in a partnership has not yet vested under the meaning of Section 83, the recipient should not be allocated any undistributed income from the partnership.

  4. The income allocable to an unvested capital interest granted by a partnership must be allocated to the remaining partners of the partnership.

Good stuff.

 

TaxProf, Billionaires’ Use of Zeroed-Out GRATs Blows $100 Billion Hole in Estate Tax.  Paul Caron quotes a Forbes article.

Jack Townsend, Raoul Weil Has First U.S. Court Appearance

TaxGrrrl, 12 Days Of Charitable Giving 2013: Sow Much Good

 

 

Robert D. FlachWOULDN’T IT BE NICE.  He discusses the new IRS Commissioner nominee and asks,  “Wouldn’t it be great to have a person who had actually prepared tax returns for a living in the position?”  What, and have somebody who actually knows something?

20131211-1Robert has a thing about the Tea Party, but I suspect even he would Follow the Tea Party on Stadium Financing Issues (David Brunori, Tax Analysts Blog):

The Atlanta Braves are planning to move their stadium to the suburbs. The Braves blackmailed, threatened, and coerced the backboneless politicians in Cobb County, Ga., to pay for the stadium… As far as I can tell, the only organization to have put up any fight against this insane corporate welfare is the Atlanta Tea Party.”

When the Tea Party movement sticks to the fight for smaller government, there’s a lot to like there.

 

 

Tax Justice Blog, Income Tax Deductions for Sales Taxes: A Step Away from Tax Fairness

Joseph Thorndike, When Is a “Fee” Actually a Tax? When Politicians Say It Isn’t (Tax Analysts Blog)

Peter Reilly,  How To Tax Kody Brown And The Sister Wives And Other Polygamous Families?  He quotes my Twitter feed.  If Peter follows @joebwan, maybe you should too!

 

News From the Profession.  There’s a Hidden Deloitte Auditor in the Airport Cell Phone Crasher Video Making the Rounds (Going Concern)

 

Share

Tax Roundup, 12/4/2013: Justice Scalia doesn’t believe in the Tax Fairy. And sure, the IRS can run another tax credit!

Wednesday, December 4th, 2013 by Joe Kristan

 

tax fairyThe Supreme Court wrapped a bow around the IRS victories in the turn-of-the-century tax shelter wars by unanimously ruling that the 40% “gross valuation misstatement” penalty applied to a tax understatement caused by the “COBRA” tax shelter.

COBRA relied on contributing long and short currency options to a partnership, but claiming basis for the long position, and ignoring the liability caused by the short position.  The shelter was cooked up in Paul Daugerdas’ tax shelter lab at now-defunct Jenkens & Gilchrist and marketed by Ernst & Young.  The shelter was designed to generate $43.7 million in tax losses for a cash investment of $3.2 million.

COBRA, like so many other shelters of the era,  was ruled a sham and the losses disallowed, but the Fifth Circuit Court of Appeals ruled that the 40% penalty did not apply.  Other circuits ruled that it did, so the Supreme Court took the case to settle the issue.

Writing for a unanimous court, Justice Scalia disposed of the Fifth Circuit’s position (citations omitted, my emphasis):

     In the alternative, Woods argues that any underpayment of tax in this case would be “attributable,” not to the misstatements of outside basis, but rather to the determination that the partnerships were shams — which he describes as an “independent legal ground.”  That is the rationale that the Fifth and Ninth Circuits have adopted for refusing to apply the valuation-misstatement penalty in cases like this, although both courts have voiced doubts about it.

We reject the argument’s premise: The economic substance determination and the basis misstatement are not “independent” of one another. This is not a case where a valuation misstatement is a mere side effect of a sham transaction. Rather, the overstatement of outside basis was the linchpin of the COBRA tax shelter and the mechanism by which Woods and McCombs sought to reduce their taxable income. As Judge Prado observed, in this type of tax shelter, “the basis misstatement and the transaction’s lack of economic substance are inextricably inter twined,” so “attributing the tax underpayment only to the artificiality of the transaction and not to the basis over valuation is making a false distinction.”  In short, the partners underpaid their taxes because they overstated their outside basis, and they overstated their outside basis because the partnerships were shams. We therefore have no difficulty concluding that any underpayment resulting from the COBRA tax shelter is attributable to the partners’ misrepresentation of outside basis (a valuation misstatement). 

tack shelterI see the basis-shifting shelters of the 1990s as elaborate incantations designed to to get the Tax Fairy to magically wish away tax liabilities.  Like any good witch doctor, the shelter designers relied on lots of elaborate hand-waving and dark magic to do their work, and they collected a lot of cash for their work.  But there is no Tax Fairy.  Justice Scalia has let Tax Fairy believers know that pursuing her is not just futile, but potentially very expensive.

 

Cite: United States v. Woods, Sup. Ct. No. 12-562.

The TaxProf has a roundup and an update.  Stephen Olsen weighs in at Procedurally Taxing.

 

 

Blue Book Blues.   One digression by Justice Scalia in Woods is worth a little extra attention.   From the opinion (citations omitted, my emphasis):

Woods contends, however, that a document known as the “Blue Book” compels a different result…Blue Books are prepared by the staff of the Joint Committee on Taxation as commentaries on recently passed tax laws. They are “written after passage of the legislation and therefore d[o] not inform the decisions of the members of Congress who vot[e] in favor of the [law].” While we have relied on similar documents in the past, …our more recent precedents disapprove of that practice. Of course the Blue Book, like a law review article, may be relevant to the extent it is persuasive.

Back in the early national firm days of my career, one of my bosses was a former national firm lobbyist who was exiled to The Field when a merger with another firm left room in Washington for only one lobbyist in the combined firm.  I remember him telling clients that he could get around unpleasantness in the tax code by arranging for helpful language in the Blue Book.  From what Justice Scalia says, he would have done as well by writing a law review article.

Jack Townsend also noticed this.

 

A new tax credit for the IRS to administer.  What could possibly go wrong?  A lot, as the IRS’s experience with the fraud-ridden refundable credits and ID-theft fraud has shown.  Now a new Treasury Inspector General’s report warns that IRS systems aren’t yet prepared to stop premium tax credit fraud under Obamacare, reports Tax Analysts ($link):

EITC error chart     While the IRS has existing practices to address ACA-related fraud, the agency’s approach is not part of an established fraud mitigation strategy for ACA systems, the report says. The IRS has two systems under development to lessen ACA tax refund fraud risk, but until those systems are completed and tested, “TIGTA remains concerned that the IRS’s existing fraud detection system may not be capable of identifying ACA refund fraud or schemes prior to the issuance of tax return refunds,” it says.

IRS Chief Technology Officer Terence Milholland said in a response included in the report that fraud prevention plans will be put in place as ACA systems are released.

The IRS loses $10 billion annually to Earned Income Tax Credit Fraud alone.  This isn’t reassuring.

 

Paul Neiffer, Losses Can Offset Investment Income:

  1. If you have a net capital loss for the year, the regular tax laws limit this loss to $3,000.  The final regulations allow this up to $3,000 loss to offset other investment income.
  2. If you have a passive loss such as Section 1231 losses, as long as that loss is allowed for regular income tax purposes, you will be allowed to offset that against other investment income.
  3. Finally, if you have a net operating loss carry forward that contains some amount of net investment losses, you will be allowed to use that portion of the NOL to offset other investment income.

A big improvement over the propsed regulations.

 

20120920-3Jason Dinesen,  Same-Sex Marriage, IRAs and After-Tax Basis:

It’s clear that for 2013 and going forward, couples in same-sex marriage will only need to apply “married person” rules to IRAs (and to everything else relating to their taxes).

What’s less clear is what happens with differences between federal and state basis for prior years.

 

Robert D. Flach,  A YEAR END TIP FOR MUTUAL FUND INVESTMENTS.  “If you want to purchase shares in a mutual fund during the fourth quarter of the year, wait until after the capital gain dividend has been issued, and the NAV has dropped, before purchasing the shares.”

 

Janet Novack,  Insurance Agent To Forbes 400 Concedes Understating Taxable Income By $50 Million

David Brunori, Indexing the State Income Tax Brackets Makes Sense (Tax Analysts Blog)

Missouri Rep Paul Curtman (R) wants to index his state’s income tax brackets to inflation. Of all the tax ideas presented this year, this is among the best. Missouri imposes its top rate of 6 percent on all incomes over $9,000. Nine grand was a lot of money in 1931 – and the top tax rate was aimed at the very wealthiest Missourians. But that threshold hasn’t changed since Herbert Hoover was president. 

