Posts Tagged ‘William Perez’

Tax Roundup, 2/2/2016: I caucused, and lived. And: actually useful things!

Tuesday, February 2nd, 2016 by Joe Kristan

20160131-1Caucuses yesterday, thundersnow today. I caucused last night at the elementary school behind my house. As usual, my candidate did poorly (fourth in my precinct, fifth in the state).

Because they only happen every four years, these things are always a bit chaotic, but the guy running the show did a pretty good job. Once we selected him as a permanent chairman, things went reasonably efficiently. The chairman called on the audience to allow a speaker for each candidate to talk for three minutes. It went alphabetically (apparently “Jeb!” is in the alphabet before “Ben.”). Nobody rose to speak for Fiorina, Gilmore, Kasich or Santorum, telegraphing their poor performances. The Wall Street Journal reports that Gilmore got fewer votes in the whole state than six candidates received in my precinct.

The most entertaining moment was when the last one, a 25-year West Des Moines city councilman speaking for Trump, went over time. He tried to “borrow” time from the campaigns who had no speakers — and was booed into silence.

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Talking for Donald too long.

They then passed out pre-printed ballots — an innovation since the last presidential caucus. The counting went reasonably quickly, with the speakers for each candidate and a TV camera looking over the shoulders of the counters.

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You know by now how Iowa came out, but in case you are curious, here are the results in my precinct: Jeb! 18, Carson 17, Cruz 35, Christie 8, Huckabee 4, Fiorina 1, Kasich 1, Paul 20, Rubio 108, Santorum 4, Trump 56. The suburbs like Rubio.

Now we have a thundersnowstorm going, with 6-10 inches forecast. I’m afraid that if they don’t get out soon, our Caucus media guests may get to enjoy another lovely Des Moines day.

PS. I forgot to add my insta-analysis. Winner: Steve King, who endorsed Cruz, likely pushing him over the top. Losers: Terry Branstad, who came out against Cruz, and only Cruz, trying to turn the vote into an ethanol referendum. Oh, and ethanol.

 

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-MISC, Miscellaneous Income. “A form 1099, Miscellaneous Income, is a “catch all” form. It’s used to report income that can’t be neatly categorized anywhere else.”

Robert Wood, Hate 1099 Forms? IRS Loves Them, Here’s Why

William Perez, Tax Refunds by Direct Deposit: How to Do It and Problems to Prevent

Stephen Olsen, Procedure Grab Bag (Procedurally Taxing)

Peter Reilly, You Do Not Have To File A Joint Return And There Are Some Reasons Not To

Dave Nelson, Cyber insurance advice (IowaBiz.com). “You should purchase cyber insurance this year.”

Kay Bell, February is filled with hearts, flowers, frogs & tax moves

 

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Megan McArdle, Tax Cuts Can’t Motivate the Republican Base Anymore

TaxProf, The IRS Scandal, Day 999. Sadly, Herman Cain is not mentioned.

Alex Durante, Bonus Depreciation Boosts Investment, New Research Confirms (Tax Policy Blog). But Iowa is having none of it.

Richard Auxier, Why are states letting the NFL rule their sales tax out of bounds? (TaxVox

Matt Gardner, What Free Roaming Chickens and Accounting Tricks Have in Common. They’re tough and chewy?

 

Career CornerShould More Accounting Firms Implement ‘Work Anywhere’ Policies? (Caleb Newquist, Going Concern). Some days I have trouble working anywhere.

 

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Tax Roundup, 2/1/2016: Caucus day, and other plagues.

Monday, February 1st, 2016 by Joe Kristan

20160131-1Is there such a thing as snow locusts? Today is the last day Iowa will be plagued by presidential candidates and their relentless ads and emails. Tonight, blizzard and winter storm warnings across the state.

Lots of things go into choosing a candidate. We kid ourselves if we think it is all rational. Many voters put as much thought into their political preferences as they do into choosing a favorite sports team. Most voters are much more informed about their sports teams than their votes.

But Tax Update readers are different!  You especially want to know about candidate tax policies. Fortunately, the Tax Foundation has an excellent Comparison of Presidential Tax Plans and Their Economic Effects. I like this chart they provide:

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You’ll notice that only one plan is projected to have positive economic effects while reducing the budget deficit over 10 years. I like that one.

 

Other Caucus-related links:

Tax Policy Center Major candidate tax proposals, a center-left analysis.

TaxProf, Clinton (47%), Sanders (54%) Propose Highest Capital Gain Tax Rates (Now 24%) In History

Tyler Cowen, My favorite things Iowa (Marginal Revolution). “The bottom line: Who would have thought ‘jazz musician’ would be the strongest category here?” Speak for yourself, buddy!

 

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Russ Fox, The Liberty to Commit Tax Fraud:

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

Amen.

William Perez, When Does an 83(b) Election Make Sense? 

Paul Neiffer, Pre-1977 Purchases May Get 100% Step-up or Not! Involving old joint interests in property.

Kay Bell, W-2, 1099 forms delivery deadline is here

Jack Townsend, 60 Minutes Exposé on Money Laundering Into the U.S.

Jason Dinesen, Not All Donations to Charity Are Deductible. Time, for example.

Kristine Tidgren, Des Moines Water Works Lawsuit Gets More Complicated (AgDocket)

Peter Reilly, NorCal Tea Party Patriots V IRS – Grassroots Or Astroturf?

Leslie Book, Migraine Caused by Improper IRS Collection Action During Bankruptcy Stay Triggers Damages for Emotional Distress

Robert Wood, Worst Lottery To Win Is IRS Audit Lottery, So Decrease Your Odds

TaxGrrrl, Understanding Your Tax Forms 2016: 1098-T, Tuition Statement

Tony Nitti, IRS Rules On Whether Trade-In Of Private Jet Qualifies For A Tax-Free Like-Kind Exchange

Happy Blogiversary! to Hank Stern for 10 years of Insureblog.

