Posts Tagged ‘William Perez’

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:

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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)

 

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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:

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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?”

 

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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)

 

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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.

 

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Tax Roundup, 7/2/14: How to make the least of that office manager job. And: IRS gets around to the obvious!

Wednesday, July 2nd, 2014 by Joe Kristan


20140508-2No office manager is paid enough for this.  
The tax law doesn’t like it at all when an employer withholds payroll taxes from paychecks and fails to pass it on to the IRS.  One tool the IRS uses to encourage compliance is the “responsible person” penalty.  If a person with responsibility for remitting payroll taxes knowingly fails to do so, the IRS can assess that person with a 100% penalty — even if that person didn’t get any of the money.

A Virginia federal district court recently drove that lesson home to a Ms. Horne, an office manager for a medical practice:

A. Responsible Person

Horne was a responsible person for the Company for each quarter of 2006 through 2010. First, Horne was the Company’s Officer Manager throughout that time period. Second, Horne had substantial authority over payroll because she prepared and signed the Company’s payroll checks. Third, because Horne was charged with preparing checks to creditors, she necessarily determined which creditors to pay. Fourth, Horne participated in day-to-day management of the Company, including making decisions about employee compensation, maintaining the Company’s books and records, and preparing financial information to be presented at shareholder meetings. Fifth, at all relevant times, Horne had authority to, and did, sign checks drawn on the Company’s bank account. Sixth, Horne participated in decisions regarding the hiring and firing of employees.

B. Willful Action

From 2006 to 2010, Horne was aware of the Company’s unpaid employment tax liabilities as they accrued. However, she continued to prepare and sign checks to pay other creditors in preference over the United States. Accordingly, the Court finds that Horne acted willfully in failing to pay over to the Service the taxes withheld from the wages of the Company’s employees.

IV. CONCLUSION

For the aforementioned reasons, the Court will GRANT the Motion. Horne is, thus, liable to the United States in the amount of $2,926,809.51, plus statutory interest accruing from December 23, 2013. 

 

It’s hard to save $2.9 million even on the best office manager salary.

Update:  An excellent point made in the comments:  “I feel for anyone placed in the tough position of losing a job to avoid liability for an employer’s inability to pay its tax liability to the IRS, but the 100% penalty imposed by Section 6672 on responsible persons makes it clear that the job is not worth the tax problem arising from a company’s failure to pay its trust fund taxes.”

 

Cite: Miller v. United States et al.; No. 3:13-cv-00728

 

 

20130723-3IRS takes obvious measures to fight refund fraud five years late.  From Tax Analysts ($link)

     Starting in January 2015, the IRS will no longer make direct deposits of more than three tax refunds into one financial account, Commissioner John Koskinen told tax return preparers at the IRS Nationwide Tax Forum in Chicago July 1.

The move is meant to enhance the IRS’s efforts to combat stolen identity refund fraud, Koskinen explained in prepared remarks for his address to the forum.

Any refund after the third will automatically be converted to a paper check and mailed to the address on the tax return, Koskinen told preparers. “We will send out notices to those taxpayers that their refunds are being mailed and they should expect to receive them in about four weeks from the time of mailing,” he said.

That’s a good start.  Perhaps next the IRS can flag multiple refunds being sent to the same address – like the 655 refunds to a single apartment in Lithuania.  Baby steps.  Like this:

The IRS also plans to end the practice of a small number of preparers who serve as banker to their clients or who take fees from the refunds, Koskinen said. “We’ve identified about 4,400 personal accounts held by tax preparers where multiple refunds were deposited,” the commissioner said. “We’re putting a stop to that, too.”

No doubt some of these are full service firms that do your taxes, collect your refund — and spend it for you.

 

William Perez, Divorce and Taxes.  “We take a look at tax planning principles for property settlements, alimony and child support.”

Howard Gleckman, A Payroll Tax Math Error Adds $5 Billion To The Deficit (TaxVox).  “But the current law for the self-employed allows the full deduction of 7.65 percent—not only for earnings below the Social Security cap but, remarkably, even for earnings subject only to the 1.45 percent Medicare tax.”

Kay Bell, State tax law changes — from gas to sales to businesses and even soccer — take effect July 1

 

taxanalystslogoDavid Brunori, A Revenue Department Behaving Badly (Tax Analysts Blog).  “Documents (except for taxpayer information of course) produced by the “government” belong to the citizens.”

Kelly Davis, Kansas: Repercussions of a Failing Experiment (Tax Justice Blog).  “But the Governor’s experiment now appears to be in meltdown mode: revenues for the last two months have come in way under projections and may leave the state short of the cash needed to pay its bills.”

Lyman Stone, Scott Eastman, Liz Emanuel, Tyler Dennis, Courtney Michaluk, Independence Day Brings Fireworks Taxes to Light (Tax Policy Bl0g).  Hey, Iowa, if they aren’t legal, it’s harder to tax them.

Janet Novack, U.S. Taxpayers With Secret Offshore Money Face New Risks And Options 

Jason Dinesen, From the Archives: Iowa Deduction Finder — Insurance Premium Tax Deduction

Peter Reilly, Military Housing Allowance Much More Limited Than Clergy’s

TaxGrrrl, IRS Announces Shorter, Faster Application For Some Tax Exempt Organizations

Robert D. Flach, MORE INFO ON THE NEW IRS ANNUAL FILING SEASON PROGRAM.  “I still think in its current form it is stupid, and that very few tax preparers will actually ‘volunteer’.”

Robert is right.

 

Megan McArdle ponders the version of the email erasure story from Lois Lerner’s attorney:

This weekend, William Taylor III, Lerner’s lawyer, went on television and described Lerner’s experience. Lerner came in one morning in 2011, he said, turned on her computer and got a blue screen.

That interested me, because the description is quite specific. What he seems to be describing is the famed Microsoft Windows “blue screen of death.”

Well, because as I mentioned above, the Blue Screen of Death is an operating system error. The operating system lives on the hard drive. Which raises a question: If Lerner’s hard drive was so thoroughly malfunctioning that no one could even get the data off of it, how was it booting up far enough for the operating system to malfunction?

She comes up with some potential explanations — which mostly assume it didn’t quite happen the way the lawyer describes.

 

20140516-1John Hinderaker,  More on the IRS’s Illegal Destruction of Evidence

True the Vote’s brief points out that the first lawsuit alleging discriminatory targeting of conservative groups was filed by a pro-Israel group called Z Street, Inc., on August 25, 2010. On that date, at the very latest, the IRS had a legal duty to take measures to ensure that no emails, correspondence, memoranda, notes, or other evidence of any sort that could be relevant to the case was lost or destroyed…

But, according to IRS representatives who have testified before Congressional committees, the IRS ignored the law. Instead of making sure that relevant information was preserved, the IRS blithely continued erasing back-up email tapes every 90 days. Further, the IRS continued its policy of assigning each employee a ridiculously small space on an email server, and then authorizing employees (like Lois Lerner) to delete at will to keep space open. And, finally, when Lerner’s hard drive crashed ten months after the Z Street case was commenced, the IRS made no effort to preserve it, but rather, by its own account, recycled the hard drive in a business-as-usual manner.

Don’t try this at home, kids.

 

TaxProf, The IRS Scandal, Day 419

 

You should never be to busy to file correct tax returns.  Appeals court upholds Beavers’ tax conviction.

 

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Tax Roundup, 6/26/14: Misdirected e-mail edition. And: 15 years for tax fairy medium Daugerdas.

Thursday, June 26th, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The IRS scandal finally found a way to get the Des Moines Register’s attention.  Lois Lerner of IRS sought audit of Grassley, emails say:

The emails show Lerner mistakenly received an invitation to an event that was meant to go to Grassley, a Republican.

The event organizer apparently offered to pay for Grassley’s wife to attend the event.

Instead of forwarding the invitation to Grassley’s office, Lerner emailed another IRS official to suggest referring the matter for an audit, saying it might be inappropriate for the group to pay for his wife.

“Perhaps we should refer to exam?” Lerner wrote.

It was unclear from the emails whether Lerner was suggesting that Grassley or the group be audited — or both.

Grassley-090507-18363- 0032A reader who relies on the Des Moines Register for news might be puzzled over who Lois Lerner is.  A search of the word “Lerner” on the Register’s website only uncovers two other stories related to her role in the scandal: “Steve King calls for abolishing the IRS on Tax Day” (4/15/14) and “Critics: Progress scant after IRS scandal” (3/27/13).  It appears that today’s article would have been the first time Register readers would have learned anything about the mysterious mass deletion of emails relating to the Tea Party scandal.  A devoted Register fan might have been puzzled as to why this seemingly important news hadn’t been mentioned before.

I think there’s a hint down in the article (my emphasis):

Lerner headed the IRS division that processes applications for tax-exempt status. The IRS has acknowledged that agents improperly scrutinized applications by tea party and other conservative groups before the 2010 and 2012 elections. Documents show that some liberal groups were singled out, too.

Nobody buys that last sentence.  While a few “liberal” words were on the list of buzzwords to identify political organizations, no liberal outfits had their donor lists illegally released, or had their exemption applications held up indefinitely with demands for ridiculous detail of the organizations — including the content of their prayers.   Here are the stats:

targetingstats

Now maybe the Register will begin to get its readers up to speed.  If not, the Tax Update is available to Register subscribers at no extra charge!

Meanwhile, the IRS will have to explain to senior Senate taxwriter Grassley just why it needs more resources.  That may be slightly awkward.

TaxProf, The IRS Scandal, Day 413

Russ Fox, Lerner Appears to Have Targeted Iowa Senator Grassley  “Of course, President Obama said earlier this year just that–that there is not even a smidgen of corruption…”

 

tax fairyThe Tax Fairy fails a true believer.  Paul Daugerdas, the Jenkens & Gilchrist attorney who generated over $90 million in fees selling tax shelters, was sentenced to 15 years in federal prison yesterday for his troubles.  Bloomberg reports:

The tax shelters at the center of the case were sold from 1994 to 2004 to almost 1,000 people, creating $7 billion in fraudulent tax deductions and more than $1 billion in phony losses for customers, the U.S. said.

It appears unlikely that Mr. Daugerdas will come out ahead on his tax shelter efforts:

Daugerdas was ordered to forfeit $164.7 million and help pay restitution, with other conspirators, of $371 million. 

While he wasn’t the only Tax Fairy guide during the great turn-of-the-century Tax Shelter frenzy, he was perhaps the most prominent, inventing tax shelters with names like HOMER and COBRA.  The shelters found eager customers among businesses and individuals looking for the Tax Fairy, the legendary sprite believers insist will wave her magic wand and make taxes go away, for a very reasonable fee.    Now Jenkens & Gilchrist is dead, the believers are out their money, plus penalties, and there still is no Tax Fairy.