Or they could just go with one flat rate.

 

TaxProf, The IRS Scandal, Day 209

William McBride, Summary of Baucus Discussion Draft to Reform International Business Taxation (Tax Policy Blog)

Kay Bell, Where do your residential property taxes rank nationally? 

Howard Gleckman,  The Supreme Court Opens The Door to Sales Tax Collections by Online Sellers (TaxVox)

They were too busy fighting the shelter wars to notice.  The Cold War Is Over, but No One Told the IRS  (Joseph Thorndike, Tax Analysts Blog)

Career Corner: A Friendly Reminder to Slobbering Drunks: Be Less Slobbery and Drunk at Your Company Holiday Party (Going Concern)

 

Share

Tax Roundup, 11/8/13: Kyle Orton gets the bad news about the Tax Fairy. And: how many Lithuanians can you fit into a mailbox?

Friday, November 8th, 2013 by Joe Kristan

tax fairyKyle Orton’s old lawyer fails to find the Tax Fairy, departs the tax business.  From a Department of Justice press release:

A federal court has permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns, the Justice Department announced today.  The civil injunction order, to which Stern consented without admitting the allegations against him, was entered by Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois.  The order permanently bars Stern from preparing various types of tax returns for individuals, estates and trusts, partnerships or corporations (IRS Forms 1040, 1041, 1065, and 1120), among others. 

According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million.  Stern allegedly promoted the schemes to customers, colleagues, and business associates.  The complaint alleges that his customers included lawyers, entrepreneurs and professional football players, and some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty and professional malpractice. 

Mr. Stern seems to have led his clients on a merry chase after the Tax Fairy, the legendary sprite who can wave her wand and make your taxes disappear.  Kyle Orton is a graduate of Southeast Polk High School near Des Moines, where the truth about the Tax Fairy apparently was not in the syllabus.

Related: Jack Townsend, Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes 

 

20131108-1Maybe Lithuanian apartments are crowded?  USA Today reports:

The Internal Revenue Service sent 655 tax refunds to a single address in Kaunas, Lithuania — failing to recognize that the refunds were likely part of an identity theft scheme. Another 343 tax refunds went to a single address in Shanghai, China.

Thousands more potentially fraudulent refunds — totaling millions of dollars — went to places in Bulgaria, Ireland and Canada in 2011.

In all, a report from the Treasury Inspector General for Tax Administration today found 1.5 million potentially fraudulent tax returns that went undetected by the IRS, costing taxpayers $3.2 billion.

When your controls don’t notice something like that, you have a lot more urgent problems than regulating preparers.   Yet Congress and the Administration think the IRS is ready to take on overseeing your health insurance purchases.  What could go wrong?

Tony Nitti is moved to offer the IRS a proposition:

MR. IRS,

REQUEST FOR URGENT BUSINESS RELATIONSHIP

FIRST, I MUST SOLICIT YOUR STRICTEST CONFIDENCE IN THIS TRANSACTION. THIS IS BY VIRTUE OF ITS NATURE AS BEING UTTERLY CONFIDENTIAL AND ‘TOP SECRET’.

Heh.

 

 

S-SidewalkCosting taxpayers by not taking their money.  Tax Analysts reports ($link):

Democrats seeking to raise revenue in ongoing budget talks have circulated a list of tax preferences they would like to see eliminated, including a provision that allows some wealthy individuals to avoid large payroll taxes, the carried interest preference, and the tax break for expenses businesses incur when moving operations overseas. 

The “provision that allows some wealthy individuals to avoid large payroll taxes” is called Subchapter S.  Form 1120-S K-1 income has never been subject to payroll or self-employment tax.  This bothers the congresscritters (my emphasis):

Commonly known as the “Newt Gingrich/John Edwards” loophole, it is most often used by owners of Subchapter S corporations to avoid the 3.9% Medicare tax on earnings, which costs taxpayers hundreds of millions of dollars every year.  Many S corporation shareholders receive both wages from the S corporation and a share of the S corporation’s profits, but they pay payroll tax only on their wages.

“Costs” taxpayers?  From my point of view, and from that of my S corporation clients, it saves taxpayers hundreds of millions of dollars every year — but keeps it out of the hands of grasping politicians, so it’s perceived as a bad thing, by grasping politicians.

The versions of this “loophole closer” proposed in the past have been lame.  When all they have to offer on tax policy is warmed over lameness like these, they aren’t serious.

 

 

TaxProf, Brunson: Preventing IRS Abuse of the Tax System.  The TaxProf quotes a new article by Samuel D. Brunson:

The IRS can act in ways that violate both the letter and the intent of the tax law. Where such violations either provide benefits to select groups of taxpayers without directly harming others, or where the harm to taxpayers is de minimis, nobody has the ability or incentive to challenge the IRS and require it to enforce the tax law as written.

Congress could control the IRS’s abuse of the tax law. Using insights from the literature of administrative oversight, this Article proposes that Congress provide standing on third parties to challenge IRS actions. If properly designed and implemented, such “fire-alarm oversight” would permit oversight at a significantly lower cost than creating another oversight board. At the same time, it would be more effective at finding and responding to IRS abuse of the tax system and would generally preserve the IRS’s administrative discretion in deciding how to enforce the tax law.

Right now the IRS — and by extension the administration in power — can pick and choose what parts of the law it wants to apply.  For example, the current administration has chosen to allow tax credits for participants in federal insurance exchanges, which the law does not authorize, while unilaterally delaying the employer insurance mandate but not the individual mandate.  Somebody should be able to challenge this sort of fiat government.

 

More on the shutdown of Instant Tax Service, a story we covered yesterday:Irwin

Department of Justice press release: Federal Court in Ohio Shuts Down Nation’s Fourth-Largest Tax-Preparation Firm and Bars CEO from Tax-Preparation Business

 

Irwinirwin.jpgPeter Reilly, Ninth Circuit Rules Against Irwin Schiff Sentence Appeal:

Irwin Schiff is probably one of the more famous alternate tax thinkers.  His seminal work “How Anyone Can Stop Paying Income Taxes” is available in hardcover on Amazon for one cent.

Mr. Schiff appealed his sentence on tax crimes on the basis that his attorney failed to raise a “bipolar disorder” defense and what an attorney I know calls the “good faith fraud” defense — the Cheek argument that you really thought the wacky stuff you were saying is true.  Peter wisely notes:

The problem with the Cheek defense is that you have to be smart to raise it, but if you show that you are too smart, then it does not work.

Its a fine line — smart enough to spend “thousands of hours” researching the tax law, but not smart enough to avoid a massive misunderstanding of it.

 

Jana Luttenegger,  IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog): “New IRS rules permit employers to allow participants in a health Flexible Spending Arrangement (FSA) to carry over unused amounts up to $500 from one plan year to the next.”

 

Paul Neiffer, Trusts Get Hit with New 3.8% Tax too. And hard.

Kay Bell, It could be time to harvest capital gains and future tax savings

Rush Nigut,  Careful Planning Necessary When Using Retirement Monies to Fund Startup Business

Brian Strahle, IGNORANCE MAY NOT BE BLISS WHEN IT COMES TO ‘ZAPPERS’  These are software apps designed to hide point-of-sale receipts from the taxman.

Phil Hodgen’s Exit Tax Book: Chapter 9 – Estate and Gift Tax for the Covered Expatriate

Catch your Friday Buzz with Robert D. Flach!

TaxGrrrl,  Former NFL Star Cites Concussions, Receives Prison Sentence For Role In Tax Fraud 

Leslie Book,  TIGTA Report on VITA Errors (Procedurally Taxing)

 

Howard Gleckman,  Can Expiring Tax Provisions Save the Budget Talks? (TaxVox).  “Sadly, it is hard to see how.”

 

Not strictly tax-related, but good reading anyway:  How to Put the Brakes on Consumers’ Debt(Megan McArdle).  Megan points out the wisdom of spending less than you take in, in preference to trying to get the government to cover your shortfalls.

