Posts Tagged ‘William McBride’

Tax Roundup, 3/16/15: Corporation returns are due today! And: IRS plays a cruel joke on 2011 non-filers.

Monday, March 16th, 2015 by Joe Kristan

20130415-1It’s March 16. That means calendar-year corporation and S corporation returns are due today. Failure to file on time can be expensive. If you are filing or extending today, protect yourself by e-filing. If you must paper file, use Certified Mail, Return Receipt Requested, to document timely filing. If you can’t get to the post office before it closes, you can go to the FedEx or UPS stores, but make sure you use the right Authorized Private Delivery Service and send it to the proper service center street address, as private services can’t deliver to the service center post office box addresses.

 

Flickr image courtesy Sean MacEntee under Creative Commons license

Flickr image courtesy Sean MacEntee under Creative Commons license

Hah! Fooled you! The IRS last week issued a press release: IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2011 Federal Income Tax Return.

If you haven’t filed your 2011 return yet and you want to claim your refund, you’re in for a nasty surprise: you’re probably already too late.

Section 6511 of the Internal Revenue Code (NOT the “IRS Code.” Stop that!) says (my emphasis):

Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. 

That means for most nonfilers, it’s too late to get that 2011 refund, and it’s 2012 refunds that expire on April 15.

Don’t believe me? Then believe Robert Wood

If you pay estimated taxes or have tax withholding on your paycheck but fail to file a return, you generally have only two years (not three) to try to get it back.  Suppose you make tax payments (by withholding or estimated tax payments) but haven’t filed tax returns (shame on you!) for three or four years? When you file those long-past-due returns, overpayments in one year may not offset underpayments in another.

This is why it is an awful idea to fall behind on filing. If you have a refund coming, it dies in two years, but if you owe and don’t file, the statute of limitations never starts, and the IRS can come after you anytime. If you have refunds coming for some years, but owe on others, you don’t get to offset the expired refunds against the amounts you owe. Heads they win, tails you lose.

I wonder if they do high-fives at the IRS Service Centers when people file their 2011 returns looking to cash in on that $1 billion.

Related: Kay Bell, April 15, 2015, is deadline for unclaimed 2011 tax refunds

 

You mean that wasn’t a guitar mass at 2 a.m.? Tax Exempt Church Turns Out To Be A Night Club (Robert Wood).

 

W2TaxGrrrl, Understanding Your Forms: W-2, Wage & Tax Statement

Kristine Tidgren, Proving That Loan Was a Gift Requires Evidence (ISU-CALT). If it’s documented as a loan and the “lender” dies, it will be hard to convince the heirs that you weren’t supposed to pay it back.

Annette Nellen, Busy Season Updates – TPR and ACA. Some practical thoughts on this tax season’s biggest new challenges.

Jason Dinesen, Financing a Small Business, Part 4 of 5: Don’t Spend Money Just to Get Tax Deductions. A disappointing amount of this happens right at year-end.

Jim Maule, Who’s to Blame for Tax Fraud?  “As to the first point, that tax software is not the reason for tax fraud, I agree.”

Russ Fox, Foreign Earned Income Exclusion Gets a Vegas Preparer in Hot Water

Jack Townsend, Sentencing of Ex-Casino Owner, Nevada Businessman and Former NFL Player for Fraudulent Tax Scheme

 

I went to a hockey game yesterday, and a wedding broke out:

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There was a pretty good fight, too. Not involving the couple, I’ll hasten to add.

 

William McBride, Critics of Rubio-Lee Tax Reform Are Way Off the Mark (Tax Policy Blog):

In sum, there are many reasons to think the Rubio-Lee tax plan, or something similar, would have tremendous growth effects. The Tax Foundation’s macroeconomic tax model finds that the plan is indeed extremely pro-growth, while raising the after-tax incomes of families up and down the scale.

While critics may challenge the magnitude of these findings, given the current state of the economy and middle-class wages, this is a serious plan that should spur an honest debate over how best to overhaul our dysfunctional federal tax code.

He addresses doubters like William Gale.

 

Jennifer DePaul, Michigan House Kills Film Tax Credit, Florida Lawmakers Look to Revamp Theirs (Tax Analysts, $link):

Bill sponsor Rep. Dan Lauwers (R) said the film industry has “sapped the state’s budget without creating promised full-time jobs.”

“For every dollar of taxpayer money we have invested into film subsidies, the state has gotten 10 cents in return from that venture,” Lauwers said in a statement. “There are so many more worthwhile uses we can put that money toward.”

It’s good to see a state legislator grasp the concept of opportunity costs. Florida lawmakers apparently didn’t get the memo.

Jared Walczak, Film Tax Credits on the Chopping Block in Massachusetts (Tax Policy Blog)

 

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IJReview, New Tax Scam: That ‘IRS Agent’ Calling and Threatening You For Your Money Is a Fake.

 

TaxProf, The IRS Scandal, Day 676The IRS Scandal, Day 675The IRS Scandal, Day 674. This one, quoting Roger Wood, tells you why the IRS will never be trustworthy under its current commissioner:

After the targeting scandal had been underway for over a year, Mr. Koskinen testified that recovery efforts had been thorough, but the tapes and emails just couldn’t be found. As if to goad Republicans, he said that millions in taxpayer money was spent looking. Over 250 IRS employees spent 100,000 hours, costing taxpayers at least $14 million. However, the Treasury Inspector General has revealed that the IT people at the IRS say no one even asked them to recover the emails.

A new commissioner isn’t sufficient to make the IRS trustworthy, but it is necessary.

 

Caleb Newquist, PwC Gave Former Ways & Means Chairman Dave Camp a Job. (Going Concern) It may be tax season, but I suspect he’s not going to be looking at any 1040s.

Peter Reilly, Looks Like No Charitable Deduction For Gifts To Steak And You Know Day. No, not baked potatoes.

 

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Tax Roundup, 3/5/15: More tax credits! Also: ACA on the dock again, and good tax news for gamblers.

Thursday, March 5th, 2015 by Joe Kristan

Accounting Today visitorsclick here for the frosty Iowa tax climate post, or go here for a longer treatment.

