Posts Tagged ‘William Perez’

Tax Roundup, 11/25/15: Don’t bother depreciating things up to $2,500. And: Have a great Thanksgiving!

Wednesday, November 25th, 2015 by Joe Kristan

20141226-1$2,500 is the new $500. The IRS yesterday announced (Notice 2015-82) that it was increasing the maximum “safe harbor” expensing amount from $500 per item to $2,500 for taxpayers without an “applicable financial statement” — that is, most taxpayers. Taxpayers with an AFS can elect to expense items up to $5,000. These safe harbors enable taxpayers to not worry about capitalizing and depreciating items up to these amounts.

The new safe harbor takes effect for years starting January 1, 2016 and later.

The safe harbors are authorized by treasury regulations for taxpayers who have in place at the beginning of the tax year “accounting procedures treating as an expense for non-tax purposes” that expense such “per invoice (or per item as substantiated by invoice)” So make sure you write down somewhere that you have a policy of expensing everything up to $2,500 before December 31.

This is a good, if small, step towards allowing taxpayers to expense capital costs. I object to the “applicable financial statement” requirement for the $5,000 amount, as the tax law shouldn’t care whether you have a CPA-certified audit or that you have to report your financials to a government agency, but at least this closes the gap some.   I should be happy, I suppose, that it gives my auditing brethren a small sales tool.

Related: Russ Fox, IRS Increases De Minimis Expense Threshold to $2,500 from $500 for 2016 OnwardTony Nitti, IRS: Taxpayers May Immediately Deduct The Purchase Of Assets Costing Less Than $2,500.




William Perez, Year End Tax Planning Ideas for Self Employed Persons.

Robert Wood, Passports Required For Domestic Travel In 2016, But IRS Can Revoke Passports For Taxes. Giving IRS control over passports is a horrible idea. They make so many errors, and the errors can be so hard to fix.

Robert D. Flach, MORTGAGE INTEREST LIMITATIONS. “But the Court of Appeals ruled that [unmarried] co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.”


Annette Nellen, Sales Tax as a Penalty? “A proposed California initiative may surprise you.  It calls for a 1000% sales tax on ‘political advertisements.'”

Kay Bell, IRS should focus tax audit efforts on richer taxpayers. Willie Sutton might agree. 

Paul Neiffer, FAFSA Reporting Changes. “The Department of Education has issued new rules that make this process be much less of a hassle; however, you have to wait until 2017 to take advantage of it.  Beginning in that year, your required FAFSA income tax return will be a whole year in arrears.” About time.

Jason Dinesen, From the Archives: Home Offices, Principal Place of Business, and Mileage Deductions

Carl Smith, New, Additional Proposed Innocent Spouse Regulations Issued (Part 1), (Part 2) (Procedurally Taxing)

TaxGrrrl, Don’t Try This At Home: Avoid These 10 Money Missteps That Landed Reality TV Stars In Trouble.




TaxProf, The IRS Scandal, Day 930. Today’s link on the “investigation” of the scandal by the Justice Department.


Scott Hodge, The Simple Solution to the Pfizer Deal: Cut the Rate and Move to a Territorial Tax System (Tax Policy Blog). So, you could actually do something like this that makes sense, or you could listen to….

Richard Phillips, Congress Must Act Now to Stop Pfizer and Other Companies from Inverting (Tax Justice Blog). The “continue the beatings until morale improves” approach.

News from the Profession. A Surprising Number of Accountants Think Accountants Are Incredibly Corrupt (Caleb Newquist, Going Concern).


Programming Note: The Tax Update will be taking the rest of the week off to celebrate Thanksgiving. I am thankful for the many fine tax bloggers I get to read when putting the Tax Roundups together, and I am especially thankful for those of you who stop by to read the Tax Update. Enjoy your Thanksgiving, and maybe start with Jim Maule’s holiday musings: Thanks Again! “For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things.”



Tax Roundup, 11/16/15: Mason City Monday. And: maybe using that disbarred tax guy isn’t such a great idea.

Monday, November 16th, 2015 by Joe Kristan

Right here in River City. The ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools are here in Mason City, the town that was the model for Meredith Willson’s “Music Man.” It’s rainy here today.


Still, I’ll take that over what we had here last year:


There remain three sessions in this year’s circuit, in Maquoketa, Denison, and Ames. The Ames school is also available as a webinar, in case the weather continues to deteriorate. Register today!


The Tiffany of tax prep. If you’ve been in the tax prep business for very long, you probably have lost a client along the way to an “aggressive” tax guy who promised much better results than a milquetoast like you would ever have. If a federal injunction order issued last week is to believed, a California preparer is the model for that kind of “aggressive” guy.

The case involves a Mr. Siegel, who the court says never answered the allegations against him. The order describes some amazing tax thinking (my emphasis):

For example, Siegel falsely advises his customers that to treat their home as an out-of-state corporate office for federal tax purposes, the customer’s Nevada “C” corporation (i.e., an entity entirely controlled by Siegel and the customer) must require as a condition of employment that its corporate officers (i.e., the same Siegel customer) live in the customer’s California home while working away from the corporation’s purported home state of Nevada (i.e., a state where the Siegel customer typically has no actual contact). Siegel has falsely advised customers by e-mail that this scheme is valid because: (a) the customers, as business owners, are necessarily “on call 24/7” while living or working from their out-of-state “business office;” (b) the customers can deduct [their] rent and other expenses through [their] corporation when [they] are on call for that corporation”; and (c) while “the internet was just getting hot for being on call” in 2002, “[w]ithout a question in 2013 when we are truly on call 24/7 working at home is a deduction for the corporation”

It takes a special kind of preparer to give that kind of advice. The kind htat has been disbarred, like this one. The Department of Justice press release adds some details:

For example, the complaint states that Siegel deducted on one couple’s tax returns purchases at Tiffany & Company, Royal Caribbean Cruise Lines, Louis Vuitton and Princess Cruise Lines.  Siegel allegedly attempted to conceal these fraudulent deductions from the Internal Revenue Service (IRS) by lumping them together and reporting them as large expenses for “supplies” or “medical records and supplies.”

Medical records? I suppose you could stash your medical bills in your Louis Vuitton handbag.

The injunction isn’t a criminal charge, but given the allegations, Mr. Siegel may hear more from the Department of Justice. Meanwhile, his clients may be wishing they had used a less “aggressive” tax guy.

Other coverage:

Russ Fox, Don’t Go to Lawrence Siegel to Have Your Taxes Done

Robert Wood: Court Bars Masquerade, No More America’s Next Top Tax Lawyer


Mason City Sundog Morning, 2014

Mason City Sundog Morning, 2014


William Perez, What to do if you see “RSUs” on Form W-2

Robert D. Flach, TRAPPED BY OUR CAPITAL GAINS ARE WE. “Never let the tax tail wag the economic dog.”

Kristine Tidgren, A Trial Court Has Much Discretion When Divorce Strikes the Farm (Ag Docket): “The court noted that ‘there are no hard and fast rules governing economic issues in dissolution actions.'”

Kay Bell, Cleveland could owe millions in jock tax refunds

Peter Reilly, Former IRS Commissioners Scold Congress For Gutting IRS Budget. If they really want an increased IRS budget, they should also urge Commissioner Koskinen to resign.

TaxGrrrl, Spend It Like Beckham: Tax Deal Could Bring MLS Soccer To Miami. Apparently Miami has solved all of its real problems if it can spend tax money on this.



Scott Greenberg, Bonus Depreciation Covers 2/3rds of Corporate Investment (Tax Policy Blog). Not if an extender bill doesn’t pass for 2015.

Richard Auxier, Marco Rubio’s gas tax cut would give state and local governments flexibility, and political fights (TaxVox).

TaxProf, The IRS Scandal, Day 919Day 920Day 921

News from the Profession. A Three-Page Tax Code Would Keep Accountants Plenty Busy (Caleb Newquist, Going Concern).



Tax Roundup, 11/10/15: Sheldon! And: a hard-working mom, plus a sure clue that you aren’t talking to the IRS.

Tuesday, November 10th, 2015 by Joe Kristan

Sheldon! The Day 1 ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools team is in Sheldon, Iowa today, while another crew takes care of Day 2 in Waterloo. Today’s session is at Northwest Iowa Community College, where about 1,900 students study programs ranging from pre-professional accounting to powerline technology. It’s not exactly an urban setting:

View towards the Northwest from the campus of Northwest Iowa Community College.

View towards the Northwest from the campus of Northwest Iowa Community College.

It’s always a great crowd, and it’s good to see everyone again. Especially since it’s not freezing here yet this year.


Accounting firm real estate appraiser flunks real estate pro test. It’s not easy for someone with a day job to be a “real estate professional” under the tax law “passive loss” rules. Passive losses are only deductible to the extent of passive income, and are otherwise deferred until a taxable sale of the “passive activity.” Real estate rental losses are automatically passive for most taxpayers, but an exception allows “real estate professionals” to qualify as non-passive under the same rules that apply to other businesses.

You have to clear two hurdles to be a real estate pro:

  1. You have to work more than 750 hours in real estate businesses in which you have an ownership interest, and
  2. Your real estate time has to exceed the time you spend doing everything else.

The second qualification eliminates most taxpayers with day jobs. But that didn’t stop our intrepid appraiser, who worked for two top-ten accounting firms in their appraisal practices.

The taxpayer and his wife acquired several apartments over the course of their marriage, which they claimed losses based on the real estate pro provision. The Tax Court sets the stage; I change the taxpayers’ names to “Mr. Taxpayer” and “Mrs. Taxpayer” in my excerpts, and all emphasis is mine.

Petitioners were married in 2006. At that time Mrs. Taxpayer owned a single condominium (Unit 918) which she had previously used as her personal residence. Mr. Taxpayer owned two condominiums (Units 522 and 801), one of which he had previously used as his personal residence. Each unit was subject to a separate mortgage. When petitioners married, they pledged the three units as collateral and obtained a loan to purchase an additional condominium (in the same building as Units 522 and 801) for use as their new personal residence.

Beginning in 2006 and throughout the year in issue, petitioners operated Units 522, 801, and 918 as rental properties. The parties stipulated that petitioners did not hire a property manager to assist with their rental properties in 2010.

20151110-2The court quickly rejected the husband’s arguments:

Mr. Taxpayer’s reliance on work that he performed for Grant Thornton and Crowe Horwath to show that he qualified as a real estate professional in 2010 is misplaced. In short, he testified that he did not own an equity interest in either firm, and he did not offer any other evidence in support of the proposition that he met the definition of a “5-percent owner” of either firm within the meaning of section 416(i)(1)(B). Therefore, the personal services that he performed as an employee of those firms may not be taken into account in computing the number of hours that he performed personal services in real property trades or businesses.

The wife had a better argument, but the court was unpersuaded by her evidence of working 750 hours:

Petitioners’ testimony was inconsistent regarding the division of labor between them and the timing of significant events. As to the division of labor, Mr. Taxpayer stated, quite candidly we believe, that Mrs. Taxpayer did little physical labor after the birth of their son in late November 2009. In contrast, Mrs. Taxpayer testified (and her revised log indicates) that she spent many long days in the first weeks of January 2010 cleaning, painting, and repairing Units 522 and 801.

Against this backdrop, we bear in mind that Mrs. Taxpayer did not maintain a contemporaneous log of her rental property activities and instead made handwritten notes on scraps of paper that she did not review in any great detail until a few weeks before trial. A close examination of the revised log that she submitted to respondent’s counsel raises serious doubts about its accuracy… for the period January 2 to January 11, Mrs. Taxpayer’s revised log indicates that she worked at least 154 hours — an average of slightly more than 15 hours per day for the 10-day period — not counting any time that she may have spent showing either unit to prospective tenants. We find it improbable that Mrs. Taxpayer performed all of the work described above.