 

News you can use: 3 ways to screw up your next website (Josh Larson at IowaBiz.com)

News from the Profession: Failed PwC Auditor Finds Success in Burning Bridges With This Ridiculous Farewell Email (Going Concern)

 

Quick thinking.  From The Des Moines Register:

A Des Moines man awoke to find a stranger in his living room Thursday afternoon, police said. When the victim confronted the burglar, the suspect reportedly offered to mow the victim’s lawn for $5.

Guy needs to work on his pricing model.

 

 

Share

Tax Roundup, 10/30/2013: Beggars night day edition! And why IRAs are scary as start-up investors.

Wednesday, October 30th, 2013 by Joe Kristan
MST3K-2 lantern

Stop by for treats tonight. You can find us by Son’s MST3K-themed pumpkin.

The Des Moines area has an unusual tradition for trick-or-treating on October 30, rather than October 31.   On our “Beggars Night,” it’s customary for the little monsters to tell a joke.  A perennial favorite:

What’s a pirate’s favorite restaurant?

Aaaarghh-bys!

So drive carefully tonight!

 

Speaking of scary, think of having your IRA disqualified and taxed currently, with penalties, for engaging in a prohibited transaction.  That’s what happened to a Missouri man in Tax Court yesterday.

The taxpayer, a Mr. Ellis, rolled $320,000 out of his 401(k) and put it into a self-directed IRA.  The IRA than bought 98% of a corporation (an LLC that elected to be taxed as a corporation) to open a used-car lot, where he began working as the general manager.  It went badly.  From the Tax Court opinion:

In essence, Mr. Ellis formulated a plan in which he would use his retirement savings as startup capital for a used car business. Mr. Ellis would operate this business and use it as his primary source of income by paying himself compensation for his role in its day-to-day operation. Mr. Ellis effected this plan by establishing the used car business as an investment of his IRA, attempting to preserve the integrity of the IRA as a qualified retirement plan. However, this is precisely the kind of self-dealing that section 4975 was enacted to prevent.

The result? $163,000 of taxes and penalties on the $320,000 invested in the used car lot — which, of course, may well not be very liquid, seeing that it’s all invested in a closely-held corporation.

This case has an interesting twist to those of us who follow tax cases too closely.  The IRA plan was apparently the work of  a Kansas City law firm whose attempt to make their practice income largely tax-exempt by funneling it through an ESOP-owned S corporation was shot down in Tax Court in 2011.  I’m just guessing here, but the IRS may have taken a look at that firm’s clients after seeing how aggressive the firm was in using retirement plans to shelter business income.

It’s tempting to have your IRA invest directly to avoid the current tax and 10% penalty that can apply to an early withdrawal.  The results, though, can be a lot scarier than any trick-or-treater.

Cite: Ellis, T.C. Memo 2013-245.

 

59pdhyefMore scary.  Econoblogger Arnold Kling has thoughts on whether Healthcare.gov might be saved:

My opinion of the distribution of likely outcomes is that it is bimodal. There is a high probability that the exchanges will be working at the end of November. I think that there is an even higher probability that they will be working never.

The public pledge where the new savior of the site impresses Mr. Kling, but he thinks the design issues might be intractable.

Andrew Lundeen, Scott Hodge,  The Income Tax Burden Is Very Progressive (Tax Policy Blog):

About half of the nation’s income is reported by taxpayers who make less than $100,000, and half is reported by taxpayers who make more. However, taxpayers who make less than $100,000 collectively pay just 18 percent of all income taxes while those who make more pay over 80 percent of all income taxes.

They have a chart, of course:

20131030-2

 

Howard Gleckman, Who Benefits from Muni Bonds? It’s More Complicated Than You Think (TaxVox) “…while most of the benefit of the tax-exemption goes to high-income investors, lower-income households who hold taxable bonds in their 401(k)s also receive some advantage.”

 

But they’re ready to regulate preparers! TIGTA: IRS Cannot Account for 23% of its IT Assets (TaxProf).

 

Jason Dinesen asks Is There a Way to Protect Yourself from Tax Return Identity Theft?   Use common sense — but if someone in your family dies, ID thieves may be able to get government-published information enabling them to steal the deceased’s identity no matter what you do.

TaxGrrrl, Somebody’s Watching Me: IRS Criminal Investigations Ramp Up Efforts To Thwart Tax ID Thefts   

 

David Brunori offers Tax Advice for State Legislators of All Parties (Tax Analysts Blog).  There’s a lot there, including this:

Both parties should also give serious thought to greater reliance on the property tax. Yes, I know people hate that tax. I also know that politicians find it advantageous to attack it. But the property tax revolts of the late 1970s and the 1980s have badly damaged the fiscal structure of state and local governments.

Don’t expect either party to heed the advice.

 

William Perez,  47% of Individual Taxpayers Earn Under $30,000

TaxProf, The IRS Scandal, Day 174

High-fiber diet.  Tax identity thief who ate debit card evidence is convicted (Kay Bell)

From Phil Hodgen’s series on expat taxes: Chapter 2 – Are You An Expatriate?

Carlton Smith, Byers v Comm’r – CDP Venue In Courts Of Appeals May Be Upended (Procedurally Taxing)

 

Joseph Thorndike, It’s Time to Give Up on Tax Reform (Tax Analysts Blog):

Tax reform? Don’t bet on it. Not this year, and probably not next year either. Tax reform, like everything else in Washington, is on hold pending the resolution of a broader, highly polarized debate about the role of government in American society.

 

Robert D. Flach has his Tuesday Buzz on Wednesday this week.

 

 

20131025-237-yard month penalty for former Eagle Mitchell.  The sentence was handed down yesterday in a Florida federal courtroom, reports the Orlando Sentinel.

The former NFL wide-receiver blamed brain injuries suffered on the field after pleading guilty to a plot where he helped convince Milwaukee Bucks player to use a Florida preparer to file a refund claim, which would be split between the NBA player, Mr. Mitchell, and the preparer.  The claim was fraudulent, and the NBA player wasn’t charged.  Mr. Mitchell also allegedly used an LLC to conceal other fraudulent tax claims.  Brain injuries are funny things.

 

News from the Profession: Dancing Accountant Nearly Thrown Out of a Bank For Dancing To “Money, Money, Money”  (Going Concern)

 

 

Share

Tax Roundup, 10/24/13: Payroll tax grief in Cedar Rapids. Also: suits, geeks, and Obamacare.

Thursday, October 24th, 2013 by Joe Kristan

bureauofprisonsNever borrow withheld taxes. A little story out of Cedar Rapids this morning has a big lesson for business owners: Former owner of Cedar Rapids security firm sentenced on tax charge (Dar Danielson, Radio Iowa).  In its entirety:

A former eastern Iowa business owner will spend over two years in prison on a tax violation. Forty-six-year-old Eric Holub of Clarence pled guilty to failing to forward withholding taxes he took out of his employee’s checks to the IRS.

Holub admitted to failing to send $460,000 in withholding taxes from January 2008 to December of 2009 for Premier Security, a private business he owned in Cedar Rapids. Holub was sentenced to 30 months in prison and three years supervised release.

Two paragraphs – just enough to tell an alert reader a story of financial catastrophe.    Court documents tell a bit more of the defendant’s story.  He had to use a public defender, so he’s broke.  He’s married with six kids, three under 10.  Even though he’s going away for 2 1/2 years, he still has to pay the IRS $438,426.17 somehow.  Small wonder he’s being treated for depression.

What we don’t learn is why he didn’t pay over his payroll taxes.  I handled payroll in the early days of our firm, and there were times when it sure would have been handy to not remit the payroll taxes right away, given other pressing cash needs.  Maybe cash was tight, and it seemed like a good way to pay vendors.  Maybe he figured he’d get caught up someday, but when the IRS didn’t react immediately, catching up seemed like it wasn’t so important.

In any case, it’s a huge mistake to not remit payroll taxes on time.  Penalties start running up immediately, and bankruptcy or using a corporation will not make the liability go away.  And more and more, the government isn’t satisfied the with getting the cash; they want jail time too.  30 months plus principal, interest and penalties for “borrowing” payroll taxes makes car title loans look like a bargain.

Links:

Indictment

Judgement

 

20130320-1Iowa R.V. Owners come in from the cold.  Iowa’s amnesty for R.V. owners who had skipped Iowa registration fees by registering their vehicles in Montana ended yesterday with “dozens” of settlements and “just over $100,000″ in fees collected, reports the Des Moines Register.  The idea that you could use a Montana LLC to skip registration fees in Iowa never seemed remotely plausible to me, but people will believe just about anything if it might save them a few bucks.

