Posts Tagged ‘William Perez’

Tax Roundup, 8/26/15: The Twins defeat the IRS, so IRS may try to change the rules. Also: EITC fraud, and more!

Wednesday, August 26th, 2015 by Joe Kristan

20150826-2The Minnesota Twins have won five in a row. Six, if you count a recent IRS victory by the family that owns the ballclub. It is recounted by Ashlea Ebeling, Estate Of Late Minnesota Twins Owner Carl Pohlad Settles With IRS (via the TaxProf):

The main issue in the estate tax case was how to value Pohlad’s stake in the Minnesota Twins at the time of Pohlad’s death in January 2009 (he was 93). The Pohlad estate valued it as just $24 million for tax purposes, while IRS auditors pegged it at $293 million. Pohlad used typical wealth transfer techniques to limit estate taxes: splitting ownership and control of assets to theoretically reduce what an unrelated buyer would pay for them. 

But the administration doesn’t approve of valuing split interests based on their actual value:

Estate planning with family entities (family limited partnerships and limited liability companies) and the accompanying availability of valuation discounts is in the spotlight. Advisors have been warning clients all summer that the Treasury Department may be coming out with proposed regulations curtailing discounts by next month, and that the new rules could be effective immediately.

That will surely lead to litigation, as it isn’t clear the IRS has that power. It does add great uncertainty to succession planning, which is uncertain enough to begin with.

 

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The St. Louis Post Dispatch reports on tax preparers indicted on allegations of earned income tax credit fraud. The charges say the operators of a business known as Tax King are alleged to have:

…trained Tax King employees how to falsify certain information to maximize returns.

Clients, for example, were allegedly encouraged to fill in false business information in order to qualify for earned income credits. They were allegedly also instructed to submit false education expenses, as well as inaccurate information regarding fuel taxes in order to qualify for tax credits.

Up to 25% of earned income tax credits are paid “improperly.” We are regularly assured that “improperly” doesn’t mean “fraudulently.” Taxes are hard, and all that. Well, if they aren’t stolen, it’s not for lack of effort.

 

William Perez, What to Do if You Contributed Too Much to Your Roth IRA. “There are four ways to fix this problem that are all pretty straightforward.”

TaxGrrrl, Making Sure You Eat: Paying Yourself As A Small Business Owner

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part II –The Mixing Bowl Rules. “If a partner contributes property with a built-in gain or loss to a partnership and the partnership later distributes the property to a partner other than the contributing partner within seven years of the contribution, the contributing partner recognizes gain or loss equal to the built-in gain or loss…”

Kay Bell, NRA lawsuit takes aim at Seattle’s new gun and ammo taxes. A “gun violence” tax on guns and ammo makes as much sense as “drunk driving tax” on all alcohol purchases. It doesn’t tax what it purports to tax.

Peter Reilly, About That Kenneth Copeland Mansion You Saw On John Oliver. On abusive parsonage allowances.

Carl Smith, Tenth Circuit Hook Opinion: Interest and Penalties Must Also Be Paid to Satisfy Flora Full Payment Rule (Procedurally Taxing).  You can’t sue for a refund of a tax you haven’t paid.

Jack Townsend, Category 2 Banks under DOJ Swiss Bank NPA Program. A listing of the Swiss banks that have cut deals with the U.S. tax authorities.

 

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Scott Greenberg, Four Tax Takeaways from the Most Recent CBO Report (Tax Policy Blog).

Over the last fifty years, on average, the federal government has collected 17.4% of GDP in revenues. Yet over the next ten years, the federal government is expected to take in 18.3% of GDP in revenues, nearly a whole percentage point higher than the historical average. The CBO forecasts that, in 2016, the federal government will collect 18.9% of GDP in taxes, higher than any year since 2000.

I don’t think that’s a good thing.

 

Howard Gleckman, Should College Endowments Be Taxed? (TaxVox).

But why not just make the endowments taxable and use some of the huge revenue windfall to boost tuition assistance and other supports for those students who really need it?

Maybe taxing amounts that aren’t used to reduce tuition. A rich university shouldn’t be saddling its students with debt — or asking for more federal subsidies — while its money managers are living high.

 

TaxProf, The IRS Scandal, Day 839. Toby Miles figures prominently.

Robert Wood, IRS Reveals Lois Lerner’s Secret Email Account Named For Her Dog.

 

The dangers of premature tweeting:

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Oops. An hour later, the Dow closed down another 204 points.

 

Jim Maule, A Rudeness Tax?:

Modern American tax policy, which is in tatters, is of such a wrecked nature that it is only a matter of time before someone proposes a refundable politeness credit. The form would be fun, would it not? “How many times during 2017 did you hold a door open for another person?” Even better, the audits and the Tax Court litigation.

Prof. Maule is right: not every problem is a tax problem. Yet the politicians propose a tax solution for every problem anyway.

 

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Tax Roundup, 8/19/15: Even if it faxes, it’s still a printer in Iowa. And: the rich guy still isn’t buying.

Wednesday, August 19th, 2015 by Joe Kristan

20150813-1All for one, one for all. Iowa has a sales tax exclusion for “Computers used in processing or storage of data or information by an insurance company, financial institution, or commercial enterprise.” But what is a computer anymore, now that everything has a computer in it?

Last week Iowa released a ruling (Document 15300028) holding that Principal Financial Group’s all-in-one devices count as computers and are exempt from sales tax. From the ruling:

The protest was filed due to the Department’s partial denial of a refund claim which involved, among other issues, several multi-function devices which provide copy, print, scan, and fax services.  Your position is that because the multi-function devices are connected to your company’s computers and used in the manner described that these devices qualify as exempt computer peripheral equipment under Iowa’s statutes and administrative code…

Rule IAC 701—18.58(1), which was written, in part, to implement that code section, defines computers as the following:

…stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. Nonexclusive examples of devices fastened by a signal cable or other communication medium are terminals, printers, display units, card readers, tape readers, document sorters, optical readers, and card or tape punchers.

The Department of Revenue had argued that copiers and fax machines don’t qualify, and these functions disqualified the multi-function devices. Principal brought its considerable in-house tax expertise to bear:

However, since the filing date of the protest, you have provided the auditor with the “click count” information for each individual multi-function device included in the refund claim.  This documentation verifies that each unit individually qualifies for exemption because the majority of the usage for each of the devices is for exempt printing and scanning. 

Attached to the protest as Exhibit B was a summary schedule in which you determined that 96.67% of the usage of the devices was for exempt purposes.  This percentage was utilized by Principal to determine the amount of tax under protest ($145,134.80).  However, because each device qualified for exemption, the purchase prices of these units are fully exempt from Iowa sales tax.  Therefore, the Department will refund 100% of the sales tax paid on the purchases of these devices. 

So after a struggle, the Department settles on the right legal answer. The policy answer is only half-right, though. All business inputs should be exempt from sales tax, regardless of whether they are hooked up to a computer.

I rarely fax or copy anything anymore, and I think that this is true nowadays for most businesses. It could say something about how they do things at the Iowa Department of Revenue that they assumed otherwise. In any case, this ruling tells us that fax and copy capability doesn’t make an otherwise exempt scanner/printer subject to sales tax for an Iowa business.

 

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Megan McArdle discusses presidential candidate Scott Walker’s Obamacare replacement (my emphasis):

In this debate, you can see the shape of where our politics may go over the next 20 years. Many Republicans would like a much smaller entitlement state; some Democrats would like a much bigger one, with Sweden-style universal coverage of virtually everything, crib to grave. Neither one is going to get what they want, because Americans are not prepared to give up their Social Security checks, or 60 percent of their paychecks either — and no, there is not enough money to fund these ambitions, or even our existing entitlements, by simply taxing “the rich.”

The discussion is becoming more urgent, as Obamacare as it stands is not working well; the big premium increases and the struggles of the “cooperatives” us that. It could be harder to fix the health insurance market than it was to wreck it in the first place.

 

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Robert D. Flach brings the Tuesday Buzz on Wednesday, covering the tax blog ground from property taxes to the Get Transcript data breach.

Tony Nitti, Tax Court Reminds Us That You Should Never Toy Around With Your Retirement Account:

Section 72 clearly mandates that annuity income is ordinary income, rather than capital gains. Thus, it is immaterial whether, as the taxpayer asserted, the annuity generated most of its income in the form of capital gains. Because once the annuity distributed the cash generated from those capital gains on to the taxpayer, the tax law required it to be treated as ordinary income.

Oops.

 

Jason Dinesen, Why is Self-Employment Tax Based on 92.35% of Self-Employment Income?

William Perez, These 6 states will waive penalties if you pay off your back taxes.

Paul Neiffer, Highway Use Tax Return Due August 31, 2015

Jim Maule, More Tax Fraud in the People’s Court. “It was an attempt to change a non-deductible cost of a boat into a business deduction.”

Kay Bell, A-list performers would get tax credit for New Jersey shows.

Republican Sen. Tom Kean, Jr. this week renewed a push for his bill that would provide a tax break for so-called A-list performers in the Garden State.

Not every problem is a tax problem. Especially this one.

TaxProf, The IRS Scandal, Day 832.

 

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David Brunori, Retroactive Tax Laws Are Just Wrong (Tax Analysts Blog):

There are two fundamental problems with changing the rules retroactively. First, it is patently unfair. People who follow the rules should not be penalized later. We would never stand for it in the criminal context. Why should we accept it for taxes? Second, retroactively changing the rules undermines confidence in the tax system. Most people try to do the right thing. Often they spend a lot of money paying lawyers and accountants to guide them to the right result. The good taxpayers might not be diligent in following the rules if those rules might change.

It’s harder to justify spending money on tax compliance when it doesn’t do any good.

 

Howard Gleckman, New Rules Will Require States to Be More Transparent About Tax Subsidies (TaxVox): “While local governments have complained that the new rules will be complicated and burdensome, it is frankly a scandal that governments have been able to keep these subsidies under wraps for so long.”

 

News from the Profession. Only 20% of Companies Using Creative Accounting to Its Full Potential (Caleb Newquist, Going Concern). “…it’s not technically fraud”

 

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Tax Roundup, 8/11/15: Extreme Time Management fails in Tax Court. And: the rise of scam-by-mail.

Tuesday, August 11th, 2015 by Joe Kristan

20150811-1Dedication. The tax law “passive loss” rules generally treat real estate rental as automatically passive. If losses are passive, they can’t be deducted until either the taxpayer has passive income or the taxpayer sell the “passive activity” (think about that phrase for a minute).

There are two exceptions to this “per-se passive” rule. One rule allows up to $25,000 in rental losses to “active” real estate owners, but this phases out between $100,000 and $150,000 in adjusted gross income. The other exception applies to “materially participating real estate professionals.”

It’s hard to qualify as a real estate pro. There are two big hurdles:

– You have to spend at least 750 hours in a year working on real estate activities in which you have an ownership interest, and

– You have to spend more time in your real estate activities than in your other work or business activities.

The second condition is a tough hurdle for taxpayers with full-time jobs outside of real estate to clear, as a Los Angeles teacher learned yesterday in Tax Court. The teacher presented logs to the court to show that he spent more time on his real estate than on his teaching job. This from the Tax Court decision gives you an idea how that went (my emphasis):

In addition to the obvious understatement in the logs of hours petitioner spent as a teacher for each year in issue, the reliability of the logs is also called into question by what appear to be exaggerated amounts of time shown for relatively routine, recurring events, such as check writing. During petitioner’s cross-examination respondent’s counsel pointed out numerous instances of entries showing one to several hours for such activities. The Court does not exist in a vacuum, and we cannot divorce ourselves from our own experiences of daily life, such as the time it takes to review a mortgage statement and/or bill and pay the item by check. We reject petitioner’s claim that the dozens, if not hundreds, of checks that he wrote over the years in issue each took at least an hour to prepare.