While I admire anyone who can work 15-hour days within two months of giving birth, the Tax Court’s admiration was at best tempered by poor recordkeeping. Decision for IRS, with 20% “accuracy related” penalties tacked on.

The Moral? If you need to prove your time spent for business activities, there’s nothing better than a current time log. “Scraps of paper” are a poor substitute.

Cite: Calvanico, T.C. Summ. Op. 2015-65

Related: Material participation basics.

What the Northwest Iowa Community College looked like on my visit two years ago.

What the Northwest Iowa Community College looked like on my visit two years ago.


Robert D. Flach comes through with an “especially ‘meaty'” Buzz today. LInks to much tax blog goodness, with free analysis of Donald Trump, no extra charge.

Russ Fox, Cleveland Loses on Monday (and They Didn’t Even Play). The Supreme Court rejected an appeal of rulings that its “Jock Tax” is unconstitutional.

Kay Bell, Looking for a holiday job? Employee or contractor status makes a tax difference to you, your boss and the IRS

William Perez, The Key Benefits of Health Savings Accounts


Renu Zaretsky, A Debate, A New Plan, A Vote, and Two Mulligans. Today’s TaxVox headline roundup covers the GOP debate, the Carson tax plan, and TurboTax’s plans for the coming filing season.

TaxProf, The IRS Scandal, Day 915


A vital clue. While leading the class yesterday in Waterloo, co-presenter Roger’s phone was buzzing frantically in his pocket while he was speaking. As it turns out, Mrs. Roger had received a message on her anwering machine at home saying the IRS needed to talk to her immediately. She called the number that was left, and somebody answered, telling her the police would arrest her right away if she didn’t pay her taxes.

Roger related the story to the class, and one of the attendees immediately pointed out the sure clue that it wasn’t really a call from the IRS:

“Somebody answered the phone.”



Tax Roundup, 11/6/15: Time to invade rural Iowa! And: IRS backs off valuation discount limits.

Friday, November 6th, 2015 by Joe Kristan

Tax School Rampage! In the pre-dawn hours Monday I will rendezvous with Roger McEowen, Director of the Iowa State University Center for Agricultural Law and Taxation, for the drive to Waterloo and the first 2015 session of the Iowa Farm and Urban Tax Schools. We will rampage through four Iowa towns this week. The complete schedule:

Nov. 9-10 – Waterloo
Nov. 10-11 – Sheldon
Nov. 11-12 – Red Oak
Nov. 12-13 – Ottumwa
Nov. 16-17 – Mason City
Nov. 23-24 – Maquoketa
Dec. 7-8 – Denison
Dec. 14-15 – Ames

For those of you unfortunate enough to not be in Iowa, or who prefer to study from the comfort of your computer, the Ames session is also available in a live webinar.

I am on the Day 1 schedule for all eight sessions, along with Roger and Kristy Maitre, the former Iowa IRS stakeholder liaison. There are two Day 2 teams. Waterloo, Mason City, Maquoketa and Denison get Dave Bibler, Jim Goodman, and Daniel Fretheim. Sheldon, Red Oak, Ottumwa and Ames get Dave Repp and Paul Neiffer of FarmCPA Today blog fame.

We have lots to cover this year. Details of topics here, and registration information here. Say you heard about it at the Tax Update Blog and get free coffee at any session!



Valuation power grab inoperative. Tax Analysts reports that Treasury officials have disavowed any intention of using forthcoming regulations to crack down on valuation discounts in estate planning. From the Tax Analysts report ($link):

Coming regulations on estate valuation for interests held by family members will follow not the Obama administration’s prior budget proposals, but the statute, an IRS official said November 4, signaling a welcome about-face for practitioners from earlier comments made by Treasury officials.

“There seems to be some confusion as to exactly what the guidance will rely on,” Finlow said. “We are looking to the statute as it is now. . . . We are not looking at the green book,” she said, referring to Treasury’s green book explanation of the president’s proposal on valuation discounts in his fiscal 2013 budget plan.

How do such crazy rumors get started?

In May Catherine Hughes, attorney-adviser, Treasury Office of Tax Legislative Counsel, said practitioners should look to that fiscal 2013 proposal for hints on what would be in store in the regs. The Obama administration asked Congress to amend section 2704(b) to disregard some provisions, such as some transfer and liquidation restrictions, in the valuation of intrafamily transfers of interests in family entities.

This would take the urgency out of some gift tax planning that is going on in anticipation of a crackdown on discounts for minority interests that seemed to be telegraphed by the Hughes comments.


buzz20150804Friday is a good day for so many reasons. Not least of which is that it’s the day Robert D. Flach posts his Friday Buzz roundup. Today his links included his year-end planning guide and bad news about the level of IRS service we can look forward to this coming filing season.


Robert Wood, Surgeon Hid Money In Divorce, Is Convicted Of Tax Evasion, Faces Up To 95 Years Prison:

He left the country without telling friends, family or his workplace, and secretly drove to Costa Rica He opened two bank accounts there, depositing more than $350,000 in cash. He also hid a thousand ounces of gold in a Costa Rican safe deposit box. Crossing into Panama, he opened another account there under the name of a sham corporation, Dakota Investments. By 2008, he had moved $4.6 million into that account.

He was hiding the money from an estranged wife and the IRS. With the benefit of hindsight he may wish he had instead invested in good divorce and tax counsel.


Roger Russell, Taxes in the Sharing Economy (Accounting Today). Includes a discussion of local lodging taxes for AirBNB renters.

William Perez explains Itemized Tax Deductions.

Kay Bell, New Ways and Means chairman Rep. Kevin Brady wants to move tax extenders ‘sooner rather than later’. “Like House Speaker Paul D. Ryan before him, Brady favors making the tax extenders permanent pieces of legislation.”

Paul Neiffer, Does 7 Equal 5? “For most farmers, Section 179 (at the $500,000 level) is much more important than a five-year life for equipment depreciation.”

Keith Fogg, How Does Indexing Federal Tax Lien Impact Its Effectiveness (Procedurally Taxing). “The purchasers in this case did not realize they were purchasing property encumbered by a federal tax lien because the title search did not turn up a lien against a prior owner.”

TaxGrrrl, IRS Announces Lower Fees For 2016 As PTIN Registration Opens




TaxProf, The IRS Scandal, Day 911. Today’s link discusses the scandal’s context in the larger effort of “campaign finance reform” advocates to silence their opposition by government power.

Richard Auxier, 2015 Ballot Measure Results: Tax cuts, yes; marijuana, sometimes (TaxVox).

Career Corner. CPA Exam Score Release Anxiety Is the Best Anxiety (Caleb Newquist, Going Concern).



Tax Roundup, 11/3/15: Work in Illinois, live in Iowa, pay quarterly. And: fun with FATCA!

Tuesday, November 3rd, 2015 by Joe Kristan

Illinois sealReciprocity = no state wage withholding. A newly-released policy letter from the Iowa Department of Revenue explains how the Iowa-Illinois tax reciprocity agreement works for an Iowan working in Illinois for a non-Iowa company. The letter is addressed to the employer:

Your employee is an Iowa resident, earning income in Illinois, and therefore is exempt from paying Illinois income tax on income earned from salaries, wages, and other compensation. For your employee to pay Iowa income taxes, the employee should make estimated payments by completing Form 1040ES – Estimated Income Tax for Individuals. The employee may also need to file an Illinois form showing that they are an Iowa resident not subject to Illinois withholding under the agreement.

While in theory it should make no economic difference whether you pay taxes through quarterly estimates or withholding, many taxpayers prefer withholding. It just seems less painful to have the money taken out before you see it, and you don’t have to remember to write those estimates. I wonder if the employee really feels better off.

The letter adds:

It is also possible for your business to register for an Iowa Withholding Tax Permit on the Department’s website ( In that case your Iowa resident employees could have those employees fill out an IA W-4 (available at and you as the employer could withhold Iowa tax from their paychecks.

Illinois is the only state with which Iowa has a reciprocity agreement. Other states withhold (if they have an income tax) on Iowa employees, and the Iowans claim a credit for taxes paid in other states on their Iowa 1040s.  That sort of works out like Iowa wage withholding in a way for Iowans working in Wisconsin, Missouri, Nebraska and Minnesota — except with the hassle of completing two full state tax returns. For those crossing the border to South Dakota, which has no income tax, the compliance problem is the same as for the Illinois taxpayer in this policy letter.



Wall Street Journal, American Tax Refugees: Why So Many Yanks Are Renouncing Their U.S. Citizenship  (may be subscriber only link):

Fatca requires that foreign banks, brokers, insurers and other financial institutions give the U.S. Internal Revenue Service detailed asset and transaction records for any accounts held by Americans, including corporate accounts controlled by American employees. If a firm fails to comply, the IRS can slap it with a 30% withholding tax on transactions originating in the U.S. Facing such risks and compliance costs, many foreign firms have decided it’s easier to dump their American clients.

So Americans overseas are becoming increasingly unbankable. Not the wealthiest ones, of course, those “fat cat” potential tax evaders whom Democrats rail against. Much more vulnerable are sales reps, English teachers, lawyers, retirees—the overwhelming majority of American expatriates—whose modest finances make them unappealing clients amid Fatca’s compliance costs.

To get a few press releases, politicians have to break a few citizens eggs.


Robert Wood, U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA. As long as the U.S. intrudes on other countries’ banks, the other countries will want to reciprocate.

Jack Townsend, National Taxpayer Advocate Nina Olsen Comments on FATCA and OVDP. Quoting the Taxpayer Advocate: “The problem with FATCA is that it imposes burdens on taxpayers at all sorts of levels, and it’s not clear what benefits we’re really going to get from it or what we’ll be able to do.” It’s not about “we,” unless we are a politician looking for a cheap headline.




Robert D. Flach comes through with more Tuesday Buzz, with links to posts on minimum IRA distributions and small business money mistakes, among other things.

Kristine Tidgren, Tax Court Says 1972 Settlement Transfer Was Not a Gift (The Ag Docket). “One takeaway of this case for those outside of the Redstone family is recognition of the cold, hard fact that no statute of limitations applied to prevent the IRS from collecting taxes on this alleged 1972 gift.”

TaxGrrrl, Court Switches Gears, Says AICPA Can Sue IRS Over Tax Preparer Credentials. The IRS “voluntary” preparer regulation scheme hits a bump.


Russ Fox, I’m Sure Their Vacation in Arizona Will Impress the Sentencing Judge. “Mr. Joling wanted to be on “biblical safe ground” (he was a pastor) so he didn’t pay taxes.” Biblically safe, perhaps, but not legally, for sure.

Peter Reilly, Democratic Presidential Candidate Drops Out Without Releasing Tax Plan. And almost without anyone noticing.

Leslie Book, Halloween Special: Third Circuit Case Affirms Preparer’s Conviction For Aiding in Preparing False Tax Returns (Procedurally Taxing). “Despite the promise of oversight and its enhancing greater visibility, prosecuting bad apple preparers is an important after the fact way of ensuring that those who abuse the system know that their actions have consequences beyond bringing in fees for raiding the fisc.”

Jason Dinesen, Glossary: Gross Income/Gross Profit

William Perez discusses the new 401(k) Contribution Limits.




