Posts Tagged ‘William Perez’

Tax Roundup, 10/31/14: Halloween! And: mortgage interest? Put it on the tab.

Friday, October 31st, 2014 by Joe Kristan

20140325-1The deduction for home mortgage interest is hugely popular among those with huge home mortgages. Taxpayers get to deduct all of the interest paid on loans used to buy a home, up to $1 million in principal; they also get to deduct interest paid on the first $100,000 in home equity debt.

But there is a technicality: the interest needs to be “paid.” That was a problem for a California couple in Tax Court yesterday.

The couple bought a home in 1991 for $300,000. They refinanced it for $600,000 in 2007. Then 2008 happened, and they got a loan modification in 2010. Tax Court Judge Lauber explains:

The modifications included a reduction of the interest rate, a change in the payment terms, and an increase in the loan balance. Immediately before the modifications, the outstanding loan balance was $579,275; after the modifications, the new balance was $623,953. The difference (equal to $44,678) resulted from adding the following amounts to the loan balance: past due interest of $30,273, servicing expense of $180, and charges for taxes and insurance of $14,225.

The taxpayers added the $30,273 to the $9,253 the bank put on their 1098 mortgage interest statement for 2010. The IRS noticed the difference and disallowed the $30,273.

20121031-2The Tax Court sided with the IRS:

Petitioners are cash basis taxpayers. It is well settled that “[a] cash-basis taxpayer ‘pays’ interest only when he pays cash or its equivalent to his lender.”

 Through the loan modification agreement, the $30,273 in past-due interest on petitioners’ mortgage loan was added to the principal. No money changed hands; petitioners simply promised to pay the past-due interest, along with the rest of the principal, at a later date. Because petitioners did not pay this interest during 2010 in cash or its equivalent, they cannot claim a deduction for it for 2010. They will be entitled to a deduction if and when they actually discharge this portion of their loan obligation in a future year. 

In short, you can’t just add interest to the loan balance and get a deduction. That has obvious implications for “reverse mortgages.”

As the taxpayers make the payments, they will have some additional factors to consider. Their original purchase price was $300,000 for the house. Unless the additional borrowing was used for renovation or expansion of the home, it is “home equity indebtedness.” Interest on only the first $100,000 of equity debt will be deductible — and only for regular tax, not AMT.

Cite: Copeland, T.C. Memo 2014-226.

 

mst3k-lanternWilliam Perez, The Tax Audit Success Story and Tips from Audit Experts

Jason Dinesen, Same-sex Marriage and State Taxes: 2014

Kay Bell, 2015 income tax rates, income brackets

TaxGrrrl, IRS Announces 2015 Tax Brackets, Standard Deduction Amounts And More

Robert D. Flach has A SCARY THOUGHT for Halloween. “What if the 114th Congress turns out to be made up of most of the same idiots as the 113th Congress!”  It will be.

 

Leslie Book, AICPA Suit Against IRS Voluntary Education and Testing Regime Thrown Out of Court (Procedurally Taxing)

Tax Trials, Tax Court Preserves Taxpayer Protections against Arbitrary and Capricious Appeals Rulings

 

Arnold Kling  on “middle class” tax credits:

Brooks endorses the reform conservative Room-to-Grow idea of showering middle-class families with tax credits. I see that as political posturing. If I could be in charge of tax reform, we would get rid of credits and deductions, and we also would move away from taxing income and instead toward taxing consumption. Note, however, that tax reform is not one of my top three priorities.

Except for the last sentence, I agree with it all.

 

6fpw32atDon Boudreax on the Arnolds Park IRS cash seizure:

I challenge anyone to justify, or even to excuse, such an abuse of power.  (HT a dear and wise and passionate friend.)

Words normally do not escape me, but I can find none that adequately convey the anger and sense of injustice that course through me when I read of seizures such as this one.  Best to let the matter speak for itself, which it surely does to anyone this side of Frank Underwood in decency and civility.  Fortunately, the great Institute for Justice is on the case.

Oh, I’m sure that things like that could never happen if the IRS had a bigger budget.

 

Andrew Lundeen, Tens of Thousands Protest Internet Tax in Hungary (Tax Policy Blog) Would-be dictators come up with wacky ideas.

20141027-2Matt Gardner, Obscure Law Allows Wealthy Professional Sports Team Owners to Reap Tax Windfalls (Tax Justice Blog) . He doesn’t care for intangibles amortization.

 

TaxProf, The IRS Scandal, Day 540

 

News from the Profession. Grant Thornton to Have Rat Problem for Foreseeable Future (Adrienne Gonzalez, Going Concern)

Tony Nitti, Want To Do Your Part To Help Fight Ebola? Skip Your Next Vacation. OK, I’m skipping my next vacation to Liberia.

Share

Tax Roundup, 10/29/14: Iowa Business Tax Climate worsens. And: Ex-IRS man does a Reddit AMA.

Wednesday, October 29th, 2014 by Joe Kristan

41st out of 50. Iowa reclaimed its bottom-10 standing among the states in the 2015 Tax Foundation Business Tax Climate Index released yesterday. Iowa’s standing fell one spot from 2014.

20151029-1

The Tax Foundation report mentions Iowa’s highest-in-the-nation corporation tax rate, its high individual rates, and its complicated tax system.  Iowa was rated as having the second-worst corporation tax system.

The Tax Foundation explains how the worst states got that way:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Even though Iowa’s complex and dysfunctional income tax is a long-standing embarrassment, it has been a non-issue in the current race for Governor. While he has occasionally said Iowa needs a better tax code, Governor Branstad’s administration has more avid about handing out tax credits to buy ribbon-cuttings than about fixing a tax law that burdens businesses lacking the pull to swing special deals. The tax law as it is seems to suit the Governor’s needs well enough now.

His opponent, Senator Hatch, is a big beneficiary of tax credits in his development business. As he makes a good living out of the tax law, he is an unlikely candidate for tax reform.

The report does hold out hope. North Carolina’s ranking jumped from 44th to 16th as a result of reforms enacted this year. If they can do it, maybe Iowa can too. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would eliminate the corporation tax and drastically reduce individual rates by getting rid of Iowa’s rats nest of politically-convenient deductions and credits, would be a great place to start.

Other coverage:

TaxProf, 2015 Business Tax Climate: Chilliest in Blue States

Russ Fox, The 2015 State Business Tax Climate Index: Not Much Has Changed

 

20120906-1David Brunori, Yes, More Problems with Tax Incentives (Tax Analysts Blog):

People who have studied tax incentives know everything that’s wrong with them: They don’t work (companies choose where to locate for other reasons); they’re unfair (some companies get them, others don’t, and their benefits inure to the haves rather than the have-nots); they’re inefficient (government bureaucrats can’t make decisions better than the market). There are many more.

We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.

Indeed.

 

Iowa saved from giving away $30 million in corporate welfare. Iowa loses $1.4 billion fertilizer plant to Illinois (Des Moines Register) “Previous news reports have said both Iowa and Illinois offered Cronus tax incentives of about $30 million.”

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Robert D. Flach reports on THE SAVER’S CREDIT NUMBERS FOR 2015. This is an underused credit that rewards frugality by lower-income taxpayers.

Jason Dinesen, IRS Oops on E-Services E-mail. “That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.”

Jim Maule, How Not to File a Tax Court Petition “First, stand in line and get that hand-stamped postmark. Second, avoid the need to learn the first lesson by treating the petition as due EIGHTY days after it is mailed. That provides a cushion of time, an allowance for unforeseen circumstances, and contingency insurance.”

Jack Townsend, IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits.

TaxGrrrl, IRS Announces PTIN Renewals, Registration For Voluntary Certification

Peter Reilly, There Is An Accountant Art Expert – Who Knew?

Kay Bell, Desert island bipartisanship, sort of, on new reality TV show. Apparently a reality show left two Senators stranded on a desert island for six days. A good start.

 

20121116-1iabiz

 

Howard Gleckman, Is There Any Chance Congress Will Pass Business Tax Reform Next Year? (TaxVox). “The chances are not zero. But the odds are very long.”

William McBride, White House Claims U.S. Effective Corporate Tax Rate is Competitive (Tax Policy Blog). Yes, the way the Giants were competitive last night in Kansas City.

 

News from the Profession. Things You Should NOT Say to a Brand New CPA (Leona May, Going Concern).

 

Recently-retired IRS agent Michael Gregory did an “ask me anything” on Reddit. It apparently didn’t impress everyone, if this report is to be believed:

Gregory accused Rep. Darrell Issa (R-CA), who has been leading the investigation of IRS misdoings, of playing politics with IRS funding, which led one Reddit user to offer a “summary” of Gregory’s comments:

From what I’ve seen so far

Lerner did nothing wrong
Darrel Issa is the devil
Throw more money at the IRS
Lack of criminal charges proves everything was just peachy and not politically driven
It’s all congress’ fault
Patriots pay taxes
The flat tax will let evil millionaires kill and eat babies

The IRS couldn’t ask for a better ‘leaker’

Other Reddit users agreed, with one complaining, “[Gregory] might as well have titled this AMA ‘having left the IRS, I am free now to reveal the IRS would be perfect if Congress just paid us more.’ I get that the IRS may be underfunded but this leaker might as well be an IRS lobbyist.”

The IRS seems to have taken the funding issue into its own hands.

 

Share

Tax Roundup, 10/27/14: IRS visits Arnolds Park restaurant, tips itself.

Monday, October 27th, 2014 by Joe Kristan

20120703-2IRS Commissioner Koskinen likes to say there is nothing wrong with the IRS that a bigger budget can’t cure. A story out of Arnolds Park, Iowa might cause one to question that. The New York Times reports:

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

Banks are required to report “suspicious” deposits under $10,000 because they might be done to evade a required IRS filing. As they get in trouble for non-reporting, they are likely to overreport. And in these cases, that’s all the IRS required before stealing the cash. The victims have legal recourse, but it requires them to sue the federal government, owner of the largest law firm in the world; legal bills routinely run into tens of thousands of dollars.

So, without any evidence, or even suspicion, of a crime, the IRS uses some of its allegedly precious and constrained enforcement resources to steal money from a little Iowa restaurant. The story cites other cash seizure nightmares. One involved an Army sergeant saving for his daughters’ education. Others involved legitimate but cash-intensive businesses.

If this is what the IRS accomplishes with insufficient resources, imagine how much they could steal with full funding.

(via Instapundit)

Related:

Tax Justice Blog,  New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs. Where would anybody get that idea?

Dan Mitchell, Another Example of Government Thuggery – and another Reason Why Decent and Moral People Are Libertarians

Russ Fox, SARs Leading to Forfeiture: The IRS Oversteps

 

20141027-2Jason Dinesen, How Non-Residents or Part-Year Residents Report Federal Refunds on Iowa Tax Returns. One more complication from Iowa’s deduction for federal taxes.

Robert D. Flach, DON’T TRY TO BUY A HOUSE OR CONDO WITH ONLY 5% DOWN!. And don’t try to subsidize that either.

William Perez, Self-Employed Retirement Plans, “If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or a solo 401(k) retirement plan.”

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #9-Tax Court Further Muddies The ‘Dealer Versus Investor’ Issue

 

TaxGrrrl, Fundraising Campaign Ends For ‘Ebola Free’ Nurse, Donors Encouraged To Contribute To Charity

Jana Luttenegger, 2015 Retirement Plan Limits Announced (Davis Brown Tax Law Blog)

Paul Neiffer, 2015 Social Security Wage Base Increases to $118,500

Kay Bell, 6 year-end tax tips for small businesses

Stephen Olsen, Summary Opinions (Procedurally Taxing). Recent cases on whistleblowers, interest abatement, and art valuation.

 

 

Andrew Mitchel, 2014 Third Quarter Published Expatriates – Third Highest Ever. FATCA and the IRS holy war on Americans abroad takes its toll.