The Tax Analysts story on the sentencing ($link) had one item that I hadn’t seen before:  “The jurors said that Daugerdas was convicted solely on counts for which the government presented evidence of backdating, when Daugerdas agreed to prepare false tax returns that reported as 2001 losses transactions that occurred in 2002, the defense memo says.”  Way back in 2009, I said this could be his biggest problem at trial: Is backdating the fatal flaw for Daugerdas?:

If the government can prove backdating, it might be much easier for a juror to vote for conviction. Tax is hard, and a good defense lawyer has a lot of opportunities to give jurors a reasonable doubt in a case involving short sales, derivatives and currency options. But anybody can understand backdating.

This sort of thing separates “aggressive tax planning” from plain fraud.

Related: 

Department of Justice Press Release

Jack Townsend, Daugerdas Gets 15 Year Sentence

TaxGrrrl, Daugerdas Sentenced To Prison, Ending Biggest Tax Prosecution Ever

This one is probably coincidental, but Jason Dinesen, 138 Years Ago Today: Custer’s Last Stand

 

IMG_0216Robert D. Flach, A SUMMER TAX TIP FOR SCHEDULE C FILERS

William Perez, Single Filing Status.  “A person is considered unmarried for tax related purposes if on the last day of the year the person is not married to any other person or is legally separated from a spouse under a divorce or separate maintenance decree.”

Kay Bell, Kids, summer camp tax breaks and our personal X Games site

Peter Reilly, Facade Easement Valuation Cannot Be Percentage Rule Of Thumb 

Cara Griffith, Ohio Enacts Legislation Allowing Creation of Captive Insurance Companies (Tax Analysts Blog).

The answer is clearly more tax credits.  The New Jersey Casino That Tax Credits Could Not Save  (Adam Michel, Tyler Dennis, Joseph Henchman, Tax Policy Blog)

Renu Zaretsky, Expanding a Credit, Simplifying a Break, and Cutting Off a Nose to Spite a Face.  Today’s TaxVox headline roundup covers  IRS funding, student debt, and same-sex marriage complications.

 

 

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Tax Roundup 6/24/14: Koskinen’s political gifts. And: in case you didn’t think Hitler was bad already…

Tuesday, June 24th, 2014 by Joe Kristan

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Just the man to build bridges to Republicans who fund the IRS.  From Bryan Preston, IRS Chief Koskinen Has Donated Big to Democrats Over the Years:

According to the Washington Free Beacon, Koskinen has donated about $100,000 to Democrat candidates and committees since his first donation in 1979. His donor recipients include Gary Hart, the Democratic National Committee, the Democratic nominee in each presidential campaign since 1980 (which would even include Walter Mondale, who stood no chance of beating President Ronald Reagan in 1984), the Democratic Congressional Campaign Committee, and Hillary Clinton’s and Barack Obama’s campaigns. He most recently donated $2,500 to Sen. Mark Warner (D-VA) in 2013.

He has given no money to Republicans.

It’s hard to believe how tone-deaf he is to the Tea Party scandal, but this helps explain it.  (Via Instapundit)

 

Jeremy Scott, Lost Lerner E-mails Latest Example of IRS Death Wish (Tax Analysts Blog), my emphasis:

In contrast to their GOP colleagues, Democrats rushed to Koskinen’s defense. That is, perhaps, understandable, even though much of what the IRS has done during this scandal is indefensible. Democrats probably want to defend their president’s pick to head the IRS, and maybe they want to try to change the narrative heading into a potentially disastrous midterm election. But the reality is that the IRS isn’t doing them any favors. There’s only so much incompetence and disingenuous behavior that can be run through a political spin machine. The Democrats’ reflexive defense of Lerner (whose conduct can’t be excused) and their apparent willingness to accept any explanation from Koskinen (who didn’t even try to adequately explain why he hid information on the lost e-mails from February until late June) is baffling. Democrats weakly attempted to paint the GOP as on a witch hunt for a conspiracy, as though the IRS’s mismanagement and appearance of bias weren’t enough to justify congressional inquiry.

The IRS isn’t doing Democratic congresscritters any favors, nor are they doing any for the IRS.  They are just making the IRS look more like a partisan agency, which could cripple tax administration for years.

 

TaxProf, The IRS Scandal, Day 411

 

20140507-1Kay Bell, Save space and trees: Digitize your tax records.  That way if you lose them, the IRS will surely understand.

Russ Fox has some valuable information for online gamblers trying to stay FBAR compliant: Online Gambling Addresses (Updated for 2014)

Robert D. Flach has a Tuesday Buzz for you!

Tony Nitti, How State Taxes Could Play A Role In Carmelo Anthony’s Landing Spot.  Nah, state taxes don’t matter…

Peter Reilly, Step Kids Remain Step Kids After Divorce.  So you may still have a dependent, if not a spouse.

Jack Townsend, Comments by IRS Personnel on New Streamlined and OVDP Procedures.  “The new procedures were designed to ‘encourage folks who are considering quiet disclosures to come in with their hands up’ and avoid taxpayers coming into OVDP with the intention to opt out.”

Annette Nellen, Bitcoin Taxation – Clarity and Mystery, “If you are a tax practitioner and don’t think you need to deal with it, I’d be surprised if none of your clients uses bitcoin.”

William Perez, Backup Withholding.

 

Tyler Dennis, The Clinton’s Estate Tax Planning Demonstrates the Arcane Nature of the Estate Tax (Tax Policy Blog):

When the Clintons created the trust in 2011, their property’s assessed value was $1.8 million.  Without a residential trust, the future appreciation between 2011 and 2021 would count against the gift tax. If the property appreciated at a 4% annual rate and reached $2.6 million by 2021, that’s the amount that would count. With the residential trust, though, the Clintons were able to “lock in” the value of the home at its 2011 value of $1.8 million without actually relinquishing the property to the beneficiary of the trust.

Most supporters of higher taxes assume that they won’t have to pay them.

 

Renu Zaretsky, Disbelief, Devolution, and Death Benefits.  The TaxVox headline roundup talks about the Koskinen appearance before the Issa committee, and about how a surprising proportion of new life insurance is taken out on employees.

Andrew Lundeen, The Average U.S. Worker Pays over $16,000 in Income and Payroll Taxes (Tax Policy Blog):

The tax burden is a combination of income taxes at the federal, state, and local levels as well as the employee and the employer payroll taxes. Of the 31.3 percent tax burden, 15.4 percent is due to income taxes and 15.9 percent is due to payroll taxes, over half of which is paid by the employer on the employee’s behalf. (Workers pay the cost of the employer-side payroll taxes through lower wages.) 

Heck of a deal.

 

Stephanie Hoffer, Kuretski, the Tax Court, and the Administrative Procedure Act (Procedurally Taxing).

 

Another great tax planning idea down the tubes.  Kidnapping Prostitutes Is Not a Good Way to Claim Dependents for Tax Purposes (Greg Kyte, Going Concern)

If you didn’t think he was a bad guy already…  Adolf Hitler: Billionaire tax-dodger?

 

 

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Tax Roundup, 6/17/14: Hiring witnesses to your tax crimes. And: some folks just aren’t into Valentines Day.

Tuesday, June 17th, 2014 by Joe Kristan

Programming note:  The Tax Update will be on the road the rest of this week, so this is probably the last tax roundup this week.  Unless I change my mind.

 

Via Wikipedia

Via Wikipedia

Sure, the more witnesses to my crime the merrier.  What could go wrong?  Every time I see a case in which an employer gets in trouble for evading payroll taxes by paying employees in cash, I have to wonder how much they thought things through.  Every employee becomes a potential informant, and it’s hard to imaging not having either a disgruntled employee turn you in or a careless one reveal the secret in the wrong place.

The Department of Justice yesterday announced a guilty plea yesterday:

   Sonny Pilcher of Casper, Wyoming, pleaded guilty to tax fraud today in the U.S. District Court for the District of Wyoming, the Justice Department and Internal Revenue Service (IRS) announced.  The sentencing hearing was set for Oct. 28, 2014 before U.S District Judge Alan B. Johnson.

 According to the charging document, Pilcher attempted to obstruct and impede the IRS.  Pilcher did this by claiming a false bad debt expense of $258,000 on his 2008 Form 1040 tax return, and by paying his employees in cash to evade paying employment taxes.  Pilcher faces a statutory maximum sentence of 36 months in prison, a $250,000 fine and may be ordered to pay restitution to the IRS. 

The inclusion of the “bad debt” in the charge is interesting.  You frequently see cases where people claim a non-business bad debt — which is a capital loss — as an ordinary fully-deductible business bad debt.  While you might see a civil penalty in such a case, I have never seen that called a criminal matter.  This presumably was something more serious than an argument over what kind of bad debt it was.

 

20120801-2If you have a full-time job, you probably aren’t a “real estate professional” who can deduct rental losses.  And if that’s so, don’t embarrass yourself in front of a Tax Court judge.  A taxpayer from California made that mistake in a Tax Court case issued yesterday.

Real estate rental losses are normally passive, meaning that they only are deductible to the extent of passive income (there is a special allowance for taxpayers with adjusted gross income under $150,000).  If you are a “real estate professional,” the losses are not automatically passive, but you have to meet two difficult tests to be one:

- You have to work at least 750 hours in the year in a real estate trade or business which you own, and

- your real estate business has to consume more of your time than anything else you do.

If you have a full-time day job, it is nearly impossible to rise to that standard (unless you have a pretty undemanding day job).  That didn’t keep the intrepid Californian who had three rental properties — all single-family houses — from giving it a try, as the Tax Court judge explains (my emphasis):

Even if we assume that petitioner worked 1,760 hours and 1,752 hours in 2009 and 2010, respectively, for Northrop Grumman, we do not accept his activity log coupled with this testimony relating to the rental activities as reliable or credible. A review of the activity log and testimony relating to the rental activities leads us to the conclusion the petitioner did not spend more hours at the real estate activity than at his full-time employment at Northrop Grumman. According to petitioner’s logs he spent almost every spare hour in those years working on the rental properties, including 10 hours on July 4 of each year, 12 and 10 hours on February 14, 2009 and 2010, respectively, and 9 and 10 hours, respectively, on December 25 of each year.

Hey, not everybody is a romantic.  And I’ll keep Christmas in my own way, thank you very much!

Although he managed three rental properties in each year, throughout 2009 alone petitioner’s records reflect that he repaired or worked on the sprinkler systems on any of the given properties on 64 separate occasions, and throughout 2010 he worked on sprinkler systems on 20 separate occasions. In addition, on March 16 and 17, 2009, the records reflect eight hours to prepare and deliver an eviction notice to be filed in court. Coincidentally, on March 15 and 16 of the next year, petitioner’s records reflect that he performed the very same activity for the same exact amount of time. A review of petitioner’s activity logs leads to the conclusion that the logs are inaccurate and exaggerated.