Joseph Henchman, Voters in Five States Consider Tax-Related Initiatives (Tax Policy Blog). Colorado ponders its marijuana tax windfall, Ohio considers approving one for itself.

Jonathan Ackerman, Rosanne Altshuler, Jeffrey Kupfer Bipartisan tax reform is possible: Lessons learned from President Bush’s reform panel (TaxVox). “Our antiquated business tax system has failed to keep up with an economy that has changed dramatically as a result of globalism, technology, and new capital flows.”
Scott Greenberg, The Bush Tax Reform Panel, Ten Years Later (Tax Policy Blog). “The Bush Panel was an important moment in recent tax policy history, because it provided one possible roadmap for a bipartisan tax reform agreement in the future.”

Matt Gardner, Apple Shifts a Record $50 Billion Overseas, Admits It Has Paid Miniscule to No Tax on Offshore Cash (Tax Justice Blog). Showing once again that Apple management isn’t stupid.


Career Corner. Accounting Firms Need To Have More Transparent Conversations With Employees About Compensation (Caleb Newquist, Going Concern)



Tax Roundup, 11/2/15: Iowa says airbnb rentals trigger hotel-motel tax. And: IRS backdoor regulation push suffers setback.

Monday, November 2nd, 2015 by Joe Kristan

wdmlogoAt least West Des Moines homeowners won’t have to pay hotel-motel tax. One of my now-departed uncles was a track and field coach in Illinois. Every April he would get together with some of his fellow coaches and drive to Des Moines for the Drake Relays. They always rented the same house in the South of Grand neighborhood in Des Moines while they stayed here. They had a great time, and the homeowners got a little extra cash.

Short term home rentals are nothing new, in other words. The federal tax law has long accommodated them by excluding income from rentals up to two weeks a year from income tax. The practice has become more widespread now that airbnb and make it easier to match up potential renters and guests.  It shouldn’t surprise us that the tax man has noticed.

An Iowa Department of Revenue policy letter made public last week says short-term home rentals are subject to Iowa’s 5% hotel-motel tax (all emphasis mine):

The Iowa Department of Revenue (“Department”) has received your question about home sharing.  You asked whether a homeowner who occasionally rents the home to others is subject to hotel and motel tax.

You provided the following facts:  A resident of Iowa City owns a home, which is the homeowner’s primary residence.  On the weekends of homecoming and graduation at the University of Iowa—four nights total each year—the homeowner stays with family members and rents the home to visitors.  You asked if the charges for renting the home are subject to hotel and motel tax.

Iowa imposes a hotel and motel tax “upon the sales price for the renting of any lodging” in Iowa.  Iowa Code § 423A.3.  A city or county may also impose a local hotel and motel tax “upon the sales price from the renting of lodging.”  Id. § 423A.4.  “Sales price” is “the consideration for renting of lodging.”  Id. § 423A.2(1)(f). 

“Lodging” means rooms, apartments, or sleeping quarters in a hotel, motel, inn, public lodging house, rooming house, or manufactured or mobile home which is tangible personal property, or in a tourist court, or in any place where sleeping accommodations are furnished to transient guests for rent, whether with or without meals. Lodging does not include rooms that are not used for sleeping accommodations.

Id. § 423A.2(1)(c).

The homeowner’s home is clearly a “place where sleeping accommodations are furnished to transient guests for rent.”  See id.  The statute does not place a minimum number of nights a place must be rented for it to qualify as “lodging.”  See id.  Accordingly, the rental of the homeowner’s home is subject to hotel and motel tax.  Iowa provides a limited number of exemptions from hotel and motel tax, none of which apply to the facts you provided.  See id. § 423A.5.  Therefore, the homeowner must collect and remit hotel and motel tax for renting the home. 

I suspect the next person to remit hotel-motel tax for a short-term home rental will also be the first. I also suspect that the existence of services like airbnb will make it easier for the state to collect hotel-motel taxes for short-term home rentals. Renters need to also tack on any local hotel taxes; your friendly county board and city council will surely want to share.

20151102-1Except in West Des Moines. I live in this Des Moines suburb, and the City Council has saved me the trouble of collecting hotel-motel tax by banning short-term rentals. The Des Moines Register explains:

In July, the city council passed an ordinance prohibiting the rental of single family homes, including condos, for 31 days or less. Owners can rent their properties only if they are “on-site and present at the time of and for the duration of the rental.” In other words, if someone attending the World Food Prize wants to rent a home in the suburb for a week, the owner must be there, too.

Was West Des Moines cowering in terror from rioting short-term visitors brazenly cutting across our lawns? No. From the Register piece:

Were the few short-term rentals available in West Des Moines creating problems? Were numerous residents lodging complaints with city officials? No. The ordinance was prompted by one complaint from one person.

One person, one moral panic. The resident said there ought to be a law, and in practically no time, the West Des Moines city council enacted one:

[The complaining resident] suggested the council consider adopting an ordinance to address the issue. Within about one month, it did exactly that. It didn’t survey residents. It didn’t contact the Ashworth homeowner. It didn’t do a comprehensive search of other properties that may be listed on several websites. It quickly passed an ordinance that applies to 60,000 residents because a man showed up at a meeting to complain about his neighbor. One man. One complaint.

It passed unanimously. The minutes of the meeting are here. West Des Moines city council elections are tomorrow, but the elections appear to be uncontested.




Russ Fox, AICPA Has Standing Per DC Court of Appeals; IRS’s Annual Filing Season Program In Jeopardy:

The original lawsuit claims by the AICPA look very accurate to me. And there’s a new one: Unenrolled preparers who do not participate in the AFSP will be denied the ability to represent taxpayers’ whose returns they prepared in examinations (as of January 2016). This makes the program look a lot more mandatory than voluntary.

I always assumed the “voluntary” program was preparer regulation by the back door, and that it would be just as voluntary as the United Way contributions were back at my first CPA job.

Robert D. Flach notes Russ’s piece and comments: “The bottom line – the AICPA fears that any government, or other, credential or designation that identifies a person’s competence and currency in 1040 preparation will take business away from CPAs.”

Elaine Maag, The IRS Could Improve EITC Compliance by Regulating Tax Preparers. (TaxVox). Ms. Maag is a big believer in hope over experience.


Paul Neiffer, File & Suspend Will Be No More:

The budget bill that was finalized this week eliminates a strategy for social security recipients called “File and Suspend”.  Under this strategy, the high income earner could file for benefits, allow his lower earning spouse to get benefits before full retirement age and then “suspend” their benefits until age 70 to lock in the additional 8% increase per year in benefits. 

Paul links to additional articles on what this means for retirement planning.


Peter Reilly, Redstone Family Saga Writ Large In Favorable Tax Court Decision. “Being in the movie business and all you would think the Redstones would have been familiar with the remark attributed to Samuel Goldwyn – ‘A verbal contract isn’t worth the paper it’s written on.'”


William Perez discusses Employee Stock Purchase Plans.

Kay Bell, IRS uses cell phone surveillance only in criminal cases. And everybody trusts the IRS.

Jason Dinesen, Corporate Tax Status Determined By Federal Law, Not State Law

Robert Wood, How IKEA Billionaire Legally Avoided Taxes From 1973 Until 2015. In Sweden.

TaxGrrrl, No ‘Candy Tax’ At My House On Halloween. “The candy tax – which is a variation on what parents used to do back in the day and just didn’t call it a tax – is a parenting trend where you purport to teach your kids about responsibility by stealing some of their candy levying a “tax” on their trick or treat loot.”




TaxProf, The IRS Scandal, Day 905Day 906Day 907. Day 906 covers blogger reactions to the resolution to impeach Commissioner Koskinen. This from the Day 905 link describes the larger problem, of which the IRS scandal is only a part:

The federal bureaucracy has always been bad at policing employees, but President Obama bears direct responsibility for the problem getting immeasurably worse. Last year, 47 of the 73 federal inspectors general signed a letter decrying the Obama administration for stonewalling their investigations and in some cases actively intimidating investigators.

The policy has been to fight all transparency and oversight, whether there’s something to hide or not. If there is, the long struggle will make it easier to spin bad news as “old news” by the time the facts emerge. If there is nothing to hide, then it makes the investigators look bad for investigating.


Scott Drenkard, Which States Have the Worst Sales Tax Administration? (Tax Policy Blog). It looks like Louisiana, Arizona and Colorado are pretty bad.


Bottom story of the day. The New York Times Advances a Poor Argument For Tax Hikes (Alan Cole, Tax Policy Blog).

Career Corner. Survey: Performance Reviews Cause Millennials to Complain, Curse, Cry (Caleb Newquist, Going Concern).



Tax Roundup, 10/30/15: IRS: we didn’t overcharge you, and we won’t do it again. And: Beggars’ Night!

Friday, October 30th, 2015 by Joe Kristan

The IRS yesterday issued rules reducing the fees charged for giving tax preparers for Preparer Tax Identification Numbers, or PTINs. The rules reduce the annual fee from $50 to $33, but raise the fee charged by a third-party vendor that collects the fee from $13 ($14.25 for first time applications) to $17 for all applications.

It’s an interesting move, considering that the IRS is fighting a lawsuit arguing that the IRS has been overcharging preparers for the numbers, which are required for preparers signing tax returns. The IRS claims that the reduction reflects reduced costs for the program.

Dan Alban of the Institute for Justice, the public interest law firm that led the successful fight against the IRS preparer regulations, says that it is an admission that the IRS has been overcharging, and that the IRS cost reduction argument doesn’t hold up. From his Twitter feed:


The IRS has never been straight with us about either preparer regulation — really, a power grab and a move to assist the big tax prep franchise outfits — or the PTIN fee. I look forward to seeing how the judge hearing the PTIN lawsuit reacts to this news.

Related: PTIN User Fee Will Be Lowered (Sally Schreiber, The Tax Adviser).




I’m back from the Santa Monica TIAG conference. TIAG is an international alliance of independent accounting firms that Roth & Company joined last year. There were great sessions on technical and practice management topics, but the best part is to meet and get to know lawyers and accountants around the world. It’s nice to know people in other countries to call when our clients need professional services aboad, and it’s fun to compare notes with our offshore counterparts.


Friday – Buzz Day! Robert D. Flach rounds up interesting tax stuff from all over.

William Perez talks about Itemized Tax Deductions..

Annette Nellen, Poor recordkeeping – complexity or too busy. “Every year there are several tax cases where taxpayers think they’ll get a better result in court despite poor records. They almost always lose.”

Kay Bell, Obama and House reach budget, debt ceiling deal

Jack Townsend, Movie Review of Film on Corporate Offshoring

Jim Maule,Where Do the Poor and Middle Class Line Up for This Tax Break Parade? Properly decrying corporate welfare, the good Professor asks and answers:

So could it be time for “if you can’t beat them, join them”? Not for those of us who lack the resources to sign up for the parade, or perhaps what should be called the corporate gravy train.

What the good Professor hasn’t realized is that this is exactly what we can expect when we give the government more and more authority to run and regulate things. Those with the means and the connections win.


20151030-3TaxProf, The IRS Scandal, Day 903Day 904. This from the Day 904 link sounds about right to me regarding the idea of impeaching Commissioner Koskinen:

The evidence against Koskinen will be convincing, but Democrats and the media will claim that because it all involves his defiance of congressional directives – and in their opinion Congress shouldn’t have been investigating in the first place – he really didn’t do anything wrong. They used the same argument in defense of Bill Clinton. Sure, he lied under oath and obstructed justice, but there never should have been an investigation in the first place.

I think it’s a poor use of limited time and political capital.