Other entries pointed out by respondent’s counsel during petitioner’s cross-examination add to our concerns. Rather than point out each one, however, suffice it to note the following exchange during petitioner’s cross-examination after respondent’s counsel totaled the hours shown in the logs for time spent on various activities on a particular day:

MR. RICHMOND [respondent’s counsel]: And on November 30th [2007], you worked a 25-hour day on your rental properties?

WITNESS [petitioner]: Well, I guess it was a big day.

MR. RICHMOND: I guess it was.

So the Tax Court has something against the time-traveler-American community?

Decision for IRS.

The moral? A long-ago and now deceased big-firm partner/boss once told me “you can create hours with a pencil.” While that may be valid in big-firm public accounting, it doesn’t work so well in Tax Court.

Cite: Escalate, T.C. Summ. Op. 2015-47

 

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Robert D. Flach has fresh Tuesday Buzz, including this wise advice:

For years I have also been telling you that whenever you receive any correspondence from the IRS or a state tax agency give it to your tax preparer immediately. Do not send any money to anyone without first checking with your tax pro.

It appears scammers are starting to use the postal service, so watch out.

 

Russ Fox, Up In Smoke…Again. Tax life is hard for Marijuana businesses, even legal ones.

Tony Nitti, Ninth Circuit: Unmarried Cohabitants Each Entitled To Deduct Interest On $1,100,000 Mortgage Limit

Robert Wood, New IRS Guidance Suggests Obamacare 40% Cadillac Tax Could Get Even Worse

Keith Fogg, Ninth Circuit Reverses Tax Court on Qualified Offer Case and Holds That a Concession is not a Settlement (Procedurally Taxing)

Jim Maule, This Tax Change Will Help But It Won’t End the Problem. Thoughts on the new partnership return due dates.

Jason Dinesen, The Jason Dinesen Plan for Preparer Regulation. “Which begs the question of why they need a regulatory program — mandatory or voluntary — at all.”

Kay Bell, Cleveland to take Ohio jock tax ruling to U.S. Supreme Court

William Perez, Communicate Effectively with Your Tax Preparer

 

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TaxProf, The IRS Scandal, Day 824

Jeremy Scott, Jeb Bush’s Troubling Reversal on Taxes (Tax Analysts Blog).

Career Corner. Why You Should (and Shouldn’t) Accept a Full-Time Offer From a Public Accounting Firm (Amber Setter, Going Concern)

 

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Tax Roundup, 8/7/15: Iowa sales tax takes a holiday, and other brutal assaults on reason.

Friday, August 7th, 2015 by Joe Kristan

20150807-1Today is the firm field day. Once again my proposal for an all-office open chess tournament failed to win support, so it’s golf again.

The annual Iowa sales tax holiday for clothing and footwear is today and tomorrow. Details from the Iowa Department of Revenue:

-Exemption period: from 12:01 a.m., August 7, 2015, through midnight, August 8, 2015.

-No sales tax, including local option sales tax, will be collected on sales of an article of clothing or footwear having a selling price less than $100.00.

-The exemption does not apply in any way to the price of an item selling for $100.00 or more

-The exemption applies to each article priced under $100.00 regardless of how many items are sold on the same invoice to a customer

“Clothing” means…

-any article of wearing apparel and typical footwear intended to be worn on or about the human body.

“Clothing” does not include…

-watches, watchbands, jewelry, umbrellas, handkerchiefs, sporting equipment, skis, swim fins, roller blades, skates, and any special clothing or footwear designed primarily for athletic activity or protective use and not usually considered appropriate for everyday wear.

Sales tax holidays are a bad policy, for reasons explained well by Joseph Henchman and Liz Malm, including this:

Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round

The Federation of Tax Administrators has a complete list of sales tax holidays for 2015. Mississippi and Louisiana have holidays for firearms purchases September 4-6, so you can dress up in Iowa and drive south to do your weapons shopping in Iowa style.

Related: Kay Bell, 13 state sales tax holidays on tap this weekend

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Robert D. Flach brings the Friday Buzz, including a special offer on THE NEW SCHEDULE C NOTEBOOK, his tax Baedeker for the sole proprietor.

William Perez, Changes in Tax Deadlines to Take Effect in 2017 (Plus Deadlines for 2015 and 2016)

Jason Dinesen, Glossary of Tax Terms: LLC

Keith Fogg, The Room of Lies (Procedurally Taxing). No, it’s not about debate settings, Congress or the White House Press Briefing Room. It’s about the process the government uses in deciding whether to appeal tax cases.

Robert Wood, Mo’ Indictments For Mo’ Money Taxes, 20 Years Prison Possible. “Indeed, the fallout for innocent taxpayers patronizing a tax preparation shop that is in trouble can be far-reaching.”  Yes, that’s why taxpayers should be wary of a shop that seems to always get bigger refunds than anyone else.

Tony Nitti, If You Hired Mo’ Money Taxes To Prepare Your Return, You Continue To Have Mo’ Problems.  “The most institutionally corrupt organization south of the New England Patriots…”

TaxGrrrl Live-blogged the GOP presidential debate last night. As the political season seems to be fully underway, it’s time to express my joy of the season, best stated by 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.

And reason never comes out well in the contest.

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Renu Zaretsky, “If at first you don’t succeed, try, try, again.” Today’s TaxVox headline roundup covers international tax reform, gas taxes, and sales tax holidays.

TaxProf, The IRS Scandal, Day 820. Lots of reaction to the Senate Finance report on the scandal.

Peter Reilly, IRS Scandal – Blame It All On Lois Lerner And Move On?

Joseph Thorndike, Clinton Should Keep It Simple and Just Propose Repealing the Capital Gains Preference (Tax Analysts). No, no, no. She should keep it simple and propose repealing the capital gain tax.

 

Career Corner. The “I’m Leaving” Conversation (Green Dot Peon, Going Concern).

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Tax Roundup, 8/3/15: Due date scramble edition, with extendable FBARs!

Monday, August 3rd, 2015 by Joe Kristan

20150803-1Highway bill scrambles business return due dates. A “short term highway funding bill” (HR 22) has switched some tax return filing due dates from what they have been pretty much forever. The bill, signed last week by the President, responds to complaints that K-1s are arriving too late by accelerating the partnership return due date and delaying C corporation due dates — with one bizarre exception.

The changes, which take effect for years beginning after December 31, 2015:

1065 (Partnership) returns: Currently due April 15, or 3 1/2 months after year-end, with a five-month extension. The new due date is March 15 (or 2 1/2 months after year-end), with a six-month extension.

1120 (C corporation) returns: Currently due March 15, or 2 1/2 months after year-end, with a six-month extension available. The new law makes the due date April 15 (or 3 1/2 months after year-end), with a six-month extension. Except, weirdly, for C corporations with a June 30 year-end, which retain the old deadlines through 2025.

FBAR (form 114) reports of foreign financial accounts. These have been due on June 30, with no extension available. They will be due on April 15, but with a six-month extension available.

1041 (estate and trust income tax) returns retain their April 15 due date, but their extension period is shortened from six months to 5 1/2 months.

It’s not entirely clear yet how this will work. I hope the FBARs will be considered automatically extended if the 1040 or other return is extended, to help avoid paperwork foot-faults.

The bill is an empty gesture to 1040 filers who get frustrated waiting on K-1s. They won’t get issued any faster. K-1s aren’t delayed because people are sitting around waiting for the due date. They are delayed because the tax law is hard, businesses can be complex, and it takes time to get the work done. On top of that, everybody is on a calendar year, thanks to Congress, so the professionals are trying to get all the returns completed at the same time.

All this means is that more partnership returns will be extended. It won’t get the K-1s out any sooner. The only way to change that is to simplify the tax law and to once again enable pass-throughs to have tax years ending on dates other than December 31.

Additional coverage:

Robert Wood: Many IRS Tax Return Due Dates Just Changed, FBARs Too

Russ Fox, Deadline Changes for 2016 Tax Returns and 2016 FBAR. “It is unclear whether a separate extension for the FBAR will need to be filed. The reference to Treasury Regulation 1.6081-5 is for the automatic two-month extension of time to file for those residing outside the United States, so it appears those who do so reside will have a June 15th deadline for filing the FBAR (with a four-month extension available until October 15th).”

Kay Bell, Highway bill drives home some new tax laws

Paul Neiffer, Tax Return Due Date Changes and Other Items. “For estates required to file an estate tax return, they will now be required to report to the IRS basis information for all assets included in the estate.”

Kyle Pomerleau, Senate Approves Three-Month Highway Trust Fund Extension (Tax Policy Blog).

 

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Congratulations to TaxGrrrl Kelly Phillips Erb. She has ditched tax practice to write on taxes full-time for Forbes.com. Well done!

William Perez, Every State’s Sales Tax Holiday for 2015

Jason Dinesen, New Nebraska Guidance on Same-Sex Marriage and Taxes

Matt McKinney, Do equal, 50/50 shareholders owe each other fiduciary duties? (IowaBiz.com)

Annette Nellen, Importance of lease terms for desired results. “If you want a particular tax result, be sure the lease agreement supports that result.”

Jana Luttenegger Weiler, NFL Decides to Give up Tax-Exempt Status (Davis Brown Tax Law Blog)

 

David Brunori, Michigan’s Wrongheaded Approach to Tax Policy. (Tax Analysts Blog):

Advocates of raising corporate taxes are assuming that people will want to stick it to corporate fat-cat shareholders. This is right out of the ‘‘tax the rich and give to the poor’’ playbook. Except in this case, proponents want to tax the rich and give it to construction contractors.

They want to tax the rich to give it to their friends — and that doesn’t mean the poor.

 

TaxProf, The IRS Scandal, Day 816

 

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Peter Reilly, Judicial Watch Reveals That They Read Tax Blogs At IRS:

At the time Joe Kristan thought that the IRS was wrong to raise the issue and that Senators were right to call the Service to account about it. And this is the part of the document dump that I found most interesting.  Paul Caron summarized Joe’s post  and that was apparently printed out numerous times at the IRS as there are multiple copies in the document dump.

The IRS reads the Tax Update, so you should too!

 

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Tax Roundup, 6/30/15: It’s FBAR Day! Foreign and gaming account owners, do or die.

Tuesday, June 30th, 2015 by Joe Kristan

 

fincen logoForm 114 or bust. Today is the unextendable deadline to file Form 114, the “FBAR” report of foreign financial accounts. It’s required if you own foreign financial accounts whose value reached $10,000 anytime in 2014. Penalties for failing to file can run to half the value of the account, so if it applies, you want to get it done. The form must be filed electronically.

Foreign financial accounts include bank or brokerage accounts held outside, even in an offshore branch of a U.S. bank. They also include online gaming accounts for sites located outside the U.S. More details on what is included is available at the IRS FBAR page.

You will need the mailing address of the branch where your foreign account is located. Russ Fox has done a great job of finding many street addresses for online gaming sites.

Is the Form 114 filing requirement absurd? Yes. The filing threshold is far too low, and it works to make regulatory violators out of Americans living and working overseas for the crime of committing personal finance abroad. Meanwhile, I would be surprised if any actual criminals are actually caught using Form 114; instead, it’s just used to increase penalties on those whose tax violations are found in other ways. Oh, and to extort money out of people who didn’t realize they were supposed to file the thing. Unfortunately, absurdity is what the IRS is all about.

Speaking of absurd, The Commerce Department BE-10 survey for those owning at least 10% of an offshore business is also due for e-filing today, with penalties into the thousands of dollars for non-filers.