Maybe he just wasn’t very good at sprinkler systems?  Whatever you might think of Tax Court judges, you can be sure that they didn’t get their jobs by being gullible.

Cite: Bogner, T.C. Summ. Op. 2014-53.

 

 

20130114-1Kristy Maitre, Treasury Issues Changes to Circular 230 (Treasury Decision 9668):

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing.  Often the disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.

Treasury said they anticipate that the removal of the requirement will eliminate the use of a Circular 230 disclaimer in e-mail and other writings because Section 10.37 rules on written opinions don’t include the disclosure provisions in the covered opinion rules.

Good news.  I always thought the routine disclaimers were futile and I never used them.  They seemed like the email equivalent of a rabbit’s foot — it might make you feel better, but it still was mere superstition.  Yet I bet that we’ll still be getting emails from our fellow practitioners with the Circular 230 disclaimer years from now.

Russ Fox, Soon: No More Circular 230 Notices

 

Jason Dinesen, Iowa Taxes: Filing Separately and Allocating Dependents.  “In general, a typical married couple can allocate the dependency exemptions in whatever manner they choose.”

William Perez, Child and Dependent Care Tax Credit

Peter Reilly, Paul Reddam’s KPMG Tax Shelter Stunk In More Ways Than One 

TaxGrrrl, World Cup Mania: Figuring Out FIFA, Soccer & Tax.  So there’s a soccer tournament, I hear.

Robert D. Flach starts Tuesday with a Buzz!

 

20140513-1Martin Sullivan, Big Deal by Low-Tax Medtronic Has Even Bigger Implications (Tax Analysts Blog).  “The main benefit to Medtronic after the inversion will be that the billions of profits it generates outside the United States each year can now be deployed to pay dividends and to buy other U.S. companies without paying U.S. tax.”   Sounds like good corporate stewardship to me.

William McBride, Medtronic Embarks on Self-help Tax Reform (Tax Policy Blog).  “The high U.S. corporate tax rate is causing serious economic distortions, chasing away businesses, investment and jobs. The only way to deal with it effectively is to bring the corporate tax rate down to competitive levels, which is the path chosen by virtually every other country.”

 

Renu Zaretsky,  Tax Freedom, Tax Avoidance.  The TaxVox headline roundup covers the Medtronic inversion and internet taxes.

TaxProf, The IRS Scandal, Day 404

Kay Bell, IRS says possible Tea Party emails lost in computer crash. “Conspiracy or clowns?”

 

News from the Profession.  Here’s Your Authoritative Guide for Likening Game of Thrones to Public Accounting (Going Concern)

 

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Tax Roundup, 6/11/14: IRS Bill of Rights: just words? And: when your state got its income tax.

Wednesday, June 11th, 2014 by Joe Kristan

billofrightsTalk is cheap.  The North Korean constitution has a whole bunch of rights,  per Wikisource.  For example:

Article 70. Citizens have the right to work. All able-bodied citizens choose occupations in accordance with their wishes and skills and are provided with stable jobs and working conditions. Citizens work according to their abilities and are paid in accordance with the quantity and quality of their work.

Article 75. Citizens have freedom of residence and travel.

Article 78. Marriage and the family shall be protected by the State. The State pays great attention to consolidating the family, the basic unit of social life.

 

So written declaration of rights are just empty words when there is nothing behind them. That’s why I can’t get too excited about the big Taxpayer Bill of Rights announced by IRS Commissioner Koskinen and Taxpayer Advocate Olson yesterday.

Nothing to disagree with on the list, but what will the IRS do to make it more than empty words?  Going down the list:

The Right to Be Informed.  The IRS is infamously secretive.  Will they no longer require Tax Analysts to sue them to make public their positions and procedures?  Will the required compensation for S corproation employee- shareholders be only known to the whim of the examining agent?

The Right to Quality Service.  The IRS continues to get worse at answering taxpayer questions.  It seems like they are worse than ever at dealing with correspondence.  It has become nearly impossible to reach IRS personnel in D.C. by phone to ask technical questions. Is the Commissioner going to change any of this?

The Right to Pay No More than the Correct Amount of Tax.  The nearly-automatic assertion of penalties for every asserted deficiency will have to end for this to mean anything.

The Right to Challenge the IRS’s Position and Be Heard.  The consolidation of appeals offices and their seeming loss of independence will have to be reversed for this to mean something.

The Right to Appeal an IRS Decision in an Independent Forum.  See you in Tax Court…

The Right to Finality.  Does this mean IRS will enable offshore FBAR foot-faulters to come into compliance without facing financial ruin?

The Right to Privacy and The Right to Confidentiality. These are a big ones, and the IRS hasn’t been doing so well at them lately.

The Right to Retain Representation.  Yet the IRS wants to choose who gets to do this for you. When the IRS can shut down your representative, he may not be a really zealous advocate.

The Right to a Fair and Just Tax System.  This is something that the IRS can’t ultimately reach on its own — Congress designs the system — but it could sure do a lot better.  When the IRS routinely assesses $10,000 penalties for filing Form 5271 one day late, when they effectively loot foreign pension accounts of expats for inconsequential paperwork violations, it’s hard to see the fairness and justice.

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Other coverage:

TaxProf has a roundup.

Kay Bell, Would the newly adopted Taxpayer Bill of Rights have prevented the IRS Tea Party scandal?

Robert W. Wood, IRS Reveals Taxpayer Bill Of Rights

Joseph Henchman, IRS Approves List of Taxpayer Rights (Tax Policy Blog).  “My own addition is that much as requiring police to know and inform arrestees of “Miranda” warnings has increased awareness of those rights, so too will this.”

TaxGrrrl,  IRS Releases Much Anticipated ‘Taxpayer Bill Of Rights’  “With the wrap up of filing season, the IRS is now in its peak correspondence mailing season. This was, according to Koskinen and Olson, the perfect time to introduce the rights since they will be mailed out together with those correspondences.”

Russ Fox, IRS Adopts “Taxpayer Bill of Rights;” Will Anything Change?  “Until the IRS comes clean on the IRS scandal, what was released today makes a great sound bite but is otherwise nothing new. The IRS appears to have violated six of the ten rights, and is still stonewalling Congress on the scandal. The IRS’s budget won’t be increased because of today’s press release.”

 

Scott Drenkard, Richard Borean, When Did Your State Adopt Its Income Tax? (Tax Policy Blog):

20140611-1

No, they haven’t been around forever, it just feels that way.  Wisconsin was first.

 

Jason Dinesen, Same-Sex Marriage and Amending Prior-Year Returns.  “A broader way of asking the question is: if someone who’s in a same-sex marriage amends a prior-year return that they had previously filed as a single person due to the Defense of Marriage Act, must that amended return show a filing status of married?”

Tony Nitti, District Court: Lone Sale Of Undeveloped Land Generates Ordinary Income, Jeopardizing Land Banking Transactions   

William Perez, Home Office Deduction

Keith Fogg, Government Drops Appeal in Rand Case (Procedurally Taxing).  This is the case where the Tax Court ruled that a recovery of refundable credits in excess of income tax was not a “deficiency” for computing penalties.

Jack Townsend, Reminder: Category 2 Banks Will Serve Up Their U.S. Depositors .  Consider banking secrecy dead.

Brian Strahle provides a list of state and local tax blog resources. 

 

20140611-2Alan Cole, Japan’s Tax Reforms and its Blockbuster GDP Growth (Tax Policy Blog):

Paired together, theory would predict that these two tax changes create a structural shift in the Japanese economy; the more favorable corporate tax climate would encourage investment, and some income would be spent on that new investment instead of immediate consumption. Over the long term, this will boost Japanese wealth and productivity, and eventually allow for a higher standard of living than before.

The data fit this theory so far; private nonresidential investment grew at a “blockbuster” rate of 7.6% in the first quarter of 2014. 

 

David Brunori, A Coke and a Smile and a Tax (Tax Analysts Blog). ” It would tax a can of Coke, but if you went to Starbucks and dumped five teaspoons of sugar into your latte, there would be no additional tax.”

TaxProf, The IRS Scandal, Day 398

Going Concern, Ex-BDO Vice Chairman Given 16 Months to Think About His Choices. He will retire to a Bureau of Prisons meditation facility.

He was ashen after the sentence was announced.  Gray man sentenced to 18 months for tax evasion

 

 

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Tax Roundup, 6/2/14: Tax moralism and moral panics. And: IRS, abetter of theives, scourge of victims!

Monday, June 2nd, 2014 by Joe Kristan

taxanalystslogoTax Analysts’ Tax Notes and State Tax Notes are part of my healthy breakfast, and today they are especially delicious.  The only bad part, for me, is that they are subscription publications, making them hard to share in full.  I can give you morsels, though.

Joseph Thorndike has an excellent discussion of the hollow moralism of tax debates, though he ends up defending it.  In the course of discussing an article by Allison Christians on the role of moralism in tax debates, he comes up with gem after gem.  He quotes Learned Hand’s discussion of the issue, which I find conclusive:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

That never stops politicians, as Joseph points out:

     More recently, President Obama’s proposal for a “Buffett rule” clearly falls within that tradition of tax moralism (although in this version of the morality play, the billionaire plays the hero rather than the villain). Like the AMT, the Buffett rule is a rear-guard action to defend the fisc against the predations of aggressive avoiders.

But those sorts of Rube Goldberg tax contraptions are an admission of failure. They take for granted that the existing tax base and its statutory rate structure cannot be defended. But the efficacy of those second-best tax systems — at least when measured in terms of fairness — is anything but self-evident. And their costs in terms of complexity and opacity are substantial. 

If you move away from the law, to a system of “morality” in paying taxes, you lose your way.  Who decides what is moral?  Politicians?  Don’t make me laugh.  It’s hard enough to follow the law, given its ridiculous complexity.  If you then require taxpayers to meet subjective standards of whatever pressure group feels like calling a press conference that day, you make taxes pretty much impossible.

One point not mentioned is the conflicting moral obligations of taxpayers.  A rich individual has moral responsibilities to his children, his business and his own community.  The IRS can’t be the supreme moral agent.  And a corporation has moral and legal obligations to its shareholders, customers and employees that conflict with any “moral” obligation to the fisc.  Given that pensions are mostly invested in corporation stock and bonds, their “moral” obligation to give politicians more money for buying votes is hard to take seriously.

 

e-cigFor dessert, David Brunori chimes in on e-cigarettes and politicians

 I get the rationale for tobacco taxes. You smoke, you get sick, society has to pay for your medical care. That’s consistent with the classic rationale for excise taxes. Those taxes are legitimate only if used to pay for externalities — that is, the societal costs that aren’t borne by the market.