Peter Reilly, IRS Commissioner Koskinen Impeachment Trial Would Be Historic. A long but worthwhile discussion of the history and process of impeachment, and its prospects.

Keith Fogg, Notification of IRS as a Junior Creditor (Procedurally Taxing). “Two recent lien decisions demonstrate the power of the federal tax lien and the specific steps that parties must take when trying to address that lien.”

Robert Wood, Last Chance To Report Offshore Accounts To IRS, Penalties Climb To 50%

TaxGrrrl. 5 Things You Need To Know About Paul Ryan’s Rise To House Speaker & Tax Reform.

Jeremy Scott, Paul Ryan Punts on Tax Reform (Tax Analysts Blog). “Paul Ryan is moving on to become speaker, and tax reform might be in a worse spot than it was when Dave Camp’s H.R. 1 went over like a lead balloon.”

Cara Griffith, Why Do We Still Have Unpublished Opinions? (Tax Analysts Blog). “Now unpublished opinions readily appear in online databases. As a result, unpublished opinions are not unpublished in the sense that no one has access to them, but are simply not published in an official reporter and hold less or no precedential value with courts.”


Greg Mankiw, Keep the Cadillac Tax. Better idea — scrap the ACA altogether, give a capped health insurance tax credit for individuals, eliminate interstate barriers to health insurance sales, and let nature take its course.

Career Corner, It’s Time for the Accounting Profession to Get Serious About Mental Illness (Leona May, Going Concern). They aren’t the same thing?




Beggars’ Night! Des Moines and its suburbs don’t trick-or-treat on Halloween. Instead our little goblins go forth on October 30 – “Beggars’ Night.” An explanation: What’s up with Beggars’ Night?:

An article in The Des Moines Register on October 28, 1997, says “Blame World War II.” as well as rowdy youths in the early history of Des Moines. According to this article and other sources, Beggars’ Night was created in 1938 by the Des Moines Playground Commission (later the Parks and Recreation Department) because Halloween night had become a night of vandalism and destructive “tricks” such as setting fires and breaking windows.

Kathryn Krieg, director of recreation for the commission, in 1938 began a campaign to encourage less violent forms of Halloween fun. She declared Beggars’ Night to be October 30 in Des Moines, and further required that children would only receive their treat after earning it by performing a trick or telling a riddle. This too is the opposite of the rest of the country, which traditionally provides the treat in order to avoid being tricked!

So if you need a joke for tonight, you can always rely on the classics, like “What’s the pirate’s favorite restaurant? Arrghhhh-bys!”




Tax Roundup, 10/28/15: Tax Court blocks IRS assessment of Gremlin-era gift tax. And: Impeachment is too good for him.

Wednesday, October 28th, 2015 by Joe Kristan
Wikipedia image ploaded by GrapedApe under Creative Commons license.

Wikipedia image uploaded by GrapedApe under Creative Commons license.

Closing the book on tax disputes arising in the Nixon administration, the Tax Court ruled this week that a taxpayer — the brother of Viacom mogul Sumner Redstone — did not make a taxable gift in 1972 when he transferred corporation shares to a trust as part of a lawsuit settlement.

The facts are confusing. Sumner Redstone’s father Mickey capitalized a business in 1959 but named his sons Sumner and Edward as 1/3 owners. When Edward wanted out and tried to sell his shares, the father refused to provide the certificates, saying that they were held in trust for Mickey’s children. Tax Analysts ($link) explains the result:

Mickey claimed that in 1959, when he created NAI, the shares had been held in an oral trust created at the same time. After months of negotiations, the parties agreed to settle by giving one-third of Edward’s shares to trusts in the benefit of his two children. His remaining shares were sold back to NAI for $5 million.

Edward didn’t consider this a gift, and he never filed a gift tax return for 1972. This left the statute of limitations open on the gift, and the IRS assessed gift tax on Edward’s estate after he died in 2011.

The tax law says there is no gift when property is transferred for full consideration and with no benevolent intent. The IRS says that because the beneficiaries of the trust, Edward’s children, paid nothing for the shares they received in the settlement, the transfer was a taxable gift. The Tax Court disagreed:

The evidence clearly established that Edward transferred stock to his children, not because he wished to do it, but because Mickey demanded that he do it…

Respondent’s argument focuses on whether the transferees provided consideration. But that is not the question the regulation asks. It asks whether the transferor received consideration, that is, whether he made the transfer “for a full and adequate consideration” in money or money’s worth. Sec. 25.2511-1(g)(1), Gift Tax Regs. (emphasis added). We have determined that Edward received “a full and adequate consideration” for his transfer — namely, the recognition by Mickey and Sumner that Edward was the outright owner of 66 2/3 NAI shares and NAI’s agreement to pay Edward $5 million in exchange for those shares. Section 2512(b) and its implementing regulations require that the donor receive “an adequate and full consideration”; they make no reference to the source of that consideration.

Decision for taxpayer.

The Moral? First, there’s no gift to the thief who points a gun at you, and there’s no gift when you transfer shares because you have to.

Perhaps more importantly, gift tax can be assessed forever if you don’t file a gift tax return. If there is any question on whether a gift might have happened, or realistic risk that the IRS will challenge the amount of a gift, it’s wise to file a gift tax return even when it doesn’t appear gift tax is owed. Otherwise the statute of limitations never starts running, and you might be fighting a forty-years war with the tax man.

Cite: Estate of Edward S. Redstone, 145 T.C. No. 11




TaxProf, The IRS Scandal, Day 902. A resolution has been introduced to impeach IRS Commissioner Koskinen. While his conduct in office has been awful, I hope they don’t really try to make it happen. It could backfire, and even if he were impeached, there will never be a conviction. I would rather they spend the time and energy reducing the powers of all IRS commissioners by reducing the power of the IRS through tax reform.

Russ Fox, Chaffetz Introduces Impeachment Resolution of IRS Commissioner Koskinen. “My view of this is simple: Mr. Koskinen has become a mouthpiece of the Administration rather than an independent head of the IRS… The IRS’s budget does need to be increased, but that’s not happening until Mr. Koskinen leaves the agency (and the scandal is resolved).

Kay Bell, House GOP seeks impeachment of IRS commissioner

Robert Wood, Impeach IRS Chief, Say Republicans Alleging Lies, Obstruction


William Perez, What Every Small Business Owner Should Know About the Health Care Tax Credit

Peter Reilly, Maureen O’Hara’s Ill Fated Cuban Oil Tax Shelter


20151028-2Joseph Henchman is Remembering the Deceased Iowa Pumpkin Tax You Helped End (Tax Policy Blog). “It’s a weird tax system that taxes the same item differently depending on the buyer’s intent. I’m sure Iowa pumpkin patches have better things to do than quiz their customers on future pumpkin uses.”

David Brunori, Billionaires Who Want to Tax Poor People (Tax Analysts Blog) “Second, and just to show you that it really is all about the money, the initiative will impose significant taxes on electronic cigarettes. If people really cared about the health risks of smoking, they would be encouraging — indeed subsidizing — electronic cigarettes.”

Howard Gleckman, Gimmicks Galore Litter the Boehner/Obama Budget Deal (TaxVox) “But one thing seems certain: This deal is far worse for fiscal conservatives that the Grand Bargain that Boehner and President Obama nearly reached in July 2012, a deal the speaker never could sell to his restive caucus.”

Caleb Newquist, Florida Still Cranking Out Unsophisticated Tax Schemes (Going Concern): “If you or someone you know is thinking about concocting a haphazard tax fraud, it may be tempting to go with a tried and true method that goes something like this…”


Programming Note: My travel schedule will keep me from posting a Tax Roundup tomorrow. See you Friday!



Tax Roundup, 10/23/15: Tax Court dispenses with pot dispensary deductions. And: IRS scam call, captured on tape!

Friday, October 23rd, 2015 by Joe Kristan

Accounting Today newsletter visitors: click here to go directly to the rental loss story


Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Deductions get stoned. Not in a good way. Attitudes towards marijuana have changed a lot in the last 33 years. A recent Gallup Poll shows that 58% of respondents favor weed legalization. But a tax provision enacted in 1982 continues the Reefer War with full vigor, as the operators of a legal California medical marijuana dispensary learned yesterday.

Section 280E, enacted early in the Reagan Administration, is one of the more clear provisions of the income tax. It reads in full:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana remains a Schedule I controlled substance under federal law, despite its growing legalization at the state level. That means the only deduction allowed to state-legal weed dispensaries and dealers is their cost of goods sold — their direct cost of their inventory. No rent, salaries, benefits, security, depreciation, or any of the other obvious costs of doing business can be deducted.

Canna Care, Inc., a California dispensary, claimed about $870,000 in business deductions over a three-year period. The Tax Court explains (my emphasis, ditations omitted):

Petitioner argues that its actions cannot be considered “trafficking” for purposes of section 280E because its activities were not illegal under California law. Petitioner claims that this conclusion is supported by memoranda issued by the Department of Justice (DOJ) on October 19, 2009, and August 29, 2013, and guidance issued by the Financial Crimes Enforcement Network (FinCEN) on February 14, 2014.

We have previously held the sale of medical marijuana pursuant to California law constitutes trafficking within the meaning of section 280E… DOJ memoranda and FinCEN guidance released after the years at issue that represent exercises of prosecutorial discretion do not change the result in this case. Petitioner regularly bought and sold marijuana. This activity constitutes trafficking within the meaning of section 280E even when permitted by State law.

The taxpayer also argued that its business activities weren’t entirely about marijuana, and that at least some of the activities should therefore be deductible. The Tax Court said that the taxpayer’s evidence wasn’t sufficient to make that case:

Aside from the sale of medical marijuana, petitioner’s only other source of income was the sale of books, T-shirts, and other items. On the basis of the evidence presented, we cannot determine what percentage of petitioner’s income was from the sale of medical marijuana and what percentage was from the sale of other items. Because of the parties’ stipulation, we find that the sale of medical marijuana was petitioner’s primary source of income and that the sale of any other item was an activity incident to its business of distributing medical marijuana.

No deductions. Victory for IRS.

The Moral: Sometime in the next few years I suspect weed will either cease to be a controlled substance or Section 280E will be amended to allow legal pot sellers to deduct their expenses. Until then, dealers will need to mark up their product a lot to cover the taxes on phantom income. If they have other business activities, they need keep records sufficient to separately track the non-pot profits.

The other moral: Don’t use the tax law to do anything other than measure income and collect taxes. Special carve-outs, whether punitive or beneficial, linger long after the moral panic surrounding their enactment passes. In addition to Section 280E, we remain stuck with other moral panic tax provisions. These include Section 409A, enacted in the Enron panic but punishing ordinary businesses and non-profits trying to compensate their employees, and FIRPTA, enacted to combat the threat of Japanese buying up our precious golf courses. The Japanese have moved on to other things, but FIRPTA still clobbers U.S. real estate buyers who fail to realize they need to withhold taxes on purchases from non-U.S. sellers.

Cite: Canna Care, Inc., T.C. Memo 2015-206.

Related: Russ Fox, Up In Smoke, Again. For more on taxes in the early ’80s, TaxGrrrl has Back To The Future: Taxes Now & Then.


Ed Brown’s fortress-house sells at auction, reports The winning bid was $205,000, though the story makes it appear that the winning bidder may also need to pay some accumulated property taxes.


buzz 20151023-1

It’s Friday, so celebrate with fresh Buzz from Robert D. Flach. Year-end planning, IRS inflation adjustments, and the S corporation vs. partnership conundrum figure prominently.

William Perez reports on the updated 401(k) Contribution Limits.