 

 

Arnold Kling, The Obamacare Suits/Geeks Divide:

In response to the WaPo story, I wrote a letter to the editor, which they published (mine is the third letter on this page). This is not a technical screw-up, and it will not be fixed by technical people. It is an organizational screw-up. And until that is recognized, it probably will get worse. I write,

In my experience, communication failures between technical staff and management reflect an atmosphere of fear and lack of mutual respect.

I call this the suits-geeks divide. I saw it during the financial crisis, when it was evident that many mortgage credit-risk geeks warned of problems at their firms but management went out of the way not to listen. Merrill Lynch and Freddie Mac were particularly well-documented cases.  

It’s starting to look like a delay of the individual mandate — the key tax provision that holds Obamacare together — is inevitable.   It may take some time yet for the administration to swallow this bitter pill, just after they shut down the government rather than accept a GOP-sponsored delay.

 

Megan McArdle,  Why Obamacare Is Like Three Mile Island. “All the pieces are interdependent, so a failure in one part is apt to cascade throughout the market. This is not a system where you want to start pulling out one piece to see how well the rest can get along without it.”

 

Des Moines Register, Lawmakers are warned of unfunded liabilities in pensions:

Iowa’s public employee pension funds face billions of dollars in unfunded liabilities, and tough scrutiny is needed to ensure taxpayers and public employees are protected, state lawmakers were told Wednesday.

Public defined benefit plans are lies.  The only question is whether the beneficiaries are being lied to with promises that won’t be kept, or the taxpayers are being lied to by politicians hiding the real cost of government payroll.  Probably both.

20130419-1TaxGrrrl,  IRS Issues More Guidance On Post-Shutdown Operations 

Kay Bell, IRS seeks volunteers for tax-exempt advisory panel.  I bet they get some Tea Party applicants.

 

William Gale,  The Illogic of the McConnell Debt Limit Rule (TaxVox)

TaxProf, TIGTA: Hundreds of Employees of IRS Contractors Owe Millions in Taxes

Dan Mitchell, Welfare Fraud Is another Reason to Replace the IRS with a Flat Tax.  More on the TIGTA EITC report we mentioned yesterday.

William McBride,  Ripe for Reform: Improper EITC Payments Exceed $11 Billion per Year (Tax Policy Blog)

Tax Justice Blog,  Illinois Ruling Strengthens Case for a Federal Solution to Online Tax Collection

Cara Griffith, In Defense of State Treasurers (Tax Analysts Blog)

 

Share

Tax Roundup, 10/23/2013: The Earned income tax credit thief subsidy feature. And: tax season delayed!

Wednesday, October 23rd, 2013 by Joe Kristan

Some smart people are big fans of the Earned Income Tax Credit. Some see it as a way to help the working poor, and some see it as a less destructive way to achieve the goals of minimum wages.

Yesterday the Treasury Inspector General for Tax Administration reported that from 21% to 25% of the earned income credit was paid improperly for the most recent fiscal year, and that $110 to $130 billion has been “paid improperly” over the past decade. That’s a nice way of saying “stolen.”

 

EITC error chart

Just because there is a lot of theft doesn’t by itself make a program bad — though that kind of loss rate would bankrupt anybody in the private sector.   Most people would send food to starving people in a war zone knowing that local warlords will be plundering some of it. But a program that comes at the cost of sending $11 billion annually to thieves needs to otherwise be a very good thing.   That’s not so clear with the EITC.

The credit does help the working poor — as long as they stay poor. As they work their way out of poverty, it becomes a trap. The phase-out of the credit imposes a punishing unstated, but very real, marginal tax rate.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC is only one program that does this; all “means-tested” welfare programs do this to some degree. It’s not uncommon for this implicit tax rate to exceed 100% at some income levels.

I don’t know what the right answer is (Arnold Kling has some ideas), but increasing the EITC, like Iowa did this year, isn’t it.

 

Oh, Goody. 2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume (IRS Press Release)

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. 

20131023-1It’s funny how programming IRS computers isn’t “essential,” but barricading open-air monuments is.

Other coverage:

William Perez, IRS Expects to Delay the Start of the 2014 Filing Season

Kay Bell, IRS won’t accept 2013 tax returns until Jan. 28, 2014

Russ Fox, Sigh: 2014 Tax Season to be Delayed up to Two Weeks

TaxGrrrl, IRS Announces Delayed Start To 2014 Tax Season   

 

Robert D. Flach, HOW TO DEAL WITH THE IRS AND LIVE TO FIGHT ANOTHER DAY

Paul Neiffer,  Taxpayers Want Their Cake, Frosting and Candles! Live by the low estate-tax value, die by the low estate-tax value.

Jack Townsend, Has the U.S. Aided International Tax Evasion?

Russ Fox,  Coming Attractions: When the IRS Writes New Law When They’re Not Allowed To.  A federal judge has allowed a suit challenging the IRS unilaterally extending the tax credit for insurance purchased on state-sponsored exchanges to policies sold on federally-run exchanges.

TaxProf, The IRS Scandal, Day 167

 

President Reagan signs PL 99-514, the Tax Reform Act of 1986.The Tax Policy Blog takes us on a nostalgia tour in  8 Technological Changes Since the 1986 Tax Reform.  Take a trip back to the days of “car phones.”

 

Clint Stretch, Whom Do Tax Reformers Want to Help? (Tax Analysts Blog):

When congressional leaders start talking about tax reform as if it will benefit everyone, someone should be asking: Whom are you trying to help? The answer may be Americans earning more than around $75,000 who have fewer itemized deductions, fewer kids, fewer healthcare benefits, and lower retirement savings than most.

I’m not convinced that’s the right way to look at it.  Getting rid of complexity and lowering rates helps everybody by eliminating dead weight loss and redirecting resources from tax planning and compliance to more useful pursuits.

Andrew Lundeen, A Lot Has Changed in the 27 Years Since the Last Major Tax Reform (Tax Policy Blog).  “The amount of credits, loopholes, and deductions has increase by 44 percent, from $844 billion (2013 dollars), to over $1.2 trillion (2013 dollars), with much of that growth coming from the expansion of refundable tax credits.”

 

Howard Gleckman, Congress Shouldn’t Forget About Tax Entitlements In Its Search for Deficit Reduction (TaxVox)

 

Tax Justice Blog,  Governor Scott Walker Appropriates State Budget Surplus for Campaign Season Tax Cut.  In Tax Justice World, returning money taken by force of law to the taxpayers is “appropriating” it.

 

David Brunori, Eliminating the Sales Tax Is a Very Good Idea (Tax Analysts Blog) “But ending a tax that preys on the poor and is increasingly difficult to collect may provide the economic boost Rhode Island needs.”

Brian Strahle, BLAMING THE PLAYERS FOR THE RULES.  “Regardless, most taxpayers are simply trying to comply with the maze and complexity of non-uniform multistate tax laws”

Joseph Thorndike, The Gas Tax Doesn’t Work Because Politicians Broke It (Tax Analysts Blog).  By not raising it, apparently.

 

The Critical Question:  JD Salinger – Was January 27 2010 A Good Day To Die ?  (Peter Reilly)

Career Corner.  First Round Interview Tips for This Fall’s Accounting Recruits (Going Concern)

 

Share

Tax Roundup, 6/26/2013: DOMA done. Trashing TIGTA. Also: preparer regulation appeal trial date set.

Wednesday, June 26th, 2013 by Joe Kristan

20120928-2Breaking: DOMA down.  The US Supreme Court has ruled against the Defense of Marriage Act.  Follow Jason Dinesen for more.

The Treasury Inspector General is coming under fire for not revealing that left-side organizations were included in some of the notorious “BOLO” lists.  In his defense, the IRS said the same thing when it revealed the targeting.  Also, it still appears that the treatment of right-side groups was different from that accorded to the left-side groups.  For example, while the left-side groups were mentioned as potentially troublesome on a 2010 BOLO list, Tea Party applications were subject to mandatory referral to higher-ups.

But some folks will continue to say the IRS is vindicated by its investigation of itself.