Related: Russ Fox, Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

 

Arnold Kling reports on what seems to me a very unwise idea: State Nullification of the Federal Income Tax?, involving the idea of “nullifying” the federal income tax by providing a state credit for whatever the federal income tax is, funded by state sales taxes. Arnold points out some of the obvious problems: “For example, if this were enacted, then residents would have no incentive to minimize their tax liability. Go ahead and realize all of your capital gains, because when you pay more Federal taxes, your state sends you a credit.”

 

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Forest fires in Canada give Iowa a spooky sky today.

 

William Perez, Tax Implications of Supreme Court’s Same-Sex Marriage Ruling. “Together, [Jason] Dinesen and I came up with a list of all the tax things we should be concerned about as a result of the Supreme Court’s decision in Obergefell v. Hodges (pdf).”

Robert D. Flach brings his Tuesday Buzz, along with the less cheerful news that his Gmail account has been compromised. He ponders whether IRS Commissioner Koskinen is worse than his predecessor, Worst Commissioner Ever Shulman. I still give the prize to Shulman, but Koskinen is making a heck of a case for the honor.

Kay Bell, IRS ‘incompetence’ blamed for lost Lois Lerner emails. That’s certainly plausible, but the incompetence all seems to be on the side of hampering the investigation.

Robert Wood, If Uber, FedEx, Other Workers Are Employees, Who Pays What?

Joni Larson, Failing to Prove the Attorney-Client Privilege Applies (Procedurally Taxing). Some conversations you’d rather not share with the IRS.

Peter Reilly, Mario Biaggi’s Criminal Case Followed By Tax Travails. In some ways the tax decision coming on top of the criminal conviction really makes me think there might have been something to Biaggi’s contention that he was a victim of Giuliani’s ambition.  When you look at the big picture of the transactions, nobody seems to have been getting away with anything from an income tax perspective.”

Jason Dinesen, From the Archives: Are Donations to a 501(c)(4) Deductible?

 

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Elizabeth Malm, A Quick Primer on Personal Income Taxes (with GIFs!) (Tax Policy Blog). They’re nice, but no dancing cats. A great little post for anybody wanting an overview of state income taxes.

Gene Steuerle, Combined Tax Rates and Creating a 21st Century Social Welfare Budget (TaxVox).

Dalton Lane, Obergefell v. Hodges: Supreme Court Upholds Same-Sex Marriage (Tax Policy Blog):

The Supreme Court’s ruling has definitely simplified the tax system. Whether a same-sex marriage, or a opposite-sex marriage, the tax treatment is the same. Furthermore, same-sex couples will no longer have any difference in filing status between their state income taxes and federal income taxes.

It will make Jason Dinesen’s life easier, for sure.

Caleb Newquist, PwC Walks a Fine Line Between Its People and Clients on Same-Sex Marriage (Going Concern).

TaxProf, The IRS Scandal, Day 782

 

TaxGrrrl, 8 Signs That It’s Time To Get A New Tax Professional. They are all good signs, especially number 8.

 

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Tax Roundup, 6/17/15: Revenues: every business should have them! And: tax abuse of accidental Americans.

Wednesday, June 17th, 2015 by Joe Kristan

 

dontwalk4A picture of a bad deduction. Early in my career a practitioner confided to me that every 1040 should have a Schedule C, the 1040 report of business income, so that taxpayers could write-off personal expenses. That’s never been the actual tax law, but too many taxpayers believe otherwise.

The actual tax law is that you can’t deduct as business expenses costs without an intent to actually make money. Iowa has been independently enforcing this rule, known informally as the “hobby loss” rule. A newly-released protest resolution has an example of a Schedule C business that may not have been conducted with adequate vigor:

The Business Activity Questionnaire you completed indicated that you spent 8-10 hours per year on the business. That is less than one hour per month. This hardly seems reasonable to have for a successful business. An average photoshoot can last longer than 1 hour including let up and tear down and then most photographers spend additional time editing or developing the photos.

What made the state suspicious? From the protest response (my emphasis)

There is no evidence that the taxpayer has ever been successful in this business. With the exception of 2014, there is no record indicating that you filed a sales tax return or a schedule C showing any receipts since your permit was issued. 

One of the most important parts of a real business is revenue. You could look it up. If you have none, it may be hard to convince the revenue agent you are serious.

You receive some income from other sources, and the losses you report from this activity does lower your income, in some years enough to make you exempt from tax. 

That can be a clincher. If you have “business losses” that never end, but they save you taxes on other income, that’s a likely sign that your real “business” is reducing your taxes.

Cite: Iowa Document Reference 15201018

 

20140815-2William Perez, People Unaware of Their American Citizenship are Being Fined for Not Filing US Tax Returns:

“[The] typical [client I’m] seeing now,” reveals Virginia LaTorre Jeker, a tax attorney in Dubai, is “someone who [was] either born in the US and left as young child, or who has [an] American parent from whom they have acquired citizenship.

The individual will always have another nationality, typically from a Middle Eastern country which they consider as their true home. Most times, these individuals will never have filed a US tax return since they were unaware they had any US tax obligations.”

If you think this sounds insane, you are right. No other country does anything like this.

Robert Wood, FBARs For Foreign Accounts Are Due June 30. Should You File For The First Time? “You don’t want to ignore a filing obligation now that you know about FBARs. But one should consider where you are going long term with your issues, how quickly you plan to act, and whether you have good and accurate information to file now.”

 

Kay Bell, U.K. pays a record amount for tax cheat tips

Jim Maule, How Does a Politician Fix a Tax Law The Politician Doesn’t Understand? Well, they’re obviously perfectly willing to enact tax laws they don’t understand in the first place. Yet for all the demonstrated incompetence of politicians, Prof. Maule wants to put more things under their control.

TaxGrrrl, Banks Quick To Turn Over ‘Abandoned’ Assets To Revenue-Hungry States:

Originally accounts were typically considered abandoned only if they went untouched for decades. But revenue-hungry states have been dramatically shortening that “dormancy” period to get their hands on this booty. 

Because the state politicians want the money don’t trust the private sector to take care of their customers, and they are looking out for you!

Peter Reilly, Campaigning For Bishopric Not A Valid Exempt Purpose – Kent Hovind Update. It’s not? I guess I can skip my mitre-measuring session.

 

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Robert D. Flach, FOUR REASONS TO REMOVE THE EITC FROM THE TAX CODE: “Probably the most important reason – Tax credits, especially refundable credits, are a magnet for tax fraud.” That’s exactly right.

Rachel Rubenstein, Reflections on the General State of Tax-related Identity Theft (Procedurally Taxing). “From 2004 to 2013, the NTA identified tax-related identity theft as one of the “‘Most Serious Problems” faced by taxpayers in nearly every annual report submitted to Congress here.”

David Brunori, The Revolt of the Corporations (Tax Analysts Blog). “The message is clear: Businesses have options and will move to sunnier tax climates.”

Howard Gleckman, The House GOP’s Internal Battle Over Online Sales Taxes (TaxVox).

Tony Nitti, Donald Trump Announces Bid For Presidency: What Is His Tax Plan? And who cares?

 

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Alan Cole, IGM Panel: Real Income Growth is Understated (Tax Policy Blog):

The IGM Forum, a University of Chicago project that surveys academic economists on issues, last month found that economists broadly agree that real median income numbers understate real growth in standards of living.

I think that has to be true. Don Boudreaux likes to compare items in old Sears catalogs with their modern counterparts to show how much better — and cheaper, in terms of hours of work needed to pay for them — the modern goods are:

The list is long of consumer goods that ordinary Americans today can easily afford but that were unavailable commercially to even the wealthiest Americans in the 1950s. This list includes digital cameras, lightweight waterproof sportswear, high-definition televisions, recorded Hollywood movies to play at home, MP3 players, personal computers, cellphones, soft contact lenses, and GPS devices.

We take for granted everyday things, like the internet, flight, automobiles, paved roads between cities, that the richest men of 200 years ago did without.

 

TaxProf, The IRS Scandal, Day 769

News from the Profession. Counteroffers Rarely Work for Employees Jumping Ship (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/9/15: A Cedar Rapids ID thief pleads guilty. And: Packing the patent box.

Tuesday, June 9th, 2015 by Joe Kristan

lizard20140826What are the chances of the government recovering any of the fraudulent refunds? WQAD reports on an Iowan who jumped on the ID theft refund fraud gravy train:

A 35-year-old Iowa woman was convicted after she used another person’s identity to file a phony tax return and then cash the $6,000 refund check issued by the IRS.

Gwendolyn Murray, of Cedar Rapids, was initially charged March 3, 2015, with 12 counts of filing false claims for tax refunds, seven counts of theft of government property and two counts of aggravated identity theft. She was accused of preparing fraudulent tax returns between 2008 and 2013, from which she received seven refund checks, according to court documents.

The total amount allegedly stolen is unavailable in public records, and the defendant pleaded guilty to only one count. Whatever the amount, the defendant’s need for a public defender doesn’t make recovery of the stolen funds seem likely.

 

Image by Theroadislong under Creative Commons license, via Wikipedia.

Image by Theroadislong under Creative Commons license, via Wikipedia.

Martin Sullivan, Patent Box: Good Intentions Gone Bad (Tax Analysts Blog):

Now several prominent members of Congress want to provide another tax break for research. At first glance, this seems like a very good idea since the usual objections to tax breaks don’t apply. And most regular people understand that the competitiveness of our nation — or in politics-speak, the availability of high-paying jobs — depends on technology.

The new tax break is called a patent box. (The “box” referred to here is the box checked on tax forms in Europe where this idea originated.) The general idea is that income from technology pays tax at a substantially lower rate than other income. So if under tax reform we could get the corporate rate down to 28 percent, patent box income would be taxed at a 14 percent rate.

The problem with this approach is that no one knows even a halfway good way of identifying “income from technology.”

It’s a ridiculous idea. In a real sense every bit of income is “income from technology.” The technology of animal husbandry and plant cultivation has been around for awhile, but it was a big step up from the Acheulean Hand Axe, which was cutting edge technology (literally) in its day.

The patent box is as arbitrary and nonsensical as the Section 199 deduction for “domestic production income.” Yet Section 199 became and remains part of the tax law, so being absurd won’t necessarily stop it.

 

Hank Stern, Obama Tax Breakage:

And second, why is it a given that “employer sponsored” health plans are the bee’s knees? As we’ve previously blogged, employers don’t tell us what groceries or house to buy: they pay us our wages and we’re free to make our own choices. Why should health insurance be any different?

The historical accidents that led to employer health as a tax-advantaged fringe benefit are reasonably well-known, but it’s a lot harder to answer why it should be that way.

 

buzz20141017It’s Tuesday, so it’s Buzz Day! At Robert D. Flach’s, you can rummage through the tax implications of garage sales and see just how much Robert likes “reality TV.”

TaxGrrrl, Hastert, Hovind & FIFA Matters Shed Light On Dangers Of Structuring

Russ Fox, Neymar Wins Championship but Faces Tax Evasion Investigation. Soccer just isn’t getting great press off the field the last week or so.

Robert Wood, Moving To Avoid California Taxes? Be Careful. “Don’t just get a post office box in Nevada. That doesn’t work and you will end up with bills for taxes, interest and penalties or worse.”

Keith Fogg, Update on Dischargeability of Late Filed Tax Returns. It can be hard to get bankruptcy discharge on tax debts if you don’t stay current with your filings.

Kay Bell, The tax costs of maintaining private coastal properties. “It’s time that we faced the reality that we can’t beat Mother Nature, at least not along the coastline. And we need to stop using our tax dollars to subsidize this destined-to-fail effort.”

William Perez, 4 Tips for the 1st Estimated Tax Payment of 2015. The second payment is due June 15.