Tony Nitti, IRS Redefines ‘Husband’ And ‘Wife’ In Response to Landmark Same-Sex Marriage Decisions.

Caleb Newquist, Company Accused of Being ‘Pharmaceutical Enron’ Doesn’t Appreciate the Sentiment (Going Concern).

Robert Wood, Stock Options 2.0: Twitter CEO Gives His Own Stock To Employees

Peter Reilly, IRS Should Be Asking For Cooperation Not Volunteering. “Audits of non-compliant taxpayers will have them “busted” which is unpleasant, whereas non-compliant taxpayers not being audited make the rest of us feel like chumps.”

Kay Bell, As Ryan gets ready to take on House Speaker role, Ways & Means members jockey for tax-writing chairmanship




TaxProf, The IRS Scandal, Day 897. Administration partisans urge continued political administration of the IRS, as they needed the encouragement.

Alan Cole, This Bill to Repeal Obamacare Taxes Would Grow the Economy (Tax Policy Blog). Just eliminating the ridiculous and costly paperwork of the ACA would be an economic boost.


Ever wonder what it sounds like to get a phone call from a scammer claiming to be from IRS? Well, you are in luck! A scammer was kind enough to leave a message on my phone at home, which I recorded and uploaded to the link in this sentence.  I believe it is typical of the recorded-message version of the scam, telling me that the IRS “is filing a lawsuit against you” and telling me to call a number to “get more information on this case file.”

The IRS does not call you to tell you they are suing you. They use the old-fashioned U.S. Postal Service, and if they can’t find you, they will use genuine U.S. Marshals to serve you papers. Believe me, if the IRS is after you, you will know you have a problem, and that knowledge won’t come over the phone.



Tax Roundup, 10/22/15: Iowa to credit municipal taxes in other states, allow out-of-state credit against school surtaxes. Plus: 2016 numbers!

Thursday, October 22nd, 2015 by Joe Kristan

20150925-2City taxes eligible for credit; school district surtaxes must be counted. Like other states, Iowa gives its residents a credit for taxes paid in other states. The credit is supposed to be the lesser of the tax imposed by the other state on the income taxed by that state or the Iowa tax on the same income.

Iowa has excluded the surtaxes applied by many Iowa school districts from the total Iowa tax against which the taxes paid in the other states are compared. Iowa has also excluded out-of-state municipal income taxes, like the Kansas City Earnings Tax, from the list of taxes eligible for the credit.

The Department of Revenue has announced that the Wynne decision earlier this year requires the tax credit to be applied taking the surtax into account:

The Iowa Department of Revenue’s (“the Department”) previous practice was to calculate the surtax prior to applying the out-of-state tax credit.  This produced a similar result to Maryland’s; that is, Iowa’s out-of-state tax credit was only being applied to state income tax liability, not local tax (surtax) liability.  Because this practice is inconsistent with the Supreme Court ruling, the Department must change its practice.  The result is that the out-of-state tax credit calculated on form IA 130 must be applied prior to other nonrefundable Iowa tax credits and before calculation of any school district surtax or EMS surtax. 

The Department also is expanding the credit to apply to municipal income taxes (my emphasis):

Any Iowa resident who has paid taxes on income earned in any other state, a local jurisdiction of any other state, or the District of Columbia may be eligible for a refund. 

This will apply to many S corporation and partnership owners whose businesses are involved in other states. I suspect the Kansas City earnings tax may be one of the more commonly municipal taxes paid by Iowans, but such taxes are also commonly seen in Ohio, Pennsylvania, Michigan and Kentucky. Some localities collect these taxes through “composite” returns filed by the S corporations or partnerships on behalf of their owners, so partners and shareholders should review their K-1 information to see whether they contain municipal taxes that can generate Iowa refunds.

Iowans will have to file amended returns under the normal IA 1040X refund claim process:

The 2015 IA 1040 and IA 130 will reflect these changes; however, prior year Iowa forms will not.  For taxpayers filing 2013 or 2014 returns for the first time or amending those returns using the IA 1040, rather than the IA 1040X, the out-of-state tax credit calculated on form IA 130 should be entered after line 49 on the IA 1040, rather than on line 57 as shown on the form for those prior years. For tax years 2007 through 2012, the out-of-state tax credit calculated on form IA 130 should be entered after line 52 on the IA 1040, rather than on line 62.

The period to claim 2011 refund may still be open until October 31 for Iowans who filed their 2011 returns at the extended return deadline. Otherwise refunds may be avaialable for 2012 and later filings.


Joseph Henchman, Iowa to Refund Local Income Taxes After Wynne Decision (Tax Policy Blog)

Des Moines Register, Court ruling gives 32,000 Iowa households tax refunds

Prior Coverage: Is yesterday’s U.S. Supreme Court decision an Iowa refund opportunity?




Kay Bell, IRS issues 2016 tax inflation adjustments

Me, 2016 401(k) max remains $18,000; most other qualified plan limits unchanged and FICA Max remains unchanged for 2016 at $118,500.


William Perez discusses Various Types of Individual Retirement Accounts.

Hank Stern, Two more CO-OPS down the tubes (Insureblog). The Colorado and Oregon co-ops follow Iowa’s Co-Oportunity into co-oblivion.

Alan Cole, The CBO Thinks Repealing Obamacare Mandates Would Lower the Deficit. Here’s Why. (Tax Policy Blog):

The numbers tell the same story that the paragraph above tells: some people respond to the penalties by paying them, but others respond to the penalties by purchasing (often-subsidized) insurance. The subsidies paid to the latter group actually outweigh the revenue the government earns from the penalties.

What a disaster.


TaxProf, The IRS Scandal, Day 896


Aidan Russell Davis, New ITEP Brief: A Primer on State Rainy Day Funds (Tax Justice Blog). “Rather than waiting for another crisis to occur, ITEP’s new policy brief explains why states should make structural improvements to their rainy day funds right now.”


Because they’re not hiring? Six Percent of People Looking for Talent Not Sure What All the Complaining Is About (Caleb Newquist, Going Concern).


The Internal Revenue Code of 1986 is 29 years old today. 


My, how you’ve grown.



Tax Roundup, 10/19/15: Keeping a calendar pays off big for Brooklyn apartment owner. And: Irwin Schiff dies in prison.

Monday, October 19th, 2015 by Joe Kristan

20150811-1Marking time pays. If you ever think owning income property is easy money, a Tax Court case last week might make you think twice. But the case also shows how keeping track of the time you spend can make a big difference if the IRS questions your rental losses.

The taxpayer couple owned “a four-floor mulifamily house” in Brooklyn. The couple lived on the first two floors, and rented out the two remaining floors as two apartments. He had a day job involving construction, but he also had his hands full with the apartment.

The couple claimed just under $70,000 of rental losses between 2010 and 2011. The IRS challenged the losses. The IRS has a good track record in rental loss cases because the tax law sets a high bar for deducting them. Such losses are automatically “passive,” and deductible only to the extent of “passive income,” unless you are a “real estate professional.” To be a real estate professional, you have to

  1. work more than 750 hours in a real estate trade or business during the year, and
  2. Your real estate work has to take more time than anything else you do.

It’s that second test that usually trips up people with day jobs. The taxpayer here, though, had an advantage, as Special Trial Judge Panuthos explains:

For purposes of the requirement in section 469(c)(7)(B)(i) [the real estate professional test], a real property trade or business includes construction and reconstruction. Sec. 469(c)(7)(C). 

So that meant the rental activity didn’t have to take more time than the day job. But the real estate professional rule doesn’t automatically make a rental loss deductible. The taxpayer still had to show that he “materially participated” to avoid the passive loss rule. Material participation is generally based on time spent working on the activity during the year, with 500 hours annually being the most common threshold used.  Fortunately, the taxpayer kept track of his time:

We used petitioner’s contemporaneous activity log to calculate the amount of time that he spent on the rental property. We included the amount of time petitioner recorded in his contemporaneous activity log for the work related to the tenants’ apartments and two-thirds of the amount of time petitioner recorded in his contemporaneous activity log for the work related to the common areas. On the basis of these calculations, we conclude that petitioner spent 1,008 hours performing services with respect to the rental activity for 2010. Because the 1,008 hours meets the more-than-500-hour requirement of section 1.469-5T(a)(1), Temporary Income Tax Regs., supra, petitioner meets this requirement for the 2010 taxable year. Accordingly, petitioner materially participated in the rental real estate activity for 2010, and petitioner’s 2010 rental real estate activity was not a passive activity.

That’s a lot of time. So much for the idea that rental income is easy money. The taxpayer’s records also carried the day for 2011. In total, the recordkeeping saved the taxpayer $25,174.60 in taxes and penalties that the Tax Court overturned.

The Moral? Keeping a daily calendar of your time is the best antidote to an IRS passive loss examination. It may seem like a hassle, but as this case shows, it can turn out to be the best investment of time you can make if the IRS comes for a visit.

Cite: Simmons-Brown, T.C. Summ. Op. 2015-62.


Irwin SchiffTax Protester Schiff dies in prisonIrwin Schiff, a prominent figure among those denying the general application of the income tax, died in prison last week, reports Peter Reilly. Mr. Schiff, 87, had been diagnosed with lung cancer while serving a 13-year sentence for practicing what he unwisely preached. Peter’s humane and thoughtful coverage includes this:

When I first encountered Schiff’s arguments in the nineties I was so impressed by how well put together they were, that I found it difficult to believe that they were constructed by someone who believed them, as citations always checked out, but were wildly out of context.  Irwin, however, has proved his sincerity.  That doesn’t make his arguments right, but it does merit some grudging admiration.

Mr. Schiff’s story shows that however sincerely you believe that the income tax doesn’t apply to you, your sincerity does little good when the IRS, the U.S. Marshals, the federal judges, and the Bureau of Prisons think it does. And they do.



Russ Fox, That Was the Year that Was. Russ reflects on the filing season ended last week:

Calling the IRS was almost a joke. The “Practitioner Priority Service” hold times were so bad that I’d hate to think of what they were for regular numbers. Unfortunately, I see no improvement possible with the IRS budget until the IRS scandal is resolved. That’s not going to happen until we have a new President, so we have probably two more years of misery in dealing with the IRS.

At least.


William Perez, Where to Find and How to Read Tax Tables

Annette Nellen, Responsible Governance – Tax break bills vetoed! “What happened – On 10/10/15, Governor Brown vetoed nine bills that either created or expanded a tax credit or exclusion or exemption.”




Alan Cole, How Do Property Taxes Vary Across The Country? (Tax Policy Blog). The post feature a handy interactive map showing the average property tax deduction taken in each U.S. county in 2013.

TaxProf, The IRS Scandal, Day 891Day 892ay 893. Day 892 covers the connection between Lois Lerner and a bureaucrat behind the outrageous Wisconsin “John Doe” investigations of conservative organizations.

Howard Gleckman, The Debt Limit: Here We Go Again (TaxVox).

Kay Bell, GOP presidential candidates tax trash talk on Twitter

Robert Wood, Execs Get 10 Years Prison Over Company Taxes? Yes, Here’s How. Robert covers the Arrow Trucking saga.

TaxGrrrl, As TIGTA Continues To Warn On IRS Scams, New Treasury Scams Surface. “In one version, scammers advise that an individual has been awarded a grant or a similar sum of money and in order to collect, the individual needs to provide personal information or a sum of money to ‘release’ the funds. It sounds a little bit like those lottery scams making the rounds but the use of the name of the Office of the Treasury seems to make individuals believe that it’s more legitimate”


News from the Profession. A Noncomprehensive List of Morale Boosters for Accounting Firms (Leona May, Going Concern). “Accounting firms, who generally eat their young, are all competing for ‘who has the best perks’ in race to scoop up all of the competent new hires.”