 

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Matt Gardner, International Speedway Reaps Benefits of Revived “NASCAR Tax Break” (Tax Justice Blog). In which the Tax Justice people sctually make a lot of sense: “In the context of our growing budget deficits, the annual cost of the NASCAR giveaway is a drop in the bucket at less than $20 million, making it a small part of the $680 billion extenders package. But because its benefits are narrowly focused on a few privileged companies, the damaging effects of this tax break go way beyond its fiscal cost.”

Donald Marron, What Should We Do with the Money from Taxing “Bads”? (TaxVox)

TaxProf, The IRS Scandal, Day 996Day 997, Day 998. Day 997 links to  IRS’s New Ethics Chief Once Ordered Records Be Illegally Destroyed. These are the people who think they need to regulate tax preparers to keep us in line.

 

Scott Drenkard, David Bowie: Tax Planning Hero (Tax Policy Blog). “Taxes really matter, especially for an artist like Bowie who had a lot of options for where to reside and earn income.”

Robert D. Flach, THE TWELVE DAYS OF TAX SEASON

 

Finally, in honor of the Iowa Caucuses I quote the great Arnold Kling, who captures my feelings about these proceedings perfectly:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

Only the beginning of a wise and profound post. Read it all.

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Tax Roundup, 1/27/16: Sign right here, friend, it’s just paperwork! And: Tax Foundation vs. U of I prof.

Wednesday, January 27th, 2016 by Joe Kristan

20151124-1What you’re signing isn’t necessarily what the nice salesman says you’re signing. A sad tax story in the Des Moines Register today shows how easy it is for a taxpayer to commit to a bad deal. The story, Misclassified: Iowa won’t refund veteran’s $5K payment, tells how a maintenance worker who was erroneously paid as an independent contractor by a Cedar Rapids furniture store ended up conceding a $5,000 sales tax liability he didn’t owe.

Iowa imposes a sales tax on “Janitorial and building maintenance or cleaning” for non-residential buildings. Because he was paid as an independent contractor, Iowa asserted sales tax on maintenance man James Robertson. He argued that he should have been classified as an employee, which would make the sales tax go away.

According to the story, Iowa was hounding him for unpaid taxes and preventing him from renewing his driver’s license. So he settled with Iowa for a $5,000 payment. From the story:

But he did so believing that the money he borrowed from a friend would be returned once a federal review process he was pursuing verified his claim he was not a contract worker.

The Internal Revenue Service on Oct. 14 determined that Robertson was indeed wrongly classified, documents he provided to The Des Moines Register show.

But that doesn’t mean he gets his $5,000 back, according to the Department of Revenue:

Victoria Daniels, a spokeswoman for the Department of Revenue, said it’s unlikely Robertson can win an appeal because he participated in what her agency calls its “offer in compromise” program.

Robertson signed a document during the settlement negotiations saying he accepts that “all administrative and judicial protests and actions filed in relation to these taxes and tax periods be dismissed.”

“When a person signs an offer in compromise, one of the things that they are signing their names to is the fact that they are giving up their appeal rights and the rights to get any of that money back,” Daniels said. “When you sign an offer in compromise with the Department of Revenue you are signing away any appeal rights you may or may not have had.”

IMG_1287Mr. Robertson didn’t think that’s what he had signed, according to the story (my emphasis):

Robertson said the documents he signed pertained to unpaid tax liabilities, not to his rights to a refund for taxes he never owed. And he said the department collectors led him to believe a refund would be made in the event it was shown he’d been unjustly classified as a contract employee.

This is why any battle between an unrepresented taxpayer and a tax agency is an unfair fight. The taxpayer drew a distinction between tax liabilities and tax refunds that doesn’t matter here. It’s all just taxes. While the nature of the document he signed may have been obvious to the people at the Department of Revenue who work with these things every day, it was all new and unclear to a taxpayer who had never encountered an offer in compromise. I hope he can find a way to get back his $5,000.

The Moral: In any tax controversy, be very careful what you sign. There are a number of ways you can forfeit important rights. If the dollars are big enough to matter to you, hire a tax pro. It doesn’t appear that Mr. Robertson did. Having a guide to the bureaucracy can be a big equalizer in an unfair fight. It’s not right to have to pay someone to help you avoid a tax you don’t owe in the first place, but it might be necessary to avoid something much worse.

 

 

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Peter Fisher

Joseph Henchman, Open Letter: Errors on Peter Fisher’s Grading the States Website. The brilliant Mr. Henchman takes on U of Iowa prof and tax complexity advocate Peter Fisher’s attack on the Tax Foundation’s State Business Tax Climate Index.

Like most people who dislike the Tax Foundation’s ratings, Mr. Fisher doesn’t like the Index because it doesn’t measure things he wants to measure. But the Index only tries to measure business tax climate. It doesn’t measure regulatory climate, or quality of education, quality of life, weather, or income inequality. And because it makes states with certain tax policy sets look bad, people with an affinity for high taxes or crony capitalism try to change the subject.

 

Paul Neiffer, What Gets a Step-Up. “I continue to get questions regarding how much of a step-up in cost basis farmland gets when someone passes away.  Again, as with most tax questions, it depends.”

Kristine Tidgren, Iowa Supreme Court Says Ag Lease Violates Iowa Constitution (Ag Docket). “Article I, section 24 of the Iowa Constitution states that no lease of agricultural lands ‘shall be valid for a longer period than twenty years.'”

William Perez, Should Married Couples File Taxes Separately? “The Married Filing Separately filing status provides fewer tax benefits than filing joint returns, but it does protect each spouse from any tax mistakes the other spouse makes.”

Kay Bell, 3 marriage-related tax tips to celebrate Spouse’s Day

Jim Maule, “Who Knows the Tax Code Better Than Me?”. “No, it’s not ME asking that question. Who asked it? According to this story, Donald Trump did.” I suspect Mr. Trump knows just enough to hire someone who really does understand the tax law.