20141027-1

 

TaxProf, The IRS Scandal, Day 536

 

David Brunori on the inherently corrupt nature of corporate welfare tax incentives, like those so popular with Iowa politicians ($link):

I have no doubt there are more instances of companies contributing to politicians and getting economic development payouts. I’m not naïve. Corporations donate money to governors and lawmakers and expect a return on their investment. While the governors cited above were Republican, corporations and business interests don’t discriminate. Indeed, Lockheed Martin donated lots of money to Democratic governors.

We likely won’t find a smoking gun e-mail reading, “Dear Governor, your check is in the mail, please process my multimillion-dollar handout. Your friend, CEO.” Politicians and business leaders are too smart for that. But growing evidence of tax incentives being granted by politicians who receive money should give everyone pause. It’s unlikely to be a coincidence.

But, jobs! For the middlemen, fixers and lobbyists, anyway.

 

Joseph Henchman, Michigan Senate Advances Film Tax Credit Extension Bill (Tax Policy Blog). Because Detroit has no greater need than to give money to Hollywood.

 

News from the Profession. Meet the Guy Who Prefers Falafel Over PwC (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 10/24/14: IRS attorney says revolving door spins away billions. And: pass-through isn’t always small.

Friday, October 24th, 2014 by Joe Kristan

20130129-1Taxes are for the little people without connections. A sensational open letter to the top Treasury tax brass from an IRS attorney alleges that the agency routinely shuts off promising examinations of big well-connected taxpayers. From Raw Story (via the TaxProf):

In a letter to Treasury Secretary Jacob Lew, IRS commissioner John A. Koskinen, and IRS chief counsel William Wilkins, Jane J. Kim, an attorney in the IRS Office of the Chief Counsel in New York, accused IRS executives of “deliberately” facilitating multi-billion dollar tax giveaways. The letter, dated October 19, will add further pressure on the agency, which is under fire for allegedly targeting conservative and Tea Party groups.

The letter describes three cases where Ms. Kim says the IRS walked away from large well-founded assessments of big corporate taxpayers raised by whistleblowers. The story implicates the revolving door between big law and accounting firms and the top levels of the IRS as a key to the strange taxpayer friendliness.

Bill Henck, who has worked for over 26 years in the IRS Office of the Chief Counsel, agreed. “The senior executives drive the train on all this and pal around with lobbyists,” he said. “Treasury was involved with both the Elmer’s Glue scam and the black liquor taxability issue. IRS executives look out for themselves, which usually means protecting corporate interests, since they hire lobbyists and are close to politicians.”

Backing up Henck’s concerns, the private sector lawyer and ex-IRS attorney explained that since 1998, IRS restructuring has focused on bringing in “outside people.” This led to the employment of an extra layer of executives who were previously “partners from big accounting firms.” Citing active IRS criminal agents, the ex-IRS attorney said: “Almost every large firm or corporation has a person inside the IRS. It’s a revolving door, with the top two or three management layers all from big accounting and law firms, and this is why they won’t work big billion-dollar cases criminally. Private bar attorneys are, in effect, controlling the IRS. It’s a type of corruption – that’s the word used by one IRS agent I’m in touch with whose case was shut down by higher ups without cause.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

That brings to mind Commissioner Koskinen’s view of the revolving door:

So I’ve always said the best testimonial to a good place to work is people are forever coming in and trying to steal your people. And so I would be delighted to have young people come here for two or three years and some of them get recruited away because they were so good and the training is so good, because the more of that that happens, the more people are going to stand in line to get here. And as I say, the experience is, because it would be a great place to work, is the capture rate would be terrific.

So the Commissioner thinks the revolving door is a good thing. That probably means Ms. Kim’s letter isn’t exactly going to trigger reforming zeal from Mr. Koskinen. And don’t expect that you can skip out on taxes without your own mole in the IRS, chump.

 

 

Robert D. Flach has your fresh Friday Buzz! Including depressing news that Congresscritters are going to wait until January 2015 to enact the tax laws for 2014.

Kay Bell, Some retirement plan contribution, AGI limits go up in 2015

Brett Bloom, Dismantling a Partnership: The IRS’s Toolbox (Tax Litigation Survey)

William Perez, How to Plan for, Minimize, and Report the Self-Employment Tax

TaxGrrrl, IRS Gets Big Win In Court As Judge Dismisses Tea Party Targeting Cases

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

TaxProf, The IRS Scandal, Day 533

 

Kyle PomerleauPass-Through Businesses are not Always Small Businesses (Tax Policy Blog). This article is a good read for anyone who thinks increases in top rates don’t hurt business because most pass-throughs are small. While that may be true, there a lots of large ones:

Compared to c corporations, pass-through businesses are still much smaller on average. The same Census data shows that 1.6 percent of corporate businesses employ 100 or more employees and 0.36 percent employ 500 or more employees. 44 percent employ between 1 and 100 employees.

However, in absolute terms, there are about as many pass-through businesses with 500 or more employees than there are traditional c corporations. According to the Census, there are approximately 9573 pass-through businesses with 500 or more employees and 9434 c corporations with 500 or more employees.

20141024-1

Source: Tax Foundation

So when you increase taxes on high-income individuals, you are also increasing taxes on employers, which isn’t likely to do good things for employment.

 20141024-2

Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog) Other countries just might want to poke into foreign accounts the way we do.

Howard Gleckman, Why Tax Lawyers and Tax Economists Can’t Communicate (TaxVox)

 Megan McArdle,  Can’t Afford a House? Don’t Buy One. Wise advice, but politicians think we should have a program to buy a pony for everyone.

Tax Justice Blog asks What Horrors Await Us in Congress after the Election?  And will they be better or worse horrors than the current bunch of congresscritters?

 

Share

Tax Roundup, 10/21/14: Gander gets sauced! And: IRS Commissioner’s prophecy of tax season doom.

Tuesday, October 21st, 2014 by Joe Kristan
Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

Gander, Meet Sauce. An alert reader points out something wonderful I had missed — a ruling awarding attorney fees and costs of $257,885 to the return preparers who successfully challenged the IRS preparer regulations. It’s a rare and welcome example of the IRS being held accountable for being unreasonable with taxpayers. And the court said the IRS was being unreasonable (all emphasis mine; some citations omitted):

In the present case, the reasonableness of the government’s position can be measured by the familiar guideposts of statutory interpretation: text, legislative history, statutory context, and congressional intent. In each of those dimensions, the interpretation of § 331(a)(1) advocated by the government was deficient. Indeed, on several key points, such as the proper meaning of the word “representatives,” the IRS offered no support whatever for its interpretation. The Court therefore finds that the government’s position was not substantially justified.

Losing the battle over whether its position was justified, the IRS dipped into its seemingly bottomless supply of chutzpah to challenge the amount:

As an initial salvo, the IRS argues that it was unreasonable and excessive for Plaintiffs to request compensation for over 1,700 hours spent advocating an interpretation of the statute that Plaintiffs themselves contend is obvious.

Our position was reasonable! OK, it was so unreasonable that even a cave man could litigate against it!

The Court declines the IRS’s request for across-the-board cuts to Plaintiffs’ award. The choice of a hatchet is particularly inappropriate here for several reasons. First and foremost, Plaintiffs prevailed at every stage of this litigation and achieved the entirety of their requested relief. Degree of success is “the most critical factor” in evaluating the reasonableness of a fee award.  Second, the IRS understates the complexity of this case. To be sure, this Court and the D.C. Circuit both concluded that Plaintiffs’ was the only reasonable interpretation of 31 U.S.C. § 330(a)(1). That conclusion, however, was apparent largely as a result of Plaintiffs’ thorough research and well-reasoned briefs.

Hah.

The only thing that would make it better would be if the IRS were assessed a penalty for taking a frivolous or negligent position. Maybe someday. But congratulations to the plaintiffs and the Institute for Justice for pulling off a legal end-zone dance.

 


Cite: Loving, Civil Action No. 12-385 (DC-District of Columbia)

And if you think that preparers can now do whatever they please, read Tax preparation business owner sentenced for tax fraud:

Charles Lee Harrison has been ordered to federal prison following his conviction of willfully aiding and assisting in the preparation and presentation of a false tax return, announced United States Attorney Kenneth Magidson along with Lucy Cruz, special agent in charge of Internal Revenue Service – Criminal Investigation (IRS-CI). Harrison, the owner of a tax preparation business in Houston and Navasota, pleaded guilty June 16, 2014.

Today, U.S. District Judge Lynn N. Hughes, who accepted the guilty plea, handed Harrison a 36-month sentence to be immediately followed by one year of supervised release. He was further ordered to pay $396,057 in restitution.

I’m confident Mr. Harrison feels quite regulated at the moment.

 

Oh, Goody. “So we have right now probably the most complicated filing season before us that we’ve had in a long time, if ever. ”

-IRS Commissioner John Koskinen in an interview with Tax Analysts October 17 ($link)

The Commissioner also had an interesting idea for large partnerships ($link):

Our position is the most significant thing we can do to break that bottleneck — and I think it’s supported by a lot of people in the private sector — would be to say we need to amend [the 1982 Tax Equity and Fiscal Responsibility Act] and say we can audit a partnership,” Koskinen said. “And when we make an adjustment to the tax quantities, the partnership will absorb that that year,” he said, adding that the reporting would take place on the partnership’s Schedule K-1 for that year and the adjustment would automatically flow through to the partners.

Koskinen added that even though that statutory change would effectively shift the tax liability from those who were partners in the year under audit (and who benefited from the improper tax position) to the current partners, “that happens with mutual funds all the time. . . . People are used to buying and selling investments, recognizing whatever the tax and investment situation is.

Maybe that makes some sense for large partnerships, but it would be horrible for small ones, as anybody buying a partnership interest would also be buying three open years of audit exposure.

 

buzz20140923It’s Tuesday. That means Robert D. Flach is Buzzing with links from around the tax world!

Jason Dinesen, Iowa Tax Filing Deadline is October 31: Claim Your $54 Credit Before Then

Paul Neiffer, Will ACA Require You To Include Health Insurance as Wages. Spoiler: no.

Matt McKinney, Can I force my Iowa corporation to buy my stock? (IowaBiz.com). A common question from minority owners of closely-held corporations.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #10 – IRA and Qualified Plan Rollovers Are More Treacherous Than You Realize.

TaxGrrrl, Suspected Nazi War Criminals Collected Millions In Social Security Benefits After Fleeing The U.S.

William Perez, Payroll Taxes: A Primer for Employers

Peter Reilly, Taxpayer Barred From Communicating With CPA Still Hit With Late File Penalty. Weird and unjust.

Kay Bell, Jury doesn’t buy ‘vow of poverty’ as excuse for not filing taxes. Well, this tax evasion conviction will help the defendant fulfill the vow.

 

 

20141021-1Martin Sullivan, A Double Bias Against Infrastructure (Tax Analysts Blog)  He doesn’t mention the biggest problem: When most of government spending is just transfers from some taxpayers to others, it squeezes out everything else.

Donald Marron, A “Normal” Budget Isn’t Really Normal (TaxVox): “From 1975 to today, the federal debt swelled from less than 25 percent of GDP to more than 70 percent. I don’t think many people would view that as normal. Or maybe it is normal, but not in a good way.”

TaxProf, The IRS Scandal, Day 530

 

News from the Profession. AICPA Seeks to Better Weed Out Losers, Misfits with Evolved CPA Exam (Adrienne Gonzalez, Going Concern). Good thing I passed the exam before this development.

 

Share

Tax Roundup, 10/16/14: Tax-free public pensions proposed. And: Goodbye, 2010!

Thursday, October 16th, 2014 by Joe Kristan

And the statute of limitations now closes for extended 2010 1040s. That’s all water under the bridge now.

 

Accounting Today visitors, the corporate tax rate piece you seek from the newsletter is here.