 

TaxProf, The IRS Scandal, Day 761. “Judicial Watch announced that Judge Emmet Sullivan of the U.S. District Court for the District of Columbia granted a Judicial Watch request to issue an order requiring the IRS to provide answers by June 12, 2015, on the status of the Lois Lerner emails the IRS had previously declared lost.”

 

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Joseph Thorndike, Carly Fiorina Answers the $59 M Question: Why Should Candidates Release Their Tax Returns? (Tax Analysts Blog). “For many, that disclosure will be unpleasant. But I suspect most candidates have learned a lesson from the Romney debacle: Tax disclosure can hurt, but nondisclosure can be deadly.”

Howard Gleckman, Obama-Era Tax Reform: RIP: “Many Democrats, who have embraced income inequality as their 2016 campaign theme, are likely to back more targeted middle-income tax breaks, not fewer. Their agenda will be tax deform, not tax reform.”

 

Cameron Williamson, Connecticut Legislature Sends Corporate Tax Hike to Governor. (Tax Policy Blog). This is a step backwards for Connecticut tax policy.

Jared Walczak, Nevada Approves New Tax on Business Gross Receipts (Tax Foundation). A big step backwards for Nevada tax policy. At least it’s paired with a giant step forwards in education policy.

 

Peter Reilly dives deep into the case of the creationist theme park operator and his seemingly miraculous impending release from prison: The Juror Who Freed Kent Hovind Steps Forward

 

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Tax Roundup, 6/2/15: See what the thief filed to claim your refund. And: a crowded Irish address files 580 1040s!

Tuesday, June 2nd, 2015 by Joe Kristan

20111040logoIt seems only fair. In a policy change, the IRS will enable identity theft victims to see copies of fraudulent returns filed in their names, reports Tax Analysts ($link).

Tax-related identity theft victims will soon be able to obtain IRS copies of the fraudulent tax returns used to steal their identity, thanks in part to a push by Sen. Kelly Ayotte, R-N.H.

“Once we have a procedure in place, we will issue an announcement informing tax-related identity theft victims of the process for receiving a redacted copy of the fraudulent return,” IRS Commissioner John Koskinen said in a May 28 letter that acknowledged Ayotte as the impetus for the change in the tax agency’s identity theft policy.

The redactions will deal with other taxpayers included on the stolen return. I am guessing could include pretend spouses and dependents used by the ID thief.

This is good news for taxpayers, as it may help them resolve otherwise inexplicable problems with their IRS accounts. It also promises to help shed light on how the thefts occur and, perhaps, help practitioners suggest measures to fight the fraud. It’s also long overdue. It’s not as if thieves can reasonably expect confidentiality for their crimes.

 

20130316-1The luck of the IRisSh. The tax agency still seems to be way behind the ID thieves. This report from the Irish Times is hardly reassuring: 

An address in Kilkenny topped a table of addresses used for multiple potentially fraudulent tax return applications submitted to the Internal Revenue Service in 2012, a study by the US treasury has found.

The address in Kilkenny was used for 580 returns in 2012, which led to “refunds” totalling $218,974 being issued, according to the study by the treasury inspector general for tax administration in the United States.

The IRS likes to claim that budget constraints are behind its abject failure to control the identity theft refund fraud epidemic. The inability to flag hundreds of refunds claimed from the same offshore address — which would seem like an easy enough programming problem to solve — indicates the problems are deeper than lean budgets.

 An address in Kaunas, Lithuania, was used for 525 applications that prompted the payment of $156,274, while an address in Miami, Florida, came third on the list, with 417 applications leading to the payment of $221,806. 

Somehow this doesn’t tell me the IRS needs to expand its responsibilities — but Congress and the President clearly feel otherwise.

 

Will there finally be real steps to fight the problem? Tax Analysts also reports ($link) that the IRS, in cooperation with states and software vendors, will require additional information to process e-filings:

Central to the announcement is a greatly enhanced public-private effort to combat fraud through increased information sharing.

Another upshot is that industry and government will need to process returns differently starting with the 2016 filing season, said Alabama Department of Revenue Commissioner Julie Magee. On the front end, tax return preparation software providers will need to provide multifactor authentication steps when a taxpayer logs in or returns to a site, she said.

The changes also will require vendors to increase by a few dozen data points the amount of information collected from the taxpayer or the return and sent in a standardized format to the IRS and state revenue departments, Magee said.

The story says the details will be announced sometime this month to enable vendors to prepare for next season. We will cover the announcement when it is made.

 

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Robert D. Flach has a fresh Tuesday Buzz roundup, covering topics as diverse as extenders and “I Love Lucy.

William Perez, The Key Benefits of Health Savings Accounts. Tax deductible contributions, tax-free accumulation, and tax-free withdrawals for qualified medical expenses.

Robert Wood, IRS Says If You’re Willful, FBAR Penalties Hit 100%, $10,000 If You’re Not

Peter Reilly, Conservation Easements – Tax Court Lets Owner Sell Them Or Give Them But Not Both

Jason Dinesen, History of Marriage in the Tax Code, Part 9: After Poe v. Seaborn. “Finally in 1948, Congress acted. For the first time, filing statuses were created and we moved closer to the tax system we know today.”

Kay Bell, Ohio becomes 25th state in which Amazon collects sales tax

Me, How states try to tax the visiting employee. My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

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Alan Cole, Oregon to Experiment with Mileage-Based Tax (Tax Policy Blog):

Oregon will become the first state to implement a per-mile tax on driving. The tax is voluntary – an alternative to the state’s fuel tax. Drivers will get the choice of paying one or another. Should they choose the mileage-based tax, they will be charged 1.5 cents per mile, but get a credit to offset the taxes they pay on gas.

States have difficulty increasing gas taxes. Energy-efficient cars and electric (coal powered!) vehicles also are affecting gas tax revenues. The post doesn’t expain how the state will measure mileage; privacy issues promise to be a big obstacle for mileage taxes, but if this can be overcome, expect more states to follow Oregon.

TaxProf, The IRS Scandal, Day 754

Martin Sullivan, How Grover Norquist’s Pledge Can Hurt the Conservative Cause (Tax Analysts Blog). “First, the pledge’s hard and fast prohibition on tax hikes can prevent signers from agreeing to compromises that would result in outcomes most conservatives would consider highly favorable.”

 

Scott Sumner asks Why are interest expenses tax deductible? (Econlog).

The cost of equity (dividends, etc.) is not tax deductible, while interest is deductible. But why?

Good question. I respond with another — why aren’t dividends deductible? That would prevent double taxation of corporate income while making sure corporations can’t be used as incorporated investment portfolios.

 

 

 

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Tax Roundup, 6/1/15: Trusts, but verify. And lots more!

Monday, June 1st, 2015 by Joe Kristan

tack shelterTrust not flaky trusts. There’s a sort of folk belief that the rich and the sophisticated skip out of income taxes through clever use of trusts. That’s not true; trust income is taxed either to the trust owners, their beneficiaries, or to the trusts themselves — and at high effective rates. The 39.6% top rate that kicks in for unmarried individuals at $413,200 applies starting at $12,300 for trusts.

Still, this folk belief creates a market of gullible people who want to be like the sophisticated kids that don’t pay taxes. Where there’s a market, someone will attempt to meet the demand. That can go badly.

It went very badly for two westerners last week. From a Department of Justice press release:

Joseph Ruben Hill aka Joe Hill, 56, and Lucille Kathleen Hill aka Kathy Hill, 58, both of Cheyenne, Wyoming, and Gloria Jean Reeder, 68, of Sedona, Arizona, were convicted on charges of conspiracy to defraud the United States and obstructing a grand jury investigation following a three-week trial. In July 2014, Joe Hill, Kathy Hill and Reeder were indicted for conspiring to defraud the United States by promoting and using a sham trust scheme. Joe Hill and Reeder were also indicted for conspiring to obstruct the grand jury investigation in the District of Wyoming by causing individuals to withhold records required to be produced by federal grand jury subpoenas.

What were they selling?

Essentially, the scheme involved assigning income to the trust by using a bank account in the trust’s name that was opened with a false federal tax identification number. The Hills, Reeder, and many other CCG clients who testified during the trial used the CCG trusts to conceal income and assets from the IRS.

All of their customers can count on thorough and painful IRS exams.

 

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Jana Luttenegger Weiler, Did you miss the last holiday in May? Friday was 529 Day (Davis Brown Tax Law Blog). “A recent Forbes article discussing the so-called holiday reported two-thirds of Americans are unfamiliar with 529 Plans.”

Hank Stern, The Flip Side of Halbig/King/Burntwell. “But there’s another side to this, one which has thus far gone unremarked: is there a potential upside to folks whose subsidies go away? (Insureblog)

William Perez, Identity Theft Statistics from the Latest TIGTA Report

Annette Nellen, Should Sales Tax Deduction Be Made Permanent? House Says Yes

Kay Bell, Are we tax sheep? A U.K. collection effort says ‘yes’:

These psychologists, anthropologists and other observers of human nature suggested that a couple of lines be added to tax collection letters:

“The great majority of people in your local area pay their tax on time. Most people with a debt like yours have paid it by now.”

It worked.

I’m sure this approach has its limits, but it contains an important insight: people will pay their taxes if they think other people do. But if they feel other people get away with not paying, they’ll stop. Nobody likes to be a chump.

Jack Townsend, New IRS FBAR Penalty Guidance

Jim Maule, Can Anyone Do Business Without Tax Subsidies? Most of us have to — which is a powerful case against giving special favors to the well-connected and well-lobbied.

Andy GrewalThe Un-Precedented Tax Court: Summary Opinions (Procedurally Taxing). “It’s a bit strange to pretend that a judicial opinion does not exist…”

Peter Reilly, Structuring – First Kent Hovind – Now Dennis Hastert. The IRS has overreached in its structuring seizures, but keeping deposits under $10,000 in order to avoid the reporting rules for large tax transactions is still illegal. Bank personnel are trained to report suspected structuring. If you do it consistently, your chances of getting caught approach 100%.

Robert Wood, 20 Year Old Oral Agreement To Split Lottery Winnings Is Upheld. Still, it’s always better to get things in writing.

TaxGrrrl, Man’s Tax Refund Seized For Parking Tickets On Car He Never Owned. This sort of injustice is inevitable when the tax law is drafted into service for non-tax chores.

Russ Fox, I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption. Eddie Vrdolyak may be involved.

 

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Tony Nitti, Rick Santorum Announces A Second Run For President: A Look At His Tax Plan. Mr. Santorum is slightly more likely to be president than I am.

 

TaxProf, The IRS Scandal, Day 753The IRS Scandal, Day 752The IRS Scandal, Day 751. I like this from Day 752: “The job of the IRS should be to collect taxes, fairly and efficiently. Since the income tax was enacted in 1913, however, the IRS has appropriated to itself—sometimes on its own, sometimes with congressional blessing—the right to make political judgments about groups of citizens. That is the central failure revealed by this scandal.”

 

Scott Drenkard, How Tax Reform Could Help Stabilize the Housing System (Tax Policy Blog):

Removing the impediment to saving baked into the tax code, then, has real impacts on real people. It helps people save for down payments on homes, or to put money toward education. Perhaps, if pared with a reduction in policies meant to artificially reduce down payments, tax reform could be an important component to stabilizing the housing market.

No-down-payment means you’re betting someone else’s money.

 

Richard Phillips, Martin O’Malley’s Record on Taxes is Progressive (Tax Policy Blog). That means he likes to raise them.

News from the Profession. Madoff Auditor Better at Cooperating Than Auditing, Won’t Serve Time (Caleb Newquist, Going Concern)

 

There will be no leftovers at the putlucks. Indiana Marijuana Church Granted Tax-Exempt Status, Plans ‘Call To Worship’ When Members Will Light Up (TaxProf).