G. Brint Ryan, Fee Arrangements are a Matter between Taxpayers and their Advisors. “In an important win for business against government encroachment, a California Superior Court recently invalidated a rule restricting taxpayers from paying performance-based fees for professional services.”

Robert Wood, Missing An IRS Form 1099 For Your Taxes? Keep Quiet, Don’t Ask!

TaxGrrrl, Executors Seek $100 Million For Work On Estate Of ‘Queen Of Mean’ Leona Helmsley

Robert D. Flach, WHAT IS GOFUNDME?

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.

The circus is in town. A media center takes shape at Capital Square, downtown Des Moines.

 

TaxProf, The IRS Scandal, Day 993. “Citizens Against Government Waste, CAGW Names IRS Commissioner John Koskinen 2015 Porker of the Year

Jacob Sullum, Corny Crony Capitalism in Iowa (Reason.com). “The RFS raises food prices and imposes a hidden tax on motorists because ethanol is more expensive than gasoline and produces less energy per gallon. Between 1982 and 2014, Manhattan Institute Senior Fellow Robert Bryce found, ethanol cost an average of 2.4 times as much as an energy-equivalent amount of gasoline.”

Howard Gleckman, Tyco, Tax Inversions, Income Shifting, and Lost Revenue (TaxVox)

Stuart Gibson, The Dissonance of European Tax Harmonization (Tax Analysts Blog). “The question: Why do so many Americans, even those new to the country or born to immigrant parents, find it so easy to self-identify as American, while so few Europeans identify primarily as European?”

Meg Wiehe, What to Watch for in 2016 State Tax Policy: Part 1 (Tax Justice Blog)

 

Career Corner. How Will Your Team Air Its Grievances This Busy Season? (Caleb Newquist, Going Concern).

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Tax Roundup, 1/26/16: Tempt not your tax pro. And: Airbnb, Buzz, and inspiring emails from the boss!

Tuesday, January 26th, 2016 by Joe Kristan

dimeIf only she had taken an IRS-approved ethics continuing education course. Accountant charged in $1M embezzlement case (Herald-Dispatch.com):

HUNTINGTON – A local accountant is charged with 953 criminal counts accusing her of embezzling more than $1 million from at least one client’s account over a five-year period, according to criminal complaints filed by the West Virginia State Police.

Kimberly Dawn Price, 57, of Huntington, was arraigned Friday on 302 counts of embezzlement, 326 counts of forgery, and 325 counts of uttering at Cabell Count Magistrate Court.

There’s so much that has gone wrong here. For example:

According to criminal complaints, Price, while employed as a staff accountant at the Huntington-based firm Hess, Stewart, and Campbell, PLLC, was directly in charge of the account of Elizabeth Caldwell, a Huntington woman who died in the fall of 2015.

That’s a lot of authority for a staff accountant. I don’t understand, though, why anybody would give their outside accountant full access to their checking accounts. Or why any accounting firm would ever want its employees to deal with that sort of temptation. To be sure, the partners may not have known she had the client checkbook.

When hiring a tax pro, you want them to do a good job of preparing your return, helping you comply with the tax law, and getting you refunds when they are due. It’s not their job to spend it for you. They don’t need your checkbook.

 

Let us operate in your town, you’ll be glad you did. Airbnb, the online facilitator of private short-term rentals, not long ago announced that it would work with states and localities to collect lodging taxes. I suspected that they would use the lure of revenue to convince reluctant municipalities to allow them to operate. Yes, there are silly municipalities, like my own West Des Moines, who prevent people from renting their homes out for, say, the Iowa Caucus crowd.

Now Airbnb seems to confirm my suspicions with their new report, AIRBNB: Generating #2 BILLION IN POTENTIAL TAX REVENUE FOR AMERICA’S CITIES.

Just the sort of argument that carries weigh in city halls everywhere.

 

buzz20150827The bees may be quiet for the winter, but Robert D. Flach is Buzzing! Today’s Buzz covers 1095-Cs, retirement savings, state anti-fraud measures, and a certain national tax prep franchise.

Russ Fox, FTB’s New MyFTB Impresses; Will the IRS Take Heed?:

If you’re a tax professional who deals with California clients or a California taxpayer, I urge you to enroll in MyFTB. I’m very impressed. I may rag on the FTB (especially in the enforcement area) but from my point of view MyFTB is a model to be emulated by the rest of the country.

California has made it easier for practitioners to get powers of attorney online.

Robert Wood, Married Filing Joint Tax Returns? IRS Helps Some Couples With Offshore Accounts. “The new rules are a welcome change. But they should still underscore the importance of deciding which disclosure program is right for you.”

Emily CaubleReforming the Non-Disavowal Doctrine (Procedurally Taxing) “I will refer to courts’ resistance to taxpayers’ attempts to invoke substance-over-form as the ‘Non-Disavowal Doctrine.'”

Jason Dinesen, Glossary: 529 Plan. “The term “529 Plan” is a generic name given to tax-advantaged savings accounts for college expenses.”

William Perez, Tips for a Tax-Efficient Divorce, Plus a List of What to Do First

Annette Nellen, Recent Tax Law Change Cautions

Kay Bell, Arizona proposal: a state tax credit for gun classes. Tax credits. Is there anything they can’t do?

 

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Scott Greenberg, How the Tax Code Discourages Investment, in One Statistic (Tax Policy Blog). “The results are disheartening: over time, U.S. corporations will only be able to deduct 87.14 percent of the cost of investments they made in 2012, in present value terms.”

Renu ZaretskyOutlooks, Deficits, Breaks and Moves. Inversions, deficits forever, and state budget battles.

TaxProf, The IRS Scandal, Day 992

Sebastian Johnson, State Rundown 1/25: State of the States (Tax Justice Blog). “Read all about the latest tax debates in West Virginia, Indiana, Kansas, Massachusetts, and North Carolina. Plus a listing with links to State of the State addresses.”