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Brutal Assault on Reason Watch.* As the political campaigns plunge into their dreary final frenzy, we can look forward to silly tax proposals intended to buy a few votes from the gullible. Proposals like this from an Iowa candidate for Governor: Hatch proposes tax exemption for public pensions:

Democratic gubernatorial candidate Jack Hatch on Tuesday proposed to exempt public pensions from state income taxation.

In a speech to the Iowa State Police Association in Ames, Hatch said his Tax-Exempt Public Service Pensions Act would cover Iowa Public Employees Retirement System benefits, police and fire retirement benefits, judicial pensions and other smaller state, county and city pension system recipients.

Why just public pensions?

“I understand the nature of public employee bargaining,” Hatch said. “I know the contracts you negotiate include retirement as part of the bargain. You have foregone wage increases and other benefits to guarantee a strong pension, and I will honor that bargain.

“I know most of you are like a lot of public servants in that you could make a lot more money doing something else,” he added. “I want to make sure we place the proper value on your decision to serve and that we honor the contracts you have made for the long term.”

So somebody who gets a six-figure income as a local school district superintendent would get a tax-free pension, while somebody who took a much smaller salary to run a local private school would have a taxable pension. Because public service.

20130110-2There are many bad assumptions underlying this proposal. While there are many hard-working public employees, a government job implies no special moral credit. Public employees have defined benefit plans, which are nearly extinct in the private sector, and they already artificially increase public sector compensation. In general, public sector workers make more than their private sector counterparts. And the idea that people who work for the government are doing it for the public good, instead of for selfish motives, is difficult to credit.

For tax policy purposes, such carve-outs are awful. They necessarily increase the taxes on those not eligible for the benefit. That increases their motivation to carve out their own special deals, causing higher rates, causing more special deals. You end up with a completely dysfunctional system — one that looks a lot like what Iowa has now, as a matter of fact. Unfortunately, Jack Hatch’s opponent, Governor Branstad, also seems quite comfortable with the system we have.

*Click here for explanation of the “brutal assault on reason” theme.

 

Donnie Johnson, Liz Malm, Same-Sex Couples Gain More Clarity Regarding Their State Taxes (Tax Policy Blog).

William Perez, State Tax Amnesties in 2014

Tim Todd, Affiliated Group Can Use Graduated Tax Rates Even If Personal Service Corp. Is a Member. Mr. Todd is a law professor who runs the Tax Litigation Survey, which he has recently brought to my attention. I look forward to following it for its regular coverage of Tax Court cases and other tax litigation.

Diana Leyden, Not Being in Filing Compliance Can Trip Your Client Up at the CDP Level (Procedurally Taxing). Just one of many problems that arise when you get into the non-filing habit.

 

20141016-1

Jack Townsend, An Example of the Difference Between Pleading and Not Pleading:

Over 95% of federal criminal cases are resolved by plea agreement.  One of the reasons is that, in the Sentencing Guidelines calculations, defendants who plead will usually qualify by the plea for the acceptance of responsibility two or three level decrease in the Guidelines calculation.  Moreover, by pleading, the defendant may make himself or herself more attractive for a Booker downward variance from the reduced Guidelines range already reduced for acceptance of responsibility.  Conversely, by going to trial, a defendant generally forgoes any realistic hope of an acceptance of responsibility adjustment or any favorable Booker downward adjustment and may behave at trial in a way that will not endear the sentencing judge to the defendant.

He covers a case where a defendant ended up with a 405-month sentence, where a co-defendant was limited to 180 months (15 years) by plea deal. So plea deals are good if you are really guilty, while pressuring the innocent to confess on the threat of spending life in prison.

 

Annette Nellen, States without an income tax – good idea?

TaxProf, The IRS Scandal, Day 525

 

News from the Profession. PwC’s Bob Moritz Thinks Millennials Ask Way Too Many Questions (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 10/8/14: Koskinen warns of another hellish filing season. And: FATCA “tormenting” offshore taxpayers.

Wednesday, October 8th, 2014 by Joe Kristan
The Younkers Building ruins, morning, March 29, 2014.

The Younkers Building ruins, morning, March 29, 2014.

Here we go again. We know from bitter experience that Congress might cause tax season delays by passing an election-year “extenders” bill at the last minute. IRS Commissioner Koskinen gave official warning yesterday in a letter to the head of the Senate Finance Committee:

This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers. Moreover, if Congress enacts any policy changes to the existing extenders or adds new provisions, the IRS would have to reprogram systems and make processing changes, which would result in longer delays. If Congress waits until 2015 and then enacts retroactive tax law changes affecting 2014, the operational and compliance challenges would be even more severe — likely resulting in service disruptions, millions of taxpayers needing to file amended returns, and substantially delayed refunds.

It was just such retroactive changes that made the 2013 filing season so awful. Add the first go round for Obamacare penalty computations on tax returns, and we can look forward to an even more wonderful tax season in 2015.

I predict that we will get a last-minute passage of the Lazarus provisions that keep dying and being resurrected, sometime in December. Of course, it could drag into January again. I expect pretty much all of the expiring provisions, including bonus depreciation, to be included. But I never rule out Congress dropping the ball entirely.

Other coverage: Richard Rubin, IRS Warns of Tax-Filing Season Delays If Congress Stalls 

Joint Committee on Taxation, list of expiring provisions 2013-2024 (pdf).

 

20140815-2Taxpayer Advocate: FATCA “Tormenting” TaxpayersTaxpayer Advocate Nina Olson doesn’t seem to be a fan of FATCA. She spoke to the Financial Markets Association yesterday, and it sounds like she foresees bad things ($link, my emphasis.):

“This is a piece of legislation that is so big and so far-reaching, and [has] so many different moving pieces, and is rolling out in an incremental fashion . . . that you really won’t be able to know what its consequences are, intended or otherwise,” Olson said. “I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, ‘Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”

Wait, this was passed by our duly elected representatives. What could possibly go wrong?

Olson also questioned the penalty regime underlying FATCA. The law provides for a $10,000 penalty for failing to disclose a foreign bank account, and up to $50,000 for failing to disclose after IRS notification, she said. For someone with a $51,000 unreported foreign bank account, that could be a $60,000 penalty.

IRS policy states that penalties should be objectively proportioned to the offense, Olson said. “Putting a $60,000 penalty on someone for failing to report a $51,000 account does not seem to me like a penalty that is proportioned objectively to the offense,” she said.

Olson observed that a similar disproportionality emerged in recent IRS offshore voluntary disclosure initiatives, when the highest proportionate fines fell on the smallest accounts. In 2009 the median unreported balance for the smallest accounts was $44,000, she said. The lowest-balance account holders paid an FBAR penalty almost six times the actual tax due, she said. Yet the top 10 percent, with a median unreported balance of $7 million, paid a penalty roughly half the amount of tax owed, she said.

This is actually in keeping with the longstanding IRS policy of shooting jaywalkers while slapping the real international tax evaders on the wrist.

How could our legislative supergeniuses have come up with such an insane and unfair system? Look at the name of the legislation — “FATCA.” For fat cats, get it? They passed it claiming to be going after fat cats, but drafted it in a way that beats up on everybody working or living abroad attempting to commit personal finance. But because they “intended” to go after fat cats, they absolve themselves of guilt for the collateral damage, the financial devastation of the innocent and unwary, the retirements ruined. And they smear the rare politician who points out the insanity of FATCA with accusations of being soft on tax evasion.

 

canada flagThere was some rare good news on the offshore tax compliance front yesterday when the IRS made it easier to get favored tax treatment on Canadian retirement accounts:  IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements:

The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.

In the past, however, taxpayers generally would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.

Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.

But in case you think the risk of fiscal catastrophe related to Canadian accounts is past, the IRS warns:

The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D.

In other words, you can still be assessed a penalty of 50% of the account balance for not filing an FBAR report on the accounts, or a $10,000 penalty for not disclosing a balance on Form 8938 foreign financial asset form. But if you get ruined by these penalties, consider it a sacrifice on the altar of “an improved set of global rules,” you fat cat.

Russ Fox has more: IRS Simplifies Reporting for RRSPs and RRIFs.

 

20141008-1William Perez, Missed the Tax Deadline? Here’s what penalties might apply

Donnie Johnson, Liz Malm, What Does Yesterday’s Supreme Court Same-Sex Marriage Appeal Denial Mean for Same-Sex Couple Tax Filers? (Tax Policy Blog). Maybe taxpayers in Indiana, Oklahoma, Utah, Virginia and Wisconsin could learn from Jason Dinesen’s work here in Iowa.

Kay Bell, Gambling pays out a $38 billion bonus to tax collectors.

Jason Dinesen, Glossary of Tax Terms: IRA

KCCI, Pharmacist’s trial has been moved to next year. The owner of Bauder’s Pharmacy, facing tax and other charges arising out of alleged illegal sales of painkillers, is now set to go on trial in February.

 

Howard Gleckman, How Asset Building Tax Subsidies Miss Their Targets (TaxVox):

Nearly one-third of all federal tax expenditures–$384 billion in 2013 alone– is aimed at various forms of asset building, such as retirement savings, higher education, and home ownership. Yet, according to research by several of my Tax Policy Center and Urban Institute colleagues, these tax breaks do little to help low-and middle-income households build wealth.

Gee, you might conclude that maybe not every problem is a tax problem.

 

Two more TaxGrrrl Guest Posts: The IRS’s Uncharitable Treatment Of Charitable Contributions (Andrew VanSingel) and Roadways And Taxes (Charles Horn III).

David Brunori, Last Stand for Soda Taxes — Hopefully (Tax Analysts Blog). “If they can’t get folks in uber-liberal San Francisco and Berkeley to vote for soda taxes, they should just hang up their hats.”

Sebastian Johnson rounds up some more Tax Proposals on the Ballot this Election Season at Tax Justice Blog.


TaxProf, The IRS Scandal, Day 517

Jeremy Scott, Will the EU Commission Crack Down on Irish Tax Deals? (Tax Analysts Blog).

 

News from the Profession. Some Big 4 Alumni Just Can’t Quit Their Old Firms. (Caleb Newquist, Going Concern). No problem for me.

 

Share

Tax Roundup, October 3, 2014: A gold mine, or just a pile of old clothes? And: economic self-development!

Friday, October 3rd, 2014 by Joe Kristan
Flickr image courtesy Jen Waller under Creative Commons license.

Flickr image courtesy Jen Waller under Creative Commons license.

Is that basement full of clothes really a gold mine? Gold, if you believe the values a Maryland man used for donations of old clothes to charity. Unfortunately for him, the Tax Court yesterday ruled that sometimes all you get for your donation is a clean basement.

Many taxpayers use donations of clothing and household items as a gimme deduction.  They always write “$500 to Goodwill” on their tax information — or sometimes, a lot more.  While you can deduct the value of used clothes, the tax law imposes some limits, as Judge Lauber explains (citations omitted, emphasis added):

The nature of the required substantiation depends on the size of the contribution and on whether it is a gift of cash or property. For all contributions of $250 or more, the taxpayer must obtain a contemporaneous written acknowledgment from the donee.  Additional substantiation requirements are imposed for contributions of property with a claimed value exceeding $500. Still more rigorous substantiation requirements are imposed for contributions of property with a claimed value exceeding $5,000.


Section 170(f)(8)(A) provides that an individual may deduct a gift of $250 or more only if he substantiates the deduction with “a contemporaneous written acknowledgment of the contribution by the donee organization.” This acknowledgment must: (1) include “a description (but not value) of any property other than cash contributed”; (2) state whether the donee provided any goods or services in exchange for the gift; and (3) if the donee did provide goods or services, include a description and good-faith estimate of their value. . The acknowledgment is “contemporaneous” if the taxpayer obtains it from the donee on or before the earlier of: (1) the date the taxpayer files a return for the year of contribution; or (2) the due date, including extensions, for filing that return. Petitioner obtained blank signed forms from AMVETS and later filled them out himself by inserting supposed donation values. Because these forms were signed before the property was allegedly donated, we question whether they constitute an “acknowledgment” by AMVETS that it received anything.