 

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Tax Roundup, 5/29/15: A distracted IRS takes its eye off the ball. And more Friday goodness.

Friday, May 29th, 2015 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

The IRS Fails at Job One(Christopher Bergin, Tax Analysts Blog).

Over the years, as the fight for transparency continues, I’ve marveled that while the IRS was willing to waste hundreds of thousands of dollars to hide information the courts eventually would force it to turn over to the public, it never shirked from its responsibility to protect the truly private information it was entrusted with. I’ve always admired the IRS for its unflinching diligence in putting that job well ahead of its paranoia of public scrutiny regarding how it operates.

But now there’s a chink, and a big one, in that armor.

The IRS has too much to do. It has its hands full just with its primary job of assessing and collecting taxes, issuing refunds, and protecting taxpayer data. But Congress has chosen to use the tax law as the Swiss Army Knife of public policy. As a result, the IRS has become a sprawling superagency with a portolio that includes the nation’s health finance system, industrial policy, welfare for the poor, campaign finance… you name it. It should be no surprise that its real job suffers.

 

William Perez, Identity Theft Statistics from the Latest TIGTA Report. “I was curious, just how big is identity theft, and how much money is leaking out of the Treasury?”

Annette Nellen, IRS Data Breach Unfortunate in Many Ways – PIN? “Why not use of a PIN as is used to access bank data and use credit cards?”

Kay Bell, IRS security breach highlights need to rethink online privacy. “We’ve all to some degree shared details of our lives to broader audiences.”

Justin Gelfand. Most Recent IRS International Hacking Reveals Vulnerability ( Procedurally Taxing). “Perhaps more than anything else, this cyber-attack reveals that stolen identity tax refund fraud is not a problem the Government can prosecute its way out of.”

 

eic 2014Arnold Kling, The EITC in Practice. Mr. Kling quotes Timothy Taylor on some of the practical problems in administering this program, and then considers an alternative:

One of the advantages of a universal benefit is that you give the money to everyone. My idea is that you would then tax some of it back at a marginal rate of 20 or 25 percent. That is, for every dollar that someone earns in the market, they are lose 20 cents or 25 cents in universal benefits. Compared to a marginal tax rate of zero, 25 percent is more complex and has a disincentive. But it is much less complex and de-motivating than our current system of sharp cut-off points for benefits like food stamps and housing assistance. And having a non-zero tax rate allows you to have a higher basic benefit at lower overall budget cost.

In another post, he says:

I think that the incentive problems with the current system are so bad that I would like to see the next Administration take its best shot at something better. As you know, my preference is for a negative-income-tax type system, but with the added administrative issue of having the grants be in the form of flexible-benefit dollars that only can be used for food, housing, medical care, and education.

I like that idea much more than refundable credits, which are a fraud magnet.

 

Jason Dinesen, From the Archives: Adjunct Professors and Mileage Deductions

Robert D. Flach has some fresh Friday Buzz!

 

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Megan McArdle. Obamacare’s Intent? Just Read the Law. “Memory is so very terrible, and this law is so very complex. Anyone who tells you that they have a full and accurate memory of the evolution of the various moving parts is lying — at least to themselves.”

Hank Stern, A Quarter Trillion Here, A Quarter Trillion there…  “Obamacare is set to add more than a quarter-of-a-trillion—that’s trillion—dollars in extra insurance administrative costs to the U.S. health-care system”

 

Joseph Henchman, Major Tax Actions in Texas, Illinois, Nevada, and Louisiana (Tax Policy Blog). The Illinois legislature continues its rush to fiscal disaster. Nevada advances an unwise gross receipts tax. Louisiana advances a bill to kill its poorly conceived franchise tax.

Sebastian Johnson, State Rundown 5/28: Deals Made, Dreams Fade (Tax Justice Blog). State tax news from New York and Alabama, where a flat tax proposal has fizzled.

 

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Howard Gleckman, The Perpetual, Immortal, Eternal, Never-Ending Tax Extenders. “The magic number for today is 16. That is, remarkably, the number of times Congress has extended the allegedly temporary research and experimentation tax credit since it was first enacted in 1981.”

Jack Townsend, Former House Speaker Indicted for Stucturing and Lying to Federal Agents. It appears blackmail was involved. Robert Wood has more.

TaxProf, The IRS Scandal, Day 750

 

Well, it’s not brain surgery. Accountants Lack Some Skills (Caleb NewquistGoing Concern).

 

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Tax Roundup, 5/28/15: Tax Court doesn’t let auto dealer undo LIFO termination seven years later. And more!

Thursday, May 28th, 2015 by Joe Kristan

 

No Walnut STYou messed up, but you’re stuck with it. A California auto dealer decided to get off LIFO inventory. “Last-in, First-out” inventory accounting generally reduces current income by capitalizing smaller amounts in inventory over time. If you sell your business, however, it catches up with you — those savings all come into income at once.

The auto dealership operated as an S corporation. The owner decided that because he might be selling soon, he would go off LIFO using the automatic method change procedure then offered by the IRS. That procedure, Rev. Proc. 97-37, allowed him to spread the additional income over four years.

Something went wrong. The taxpayer represented on the Form 3115 filed under the IRS procedure that it would value all inventory under the lower of (FIFO) cost or market, but instead it valued its new cars, used cars and parts three different ways. This went unnoticed and unchallenged for a number of years, starting in 2001. Needless to say, the contemplated sale of the dealership did not occur in the meantime.

At some point, the dealership’s tax preparer concluded the different methods might be a problem after attending a seminar. In 2009, they filed amended returns for 2002 through 2007 that said the LIFO termination was ineffective and that as a result the taxable income for those years was overstated – by about $875,000 for 2002 and 2003 alone.

This led to a strange argument, where the taxpayer argued that their failure to properly follow Rev. Proc. 97-37 meant their LIFO termination was never effective. The IRS said the taxpayer’s inadequate compliance was good enough, and the taxpayer is stuck with the no-longer-desired LIFO termination.

Tax Court Judge Wherry decided that the automatic change failed — siding with the taxpayer — but that didn’t settle the issue:

First, we must decide whether, notwithstanding its failure to secure respondent’s automatic consent in 2001, JHH’s filing of its 2001 through 2007 tax returns in accordance with a new method of accounting was a change in method of accounting. If so, second, we must ascertain whether the amended returns reflect a further change in method of accounting for which respondent’s consent is again required. If it is, then because respondent has not consented to the change, JHH may not revert to the LIFO method simply by filing amended returns.

The court decided that the filing of on-LIFO returns for 2001 through 2007 by the taxpayer — referred to as “JHH” —  effected an accounting method change, even though the automatic change was ineffective (citations omitted):

…”a short-lived deviation from an already established method of accounting need not be viewed as a establishing a new method of accounting.” And in that case, “neither the deviation from, nor the subsequent adherence to, the method of accounting would be a change in method of accounting.” 

As we observed in Huffman: “The question, of course, is what is short-lived.”

Seven years wasn’t short enough, to the court:

Regardless of the upper temporal boundary of a “short-lived deviation”, we think that seven years lies beyond it. JHH’s “consistent treatment of an item involving a question of timing * * * establishes such treatment as a method of accounting.”  Notwithstanding its failure to secure respondent’s automatic consent, JHH changed its method of accounting from LIFO by accounting for its vehicles inventory on the specific identification method on its 2001 through 2007 tax returns.

20121212-1The court said the IRS has two choices when confronted with such an unauthorized method change: force the taxpayer to change to the old method, or accept the unauthorized change, imposing any adjustments necessary to avoid double-counting. The IRS chose to accept the change.

That meant the attempt to go back on LIFO was another method change, again requiring IRS consent. The IRS wasn’t going along, and the taxpayer was stuck with FIFO.

The moral? Many taxpayers filed automatic accounting method changes for 2014 under the “repair reg” rules. This case shows that the IRS can enforce the automatic method change conditions and deny benefits to taxpayers who don’t dot all of their “i”s.

It also shows reminds us that if you are doing something wrong for a number of years, it becomes “right,” in that it becomes an accounting method. It might be an improper method, but you still need IRS consent to change it. Many improper methods can be changed automatically, but sometimes advanced IRS permission is required. If you don’t do it “right,” the IRS holds all the cards.

Cite: Hawse, T.C. Memo. 2015-99; No. 8267-12

 

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Tom VanAntwerp, How Hackers Breached the IRS and Stole $50 Million (Tax Policy Blog):

Nicholas Weaver, a researcher at the University of California, Berkeley, previously tried to access his own transcripts without resorting to personal knowledge. Using the real estate website Zillow and personal information site Spokeo, he was able to successfully find answers to the personal questions that only he should have known.

Cybercriminals who specialize in stealing and processing this personal data en masse were able to answer these identifying questions at scale. Much of the information used by the IRS to verify identity is either publicly available or for sale to underground cybercriminals. Hackers can buy access to stolen consumer or financial data, and then write a program to plug answers into the questions asked by the IRS. Once hackers successfully claim an identity, they can use the information from previous years’ tax returns to file new, fraudulent returns and steal tax refunds.

That’s… not comforting.

 

Our friends the Russians. AP sources: IRS believes identity thieves from Russia (KWWL.com)

TaxProf, GAO, TIGTA Warned Of IRS’s Lax Computer Security For Years Before Hack Of 100,000 Taxpayer Accounts On IRS Website.

William Perez, What Can We Do Differently in Light of the IRS Data Breach. Some suggestions for protecting your personal data.

 

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Robert D. Flach, WHAT A DISRUPTIVE DEVELOPMENT THIS IS!. Robert refers to the late arrival of corrected 1099s. “Clients who would normally send me their “stuff” in early or mid-February – allowing for a much smoother work flow during the season – now must wait until mid-March because of the need to “wait and see” if corrected brokerage reports arrive.”

Russ Fox, Surprise! You Heard About that May 29th Filing Deadline, Right?.

TaxGrrrl, Taxpayers Have More Time To File In 2016. “Three more days!”

Robert Wood, Man Gets Prison For Inventing His Own Church, And It’s Not Scientology. Technically, his prison time isn’t for starting a new church — that’s legal — but for using it to evade taxes.

Peter Reilly, Limits Of Hobby Lobby – Priests For Life Denied Rehearing On Contraception Mandate.

Kay Bell, Italy charges Bulgari luxury jewelry heirs with tax evasion

 

Len Burman, The Trouble with the FairTax (TaxVox). Mr. Burman concentrates on its distribution among income classes, rather than its overall implausibility.

TaxProf, The IRS Scandal, Day 749

Career Corner. Reminder: Robots Are Coming For Your Accounting Jobs (Caleb Newquist, Going Concern).

 

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Tax Roundup, 5/27/15: 104,000 taxpayers compromised by IRS transcript app breach. And: EITC is no free lunch!

Wednesday, May 27th, 2015 by Joe Kristan

20130419-1That took some work. The IRS disclosed yesterday that 104,000 taxpayer accounts have been compromised by identity thieves who did it the hard way. The Wall Street Journal reports:

The IRS said that to access the information, crooks had to clear a multistep authentication process that required prior personal knowledge about the taxpayer, including Social Security information, date of birth, tax filing status and street address before accessing IRS systems. The process also involved answering personal identity-verification questions, such as “What was your high school mascot?”

Mr. Koskinen, when asked how impostors obtained answers to these so-called “out-of-wallet” questions, suggested social media might have played a role.

“This is not a hack or data breach. These are impostors pretending to be someone who has enough information” to get more, said Mr. Koskinen, who said thieves might be using sophisticated programs to aggregate and mine data.