 

News from the Profession. Confidential to a Certain Deloitte CEO: Millennials Don’t Need Any More Emails (Caleb Newquist, Going Concern)

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Tax Roundup, 1/25/16: Four steps to a quicker, cheaper 1040. And: ID theft – prevention vs. punishment.

Monday, January 25th, 2016 by Joe Kristan

1040 corner 2015How to make your tax return cheaper. If you don’t have all of your 1099s, brokerage statements and so on, there’s a good chance you’ll have them by the end of the week (but if you’re waiting on K-1s, forget it). Then you will want to send it all to your tax pro and get it back right away. If you want to get it back quickly, and keep your fee down, the best way is to provide everything your tax pro needs the first time.

Every time we have to ask you a question or track down a document, it slows things down, and the fees start to creep up. Here are a few things taxpayers commonly forget to do or include.

Go through the tax organizer and at least answer the questions. Many taxpayers just return a blank organizer with their 1099s. That’s unwise. The question part is there for a reason. For example, it identifies life events that don’t show up on 1099s or W-2s. Once a client mentioned his wife in a phone conversation. I had improperly prepared returns for him as single for two years. Of course, the “change in marital status” question on the questionnaire had been returned unanswered on his blank organizer both years.

Double-check your estimated tax payments. The standard answer tax pros get from taxpayers who return blank organizers is “I sent in all the payments you said on the dates you said.” And sometimes that’s actually true, but quite often it isn’t. That leads to IRS notices, tax penalties and extra tax pro fees. Go through your check register and bank statements and write down the actual dates and amounts on the organizer — or send copies of the cancelled checks from your statements.

Spend a few minutes culling your information. You don’t want to pay your tax pro to dig through your utility bills, cable provider statements, and junk mail to find your charitable contributions and information returns. Clear out the junk before you bring it in.

Make sure your contact information is current. If we do have to ask you questions, it’s a lot easier if we have your current email address and the right cell phone number.

This is the first of our 2016 filing season tips. Look for these occasionally until April, when they will come thick and fast. 

Related: Robert D. Flach, DON’T BE IN SUCH A HURRY – BUT DON’T WAIT UNTIL THE LAST MINUTE. “I have a strict long-standing rule that all returns that are not literally in my hands, with all the necessary information, by March 19th will be automatically extended!”

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Jim Maule, Will Providing a Driver’s License Number Reduce Tax Return Identity Theft?:

The problem is two-fold. On one side, better systems of identification are necessary, and need to be based on information that is not as easily stolen. Databases need to be secured more carefully than at present. On the other side, identity thieves and those thinking of engaging in that behavior need to be presented with changes in their risk analysis. Not only are better methods required to track them down, they also need to face more severe consequences for their behavior.

I think the penalties in place are already severe enough. The problem is that it is too easy to steal tax refunds. The grifters that go in for identity theft aren’t known for impulse control or careful weighing of benefits and costs. They just know that with the right personal information and a copy of Turbotax, they can make prepaid debit cards rain on their mailboxes. And, of course, the overseas crime syndicates don’t care about the penalties, because they are unlikely to ever face them.

It’s much more important to improve IRS procedures to thwart I.D. theft in the first place. The IRS is finally taking needed steps here, but lots of horses are already out of the barn.

TaxGrrrl, 11 Tips To Protect You From Identity Theft & Related Tax Fraud

 

Russ Fox, An Entity a Day Will Keep the IRS Away, Right? “Here’s a scheme that’s sure to work to avoid remitting payroll taxes to the IRS. Every day (or week or month), I’ll form a new business entity that’s collecting the tax. Once the amount due to the IRS gets large, I’ll just use a new entity. The IRS will never catch on, right?” As Russ explains, wrong.

Kay Bell, Taxpayers want up-front pricing from paid tax preparers.

William Perez, Taxes When Hiring Household Help

Matt McKinney, Anonymous ownership in an Iowa LLC (IowaBiz.com).

Jack Townsend, More on Transparency for Entities Acquiring Valuable Real Estate in Some U.S. Markets

Robert Wood, Trump Is Unapologetically Aggressive On Taxes, Like Buffett And Bono. All the sort of folks who are happy to increase taxes, on other people.

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Kadri Kallas-Zelek, Incorrect Claims for Earned Income Tax Credits Are Likely to Become More Costly (Tax Policy Blog). “The IRS estimates that for the fiscal year 2013, improper payments from EITC amounted to $13.3 to $15.6 billion, or 22 to 26 percent of total EITC payments.”

TaxProf, The IRS Scandal, Day 989Day 990Day 991. Hard drives as doggie treats.

Renu Zaretsky, Snow, Settlements, and Sales Taxes. Today’s TaxVox headline roundup covers Snowzilla, online sales tax cheats, and Oregon liquor taxes, among other things.

Matt GardnerAdobe Shifts Hundreds of Millions Offshore, Revealing, Like PDF Documents, Its Profits Are Portable Too (Tax Justice Blog). For some reason, this only inspires the Tax Justice folks to do what’s failing more and harder.

 

Career Corner. Let’s Review: Deloitte Demotivation, Denim, Bad Managers (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/22/16: Tax scams for tax pros. And: How Des Moines got so cool once I moved here.

Friday, January 22nd, 2016 by Joe Kristan

Accounting Today Visitors:  Click here for the post on Popular wisdom and tax rates.

 

Gone Phishing. It’s not just taxpayers that get scam emails. Scammers also aim at tax pros. For example:

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Of course the message is a fake. It was sent by the sketchy-sounding email address “info@tablerockbelize.com” and the link goes to something called “otadealsbox.com/irs.” Nothing good would happen from following that link. Be careful out there.

 

Nicole Kaeding, Map: State-Local Tax Burden Rankings for FY 2012 (Tax Policy Blog):

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While Iowa’s tax burden isn’t that out of line — it’s actually a little better than average — our business tax climate is one of the worst. It’s a result of how poorly designed Iowa’s tax system is. The good news is that there’s a lot of room to improve our tax system without increasing the overall tax burden.