Of course, cigarette taxes in particular have never really been about externalities. If they were, every penny of revenue would go to smoking-related healthcare. Instead, dozens of states earmark some cigarette tax revenue for education (I still can’t believe teachers who rely on cigarette tax revenue for their raises aren’t leaving cartons of Lucky Strikes on their kids’ desks). 

Ah, but giving away cartons of cigarettes on a teacher’s salary?  Of course, my mom was a teacher, and I remember as a kid buying her cigarettes at the store.  But she never shared them, and I never picked up the habit.

David adds:

Taxing e-cigarettes is a money grab. If people use e-cigarettes instead of real cigarettes, the state loses money. The vested interests like the public employee unions and the myriad government contractors can’t have that. But proponents won’t admit the money-grabbing motive.

Iowa, like many other states, is a partner in the tobacco industry as a result of a shakedown settlement agreement with the big tobacco companies.  The industry continues to operate, with the politicians getting a cut of the revenue (nice vice racket you got there, hate to see something bad happen to it).  The moral panic over e-cigarettes is really about protecting this franchise.

 

20130419-1We’ll let them steal your money, and then we’ll punish you for it.  IRS freezes tax ID theft victims’ return – then hits them with late penalties. (Cleveland.com)

Pat Pekarek and her husband, Roger, discovered someone filed taxes using Roger’s Social Security number last year, after the IRS rejected their e-filed joint return.

The Pekareks, who live in Parma Heights, dutifully followed the IRS’ instructions to send their return by mail with documentation proving they were the real Pekareks. The IRS immediately froze their account, along with a credit that Pat Pekarek expected to use toward this year’s taxes.

A year later, the account remains in the IRS deep freeze – along with the credit. And now, even though it was the IRS freeze that kept the credit on ice, the agency is demanding the Pekareks cough up back taxes and pay late penalties.

The IRS has let identity theft get completely out of control, while spending its time and energy trying to regulate law-abiding preparers and harassing uncongenial political groups.  And they’ve managed to neglect and abuse the victims while doing so.  Good thing they are responsible for our health insurance system too.

 

William Perez, Foreign Bank Accounts due June 30th.  New form, and now you have to e-file.

TaxGrrrl, Las Vegas Man Cheated IRS, Taxpayers Using False Home Buyer Credits:  “Refundable credits are traditionally a magnet for fraudulent claims and this one was no different: initial reports indicated that nearly 100,000 refunds were perhaps inappropriately distributed, with $600 million of taxpayer credits labelled “suspicious” in 2009 (despite those numbers, Congress kept extending the credit).”

Jack Townsend, Accountant Sentenced For Tax Crimes; Conduct Included FBAR violations .  “The gravamen of Duban’s conduct is that he assisted the persons related to the automobile dealership in running nondeductible personal expenses through the corporation.”

Scott Schumacher, Winning the He-Said-She-Said Case (Procedurally Taxing)

Tony Nitti, S Corporation Shareholder Must Reduce Basis For Non-Deductible Corporate Loss 

 

20140401-1Lyman Stone, Response to Politico: Taxes and the Texas Miracle (Tax Policy Blog):

But long-term tax policies do matter. Stable, neutral, non-distortionary tax policies, offering low tax rates on broad tax bases, can support economic growth. Firm site selection is one channel, through which taxes affect economic decisions on the margin. There is robust evidence that taxes (while certainly not the only or even the largest factor) do matter for site selection. And, as one of the few site selection variables policymakers can directly control, it makes sense for them to be concerned about the role of taxes.

But not in the form of paying people to be your friends via tax credits.

 

Annette Nellen, Is tax reform on or off? Odd activities in the House last week

Kay Bell, Debate continues about tax havens and punishment fairness

 

Renu Zaretsky, Holes, Holidays, Hurricanes, and Tax Bills (TaxVox).  “The Illinois legislature passed a budget with revenue holes and no spending cuts.”

 

TaxProf, The IRS Scandal, Day 388

Me, 2 million served.  An arbitrary milestone, achieved!

 

Russ Fox, No, Fido & Lulu Can’t Own Your Business:

All corporations have to have a Board of Directors. That board handles various business items of the corporation. Now, in a tightly controlled corporation you might just have one board member–yourself. But Mr. Zuckerman elected a strategy that I haven’t seen before (and I doubt I’ll see again): He named his pets as board members.

They were probably as independent as any number of human board members.

 

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Tax Roundup, 5/12/14: There is no Tax Fairy in Des Moines. And: the Brewster’s Millions prophecy.

Monday, May 12th, 2014 by Joe Kristan


tax fairy
Principal’s $291 million loss struck down in Claims Court.  
Des Moines’ largest employer had a bad day at the U.S. Court of Federal Claims Friday when the court ruled against a $291 million loss taken on tax returns in 2000 and 2001.  That was a time when many big companies took up the search for the Tax Fairy, the mythical sprite who can make millions in taxes go away with incantations and fancy wandwork.

The Principal deductions were from a “strip” transaction, where Principal Life Insurance Company purchased money-market funds, and then split them between the right to income and the, er, principal.   The company retained the right to earnings for 16 to 18 years (there were multiple transactions), and sold the remaining value of the securities.  It allocated all of its basis in split securities to the part it sold, generating the losses.

The IRS had a number of objections to the deduction, may of which can be found in a memo discussing similar transactions — perhaps these transactions.  The Claims Court judge honed in on one: Treasury Regulations that seem to require basis to be allocated between the components of stripped securities (Reg. Sec. 1.61-6(a)):

[w]hen a part of a larger property is sold, the cost or other basis of the entire property shall be equitably apportioned among the several parts, and the gain realized or loss sustained on the part of the entire property sold is the difference between the selling price and the cost or other basis allocated to such part.

The judge didn’t care for Principal’s arguments that it properly allocated all basis to the sold piece of the securities (my emphasis):

VLUU L310 W  / Samsung L310 W It asserts, in effect, that the regulation has a tacit exception, that is, it does not address situations in which an income interest is carved out from a financial instrument. In that situation, PLIC  claims, the proper tax treatment is governed not by the Treasury Regulations, but by “80 years of common law, which Congress and the Treasury have knowingly left in place.” PLIC cites, as evidence of this, a line of authority that it claims demonstrates not only the existence of carve-out interests, but also the fact that the normal basis allocation rules do not apply to them. It contends that this lineament well-illustrates that the basis allocation performed by PLIC here — in which all of its cost in acquiring the Perpetuals was allocated to the residual equity interest — was quite appropriate. But, as will be seen, PLIC’s invocation of these cases — and the supposed “common law” rules they embody — turns out to be something of a clupeidae roseus (or perhaps a school of them). 

Clupeidae roseus must be what judges call “red herrings” when they talk to each other.  In this case, the judge found the PFG arguments wanting and ruled for the IRS.  It deferred its decision on whether penalties would apply pending further proceedings.

While this transaction looks like something that might have been marketed to Principal by a big law or accounting firm, the opinion doesn’t say so.   The case also involved income items where IRS challenged Principal’s exclusion of $21 million from other stripped securities — a part of the case the company also lost.

The moral?  I think the judge put it well: “Only in a parallel universe, where the ‘too good to be true’ rule of taxation reigns not, should the result be different.”  Or as I might put it, there is no Tax Fairy.

Cite: Principal Life Insurance Company and Subsidiaries v. United States, 1:07-cv-00006 (Fed. Cl. 2014)

 

 

20140307-1William Perez, Tips for Starting a Business

TaxGrrrl, On Mother’s Day, What Happens When You’re Taking Care Of Mom (And Not The Other Way Around)?   

Kay Bell, Are child-related tax breaks appropriate, fair?

Jason Dinesen, Taxpayer Identity Theft — Part 19.  Jason links to a summary of his client’s battle with ID theft, including the 10-thumbed IRS treatment she received.

Russ Fox, When Two Intelligent Individuals Reach the Opposite Conclusion… “Welcome to the brave new world of signature documents.”

Robert D. Flach, MORE CLIENTS SCREWED BY THE TAX CODE.  I’d say pretty much all of them.

Stephen Dunn, Foreign Accounts? Don’t Rush Into OVDP.

 

William McBride, How Best to Prevent the Corporations from Leaving? (Tax Policy Blog):

Most industrialized countries largely exclude foreign earnings from the corporate tax base. Most industrialized countries let businesses write-off investments faster than they can in the U.S. These are not “loopholes” but broad-based ways in which these countries compete for business investment and jobs. 

 

TaxProf, The IRS Scandal, Day 368

 

20140512-1The “Brewster’s Millions” tax strategy.  IMDB has the plot summary from this 1985 Richard Pryor vehicle:

Brewster is challenged to either take $1 million upfront or spend $30 million within 30 days to inherit $300 million. If he chooses the former, the law firm becomes executor of the estate and divides the money among charities (after taking a sizable fee). In the latter case, after 30 days, he must spend the entire $30 million within one month…

Brewster gets the idea to join the race for Mayor of New York and throws most of his money at a protest campaign urging a vote for “None of the Above”.

India’s Economic Times reports that on the Subcontinent, Brewster’s Millions is apparently a prophecy:

Made a huge profit selling your property and wondering how to avoid paying tax? Form a political party and “donate” your sale proceeds to it. And if you were worried the taxman will come knocking, just relax, it is perfectly legit. You and your party can claim 100% tax exemption too. “Many political parties are fronts for income tax fraud,” says former chief election commissioner N Gopalaswami . That explains the burgeoning political party registrations. There are about 1,600 political parties in India, but only 100-150 actually contest elections.

It doesn’t work that way in the States.  Here, politics is just a way to blow money.  Unless, of course, you are a humble career public servant from Iowa.

 

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Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

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Tax Roundup, 4/24/14: A(m)way to deduct your car? And: shame on you for doing my bidding!

Thursday, April 24th, 2014 by Joe Kristan

logoamwCan an Amway distributorship ever be taxed as a legitimate business?   It must be possible, but I’ve yet to see one win in Tax Court.  A case decided this week illustrates common tax problems seen with “downline” folks involved in Amway and other multi-level marketing ventures.