 

20120511-2For contributions over $5,000,  a “qualified appraisal” is required unless the gift is of marketable securities.

The Marylander had cleaned out the house of his deceased mother, and he had a lot to give away:

These items allegedly included seven sofas, four televisions, five bedroom sets, six mattresses, a kitchen set, a dining room set, a china cabinet, and three rugs. For charitable contribution purposes, petitioner placed a value of $11,730 on these items.

Petitioner testified that he also donated to AMVETS during 2009 numerous items of clothing belonging to him and his children. These items allegedly included 180 shirts, 63 pairs of slacks, 153 pairs of jeans, 173 pairs of shoes, 51 dresses, 35 sweaters, nine overcoats, and seven suits. For charitable contribution purposes, petitioner placed a value of $14,487 on these items.

While no individual item exceeded $5,000, the appraisal rule still applied:

For contributions exceeding $500, “similar items of property” are aggregated in making this determination. Sec. 170(f)(11)(F) (“For purposes of determining thresholds under this paragraph, property and all similar items of property donated to 1 or more donees shall be treated as 1 property.”); . The term “similar items of property” is defined to mean “property of the same generic category or type,” such as clothing, jewelry, furniture, electronic equipment, household appliances, or kitchenware.

Because the value of the claimed contribution exceeds $500, we must aggregate “similar items of property” to determine what substantiation was required. Petitioner’s self-created spreadsheet shows three categories of similar items: clothing with an alleged value of $14,487; household furniture with an alleged value of $11,730; and electronic equipment with an alleged value of $1,550.

That knocked out the clothes and furniture right there, because there was no appraisal. It would be interesting to see if you could even find an appraiser to value old clothes like that. If you could, though, the appraisal expense would be a miscellaneous itemized deduction.

Who was the preparer? One odd twist is that the clothing deductions were claimed on an amended return prepared by a third party, after the IRS had already examined the taxpayer and assessed tax for unsubstantiated itemized deductions. I hope he didn’t pay that preparer too much.

The moral? 

When you have make a clothing donation (or any donation, for that matter) over $250, you need to get a written receipt meeting IRS rules to support your donation — a cancelled check or blank slip with detail of donation doesn’t cut it. If your donation goes over $5,000, and it’s not a traded security, you must have a qualified appraisal.  No appraisal, no deduction.

Oh, and the deduction for used clothing isn’t really just an additional standard deduction by another name.

Cite:  Smith, T.C. Memo 2014-203.

 

20140826-1Robert D. Flach has fresh Friday Buzz, including what he promises is a final reference to the Jersey Shore guy’s tax problems.

TaxGrrrl, Updated: ‘Real Housewives’ Reality Stars Joe & Teresa Giudice Sentenced To Jail. “Joe Giudice has been sentenced to 41 months in federal prison for financial and tax fraud. His wife, Teresa, will serve 15 months.”

William Perez, How to Calculate the Premium Assistance Tax Credit (With an Example). This will be a big deal on 2014 returns.

Jason Dinesen, Using a Line of Credit to Purchase Investments

Kay Bell, Tax moves to make during October 2014

Annette NellenLogical sales tax ruling on a web-based business

My fact check of a fact check is cited in a fact-check debunking.

 

Howard Gleckman, Pass-Through Firms Report $800 Billion in Net Income, Can’t Be Ignored in Business Tax Reform (TaxVox). “These firms have engaged in self-help tax reform by avoiding double taxation with the stroke of a pen.”  You’re welcome.

 

Jack Townsend, Penalties and Corporate America’s Shenanigans. “Instead of focusing the fire where far more revenue is involved and apply penalties in a way that will discourage misbehavior, the IRS goes after the small fish when there are bigger fish to fry.”

TaxProf, The IRS Scandal, Day 512

 

20141003-2Steve Warnhoff, Former CBO Director Holtz-Eakin on Dynamic Scoring: Revenue Estimating Is Already a Big Guessing Game So Why Stop Now? (Tax Justice Bl0g).

 

Career Corner. It’s Not All About the Big 4 (No Further Proc, a presumably pseudynomous Going Concern contributor). “So at your next recruiting event, when you witness the hordes amassing at the B4 tables, take a minute and visit other firms for a chat.”

Darn straight. Especially check out the Roth and Company table.

 

Economic development begins at home. Former Economic Development Director Charged With Tax Evasion:

 The one-time economic development director for the City of Columbia was arrested on multiple counts of income and property tax evasion.

Wayne Emerson Gregory, Jr. was arrested by investigators from the SC Department of Revenue on 3 counts of income tax evasion and 14 counts of property tax evasion.

Previously, Gregory was arrested in April of this year on embezzlement charges stemming from his time as Georgetown County’s Director of Economic Development from 2005 until September of 2013.

Silly rabbit.  When you’re an economic development director, you help other people loot the government.

Share

Tax Roundup, 10/1/14: Another court says Obamacare tax credits limited to state exchanges. Also: the Iowa Tollway.

Wednesday, October 1st, 2014 by Joe Kristan

oklahoma logoState means state. A U.S. District Court in Oklahoma has joined the D.C. District in holding that the tax credit subsidies for health insurance are limited to the 14 states that have established a health insurance exchange under the ACA. Other states let the feds set up exchanges.  Michael Cannon reports:

Noting that Obama administration wants to issue Exchange subsidies in states with federal Exchanges even though the PPACA (quoting Halbig) “unambiguously restricts the [Exchange] subsidy to insurance purchased on Exchanges ‘established by the State,’” Judge White argues that the government’s interpretation (quoting the Tenth Circuit in Sundance Assocs., Inc., v. Reno) “leads us down a path toward Alice’s Wonderland, where up is down and down is up, and words mean anything.” As evidence, White quotes the concurring opinion in King: “‘[E]stablished by the State’ indeed means established by the state – except when it does not[.]”

The D.C. District decision was upheld by a D.C. Circuit appeals panel, but has been vacated pending a rehearing by the full panel of judges.  The Fourth Circuit Court of Appeals has sided with the government, holding that the subsidies apply to all exchanges.  The issue is almost certainly going to be decided by the U.S. Supreme Court.

Both the ACA employer mandate and individual mandate penalties depend on how the decision comes out.  The employer mandate only applies if an employee gets a tax credit subsidy, so the Oklahoma rule would exempt employers in 36 states from the mandate. The tax credits are also key for determining whether insurance is “affordable” in computing individual penalties for not buying insurance; if the credits are unavailable, penalties would go away for millions of taxpayers in the 36 states using federal exchanges.

Related:

Whither Halbig and the ACA.

Obamacare tax credits get a reprieve.

Cite: Pruitt v Burwell. DC-OK, No. CIV-11-30-RAW

Peter Reilly, Court Rules Oklahoma ObamaCare Not OK

 

 

20120703-2Many economists say highway tolls are a sound way to finance road improvements. While Iowa has no official tollways, our state troopers are taking matters into their own hands, according to a report in today’s Des Moines Register:

 Two California poker players are refusing to fold in a legal battle against the state, claiming Iowa State Patrol troopers unlawfully seized their $100,020 gambling bankroll.

Troopers with the State Patrol’s criminal interdiction team — which works to catch drug traffickers and other criminals along interstates — used unfair procedures that target out-of-state drivers and cast suspicion on nonthreatening motorists, according to a lawsuit filed this week in federal district court on behalf of professional gamblers William “Bart” Davis and John Newmer­zhycky.

The men were traveling in a rented car from a poker event in Illinois with their bankroll.  They were pulled over on a pretext of not signalling a lane change — a pretext seemingly debunked by the patrol car dash cam recording — and ended up having their $100,000 seized.  They were also charged with having “drug paraphernalia.”

The state has returned $90,000, but the state has kept $7 million in seized funds from other out-of-state motorists, often without bothering to file charges.  A state spokesman defends the indefensible practice, which hits hardest people who are least likely to be able to afford to take the state to court, by saying it hurts criminals. You could probably catch some criminals and raise some cash by stopping and frisking everyone leaving the Harkin Steak Fry too, but that would hardly justify doing so.

Dallas County Sheriff took the practice a little too far; he was convicted of stashing seized funds in his garage (in a case where no charges were filed against the motorists whose cash was confiscated). Even when the troopers don’t help themselves to the cash, civil forfeiture without conviction of a crime is a corrupt and lawless practice that is overdue for reform.

Related: Steven Dunn, Nothing Civil About Asset Forfeiture

Update: From Jacob Sullum (Reason.com), Iowa Troopers Steal $100,000 in Poker Winnings From Two Players Driving Through the State

 

20121022-1William Perez, What You Need to Know About the Penalty for Not Having Health Insurance

TaxGrrrl continues her excellent “back to school” series with Back To School 2014: Educational Assistance Benefits

Kay Bell, Tax evasion charges are never fashionable. But tax cheating never seems to go out of style.

Jason Dinesen, Letting My Hair Grow Back: DIY is Not Always Better. Doing your own hair can be a bad idea; this also often applies to tax returns.

Or expatriations: There is no DIY green card abandonment (Phil Hodgen). 

 

Howard Gleckman, The Public Wants Clear Rules About Campaign Giving Through Tax-Exempts. Is It Possible? Yes, just the other day waiting in line at Hy-Vee, I heard a lady flipping through the People magazine say “Yes, they really need to do something about 501(c)(4) abuse.” She then apparated without even replacing the magazine.

 

TaxProf, The IRS Scandal, Day 510

Sebastian Johnson, State Rundown 9/30: The Gas Tax Cometh? (Tax Justice Blog). Better than taking cash from random travelers, anyway.

Joseph Henchman, State Inflation-Indexing of Gasoline Taxes

News from the Profession. Prospective Intern Wants to Know if Firm Will Let Him Go on Vacation During Internship (Adrienne Gonzalez, Going Concern).

 

Share

Tax Roundup, 9/29/14: Obamacare fines can hit $12,000 for a family for 2014. And: tax-evading Congressman beamed up.

Monday, September 29th, 2014 by Joe Kristan

20121120-2Laura Saunders, Penalty for Not Having Health Coverage Can Be Thousands of Dollars; The ACA Penalty Can Top $12,000 for a High-Income Family of Five:

For a family of five, the penalty could be as high as $12,240 for the 2014 tax year, experts say. And for many people, the penalty will rise sharply in 2015 and 2016.

The massive health-care changes passed in 2010 are phasing in, and this is the first year most Americans must have approved health insurance. Those who don’t will owe a penalty under the Individual Shared Responsibility Provision. It’s due with your income taxes, payable by April 15, 2015.

For your own good, of course.  And even if you get the coverage, you can get surprised by a tax bill at year-end if you mis-estimated your income for the year.  (Via the TaxProf). 

 

TraficantBeamed up. When Congresscritters are called “colorful,” it implies they are harmless and almost cute. James Traficant was often described as a “colorful” Congresscritter.  He would give speeches with the tag line “beam me up.”  Russ Fox reports that his request has been granted; the former Congressman died last week.

His colorful career came to a bad end with seven years in prison for tax evasion and other charges. He was accused of accepting bribes and not paying taxes as a sheriff before he made it to Congress; his defense was that he was conducting a secret undercover investigation of the bribe-givers.  He was convicted and expelled from the House. You have to achieve a pretty high standard of low to be expelled from that wretched hive of scum and villainy.

As his release date neared, a minor league baseball team prepared to celebrate with a “Traficant Release Night” promotion, until they got cold feet and cancelled.

It’s fun to laugh at these antics, and it’s healthy to mock politicians. Yet even an ineffective Congresscritter wields an enormous amount of power, with a 1/535 say in a trillion-dollar federal budget. The real laugh is on the taxpayers who put such power in such hands.

Update: Peter Reilly has a detailed history of Mr. Traficant’s tax troubles: James Traficant Jr. And The Taxpayer’s Burden

 

Russ Fox, California Mandates E-Filing of Business Returns:

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

Impossibility has never been an excuse with California.