 

Start your weekend right with fresh Buzz! from Robert D. Flach. Today’s links cover lots of ground on early filing, and a good explanation of why the talk of how “IRS now has six years to audit your taxes” isn’t right.

Jason Dinesen, Do I Need Form 1095-C to File My Tax Return? The next question: how many taxpayers even know to expect one?

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William Perez reminds readers to Communicate Effectively with Your Tax Preparer

Annette Nellen, Filing 2015 tax returns – help for practitioners

Kay Bell has 4 filing tips to ensure you get your tax refund ASAP

Robert Wood, What To Do If Form 1099 Reports More To IRS Than You Received

Paul Neiffer, Mr. Market Wants Its Excess Profits Back. “We know what happened after the 1970s and now Mr. Market is now trying to grab those excess profits back from farmers from the ‘ethanol’ boom.”  Of course, aging corn state politicians are fighting back by yelling at clouds.

Jim Maule, Deductions Arising from Constructive Payments. “The Tax Court explained that payment by an S corporation of a shareholder’s personal expense is a constructive distribution. It pointed out that this principle had previously been articulated by the court. Thus, explained the court, ‘It also follows that for purposes of claiming the deduction, the shareholder is treated as constructively paying the obligation.'”

Peter Reilly, Tax Planning In Bernie Sanders Land Would Feel Familiar To Elderly CPAs. Older than me, even.

E. Martin Davidoff, New Format of Notice of Intent to Levy Fails to Provide Sufficient Notice (Procedurally Taxing)

Russ Fox, Fail, Caesar! An Update. Implications for poker pros.

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TaxProf, The IRS Scandal, Day 988. “Tax Agency Erased Hard Drive Despite Litigation Hold.” Don’t try that with your tax records.

Jeremy Scott, Furor Over Extenders and Rising Deficits Disingenuous (Tax Analysts Blog), my emphasis:

So the new CBO report is something of a bitter pill for Obama. But the president isn’t to blame, according to some observers. In fact, the CBO itself points out that about half the cost of rising deficits is from tax legislation enacted since August 2015. The biggest chunk, of course, comes from the extenders compromise, which made some expiring (or expired) tax provisions permanent. That hurts the budget outlook, which always assumed expiring tax provisions would stay expired.

But extenders have never been allowed to stay expired. They are always renewed — sometimes late and sometimes retroactively, but without significant exception. And that makes the CBO’s observations about extenders deceptive. It also highlights why previous CBO projections about the deficit were always too rosy. By assuming that extenders would go away once they expired, budget forecasters were always showing too much revenue. If the CBO had used a model that assumed Congress would continually renew popular provisions like the research credit, the deduction for state and local sales taxes, and bonus depreciation, the numbers would look almost identical to what the January 19 report is showing now.

Exactly. The extenders were an ongoing accounting scam, pretending provisions that were permanent in reality would go away. “By making some extenders permanent, Congress has finally allowed the CBO to paint a more realistic portrait of the federal deficit and the long-term budget outlook.”

Matt Gardner, After Years of Shrinking, Nation’s Deficit Set to Grow in 2016; Recent Tax Cuts a Contributor (Tax Justice Blog)

 

Howard Gleckman, What Are the Consequences of a Financial Transactions Tax? (TaxVox). Aside from moving exchanges offshore, damaging markets, erasing wealth, and making it harder for the little guy to close transactions, it’s a great idea.

 

Joseph Thorndike, Do Progressives Hate Tax Reform? (Tax Analysts Blog):

The Tax Reform Act of 1986 was far from perfect, but it made good on the lower rates/broader base mantra. Almost immediately, however, both parts of the bargain began to fray; rates began creeping up within a few years, and preferences (never vanquished entirely in the first place) also began to grow. By the mid-1990s, tax reform was starting to look like a disappointment, to both liberals and conservatives.

Today, classic tax reform has little real support outside the wonk community. So it’s fair to say, as Holtz-Eakin does repeatedly, that liberals don’t care about tax reform.

But neither do conservatives.

I think that’s always true, in a way. That doesn’t mean it’s not worth doing.

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News from the Profession. Report: CPAs Exaggerate Their Success at the Bar, Pretty Much Everywhere (Caleb Newquist, Going Concern).

Fun link: How America’s Dullest City Got Cool. I think they overstate how much of the revival of Des Moines was planned by anyone, but they are right to point out home much this town has improved since I moved here in 1985 (proving that correlation is definitely not causation). Thanks to @lymanstoneky for the link on Twitter.

 

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Tax Roundup, 1/20/16: Divorce transfer foot fault wrecks Iowa ESOP. And: efficiency!

Wednesday, January 20th, 2016 by Joe Kristan

tax fairyMarriage explodes, ESOP explodes. S corporations and ESOPs are a tempting mix. To the extent an ESOP holds the shares of an S corporation, it becomes a tax-exempt for-profit business. This is almost like finding a real-life tax fairy. If any other tax-exempt entity holds S corporation stock, it will pay Unrelated Business Income Tax — a form of the regular corporate income tax — on its S corporation earnings.

These features draw tax-fairy seekers to the S corporation ESOP. For a Muscatine, Iowa chiropractor, the quest ended in both tax and romantic failure. The failure reminds us that ESOPs are not to be adopted lightly. It also shows that ESOP failures, unlike some marriages, last forever.

The chiropractor involved incorporated his practice in 1999, made an S corporation election, and immediately established an ESOP. He and his wife were the only shareholders and only ESOP participants.

The marriage broke up in 2007. In 2009, the ex-wife left the company and agreed to give up her ESOP account, then valued at $286,904.53. But they did it wrong. The Tax Court explains (citations omitted):

In addition, once a participant’s benefit becomes vested, it is nonforfeitable under ERISA. In sum, a participant in a section 401(a) plan may not assign or alienate his or her benefit, and at the same time, he or she has a nonforfeitable right to that same benefit.