 

David Brunori has a wise post about Michigan’s disastrous tax credits: Tax Incentives Cause Trouble For More Reasons Than You Might Think (Tax Analysts Blog). “The history of job creation tax credits in Michigan is a story of corporate welfarism.”

20120906-1That’s just as true here in Iowa, where every legislative session seems to bring a new tax credit, to go with the dozens already on the books. From today’s Des Moines Register: New chemical production tax credit bill advances.

For example, companies like Cargill that produce ethanol and other fuels from corn produce corn oil in the process. The tax credit is geared toward companies that take that oil and other byproducts to create higher-value chemicals. Those higher-value chemicals can then be used to produce plastics, paints or pharmaceuticals.

The legislation would provide a credit of 5 cents for every pound of chemical a company produces. It would not apply to chemicals that are used in the production of food, animal feed or fuel.

These byproducts are already used somewhere. That means the credit would do one or more of the following:

– Subsidize companies that are already making the chemicals.

– Divert the byproducts from their current buyers — producers of food and animal feed, for example — to those who would receive subsidies, forcing the current buyers to find more expensive substitutes.

– Create subsidized competition for companies that already produce chemicals from other sources.

In short, they would take money from existing businesses and their customers and give it to someone with a better lobbyist.

The bill is HSB 98. The bill also contains increases in “seed capital” and “angel investor” tax credits, expanding the Iowa’s dubious role as an investment banker that doesn’t care whether it makes money.

 

supreme courtYesterday was the current Obamacare challenge’s day in the Supreme Court. It’s pretty clear that the four liberal justices will vote to uphold the IRS, and the subsidies to taxpayers outside of state exchanges. Justices Scalia, Alito and Thomas will vote no. The decision is in the hands of Justices Kennedy and Roberts, who aren’t giving much away.

I’ll defer to others for coverage of yesterday’s hearing, including:

Megan McArdle, Life or Death. “This morning, someone on Twitter explained that this case really is different because if the Supreme Court rules the wrong way, thousands of people will die. I find this explanation wholly unconvincing, for two reasons.”

Jonathan Adler, Oklahoma’s response to Justice Kennedy and Things we learned at today’s oral argument in King v. Burwell.

 

Russ Fox, IRS Proposes Session Method for Slot Machine Play and a Revision to the Regulations on Gambling Information Returns:

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

This is important for gamblers because gambling winnings are included in Adjusted Gross Income, but losses are itemized deductions. If you treat each play as a separate taxable event, then you inflate both the above-the-line winnings and the below-the-line deductions. Increasing AGI causes all sorts of bad things, including making Social Security Benefits taxable, and at higher levels causing a loss of itemized deductions and exemptions and triggering the Obamacare Net Investment Income Tax of 3.8%. Allowing winnings and losses to be netted over a day reduces this inequity.

 

IMG_1219Where red-light cameras take you. The Ferguson Kleptocracy (Alex Tabarrok, Marginal Revolution). When the role of law enforcement becomes picking the pockets of the citizenry, bad things happen.

 

 

Scott Drenkard offers a link rich state tax policy roundup: More Research against the Texas Margin Tax, New Kansas Pass-Through Carve Out Data, and Capital Gains Taxes in Washington (Tax Policy Blog). It includes this:

Barbara Shelly at the Kansas City Star has a review of the Kansas income tax exclusion for pass through entities that blew a hole in the budget. Kansas expected 191,000 people to take advantage of the exclusion, but 333,000 people ended up taking it, for a loss of $207 million in revenues. I testified today to the Ohio House Ways & Means Committee on a similar provision being considered by Gov. Kasich.

Imagine that.

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Kay Bell, Alabama’s GOP governor calls for – gasp! – new, higher taxes

Peter Reilly, Government Focusing On Codefendant Hansen As Kent Hovind Trial Commences. More coverage of the young-earth creationist tax case.

Robert Wood, Despite FATCA, U.S. Companies Stash $2.1 Trillion Abroad—Untaxed

TaxGrrrl, Taxes From A To Z (2015): B Is For Bona Fide Residence Test

 

William McBride, Rubio-Lee Plan Cuts Taxes on Business Investment to Grow the Economy by 15 Percent (Tax Policy Blog):

  1. It cuts the corporate and non-corporate (or pass-through) business tax rate to 25 percent.
  2. It eliminates the double-tax on equity financed corporate investment, by zeroing out capital gains and dividends taxes.
  3. It allows businesses to immediately write-off their investments, instead of requiring a multi-year depreciation.

Also:

Second, the growth in the economy would eventually boost tax revenue, relative to current law. We find after all adjustments (again, about 10 years) that federal tax revenue would be about $94 billion higher on an annual basis. This is our dynamic estimate. Our static estimate, i.e. assuming the economy does not change at all, shows a tax cut of $414 billion per year. We believe the dynamic estimate is much closer to reality.

For another (non-dynamic?) view, there’s Howard Gleckman, The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt. (Tax Vox)

 

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Accounting Today, Senate Report Blames Tax Pros for Unfair Tax Code. I think that’s a little like criminals blaming their victims for their crimes. I agree with Tony Nitti: Senate Report Blames Tax Professionals For Inequities In The Tax Code; Is Completely Insane.

 

TaxProf, The IRS Scandal, Day 665.

Joseph Thorndike, Voters Are Confused About the Difference Between Tax Avoidance and Evasion – Because Politicians Blur the Line (Tax Analysts Blog)

 

News from the Profession. PwC Concludes Female Millennials Are Great For Vague, Pointless Research (Adrienne Gonzalez, Going Concern). “It’s the 3% that don’t care about work/life balance I’m worried about…”

 

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Tax Roundup, 12/26/14: Bad SHOP-ing day: Iowa SHOP health insurance provider goes into receivership.

Friday, December 26th, 2014 by Joe Kristan

cooportunity logoSmall businesses wanting to provide health insurance coverage for their employees got a lump of coal in their stocking Christmas Eve with the announcement that CoOportunity Health, Inc. was placed in receivership by the Iowa Insurance Division. The Omaha World Herald reports:

CoOportunity Health, the two-year-old Iowa health insurance cooperative set up with federal loans under the Affordable Care Act, is running out of money and may be liquidated, which raises questions for other health insurance cooperatives nationally.