TaxGrrrl, Congress Clashes Over Conspiracy Theories & Political Agendas As IRS Targeting Appears To Include “Progressives”

 

TaxProf, TIGTA: IRS Credit Cards Used for Wine, Porn, $100 Lunches, $140 Dinners.  I’m sure there’s a reasonable explanation.   Also: The IRS Scandal, Day 48.

Huffington Post, IRS Official Helped Strong Castle Win Millions In Contracts, New Report Alleges.  It relates to information tech contracts.  IT has long been an IRS nightmare.

 

Peter Reilly, Enrolled Agents Deserve More Respect. Jason, for example.

 

Trial Date Set for IRS Appeal of Tax Preparer Lawsuit (Accounting Today).  The trial on the IRS appeal of the judicial shutdown of their preparer regulation power grab is set for trial September 24.   Nothing since then has given me any confidence in being more regulated by them.

Related: the Amicus brief in which I joined opposing the preparer regulation program.

 

Andrew Lundeen, Links: President Obama’s Climate Change Plan, Green Energy Tax Credits, and the Cost of Tax Hikes (Tax Policy Blog):

President Obama unveiled his new climate change plan today in a speech at Georgetown. Hopefully the plan strays away from using of the tax code as a means to bring about change. Something tells me it won’t.  

Politicians still think of the tax law as the Swiss Army Knife of policy.

 

Lyman Stone, Green Tax Incentives Just Don’t Work. (Tax Policy Blog).

This study should remind lawmakers and investors of a simple truth: the best decisions are based on long-term economic factors and market conditions. When businesses make decisions to leverage government favoritism, they fail.

You can generally omit modifiers like “green” when discussing tax incentives.

 

Phil Hodgen, Inheritance, dual citizens, and expatriation.

Tax Justice Blog, Amazon.com Bails on Minnesota, Shows Congress Must Act on Online Sales Taxes

 

Um, no. Do Private Equity Firms and their Partners Owe Ordinary Income Tax Under Today’s Law? (Howard Gleckman, TaxVox).  That certainly is not the IRS position, which matters quite a bit.

 

David Brunori, I Am Not Ayn Rand, But What About Me?

When I raise the issue of my taxes, people, particularly my liberal friends, immediately assume I am greedy, selfish, and uncaring. I would like to think I am none of the above. But that argument – which is seen a lot, particularly in social media, implies that supporting higher tax burdens makes one more charitable and ultimately a better person. Yet, paying because you are forced to pay is hardly being charitable.

Nor is it charitable to force other people to pay for things you want.

 

News you can use.  Lapping Schemes Are For Stupid People and Dogs with Access to Lidless Toilets (Going Concern)

 

Share

Tax Roundup, 6/5/2013: IRS line-dancing edition. And stimulus that works!

Wednesday, June 5th, 2013 by Joe Kristan

The IRS spent $4.1 million on a single internal conference in Anaheim, reports the Treasury Inspector General for Tax Administration.  Sure, it’s easy to mock the IRS for conferences, or for silly dance videos, though I find it reassuring to see that there are people in the IRS who have a sense of humor.

What bothers me is the priorities it shows.  For tax pros in Iowa, the best thing the IRS does is its Practitioner Liaison program.  Not only does our liaison do an excellent job of alerting us to processing problems during filing season and cutting through red tape, but she puts on well-attended and popular conferences that have to help the IRS get better-prepared filings.

Yet the Practitioner Liaison office is continually nickled and dimed.  There is always pressure to limit travel to outlying towns.  Our liaison has had to fill in for other states when their positions have been left vacant.  It just seems wrong that the IRS can find $135,000 for speakers to inspire agents in Anaheim, but not to fill the gas tank of someone in the field in Iowa doing useful and popular work.

It also doesn’t help the argument that the IRS just can’t afford to answer its phones or process exempt organization applications.

David Henderson (Econlog) posts a summary of what $135,000 got for the Anaheim attendees.

Kay Bell, Taxpayers picked up $49 million IRS conference tab over three years, including one that cost $4.1 million alone

 

TaxProf, The IRS Scandal, Day 27

Patrick Temple-West,  IRS scandal prompts hope for tax reform, and more

 

TaxGrrrl has a wonderful story about the beneficiaries of a California jobs tax credit:

This practice made news in the state when a local news crew focused on two strip clubs,   Deja Vu Showgirls of Rancho Cordova and Gold Club Centerfolds, found to have received thousands of dollars in tax breaks – without doing anything different from before. Those clubs benefited from their existing locations and were not lured to the area by the promise of tax incentives; additionally, their hiring practices weren’t influenced at all by the tax breaks. That isn’t the point of the credit, according to Sen. Hill and his supporters.

No, the point of the tax credit is to enable politicians to take credit for “creating jobs” by taking your money and giving it to somebody else.

Longtime readers know that The Tax Update has no use for any “economic development” tax credits.  These credits are generally paying companies to do what they would have done anyway — in this case, to disrobe.   At least these credits went for something people want, and there’s no questioning the stimulative effect.

 

Paul Neiffer, Update on Commodity Gifts

Missouri Tax Guy, Employee vs. Contractor… How to tell.

 

Peter Reilly, California Gets To Snack On Jerome James SuperSonics Salary   If you keep a house in California, don’t be surprised if California thinks you live there.

David Brunori, On its 35th Birthday, Prop 13 Remains Flawed (Tax.com):

But I think Proposition 13 was a horrible policy choice.  It devastated local government autonomy. Local governments in the United States have been the most efficient, effective, and democratically responsive means of providing public services. But that effectiveness is contingent on having an independent source of revenue. When the state finances local
government services, it is almost assured that those services will not be provided at levels demanded by citizens.

Joseph Henchman,   Nevada Approves $20 million/year to Subsidize Film and TV Production.  (Tax Policy Blog) They apparently have enough strip clubs.

Tax Justice Blog,  Brownback’s Kansas is Taking Tax Cuts to Extremes

 

Jack Townsend,  Swiss Enablers Are Worried, As Well They Should Be

Jim Maule, Code-Size Ignorance Knows No Boundaries.  The tax law is enough of a mess without exaggeration.

Robert D. Flach rounds up reaction to his defense of doing returns by hand.

 

Not if you do it right.  IRS Bashing Can Be Fun But Also Expensive (Joseph Thorndike, Tax.com)

 

 

Share

Tax Roundup, 4/30/2013: Iowa due date edition. Send them your cash, so they can forward it to thieves.

Tuesday, April 30th, 2013 by Joe Kristan
Via Wikipedia

Via Wikipedia

Legislator insists that thieves get $11 million as price of property tax deal.  As Iowans pay their 2012 balances due on today’s state income tax deadline, they may want to take a moment to ponder how careful the legislature is about spending the money they are sending in.

The Des Moines Register reports that Senator Joe Bolkcom demands an increase in the Iowa earned income credit as the price of a property tax bill:

Sen. Joe Bolkcom, D-Iowa City, chairman of the tax-writing Senate Ways and Means Committee, spoke at a Statehouse news conference sponsored by The Coalition for a Better Iowa, which released a booklet with the stories of Iowans who have been helped by the earned income tax credit. About 200,000 Iowa working families receive the tax credit, which assists households with incomes under $45,000.

Senate Democrats want to raise the earned income tax credit from 7 percent now to 20 percent at a cost of about $55 million annually.

Both Sen. Bolkcom and the Register fail to mention the massive fraud rate of the earned income tax credit.  The Treasury Inspector General for Tax Administration this month reported:

The IRS estimates that 21 to 25 percent of EITC payments were issued improperly in Fiscal Year 2012. The dollar value of these improper payments was estimated to be between $11.6 billion and $13.6 billion.

Applying that fraud percentage to Sen. Bolkcom’s proposal will result in $11.5 million to $13.75 million in “improper” — mostly fraudulent — Iowa EITC payments.   Remember that the EITC is a “refundable” credit, which means that if it exceeds your tax, the state writes you a check.  It’s a spending program, a welfare program.

I would say it takes a special kind of legislator to demand $55 million in spending knowing that it’s an appropriation of at least $11 million to thieves, but really it just takes a run-of-the-mill legislator spending your money instead of his own.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

 

Only somebody who doesn’t prepare tax returns would say something this stupid.  The TaxProf links to this from a University of Wisconsin academic:

 This Article analyzes the ongoing structural transformation by observing and explaining the advantages that accrue from pursuing social and regulatory objectives through the tax code. In particular, this Article identifies a number of legislative and normative advantages that tax-embedded policies offer.