Pursuant to the May 27, 2009, corporate documents, and relying upon the divorce decree, [Wife] transferred 100% of her ESOP shares and relinquished any rights she had under the ESOP. The ESOP’s June 30, 2009 and 2010, reports [*15] reflect that 100% of the shares allocated to [Wife] on June 30, 2009, were reallocated to {Husband’s] account as of June 30, 2010.

Before April 5, 2007, [Husband] and [Wife]… were also [the corporation’s] sole employees and ESOP participants. Although the 2007 divorce decree dissolved the… marriage, it is insufficient to allow the transfer of plan assets that transpired in this case. Transferring the vested shares from [Wife]’s account to [Husband’s] caused [Wife]’s ESOP account to become alienated from her after it became fully vested. By violating section 401(a)(13), the plan ceased to be qualified. Accordingly, we hold that respondent did not abuse his discretion in disqualifying the ESOP for its 2010 plan year and for subsequent plan years.

Public domain image courtesy Wikipedia

Public domain image of Phoenix courtesy Wikipedia

You might wonder why one mistake in one year wrecked everything. Judge Dawson explains:

In general, a qualification failure pursuant to section 401(a) is a continuing failure because allowing a plan to requalify in subsequent years would be to allow a plan “to rise phoenix-like from the ashes of such disqualification and become qualified for that year.”

That’s the frightening thing about going ESOP. You have to comply with extremely detailed and complex qualification rules every year, every time. This requires significant legal and consulting bills, and even then mistakes can be made. While ESOPs can be useful in the right situations, you have to live with serious compliance costs and risks.

In this case, I’m only surprised that the ESOP lasted as long as it did. Section 409(p) imposes a both the UBIT and a 50% excise tax when “disqualified persons” receive an ESOP allocation. Related taxpayers who own more than 10% of the S corporation, or 20% with family members, are “disqualified persons.” In this case the couple owned 100% of the corporation. The case is silent on this issue, but I don’t understand how this structure could have worked even before the disqualification in light of the Section 409(p) rules. The case does say that they terminated their S corporation in 2005, which would have solved the 409(p) problem after that date.

This is the fourth ESOP disqualification the Tax Court has decided involving the individual named as trustee in this case, who I believe had an Iowa-based practice. This continues Iowa’s unhappy history of involvment in bad ESOPs.

Cite: Family Chiropractic Sports Injury & Rehab Clinic, T.C. Memo 2016-10.

 

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William Perez, Secure Ways to Send Tax Documents to Your Accountant. It is reckless and dangerous to send pdfs of your W-2s, 1099s, etc. as an unencryped e-mail attachment. William offers good advice on how to do it right.

Jason Dinesen, Glossary: Compilation. “In the accounting world, the term “compilation” refers to formal financial statements prepared by a public accountant.”

Robert Wood, IRS Forms 1099 Are Coming, The Most Important Tax Form Of All.

Robert D. Flach, 2015 INFORMATION RETURNS. Robert offers a handy chart of the various information returns, except for K-1s.

Russ Fox, Texas Attorney General: DFS Illegal in Texas. “Texas’s Attorney General, Ken Paxton, issued an opinion today that says that daily fantasy sports (DFS) is illegal under Texas law.”

 

 

Illustration for early draft Bernie Sanders tax plan.

Illustration for early draft Bernie Sanders tax plan.

Water is wet. Bernie Sanders Is Proposing Really Big Tax Increases (Howard Gleckman, TaxVox).

It is hard to grasp the enormity of the tax increases Bernie Sanders is proposing, how far out-of-step he is with recent economic history in the U.S., and what a stunning contrast he presents with Republican presidential hopefuls.

I love when “enormity” is used correctly unintentionally.

While Sanders describes his top rate as 52 percent, top-bracket taxpayers would be paying up to 58 percent rate (the 52 percent base rate, plus the 2.2 percent health premium, plus the Affordable Care Act’s 3.8 percent surtax on investment income, which Sanders would keep).

Be happy he doesn’t take more, kulaks!

Peter Reilly, Bernie Sanders Tax Plan Moderate On Top Income Tax Rate. Well, I suppose compared to beheading high bracket taxpayers, confiscating their estates, and selling their families into slavery, it is.

 

 

Career Corner. Accountant Worked One Day, Allegedly Embezzled $15k (Caleb Newquist, Going Concern). Efficiency!

 

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Tax Roundup, 1/19/16: Thieves holiday! Filing season underway today.

Tuesday, January 19th, 2016 by Joe Kristan

1040 corner 2015It begins. The official start of filing season is today. That means the IRS will begin processing electronic return filings today. That doesn’t mean all that much.

Well, it means something to the people most eager to file 2015 1040s: the identity thieves. They don’t have to wait on real W-2s and other information returns, most of which don’t have to be provided to recipients before February 1. The thieves like to file right away, before the real taxpayers e-file and block them.

It means something to earned income tax credit fraudsters. Claiming a little qualifying income on a phony schedule C is standard operating practice for EITC scams, and you can file in a hurry when you just are making it up.

For most other taxpayers, the opening of filing season is a non-event. They are still waiting on the W-2s, their 1098s for their home mortgage interest, and their 1099s for interest and dividends. Especially dividends, as the big brokerage houses routinely get extensions for issuing their 1099s, and then issue amended ones anyway. And K-1s for partnerships and S corporations often aren’t even ready by the filing deadline.

The information return wait will be longer for many of us this year. This is the first year many businesses are required to issue 1095-Bs and 1095-Cs to report health care coverage to their employees under the Affordable Care Act. These forms are supposed to enable employees to determine their coverage credits and penalties. When it became clear that many employers would be unable to meet the deadline for completing these complex forms, the IRS rolled back their deadlines. The IRS says employees can file their 1040s using “other information” to compute their ACA taxes and credits, but we don’t know yet if people will try.