The company’s 120,000 individual and group customers, most of them in Nebraska and the rest in Iowa, are still covered if they signed up before Dec. 15 and should continue paying premiums to keep coverage in effect, said Nick Gerhart, Iowa’s insurance commissioner.

When the insurance division takes over an insurer, their policies remain in force while the insurer is either reorganized, sold or liquidated. But that doesn’t apply to brand-new enrollees. From the Herald:

But he recommended that policyholders switch to other insurance companies during open enrollment, which ends Feb. 15. People who enroll in new health plans by Jan. 15 would have that coverage in place by Feb. 1.

People who signed up for the first time with CoOportunity after Dec. 15 will not have coverage and should find other insurers, he said. CoOportunity, one of 24 health insurance cooperatives set up under the federal health care law, cannot sell or renew policies.

CoOportunity provided coverage on both the individual healthcare.gov marketplace and the “SHOP” marketplace for small businesses. A FAQ (.doc format) from the Iowa Insurance Division on the takeover has this for small businesses looking for coverage:

If I want to remain in the marketplace and change insurance companies, where do I go?

Contact your agent or broker or go to www.Healthcare.gov.

In central Iowa the website isn’t much help. In our coverage area, CoOportunity was the only SHOP provider, as far as I can tell. I have entered sample information in the SHOP marketplace for our 50309 zip code, and I get this result:

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This makes life complicated for small businesses that don’t currently have “grandfathered” coverage. The “marketplace reforms” of the ACA have a long list of requirements for qualifying coverage. If you provide coverage that fails to meet these rules, you incur an insane penalty of $100 per day, per employee. You need to make sure your broker knows if you don’t qualify for a grandfathered plan.

This also causes problems for employers wishing to take the 50% tax credit for providing employee coverage, as the credit is only available for plans purchased through the SHOP.

Roth & Company considered a plan offered by CoOportunity at our renewal last fall. It was slightly cheaper than our current plan (for which we had a 30%+ premium increase), but we stuck with our grandfathered plan, thinking the disruption to our employees wasn’t worth the minor savings. Bullet dodged.

More coverage:

Des Moines Register, CoOportunity Health falters, taken over by state.

Bob Vineyard, Another One Bites the Dust (InsureBlog).

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Peter Reilly, Tax Court Rules Wounded Warrior Can Take His Time With The Trash – Merry Christmas. Peter discusses a wonderful Tax Court case from earlier this week that treats a disabled veteran as “materially participating” in maintaining three rental properties as a real estate professional. His handicaps, which make his caretaking a slow process, actually helped him achieve better tax results, as Peter explains.

TaxGrrrl offers A Christmas Day Look At Santa’s Tax Bill.

Kay Bell, Merry Christmas 2014

Paul Neiffer, Merry Christmas – 2014

Jason Dinesen, From the Archives: You Won a Home! Now What? Part 3 of the Series

Jim Maule, Enact Tax Laws But Break Them?:

Even if Representative Michael Grimm eventually gives in to the calls for his resignation or is removed in some way from holding office, his failure to step down as part of the plea is an affront to hard-working Americans who do their best to comply with the tax law.

Heck, it’s even an affront to lazy Americans.

 

buzz20141017Robert Wood, IRS Hid Conservative Targeting Until After 2012 Presidential Election. Smidgen Corrupt?

Stephen Olsen, Summary Opinions. It’s the Procedurally Taxing roundup of recent tax procedure developments.

Many folks are taking today off, but Robert D. Flach is Buzzing away with his usual good stuff from around the tax world.

TaxProf, The IRS Scandal, Day 596

 

William McBride, Japan Plans to Cut Corporate Tax Rate, Leaving U.S. Further Behind (Tax Policy Blog):

Japan currently has a corporate tax rate of 37 percent, the second highest in the developed world after the U.S., which has a corporate tax rate of 39.1 percent (federal plus state). With this cut, Japan would be roughly tied with France for the second highest corporate tax rate in developed world, at 34.4 percent.

Iowa has the highest corporate rate in the U.S., which makes us Number 1 in a not-good way.

Howard Gleckman, House GOP Leadership Would Require Dynamic Scoring of Some Tax Bills. Will It Matter?

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Scott Sumner, The French experiment: Laffer >>>>>>> Piketty. (Econlog). France imposed a 75% top rate. Mr. Sumner observes:

Even if you are not a devout supply-sider (and I am a moderate supply-sider, who believes tax increases usually lead to more revenue) it would be hard to deny that this particular tax increase cost revenue, after accounting for the impact of French economic growth.

There are people who seriously insist that a 75%-90% top tax rate would be a good thing. France is Exhibit A.

 

The Cavalcade no longer moves on. The Cavalcade of Risk, the long-running roundup of insurance and risk-management posts is ending. It’s guiding light, Hank Stern, posts the final edition, which includes his own contribution Green Mountain State Blues, on the demise of their attempt at single-payer coverage in one state.

 

 

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Tax Roundup, 12/19/14: What to do when capital gain tax is voluntary. And: no signature yet.

Friday, December 19th, 2014 by Joe Kristan

Programming note: The Tax Update will be taking a long weekend. Back Wednesday.

The President hasn’t signed the extender bill yet. Everyone says he will sign HR 5771, but a lot of taxpayers will feel better when its official.  You can frantically refresh the Whitehouse.gov “Signed Legislation” page to watch for it.

 

Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So you cashed out some stock market gains this year. That makes it a good year to cash out your losers too. Capital losses can be deducted on individual returns to the extent of capital gains, plus $3,000.  That means if you have some unrealized losses on other investments, paying tax is optional to that extent.

If you don’t want to volunteer to pay those extra capital gain taxes, here are some tips for deducting your investment losses:

The loss has to be realized in a taxable account. Selling a loser in an IRA or 401(k) plan doesn’t give you a deductible loss.

-Be sure the trades are executed no later than December 31. For long positions, the trade date controls.

-If you have a loss on a short sale, the settlement date has to be no later than December 31.

-You can’t buy the same stock within either 30 days before the sale or 30 days afterwards. If you do, the “wash sale” rules disallow your loss. The IRS says this rule applies even if your loss is in a taxable account and your gain is in a non-taxable IRA.