The tax law has one important job: to raise revenue.  If this author had ever done business tax returns for a living, she would know what a challenge it is to simply determine taxable income.  If she had ever helped a client through an IRS audit, she would know how difficult it is for the agents to simply work through the accounting, let alone run a bunch of social programs on the side.  The author should be made to spend three years working at a storefront tax prep business to learn the chaos her views cause outside the faculty lounge.

 

Tony Nitti,  Overview Of The New 3.8% Investment Income Tax, Part 2: Passive Activities

Jeremy Scott, Baucus, the Marketplace Fairness Act, and Tax Reform (Tax.com):

Baucus’s shift to the right in the last few months (which people had assumed was positioning for the election next year) has antagonized more than just progressives.  It seems his Senate colleagues are growing frustrated as well. 

And that will severely hamper the chances that a major tax reform bill will make it to the Senate floor.

 

Judge Sentences Widow to Less Than a Minute of Probation in Tax Case (Accounting Today)

TaxGrrrl, Willie Nelson, Who Saved His Career And His House With The IRS Tapes, Turns 80

Nanette Byrnes,  Republicans pursue tax reform, and more  (Tax Break)

 

Brian Strahle,  STATE TAXES:  WHAT WILL MAKE YOUR COMPANY CHANGE – CHOICE or AUDIT NOTICE?  On not being in denial about your exposure to business taxes in other states.

Jack Townsend, a criminal tax defense attorney, offers some wise advise in  Tips to Avoid an IRS Criminal Investigation or, Worse, a Tax Grand Jury Investigation

 

It’s time for Robert D. Flach’s Tuesday Buzz!

 

Always heed tax policy advice from a violent cannibal boxer.  Boxer Mike Tyson TKOs Fox host with talk pro-tax talk (Kay Bell)

Martin Sullivan, To Balance the Budget: Tax Sex Appeal (Tax.com)  Yes. by all means cut my taxes.

 

Share

Tax Roundup, 1/18/2013: Iowan gets 87 months on Ponzi, tax charges.

Friday, January 18th, 2013 by Joe Kristan
87 months?  Holy Cow!

87 months? Holy Cow!

Iowan gets 7 years on Ponzi scheme, tax charges.  An Ottumwa man who used funds he was supposed to invest to finance his online dating life was sentenced yesterday to 87 months in federal prison on federal fraud and tax charges.  John Holtsinger, 52, will serve the federal sentence after he completes a state OWI sentence.

Mr. Holtsinger entered a guilty plea last year.   The indictment said he sold this improbable investment opportunity:

After conducting trades on behalf of investors for a short period of  time, Holtsinger offered and sold investments to the investors in the form of promissory notes.  He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death.  The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.

“High returns with no risk” is a rare beast indeed, nearly as rare as the Unicorn.  I doubt if they show up in Ottumwa very often.

 

IRS stimulates prison system economy by $35 million in 2010.  From a report by the Treasury Inspector General for Tax Administration:

Refund fraud committed by prisoners remains a significant problem for tax administration. The number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in Calendar Year 2004 to more than 91,000 tax returns in Calendar Year 2010. The refunds claimed on these tax returns increased from $68 million to $757 million. Although the IRS prevented the issuance of $722 million in fraudulent tax refunds during Calendar Year 2010, it released more than $35 million.

The new IRS regulation of tax preparers isn’t going to do much for this problem.  (via the TaxProf)

Related: Doing Your Time (Jack Townsend)

 

TaxGrrrl, As We Creep Closer To The Debt Ceiling Limit, Is Your Tax Refund At Risk?

Kay Bell, Government report fuels fear (again) of federal mileage tax proposal

Russ Fox, The Walking Dead Come Back.

Brian Mahany,  Taxpayer Advocate Questions OVDI, FBAR Penalties

David Cay Johnston, Foundering Tax Avoidance (Tax.com)

Paul Neiffer,  Watch Out For Those Retroactive State Tax Gotchas!

Nanette Byrnes, Facebook’s slump hits California’s budget, and more (Tax Break)

Joseph Henchman and Elizabeth Malm, New Report: Gasoline Taxes and Tolls Pay for Only a Fraction of Road Spending (Tax Policy Blog)

Catch your weekend Buzz early!  From Robert D. Flach.

Howard Gleckman,  A Tiny Little Blog Post on a Tiny Little Tax Bracket. (TaxVox).  Hey, I noticed it first!

News you can use:  Retaining CPAs Is As Easy As Letting Them Work in PJs and Attend Boring Meetings, Says Guy (Going Concern)

 

When outsourcing goes too far.  A story of how a model employee outsourced his own job. (Greg Mankiw).  Nice work if you can get paid while some guy in China does the dirty work.

Share

Tax Roundup, 10/23/2012. News of the obvious edition. And…look! Dead squirrels!

Tuesday, October 23rd, 2012 by Joe Kristan

Refundable credits are vulnerable to fraud, and IRS can’t recover the fraudulent payments.  The Treasury Inspector General for Tax Administration discovers the obvious,  reports Accounting Today (my emphasis):

A new report released Monday by the Treasury Inspector General for Tax Administration on refundable tax credits found that they are highly vulnerable to fraud. Refundable tax credits such as the EITC, the Additional Child Tax Credit, the First-Time Homebuyer Credit, and the American Opportunity Tax Credit for education also provide valuable tax breaks for low-income taxpayers and the middle class.

I call foul.  To say the “First-Time Homebuyer Credit” provides “valuable benefits for low-income taxpayers and the middle class” is lazy and dishonest propaganda.  That’s just the Accounting Today reporter’s assertion, and it appears nowhere in the TIGTA report.   The credit poured money into a declining housing market with little effect, other than blowing $30 billion.  The policy behind the other credits is at best arguable, and the benefits aren’t clearly “valuable” to taxpayers as a whole.

TIGTA initiated its audit to determine the effectiveness of efforts by the IRS to recover refundable credits disallowed during post-refund examinations and to consider options the IRS could implement to decrease the issuance of erroneous refundable credits. 

“Because of the susceptibility of these credits to fraud, and the low success rates in recovering erroneous credits once refunds have been issued, the IRS should take every reasonable step possible to identify potentially questionable credits and validate those credits before associated refunds are issued,” said TIGTA Inspector General J. Russell George in a statement.

So Doug Shulman’s IRS isn’t taking every reasonable step to keep from sending cash to thieves?  He’s been too busy terrorizing innocents abroad and setting up a vast, expensive and useless preparer regulation bureaucracy, apparently.

 

Attorney: West Des Moines firm’s outstanding liabilities to be paid soon (Des Moines Register).  The payroll service provider facing large bills for not remitting client payroll taxes timely says they will make good on them:

A West Des Moines human resources provider has paid its 2012 tax liabilities and has the funds necessary to pay off more than $4.8 million liabilities within the next three months, an attorney for the businessman said today

The Internal Revenue Service since 2006 has issued at least 15 tax liens against John Vratsinas and his collection of companies, InFocus Partners, Iowa Construction Logistics and ICL Staffing, according to court documents.

That’s good news for clients who might otherwise have to pay their payroll taxes twice, first to the payroll company and then to the IRS.  The taxman wants its payroll taxes, even when the payroll company already has received them.   Of course payroll providers shouldn’t fall behind on payroll taxes in the first place.  A wise employer will enroll in EFTPS and go online to monitor that the taxes are being paid, even when they outsource the job.

Also from the West Des Moines Patch: Attorney for West Des Moines Payroll Outsourcer Says 2012 Taxes Paid

Related Tax Update coverage here.

 

The TaxProf mentions an academic paper “Ranking State Tax Systems: Progressivity, Adequacy, Efficiency.”  From the abstract:

A good tax system must raise sufficient revenue – and do so fairly, efficiently, transparently, and coherently. How do the tax systems of the states stack up in terms of fairness, adequacy, and neutrality? To answer this question, we assess each state’s relative performance in terms of progressivity, growth, and administrative and economic efficiency.

Iowa rates 32nd by their measure. I think “progressivity” is a poor tool for measuring state tax systems.”Progressivity” is just a weasel-way of saying “high rates,” which create distortions and inefficiency, like in Iowa, while punishing pass-through businesses.  Any measure that rates the horrendous New York tax system as #1 is absurd.