Tax Roundup, 10/16/15: Is the Earned Income Credit really all that great? And: Ed Brown house back on the block.

Friday, October 16th, 2015 by Joe Kristan

20150929-1Can a program that wastes 25% of its cost be worthwhile? While many economists left and right say the Earned Income Credit is a great poverty fighting tool, some of us who do tax for a living aren’t so sure. Now two scholars at the libertarian Cato Institute have published a report that fleshes out some of these doubts: Earned Income Tax Credit: Small Benefits, Large Costs. The report provides this background:

While the EITC is administered through the tax code, it is primarily a spending program. The EITC is “refundable,” meaning that individuals who pay no income taxes are nonetheless eligible to receive a payment from the U.S. Treasury. Of the $69 billion in benefits this year, about 88 percent, or $60 billion, is spending.

Articles by liberal and conservative pundits regarding the EITC often make it seem as if there are few downsides to the program. The EITC is aimed at reducing poverty and encouraging work. Who could be against that?

Alas, there is no free lunch with subsidy programs. The EITC has a high error and fraud rate, and for most recipients it creates a disincentive to increase earnings.

The waste and the “disincentive effects” are the things that bother me the most. The phase out of the benefits makes it very expensive to earn a little more, after a certain low-income point. My computation of the Iowa marginal rates on EITC recipients is in chart:eic 2014

That’s a 55% tax on every dollar earned, which doesn’t exactly encourage you to earn more dollars. And I don’t try to account for the hidden tax resulting from the loss of other welfare benefits as income increases.

Unfortunately, the study doesn’t really address what should replace the EITC, other than calling for generic good tax policy: “For example, cutting the corporate income tax rate would boost business capital investment. That would generate higher demand for labor, and thus raise wages and create more opportunities for American workers over time.”

I wish they had discussed the “universal benefit” that Arnold Kling and others have set forth. Arnold describes this version:

For a universal benefit, I propose something like $6000 for each adult in a household and $4000 for each child. [Charles] Murray proposed $10,000 per adult and zero per child.

Murray described the program as a cash grant. I describe it as flex-dollars that can only be used for “merit” goods, meaning health care, food, housing, and education.

Each of us presumes that people will purchase health insurance. I am explicit that catastrophic health insurance would be mandatory.

I propose something like a 20 percent marginal tax rate, or phase-out rate, for the universal benefit.

Arnold would have the phase-out as an addition to the income tax; I would couple it with the standard deduction so it phases out as part of the income tax, not as an addition to it. In any case, it would address many of the fraud and administration problems we see in the EITC.


honey princesses 2014


Robert D. Flach has your fresh Friday Buzz! Last minute filing, neglected beneficiary designations, and Dance Moms are highlighted.

Laura Saunders, Beware of Tax Surprises Lurking in Mutual Funds (Wall Street Journal). “Here’s why: By law, each year mutual funds must pay out to investors nearly all their income, which includes interest, dividends and net realized capital gains—in short, the profits on their trades minus offsetting losses… Already, one fund has announced the largest capital-gains payout some experts can remember.”

William Perez, I don’t make too much money, does the new health insurance rule apply to me?

Annette Nellen, Worker Voice, Classification and Taxes. “One of many things the “on demand” economy means is more clear and consistent rules on worker classification.”

Jason Dinesen, Glossary: S-corporation. “S-corporation is a tax term that refers to a corporation or an LLC that elects to be taxed under the rules of Subchapter S of the Internal Revenue Code.”

Jim Maule, Taxes, Consumption, Soda, and Obesity. “It is not unlikely that people who find soda to be too expensive because of the tax will spend their dollars on pies, cakes, candy, doughnuts, cookies, ice cream, and similar items.”

Leslie Book, Tax Court Holds Preparer Who Placed Truncated Social Security Number on Returns Subject to Penalties. He didn’t use a PTIN or Social Security Number on the returns he signed. The penalty is $50 per return. He prepared 134 returns in 2009. I’ll leave the math as an exercise for the reader.

TaxGrrrl, ‘Dance Moms’ Star Abby Lee Miller Accused Of Hiding Income, Indicted On Fraud Charges. So many TV shows I’ve never seen, so many indictments.

They both eat brains. Presidential candidate debates outdraw zombies (Kay Bell)




Howard Gleckman, The Debt Limit: Here We Go Again (TaxVox):

The House is largely leaderless and a significant minority of its Republican caucus will oppose any increase in the federal borrowing limit. In the Senate, CNN reports that GOP leader Mitch McConnell wants major concessions from the White House on such hot button issues as Social Security and Medicare before he moves a debt bill. And a lame-duck President Obama seems increasingly disinclined to negotiate with Hill Republicans on any issue. 

Pass the popcorn.


Jeremy Scott, Democrats Offer Nothing Much on Tax Reform (Tax Analysts Blog):

Taxes were discussed. Bernie, of course, wants to use them to reduce the gap between the rich and the poor, something it’s not clear his plan even addresses. Chafee wants a new 45 percent bracket on higher incomes. And Hillary talked some about the numerous small tax provisions she would like to enact to accomplish extremely specific, targeted goals. But nothing said onstage Tuesday night should give any tax reform observers hope that a Democratic White House in 2017 will be any more behind a broad tax reform effort than President Obama has been.

A complicated tax code that meddles in everything is exactly what you would expect from big government fans. There’s no reason to expect reform from the avowed party of big government.


Kyle Pomerleau, Governor Lincoln Chafee’s Modest Tax Proposal (Tax Policy Blog).

Bob McIntyre, Although He Left out Key Details, It’s Clear Kasich’s Tax Plan Is a Deficit-Busting Giveaway to the Wealthy (Tax Justice Blog). We don’t need no stinking key details.


TaxProf, The IRS Scandal, Day 890

News from the Profession. Will the CPA Exam Become Optional? (Caleb Newquist, Going Concern)


The Brown house. Photo from IRS Auction web site.

The Brown house. Photo from IRS Auction web site.

6,000 Sq. Ft., Handyman’s and Ordnance Clearance Specialist’s Dream! The IRS is going to once again try to auction the home of Ed and Elaine Brown, the couple serving loooong prison terms as a result of an armed standoff following their conviction on tax charges. It has some unusual features, reports

In the back of a closet, a hidden door can be found. A ladder leads to a small bunker with a passageway that leads just outside. Dirt hides the manhole cover that provides an exit to the passage.

Admit it, you’ve always wanted one of those.

“There’s a lot of stuff that you need to look at and say, ‘Do I want to finish it that way? Do I want to go a different direction?'” said Roger Sweeney, liquidation specialist for the IRS. “But it also comes with 100 acres, and with that price, it’s a heck of a deal.”

There are solar panels and a wind turbine on the land, but investigators have found explosive devices, as well. A warning is included in the notice of sale.

The article has a little photo tour of the property. You can learn more at the IRS auction website. The starting bid is only $125,000.

Related: Tax Update Blog Ed Brown coverage.



Tax Roundup, 10/14/15: The return’s not joint without that Jane Hancock. And: Iowa supplies rule advances.

Wednesday, October 14th, 2015 by Joe Kristan

1040 signature blockSignatures matter. A Tax Court case yesterday reminds us that even though they seem like an afterthought, the IRS cares whether you sign your paper return.

A busy executive mailed the family’s 2000 1040 near the October 15, 2001 extended due date. Possibly through a miscommunication, his wife failed to sign the return before he took it to the office to mail near the deadline. The Tax Court takes up the story (citations omitted):

Sometime after the Andover Service Center received the original 2000 return, respondent returned it to petitioners. The Internal Revenue Manual (IRM) requires the examining agent to perform certain actions before sending a return back to a taxpayer. The examining agent must attach certain forms explaining to the taxpayer why the return is being sent back, what needs to be done with respect to the tax return, and when is the deadline to comply and resubmit the return.

Petitioners claim they received a date-stamped original 2000 return with some red ink marks on it but did not receive any attached correspondence. The date on the stamp was October 15, 2001.

They never signed or re-submitted the return, and it apparently didn’t occur to the taxpayers to ask their CPA why they got it back:

[The husband] explained that he was not alarmed to have received back the original tax return with some red ink marks on it because he requested copies of his tax returns from time to time for various business reasons.

That doesn’t sound right. They had a tax preparer who would normally keep copies of client tax returns. Why would anyone go through the hassle of getting one from the government when you can call your tax man?

The tax year came up for audit, and the taxpayers tried to get 2000 dismissed on the grounds that the 3-year statute of limitations had expired. The statute only starts to run once a return is filed, and the IRS said that with only one signature, there was never a legitimate joint return. The Tax Court discussed and rejected two taxpayer arguments on why the return should count: the “substantial compliance doctrine” and the “tacit consent” doctrine. The first one was easy: filing with only one signature is not “substantial compliance” when both are required.

The “tacit consent” doctrine is more interesting. Again from the Tax Court:

At the outset of our discussion of the tacit consent doctrine, we note that courts generally apply this doctrine when one spouse signs a joint return for both spouses and it is later shown that the other spouse has tacitly consented to the joint return filing.  Most of the cases that petitioners cite follow this general pattern.

This happens in real life more than I care to think about. But Judge Laro ruled that it didn’t fit here where there is no second signature at all:

Extending the application of the tacit consent doctrine to cases such as the current case has the potential of creating an exception that would swallow the rule. We believe sufficient administrative mechanisms are already in place to deal with such situations. Existing procedures described in the regulations and the IRM provide how to handle documents when one of two required signatures is missing. At the very least, a nonsigning spouse who did not intend to file a joint return may be alerted that something is wrong.

Decision for IRS.

The Moral? It’s always best to get both signatures. Better still to not run to the deadline, where it’s easy to miss one. Best of all is to e-file, so the IRS has no manual signature issues in the first place, and your signed e-file authorization is safely in the hands of your e-file originator.

Cite: Reifler, T.C. Memo. 2015-199




Iowa rule on sales tax of manufacturing supplies passes first test. The legislative rules committee yesterday split 5-5 on a party-line vote on a Democratic objection to the rule. The split vote allows the rule to go forward, and probably means it will become final, according to this report by O. Kay Henderson.

The rule would flesh out the definition of consumable manufacturing supplies that are exempt from Iowa sales tax. This has been a contentious issue for years, one that has been a large portion of disputes at the Iowa Department of Revenue. Good tax policy favors a broad definition, as good sales tax policy doesn’t tax business inputs in the first place. But it turns out that the people who most benefit from tax receipts — state employees — don’t care for things that deprive them of their cash flows. From the report:

“I don’t believe it’s ever been done, to use the rule-making process to cut taxes. That seems like a heck of a precedent,” says AFSCME Council 61 Danny Homan, head of the union that represents the largest share of state workers.

He says all 150 legislators should vote on the proposal and Homan accuses Branstad of abusing executive power to try to cut taxes for corporations.

“After, on July 2, the governor vetoed $55 million in one-time appropriations for schools and vetoed funding for the MHIs in Clarinda and Mount Pleasant,” Homan says. “It seems like he’s got money to reward his friends, but he doesn’t have money for education and he doesn’t have money for folks that are suffering from mental illness.”

There is so much wrong with the idea that all of this money is the Governor’s to give out, and that the only problem is that he isn’t giving it to state employees. It’s a great example of why public employee unions as bargaining units are an awful idea.