This is much more difficult than your standard ID theft, where all you need is a Social Security number to go with a name, and maybe a birth date. Getting through the IRS transcript access system requires a fair amount of data entry and outside information.

The breach will complicate filing for the 104,000 taxpayers whose data was accessed, and possibly for another 96,000 taxpayers whose records the thieves failed to breach. Tax Analysts reports ($link):

The IRS will provide credit monitoring and protection to the 104,000 victims at the agency’s expense, Koskinen said. Victims will also be given the IRS’s identity protection personal identification numbers so they are not targeted again, he said. All 200,000 of the taxpayers affected by the raid will be sent notification letters from the IRS and will have their accounts flagged on the agency’s core processing systems, he added.

The IRS has been losing the IT security wars for some time. It’s a shame, because the transcript service has been very useful for taxpayers needing return information for loans or to resolve IRS notices. I think the IRS will eventually have to delay refunds and processing so that it will be able to match third-party information — W-2s and 1099s — with returns before issuing refunds. The era of “rapid refunds” is coming to an end.

Lots of coverage of this. The TaxProf has a roundup. Other coverage:

William Perez, IRS Data Breach: Hackers Gain Access Through ‘Get Transcript’ Web App. “The IRS emphasized that taxpayers don’t need to do anything further. The agency will be sending letters to affected taxpayers explaining what to do next.”

TaxGrrrl, IRS Says Identity Thieves Accessed Tax Transcripts For More Than 100,000 Taxpayers “IRS was alerted to the problem when its monitoring systems noted an unusual amount of activity related to the [transcript] application.”

Russ FoxIRS “Get Transcript” Application Hacked; 104,000 Tax Returns Illegally Accessed. ” It would be time consuming but entirely possible for a stranger who had my social security number and date of birth to answer all the other verification questions.”

Accounting Today, IRS Detects Massive Data Breach in ‘Get Transcript’ Application

J.D. Tucille, Details About 100,000 Taxpayer Accounts Stolen From IRS (Reason.com)

“[T]he vast databases held by the IRS, HHS, security agencies, etc, will be leaked on purpose, leaked because of bureaucrat sloppiness, or be hacked. The more they collect, the more that will eventually leak.” Chris Edwards, director of tax policy studies at the Cato Institute, predicted to me last year. That “eventually”—at least, the latest round of it—is now.

Oh, goody.

 

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Kay Bell, Winners of meet-the-candidate contests face tax costs:

True, you won’t pay from your own pocket for the flights, hotel stay, chauffeur or meal with a future president. But the value of those things, like all prizes, is considered taxable by the Internal Revenue Service.

The winners can’t simply ignore the potential tax bill. The political contest organizers should send them, and the IRS, 1099 forms stating the value of the prize.

Well, that’s one tax problem I won’t be having, unless they start paying voters enormous amounts to talk to us. I will meet any candidate who will pay me $100,000 for 10 minutes of my time. Meet me at the Timbuktuu on the EMC Building skywalk.

 

Jason Dinesen, From the Archives: You Won the Dream Home, Part 4 — Changing My Mind

Jack Townsend, Switzerland Publishes Certain Identifying Information of Certain Foreign Depositors in Swiss Banks

Bob Vineyard, Bad Moon Rising (Insureblog). “Obamacare news isn’t good.”

 

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David Brunori, Scalia is Right (Tax Analsyts Blog). “The dormant commerce clause is here to stay, with precedent and established expectations and all, but it would be nice if we just admitted that we made it up.”

Robert Wood, Why Aren’t Those $26.4M Speech Fees Taxable To Bill & Hillary Clinton?

James Kennedy,Pennsylvania Senate Considers Hiking Income and Sales Taxes (Tax Policy Blog). They’re pretty high already.

TaxProf, The IRS Scandal, Day 748

 

Howard Gleckman, Marco Rubio Wasn’t the Only One Who Cashed Out an IRA Last Year (TaxVox). “Substantial assets leak because people under age 59 ½ take early withdrawals or borrow against their IRAs or 401(k). And the problem raises an important and challenging policy question:  Should the money in these accounts be available for non-retirement purposes?”

 

eic 2014Leslie Book offers thoughful consideration of Warrren Buffet’s support for an expanded Earned Income Tax Credit (Procedurally Taxing). You should read the whole thing, I’ll highlight this part:

As Mr. Buffet knows, there is no such thing as a free lunch. Using the tax system to deliver benefits is no silver bullet when it comes to addressing inequality. To administer the tax system as we know it today is no easy task. When Congress asks the IRS to do more, there are costs to taxpayers and the system overall. As Congress considers whether to ratchet up EITC, it should do so with the absence of rhetoric. It should also consider the tools it wants to give IRS to combat errors as well as address what costs it wants to impose on claimants and third parties. The current system passes costs on others, many of which are hidden. As with lunch, someone has to pick up the tab.

Among the costs is the 20-25% improper payment rate. Another cost is the high hidden marginal tax rate caused by the phase-out of the credit as incomes increase — a combined federal and state rate that can exceed 50%. And there is a cost to an already-stressed tax system of administering a social program.

Sebastian Johnson, Some States Support Earned Income Tax Credits for Working Families, Others Fall Short. (Tax Justice Blog) A piece that is oblivious to the issues raised by Leslie Book.

 

News from the Profession. EY Law Continues to Not Threaten Law Firms By Poaching Lawyers (Caleb Newquist, Going Concern).

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Tax Roundup, 5/22/15: IRS to refund RTRP test fees. And: Memorial Day!

Friday, May 22nd, 2015 by Joe Kristan

 

Memorial Day weekend!. As most offices will be deserted by 3 p.m., let’s get started. And while you are getting ready for the long weekend, remember that late this afternoon is a great time to get embarrassing news out, while nobody’s watching. The politicians know this.

20130121-2IRS to refund RTRP test fees. From an IRS announcement:

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

Mighty nice of them. But they have an ominous warning:

The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training.

In other words, they will continue to try to sneak preparer regulation through the back door. When the people who pass the tax laws have to pass a test of minimal competency, come back to me with your time-wasting paperwork, IRS.

 

buzz20140923Robert D. Flach rounds up tax happenings in his Friday Buzz!

Mitch Maahs, Tapping into Beer Tax Reform (Davis Brown Tax Law Blog):

As the craft beer industry continues to boom, the margins of many craft breweries have continued to tighten. Representatives of the industry have taken to Congress to seek tax breaks for these small brewers, but the large, multinational beer giants also want a pour from the tax-break tap.

Currently, all brewers pay a federal excise tax, per 31-gallon barrel (about 248 pints), based on the volume the brewer produces or imports. On its first 60,000 barrels brewed or imported, breweries pay $7.00 per barrel. The tax increases to $18.00 for each additional barrel above 60,000.

Excise taxes should work like user fees, paying for costs generated by the beer consumers. That’s not what this tax does.

Let’s shop! Memorial Day sales tax holidays for Texas, Virginia shoppers (Kay Bell)

William Perez talks about 3 Types of Tax Form 5498 (and Why You Got One): “Essentially, Form 5498 provides independent confirmation to the IRS of the amounts you contributed to IRAs and other tax-preferred savings accounts.”

 

 

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Jack Townsend, GE Gets Slapped Down Again for its B*****t Tax Shelter.

Peter Reilly, Kent Hovind To Be Free In August – Maybe Sooner. His pet velociraptor will be glad to see him.

Kyle Pomerleau, Bernie Sanders’s Financial Transaction Tax Won’t Raise as Much Revenue as He Thinks (Tax Policy Blog):

In the 1980s, Sweden introduced a financial transactions tax. As expected, the tax reduced trade volume: “when the 2% tax was introduced in 1986, 60% of the trading volume of the 11 most actively traded Swedish share classes migrated to London to avoid taxes.”

Of course, the Sanders response to such failure would be to “crack down.”

 

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Renu Zaretsky, Robbing Peter to Pay Paul. Today’s TaxVox headline roundup talks about a push to make bike riders pay for their bike trails, as well as the continuing fiscal turmoil in Kansas.

TaxProf, The IRS Scandal, Day 743

News from the Profession. 34-Count Indictment Won’t Stop Accountant from Serving His Clients: Lawyer. (Caleb Newquist, Going Concern). If he’s convicted, though, that just might stop him.

 

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Tax Roundup, 5/19/15: Is yesterday’s U.S. Supreme Court decision an Iowa refund opportunity? And AICPA looks for love!

Tuesday, May 19th, 2015 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

Time for Iowans to claim refunds for local income taxes paid out-of-state? The U.S. Supreme Court yesterday ruled that Maryland was required to allow its residents credit for taxes paid in other states.

State tax systems normally tax resident individuals on 100% of their taxable income. They tax non-residents on only the share of income apportioned or allocated to the state. In order to keep their residents from being clobbered by multiple state income taxes, the states typically allow them a “credit for taxes paid in other states.” This is, roughly, the lesser of the tax paid to the other state or the resident state tax computed on the out-of-state income.

Maryland failed to allow a credit for taxes paid in other states for the “county” portion of its individual income tax. The U.S. Supreme court ordered Maryland to issue such a credit to the plaintiffs, who had out-of-state S corporation income.

Iowa allows a credit for taxes paid in other states, but does not allow such a credit for taxes paid in municipalities or counties. These taxes can be significant. Many Iowans pay taxes in New York City, Kansas City, St. Louis, or Washington, D.C., for example. Many Ohio municipalities also impose income taxes. While the Supreme Court decision doesn’t specifically address such taxes, the court’s logic that double-taxes discriminate against interstate commerce would seem to apply here. A Tax Analysts article ($link) on the decision notes (my emphasis):

Local governments filed an amicus brief  saying Wynne may have implications and that there are many states with long-established tax programs like Maryland’s that do not afford dollar-for-dollar credits to residents for all out-of-state income taxes paid.

That brief identified Wisconsin and North Carolina as states that do not allow a credit against local income taxes, as well as a number of local governments that fail to provide a credit for state taxes paid against local taxes, including Philadelphia; Cleveland; Detroit; Indiana’s counties; Kansas City, Missouri; St. Louis; and Wilmington, Delaware.

I have emailed an Iowa Department of Revenue representative asking how they will respond to the case, and will report whatever I may hear back from them. Meanwhile, taxpayers who extended their 2011 Iowa returns and paid municipal taxes elsewhere should consider filing protective refund claims while their statutue of limitations remains open.

The TaxProf has a roundup of coverage.

Cite: COMPTROLLER OF THE TREASURY OF MARYLAND v. WYNNE ET UX. No 13-485.

supreme courtMore coverage:

Joseph Henchman, A Victory for Taxpayers: SCOTUS Strikes down Maryland Tax Law (Tax Policy Blog). “This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another.”

Howard Gleckman, A Divided Supreme Court Rejects Maryland’s Tax On Out-Of-State Income (TaxVox). “But given the closeness of the decision and the wide gulf between the majority and the minority, today’s ruling may not be the last word in the argument over whether, and how, states can tax out-of-state income.”

Russ Fox, A Wynne for the Dormant Commerce Clause. “This case also highlights the difficulties facing a taxpayer without deep pockets.”

TaxGrrrl, In Landmark Case, Supreme Court Finds Maryland’s Tax Scheme Unconstitutional. “In the end, it all came down to this: “the total tax burden on interstate commerce is higher” under Maryland’s current tax scheme. That double taxation scheme, the Court found, is unconstitutional.”

Kay Bell, Supreme Court tax ruling could cost Maryland $200+ million. Wheneer a taxing authority gets caught imposing an illegal tax, they always moan about how terrible it will be to repay their ill-gotten gains. I’ll give them the same sympathy they typically give a taxpayer who loses a fight with them.