A doctor and his wife got involved with Amway, an MLM operation that sells household, nutritional and cosmetic products.  In addition to the medical practice income, they reported Amway results on a Schedule C.  We can guess from the results how they attracted IRS notice:

20140424-1

The Tax Court case involved their 2009 tax year.  Here are the expenses that went into their 2009 loss:

 

20140424-2

For some reason the IRS questioned the need for $25,000 in vehicle and travel expenses to sell stuff out of their home.  The tax law’s Section 183 “hobby loss” rules prohibit deductions in excess of income if the business isn’t conducted for profit.  The courts have developed a set of factors to evaluate in determining a taxpayer’s intent.  Tax Court Judge Guy went down the list, including:

Manner in Which Petitioners Carried On the Amway Activity

Although petitioners kept records of their Amway expenses, they did not use those records to analyze their business performance or to prepare profit projections, a break-even analysis, or a formal budget. Despite several years of activity during which they realized cumulative net losses of $192,427, petitioners failed to make any meaningful change in their strategy or tactics in an effort to increase the likelihood of earning a profit. On this record, it is a fair inference that petitioners used their records only to compute the amounts of losses attributable to the Amway activity when preparing their tax returns. Considering all the facts and circumstances, we conclude that petitioners did not conduct the Amway activity in a businesslike manner.

And:

Petitioners’ History of Income or Loss

 At the time of trial petitioners had never reported an annual profit in respect of the Amway activity. To the contrary, they reported cumulative net losses of $192,427 from 2005 through 2011. The modest gross receipts that petitioners derived from the activity have been eclipsed by the substantial expenses they incurred over the years. Although petitioners testified that they believe the Amway activity will eventually generate profits, we cannot discern on this record any definitive trend to the upside for petitioners, and there certainly is no indication that they are on their way to the level of profitability that would allow them to recoup the substantial cumulative losses they have incurred to date. In sum, petitioners’ history of consistent and substantial losses is indicative of a lack of profit objective.

I avoid multi-level marketing clients because their “profit” so often comes from putting personal expenses on Schedule C.  It sure seems that way here.

The Tax Court declined to impose penalties, citing taxpayer maintenance of good records and reliance on a CPA to prepare their returns.  Considering that the Tax Court has upheld penalties for taxpayers who are more sympathetic than a doctor deducting his car, it’s somewhat surprising.  It shows that even if you can’t show a profit motive, using  good records and a preparer can at least help avoid penalties.

Cite: Mikhail, T.C. Summ. Op. 2014-40

 

For a recent taxpayer victory on a hobby loss case, see Peter Reilly’s Horse Breeder/Lawyer Wins In Tax Court. Was It Worth It? 

 

20120906-1Special favors for special friends. Senate sends governor a bill containing tax break for Knoxville Speedway. (O. Kay Henderson).  Iowa’s long-time sprint-car track gets a special deal to keep sales tax it collects, like the NASCAR track in Iowa.  Meanwhile, everybody else competing for Iowa entertainment dollars has to remit to the state the sales taxes they are required to collect.  Sweet deal, when you have the pull.

 

Iowa WatchdogIowa congressman urged IRS to investigate nonprofits:

Four days after the head of the Internal Revenue Service denied the agency was targeting conservative social welfare organizations applying for tax exempt status, Rep. Bruce Braley signed a letter urging a probe into the political activities of social welfare organizations.

Braley was one of 30 Democratic members of Congress who signed the letter, dated March 26, 2012, to IRS Commissioner Douglas Shulman urging him to investigate whether “any groups qualifying as social welfare organizations under section 501(c)(4) of the federal tax code are improperly engaged in political campaign activity.”

It’s funny how so many folks who urged the IRS to get all political on their opponents now deny it did any such thing.  Mr. Braley takes a different approach:

In May 2013, Braley called the IRS targeting of conservative groups “shameful,” saying “there is no place for politics at the IRS.”

Shame on you for doing what I told you to do!

 

20140401-1Paul Neiffer, Social Security Drops Efforts To Collect Old Debts From Children of Debtors. Maybe.

Kay Bell, Got debts? They could eat into your tax refund

Keith Fogg, Collection of Restitution Payments by the IRS (Procedurally Taxing)

Jason Dinesen, Is it Okay for Clients to Text a Professional Service Provider?   Not if they don’t have your cell phone number!

Jack Townsend, Crossing the Line in Tax Planning:

I report today on a civil case that shows how a civil dispute can involve a situation that perhaps should have been a criminal case… Essentially, the taxpayers created a paperwork façade to give the appearance of qualifying for the [first-time homebuyer] credit, but the facts outside the paperwork showed that they did not qualify.

You see a lot of that with refundable credits.

 

 

Andrew Lundeen, How High Investment Taxes Contribute to Inequality. (Tax Policy Blog)

William Perez, Tax Reform Act of 2014, Part 6, Retirement Plans

Cara Griffith, Solving the ‘Problem’ of Remote Sales (Tax Analysts Blog). “All things being equal, I would rather enforce the use tax than needlessly broaden the sales and use tax nexus standard.”

Tax Justice Blog, Missouri Lawmakers Relentless in Quest for Tax Cuts for the Wealthy.  In Iowa, we prefer to do favors for the well-connected, rich or poor.

TaxProf, The IRS Scandal, Day 350.  Includes a link to Bruce Braley Urged IRS to Target Groups Before IRS Targeting Scandal Emerged.

Me: HSA Contribution Max for 2015 $3,350 single, $6,650 family.

KSDK.com: Man swallows 12 gold bars to evade taxes.  Sometimes you can actually feel sorry for the tax collector.

Career Corner.  Judge: Talking dirty not reason enough to lose job (Des Moines Register)

 

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Tax Roundup, 4/22/14: $418,000 per-job edition! And: AGI and farm subsidies.

Tuesday, April 22nd, 2014 by Joe Kristan

20120906-1Iowa Watchdog reports Iowa to give Microsoft millions in exchange for 86 jobs:

The West Des Moines City Council on March 24 approved asking the IEDA to award Project Alluvion $18 million in sales tax rebates, the maximum amount possible under the IEDA’s High Quality Jobs Program.

Neither the city nor the IEDA questioned why Microsoft, which had $24.5 billion in revenue and $8 billion in profits in the most recent fiscal quarter, needed taxpayers’ support to build its data center.

By the time the new data center opens for business, Microsoft will have received from the state and the city more than $418,000 for each of the 86 jobs it says it will create.

There’s a good argument that businesses shouldn’t have to pay sales taxes on their purchases. There’s no good argument that only businesses who know how to pull strings in city hall and at the statehouses should be able to avoid sales tax on their inputs.  Yet that’s what Iowa’s “economic development” policy is all about: special deals for special friends.  The rest of you suckers without lobbyists and pull, pay up!

Related: LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

Tax Justice Blog, State News Quick Hits: Tax Breaks for Expensive Artwork and Apple Inc.

microsoft-apple

 

Roger McEowen, Farm Service Agency Adjusted Gross Income Calculation Could Influence Choice of Entity:

Beginning with the 2014 crop year, producers whose average adjusted gross income (AGI) exceeds $900,000 are not eligible to receive payments or benefits from most programs administered by FSA and the Natural Resources Conservation Service (NRCS). Previous AGI provisions distinguishing between farm and non-farm AGI are no longer utilized.  Average AGI for crop year 2014, for example, will be based on a producer’s AGI from 2010, 2011 and 2012.

This is an incentive for business owners receiving substantial farm subsidies to use C corporations, which don’t increase AGI, at least not immediately.  But C corporations do increase the effective tax rate on business income for most people who have enough AGI to worry about this problem.  It would be a lot easier to get rid of the subsidies and let farmers just grow what the market demands.

 

Yesterday was the national commemoration of The Tax Foundation’s Tax Freedom Day.   Not surprisingly, it’s later than last year.

Tax Freedom Day is “the day when the nation as a whole has earned enough money to pay its total tax bill for year.”  It varies by state.  Iowa’s day was April 13.  Connecticut and New Jersey will be the last states to finish paying their tax bill, on May 9.

Tax Freedom Day 2014 Map_0

 

TaxProf, GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

Jeremy Scott, The Misleading Debate About the Corporate Income Tax (Tax Analysts Blog):

Congress must consider passthroughs when discussing business tax reform. You can’t complain about high U.S. corporate tax rates or declining corporate tax revenues without looking at how the shift to passthrough entities is affecting the U.S. tax system. Passthrough reform is just as critical as corporate reform, even if it doesn’t receive nearly as much attention in congressional speeches or front-page news stories.

It won’t happen until the inane quest to hammer “the rich” is decisively rejected in tax policy debates  – because with pass-throughs, taxing “the rich” means taxing away employment.  Yet the same high-tax redistribution schemes have led to disaster over and over are enjoying a new vogue among people who just can’t stand other people having more money.

 

20140321-3Jack Townsend, GE Ducks Any Penalty for Its (BS) Tax Shelter — For Now 

Brian Mahany, Is the IRS Whistleblower Program a Failure?

TaxGrrrl, Higher Or Lower: How Do You Think Your U.S. Tax Burden Compares To Other Countries?   

Steven Rosenthal, A Flash Tax for the Flash Boys (TaxVox).  Never mind that high-frequency traders make for more efficient markets and lower transaction costs for other traders.  We need to screw up the capital markets even more.

Annette Nellen, Tax Day – April 15, 2014 – It Can Be Easier.  It sure could be.

TaxProf, The IRS Scandal, Day 348

 

William Perez, Obamas, Bidens Release 2013 Tax Returns.  I still say they should have had to prepare them by themselves in a live webcast — as should all congresscritters.

Russ Fox, If You Can’t Get the Refund, Why Not File Some Liens?  After all, it is a foolish and futile gesture, so go for it!

Peter Reilly, Court Approves Tax Sale Of New Mexico Property For Less Than 1% Of Its Value.  Peter sheds light on the sleazy practice of what amounts to stealing property to pay petty amounts of tax.

Jason Dinesen, On Schedule C’s and Setting Rates.  If your 1040 is really a business return, you can’t expect to pay the same as a 1040A filer.   In many ways Schedule C’s are harder, because they rarely have a balance sheet to provide a reality check.

 

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Robert D. Flach’s Buzz is Back!  Welcome back, Robert!

Kay Bell, How are you spending your federal tax refund?

Jana Luttenegger, Are You Curious How Your Tax Dollars Were Spent? (Davis Brown Tax Law Blog)

News you can use.  Timely Filing a Tax Court Petition from Prison (Carl Smith, Procedurally Taxing)

Breaking!  Millennials Don’t Like Grunt Work, Says Millennial Grunt (Going Concern).  Hey Millennials, the rest of us aren’t so crazy about it either.  That’s why they have to pay us to do it.

 

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Tax Roundup, 4/11/14. Why we extend. And: Tax Doctor, Tax Fairy?

Friday, April 11th, 2014 by Joe Kristan

4868Some folks just don’t like extensions.  Maybe they want their refund NOW.  Maybe they have never extended their return before, and they think it is somehow against the rules.  Some people believe an extension invites the IRS to come in and audit them.  And some people think they are just so special that they can bring in a complex return missing K-1s on April 10th and the preparers should just drop everything and get them filed somehow.