Don’t be hasty. It is unwise to try to file returns before you have all of your information returns. Especially don’t try to file using your last pay stub instead of your W-2. You’ll probably get it wrong. Worse, if your employer is participating in a new IRS program where W-2s get a unique anti-theft ID number, you’ll delay your refund.

This convicted ID thief likely was a first-day filer.

This convicted ID thief likely was a first-day filer.

It’s better to extend than amend. Whatever benefit you get from filing your return a little sooner, it is lost if you have to file an amended return for a corrected 1099, or for one you didn’t expect that showed up late.

You can file a FAFSA using estimated amounts. One of the biggest causes for taxpayer impatience is the need for tax return information to complete their “Free Application for Federal Student Aid,” which asks for numbers off the 1040. But the FAFSA allows you to use estimates if you haven’t filed your 1040. If you are awaiting a K-1, you’re better off filing your FAFSA based on an estimate than hounding the tax preparer to file a 1040 with incomplete information.

The system should change. Allowing e-filing before any of the information return deadlines almost seems to be a special IRS fraud-filing feature. Given the identity theft epidemic, it’s irresponsible for IRS to be sending billions to grifters before they can cross check returns against third-party information. The third-party filings should have unique identifiers for taxpayers to use to show that they aren’t ID thieves.

The culture should change. Everybody gets excited about a big refund. That just means you gave the government a big interest free loan. Withholding tables should be modified to not generate big refunds, to reduce the pressure for rapid refunds. Penalty thresholds for underpayment should be lowered so that taxpayers accidentally underwithheld aren’t clobbered. People shouldn’t think it’s good to let the Leviathan have their extra cash.

Related: 

TaxGrrrl, Another State Puts Brakes On Tax Refunds, Citing Concerns About Identity Theft;

Accounting Today, IRS Launches Free File for New Season.

Russ Fox, Same as Last Year Doesn’t Work. “Robert Flach has a post today where he notes the information that’s needed to prepare a tax return. I don’t have much to add to his excellent list (though I do need to see your W-2Gs, too).”

 

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Gazette.comGeorgia man linked to 2014 UNI data breach charged with tax fraud:

A Georgia man linked to a University of Northern Iowa data breach in 2014 has been charged with tax fraud in federal court.

Bernard Ogie Oretekor, 45, also known as Emmanuel Libs, was charged last week with theft of government property and aggravated identity theft.

How did a Georgia man from Nigeria get past the IRS? It apparently isn’t too hard:

The California indictment shows Oretekor and his co-defendant sent victim’s “phishing” emails to capture their usernames and account passwords. When victims clicked on the link in the phishing emails it sent them to a fraudulent website and when they logged in their usernames and passwords were captured, which allowed the defendants to access the victims’ accounts.

Be smart. I’ve never seen a real email that requires you to “update your information” for your bank, credit card, etc. Don’t click on links from emails you aren’t expecting, and don’t provide information to them. If you really need to check your information, close the email and go to the actual bank or vendor website directly.

 

Robert D. Flach has a wintry Tuesday Buzz! Bartering, bad taxpayer service, and much more.

William Perez, Can Two Taxpayers Claim Head of Household Status at the Same Address?

Robert Wood, Goldman Sachs’ Historic $5 Billion Settlement Has Silver Lining: Tax Deduction

Kay Bell, Lotteries aren’t budget bonanzas for states

Congratulations to a longtime Iowa Business Blogger. 2016 Brings 10th Anniversary of Rush on Business

 

TaxProf, The IRS Scandal, Day 985

Cara Griffith, Why the Minnesota Tax Court Is Making Me Paranoid:

Here’s my concern: In doing regular research, staff at Tax Analysts realized that the Minnesota Tax Court hadn’t published any new opinions to its website in several months. That is odd, so an inquiry was sent to the court to ask if the location of published opinions had changed or if the court had stopped publishing opinions.

The court responded that its website was under construction and that recent tax court decisions could be found on Westlaw. Eventually it added that a paralegal would attend to the request – next week.

That’s sad and lame. And, as Ms. Griffith points out, Westlaw is expensive. Here in Iowa, the Department of Revenue hasn’t put new rulings online since November 5, and now their new ruling website appears to have blown up. Here’s how it looks this morning:

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Oops.

 

Renu Zaretsky, All’s fair in debates and taxes…. Today’s TaxVox headline roundup covers how taxpayers will feel the Bern, the attempt to subvert Colorado’s taxpayer protections, and much more.

 

News from the Profession. In 2016, The War Rages On for All the Management Accountants (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/15/16: Tax credits and their opportunity costs. And: a turnaround in IRS service!

Friday, January 15th, 2016 by Joe Kristan

haroldReport: Tax credit for me would benefit me. Report: Tax credit would help Iowa biochemical industry (Des Moines Register).

The argument that this industry, above the thousands of industries out there, deserves funding at the expense of other businesses in the state, and that Iowa’s elected officials are just the ones to figure that out, is hard to credit. It might almost be plausible if it came at the end of a careful and systematic process where the state looked at all of the possible industries that would be good for the state to have and then carefully selected finalists based on objective and unbiased review.

That never happens.

Instead, the Bio-renewables credit is following a path blazed by the film industry and other credit recipients. Somebody decides a tax credit would be a good thing. It’s never hard to get the industry that would receive the subsidy on board. Local business boosters climb on because they know of a local business that would benefit. They fund studies to prove that this industry offers extraordinary benefits. Economic development officials join in, because that’s what they do. Politicians like giving away money, and soon you have amazing results.

I don’t fault businesses for using state tax credits. If somebody gives you money, you take it. But that doesn’t make it good policy for the rest of us.

There are two little words that credit boosters never bring up: opportunity costs. The money spent on the favored industry isn’t conjured into existence out of thin air. It is taken from somebody else. This year it’s taken from every Iowa business that uses the $500,000 Section 179 limit, which the Governor says the state can no longer afford. There are businesses in every county that will pay higher taxes if Iowa reduces its Section 179 limit to $25,000. Those businesses lose the opportunity to use funds to grow their own businesses and hire their own employees.