 

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Bloomberg, Iowa Spent $50 Million to Lure IBM. Then the Firings Started. That was $50 million paid by other Iowa businesses and their employees, money they could have used to grow businesses that might not have fled.

 

Jason Dinesen, Why Make Estimated Tax Payments, Part 2. “Here’s the reason: if you’re fully self-employed, you don’t draw a paycheck in the traditional sense.

Paul Neiffer, What Runs Through the Estate! “In many cases, the heirs will use the cost basis from grandpa and not pick up the extra cost from mom and dad.”

Robert D. Flach comes through with fresh Tueesday Buzz, including thoughts on the use of the tax law as a welfare program.

William Perez, 10 Emerging Financial Technology Apps with a Tax-Angle

 

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Peter ReillyFree Kent Hovind Movement Has Big Win. ” Judge Margaret Casey Rodgers has granted Kent Hovind’s motion for a judgment of acquittal on the contempt of court charge that he was convicted of in March.”

Robert Wood, U2’s Bono Sounds Increasingly Like Warren Buffett. That’s OK, pitch correction software can do amazing things.

Andy Grewal, The Un-Precedented Tax Court: Bench Opinions (Procedurally Taxing). “Opinions can’t cause a lot of confusion if no one can find them.”

 

Martin Sullivan, As in Florida, Rubio Pursues ‘Big, Hairy’ Goals in the U.S. Senate (Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 740. Today’s post is a useful corrective to the persistent scandal denialists.

Not that there’s anything wrong with that. AICPA Wants CGMA Love From the C-Suite (Caleb Newquist, Going Concern).

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Tax Roundup, 5/11/15: Returned, recovering, and ranting! Sales taxes, tax credits for special friends pondered by Iowa legislature.

Monday, May 11th, 2015 by Joe Kristan

 

IMG_0983I am back from overseas, and somewhat recovered from a nasty bug that hit me just before it was time to come home. So much to catch up on — if I don’t link your post today, I might get it later this week, as I dig out.

I was saddened to learn that the Iowa legislature is still in session. David Brunori reports ($link) on a proposal to allow Des Moines to vote on increasing its own sales tax without participation of its neighbors:

Iowa Rep. Tom Sands (R), chair of the House Ways and Means Committee, has introduced legislation that would allow greater Des Moines communities to ask voters to approve a 1 percent local option sales tax. I have written about this issue a lot over the years. The reality is that while there are sound reasons for imposing a local option sales tax, the problems far outweigh the benefits.

When Des Moines adopts this tax, the folks who shop in the city will pay. But many of them don’t live within the city limits. It will be people in the surrounding suburbs and rural areas who pay some of the tax. That’s great for Des Moines, but not so good for other jurisdictions. I am unsure why a legislator from a rural area — or even an area without significant retail — would support this measure. Their citizens will pay but won’t see the benefits.

Well, it’s just another example of the delight Des Moines politicians take in picking the pockets of non-voters (Exhibit A: freeway speed cameras). But remembering the result of the last sales tax increase vote in the area — crushed by a 85% “no” vote — I don’t think the municipal highwaymen should count their sales tax loot just yet.

 

Politicians call for more subsidies for their well-connected friends, from your pockets. Iowa leaders call for biochemical tax credits for ethanol, biodiesel (Sioux City Journal).

 

Andrew Lundeen, Pass-through Businesses Employ Most of the Private Sector Workforce (Tax Policy Blog).

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“Pass-though” businesses are those taxed on owner 1040s. When you tax high income individuals, there is no escaping that you are reducing funds available for the nations principal employers to hire and expand.

 

William Perez, Your Guide to the 6 Types of Business for Federal Tax Purposes. “Entrepreneurs can set up their small business as a sole proprietorship, corporation, S-corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability Partnership, and in some states a Professional Limited Liability Company/Partnership.”

Jason Dinesen, Why Make Estimated Tax Payments, Part 1. “People who are new to self-employment are often confused about what estimated tax payments are and why they might need to make these payments.”

Kay Bell, A Mother’s Day tax gift: 10 child care tax credit tips

TaxGrrrl, 11 Things I’ve Learned About Tax From My Mom

Leslie Book, On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

Paul Neiffer, Don’t Get Too Greedy! And however greedy you get, you need to follow the appraisal rules if you want to deduct a property donation.

Jack Townsend discusses a Sentencing for Failure to Pay Over Trust Fund Taxes. If you don’t remit withheld payroll taxes, thinking that you are just “borrowing” it, your “interest” might include prison time.

Peter Reilly, Home Schooling Contingency Does Not Kill Alimony Deduction

Robert D. Flach, WHAT TO EXPECT WHEN WRITING TO THE IRS. Not a speedy resolution.

 

 

Andrew Mitchel, The Exodus Continues (2015 1st Quarter Published Expatriates).

We began tracking expatriations in late 2009 because we anticipated that the number of expatriations would increase as a result of changes in U.S. tax laws and due to “saber rattling” by the IRS about the imposition of potential penalties in the wake of the UBS scandal.  Our prediction has been accurate.

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

 

Robert Wood, New Un-American Record: Renouncing U.S. Citizenship

Me, An obscure tax deadline that could cost you big. A discussion of the looming FBAR deadline.

 

 

Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (ISU-CALT Ag Docket)

Hank Stern at Insureblog notes that May is Disability Insurance Awareness Month. Given the stakes, and the relatively low price, it’s shocking that 57% of working adults have no coverage.

Annette Nellen, Narrow exemptions cause inefficiency, inequity and complexity – HR 867 and S. 1179. But they are such a great way to get lobbyists to come to your summer golf fund-raisers.

 

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TaxProf, The IRS Scandal, Day 732. “Every time we turn around we get more emails.” Two years, and Commissioner Koskinen is still tired of your complaining.

Russ Fox,730:

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

The day Commissioner Koskinen resigns is the first day the IRS might start to figure it out.

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog)

Howard Gleckman, Congress Has Not Passed A 2016 Budget. It Has Only Begun The Process.

 

Career Corner. The Monthly Close: White Collar Crime Should Be a Fun and Scary Surprise (Going Concern)

 

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Tax Roundup, 4/28/15: Iowa flunks another business tax study. And: on to Belfast and Edinburgh.

Tuesday, April 28th, 2015 by Joe Kristan

20121226-1Programming note. I will be riding the magic flying chair across the ocean tomorrow on my way to the TIAG Spring Conference in Edinburgh, U.K. It will be the first conference since Roth & Company became a member of the TIAG worldwide alliance of independent accounting firms, and I am excited to meet representatives of our sister firms from Canada, China, the U.K. and elsewhere.

I will first stop off in Belfast to attempt to extend the family tree by a branch or two, and to do some sightseeing in County Tyrone, where my mom’s ancestors lived before heading to Ontario, and then to Illinois, in the mid 19th century. Any tips for using the facilities of the Public Records Office of Northern Ireland are welcome and appreciated.

With the travel, posting here will be variable based on time, internet connections, computer functionality, and jet lag. But there will be posts, and there will be pictures, so stop by. Full posting should resume May 8 or so.

 

20130117-1Iowa does it again! Our fair land between the rivers shows up near the bottom of another survey of state business tax systems — this time in 45th place in the Small Business & Entrepreneurship Council Best to Worst State Tax Systems for Entrepreneurship and Small Business. Iowa scores especially poorly for its high corporation tax rate and corporate capital gain rates.

Worse, neighboring South Dakota ranks #1. They have no corporation income tax at all. Repeal of the corporation income tax is a key part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan. Right now Iowa relies on the highest corporation tax rate in the country, along with 31 (and counting) special interest tax credits, to grow businesses. I think South Dakota’s idea makes more sense.

Related: What an Iowa income tax might look like with a fresh start.

Liz Malm, North Dakota Cuts Income Taxes Again (Tax Policy Blog). They were 15th on the SBE survey before this.

 

Meanwhile, Iowa’s General Assembly ponders a sales tax increase, reports the Des Moines Register:

A late-session bid to raise Iowa’s sales tax by three-eighths of 1 percent to generate $150 million annually for natural resources and outdoor recreation programs has gained some traction in the Iowa Legislature, but it remains a long shot.

Cash is fungible, and like highway “trust fund” dollars, the politicians will divert “targeted” revenues to their pet projects sooner or later.

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Roger McEowen, It Ain’t Over Until the FBAR Report is Filed (ISU-Calt Ag Docket): “You trigger a filing requirement whenever you have a an interest in or signatory authority over a foreign financial account with a value over $10,000 at any time during the calendar year.”

William Perez, How to Get Your Tax Withholding Just Right

Kay Bell, Wrong tax refund amount? What now?

Andrew Mitchel, Recognition of Losses on Dispositions of PFICs

 

20140826-1The Buzz is Back! The Wandering Tax Pro, Robert D. Flach, comes back from another tax season with a fresh roundup of tax blog posts presented with his hand-crafted perspective.

‘Moose’ declined comment. ‘Squirrel’ Threatens To Bomb IRS Building (TaxGrrrl)

Robert Wood, Ten Facts About Fighting IRS Tax Bills.

Peter Reilly, Is IRS Targeting Drunkards? Well, somebody has to work there.

Jack Townsend, The Stored Communications Act and Emails: An Overview

 

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TaxProf, The IRS Scandal, Day 719 “IRS Attacks Conservative Groups But Silent on Clinton Foundation.” And Media Matters, and…

Howard Gleckman, A Small But Important Change in Retirement Savings Rules (TaxVox). “The proposal would exempt those who have $100,000 or less in retirement savings from having to take required taxable distributions from 401(k)s, IRAs, and the like starting at age 70 ½.”

 

Government is just the name for things we do together. IRS Seeks To Tax $50k Raised From GoFundMe For Cancer Treatment For Car Crash Victim (TaxProf).

 

 

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Tax Roundup, 4/27/15: Iowa’s corporate rate highest, even after you do the math. And more!

Monday, April 27th, 2015 by Joe Kristan

The Highest. How High Are Corporate Income Tax Rates in Your State? (Jared Walczak, Richard Borean, Tax Policy Blog):

Corporate income taxes vary widely, with Iowa taxing corporate income at a top rate of 12.0 percent (though the state offers deductibility of federal taxes paid), followed by Pennsylvania (9.99 percent), Minnesota (9.8 percent), Alaska (9.4 percent), the District of Columbia (9.4) and Connecticut and New Jersey (9.0 percent each). At the other end of the spectrum, North Dakota taxes corporate income at a top rate of 4.53 percent, followed by Colorado (4.63 percent), and Mississippi, North Carolina, South Carolina, and Utah (5.0 percent each).

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So how much does that federal deductibility lower Iowa’s top rate? If you compute the top rates taking into account the deduction, Iowa still has a top marginal rate of 10.11% — still highest in the nation.

The high rate doesn’t result in high revenue receipts for the state. For example, Calendar 2013 corporation tax revenue for Iowa accounts for less than 6% of the state’s tax receipts. With single-factor apportionment and a tax base hollowed out by special interest carveouts, it hits hardest unlucky taxpayers without pull at the statehouse. Yet, as the U.S. has the highest national corporation tax rate in the OECD, it secures Iowa the dubious honor of having the highest corporation tax rate in the developed world.

 

William Perez, Tax Incentives for Alternative Energy Systems

Annette Nellen, Revenue magic (that should be avoided)

Kay Bell, Virginia dumps tax refund debit cards for paper checks. Fraud is part of the reason.

Paul Neiffer, Think You Are Too Small to Be a Target of Cyber Crime? Think Again. “30% of all targeted cyber-attacks are directed against businesses with less than 250 employees.”