There isn’t much to do for the last category, except perhaps medication, or a thrashing by a crazed sleep-deprived preparer, but for more sensible folks, a basic understanding of extensions might help.

Extensions aren’t against the rules; the rules specifically provide for them.  Even in simpler times, tax administrators knew that it isn’t always possible for a busy person to put together all of the pieces of a tax return by April 15.

You still should pay up.  While extensions give you more time to file your tax return, they don’t give you extra time to pay.  The tax law asks you to estimate your tax liability and penalizes you  if you don’t have at least 90% of your taxes paid in by the April 15 deadline; the penalty is 1/2 percent per month.

Why bother with an extension if I can’t delay payment?    Probably the most important one is that if you are short of cash, the penalty for late payment on a return that you didn’t bother to extend is 5% per month — ten times the penalty for late payment on an extended return.  It forces you to at least take a stab at guessing your liability, helping you identify what pieces you have to gather to complete your extended return.  It also keeps you in compliance, and once you stop filing on time, it can be a hard habit to break.

But won’t it get me audited?  There’s no evidence that an accurate extended return filed during the extension period is any more likely to be audited than it would be filed on April 15.  The IRS selects returns based on what’s on them, now on whether they are extended.

There’s plenty of evidence that returns with errors are more likely to get extra IRS attention.  A return thrown together at the last minute is more likely to have errors than an extended return done during normal working hours by somebody who’s had some sleep.    For what it’s worth, I have extended my own return every year since 1991 with no IRS examination (knock wood).

Efile logoEfile logoe-file logoHow do I extend?  You file Form 4868 either on paper or electronically, along with any necessary payment, by April 15.  The IRS has more details here. It’s common to pay in enough to also cover your first quarter estimated tax payment with the extension.  It gives you some cushion in case you find more 2013 income while completing your return, and you can apply your return overpayment to your  2014 estimated tax when you do file your 2013 1040.

States have their own rules.  Iowa automatically extends your return without the need to file an extension form if you are at least 90% paid-in by the April 30 due date.  If you need to send them some money to get to 90%, you send it with Form IA 1040-V.

Our series of 2014 Filing Season Tips goes right through April 15.  Check back tomorrow for another one!

Russ Fox, Bozo Tax Tip #3: Be Suspicious!

 

tax fairyBelief in the Tax Fairy peaks at tax time.  The Tax Fairy is that magical sprite who will make all of your taxes go away painlessly while your sucker friends still send checks to the tax man.  It’s amazing what Tax Fairy adherents will believe.  Consider a Californian who worked as a software consultant.  He was put in touch with a “Tax Doctor” (my emphasis):

Early in 2006 petitioner’s friends recommended that he talk to the “Tax Doctor Corporation” (Tax Doctor) operated by a person representing himself to be Dr. Lawrence Murray (Murray). Petitioner spoke with Murray and members of Murray’s staff. Petitioner’s discussions with Murray and his staff consisted mostly of “a bit of a sales pitch”. They explained how they would handle his tax return preparation, what the tax savings would be, and the “structure” they would use.

Murray proposed setting up two corporations and preparing petitioner’s individual and corporate Federal income tax returns. Murray explained to petitioner that one corporation would be “operational” and the other would focus on “management”. Petitioner was unsure at trial which corporation was the operations entity and which was the management entity. Under the agreement with Murray petitioner would pay the Tax Doctor, as a fee for setting up the structure, the amount of the tax savings generated by the use of the structure. 

What could go wrong?

His C.P.A. told him that she was willing to incorporate his business activity but she would not do what the Tax Doctor had proposed because it was very aggressive. Petitioner, despite the advice of his C.P.A., decided to accept the proposal of the Tax Doctor.

I don’t need a CPA, I have a Tax Doctor!

Petitioner filed his 2006 Form 1040, U.S. Individual Income Tax Return, showing taxable income of zero. Nev Edel, one of the corporations the Tax Doctor formed for petitioner, filed a Form 1120, U.S. Corporation Income Tax Return, for the fiscal year ending (FYE) November 30, 2007. Nev Edel reported gross receipts of $285,785, total income of $291,669, and total deductions of $295,214. The largest single deduction was $237,600 for “contracted services”. Smoge Corp., the other corporation the Tax Doctor formed for petitioner, filed a 2006 Form 1120S, U.S. Income Tax Return for an S Corporation. Smoge Corp. reported total income of $186,640 and total deductions of $188,644. The largest single deduction was $172,166 for “contracted services”.

Somehow things went awry.

Murray was prosecuted and convicted in 2010 of Federal crimes associated with the preparation of his own returns and the returns of others.

This presumably led to IRS attention to our consultant’s returns, and a big assessment.  The taxpayer tried to avoid penalties because he relied on the Tax Doctor in good faith.  The Tax Court thought otherwise:

The advice of the C.P.A., who had no financial stake in the outcome of petitioner’s return positions, should have put petitioner on notice that additional scrutiny of Murray’s advice was required.

The moral?  If your tax professional, who does this for a living, says something is bogus, they just might be right.  And there is no Tax Fairy.

Cite: Somogyi, T.C. Summ. Op. 2014-33.

 

20140411-1William Perez, Six Things to Do Before April 15th

Kay Bell, What are ordinary & necessary business expenses? It depends

TaxProf, The IRS Scandal, Day 337.  More a boatload than a smidgen today.

That’s OK, you can just send me a gift card. Christopher Bergin, The Gift That Is Lois Lerner (Tax Analysts Blog):

Something bad happened here. And however bad her behavior, the problem isn’t Lerner. The problem is a culture that allows what she did to continue and that probably allows behavior that’s much, much worse.

Andrew Lundeen, What Could Americans Buy with the $4.5 Trillion They Pay in Taxes? (Tax Policy Blog).  A nice gift card, perhaps.

TaxGrrrl, House Committee Votes To Hold Lerner In Contempt, Others Push For Criminal Prosecution

Joseph Thorndike, How Dave Camp’s Failure Might Be Michael Graetz’s Victory (Tax Analysts Blog)

Peter Reilly, Clergy Out In Force To Defend Their Housing Tax Break   

Sports Corner: David Cay Johnston vs. Tax Girl on Twitter: PLACE YOUR BETS (Going Concern)

 

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Tax Roundup, 4/7/14: Where’s my K-1? And why you should e-file that extension.

Monday, April 7th, 2014 by Joe Kristan

1040 2013The deadline for 2013 1040s is a week from tomorrow, so we may as well start our annual Filing Season Tips feature.  

Many folks arrive here with a search engine query that goes something like “why don’t I have my K-1, should the partnership go to jail?”  A quick reminder of what a K-1 does, and why they often arrive late in the tax season.

K-1s come from partnerships, S corporations and trusts.  Partnerships and S corporation businesses don’t pay the tax on their income.  The income is instead taxed on your 1040.  They have to compute their own taxable income first — as you might imagine, a more complex process than doing the average 1040.  They then have to sort the income into a bunch of different bins so that all the pieces end up on the right spot on the owner 1040s.  The K-1 is best understood as the collection bins for your shares of the various pieces of the business’ income and expense items.

Furthermore, many businesses and trusts that issue K-1s are awaiting K-1s of their own.  Even if they have their own tax information ready, if the business is still waiting on a K-1, it can’t issue yours.

But, but! Aren’t K-1s supposed to be out by January 1?  You’re thinking of 1099s.  K-1s are due with the S corporation returns (March 15) or the partnership returns (April 15), but they can be, and often are, extended to as late as September 15 — legally.

So what to do?  If you don’t have your K-1 yet, try to at least get an idea of what the income will be, and extend your own return accordingly.  It’s always better to extend than to amend.

This is the first 2014 filing season tip — come back for one each day through April 15!

 

Russ Fox, Bozo Tax Tip #6: Just Don’t File

 

e-file logoKristy Maitre, IRS Change in Extension Processing Makes E-Filing That Extension Critical.

The campus could take up to 6 weeks to process a [paper] extension, and it will not show up on the transcript until processed. With that time delay, it is helpful to have the acknowledgement of an e-filed extension.

With the delay in processing of the extensions, remember if you file a return within that 6 week timeframe, it may not show the extension on the module, and your client could get a penalty for filing late if there is a balance due. This will also have an impact on refund returns if they are later picked up for audit, a balance due results, and the extension was not processed properly.

And why, if you do paper file, you shouldn’t bundle extensions for your family or clients to save postage.

TaxGrrrl, Not Ready To File Your Taxes? Don’t Stress Out, File For Extension 

William Perez, Federal Tax Relief for Victims of Washington State Mudslide and Flooding

Jana Luttenegger, DIY Will is a ‘Cautionary Tale’ (Davis Brown Tax Law Blog). “As a result, two of Ann’s nieces received property that it appears clearly from the will and attempted amendment was meant for Ann’s brother instead.”

 

20140321-3Kay Bell, 3 popular refundable tax credits: Are they worth it?  Good question, and no.

Peter Reilly, Easement Valuations Not So Easy Anymore

Keith Fogg, Reliance on Counsel to Avoid Tax Liability.  (Procedurally Taxing).  Not likely to work.

 

TaxProf, The IRS Scandal, Day 333.  Featuring the Washington Post “fact checker” calling shenanigans on IRS Commissioner Koskinen for denying that IRS had “targeted” Tea Party groups.  It’s safe to say Mr. Koskinen has botched his entrance.

Andrew Lundeen, Senate Finance Committee Passes $85 Billion Tax Extenders Bill (Tax Policy Blog)

20121120-2Tax Justice Blog, Five Key Tax Facts About Healthcare Reform.  Ones they like that I despise: “Only two percent of Americans will pay the tax penalty for not having insurance and  “95 percent of the tax increases included to pay for health reform apply solely to businesses or married couples making over $250,000 and single people making over $200,000.”

This attitude is exactly what is awful about the TJB mindset.  No matter how fickle, arbitrary,   unworkable or economically harmful a tax is — and the Obamacare taxes are all of those — we’re supposed to be OK with them as long as they apply only to “the rich.”  Carried to the logical conclusion, it would be just fine to execute the 1-percenters, confiscate their property, and sell their families into slavery — it only affects the rich anyway, and they don’t count.

 

Arnold Kling has a little reminder for folks hung up on inequality, quoting Lawrence Kotlikoff:

The US fiscal gap now stands at an estimated $205 trillion, or 10.3 percent of all future US GDP. Closing this gap is imperative, and requires a fiscal adjustment of an immediate and permanent 37 percent reduction in spending (apart from servicing official debt), an immediate and permanent 57 percent increase in all federal taxes, or some combination of the two. The necessary size of this adjustment increases the longer it is put off.