 

TaxGrrrl, Back To School 2014: Saving & The Kiddie Tax.

Kay BellLying to your tax pro could result in a bad tax situation. Shockingly, this appears to be an issue with the Jersey Shore guy’s tax problems. I mean, if you can’t trust a guy from Jersey Shore, what’s left to trust?

William Perez, Investing in a 401(k)? Learn Your Yearly Maximum Contribution Amounts

Peter Reilly, Scholarships Do Not Make Beauty Pageant A Charity.  No, but 501(c)(3) also exempts “educational” institutions, and without the Miss U.S.A. pageant, I would have never been educated on the use of red cups as musical instruments.

 

Phil Hodgen, Your expatriation tax return when U.S. income is zero. It’s sad that our insane and abusive treatment of offshore Americans is making this a common issue.

Jack Townsend, Wylys Ordered to Disgorge Hundreds of Millions of Tax Benefits With Interest

Jason Dinesen, The IRS Says I’m Not Authorized to Speak On My Own Behalf:

So to recap:

  1. The IRS says I am not my own authorized representative so they can’t make the changes I requested

  2. The IRS sent me a duplicate copy of their letter because I am my authorized representative

But I’m sure preparer regulation would go smoothly…

 

20140929-1Kyle Pomerleau, Always Be Careful with IRS Income Data (Tax Policy Blog):

The U.S. tax code only accounts for capital income (capital gains, specifically) when it is realized. This means that someone may have been accumulating capital gains for 40 years in an investment portfolio, but the IRS only sees the final (sometimes massive) realization. Suppose an individual invested in stock. Each year, the gains were small, but in the 41st year, he realized all of the past years’ gains and earned $1 million in income. IRS data would show that this taxpayer was a millionaire one year (and part of the 1 percent).

And he’d be the Devil, for one year.

 

Renu Zaretsky, Pressure, Power, and a New View on Cuts. Today’s TaxVox headline roundup covers unintended consequences of the new inversion rules and the changing politics of tax cuts.

 

TaxProf, The IRS Scandal, Day 508. Speculation on whether there is a link between the IRS scandal and the Holder resignation.

 

Department of Unfortunate Examples.  Econlog’s Scott Sumner has an interesting post addressing why pay disparities that seem puzzling on the surface might make sense: Don’t jump to conclusions (markets are smarter than you or I)

It’s a wise post, but I wish he’d have found a different example:

You might think that a secretary is a secretary and a janitor is a janitor. Not so, they vary quite a bit in competence. Goldman Sachs has much more to lose from an incompetent secretary than does a small accounting firm in Des Moines.

I prefer to think that our “small accounting firm in Des Moines” doesn’t have to pay as much as Goldman Sachs because people here don’t have to work with people from Goldman Sachs.

 

Share

Tax Roundup, 9/24/14: The $3,000+ price tag of Iowa’s special tax breaks. And: Tea Parties in the strangest places.

Wednesday, September 24th, 2014 by Joe Kristan

20120906-1Do special favors for special friends in the Iowa income tax cost Iowa families $3,000? A Buena Vista University professor seems to think so.  Paul Brennan reports that Jeremy Horpedahl, an economist at BV, has determined that removing all “tax privileges” in Nebraska would save the average Nebraska family that much, and that it might be more in Iowa:

Although he hasn’t yet done a thorough analysis Iowa’s tax codes, Horpedahl said eliminating tax privileges would result in at least as great as savings.

“Actually, it would probably be a little higher, because Iowa has more privileges built into its tax code,” Horpedahl said.

Sadly, Mr. Horpedahl said he studied Nebraska’s system because they are actually considering serious tax reform, unlike Iowa.  What does he mean by “privileges?”

“I define a tax privilege as a tax break or exemption that benefits a specific type of industry or an individual taking a certain type of action,” Horpedahl explained.

“The standard deduction on income tax isn’t a privilege, because that’s available to everyone. But a tax break that benefits just the construction industry is. For an individual, that certain goods or services they buy are exempt from sales tax is a privilege,” he said.

Mr. Horpedahl sounds a theme familiar to Tax Update readers:

Horpedahl pointed out that Iowa’s businesses would  also benefit from the elimination of tax privileges.

“Iowa has a very high corporate tax rate — 12 percent — so to be attractive to businesses, the state has to offer them a way of avoiding it,” Horpedahl said.

“But not every business can avoid it. So what we end up doing is rewarding lobbying. Those who are successful in lobbying for privileges get lower taxes. And that implicitly punishes those who don’t lobby, because they end up paying higher rates.”

Also:

“Politicians love to hand out these privileges,” Horpedahl said. “It allows them to say, ‘‘I’m doing something, I’m bringing businesses to the state, I’m creating jobs.’”

“They never mention that the tax rate has to be kept high to pay for all these privileges. And most people don’t realize that research has shown that these sweetheart deals very rarely pass the cost-benefit analysis test, so there’s very little push back.”

Precisely. They take your money to lure and subsidize your competitors, and then they tell you that it is good for you. There is a solution out there, waiting for a bold politician to run with it: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Related:

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

Taking your wife’s purse to buy drinks for the girls

 

 

20140521-1More dangerous and inflammatory anti-tax rhetoric. A political group of Americans abroad surveyed its members and discovered that they think the FATCA crackdown on offshore financial activity is making life tough for innocent non-billionaire expats, reports Laura Saunders of the Wall Street Journal:

The survey… found that nearly one in six respondents had had a financial account closed by a bank or brokerage house. More than two-thirds of the checking accounts that were closed had a balance of less than $10,000. Nearly 60% of the closed investment accounts had a value of less than $50,000. Other people were unable to open accounts.

Respondents also reported Fatca-related difficulties with non-U.S. spouses and partners. More than one-fifth said they have separated or are considering separating financial accounts held jointly with their partner.

Added one person, “Fatca has caused enormous friction in my marriage. My non-U.S.spouse is refusing to let the U.S. government know about his salary/earnings/savings… and moving to separate bank accounts would leave me very vulnerable as I’m an unemployed, stay-at-home mother.”

Well, of course you’d expect this sort of anti-tax rhetoric from some Tea Party outfit. I wonder if Democrats Abroad, who ran the survey, will have its tax exemption questioned now. But if they expect Democrats in Congress to ease their plight, good luck.

 

William Perez, How Do You Report Alimony on Your Tax Return?

Peter Reilly, For Joint Filing Status You Have To File.  “You’re not supposed to do that if you are actually married though.”

TaxGrrrl, Back To School 2014: Internships. ” If there’s no income to report, that makes the income piece easy.”

Robert D. Flach, IRS ANNOUNCES NEW PER DIEM RATES FOR BUSINESS TRAVEL

Keith Fogg, Extracting Yourself from a Tax Court Case (Procedurally Taxing)

 

 

TaxProf, The IRS Scandal, Day 503,  The day 503 of the so-called “so-called scandal” includes a link to this from Jason Keisling and Emily Elkins: Lois Lerner Claims the IRS Did Nothing Wrong. The Data Say Otherwise, with this fine chart:

targetingstatschart

 


Alan Cole, Reducing Compliance Costs for Small Businesses (Tax Policy Blog):

A good principle in tax policy – as well as policy in general – is to let the little things go. This principle has taken form in a legal maxim, de minimis non curat lex, Latin for “the law does not concern itself with trifles.” Currently, any business expected to owe at least $1,000 in tax for the year must file quarterly. $1,000 is a trifling amount to the IRS, one that need not be split into installment payments.

The Peters bill would allow very new businesses, or businesses with less than $1 million in total revenues, to file their taxes only once yearly – an arrangement that seems more reasonable.

Good thinking.

 

Howard Gleckman, Treasury’s New Rules May Slow, But Won’t Stop Corporate Tax Inversions (TaxVox). “Now the dealmakers have the roadmap they need to keep their inversions Kosher. And with that guidance, it is likely that lawyers will attempt to restructure many transactions to satisfy the new rules.”

 

News from the Profession. Why Your Firm Needs a Bring Your Dog to Work Policy (Leona May, Going Concern).  Sounds like animal cruelty to me.

 

Share

Tax Roundup, 9/19/14: Brutal Assault on Reason Season Edition. Arrggh!

Friday, September 19th, 2014 by Joe Kristan

20121006-1Brutal Assault on Reason Season is underway. Elections depress me. Arnold Kling sums up my feelings:

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.

Very few of us are in a position to have more than intuitions on the great issues of the day. Rarely are voters health-care economists, trade experts, military or foreign policy specialists, etc., and most of us have little basis to tell when the politicians are lying about these issues (though that is a good default assumption). Doing taxes for a living, though, I feel competent to identify bogus tax claims by politicians. William McBride does so in a Tax Policy Blog Post,  U.S. Corporate Tax Revenue is Low Because High Taxes Have Shrunk the Corporate Sector.

He quotes the U.S. Senate’s only unabashed socialist, Bernie Sanders:

“Want to better understand why we have a federal deficit? In 1952, the corporate income tax accounted for 33 percent of all federal tax revenue. Today, despite record-breaking profits, corporate taxes bring in less than 9 percent. It’s time for real tax reform.”

There is a truly brutal assault on reason, and Mr. McBride fights back:

The share of U.S. business profits attributable to pass-through businesses has grown dramatically as well, as they now represent more than 60 percent of all U.S. business profits. The second chart below shows that C corporation profits, while extremely volatile, have generally trended downward in recent decades, while the profits of S corporations and partnerships have trended upwards. In the 1960s and 1970s, C corporation profits were about 8 percent of GDP, while partnership profits were about 1 percent and S corporation profits were virtually nil. Now C corporation profits hover around 4 percent of GDP (4.7 percent in 2011), while partnership profits are almost at the same level (3.7 percent in 2011) and S corporation profits are not far behind (2.4 percent in 2011). Partnership and S corporation profits are growing such that they will each exceed C corporation profits in the near future if not already. When commentators claim that “corporate profits are at an all-time high”, they are referring to Bureau of Economic Analysis data that combines C corporations and pass-through businesses, whether they know it or not.

In sum, the Senator’s statement is flat out false. It is completely misleading to claim that corporate profits are up while corporate tax revenues are down, essentially implying there is some mischief going on via “loopholes”, etc. The truth is corporate tax revenue has been falling for decades because the corporate sector has been shrinking, and not just by corporate inversions. The most likely culprit is our extremely uncompetitive corporate tax regime.

In other words, high rates are driving businesses out of the corporate form and to pass-throughs of one sort or another.

20140919-1

As we head into election season, expect the brutal assaults to continue. Here are a few phrases commonly seen in assaults on reason when taxes are involved, enabling you to spot them even if you don’t know a 1040 from a hole in the ground:

“Politician X voted for tax breaks to ship jobs overseas.”

“This tax cut will pay for itself.”

“I believe in free markets, but tax credit X is needed to level the playing field.”

“I don’t want to punish success; I want X to pay his fair share.”

“This tax credit created X jobs”

I know I’m missing many. If you point out more in the comments, I’ll be happy to talk about them.

 

It’s Talk Like a Pirate Day, so Kay Bell comes through with Avast, me hearties! The IRS wants its cut of your illegal income, be it pirated or otherwise criminally obtained.

 

Peter Reilly, Professional C Corp Denied Deduction For Uncashed Salary Check To Owner.  He covers a story I covered earlier this week where a professional corporation deducted a year-end bonus “paid” through an NSF check that was “loaned” back to the corporation.  His take: “I’m not sure that the Tax Court was right to deny any of  deduction, but I really question whether the whole deduction should be denied.”

 

TaxGrrrl, Back To School 2014: Deducting Student Loan Interest (Even If You Don’t Pay It)

20140826-1Robert D. Flach has fresh Friday Buzz, including links on the cost of tax compliance and “7 deadly tax sins.”