Jason Dinesen, Marriage in the Tax Code, Part 7: 1920s Court Battles

Keith Fogg, Last Known Address for Incarcerated Persons (Procedurally Taxing). Funny that the government can insist that a taxpayer partake of its hospitality, but then take no responsiblity to see that he gets his tax notices.

Robert Wood, IRS Paid $3 Billion In Tax Credit Mistakes Plus $5.8 Billion In Erroneous Refunds. That doesn’t count erroneous earned income tax credits — only corporate returns.

Russ Fox, No Discount for her Sentence. “Well, Ms. Morin operated Discount Tax Service. Her clients were very happy with her methods, as they received tax credits and itemized deductions on their returns whether or not they qualified for them.”

Tony Nitti, Tax Savings To Clear Path For Josh Hamilton’s Return To Texas Rangers. But people keep telling me that state taxes don’t affect business decisions.

Robert D. Flach, YOU CAN’T MAKE THIS STUFF UP. “The IRS was writing to the taxpayer to tell him that he is dead and so they were not going to process his refund.”

 

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Me, IRS releases Applicable Federal Rates (AFR) for May 2015

 

Peter Reilly, IRS Forced To Release Names Of Targeted Groups. The IRS likes to hide its misdeeds behind the taxpayer confidentiality rules. Not this time.

TaxProf, The IRS Scandal, Day 718The IRS Scandal, Day 717The IRS Scandal, Day 716The IRS Scandal, Day 715.

Howard Gleckman, Could a Carbon Tax Finance Corporate Rate Cuts?

Robert Goulder, Bernie Sanders: Swimming Against the Tide (Tax Analysts Blog). We can only hope so.

Because he would lose? Bush Nomination Would Be Bad News for Tax Reformers (Martin Sullivan, Tax Policy Blog).

 

Career Corner. Dealing with chatty colleagues (Caleb Newquist, Going Concern). When feigning death isn’t enough.

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Tax Roundup, 4/23/15: House report rips Koskinen’s war on taxpayer service.

Thursday, April 23rd, 2015 by Joe Kristan

I’ll believe the IRS has a funding crisis when the IRS acts like it has a funding crisis. The House Ways and Means Committee yesterday issued a report ripping Commissioner Koskinen for deliberately cutting customer service to prioritize ACA implementation and to create pressure for a bigger budget. It’s the IRS version of the Washington Monument Strategy — slashing the most visible and popular services first.

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

Christopher Bergin of Tax Analysts describes the report:

In 14 pages, the report blisters the IRS for treating taxpayers like dirt (my term, not theirs). It’s a shrewd counterpunch in the mouth. But remember, the commissioner picked this fight.

What’s in the 14 pages? A discussion of items that Mr. Koskinen chose to fund, and resources he neglected, at the expense of taxpayer service. Examples from the report include:

Diversion of user fee money to the general budget. The IRS has jacked up the fees to obtain rulings and non-automatic accounting changes to absurd levels. Rather than using those fees to provide services, the funds have been diverted to the general IRS budget.

Continuing to keep hundreds of full-time union operatives on the agency payroll. From the report.

“…the IRS reported that employees used 521,725 hours for union activity in fiscal year 2013, which accounted for an estimated $23.5 million in salary and benefits expenses. In fiscal year 2014, the IRS recorded 491,948 hours of union time, and another $23.5 million in salary and benefits expenses. In that same fiscal year, there were 36 IRS agents who devoted 50 percent or more of their time at work to union activities instead of performing official duties. For the first quarter of fiscal year 2015, the IRS reported 113,294 hours of union time.

The report says that at 15 minutes per call, these employee slots could have fielded 2.5 million taxpayer inquiries. But then the union would have to pay its own employees, and we can’t have that.

The report also notes that the IRS hasn’t exactly shown it would make good use of additional funds, citing its expensive internal system implementation failures. It also slams the IRS for ending the pilot private collection program, while failing to pursue the collections targeted under the pilot program. Of course, the Treasury Employee Union would rather have the work not done at all than to have it done by non-union help.

I agree with Christopher Bergin in attributing the mess to Mr. Koskinen:

Almost from the first day on the job, his reaction to congressional budget cuts has been to deflect responsibility elsewhere. His appearances before Congress have a “who do you think you are” edge to them. And this tax filing season, he upped the ante.

His new strategy went something like this: “You want to cut my budget, fine — then I’ll show you what it will cost.”

He began cutting back on taxpayer service and tax law enforcement,

Via Wikipedia

Via Wikipedia

claiming that the IRS lacks sufficient funds to do its job. Never mind that its annual budget is about $11 billion. Then Koskinen started telling his employees the country must get used to the IRS doing “less with less.” That language is code for “taxpayers are going to suffer and Congress will get the blame.”

He then doubled down on the rhetoric by labeling budget cuts a “tax cut for tax cheats.” Personally, I think that remark went too far. It resembles a temper tantrum — or worse.

And you know what? The commissioner of the Internal Revenue Service doesn’t get to throw a public temper tantrum. It’s simply not a part of the job description.

As long as the IRS can afford to keep a battalion of union operatives on its payroll, I’ll remain unconvinced that it really needs a bigger budget. I’m convinced that until Mr. Koskinen resigns, there is no hope for the agency.

Somewhat related: Russ Fox, Don’t Call Us Continues. “If anyone thinks the IRS’s budget will be increased for next year, they’re dreaming.”

The TaxProf has a roundup of coverage.

 

What’s “green” about green energy subsidies. An Indiana man pleads guilty to taking part in a conspiracy to scam the biofuel subsidy system. Prosecutors said the scam raked in over $100 million in refundable biodiesel production credits.

Of course, scams are bad, but the real scandal of the biofuel subsidies is what is legal.

 

William Perez, Tax Incentives for Alternative Energy Systems

 

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 2 (Trends I Noticed)

Peter Reilly, Detective’s Vacation And Sick Time Not Excluded From Taxable Income

Robert Wood, What To Do When IRS Agents Call On You. “This may sound paranoid, but the ramifications of getting flustered and running at the mouth can be extreme.”

TaxProf, The IRS Scandal, Day 714.

 

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Iowa rural broadband bill advances. O. Kay Henderson reports:

The Iowa House has passed a bill that would set up a state-run grant program to expand broadband access in Iowa, although no state money is committed and the program will only get going if the state gets federal tax dollars for it. The bill would set up a new, 10-year-long property tax exemption for companies that extend high-speed broadband service in “unserved or underserved areas” of the state.

Of course. How can you do anything without a tax bill? This item in the article strikes me:

Representative Josh Byrnes, a Republican from Osage, said the bill will hopefully address the “inconsistencies” in broadband speeds.

“I live in a part of Mitchell County where I actually get better connectivity to my barn than I get here at the state capitol,” Byrnes said.

Of course, the state capitol is in the most urban part of the state, which is also a rising tech corridor. If you can get better broadband in a Mitchell County barn, I have doubts about how serious the rural broadband problem really is.

 

TaxGrrrl, Accused Murderer Requests Police Escort To Cash Tax Refund. Jails apparently don’t cash refund checks.

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Tax Roundup, 4/21/15: Loans aren’t taxable, until you don’t have to pay them. And: ACA, dope, and lots of other stuff.

Tuesday, April 21st, 2015 by Joe Kristan

20120511-2Pay me now, tax me later. A hospital in a poor county in Central Florida wanted to recruit an OB-GYN. Rural employers often have to do something extra to recruit good help, so the hospital offered him a $260,000 loan. It came with a sweetener: if certain goals were reached, the loan would be forgiven.

It’s well established that loans aren’t taxable income. That can be pretty sweet to have $260,000 to spend with no withholding and no tax bill. But there’s a catch. You either have to repay the loan (out of your after-tax income), or you have to pay tax on the loan amount if the debt is forgiven.

It’s natural to try to want to have your cake and eat it too — to not pay the loan, and not pay the taxes. That is the very trick behind the leveraged ESOP. But for the rest of us, it’s an elusive goal. It eluded the doctor in Tax Court yesterday.

The doctor met his goals, and $260,000 of debt was cancelled over four years. The doctor didn’t report the income, so the IRS assessed additional tax. The doctor objected. From the Tax Court opinion:

Although the amount that petitioner received from the hospital pursuant to the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not personally liable for its repayment, and that, as a consequence, he did not receive income when the loan was forgiven and canceled by the hospital. The Court disagrees with the premise of petitioner’s argument.

The court pointed out that the terms of the note did make the doctor liable, and added:

Further, although the Court does not accept the premise of petitioner’s contention regarding the nature of the loan, it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income…

Under these circumstances, forgiveness and cancellation of the loan gave rise to income.

The Court added in a footnote:

…petitioner argues that when debt is canceled, the creditor should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC. Although this may be so, the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt.

Apparently the hospital knew that there was income, but issued the wrong kind of 1099. But the 1099 doesn’t change the nature of the income.

The moral? Forgivable loans are nice — cash now, tax later. But later happens.

Cite: Wyatt, T.C. Summ. Op. 2015-31.

 

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Megan McArdle, Obamacare’s Tax Day Mystery:

Meanwhile, Louise Radnofsky of the Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her.

Complex systems have unintended consequences.

Hank Stern, The 4% Solution (Insureblog). “Only 4% of people who signed up for ObamaCare got the correct subsidy”

Christine Speidel, Penalty Relief and Premium Tax Credit Reconciliation (Procedurally Taxing). “This post will describe the penalty relief available under Notice 2015-09 and some of the barriers that may prevent low-income taxpayers from accessing the relief.

 

William Perez, Taxes When Hiring Household Help

Tony Nitti, IRS Seeks Record $2 Billion In Back Taxes From Prominent Businessman And Philanthropist Sam Wyly. Offshore trusts are involved.

Peter Reilly, Superior Point Of Sale Software Does Not Mix Well With Skimming

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 1

Kay Bell, IRS telephone tax help was a dismal 38.5% this filing season. Part of your Commissioner’s “Washington Monument Strategy” of making taxpayers suffer to boost his budget.

 

20130607-2TaxGrrrl, 4/20: The Blunt Truth About Marijuana & Taxes

James Kennedy, Marijuana Dispensary Settles Case after IRS Suggests It Engage in Money Laundering (Tax Policy Blog):

Imagine running a small business and being assessed a penalty by the IRS. Then imagine being told by the IRS that the only way to avoid the penalty is to commit a serious felony, laundering money. This Kafkaesque nightmare actually became reality for a Colorado marijuana dispensary called Allgreens when it tried to pay its federal payroll taxes.

At some point this decade or next, marijuana will become more or less legal. I wonder if the tax law will be the last bastion of prohibition.

 

TaxProf, The IRS Scandal, Day 712. “The IRS Assures an Atheist Group It Will Monitor Churches.” What could go wrong?

Robert Wood, Before IRS Targeting, Lois Lerner Targeted At Federal Election Commission

 

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Paul Neiffer, Senator Wyden Indicates Tax Reform Must Include Flow Through Entities

Joseph Thorndike, Republicans Want to Repeal the Estate Tax Because Too Much Is Never Enough (Tax Analysts Blog).

For my money – and admittedly, it’s not my money, since I don’t expect the tax to be an issue for my heirs – repeal is a bad idea under any circumstances. But it’s an especially bad idea when paired with a continuation of stepped-up basis.

If there is a good argument for the estate tax, it’s to allow basis step up. The “breaking up dynasties” thing is silly. From what I’ve seen in practice, all you need to break up inherited wealth is a second generation.

Eric Toder, Corporate Tax Reform and Small Business (TaxVox).

Sebastian Johnson, State Rundown 4/20: State Houses Consider Cuts (Tax Justice Blog).

 

Career Corner. The Non-Golfing Accountant’s Guide To Hitting the Links (Leona May, Going Concern)

 

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