And remember, the rich guy isn’t picking up the tab.

 

O. Kay Henderson, No traction for increasing state gas tax.  Not happening this year, apparently.

 

haroldJennifer Carr at Tax Analysts has a good summary of the research as to the economic effect of state film tax credits:

The film industry and lawmakers doubtless believe that film credits are a great deal for everyone involved — and that would be fantastic if it were true — but the most credible studies don’t reflect that.

Her article (unfortunately available only to State Tax Notes subscribers) discusses the funky analysis that film credit boosters use to justify the subsidies.  The boosters like to overstate the tourism effects of films and assume fantastical “multiplier” effects of film spending.  They also ignore opportunity costs — assuming that if the taxpayer money was not spent on Hollywood, it would just crawl in a hole and die.

 

Career Corner.  Crime May Not Pay But Whistleblowing Certainly Does (Going Concern)

 

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Tax Roundup, 4/4/14: Your Honor, nobody follows that law! And: extenders advance.

Friday, April 4th, 2014 by Joe Kristan

20120801-2Maybe that wasn’t the best argument, under the circumstances.  Things went badly for a California man yesterday who tried to tell the Tax Court how things work in the real world.

The man had claimed $5,309 in vehicle expenses for his real estate sales business.  Vehicle and travel expenses are subject to the special rules of Section 274, which requires corroborating records of the amount, time, place and business purpose of travel expenses.  The judge found the taxpayer’s evidence wanting (my emphasis):

Petitioner provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009. Petitioner, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents. Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. (While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135″, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.) Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense. Because petitioners failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

The IRS asserted negligence penalties for claiming an undocumented deduction.  The taxpayer tried to tell the judge that nobody does that stuff:

Petitioner did not argue reasonable cause or good faith. Instead, petitioner argued at trial that no one keeps records in accordance with the “IRS code”.

Well, OK, then, screw Section 274!  Well, no:

That argument is unpersuasive, and the section 6662(a) penalty will be sustained.

The IRS is serious about documenting business miles.  If you have them, keep a log, a calendar, or use a smart-phone app to record the time, place, cost and business purposes of your travels as you go.  If “no one keeps records in accordance with the ‘IRS code,’” no one is going to be happy with the results when they get audited.

Cite: Chapin, T.C. Summ Op. 2014-31

 

20130113-3Tax Extenders Legislation Advances in Senate (Accounting today):

 The Senate Finance Committee voted to revive almost all of the 55 tax breaks that expired Dec. 31, providing benefits for wind energy, U.S.-based multinational corporations and motor sports track owners.

Motor sports track owners have lots of friends in high places.

It’s not just motor sports lobbyists who did will in the Finance Committee.  Almost all
“expired” provisions of this lobbyist right-to-work vehicle were renewed, including the renewable fuel credits.  The only expiring provisions that actually expire are the credit for energy-efficient appliances and a provison for oil refinery property, so there remains some lobbying to do.

But wait, there’s more!  Tax Analysts reports ($link) that this Christmas in April bill includes a provision to “expand the research credit to allow passthroughs with no income tax liability to apply the credit, up to $250,000, to their payroll tax liability.”  It also would renew the reduction of the S corporation built-in gain tax “recognition period” at five years through 2015.

While the House still hasn’t acted on any of this, the passage of all of this stuff on a bipartisan basis would seem to indicate that something like this is likely to pass.  Still, Kay Bell thinks the House tax leadership may be reluctant to follow the Senate’s lead.

The reason Congress pretends these provisions are “temporary” is that under their rules, Congress can pretend that they will only cost as much as they will cost before they are renewed again, regardless of the probability that they will be renewed forever.  It’s the kind of accounting that would get us thrown in jail if we tried it with the IRS or SEC, but it’s just another Thursday in Congress.

Link: “Summary of Modified Chairman’s Mark.”

 

20091010-2.JPGKristy Maitre, E-Filed Return Rejected at Deadline? Don’t Panic

Paul Neiffer, Patronage Dividend Notices Can Be Sent by Email or Posted to a Website

Jason Dinesen, Accounting for the Work Opportunity Credit on an Iowa Tax Return 

TaxGrrrl, Taxes From A To Z (2014): T Is For Tip Income   

Leslie Book, ACA and Victims of Domestic Abuse (Procedurally Taxing)

Russ Fox, Yes, Online Poker Players Must Pay Taxes

 

TaxProf, The IRS Scandal, Day 330

William Perez, State and Local Tax Burdens as a Percentage of Income for 2011

Lyman Stone, Missouri Senate Passes Problematic Income Tax Cut Plan (Tax Policy Blog).  “Missouri’s state Senate this week passed a $621 million tax cut including a 0.5 percentage point income tax reduction and a special carveout to deduct up to 25 percent of business income.”

Howard Gleckman, Two Ways to Fix the Corporate Income Tax: Internationalize it or Kill It. (TaxVox).  I vote “kill.”

 

There’s a new Cavalcade of Risk up!  At Insurance Writer. Don’t miss Insureblog’s contribution about how those making health care policy don’t know what they’re talking about.

 

20120906-1Corporate Welfare Watch:

Iowa city prepares to give mystery company millions. (Foxnews.com)  “West Des Moines city officials have cued up $36 million in local and state tax incentives for a company, but won’t tell its citizens who that company is.”

Iowa senator calls BS on attempt to limit tax credits for fertilizer plant (Watchdog.org)

Iowa View: From wind to solar, clean power is good for Iowa (Joe Bolkcom, Mike Breitbach).  Green corporate welfare is still corporate welfare.

 

News from the Profession: Deloitte Declares Weekends Are Not For Working, Unless You Are Working (Going Concern)

 

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Tax Roundup, 4/3/14: Iowa Tax Burden ranks 29th. And: Koskinen doesn’t seem to get it.

Thursday, April 3rd, 2014 by Joe Kristan

The Tax Foundation yesterday released its annual ranking of “State-Local Tax Burdens.”  Iowa came in at 29th highest.

20140403-1

The Tax Foundation explains:

For each state, we compute this measure of tax burden by totaling the amount of state and local taxes paid by state residents to both their own and other governments and then divide these totals by each state’s total income. We not only make this calculation for the most recent year, but also for earlier years due to the fact that income and tax revenue data are periodically revised by government agencies.

In this annual study, our goal is to move the focus from the tax collector (how much revenue is collected) to the taxpayer (how much income is foregone). 

This ranking differs from the Tax Foundation’s State Business Climate Index, where Iowa ranks a dismal 40th in business tax congeniality.  While the two sets of rankings have different purposes, together they tell us that Iowa’s tax system is very poorly designed.  It collects a middling amount of revenue with a system of very high rates, a boatload of preferences for the well-connected, and baroque complexity.  You could collect the same revenue with a much simpler system with lower rates, and without the inherent corruption of special breaks for special friends of the politicians.  That’s the approach of The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Corporate welfare watch:

Senator fumes at idea to cancel tax credit (Des Moines Register)

IOWA SPEEDWAY: Governor Signs NASCAR Tax Break Bill (WHOtv.com)

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Koskinen bemoans IRS funding, but doesn’t commit to taking the obvious step to restore it.  IRS Commissioner John Koskinen gave a little speech yesterday at the National Press Club.  He pointed out how the IRS is being given massive new responsibilities for running Obamacare and implementing FATCA, but faces funding cuts.  What he didn’t point out was that the GOP-controlled house isn’t likely to change that as long as it thinks the IRS is acting as an arm of the other party.  He defended the plodding IRS response to Congressional investigators in the Tea Party matter, and he offered what looks to me like a defense of the new Section 501(c)(4) rules proposed by the prior Commisioner:

While I was not involved in the issuance of this draft proposal, because it happened before I was confirmed as Commissioner, I believe it is extremely important to make this area of regulation as clear as possible. Not only does that help the IRS properly enforce the law, but clearer regulations will also give a better roadmap to applicants, and will help those that already have 501(c)(4) status properly administer their organizations without unnecessary fears of losing their tax-exempt status.

That’s too cute.  The provisions of the proposal mirror the rules overturned by the Supreme Court in Citizens United, including a rule preventing any political activity in the run-up to an election.  These items show that the current rules are an attempt to get around the Supreme Court to restrict political speech.   That’s why they are poison to the Tea Party set.

Either he doesn’t get it, or he pretends not to.  If the Commissioner wants to restore trust, the minimum he needs to do is to withdraw the proposed rules and start over, and to stop slow walking the investigation.  Until he does, it’s futile to expect the GOP-controlled House to give him more funding.  He’s quickly running out of time to do so.

Update: Washington Post gives Koskinen 3 Pinoccios: IRS chief: No ‘targeting’ of tea party groups, just ‘inappropriate criteria’     (Via Instapundit)

 

20140321-3TaxGrrrl, Taxes From A To Z (2014): S Is For Student Loans 

Kay Bell, 7 tax tasks to take care of by April 15

Annette Nellen, Filing season and rental activities

William Perez, Tax Reform Act of 2014, Part 3, Deductions

Stephen Olsen, Summary Opinions for 03/28/14, a roundup of tax procedure news, with a much-appreciated mention of the Tax Update post on the recent case on trusts and material participation.

Jim Maule, Tax Court and Eleventh Circuit Disagree on Interpretation of Section 36 Language.  I think the couple got a raw deal, but I’m sure glad the first-time homebuyer credit has gone away.

 

taxanalystslogoCara Griffith, Proceeding Cautiously With a Taxpayer Bill of Rights (Tax Analysts Blog):

The IRS is already struggling with administering our tax system. Perhaps issues of funding and employee training should be addressed before delving into a taxpayer bill of rights.

I disagree.  Rights come before enforcement.  We can start by a sauce-for-the-gander rule that requires the IRS to pay penalties it asserts to taxpayers if the taxpayers win on the contested issue.

 

Renu Zaretsky, Expirations, Compliance and Corporations.  The TaxVox headline roundup talks about Commissioner Koskinen’s speech and the status of the expiring provisions.

 

Russ Fox, Bozo Tax Tip #8: Nevada Corporations.  “Now, if you’re planning on moving to Nevada incorporating in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada corporation is, well, bozo.”

News from the Profession.  Sweatshop Saturdays: Rethinking Where We Work (Going Concern)

 

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Tax Roundup, 4/2/14: CPA Revenge edition! And more.

Wednesday, April 2nd, 2014 by Joe Kristan

20140330-1Mutually assured destruction.  Accounting firm breakups can generate bad feelings.  Bad feelings can generate bad ideas — like filing bogus 1099′s on your erstwhile colleagues.  That went badly for an Ohioan in a U.S. District Court case reported in today’s Tax Notes ($link). 