William Perez, When are State Refunds Taxed on Your Federal Return?

Jason Dinesen, IRS Says Online Sorority Is Not Tax Exempt. Social media apparently isn’t social enough for them.

Jim Maule, An Epidemic of Tax Ignorance. He covers one of my pet peeves — people who use the term “the IRS code” for the Internal Revenue Code. It’s Congress that came up with that thing, not the IRS.

Russ Fox, Hyatt Decision a Win for FTB as Far as Damages, but Decision Upheld that FTB Committed Fraud. FTB is the California Franchise Tax Board. Tax authorities should get in trouble for fraud to the same extent they hold taxpayers responsible for fraud.

 

A. Levar Taylor, What Constitutes An Attempt To Evade Or Defeat Taxes For Purposes Of Section 523(a)(1)(C) Of The Bankruptcy Code: The Ninth Circuit Parts Company With Other Circuits (Part 1) and (Part 2).

 

20140801-2Joseph Thorndike, Should We Tax Away Huge Fortunes? (Tax Analysts Blog). “In other words, if you like the estate tax, talk more about revenue and less about dynasties.”

Richard Philips, House GOP Bill Combines Worst Tax Break Ideas of 2014 for Half-a-Trillion Dollar Giveaway. (Tax Justice Blog). When they know that the Senate will ignore whatever they do, it’s easy to accommodate anyone lobbying for a tax break.

Renu Zaretsky, Will Tax Reform See Light at the End of the Next Tunnel? This TaxVox headline roundup covers Tax Reform, Treasury’s plans on inversions, and the continuing resolution passed before the congresscritters left D.C. to assault reason some more.

TaxProf, The IRS Scandal, Day 498

Me, IRS issues Applicable Federal Rates (AFR) for October 2014

News from the Profession. Grant Thornton Has a Fight Song and It’s As Awful As You Might Expect (Adrienne Gonzalez, Going Concern).

 

Share

Tax Roundup, 9/17/14: Is 30 years long enough to find a tenant? And more!

Wednesday, September 17th, 2014 by Joe Kristan

20140325-1If you can’t get a tenant in 30 years, maybe you’re doing something wrong.  A Minnesota architect named Meinhardt bought a farmstead in 1976.  He  rented out the cropland to neighboring farmers. He looked for a tenant for the farmhouse, too.  He was still looking in 2007, but never managed to find a cash-rent tenant for the house.

Though he never reported any rental income on the house, he paid for house expenses, including repairs, insurance supplies and utilities, deducting them on Schedule E on a joint return.  The deductions totaled $42,694 from 2005 through 2007.

The IRS decided that the architect failed to demonstrate enough of a profit motive to take the deductions.  The taxpayer argued that the expenses were actually part of renting the farmland, which the IRS agreed was a for-profit enterprise. The taxpayer also argued that he really tried to rent the house, but it just didn’t work out.

The Tax Court sided with the IRS, and now so has the Eighth Circuit.  First addressing the argument that the house expenses should be lumped in with the land rental:

They offered no evidence they ever tried to rent or lease the farmhouse and farmland together. Donald testified the farmhouse could be parceled off and sold separately from the crop and pasture land. The Tax Court did not clearly err in finding that the Meinhardts treated the farmhouse separately from the leased farmland, which was admittedly a business activity, and therefore expenses related solely to the farmhouse could not be deducted as ordinary and necessary expenses of the leased farmland activity.

The hard-luck landlord defense didn’t fare any better:

The Tax Court found that the Meinhardts did not prove the farmhouse was held for the production of income during the tax years in question because they “did nothing to generate revenue during the years in issue [and] had no credible plan for operating it profitably in the future. There was no affirmative act (renting or holding for appreciation in value) to demonstrate that the property was held for the production of income.” (T.C. Memo. citations omitted.) This finding, too, was not clearly erroneous. Without question, the Meinhardts’ expenditures for substantial repair and improvement of the farmhouse over many years, including the tax years in question, increased the value of that property. But they failed to prove that they were holding and improving the property to profit from its rental or its appreciation, as opposed to improving it for personal use.

The clincher:

The reasonableness of this alternative personal-use explanation for the expenditures in 2005-2007 was rather dramatically confirmed when they sold their home in suburban Minneapolis and moved into the farmhouse in 2010. 

Oops.

The Moral? If you hold property for years without generating income, you better have pretty good evidence that you have worked hard to rent it if you want to deduct the costs on your Schedule E. If it’s a rental home that you also use on weekends, you’ll have to work harder. If you hold it for 30 years without a cash tenant and then move in, your battle to convince a judge of your profit motive might be hopeless.

Cite: Meinhardt, CA-8, No. 13-2924 

Tax Court case: Meinhardt, T.C. Memo. 2013-85.

ISU Center for Agricultural Law and Taxation Annotation: No Deduction For Farmhouse-Related Expenses.

 

IMG_1944TaxGrrrl, Back To School 2014: Deducting The Cost Of Playing Sports

William Perez, Repaying the First-Time Homebuyer Tax Credit. The first misbegotten version of the misbegotten First-Time Homebuyer Credit was actually more a loan than a credit, and it must be repaid over 15 years. Some of them will be repaying long after the home was sold, or foreclosed

Kay Bell, Spousal abuse: physical, financial and tax-related

Jason Dinesen, Will Software Really Replace Accountants?  I suppose it’s possible, but not with a tax system anything like we have.

Peter Reilly, Montana Catches Non-filer With Property Tax Break. When you claim a homestead exemption on your property taxes somewhere, that place might just decide that you should pay resident income taxes.

Phil Hodgen ponders the Valuation date for expatriate’s balance sheet. When you expatriate, there’s a tax for that.

 

TaxProf, The IRS Scandal, Day 496.

20140729-2Lyman Stone, New S&P Report Shows Income Taxes Are Volatile, Sales Taxes Need Reform (Tax Policy Blog) “This closely relates to our previous findings on state revenue volatility, where we found that states with high reliance on income taxes, excise taxes, or natural resource taxes experienced some of the highest volatility.”

Howard Gleckman, Congress Cries Wolf Over Internet Access Taxes (TaxVox). “Unable to do anything important before its election season recess, Congress is about to knock down a favorite digital straw man—It will extend for a few months the about-to-expire federal ban on state taxation of Internet access.”

 

It’s campaign season, everything is a lie. PolitiFact: Democrats Are Recycling False Accusation That Republicans Support Tax Breaks for Companies That Ship Jobs Overseas (TaxProf)

Looking forward to after campaign season.  Obamacare 2.0, Outlook Not So Good (Bob Vineyard, Insureblog)

Tony Nitti, Whether You Like The Government Or Not, The IRS Expects Its Tax Revenue.  They sure do.

 

Share

Tax Roundup, 9/11/14 – Link and run edition.

Thursday, September 11th, 2014 by Joe Kristan

20120531-2Just links today.

Accounting Today visitors: Go here for the dog/email discussion.

 

TaxGrrrl, Back To School 2014: Commuting Tax Benefits

Peter Reilly, Did Florida County Tax Man For Being Happily Married?

Jason Dinesen, When Does the “1099s to Veterinarians” Rule Start?

Kay Bell, IRS Direct Pay one of many ways to pay estimated taxes.  Remember, third quarter payments are due Monday.

William Perez, Have a Home Office? Here’s How to Deduct It On Your Taxes

 

Cara Griffith, A Win for Transparency (Tax Analysts Blog) ” A Kentucky court has ordered the release of redacted copies of the Department of Revenue’s final letter rulings in a suit Tax Analysts joined seeking release of the documents under the Open Records Act”

Alan Cole, The Estate Tax is a Poor Source for Federal Revenue (Tax Policy Blog)

Howard Gleckman, Don’t Count on Much Economic Growth From Individual Tax Reform…Or From Tax Rate Cuts (TaxVox)

 

Russ Fox, Let’s Give Lois Lerner Credit Where Credit Is Due. “It turns out that Ms. Lerner was upset with an unnamed IRS employee who was paid $138,136 a year and was doing ‘nothing.'”

TaxProf, The IRS Scandal, Day 490

 

The IRS standard.  “Wherever we can, we follow the law.” — IRS Commissioner Koskinen.

Career Corner.  Congratulations, Your Job Has Been Arbritrarily Chosen as One of the Most Underrated of 2014 (Adrienne Gonzalez, Going Concern)

Share

Tax Roundup, 9/8/14: One week left for procrastinators. And: there were no abuses, because they abused everyone!

Monday, September 8th, 2014 by Joe Kristan

7004cornerYour extended 2013 corporation, partnership and trust returns are due a week from today.  If you have a pass-through entity and you file late, you have a $195 per month, per K-1 penalty going back to April if you don’t make the extension deadline.

 

TaxProf, The IRS Scandal, Day 487.  Among the links today is one from the Washington Post, Why Did the IRS Clean Out Lois Lerner’s Blackberry as Probes Began? It also quotes this from Russ Fox:

Let’s assume you’re under a court order to find some emails. Your hard drive crashed, but you think that some of them are saved on your Blackberry. Would you:

(a) Try to find them on the Blackberry,
(b) Do nothing, or
(c) Erase the Blackberry.

If you’re the IRS, the answer is (c)

For an agency that insists it has nothing to hide, the IRS sure acts like it is hiding something.  Just to ice the cake, IRS Says It Has Lost Emails From 5 More Employees. Can dogs eat emails?

Meanwhile, Democratic Senators released a report insisting the IRS picked on left-side outfits just as much as right-side ones and slamming Treasury Inspector General Russell George for insisting otherwise.  So let’s go to the stats:

 

targetingstats

No left-side groups have produced evidence of the absurdly-intrusive questioning faced by some right side groups. We can assume that if they existed, they would have come out by now. Mr. George stands by his work.

 

The Iowa Department of Revenue has given its web site a makeover.  Ain’t it pretty?

 

20120703-2Tyler Cowen, Civil forfeiture cash seizures:

Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.

Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

Civil forfeiture rules in the U.S. allow outrages every day.  It’s very third-world, inherently corrupt, and way overdue for reform.

Phil Hodgen, Renunciation Interviews Not So Intense.  “The State Department justifies the new $2,350 user fee for renunciation by saying ‘Hey, it’s a lotta work. It’s intense. You have to pay me more.'” It looks a lot like civil forfeiture, where the government takes the money because they’re bigger than you, and they can.

 

20140521-2William Perez, How to Adjust Withholding in the Middle of the Year in 9 Steps

Paul Neiffer, A Deduction of Zero is Still Zero:

If the calf was born on the ranch and raised there, the tax deduction due to a death loss is zero.  Since the ranch is allowed to deduct all of the feed and other costs associated with raising the calf, the rancher has a tax basis in the calf of exactly zero.  Therefore, the rancher can deduct zero which is still zero.

It’s the same reason you can’t deduct wages you never received; you never pick them up in income to start with.

Russ Fox, Lies, Deceit, and Nefarious Schemes.  He addresses a VEBA scam:

His plans allowed you to both get the tax deduction and, “then later access the full cash value of their plan contributions by taking out loans against the life insurance policies purchased with plan contributions.” That’s not allowed.

Remember, if it sounds too good to be true, it probably is.

 

nfl logoKay Bell, NFL 2014 season underway, along with the taxable betting.  Kay also has a great map of NFL team affinities by county.  Oddly, it appears central Iowa is Packer Country.

Jack Townsend, Offshore Enabler Nabbed in Sting Operation Sentenced

Peter Reilly, New Hampshire Supreme Court Declines More Power In Tuition Credit Case. The New Hampshire court refused to stop tax credits for contributions to private schools.  Iowa and many other states have instituted such credits.  An athiest group said the credits amounted to an “establishment” of religion. If New Hampshire disallow the credits to the Richard Dawkins Country Day School, they’ll have a better case.

Annette Nellen, Is disclosure of corporate tax information a good idea?  Professor Nellen doesn’t care for proposals to require disclosure of public company returns.