William Perez, Do Your Home Improvements Qualify for the Residential Energy Tax Credits? “Homeowners who install solar panels or make other energy-efficient improvements to their home may qualify for a federal tax credit.”

Jason Dinesen, Are Tax Preparers Who Operate on Volume Doomed? It would be a blessing, actually.

Peter Reilly, A Twisted Tale Of New Jersey Use Tax,

TaxGrrrl, Losers Like Me: Fantasy Sports Sites Like FanDuel Attract Billions And Scrutiny As Popularity Grows

Tony Nitti, Tax Geek Tuesday: Daring To Take On The Section 263A Adjustment. A key part of the 1986 tax reform process, it is a monument to the baneful tax policy consequences of the tax revenue scoring process.


Scott Greenberg, NY Times Reporter Casts Doubt on Financial Transactions Taxes (Tax Policy Blog). They are an awful idea.

Howard Gleckman, How A Carbon Tax Could Have Prevented The Volkswagen Diesel Scandal (TaxVox)

TaxProf, The IRS Scandal, Day 888. Today’s link discusses a GAO report on how the IRS has failed to enact safeguards against continued political bias in IRS operations.


And finally: With first Wrigley clinch, Cubs move on to NLCS.



Tax Roundup, 10/13/15: Thoughts for those facing the due date. And: Ex-Iowa revenue director backs sales tax rule.

Tuesday, October 13th, 2015 by Joe Kristan

Accounting Today visitors, click here to go to the YMCA story.


20151013-4It’s time. The extended return deadline is Thursday, October 15, and no more extensions are available (unless, perhaps, you are in South Carolina, drying out from the floods, or you are in an overseas combat zone).

Haven’t filed yet? Haven’t even started? Russ Fox has some thoughts for you:

Somewhere, there’s a procrastinator wondering that exact question. He’s likely thinking, “I don’t have to do anything; I have until October 15th!” That’s not a good answer (with one exception [1]).

First, most tax professionals will not be able to fit you in. I took in one new client appointment this week—and he’s filling a cancellation. Determine your income, gather all your documents, and do your best. Tax forms are available online (the IRS website is actually quite good). Commercial tax software, though flawed [2], is a good choice at this point in time.

That makes sense. You really shouldn’t file late. It’s habit-forming, and it’s a bad habit. If you have a refund coming, you will probably lose it if you don’t file in two years — and without a due date deadline, that happens a lot. If you don’t file, you can’t get a 2016 ACA advance premium credit, making you out-of-pocket for the whole thing until you file your 2016 tax return, assuming you get around to that one.

Russ has another comment worth noting:

I disagree with fellow tax professional Robert Flach on his description that all tax software is fatally flawed. For individuals in simple situation it works perfectly. It doesn’t make math mistakes. And it usually allows for seamless electronic filing. I agree with Robert that the ability to look at a return and evaluate what’s on it (does it pass the smell test) is vital but when you’re up against a deadline, you don’t have a choice.

While I am in awe of Robert’s practice of doing his returns by hand, I don’t recommend it for anyone else. While software, like any human endeavor, is “flawed,” it’s much less flawed than a do-it-yourself tax filer without software. Tax software prevents a lot more mistakes than it causes.


Speaking of Robert Flach, it’s Tuesday, so he has fresh Buzz! His artisanal mind wanders from the size of the tax law, charity scams, and maintaining small business records. Presumably posted with flawed software!




Mike Ralston, Manufacturers shouldn’t be taxed twice. The President of the Iowa Association of Business and Industry, and former director of the Iowa Department of Revenue, defends the new proposed rules broadening the definition of “manufacturing supplies” exempt from sales tax: “To the best of my knowledge, no one inside the Statehouse has argued that the proposed rule is bad policy.” David Brunori is quoted.


Tulsa World, Doug Pielsticker: Sentence more than justified. “Laid-off employees blamed the company’s bankruptcy partly on Pielsticker’s lavish lifestyle, which included a $1.3 million mansion, a Bentley and a wedding with 1,000 guests at Philbrook Museum.” We covered the sentencing yesterday.


John Mickelson, Importance of succession planning for privately held businesses (

TaxGrrrl, Be Smart When Being Charitable: IRS Warns On SC Flood Relief Scams

Keith Fogg, The Right Instincts and the Wrong Decision Leads to No Relief as an Innocent Spouse – An Adam and Eve Story (Procedurally Taxing) “Reading the opinion, I realized that I had watched the trial with my students and we had analyzed it in class reaching the same conclusion as Judge Lauber but still feeling sad for the individual who sought relief.”

Peter Reilly, Volkswagen’s Emissiongate May Include Tax Crimes

Jack Townsend, Schumacher, UBS Banker Enabler, Sentenced to Probation Only and Fine. Once again, slapping the real international financial criminals on the wrist while shooting the jaywalkers.

Kay Bell, Some in GOP question Ryan’s conservative commitment; others say he serves the party best as tax-writing chair.  

William Perez, Changes in Tax Deadlines to Take Effect in 2017 (Plus Deadlines for 2015 and 2016). There’s a big one this week.




TaxProf, The IRS Scandal, Day 887. Today’s installment features some guy who think the IRS isn’t meddling in politics enough.

Scott Greenberg, Bobby Jindal’s Tax Plan Would End the Employer-Sponsored Health Insurance Exclusion (Tax Policy Blog):

Some of the features of Bobby Jindal’s recently released tax plan – fewer tax brackets, ending the estate tax, and eliminating itemized deductions – should be familiar from other Republican candidates’ tax plans. But a few elements of Jindal’s plan stand out from the rest of the field. Specifically, Jindal would significantly change the tax treatment of employer-sponsored health insurance plans.

It would replace the employer exclusion for health care with a “standard deduction” for insurance costs.


Bob McIntyre, We (Don’t) Need to Talk about Bobby Jindal (Tax Justice Blog). We don’t like him. We’ll pretend he’s not there.

Renu Zaretsky, A Speaker, A Speaker, Their Kingdom for a Speaker. Today’s TaxVox headline roundup covers the House Speaker situation, Hockey free agents, and the upcoming Democratic candidate debate.

Career Corner. The Rise of the Lifestyle Accountant (Chris Hooper, Going Concern).



Tax Roundup, 9/22/15: A resounding call to document your mileage. And: preparer regulation, IRS service, lots more!

Tuesday, September 22nd, 2015 by Joe Kristan


No Walnut STYou know you’re having a bad day in Tax Court when:

After concessions, the remaining issue relating to deductions claimed on petitioner’s Schedule A is whether she is entitled to deduct an additional $1,616 of mileage expense that she claimed as part of her unreimbursed employee business expense deduction. The answer is a resounding no.

I’m pretty sure that the Tax Court judges never read their opinions out loud, so I don’t think it was literally resounding. Still, it’s fun to imagine Judge Marvel calling the court into session, calling out a booming “NO!” and then adjourning.

The “no” may hae been resounding because of a little error the Judge detected in the taxpayer’s evidence. The taxpayer claimed mileage deductions for going between work locations. Travel expenses have to meet the special substantiation requirements of Sec. 274(d), where the taxpayer maintains evidence, such as calendars or mileage logs, to prove the deduction. This taxpayer went through a lot of effort generating a log from her work history. However…

Petitioner testified at length regarding how she prepared the reconstructed log. She testified under oath that she had worked for both ATC and MSN throughout 2007 and carefully explained her work assignments for each employer, including her work assignments for ATC from January through September 2007. Unfortunately for petitioner, the document that ATC provided to her summarizing her work history with ATC shows that she did not start her employment at ATC until October 2007. That document demolished any credibility that petitioner’s reconstructed log and her sworn testimony might otherwise have had. [emphasis added]

The Moral? No matter how much effort goes into reconstructing your unreimbursed work mileage, it doesn’t help you if you didn’t actually have the job.

Cite: Spjute, T.C. Summ. Op. 2015-58




Bryan Camp has a long piece in Tax Notes today ($link) arguing that the IRS can and should “cut and paste” its way into a new preparer regulation regime. I won’t argue the legalisms, though I think if the IRS thought it plausible, it would have tried it already.

I will point out that in an article with 101 footnotes, there is no discussion of additional costs to the taxpayers, or whether the benefits exceed those costs. He discusses evidence that “unregulated” preparers make more errors, and he assumes that regulation will fix the problem. That’s not necessarily so. It’s hard to imagine the perfunctory examination and CPE requirements of the old RTRP program would improved preparation. You can make somebody take a test, but you can’t make them competent.

Mr. Camp also ignores the unintended but predictable effects of the inevitably-increased price of preparation on the quality of tax returns received by IRS. If prep price goes up, more taxpayers will do their own returns, almost certainly at a higher error rate than from paid-for preparation. Other taxpayers will drop out of the system rather than pay higher prep costs.

In short, regulation advocates assume regulation will solve the problems of inaccurate returns. That’s unproven but unlikely. It is likely, though, that it will increase taxpayer costs and push customers away from paid preparers, which creates a new set of problems.

Related: Leslie Book, AICPA Defends CPA Turf and Challenges IRS Efforts to Regulate Unenrolled Preparers (Procedurally Taxing)


buzz20140909Robert D. Flach has fresh Buzz today, with links ranging from silly tax proposals to silly home office deductions.

Paul Neiffer, What About Those AFRs? “Periodically I will get a question from a client asking me ‘How much interest they have to charge on a loan to their child or some other related party?’. ”

Kay Bell, Meet Obamacare deadlines or pay the higher tax price. “If you don’t file last year’s return, you won’t be able to claim an advance premium tax credit to help you pay for your 2016 Obamacare coverage.”

William Perez, What Tax Documents to Bring to Your Accountant?


Tony Nitti, Tax Geek Tuesday: Making Sense Of Partnership Book-Ups. A primer on adjusting capital accounts to reflect the price paid when partners enter or leave a partnership.

Russ Fox, We Don’t Need No Stinkin’ Phone Calls.

So let’s translate this into reality. In the 2013 fiscal year, 22,363,345 phone calls were attempted to various IRS toll-free lines; 15,609,615 were answered (69.8%). In the 2015 fiscal year, 22,013,468 phone calls were attempted to various IRS toll-free lines; 8,277,064 were answered (37.6%). As for the time on hold allegedly decreasing to 23.5 minutes, perhaps that’s after excluding all the time some of the 7 million people who called but whose calls were dropped or who hung up spent on the phone.

I think the IRS cuts in customer service are a sort of “Washington Monument Strategy” of cutting the most visible and useful aspects of taxpayer service to pressure Congress into providing more funds. I’ll believe the IRS is serious about its customer service issues when the IRS takes its 200 employees who spend all of their time doing Treasury Employee Union work and puts them on the phones.

Robert Wood, Let’s Tax Churches. I’m sure that won’t be controversial…

Peter Reilly, The Tax Code Explained & Why It Matters In This Presidential Race (No, It’s Not 70K Pages)

Jack Townsend, Wyly Brothers Seek Bankruptcy Relief from Disgorgement Order from Offshore Shenanigans




TaxProf, The IRS Scandal, Day 866

Martin Sullivan, Donald Buffett? (Tax Analysts Blog). Looking for tax wisdom in all the wrong places.

Renu Zaretsky, Inversions, Schools, and Supermarkets. Today’s TaxVox roundup covers the ground from tax increases in Chicago to tax favors for supermarkets in Baltimore.


Sebastian Johnson, Progressive Era Reform Can Be Anything But Progressive (Tax Justice Blog). “Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states.”

The point isn’t the well being of the state; it’s the well-being of the citizens.