Related: Topic 409 – Capital Gains and Losses (IRS.gov)

 

20120906-1Robert Wood, Ranking Facebook, Boris Johnson, Google On Taxes (Diplomatically Please). Well, Boris Johnson is the only one who doesn’t collect corporate welfare from me via the State of Iowa.

Kay Bell, Good news: the 2015 tax-filing season will start on timeBad news: It will be pretty miserable for IRS and taxpayers. Whee.

Jack Townsend, The Rub Between Restitution Assessed as a Tax and a Deficiency

Jim Maule, Code Size Claim Shrinks But Not Enough. The code is bad enough. There’s no need to exaggerate.

Peter Reilly, First Circuit Loss For Transgender Prisoner May Have Positive Tax Implications For Others. Peter can find tax implications in places I wouldn’t have thought to look.

Robert D. Flach gets us Buzzing into the big holiday week.

 

20120702-2Kristopher Hauswirth has been pondering the Farm Bill:

Commodity producers with the resources and/or level of sophistication to confidently optimize their farm bill decisions least need the safety net. While the smallest and/or least sophisticated producers will have to stumble into positive outcomes, if they benefit at all.

The greatest beneficiaries of this law are the people who have serve no public interest in benefitting from a program of this nature. They are the people and entities that create the system, unlock the riddle, and administer the program: lobbyists, lawmakers, attorneys, accountants, and government agencies.

So it’s pretty much like the tax law, then.

 

William McBride, New Research Shows Multinational Corporations Have No Tax Advantage Over Domestics (Tax Policy Blog). “The study calls into question policy makers’ emphasis on international “profit shifting,” including the elaborate efforts by the OECD and rich-country governments to crack down on MNCs exclusively.”

William Gale, Magical Thinking on Tax Reform (TaxVox). “Tax reform is important but policy makers and the public should not be misled about its true trade-offs. Unfortunately, the benefits of reform are more modest than its backers sometimes claim and its costs are often higher.”

TaxProf, The IRS Scandal, Day 589

 

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Clint Stretch, Did Next Year’s Holiday Gift Shopping Just Get Easier? (Tax Analysts Blog). “President Obama’s move to normalize relations with Cuba may add Cuban cigars and Cuban rum to next year’s holiday gift possibilities.”

Sebastian Johnson, What to Buy the Discerning Policy Wonk in Your Life: The ITEP/CTJ Holiday Gift-Giving Guide. The Tax Shelter Coloring Book!

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern). “Now, let’s talk about alcohol. Just because you can get blitzed on Fireball shots doesn’t mean you should.”

 

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Tax Roundup, 10/15/14: Extended return do or die day – tips on timely filing, and why you should do that.

Wednesday, October 15th, 2014 by Joe Kristan

20130415-1Friends, it’s deadline day. Extended 1040s are due today for U.S. residents. No second extension is available.

What happens if you don’t file?  Nothing good.  A few of the bad things that can happen:

If you owe money, you can turn a 1/2% per-month late payment penalty into a 5% per month late-filing penalty.

If you have an election to make that can only be made on a timely-filed return — for example, an election to defer insurance gains, or to carry forward net operating losses – you lose the chance to make that election forever.

If your return would include a foreign disclosure, such as a Form 8938, Statement of Specified Foreign Financial Assets;  a Form 5471, disclosing an interest in a foreign corporation; or a Form 3520 if you have a foreign trust or a gift from a foreign personlate filing can trigger a $10,000 penalty.

– You don’t start the statute of limitations, so the IRS can come after you indefinitely for the tax year.

– Not filing can cause you to lose refunds. If you don’t file, you lose your ability to get a refund of withheld taxes after two years.

Failure to file is habit forming, and it’s a costly habit. Even if you owe and can’t pay, you still should file; you have options when you owe and can’t pay.

e-file logoWith so much on the line, it’s worth a little effort to make sure your last minute return is treated as timely-filed.  E-filing is the best way to ensure timely filing. There’s no worry about lost mail, and you get quick confirmation from the IRS.

If you must paper file, either out of conviction or because you are filing a form that can only be filed on paper, you should send it Certified mail, return receipt requestedGet down to your friendly post office and get the postmark hand stamped. And get there early; they often aren’t so friendly, or willing to hand-stamp your certified mail postmark, if you show up at closing time. And sometimes they consider that to be approximately “after lunch.”

If you can’t make it to the post office before closingall is not lost. You can go to a FedEx store or a UPS store and use a designated private delivery serviceBe sure to use one of the specified services. For example, “UPS Next Day Air” qualifies, but “UPS Ground” does not.  Get a shipping receipt with today’s date. And remember to use the street address for the IRS service center, as private services can’t deliver to the post-office box addresses.

 

Kay Bell, Tax Day 2014, the sequel: Oct. 15 Filing Extension Panic

Jason Dinesen, My Response to the IRS Saying I Can’t Speak On My Own Behalf

Peter Reilly, UnFair – One Night Stand Tonight – Exposing IRS Or Fair Tax Infomercial?

 

Keith Fogg, Picking the Wrong Collection Due Process Notice to Petition (Procedurally Taxing)

TaxGrrrl, Ireland Declares ‘Double Irish’ Tax Scheme Dead

 

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William McBride, U.S. Companies Continue to Flee Uncompetitive U.S. Tax System (Tax Policy Blog)

Matt Gardner, The Inversion Parade Continues: Steris Announces Pretend Move to Britain (Tax Justice Blog)

Howard Gleckman, The Small, Happy World of Supersized IRAs (TaxVox)

Joseph Thorndike, Forget Privacy — It’s Time to Tax Miles, Not Gas (Tax Analysts blog).  How do I put this politely? No, it’s not.

 

David Brunori, Schooling the Governors (Tax Analysts Blog) “Back when my libertarianism was still in the closet, I wrote critically of the Cato report card. I now regret my harsh critiques of the project because I believe Cato does the nation a great service by analyzing, assessing, and rating state executives.”

 

TaxProf, The IRS Scandal, Day 524

The new Cavalcade of Risk is up at Chatswood ConsultingThe ancient and venerable roundup of insurance and risk management posts has many highlights, including Hank Stern on Ebola and your health coverage.