 

Russ Fox, Bad States for Gamblers

Patrick Temple-West,  Essential reading: Democrats threaten payroll tax cut consensus, and more (Tax Break)

Trish McIntire,  Tax Backup.  Maintain your records.

Kay Bell,  Kiddie tax, gifts and other tax-related items do get 2013 inflation adjustments

William Perez,  IRA Contribution Limits for 2013

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Final Presidential Debate – Live Blog

Janet Novack,  10 Reasons Reagan Could Cut The Top Tax Rate To 28%, But Romney Can’t

Peter Reilly,  Debate Proceeds Despite Green Party Lawsuit – Hear Jill Stein On Defense Here

Anthony Nitti,  Clearing Up Confusion Created By The Debates: President Obama’s Tax Proposal And The Fate Of The Small Business Owner.  Anthony unfortunately repeats the pointless fact that increasing the Obama plan only affects “2.5 of small business owners.” That’s true when you rate your Shacklee-selling neighbor the same as a business with dozens or even hundreds of employees.

As the Tax Foundation notes, the Obama plan affects a much higher percentage of pass-through income, a more important measure than the number of Schedule C 1040s.  Anthony dismisses this as just a concern of hedge-funds and private equity millionaires.  My pass-through clients would disagree.

 

The Critical Question:  So Jason … How’s that Guidebook About Same-Sex Marriage and Taxes Coming?  (Jason Dinesen)

Stretch your coffee break:  How to Weaponize Office Supplies (Bloomberg Business Week, via Instapundit)

So the dog can do this, but I can’t?  Man cited for backyard squirrel hunt (KCCI.com)

Share

Tax Roundup, 10/16/2012: A rate-cutting tax reform for Iowa? Also: tax season is now really over.

Tuesday, October 16th, 2012 by Joe Kristan

Iowa’s Governor Branstad seems to be serious about this tax reform thing.  From WCFCourier.com:

Gov. Terry Branstad cautioned lawmakers against finding ways to spend the state’s projected budget surplus, while calling Monday for across-the-board tax changes.

Speaking at a Statehouse news conference, Branstad said he’s working on a tax reform proposal to “dramatically” cut personal, corporate and property taxes in the state.

Specifics would be announced later, he said, possibly when he delivers the Condition of the State speech next year.

An automotive representation of Iowa’s income tax.

Iowa’s basic tax system is little changed structurally from the one we had when the Governor took office the first time in 1983.  Substituting rate schedules, you could almost prepare a 2011 Iowa 1040 on 1984 forms.   You wouldn’t even have to substitute the rate schedule to prepare a corporate return; Iowa’s highest-in-the-nation corporation rate is unchanged since 1981.

While the basic structure is unchanged, the system has become infested with special interest deductions and credits over the years — a process that started under Governor Branstad and that got out of control during the 12-year interregnum between his fourth and fifth terms.

In some ways tax reform would be a reversal of course for the Governor.  He has continued the process of complicating the Iowa tax law with special breaks since his return, enacting new carve-outs for ESOPs and proposing special rules for “anchor manufacturers” while making a massive tax credit allocation to the new Southeast Iowa fertilizer plant.

But Governor Branstad also has some history as a tax cutter.   He signed a big rate cut that took effect in 1987, reducing Iowa’s highest individual tax rate from an insane 13% to a still painful 9.98%.  Yet that cut left the basic Iowa structure — including the individual deduction for federal income taxes — untouched.  When he made the huge allocation to the Orascom plant, he was at least embarrassed enough to say that it was an argument for corporate tax reform.

So will the Governor go big?  Will he embrace important elements of the Tax Update’s Quick and Dirty Iowa Tax Teform Plan, which would eliminate Iowa’s corporation tax and cut individual rates to around 4%, while sweeping away the federal income tax deduction and all special carve-outs?  Stay tuned.

Related: Tax Foundation 2013 State Business Tax Climate Index

 

Brutal Assault on Reason Watch: 

CRFB:  Repealing Deductions Could Lead to 30% Tax Rate Cut (Not Merely 20% Claimed by Romney) and Obama’s $49 Billion Tax Increase on Small Business in 2013 (TaxProf)

What the Joint Tax Committee Really Said About Tax Reform (Howard Gleckman, TaxVox)

Because Doug Shulman’s IRS would rather spend its resources licensing preparers than giving tax refunds to struggling businesses: DELAYS IN PROCESSING NET OPERATING LOSS CASES RESULTED IN MILLIONS OF DOLLARS IN UNNECESSARY INTEREST PAYMENTS (TIGTA report)

Anthony Nitti,  Can A Shareholder Own Corporate Goodwill?

Jana Luttenegger,  Basics of Estate Tax and Gift Tax (Davis Brown Tax Law Blog)

Peter ReillyDon’t Freak Out If You Hear Your Trust Is Defective

Trish McIntire,  98 Days and Counting.  98 days for 2012 tax planning.

News you can use:  I GIVE UP!  (Robert D. Flach) “The members of Congress are idiots.  More so now than ever before in our history.”

The Critical Question:  When it comes to auditing, just what does familiarity breed? (Nanette Byrnes)

Paul Neiffer,  Another Tax Season Bites The Dust

Mothers, hide your children.   Tax Professionals To Be Released Into the Wild Later Today (Going Concern). Oops, too late, that happened yesterday.

Oh, and happy Bosses Day.

 

Share

Tax Roundup, 10/4/12: IRS destroys taxpayer ID theft fraud reports. Also: the return of the Brutual Assault on Reason Watch!

Thursday, October 4th, 2012 by Joe Kristan

Because they’re too busy terrorizing Americans abroad who have bank accounts:  The IRS is Not Efficiently or Effectively Processing Identity-Theft Referrals, reports the Treasury Inspector General for Tax Administration.   From Tax Analysts (subscriber link):

     The IRS failed to investigate thousands of reported identity theft cases because taxpayers failed to follow inconsistent and confusing instructions for submitting a form to report tax fraud, the Treasury Inspector General for Tax Administration said in a report released October 3.

     The IRS instructs individuals to use Form 3949-A, “Information Referral,” to report suspected cases of tax fraud, but not identity theft. However, thousands of people have used the form to report identity theft cases because the instructions for the form are confusing, TIGTA said. Before May, the IRS did not have procedures in place for processing the Forms 3949-A that had been used to report identity theft, and in 2010 the IRS destroyed some 3,000 of the forms that had been used to report identity theft because there was no way to process them, the report says.

The explosion of identity theft has been the biggest IRS problem under Commissioner Doug Shulman’s watch.   Yet he has neglected and bungled the response to the thievery of up to $5 billion annually from the taxpayers so he could botch the “amnesties” for offshore bank paperwork foot-faults and build a new and useless preparer regulation bureaucracy.  His term ends soon; the next Commissioner has a lot of repair work to do.

Jack Townsend has more:  TIGTA Report on IRS Processing of Tips of Fraud

 

Brutal Assault on Reason watch.  I hate campaign debates and won’t watch them.  I agree with Arnold Kling:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed.  They are brutal assaults on reason.  I look forward to election season about as much as a gulf coast resident looks forward to hurricane season. 

But others have stronger stomachs:

Howard Gleckman,  What Did We Learn from the Presidential Debate? Not Much.

TaxProf,  Tax Whoppers in Last Night’s Presidential Debate

TaxGrrrl,  First Presidential Debate, 2012 – Live Blog and Romney Promises To Cut Taxpayer Funding For PBS (But Says He Still Loves Big Bird)

Anthony Nitti,  Reactions To Obama Versus Romney; Round 1

 

Bad idea.  The Romney campaign has floated a proposal to cap itemized deductions at $17,000 as a way to reduce tax rates.  That’s a bad idea for many obvious reasons.  If you are going to do that, why even bother?  Just have a $17,000 maximum standard deduction based on income.   By eliminating the deduction for state taxes paid, it would be a big tax increase on pass-through businesses operating in high-tax states.    William McBride at The Tax Policy blog gets it right:

Today Romney proposed to cap itemized deductions at $17,000, as a way to pay for his cut in personal tax rates.  This is not sound tax policy, as it would complicate the code, and likely require a number of exemptions and other loopholes.  For instance, how would legitimate business deductions be dealt with?  Which ones are legitimate? … It would be better to eliminate entirely certain wasteful tax expenditures, while lowering rates.

Other coverage:

Robert D. Flach,  LIMITING ITEMIZED DEDUCTIONS?