News from the Profession. Accountant Hiding on the Appalachian Trail Has the Mugshot to Prove It (Caleb Newquist, Going Concern). “If you were an accountant accused of making off with about $9 million of your employer’s money, I can think of few places better to hide than the wilderness.”



Tax Roundup, 9/14/15: Hatch, Wyden sneak preparer regulation into ID theft bill. And more!

Monday, September 14th, 2015 by Joe Kristan

No Walnut ST“Bipartisanship” means they’re ganging up on you. UtahPolicy reports: Hatch, Wyden Announce Markup of Bipartisan Bill to Prevent Identity Theft and Tax Refund Fraud. In the 20-item summary of the “Chairman’s Mark,” this is buried as item 15 (my emphasis):

In June 2011, the IRS issued final regulations that established a new class of tax practitioners known as “registered tax return preparers” that it sought to regulate for the prepared by these now unregulated tax return preparers. There is substantial evidence indicating that incompetent and unethical tax return preparers are harming both their clients and the government. Most of the tax returns that involve refundable tax credits are prepared by unregulated tax return preparers.

Since 2011, the D.C. District Court (and the D.C. Circuit affirming on appeal) has prevented the IRS from enforcing these regulations on the grounds that the IRS’ authority to regulate practitioners is insufficient to permit regulation of tax return preparers who do not practice or represent taxpayers before an office of the Treasury Department.

The provision provides the Treasury Department and the IRS with the authority to regulate all aspects of Federal tax practice, including paid tax return preparers, and overrides the court decisions described above.

Preparer regulation wouldn't have bothered Rashia.

Preparer regulation wouldn’t have bothered Rashia.

Of course, increasing preparer regulation does absolutely nothing to fight identity theft.  People don’t go to unregulated preparers to arrange to have their identities stolen. Paid preparers aren’t the people who steal identities. That nasty work is done by others. It’s done by organized crime gangs in the old Soviet Union. It’s done by semi-literate street grifters in Florida. It’s done by street gangs. It’s even done by IRS agents.

Fighting ID theft by regulating preparers is like fighting pickpockets by regulating laundromats. Making tax preparers take a competency literacy test won’t touch the ID theft problem. Nor will crooks stop claiming bad refunds because the IRS wants them to take a test.

Fortunately, a powerful senator makes an impassioned argument against giving the IRS more power over preparers:

“Protecting the private information of taxpayers at the Internal Revenue Service should be of highest importance to the agency and Congress. Unfortunately, as we learned this year, highly valuable information housed at the agency is susceptible to cybercriminals.  Since this threat will not end, Congress should take appropriate bipartisan action to implement needed legislative policies that will better protect taxpayers and shield taxpayer dollars from thieves.”

Oh, I’m sorry, that’s Senator Hatch arguing that this incompetent agency should get more power over preparers. Does he even read his own stuff?

The IRS already has tools to deal with bad preparers, as the weekly parade of injunctions and indictments of preparers attests. What the IRS wants is more power and less of that annoying due-process stuff. It’s supported in this by the large tax prep franchise outfits, one of whose executives wrote the rules that the courts struck down. The big tax prep outfits want to increase barriers to entry to grow their own market share. Big companies can spread the cost of regulatory compliance over a large base of business; a sole practitioner has to absorb the cost alone. An IRS paperwork glitch that can ruin a single preparer does nothing to H&R Block. Regulation always favors the big.

The President’s recent report on excessive occupational licensing notes:

There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing.

They certainly aren’t doing so here. They plan to mark up the bill Wednesday morning. Contact your senator and representative to oppose this IRS power grab on behalf of its friends Henry and Richard.


TaxProf, The IRS Scandal, Day 856Day 857Day 858. Yes, let’s give these people more power over preparers, they’ve shown we can trust them.




Kay Bell, Congress faces a crowded year-end legislative schedule. Not too crowded to find time to help out Henry and Richard.

William Perez, 5 Tips for the 3rd Estimated Tax Payment of 2015. It’s due tomorrow!

Robert D. Flach, MAKE YOUR LIFE EASIER AT TAX TIME BY SAVING ALL COLLEGE INFO NOW. “FYI – beginning with tax year 2016 (for returns to be prepared in 2017) you must have a Form 1098-T in order to claim an education credit or deduction on your Form 1040 (or 1040A).”

Russ Fox, Defalcations Send Randolph Scott to ClubFed. An estate tax attorney decides he needs the money more than the IRS does.

Jason Dinesen, Iowa Society of EAs to Host CPE Extravaganza. October 19 and 20, West Des Moines. “This seminar is open to any tax pro who needs CPE, so CPAs and attorneys are welcome to attend.”

Annette Nellen, Tell me – hot state tax issue of 2015?

Peter Reilly, Jeb Bush Tax Plan Could Disrupt Real Estate And Small Business. “Bush tax plan calls for elimination of business interest deductions.”

Robert Wood, Marijuana Taxes Go Up In Smoke For One Day In Colorado. Isn’t that the point?




Scott Greenberg, Yahoo Spinoff of Alibaba Sheds Light on Problems with the Corporate Tax System (Tax Policy Blog):

These three obstacles – double taxation, legal complexity, and regulatory uncertainty – are present in many areas of corporate tax law, not just Yahoo’s spinoff of Alibaba. And all three significantly hinder American business operations, slowing down economic growth. The ongoing saga of Yahoo is one more example of why fixing the corporate tax code must be a priority of the federal government.  

I would add that Yahoo also ran into a politicized IRS that was under pressure to kill the deal.

Elaine Maag, Tax Subsidies for Childcare Expenses Target Middle-Income Families, Missing Many Poor Parents. (TaxVox)


News from the Profession. This CPA’s Mugshot Will Haunt Your Dreams. (Caleb Newquist, Going Concern).




Tax Roundup, 9/4/15: Labor day and the Earned Income Tax Credit. And more three-day weekend goodness!

Friday, September 4th, 2015 by Joe Kristan

20140711-2Happy Labor Day!  While getting ready to put in your token appearance at work today before you head for the lake, you may want to ponder the hot “labor” issue of the moment — the minimum wage and its alternatives.

In spite of claims otherwise by supporters, a minimum wage has to cause job losses for the least skilled and connected. That’s part of what it was originally meant to do. If raising the price of wages didn’t affect how much labor is purchased, you could set a $100 per hour minimum wage. That, is, of course, absurd. So advocates have to argue that somehow small increases in the minimum wage are worth the job losses because of the benefits for those who keep their jobs, or that there are no job losses.

Recognizing the weakness of these arguments, many economists argue that an increased Earned Income Tax Credit is a better way to support the working poor.   For example, in The minimum wage versus the earned income tax credit for reducing poverty, Cornell University economist Richard V. Burkhauser states:

Introducing or increasing a minimum wage is a common policy measure aimed at reducing poverty. But the minimum wage is unlikely to achieve this goal. While a minimum wage hike will increase the wage earnings of some poor families and lift them out of poverty, some workers will lose their jobs, pushing their families into poverty. In contrast, improving the earned income tax credit can provide the same income transfers to the working poor at far lower cost. Earned income tax credits effectively raise the hourly wages only of workers in low- and moderate-income families, while increasing labor force participation and employment in those families.

The argument for a perfect earned income tax credit is compelling, but the credit is far from perfect. It is estimated that around 25% of the Earned Income tax credit paid out is paid improperly, including billions in fraud. Earned income tax credit fraud is a big part of the business of corrupt preparers. Many other taxpayers who could properly claim it fail to because of its complexity.

Even if the waste and fraud problem could be solved or overlooked, a properly-functioning EITC is still a poverty trap. The credit phases out as incomes rise, creating a high effective marginal tax rate on each additional dollar earned by a low-income family. It provides help at low income levels, but it discourages improving those income levels.

eic 2014

The marginal tax rates get even worse when phase-outs of other income-based benefits are taken into account.

welfare benefits marginal rate

Chart via the Mises Institute


Arnold Kling is a proponent of a “Universal Benefit” providing everyone a basic amount of income in place of the current array of welfare benefits:

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

I’m not entirely convinced that giving everyone a benefit is wise, but it may be a better idea than what we have. It deserves consideration before we concede that a fraud-ridden and complicated EITC is the best we can do for the working poor.


Jared Walczak, Location Matters: Effective Tax Rates on Call Centers by State (Tax Policy Blog). California is a surprisingly cheap place for this.




buzz20150804Robert D. Flach brings today’s Buzz roundup from the National Association of Tax Professionals Tax Forum in Philadelphia. Today he links to posts about small business survival tips and the flight of taxpayers from New York state.

Jason Dinesen, Glossary: Hobby Loss Rules, “This is important because deductions for hobbies are limited, whereas deductions are (generally) unlimited for business activities engaged in with a for-profit motive.”

William Perez, What the Recent Uber Worker Classification Ruling Means for Tax Professionals. It has tax implications that William ably discusses, but what it really means is that the government wants to protect well-connected taxi monopolies.

Kay Bell, Uncle Sam to pay $133 million to protect OPM hack victims. But at least they won’t send you a 1099 for the “value” they provide.

Robert Wood, IRS Offshore Account Penalties Increase, Hunt Continues. Offshore bank account secrecy is pining for the fjords.

Jack Townsend, Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program

Peter Reilly, Presidential Candidate Tax Plans Coming In Slow.


TaxProf, The IRS Scandal, Day 848. Today the prof links to a John Hinderaker post that includes this:

So someday–not any time soon–the IRS will finally be forced to answer the question that Koch Industries asked it five years ago, in 2010. The Obama administration’s strategy is always the same–stonewall, assert every possible theory, no matter how frivolous, and try to run out the clock. Whether an honest answer to the question will be given, years after the fact, is of course another question.

It’s worked for the IRS and the administration so far.




Howard Gleckman, Why Individual Tax Revenues Will Grow Even If Congress Doesn’t Raise Taxes (TaxVox):

Since 1985, income tax brackets have been adjusted for inflation so that someone whose annual raise tracks the Consumer Price Index is not thrown into a higher tax bracket. However, that adjustment doesn’t fully protect rising income from higher taxes.

In part, that’s because some key parts of the income tax are not indexed. They include the child tax credit, the surtax on net investment income, and the income ceiling for making contributions to Individual Retirement Accounts. But the real problem is that when income grows faster than inflation, it is pushed into higher tax brackets.

When they say the want to just soak the rich, that’s just to fool the rubes. It’s your pocket they want to pick.


Jenice Robinson, H&R Block Uses Corporate Lobbying Might to Make Sure the Poor Use Its Services. (Tax Justice Blog)Earned Income Credits are involved.


Career Corner. Please Don’t Be Like This Accountant Who Got Scammed Over Email (Caleb Newquist, Going Concern). “Yeah, it’s a little sloppy that a single email from a CEO along with a lone signature over a company seal would be enough to wire $737k.”



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

Wednesday, August 26th, 2015 by Joe Kristan

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

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

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

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

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




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

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

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

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


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

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

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

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

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

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

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



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

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

I don’t think that’s a good thing.


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

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

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


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

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


The dangers of premature tweeting:


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


Jim Maule, A Rudeness Tax?:

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

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



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

Wednesday, August 19th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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




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

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

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




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

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

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



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

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

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

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

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

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

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

TaxProf, The IRS Scandal, Day 832.




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

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

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


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


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



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

Tuesday, August 11th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

MR. RICHMOND: I guess it was.

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

Decision for IRS.

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

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




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

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

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


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

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

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

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

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

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

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

William Perez, Communicate Effectively with Your Tax Preparer




TaxProf, The IRS Scandal, Day 824

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

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