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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Tax Roundup, 8/28/14: Frequent flying in the Tax Court. And: you don’t need 50 employees to face Obamacare problems.

Thursday, August 28th, 2014 by Joe Kristan

20120529-2TaxGrrrl, Tax Court Sides With IRS In Tax Treatment Of Frequent Flyer Miles Issued By Citibank.  TaxGrrrl reports on a case this week where a taxpayer was awarded with “points” for opening a bank account, which could be redeemed for airplane tickets.  A couple who cashed in the points for tickets worth over $600 received a 1099 for them and left it off their 1040.

TaxGrrrl reports:

Thankfully, the Tax Court did draw a distinction between the taxability of “Thank You Points” and frequent flyer miles attributable to business or official travel using Announcement 2002-18 (linked above), wherein the IRS made clear that they would not tax frequent flyer miles attributable to business travel. But that’s where the good news for taxpayers stopped.

TaxGrrrl thinks its a bad result:

In a case of what could be characterized as bad facts making bad law, taxpayers didn’t put up much of an argument for not including the income on the tax return: there was no lengthy brief explaining why it might be excludable. Nor did the IRS say much about the inclusion: they more or less took the position that Citibank’s form was enough to prove income, saying “we give more weight to Citibank’s records.”

The Tax Court made this a “reported” decision, which signals that they will side for the IRS in taxing miles that show up on 1099 information returns.

The tax law certainly allows non-cash transactions to be taxable.  If they didn’t, barter exchanges would rule the world.  It’s also true that at some point trying to tax everything of value doesn’t make sense.  You might value the smile from the cute barista on the skywalk, but that doesn’t mean you should pay tax on the extra value received with your coffee.  The hard part now is knowing when you cross the line.

Cite: Shankar, 143 T.C. 5

 

20121120-2Health Reimbursement Plans a danger under Obamacare.  Health Reimbursement Plans Not Compliant with ACA Could Mean Exorbitant Penalties  (Kristine Tidgren):

As of January 1, 2014, a number of long-time options became illegal under the ACA. Lest employers are tempted to ignore this issue, they should know that offering noncompliant plans subjects them to a possible excise tax of $100 per day per employee per violation. ACA violations are no small matter.

In IRS Notice 2013-54, issued last fall, the Treasury Department and the Department of Labor made clear that such plans are no longer allowed. This prohibition applies to a number of long-used standalone health care reimbursement plans that are not integrated with an ACA-compliant group health care plan. Although some exceptions apply, the ACA has made the following types of reimbursement plans illegal (subjecting their sponsors to the possible $100/day/employee/violation penalty tax):

  • Standalone §105 medical reimbursement plans (including Health Reimbursement Arrangements (HRAs))

  • Employer payment of individual health insurance premiums on a pre-tax basis

  • §125 salary-reduction plans for employee health insurance premiums


If you think that you don’t have to worry about Obamacare because you don’t have 50 employees, think again.


Roger McEowen, Structuring the Business: S Corporation or LLC?.  “But, beyond the requirement to pay reasonable compensation, the S classification provides a means for extracting money out of the business without paying employment taxes – there isn’t any employment tax on distributions (dividends) from the S corporation.”


20130311-1Jason Dinesen, Tax Preparer Ethics: Miscellaneous Deductions:

Is it okay to show the purchase as a miscellaneous deduction if the amount is less than 2% of their income and thus isn’t deductible anyway? That way, the taxpayer sees it on their tax return but technically the government hasn’t been harmed because the amount was too small to actually be deducted. Is this okay?

This can be tempting for a practitioner.  You can “take” a deduction for “subscriptions” that are probably Sports Illustrated and appease a pushy taxpayer without actually reducing taxes.  But Jason makes good points as to why it can make it hard to stop taxpayers from pushing for bogus deductions that actually matter.


Peter Reilly, Bank Out 40 Grand When It Allows Withdrawal Two Hours After IRS Levy.  Oops.

Kay Bell, Be tax smart in combining business and personal travel

Phil Hodgen, Toronto Consulate Wait Times Have Ballooned.  They’re lining up to get out from under U.S. taxation.  Phil offers this advice:

Many of you will want to renounce your U.S. citizenship before year-end. You can go anywhere in the world to do it. Start calling Consulates and Embassies to see what the wait time is.

Our experience is that the Caribbean and Central American countries are often good. Southeast Asia seems to be good as well.

That’s a sad commentary on how we tax Americans abroad.  Congress makes financial life miserable for expats, and then calls them “deserters” for doing something about it.

 

Stephen Olsen, Boeri: Not a citizen, never lived or worked in the US? IRS will still keep your money. (Procedurally Taxing).  Of course they will.  They’re bigger than you.

 

 

Remember, these are the people who think we preparers are out of control and in need of regulation.  IRS Ethics Lawyer Facing Possible Disbarment, Accused of Lying (Washington Times):

A lawyer in the IRS ethics office is facing the possibility of being disbarred, according to records that accuse her of lying to a court-appointed board and hiding what she’d done with money from a settlement that was supposed to go to two medical providers who had treated her client.

Of course, given Commissioner Koskinen’s policy of stonewalling and evasion, she might be just the woman he wants for the job.  (Via TaxProf)

 

 

William McBride, Canada’s Lower Corporate Tax Rate Raises More Tax Revenue (Tax Policy Blog):

The natural question is: How much tax revenue did Canada lose?

Answer: None.

canada corp revenue chart

You shouldn’t assume that the lower rate caused the revenue increases.  Still, when our current rates clearly incentivize tax-saving moves like inversions, you shouldn’t assume rate cuts will be big revenue losers, either.  The revenue-maximizing rate has to be influenced by rates charged in other jurisdictions.

 

Cara Griffith, Is the Dormant Commerce Clause in Jeopardy? (Tax Analysts Blog)  “In matters of state taxation, the dormant commerce clause provides a much stronger defense against discriminatory taxation than the due process clause.”

Kelly Davis, Cumulative Impact of Ohio Tax Changes Revealed (Tax Justice Blog)

 

TaxProf, The IRS Scandal, Day 476

 

News from the Profession.  California Board of Accountancy Moves to Stop Incarcerated CPA From Providing Exceptional Client Service in Prison

 

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Tax Roundup, 8/27/14: Inversions! Fire! Flee! FIRPTA! Edition. And: state credits and the race for Governor.