 

 

Ajay Gupta, How Not to Stop an Inversion (Tax Analysts Blog).  “All those proposals focus on the inverting corporate entity—a wonderfully inanimate piñata-like container that can be repeatedly hit for enjoyment and will occasionally yield the candy of additional revenue. None targets the individuals at the helm of the corporation, the men and women who stand to make vast amounts of money from their collective decision to execute an inversion.”

Sebastian Johnson, State Rundown, 9/5: Gun Holiday in Mississippi, Shortfall in Wisconsin, and a Showdown in Washington (Tax Justice Blog)

Renu Zaretsky, Business Tax Reform: Will Patience Be a Vice? This TaxVox headline roundup talks business tax reform, Nevada’s corporate welfare plan for Tesla, and how individual tax revenues will grow, but not as fast as the government will spend them.

 

Tony Nitti, The IRS Cares Not For Your Vow Of Poverty.  “Call me conservative, but if I wanted the IRS to take my vow of poverty seriously, I’d probably refrain from cruising around town in a Mercedes.”

Share

Tax Roundup, 9/5/14: Obamacare tax credits get a reprieve. And: what’s $14 billion waste for a good cause?

Friday, September 5th, 2014 by Joe Kristan

The U.S. Court of Appeals for the D.C. Circuit will re-hear Halbig.  The full court will re-decide the decision reached by a three-member court panel that limited tax credits under Obamacare to policies purchased through state-established exchanges.  As 36 states have not established exchanges, the decision would have undermined both the employer and employee mandates, which are largely dependent on the tax credits.  Jonathan Adler has more.  Michael Cannon explains the politics behind the decision to re-hear the case.

 

EITC error chartLeslie Book, IRS Issues New Report on EITC Overclaims (Title A).  Leslie covers the recent IRS report on how much of the cost of this welfare program run through tax returns is misspent:

“As a result of the EITC program growth the total overclaims in the study are higher in the 2006-08 Report than in the past 1999 study, with annual overclaim estimates for 2006-08 at $14 billion (lower estimate) or $19.3 billion (higher estimate), compared to 1999 figures of $12.3 billion (lower estimate) and $14 billion (higher estimate).”

The report shows that the errors arise largely from misreporting of income and claiming ineligible dependents.  While some of the errors are attributable to complexity, the skewing of the errors to extra refunds points to widespread cheating.  Complexity errors would tend to be more equally split between overpayments and underpayments, but the vast majority of errors resulted in EITC overpayments.

All of this makes Arnold Kling’s proposal to roll all means-tested welfare programs into a single voucher grant with a uniform phase-out rate look wise.

 

haroldMore on the Iowa Film Credit Settlement with a Rhode Island filmmaker from Maria Koklanaris at Tax Analysts ($link):

The state admits no liability in making the settlement, according to the agreement. An accompanying letter from Adam Humes, a state assistant attorney general, to Joseph Barry of the state Department of Management, says that “the agreement will resolve all claims related to these film projects, and all claims in . . . the civil case in exchange for a cash settlement. After the settlement becomes final, the civil case . . . will be dismissed with prejudice.”

Joe Kristan of Roth & Co. PC of Des Moines said several civil suits arose after the state “slammed the brakes on everything” to do with the film tax credit scandal, which resulted in seven criminal convictions amid revelations that the state had issued $26 million in improper credits.

You gotta like her sources.

 

Sebastian Johnson, Big Oil Wins In Alaska, Hollywood Wins in California.  Because California has plenty of cash to shower on filmmakers…

Russ Fox, $1.25 Billion Attracts Tesla to Nevada

 

Kyle Pomerleau, IRS Aims to Tax Silicon Valley Workers’ Fringe Benefits (Tax Policy Bl0g).

“The IRS and U.S. Treasury Department last week included taxation of “employer-provided meals” in their annual list of top tax priorities for the fiscal year ending next June. The agencies said they intend to issue new ‘guidance’ on the matter, but gave no specifics about timing or what the guidance would say.”

The IRS believes that the regular free meals provided to employees are a fringe benefit and should be taxed like compensation.

You can make a good theoretical argument that a lavish Silicon Valley cafeteria results in taxable income for the employees. It’s much harder to make a good practical arguemnt for taxing that benefit.  There are serious measurement problems, and the amount of revenue at stake hardly seems worth it.

 

buzz20140905It’s Friday!  That means it’s Buzz day for Robert D. Flach, who buzzes from taxing frequent flyer miles to taxing marijuana.  However you get high, there’s a tax for that.

William Perez, How to Deduct Car and Truck Expenses on Your Taxes.  “To prove you are eligible to deduct your car and truck expenses, you should keep a mileage log.”

Paul Neiffer, Partner Must Have Basis to Deduct Loss. “The bottom line is if you show a loss from a partnership, make sure you have enough “basis” to deduct the loss.”

Kay Bell, New NFL players ready for football, IRS ready for their taxes

Peter Reilly, IRS Shows Serious Meatspace Prejudice.  “You would think with all the pressure that it puts on people to file and pay electronically that the IRS would have a forward looking view and a preference for cyberspace.  It does not seem to be that way  in the tax exempt division, where meatspace seems to be much preferred.”

 

Jack Townsend discusses an Article on Swiss Banks in U.S. DOJ Program.  He quotes from the article:

Caught in the crossfire of these strategies, however, are thousands of bank clients who are either innocent of tax evasion offences or were unaware of their reporting responsibilities.

These include US citizens living and working in Switzerland who cannot open bank accounts or take out mortgage loans. In some cases they have been expelled by their banks as involving too much unwanted paperwork and risk.

Well done, Congress.  Your FATCA makes everyday personal finance a miserable challenge for Americans abroad.

Tax Trials, IRS Updates Internal Revenue Manual for Streamlined Offshore Compliance

 

horse 20140905Annette Nellen, Shakespeare, building your vocabulary … and taxes.  She summons up a “parade of horribles” — well, a judge she quotes does.

TaxProf, The IRS Scandal, Day 484

 

Should I show this to my high school junior?  What Every High School Junior Should Know About Going to College (Bryan Caplan).  “College is a good deal for good students, a mediocre deal for mediocre students, and a poor deal for poor students.”

News from the Profession: EY Is No Longer Blocking Sports Websites Just in Time for Football Season (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 8/18/14: Tax Credits for housing. And for Elvis!

Monday, August 18th, 2014 by Joe Kristan

The Des Moines Register is running a series on Jack Hatch, the Democratic nominee for Iowa Governor, focusing on subsidized housing projects he developed.  The stories include Jack Hatch’s record shows no clear conflicts of interest and Review shows Hatch followed public financing rules.

The Register finds no evidence of illegality in Sen. Hatch’s tax credit-driven deals.  That’s unsurprising, as the tax credits are shared with investors, who want clean tax projects and impeccable tax breaks.  As usual with tax incentives, though, the scandal is what is perfectly legal.

The series describes the financing of some projects.  For example:

20140816-1

 

A $6.5 million development with over $8 million in government aid.  A sweet deal, if you are one of the lucky participants of an oversubscribed subsidy program.

While such projects are touted as achieving “affordable housing,” the real beneficiaries are arguably well-connected developers and tax shelter investors.  It’s all legal, and all paid for by the rest of us.

If the real goal is to help the poor, there are better ways than a Rube Goldberg tax credit system running the aid through tax shelter developers and investors.  Arnold Kling’s idea to provide the poor with a universal flexible benefit “to replace all forms of means-tested assistance, including food stamps, housing subsidies, Medicaid, and the EITC, with a single cash benefit,”  is a more promising approach.  It is what a program designed to help the poor, rather than the connected, would look like.

 

Elvis20140818-3Kay Bell, Elvis estate seeks tax breaks for Graceland expansion.  Or what?  Graceland is going to leave Tennessee?  Elvis will leave the building?  But, but, jobs!  Or something.

Robert D. Flach, KEEP COPIES OF YOUR W-2s FOREVER!  Robert explains how he was able to use old W-2s to help a client show that his retirement contributions were “after tax” for New Jersey purposes, preventing a second tax on withdrawal.

Tony Nitti, New Opportunities Exist For S Corporation Shareholders To Deduct Losses

William Perez, Got a Call From the IRS? It’s Probably Not the IRS.  A client of our office got such a scam call last week.  We told them to hang up if they call back.

Jack Townsend, Tidbits on the New Streamlined Procedures

Annette Nellen, Better identity theft efforts – S. 2736

 

20140818-1Jason Dinesen, Why an LPA?  Jason answers the question “Why did I pursue an Iowa “Licensed Public Accountant” designation? LPAs are an obscure lot, in that we only really exist in 3 states (Iowa, Delaware and Minnesota).”

Peter Reilly, IRS Stampedes A Cattle Shelter.  Peter explains why losing a hobby loss case is extra bad.  With a bonus quote from me (Thanks, Peter!).

Tax Trials, Record Your Easement: Tax Court Adjusts Timing & Valuation of New York Facade Easement

 

TaxGrrrl, From AR-15s To Rubber Bullets: How Did Police End Up With Military Gear On American Streets?  Your tax dollars at work.  Amazingly, no tax credits appear to be involved.

TaxProf, The IRS Scandal, Day 466.  It appears the judge who told the IRS to explain what happened to the Lois Lerner emails isn’t yet satisfied with the IRS response.  More from Russ Fox: Judge Sullivan Not Impressed by the “Dog Ate my Homework” Excuse.

20140818-2Ajay Gupta, Demagoguing the ‘I’ Words. (Tax Analysts Blog) “If an inversion exploits a loophole, then so does every other corporate reorganization that painstakingly adheres to the requirements of the code and regs.”

Steven Rosenthal, Can Obama slow corporate inversions? Yes he can.  Silly rabbit.  The idea isn’t to slow corporate diversions; it’s to demonize them for political fun and profit.  And his idea of reviving the moribund Sec. 385 debt-equity regulations for this purpose shows how much the inversion panic has parted from reality.

 

News from the Profession.  Here’s Further Proof That Accounting Firms Need a Charge Code for “Wasting Time on Internet” (Caleb Newquist, Going Concern)

 

Share

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

Friday, August 15th, 2014 by Joe Kristan

20120920-3

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

 

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

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

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

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

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

 

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

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

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

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

Or, in handy graphical form:

20140815-1

 

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

 

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

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

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

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

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

 

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

 

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

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

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

Russ Fox, Lawsuits Against FATCA in Canada

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

 

Arnold Kling points out this from the Wall Street Journal:

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

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

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

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

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

 

TaxProf, The IRS Scandal, Day 463

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

 

Share

Tax Roundup, 8/13/14: Tax Fairies in the graveyard? And: another payroll service goes bad.

Wednesday, August 13th, 2014 by Joe Kristan

Funeral home signOf course cemetery lots are shooting up in value.  People are dying to get in!  Taxpayers seek the Tax Fairy in the strangest places.  The Tax Fairy is the mythical spirit who can make taxes go away magically, for a reasonable price to a tax wizard who claims to be able to summon her.  A Tax Court case yesterday found taxpayers looking for her in cemeteries (Emphasis mine; slightly edited for readability).

Judge Nega’s overview:

Heritage Memorial Park Associates 1995-2, Heritage Memorial Park Associates 1995-3 , and Heritage Memorial Park Associates 1995-4 (collectively, partnerships) are Maryland general partnerships. The partnerships were established to acquire cemetery sites, to hold the sites for over one year, and then to contribute the sites to qualified charitable organizations, with the aim to provide individuals who invested in the partnerships with charitable contribution deductions equal to the appraised values of the sites as of the times of the contributions. Glenn R. Johnston and his colleagues promoted the partnerships to wealthy individuals as a way for them to receive a return of tax benefits in the form of passthrough deductions or losses worth significantly more than the amounts invested. 

What sort of deductions?