Martin Sullivan,  Romney’s Intriguing Idea (Tax.com)

Going Concern,  What Are People Saying About Mitt Romney’s Tax Deduction Cap Idea?

Kay Bell,  Romney suggests overall itemized tax deduction limit of $17,000

 

In non-campaign news:

Peter Reilly,  Navajo Nation Member Treated As New Mexico Resident For Income Tax Purposes

 Trish McIntire,  Kansas Taxing Business Losses

Jason Dinesen,  Would a New Name Help Enrolled Agents?  The new IRS “Registered Tax Return Preparer” designation can only be bad news for Enrolled Agents, whose much more stringent standards are little understood outside the professional world.  Many taxpayers have no idea of the distinction between these IRS-awarded titles.

News you can use: How To Make Partner In Five Easy Steps (or Don’t Give Up Now, Many Partners Are Going To Die Soon) (Going Concern)

 

Share

Tax Roundup, 9/28/2012: If you want to cheat on payroll taxes, get a government job. Plus: tax credits provide a man long-term housing!

Friday, September 28th, 2012 by Joe Kristan

A little personal liability for the unpaid taxes would get the point across.  The TaxProf passes on this nugget from the Treasury Inspector General for Tax Administration:

Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers.

When private or non-profit employers fail to remit payroll taxes, the IRS can impose personal liability on the “responsible persons” who fail to see that the taxes are paid.   The IRS can go after anyone from executives to bookkeepers to collect the unpaid tax.  It appears from the TIGTA report (page 2) that the IRS can’t or won’t apply this when government agencies are involved.   Another triumph of fairness from Doug Shulman’s IRS.  The TIGTA report recommends steps to address the problem, but tar and feathers would be a good start.

 

Contrast the IRS delinquent tax approach to other agencies with this:

Massachusetts Tax Fraud Promoter Sentenced to Prison for Conspiracy to Obstruct and Impede the IRS

A federal judge in Worcester, Mass., sentenced William Scott Dion today to 84 months in prison for conspiring to defraud the United States, and for obstructing the Internal Revenue Service (IRS), the Justice Department and IRS announced. U.S. District Judge F. Dennis Saylor also ordered Dion to pay restitution in the amount of $3 million. 

According to the evidence presented at trial, Dion, Floyd and Adams ran a payroll tax scheme in order to pay employees “under the table” without properly accounting for, withholding, and paying over to the IRS the payroll taxes required by law.

So a private sector actor gets seven years in the big house for scamming payroll taxes.   When a government agency budgeteer does it… nothing.

Other coverage: Kay Bell,  Uncle Sam owes himself $14 million in unpaid federal agency taxes

 

Think of it as a high-income housing tax credit.   Developer Gets 11 1/2 Years in Bank, Tax Fraud Scheme (HamptonRoads.com).

Eric Menden, the former owner of the Wainwright building and the old James Madison Hotel downtown, was sentenced Wednesday to 11-1/2 years in federal prison after admitting to his role in two fraud schemes that grossed more than $40 million.

Menden, 53, of Chesapeake, pleaded guilty to charges of bank and wire fraud and making false statements. He admitted his role in scamming the state and federal government’s historic tax credit program and to defrauding Bank of the Commonwealth out of tens of millions in a loan scheme.

Even when outright theft isn’t involved, “targeted tax credits” are normally a disreputable transfer from the taxpayers to the well-connected.

 

Howard Gleckman, A Modest Proposal: Five Ways to Tax the 47 Percent (TaxVox). I know he’s trying to show how outrageous it is to try to broaden the income tax base, but his first suggestion — repealing the Earned Income Tax Credit and the Child Tax Credit — is probably a good idea, and it would save the government billions of dollars in fraud losses.

In any case, if spending is not cut, the “47 percent” are going to see a tax increase, probably in the form of a Value Added Tax.  The “rich” simply don’t have enough money to cover the government’s incontinent spending, even if you took all their income.

 

Tax Policy Blog chart of the day:

 

Jack Townsend,  Former IRS Agent Charged with Conflict of Interest and Disclosing Return Information Including Whistleblower Name

Janet Novack,  Former IRS Examiner Charged With Leaking Whistleblower’s Name To Big Bank Target

Trish McIntire,  Livestock Deferment Extended

Russ Fox,   California Musings

Jim Maule, Taxes and Services

No kidding.   Corporate tax avoidance subsides when IRS audit threat increases, study finds (Nanette Byrnes, Tax Break)  Next thing you know, a study will show that motorists slow down when they see a state trooper running radar up ahead.

News you can use:  Cigarette Smuggling Can Make You $4 Million Dollars Richer  (Scott Drenkard, Tax Policy Blog)

Share

Legislators advocate nearly tripling fraud and waste

Friday, March 23rd, 2012 by Joe Kristan

The leaders in the Iowa Senate are pushing to increase Iowa’s Earned Income Tax Credit from 7% of the federal credit to 20%.  A report on the federal credit from the Treasury Inspector General for Tax Administration should give them pause:

The IRS estimates that 21 to 26 percent of EITC payments were issued improperly in Fiscal Year 2011. This equates to $13.7 billion to $16.7 billion in EITC improper payments.

It should give them pause, but it won’t.

Related: Incentives to stay poor

 TIGTA link via the TaxProf

 

Share

Because you can’t trust private agencies to collect taxes

Thursday, November 10th, 2011 by Joe Kristan

The IRS shut down its pilot program to use private collection agencies to pursue some tax delinquents in 2009. We were told the IRS was more effective at collecting the taxes. Now the Treasury Inspector General for Tax Administration has a report showing how that’s worked out:

When the PDC Program was discontinued in March 2009, the IRS recalled cases with a total assessed balance of $848.5 million from the remaining contractors. TIGTA reviewed the effectiveness of collection actions taken by the IRS on taxpayer accounts returned by the PDC Program.
The IRS did not always pursue collection actions on cases returned to the IRS or analyze the best practices of the private debt collection agencies in the PDC Program for possible improvement of IRS collection practices, TIGTA found.

TIGTA reviewed a statistical sample of 62 cases returned in Fiscal Year 2009 and found that collection actions were not taken for 29 (47 percent) of the 62 cases. These cases were not selected for collection action due to collection policies and inventory assignment practices. TIGTA estimates that potentially $30.7 million in collections will remain as outstanding liabilities. In addition, TIGTA estimates that the IRS may not collect an additional $103.2 million per year, or $516 million over the next five years, from similar cases in its inventory that would have otherwise been assigned to the PDC Program.

While I hate to ever agree with politicians, I agree with Senator Grassley’s take, as reported by Tax Analysts ($link):

“The IRS assured us all that the agency could do a better job with these tax cases than outside firms and didn’t need any help. It turns out that the IRS isn’t doing a better job and in many cases, isn’t doing the job at all,” Grassley said in a statement. “The IRS and Treasury Department went out of their way to stop a means of collecting tax debt that the IRS otherwise will never collect. They bowed to union pressure and terminated an alternative collection program before it had a chance to reach its full potential. It’s a shame the IRS continues to let tax debt slide while honest taxpayers pay what they owe. The agency should explain why that’s the case. And the Administration should be focused on collecting existing taxes owed before trying to impose new taxes, as is being suggested in deficit reduction proposals.”

But the lost revenues collections jobs don’t count, because they weren’t Treasury Employee Union jobs anyway.
Related: PRIVATE TAX COLLECTION: A MENACE?
UPDATE 11/14: Kay Bell has more.

Share

It’s complex and confusing. Why isn’t it more popular?

Tuesday, November 8th, 2011 by Joe Kristan

The TaxProf Blog has this headline today:

TIGTA: Only 14% of Eligible Small Businesses Claim ObamaCare Tax Credit

The IRS is just baffled as to why employers might be passing up this tax break:

According to the IRS, as of mid-May 2011, just more than 228,000 taxpayers had claimed the Credit for a total amount of more than $278 million. Among reasons given by industry groups and professional organizations for the low volume was the time and effort required to claim the Credit. The IRS plans to conduct focus groups to determine why the claim rate was so low.

Hey IRS, focus on this:

Click to enlarge
This should give pause to Congresscritters and experts who think that they can nudge us all into optimal behavior (whatever that means) by carefully-calibrated and phased-out targeted tax benefits. But it won’t.

Share