Wednesday, August 27th, 2014 by Joe Kristan

20140815-2DOOM! PANIC!  Corporate inversions!  DO SOMETHING!  This isn’t the first time politicians have gotten their dresses over their heads in a pseudo-patriotic panic over legal transactions, as Ajay Gupta explains for Tax Analysts ($link):

FIRPTA is a statute conceived in xenophobia and dedicated to the proposition that not all investors are created equal. It is nothing more or less than the embodiment of a congressional desire to limit the grasp of foreign investors on domestic real estate.

“FIRPTA” is the Foreign Investment in Real Property Tax Act, and it requires buyers of U.S. real estate to withhold 10% of the gross purchase price paid to non-U.S. sellers.  In practice, it functions as a trap for unwary U.S. buyers who fail to withhold, leaving them liable for the withholding liability on top of their purchase price.  It arose out of the panic over a wave of Japanese purchases of U.S. real estate — a panic that we can now see clearly as madness.  Yet FIRPTA lives on, long after the Japanese moved on to other things.

Things like this tell us that the best way to deal with the current panics, like corporate inversions, is to not “do something” that will surely be half-baked and haunt the tax law forever.

 

Megan McArdle, Burger King and the Whopper About Taxes (my emphasis):

As my colleague Matt points out, most Americans — including a lot of journalists who write about this — seem to be under the misimpression that companies that invert, or people who renounce their citizenship, are doing so to get a lower tax rate on income they earn here. And in a few intellectual-property-based businesses, which can make aggressive use of transfer pricing strategies to declare most of their income in low- or no-tax countries, these complaints have some basis. In most cases, however, including Burger King, they’re doing it because the U.S. inexplicably insists on taking a big chunk off the top of all their foreign income, and making their lives miserable in the process.

But, but, deserters!  Traitors!

 

canada flagIf you are wondering why Burger King might be attracted to Canada,  read How Much Lower are Canada’s Business Taxes? (William McBride, Tax Policy Blog):

First, Canada has a much lower corporate tax rate: 15 percent at the federal level plus another 11 percent on average from provincial corporate taxes. Compare that to the U.S. federal corporate tax rate of 35 percent plus an average state corporate tax rate of about 4 percent.

Second, Canada has a territorial tax system, meaning there is no additional repatriation tax on foreign profits. The U.S. has a worldwide tax system, which applies a repatriation tax to foreign profits when those profits are brought back to the U.S. The repatriation tax is basically the difference between the foreign corporate tax rate and the U.S. corporate tax rate, which is typically more than 10 percent. The average foreign corporate tax rate in the developed world is 25 percent.

Third, the U.S. is not particularly competitive in terms of taxing shareholders. Canada integrates its corporate tax with shareholder taxes to avoid double-taxation. In the U.S. it just piles up, so the integrated corporate tax rate on equity financed investment is over 50 percent.

A corporation pays 35% federal tax on its net income, leaving 65% for the shareholders.  If it gets distributed to a top-bracket taxpayer, it gets hit at 20%, plus the 3.8% Obamacare surtax. That is a combined effective rate of 50.47% — and that’s low, as it doesn’t count phase-outs or state taxes. Yet congresscritters profess astonishment that anybody would find that a problem worth solving.

 

Howard Gleckman, Could The U.S. Fix Taxation of Multinational Corporations With A Sales-Based Formula? (TaxVox) “Instead of focusing on the real disease—an increasingly dysfunctional corporate income tax—we are obsessing over a symptom—firms such as Burger King engaging in self-help reform by relocating their legal residences overseas.”

Joseph Thorndike, Warren Buffett Is a Tax Avoider. Good for Him. (Tax Analysts Blog). Now Mr. communitarian billionaire who wants high taxes for other people is a deserter too.  Is nothing sacred?

 

20140729-2Paul Neiffer,  $563 Cost a Taxpayer $6,320:

If the taxpayers had simply paid the $563 of additional tax owed on the original assessment, that is all they would have been out-of-pocket.  However, when they went to court, the IRS determined that they had made a math error in their original calculation of AMT and reassessed the tax owed from $563 to $6,883 or an increase of $6,320.  Since this calculation was now correct, the Tax Court honored the IRS calculation and suddenly the taxpayers suddenly owed another $6,320 just for going to court.

Oops.

 

TaxProf, The IRS Scandal, Day 475.  It links to this from George Will: “The IRS is the most intrusive and potentially punitive institution of the federal government and it is a law enforcement institution and it is off the rails and it is now thoroughly corrupted.”

And the IRS Commissioner thinks all his agency needs is more money.

 

Kay Bell, IRS, betting that expired state and local sales tax deduction will be renewed, hires firm to calculate Schedule A tables

TaxGrrrl, IRS Still Struggling With Tax Treatment Of Immigrants, Changes Rules Again   

Jack Townsend, BASR Briefs On Issue of Unlimited Statute of Limitations for NonTaxpayer Fraud

David Brunori, Repealing the Bad Franchise Tax is a Good Idea (Tax Analysts Blog).  “Eighteen states still impose a franchise tax; they shouldn’t.”

 

MP branstadBy all means, lets make state tax credits an issue.  The Branstad re-election campaign is making a big deal about how his campaign opponent, Jack Hatch, bottled up a GOP bill that would have reduced developer fees in tax credit deals — fees that Mr. Hatch makes a good living collecting.

Senator Hatch could truthfully explain that his committee snuffed every GOP tax bill last session, so that bill didn’t receive special treatment.  Still, it doesn’t look good.

Yet this ignores the real scandal with state incentive credits: they are inherently corrupt.

For starters, the credits for low-income housing and historic rehabilitation go disproportionately to well-connected insiders who know people and know how to pull strings — at the expense of real estate owners without the connections — and arguably at the expense of renters who might benefit more from housing aid not run through developers.

But also that’s true of the other credits.  Special deals go to Microsoft, Google and Facebook because they are big and they know how to play the system.  Tax credits go to big fertilizer companies for doing what they would do anyway, while other poor schmucks without lobbyists and fixers pay full-freight on their income and property taxes.  NASCAR and the Field of Dreams played on glamour and celebrities to keep sales taxes they collect, while other sellers of amusements have to collect the same sales taxes and turn them over to the state.  And Governor Branstad has handed out these tax credits generously.