…(petitioner) invested $37,500 in each partnership. He made these investments to increase the amounts of his charitable contributions for the subject years and, more particularly, to receive promoted tax benefits worth significantly more than his investments. He expected that his investments would return him tax benefits worth $50,000 for each subject year. 

HMPA 1995-2 claimed the $1,864,850 charitable contribution deduction on that return. Petitioner was allocated $135,127 of that deduction, and petitioners deducted the $135,127 on their 1996 individual return as a charitable contribution. HMPA 1995-2 reported on its 1996 Form 1065 that HMPA 1995-2 had no income or expenses for 1996 (but for the charitable contribution deduction).

So: invest $35,000, deduct $135,000, save (conservatively) 1/3 of $135,000, or $45,000.  What could go wrong?

On September 29, 2005, Mr. Johnston was indicted on (1) one count of conspiracy to defraud the United States by selling, claiming, and causing others to sell and claim millions of dollars in false and fraudulent tax deductions for charitable contributions and concealing from the IRS income from the sales of the fraudulent deductions and (2) multiple counts of aiding and assisting in the filing of false returns by investors in the partnerships so that the investors claimed charitable contribution deductions in amounts substantially greater than allowable. These charges involved the partnerships, among one or more other entities. Mr. Johnston pleaded guilty to the first count on April 12, 2007.

Sure, it’s a criminal enterprise, but the deductions are still good, right?  And didn’t the statute run?  Nope.  The court ruled that the IRS met the procedural requirements to keep the statute of limitations open by properly initiating partnership-level proceedings.  The court also ruled that the taxpayer couldn’t claim a business loss for the partnership investments:

tax fairyPetitioners argue secondarily that they may deduct a $37,500 loss for each year as to petitioner’s investments in the partnerships. To that end, petitioners assert, petitioner’s ownership interests in the partnerships were worthless as of the end of the corresponding years in which the partnerships operated, and he knew that the interests were worthless as of those times and abandoned his interests as of those times. Petitioners add that petitioner invested in the partnerships to make a profit and in furtherance of a legislative intent to encourage charitable contributions.

But the court ruled that seeking charitable deductions isn’t a “trade or business,” and that no business loss was available.  $35,000 spent to net a tax savings of nothing.

The Moral?  This thing should never have passed the “too good to be true” test.  The deductions depended on incredible post-contribution appreciation in graves.  Anybody thinking this sort of thing might actually work really needs to get out more.  And there is no tax fairy.

Cite: McElroy, T.C. Memo 2014-163.

Related:  Three Years is the Normal Statute of Limitations, But Not Always (Paul Neiffer).

 

EFTPSAnother payroll service makes off with employers’ payroll tax payments.  From emissourian.com:

 

A Washington man pleaded guilty this week to federal mail fraud and money laundering charges.

Bradley Ferguson, 48, owner of Paymaster Business Solutions in Fenton, is scheduled to be sentenced Nov. 6 in U.S. District Court. 

He pleaded guilty to one felony count of mail fraud and one felony count of money laundering before U.S. District Judge E. Richard Webber.

Ferguson is accused of withdrawing money from the bank accounts of business clients to pay federal, state and local taxes but did not make the payments, according to a federal grand jury indictment.

While it makes sense for many taxpayers to outsource payroll functions, the tax law still holds the employers responsible for getting withholdings to the IRS.  If you outsource your payroll taxes, you should use Electronic Federal Tax Payment System (EFTPS) online access to make sure your payroll tax remittances are actually hitting your account.  If you use a service that doesn’t allow you to do this — like many “professional employer organizations” who “co-employ” their clients’ workers — you need to make other arrangements, like bonding, to protect yourself.

 

Peter Reilly, Alimony Deduction Requires Good Substantiation.  “It turns out that taxpayers are routinely whipsawing the IRS.”

William Perez, How to Get a Federal Tax Credit for the Cost of Child Care.

Kay Bell, James-Love NBA combo is tax boon to two Cleveland towns.

TaxGrrrl, Think Before You Post: The Dangers Of Seeking Tax Advice On The Internet:

I was pretty shocked at how much information folks were willing to share on the internet about their tax evasion questions, strategies and justifications. Sometimes, these folks are regular forum posters who happily share their location and other identifying information while others clearly try to remain somewhat anonymous.

In case you were wondering, the IRS has internet access.

 

Jason Dinesen, Rare Home Office Deduction Win in Tax Court

Carl Smith, In Some Cases IRS Seeks to Conflict Out Lawyers Who Represented Taxpayers in CDP Hearings (Procedurally Taxing).  CDP stands for “collections due process.”  The IRS is bigger than you, peasant.

 

Tony Nitti, Final IRS Rules On Partnership Technical Terminations Will Surprise Some Tax Pros

 

20140813-1David Brunori: Congress Shouldn’t Make State Tax Systems Worse (Tax Analysts Blog)

As my colleague Maria Koklanaris reported, 29 Democratic members of Congress asked leaders of the California State Legislature to reauthorize and expand the state’s film tax credit. Led by Rep. Adam B. Schiff, D-Calif., the federal lawmakers asked California to extend a very bad tax policy, saying that if it doesn’t, film jobs will be lost forever to other states. 

Why film credits? Why not some other industry? Politicians are the worst at determining what’s best for the marketplace. Despite the studies funded by the Motion Picture Association of America that say otherwise, film tax credits don’t work. In virtually every state that has them, there’s no discernible economic effect — that is, the tax giveaway did not result in more economic activity than would have occurred without it.

Iowa has some lessons to teach here.

 

TaxProf, The IRS Scandal, Day 461

 

There’s only one left? Owner of the Pickle pleads guilty to federal tax fraud.

Because you invited clients?   PwC’s Bob Moritz on Why You Shouldn’t Miss Your Kid’s Birthday Party for Work (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 7/8/14: Not in Kansas Anymore edition. And: the latest on bonus depreciation for 2014.

Tuesday, July 8th, 2014 by Joe Kristan

20140409-1What’s the matter with Kansas?  Economist Scott Sumner looks at the controversy over the recent Kansas tax reforms:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.


I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

The Sumner post is there to refute a straw-man argument made by tax fans:

“Why am I even discussing such crazy ideas? Because Paul Krugman seems to want to convince his readers that lots of supply-siders believe such nonsense…”

Actually, supply-siders do not claim that tax cuts pay for themselves, except in very unusual cases. Kansas is not one of those cases. The Laffer curve effect is typically applied to cases of extremely high marginal tax rates.

kansas flagI have long pushed for a combination of rate cuts for Iowa, combined with comprehensive elimination of deductions and cronyist tax credits.  That would keep the state budget from getting clobbered, while making the tax system much easier and cheaper to run and to comply with.  Kansas couldn’t let go of the loopholes, and in fact added new ones.  Joseph Henchman of the Tax Foundation discusses the Kansas tax changes in Governing.com (my emphasis):

Good tax reform broadens the tax base and lowers rates. That’s what Gov. Brownback wanted to do. But the legislature took out the “broaden-the-base” part. They just passed a tax cut, which can be justifiable if you want to reduce the size of government or expect other revenue sources to go up. But they didn’t cut spending and they don’t expect revenue to grow, so it’s just a hole. With the exemption for pass-through entities, if you’re a wage earner, you’re taxed at the top rate, which is currently 4.9 percent in Kansas. If you’re a partnership, an LLC or any form of recognized business entity with limited liability that’s not a corporation, your income is taxed at zero percent. That’s an incentive to game the tax system without doing anything productive for the economy. They think things like the pass-through exemption will encourage small business, and to be fair, it might. But they are doing it in a way that violates the tax principle of neutrality.

So what would happen if my Quick and Dirty Iowa Tax Reform Plan were enacted in Iowa?  My plan would eliminate corporation taxation and allow S corporation owners to elect to be taxed on distributions, rather than on pass-through income.  Properly structured, it wouldn’t hurt Iowa’s tax revenue, as the rate cuts would be offset by fewer deductions and elimination of tax credit giveaways.  I like to think that without a corporation tax and without a culture of begging for tax credits, Iowa would over time do well, considering that its regulatory and labor environment is already business-friendly.  But I don’t expect miracles, and I would not want the rate cuts to be so deep as to depend on a short-term economic boom to keep the state solvent.

 

20130113-3Richard Borean, House to Consider Bonus Depreciation (Tax Policy Blog). “It turns out that  adding permanent bonus expensing to the Camp Plan would boost GDP, wages, job creation, and federal revenue.”

Bonus depreciation is one of the many perpetually-expiring provisions that get renewed every year or two, after enough lobbyists make their offerings to the congressional fundraising idols.  The congresscritters love enacting proposals temporarily because that way they don’t appear to cost as much as officially-permanent provisions, and because it makes the lobbyists come and visit them regularly to get yet another extender bill passed.

Ways and Means Committee Chairman Camp is calling out this game by trying to get some of these provisions extended permanently, officially.  He notes that they really are permanent, and that pretending that they are temporary isn’t fooling anybody.  His opposition in the Senate wants to keep pretending the provisions are temporary, and that the honest step of treating them as permanent is “budget busting.”

None of this helps businesses pricing investment decisions for 2014.  Anyone buying equipment has to guess at the deduction schedule in order to forecast cash flows from the purchase.  Unfortunately, nothing is likely to happen until after the November elections, when a temporary retroactive extension is likely to pass — but might not.

 

Trish McIntire discusses The New Voluntary Tax Preparer Program.  “I’m interested in seeing the numbers of the Filing Season Program come January 2015. Honestly, I don’t think they are going to be as high as the IRS hopes.”

Roberton Williams, IRS Help Line Is Out Of Service (TaxVox) “I needed to double-check an issue concerning withdrawals from my nonagenarian father’s IRA. IRS Publication 590 wasn’t clear so I decided to call the IRS. The experience was illuminating. Not helpful mind you, but illuminating.”

William Perez, What’s Form W-9?  “Independent contractors and other people who work for themselves will often need to give a Form W-9 to their clients. Clients will then use the information on Form W-9 to prepare Form 1099-MISC to report income paid to the independent contractor.”

Jim Maule continues his Tax Myths series with “I’m Getting a Refund and Not Paying Tax.”  He notes “Whether a person has a tax liability cannot be determined simply from the existence of a refund.”

Kay Bell assigns 5 easy tax tasks to take care of in July.

 

20140708-1Brian Mahany, Are FBAR Penalties Unconstitutional? In Many Cases Yes.  “It’s one thing to assess a 50% or 75% penalty but when penalties exceed the total tax owed by a multiple of 50 times like in the Warner case, we believe the penalties are clearly unconstitutional.”

Martin Sullivan, Will States Get a Multibillion-Dollar Windfall From Corporate Tax Reform? (Tax Analysts Blog).  Only if there is actually corporate tax reform.

TaxGrrrl, The Real Cost Of Summer Vacation: Don’t Get Buried In Taxes

Stephen Olsen, Summary Opinions for 6/27/14. (Procedurally Taxing)  Don’t let the date fool you, this roundup of tax procedure news was posted yesterday.

Peter Reilly, City Taxes Trip Up Investment Advisor Restructuring.  Beware New York City.

Jack Townsend, Convicted Politician Did Not Lay a Proper Foundation For Proferred Indirect Testimony of Lack of Intent.  “How does a defendant unwilling to testify as to his intent — thus invoking his Fifth Amendment privilege — introduce indirect evidence of his lack of intent to blunt the Government’s indirect proof of his intent?”

 

TaxProf, The IRS Scandal, Day 425

 

Robert D. Flach brings the Tuesday Buzz.  I like this:

Item #10 on the new IRS-issued Taxpayer Bill of Rights is “The Right to a Fair and Just Tax system”.

In order to assure this right to taxpayers the Tax Code would need to be totally rewritten and all current members of Congress would have to be replaced by competent and intelligent legislators who actually give a damn about the American public.

It’s right as far as it goes, but some members of the executive branch would also need to go, starting with the Commissioner.

 

Share