When Waldman, Pitcher and Co. broke up, it wasn’t amicable. Lawrence Waldman felt ill-used by departing partners Kenneth Pitcher  and Michael Enders.  Some background from the District Court judge:

This case arises from the acrimonious break-up of the successful accounting firm Waldman, Pitcher, and Co., P.S.C. The individual parties in the present case were formerly partners in that firm. The break-up has spawned numerous related lawsuits, various audits by the Internal Revenue Service (“IRS”), numerous complaints of improper conduct to various professional oversight groups, and protracted contentious litigation of the present case.

Mr. Waldman apparently attempted to enlist the IRS in his fight, using an assignment of uncollected receivables in the break-up agreement (footnotes and other references omitted):

In January 2010, Waldman & Co. issued 1099-MISC forms to Pitcher and Enders personally for tax year 2009, for non-employee compensation in the amount of $111,535.00 for Pitcher and $13,260.00 for Enders. It is undisputed that Waldman and his company had not collected any of the AR/WIP money reflected on those 1099 forms (doc. no. 134, ¶¶ 18-19). Waldman was admittedly angry at Pitcher and Enders and has repeatedly characterized their departure as effectively “stealing” two million dollars from him. As a prominent and experienced CPA, Waldman was familiar with the matching program of the IRS and knew that issuing these 1099s to Pitcher and Enders personally would likely result in IRS audits of their personal income tax returns. Waldman & Co. benefitted by taking a corresponding tax deduction for the reported amounts.

The unhappy 1099 recipients fought back:

In February and March of 2010, Pitcher and Enders complained to the IRS’s Office of Professional Responsibility (“OPR”) that Waldman had issued 1099s containing information that Waldman knew to be inaccurate. They asserted that Waldman had done this “to exact a revenge that he couldn’t otherwise exact during our negotiations.” They filed similar complaints with the Accountancy Board of Ohio and Ohio Society of CPAs . Those groups declined to take disciplinary action against Waldman.

20120509-1It then got even uglier:

In February 2011, Waldman & Co. issued “corrected” 2009 1099s to the plaintiffs, reflecting “zero” for their nonemployee compensation. At the same time, he issued “corrected” W-2s to Pitcher and Enders reflecting increased amounts in Box 1 . For Pitcher, an additional $199,290.00 of reported income was included, reflecting the $111,535.00 for the accounts receivable assigned to KPE, $27,755 for the amount paid to KPE by Waldman & Co., and $60,000.00 for attorney fees paid by Waldman & Co. to plaintiffs’ attorneys… For Enders, an additional $13,260.00 was included, consisting of $13,260.00 for the accounts receivable assigned to KPE. Waldman & Co. took a tax deduction for the increased amounts listed on the corrected W-2s, even though such returns indicated that no federal income taxes had been withheld.

I suppose if you are going to make up compensation on W-2s, you may as well be consistent and deduct the pretend expense.

Much litigation later, the District Court ruled for the departing accountants Pitcher and Enders:

Given his education, knowledge, and business experience as a CPA, [Mr. Waldman] could not have reasonably believed that these information returns were proper to file. He filed these information returns “willfully” in order to obtain tax benefits and harass the plaintiffs. Despite having “settled” a previous lawsuit over the plaintiffs’ departure from the firm, Waldman was dissatisfied and stubbornly believed the plaintiffs had “stolen” two million dollars from him by leaving his firm with clients. In taking on the role of whistleblower, he deliberately misused the IRS reporting system.

A lot of good it did them.  They were each awarded $15,000 in damages, but not attorney fees:

In light of the unusually hostile litigation history between the parties, the Court observes that plaintiffs have certainly played a significant role in creating the bitter circumstances of this case. This case has also been marked by needlessly contentious discovery battles, repetitive briefing, and unfortunate personal attacks. In view of the animosity between the parties, the Court in its discretion declines to award attorneys’ fees to the plaintiffs. The Court is aware that, absent such an award, this may be a Pyrrhic victory for plaintiffs. Nonetheless, the Court is convinced that this is a just result under the unusual circumstances of this case.

It’s hard to believe that the plaintiffs came out ahead on this, especially when their time is taken into account.

The Moral: breaking up is hard to do, even for accountants.

Cite: Kenneth B. Pitcher et al. v. Lawrence Waldman et al., DC-SD Ohio, No. 1:11-cv-00148

 

20140307-1Jason Dinesen, Life After DOMA: Estate Tax   

Kay Bell, No April Fools’ joke: No capital gains taxes for some investors

William Perez, Extended Time for Choosing When to Deduct Colorado Flooding Losses

TaxGrrrl, Taxes From A To Z (2014): R Is For Royalties   

Leslie Book, What is a Fair CDP Hearing: Courts Push Back on IRS

 

William McBride, French Economist Wants Top Tax Rate of 80 Percent to Fix Inequality (Tax Policy Blog).  No, it’s not an April Fools joke, and some people who should know better take this serously.  The “French economist” is Thomas Picketty, who is big into the whole “inequality” hand-waving being used to distract us from our real problems.   The post illustrates the folly of the whole war on millionaires with this chart:

20140402-1

He could have added that an increasingly progressive tax system has coincided with increasing inequality.

 

Howard Gleckman, House Republicans Punt on Tax Reform (TaxVox): “…it effectively turns its back on the tax reform plan drafted by Dave Camp, the GOP chairman of the House Ways & Means Committee.”

Tax Justice Blog, ITEP Predicts Illinois Tax Reform Debate…and Then Puts Crystal Ball Away

 

TaxProf, The IRS Scandal, Day 328

Name that Party!, tax edition.  Instapundit has a recurring gag poking fun at news stories of corrupt politicians whose political affiliation is left mysteriously unstated.  Here’s an example from the tax world: Gary councilman sentenced to prison.

 

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Tax Roundup, 4/1/14: Two weeks to go edition. And: neglected spouses!

Tuesday, April 1st, 2014 by Joe Kristan


4868
April 15 is two weeks from today.  You should already be well along the way in getting your taxes done.  If you aren’t,  you need to get to work – and you should be pondering an extension.

Even an extension isn’t a free lunch.  As Trish McIntire explains below, extensions extend the filing deadline, not the payment deadline, so you need to have at least an idea of your current tax situation even to extend.

Start with your 2012 return.  Make sure you have all of the items you reported on that return — W-2s, K-1s, 1099s.  Then think through what might have changed since last year.  New kid?  New spouse?  Lose an old spouse?  Won the lottery?

Then pencil out a return, or hurry down to your preparer.  If your preparer tells you to extend, don’t fight it.  An extended return is not a “red flag” to the IRS.  And when figuring out how much to pay with your Form 4868, round up.  This time of year, it seems most surprises are the bad kind, so assume the worst.

 

20120511-2If you want to know what does work as a red flag for the IRS, the Tax Court yesterday had a good example:

Petitioner’s 2010 Form 1040, U.S. Individual Income Tax Return, was prepared by H and R Block. On Schedule C, Profit or Loss From Business, petitioner reported gross income of $1,274, office expense of $142, and car and truck expenses of $17,978, for a net loss of $16,846.

A schedule C with just a little income and a big loss caused mostly by car and truck expenses probably goes straight to the “audit me” bin, because the IRS knows that many taxpayers are like this one:

Although petitioner provided his 2009-10 mileage log, he nevertheless failed to provide any corroborating receipts or other records that substantiated the statements made in the log. Petitioner’s mileage log did not address the business purpose of each trip. Guessing as to where he may have gone in 2010, petitioner added the places of business travel to his log in 2012. The log was thus not contemporaneous, and the reconstruction was not reliable.

If you want to take car deductions, you need to keep track of them as you go, in a log, a calendar, or a smart-phone app.  Otherwise you, like the taxpayer in this case, won’t stand much of a chance against the IRS.

Cite: Houchin, T.C. Summ. Op. 2014-29.

 

20140401-1William Perez, Retroactive Charitable Donations for Typhoon Haiyan Relief:

Taxpayers can take a deduction on their 2013 tax return for cash donations made between March 26, 2014, and April 14, 2014, to charities providing disaster relief to areas impacted by Typhoon Haiyan.

Normally, charitable donations can be deducted only if the donation is made by the end of the year. But the recently enacted Philippines Charitable Giving Assistance Act (HR 3771) gives taxpayers the option of deducting donations for Typhoon Haiyan relief on their 2013 tax returns.

William explains what you need to do to claim the retroactive deduction.

TaxGrrrl, Taxes From A To Z (2014): Q Is For QDRO

Trish McIntireThe Annual Extension Post:

So what if you can’t get your return done in time to file by then? You can file an extension. It can be done electronically or by filing a paper Form 4868 by April 15th. And it does have to be postmarked or electronically filed by April 15th. After that time, the extension won’t help you.

Remember, an extended return does not attract IRS attention; a late or erroneous return does.

 

Kay Bell, America’s pastimes: Baseball, ballpark proposals and taxes

 

Ways and Means Chairman Dave Camp Won’t Seek Reelection (Accounting Today).  That can’t be a good sign for his misconceived tax reform plan.

Jeremy Scott, Fair Shot for Everyone’ Contains Details for No One (Tax Analysts Blog):

Setting a new low for lack of detail and specificity, Senate Democrats unveiled their “Fair Shot for Everyone” agenda last week. Only loosely a set of real proposals, the agenda is merely a series of talking points designed to distract voters from President Obama’s lagging approval numbers and the continuing unpopularity of the Affordable Care Act.

Not a glowing review.

Howard Gleckman, Should Tax Reform Be Sold on Values Instead of Economics?

 

20120906-1Paul Brennan, In Iowa, your taxes help corporations not pay theirs (Iowa Watchdog.org):

Of course, $950,000 isn’t much more than chicken feed to a company like Tyson, which posted $583 million in profits in 2013. It also doesn’t compare with the tens of millions of tax dollars the state paid out to big companies through the Research Activities Credit last year.

But it is probably enough to leave tax payers feel well and truly plucked.

Nobody notices a few missing feathers.

Des Moines Register, Branstad will sign Iowa Speedway tax break in Newton ceremony Wednesday.  Because NASCAR has better lobbyists than you do.

Tax Justice Blog, State News Quick Hits: State Lawmakers Not Getting the Message

 

BitcoinAlan Cole, Bitcoin’s IRS Troubles (Tax Policy Blog:

The price of the virtual currency Bitcoin has fallen to about $461 from a closing price of $586 last Monday. This decline of about 21% came in the wake of an IRS ruling that net gains from Bitcoin transactions will be taxed as capital gains.

Nobody wants a Schedule D item for every purchase.

TaxProf, The IRS Scandal, Day 328.  April Fools edition, unfortunately.

News from the Profession: The Forgotten Spouses of Public Accounting (Going Concern).  I’m sure mine is around here somewhere.

 

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