I’m fine with the Governor’s criticism of Senator Hatch for tax credit deals; I don’t care for them either.  Still, the Governor should keep his old MP helmet handy, because he is calling down fire near his own position.

 

Claire Celsi, PR is like pork scraps and pickle juice (IowaBiz.com).  Sounds yummy.

 

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Tax Roundup, 8/21/14: IRS says saving the company still “passive;” Tax Court says otherwise And: the $105.82 c-note!

Thursday, August 21st, 2014 by Joe Kristan

Programming note: No Tax Roundup will appear tomorrow, August 22.   I will be up in Ames helping teach the ISU Center for Agricultural Law and Taxation class “Affordable Care Act (ACA): What Practitioners Need to Know in the morning.  Webinar registration is closed, but you can still  attend as a walk-in.

 

S imageS imageS-SidewalkYou saved the company.  Big deal.  Apparently pulling the company you started from the brink of failure wasn’t enough to convince the IRS that a taxpayer “materially participated” and could deduct losses on his tax return.

Charles Wade was a founder of Thermoplastic Services, Inc. and Paragon Plastic Sheeting, both S corporations.  After his son Ashley took over daily management of the business, he still owned a significant stake in the company.  He never really retired, though.  From the Tax Court (my emphasis, footnotes omitted in all Tax Court quotes):

With Ashley there to handle day-to-day management, Mr. Wade became more focused on product and customer development. He did not have to live near business operations to perform these duties, so petitioners moved to Navarre, Florida. After the move he continued to make periodic visits to the facilities in Louisiana and regularly spoke on the phone with plant personnel.

In 2008 TSI and Paragon began struggling financially as prices for their products plummeted and revenues declined significantly. Mr. Wade’s involvement in the businesses became crucial during this crisis. To boost employee morale, he made three trips to the companies’ industrial facility in DeQuincy, Louisiana, during which he assured the employees that operations would continue. He also redoubled his research and development efforts to help TSI and Paragon recover from the financial downturn. During this time Mr. Wade invented a new technique for fireproofing polyethylene partitions, and he developed a method for treating plastics that would allow them to destroy common viruses and bacteria on contact. In addition to his research efforts, Mr. Wade ensured the companies’ financial viability by securing a new line of credit. Without Mr. Wade’s involvement in the companies, TSI and Paragon likely would not have survived.

Slacker.  At least according to the IRS, who said that this participation failed to rise to the level of “material participation” and disallowed over $3 million in pass-through losses on Mr. Wade’s return.

The Tax Court took a different view.  Judge Goeke explains :

A taxpayer materially participates in an activity for a given year if, “[b]ased on all of the facts and circumstances * * * the individual participates in the activity on a regular, continuous, and substantial basis during such year.” A taxpayer who participates in the activity for 100 hours or less during the year cannot satisfy this test, and more stringent requirements apply to those who participate in a management or investment capacity.  The record reflects that Mr. Wade spent over 100 hours participating in TSI and Paragon during 2008, and his participation consisted primarily of nonmanagement and noninvestment activities. Ashley managed the day-to-day operations of the companies; Mr. Wade focused more on product development and customer retention.

Although Mr. Wade took a step back when Ashley became involved in the companies’ management, he still played a major role in their 2008 activities. He researched and developed new technology that allowed TSI and Paragon to improve their products. He also secured financing for the companies that allowed them to continue operations, and he visited the industrial facilities throughout the year to meet with employees about their futures. These efforts were continuous,  regular, and substantial during 2008, and we accordingly hold that Mr. Wade materially participated in TSI and Paragon. 

20120801-2It’s notable that the judge did not require Mr. Wade to produce a daily log.  Apparently there was enough testimony and evidence to show that his participation crossed the 100 hour threshold.

The 100 hours might not have been considered enough under some circumstances.  Usually the IRS holds taxpayers to the default 500-hour test for material participation.  This case is unusual in its use of the fall-back 100-hour “facts and circumstances” test. It’s good to see the Tax Court use it, as the IRS seems to think this test never applies.

It’s also interesting that the efforts at “customer retention” were counted.  This could be useful in planning for the 3.8% Obamacare Net Investment Income Tax.  The NIIT taxes “passive” income, defined the same way as the passive loss rules.  A semi-retired S corporation owner who still calls on some of old accounts after turning daily operations over to successors might be able to avoid the NIIT under the logic of this case.  If so, though, it would be wise to keep a calendar to prove it.

Cite: Wade, T.C. Memo. 2014-169

Related:

Russ Fox, A Passive Activity Case Goes to the Taxpayers.  “Hopefully the IRS can get more of these cases right at audit and appeals–they’ll be dealing with many more of these over the coming years.”

Paul Neiffer, More than 100 but Less than 500.  “It is nice to see that a subjective test went in the taxpayer’s favor.”

Material participation basics.

 

How far does $100 go in your city?  Last week the Tax Foundation issued a map showing how far $100 goes in different states.  Now they have issued a new map in The Real Value of $100 in Metropolitan Areas (Tax Policy Bl0g).  It is wonderful — just scroll your cursor over your town.

In Des Moines, $100 is good for $105.82.  In New York, it gets you $81.83.

 

TaxGrrrl, Anna Nicole Smith’s Estate Loses Yet Another Run At The Marshall Fortune

Tony Nitti, Could The IRS Disallow Ice Bucket Challenge Charitable Contributions?  Go ahead, IRS, just try it.  You’re just too popular.

William McBride, Earnings Stripping, Competitiveness, and the Drive to Further Complicate the Corporate Tax (Tax Policy Blog)

Roberton Williams, One Downside Of Inversions: Higher Tax Bills For Stockholders (TaxVox)

Kay Bell, How does the U.S. corporate tax rate compare to other countries?  Poorly.

TaxProf, The IRS Scandal, Day 469

 

David Brunori, Using Local Cigarette Taxes for Schools Is Silly (Tax Analysts Blog).  Smoke ’em if you got ’em.  For the children!

Cara Griffith, Was Oregon’s Tax Incentive Deal With Intel Unnecessary? (Tax Analysts Blog).  No, it was absolutely necessary to enable the Governor of Oregon to issue this press release and YouTube announcement.  That’s the point, after all.

 

Quotable:

The United States gets little tax from Americans overseas today. Most of them live in high-tax countries and have no U.S. income tax in any event because of FTCs and the section 911 foreign earned income exclusion. But as we all know, Congress couldn’t care less about this subject, and this is all a non-starter. Better to place your money on a genetically modified flying pig.

Robert L. Williams in Tax Analysts ($link)

 

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Tax Roundup, 8/4/14: Will 401(k) deferred annuities catch on? And: about those oil industry “subsidies…”

Monday, August 4th, 2014 by Joe Kristan

I survived the firm golf day and the Iowa sales tax holiday.  Now back to work.

 

20131206-1Howard Gleckman, A New Way to Invest for Old Age, But How Many Will Buy? (TaxVox).

A few weeks ago, with absolutely no fanfare, the Treasury Department announced what could be a major change in the way we save for retirement. It will now permit people to shift a portion of their 401(k)s or IRAs into a deferred annuity that provides a guaranteed stream of income once you reach old age.

The idea has the potential to fix several flaws in today’s defined contribution retirement plans and it could make it easier for many older Americans to pay for long-term care. But it raises two huge questions: Will consumers understand these complex products, and will insurance companies bother to sell them to a mass market?

It’s an interesting experiment.  There seems to be a belief that taxpayers are dying for a return to the 1950s style defined benefit pension plan, and this provides a way to sort of get there.  Insurance companies can certainly find a way to profit from such products, as deferred annuities are a big business.

But the same arguments that financial advisors often make against commercial deferred annuities likely apply here — you get more security, but only at the cost of cutting your insurance company in on your retirement income.  It remains to be seen whether many people will accept that trade-off.

 

Wind turbineWilliam McBride, Oil and Gas Subsidies or Sensible Cost Recovery? (Tax Policy Blog). Supporters of the mandates and massive subsidies or mandates for ethanol, wind and solar power sometimes say they would give up their subsidies happily if the oil industry gives up its own subsidies.  They rarely identify any actual subsidies.  Mr. McBride exposes the weakness of the renewable fans’ arguments (my emphasis):

However, a new report from Taxpayers for Common Sense seems to suggest it’s all the result of “tax subsidies” that allow oil and gas companies to immediately deduct their investment costs. Titled “Effective Tax Rates of Oil and Gas Companies: Cashing in on Special Treatment”, the report finds that the effective federal corporate tax rate for oil and gas companies is 24 percent on average, “considerably less than the statutory rate of 35 percent, thanks to the convoluted system of tax provisions allowing them to avoid and defer federal income taxes.”

First, there is nothing special about a 24 percent effective tax rate. The average for all corporations is about 22 percent, according to the IRS, so if anything oil and gas companies pay an above average tax rate.

Second, the particular “tax subsidy” the report refers to is intangible drilling costs, which as they explain merely allows companies to immediately deduct, i.e. expense, the costs of drilling. That is not a subsidy, it is the proper treatment of a real and legitimate business cost. The corporate tax is a profit tax, and profit equals revenue minus costs. Labor costs are fully and immediately deductible, so why not other costs?

Taxpayers for Common Sense would prefer these companies delay drilling cost deductions for years and years, because otherwise “these companies are financing significant parts of their business with interest-free loans from U.S. taxpayers.” No, in fact it is the government that is getting interest-free loans from businesses by requiring them to delay deductions for legitimate business costs. 

This “subsidy” — a deduction for a business expense, like every other business gets (and rightly so) — pales compared to the requirement that oil companies sell ethanol,  regardless of whether their customers demand it.  It sure doesn’t compare to the actual government checks that are issued to producers of biofuels and wind power.  The renewables industry would be much smaller if it had to play on the “level playing field” it claims to want.

 

Jason Dinesen, Taxpayer Advocate Says IRS Issues Too Many FAQs.  “But the overall point is, things like FAQs and news releases are  no substitute for coherent, authoritative guidance.”

Kay Bell, States see electronic cigarettes as a new tax source.  Surprise, surprise.

Peter Reilly, State Fails To Force Electronic Payments On Taxpayer With Hacking Concerns  “Taxpayer refused to pay electronically because if the Pentagon can be hacked, so can Revenue Department. Court voided penalty.”

Keith Fogg, IRS Treatment of Penalties Following a Substitute for Return (Procedurally Taxing)

Robert D. Flach has some QUESTIONS ABOUT TAX REFORM

 

taxanalystslogoDavid Brunori, Tax Analysts ($link)

Companies invert because the stupid tax laws provide an incentive to do so. A company’s decision to invert is no different from an individual’s decision to live in a state without an income tax or to buy a house rather than rent to take advantage of a tax break. Yet there are people who actually make the moral and patriotic arguments against inversions. The “it may be legal but that doesn’t make it right” argument is laughable. The patriotic argument — usually made by people who had better things to do than serve their country — is even more laughable. People and companies engage in tax planning because they want to keep more of their money. Invoking the Good Book or channeling Nathan Hale won’t change that.

When they play the “patriotism” card first, they don’t have a good hand.

 

Ajay Gupta, Closed Mind on Open Borders (Tax Analysts Blog):

There is, however, one unquestionable benefit that is properly attributable to an inversion—liberation of cash trapped offshore in controlled foreign corporations. Post-inversion, that money can be moved from a CFC to the new foreign parent, which can then put it to virtually any use, including buying back stock or making other investments in the U.S., without U.S. tax consequences. But for the inversion, any such onshore expenditures would have constituted taxable repatriations.

If you think it’s somehow unpatriotic to use legal means to reduce taxes, I hope you don’t take a $500 charitable deduction for all those clothes you thew away, I mean gave to Goodwill.

 

20140506-1 TaxProf, The IRS Scandal, Day 452

Jack Townsend, Article on British Deal with Swiss to Flush Out Evades and Lost Revenue — Not So Good 

 

You say that like it’s a bad thing.  On Highway Bill, Congress Moves to the Right of Grover Norquist  (Steve Warnhoff, Tax Justice Blog)

Government spending has been cut to the bone.

 

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