If there is to be any benefit here, it’s that it might actually teach the General Assembly about the opportunity costs of benefiting sympathetic industries. Here, it’s the cost of the lost Section 179 benefit to constituents statewide.

Related:

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

List of Iowa incentive tax credits budgeted for 2017.

 

Service: It’s in our nameA new report from the Government Accountability Office documents the decline in IRS service that we’ve all experienced under Turnaround Artist John Koskinen:

The Internal Revenue Service (IRS) provided the lowest level of telephone service during fiscal year 2015 compared to prior years, with only 38 percent of callers who wanted to speak with an IRS assistor able to reach one. This lower level of service occurred despite lower demand from callers seeking live assistance, which has fallen by 6 percent since 2010 to about 51 million callers in 2015. Over the same period, average wait times have almost tripled to over 30 minutes. IRS also struggled to answer correspondence in a timely manner and assistors increasingly either failed to send required correspondence to taxpayers or included inaccurate information in correspondence sent.

The picture they draw isn’t pretty:

 

gao chart service 20160115

When you turn around, it’s important to turn in the right direction.

Related: TaxProf, GAO:  Only 38% Of Taxpayers Who Called IRS Got Through In 2015 (Down From 74% In 2010); Wait Time Increased From 11 To 31 Minutes

 

buzz20150804Robert D. Flach has your Friday Buzz! He covers ground from choosing a tax professional to extenders to a certain presidential candidate.

William Perez, How to Know if You Should Hire a Tax Attorney

Matthew McKinney, Iowa’s open records law – who, what, when, and why? (IowaBiz.com).

Kay Bell, N.J. Gov. Chris Christie kills film & TV tax credits. Good. 

Jack Townsend, Updated FAQs for SFOP and SDOP Streamlined Processes. “The IRS has updated the FAQs for the Streamlined Domestic and Streamlined Foreign Offshore Procedures.”

Leslie Book, State of the Union: Tax Administration a Small But Important Part of the Speech

Robert Wood, Beware: IRS Now Has Six Years To Audit Your Taxes, Up From Three. “The three years is doubled to six if you omitted more than 25% of your income.”

Peter Reilly, Conservation Easement Tax Deductions And Valuation Abuse. “I think this is another instance of what Joe Kristan calls using the Tax Code as the Swiss Utility Knife of public policy.”

 

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Megan McArdle, Gaming of Obamacare Poses a Fatal Threat. “The problem: People signing up during ‘special enrollment’ (the majority of the year that falls outside of the annual open enrollment period) were much sicker, and paying premiums for much less time, than the rest of the exchange population.”

Scott Greenberg, The Cadillac Tax will Now Be Deductible. Here’s What That Means. (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 981. “Today, the Government Accountability Office (GAO) released two new reports regarding serious flaws in the Internal Revenue Service’s (IRS) audit selection processes. GAO confirmed that these flaws mean the IRS could continue to unfairly target American taxpayers based on their political beliefs and other First Amendment protected views.”

Robert Goulder, India’s Long Journey to a VAT (Tax Analysts Blog)

Renu Zaretsky, Winners, Losers, and Movers. Today’s TaxVox headline roundup covers last night’s presidential debate, Missouri earnings taxes, and  innovation boxes.

 

Jim Maule, Powerball, Taxes, and Math:

The expectation that widened my eyes is a meme circulating on facebook, and elsewhere, I suppose, that claims splitting the $1.4 billion evenly among all Americans would give each person $4.33 million. Good grief! This is just so wrong. The responses pointing out the error are themselves amusing, with the best one pointing out that it would generate $4.33 per person, enough to buy a calculator.

This meme:

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This explains more about the political process than I care to contemplate.

 

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Tax Roundup, 1/13/16: Considering the “small partnership exception.” And lots more!

Wednesday, January 13th, 2016 by Joe Kristan
Today in Helsinki. Photo: Sini Hämäläinen

Today in Helsinki. Photo: Sini Hämäläinen

Small partnerships, big risks. A venerable voice in Iowa tax, Neil Harl, has for some time touted the “small partnership exception” as a way for partnerships with 10 or fewer members to avoid filing tax returns, and the operation of the partnership rules in general. A version of it appeared at Tax Analysts yesterday ($link), where he argues that a tax case defeat for a non-filing small partnership does not call his argument into question. Non-subscribers can read his basic argument here.

I find it unconvincing as a legal matter. Dr. Harl’s argument is that a provision that applies by its terms to the Code subchapter covering how partnership examinations are conducted (“For purposes of this subchapter,” meaning Chapter 63, Subchaper C) creates a blanket exemption to the filing requirement imposed in a different part of the code (Chapter 61, Subchapter A). Time has resolved the argument after 2017 as the Code section Dr. Harl relies on has been repealed effective in 2018.

1065 2015 cornerStill, even assuming Dr. Harl is correct on the law, he is unconvincing on the practicalities. Dr. Harl himself says that partnership failure to file penalties are proper unless “all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.”

That puts any managing partner at the mercy of his least responsible partner. There’s no practical way to force a partner to file. In a ten-person partnership, one non-filing partner triggers $1,950 in monthly failure to file penalties. That’s a big risk for a partner to take on just to save filing a return, and it was a losing bet for the South Dakota Battle Flats partnership.

Dr. Harl summarizes the advantages he sees in his approach (my emphasis):

The availability of the exception generally means a lower annual cost for income tax return preparation and freedom from the onerous penalties for failure to file a timely or complete Form 1065, not to mention the advantage of sidestepping the complex rules that apply to partnerships generally such as the depreciation rules applicable to partnerships after transfer of depreciable assets to the partnership.

The Battle Flats case disposes of the “freedom from onerous penalties” bit. As far as return prep costs, Dr Harl himself notes that the income of a small partnership has to be reported somehow:

So how do the small partnerships report their income? The statute is not clear on that point but the definition of “partner” implies that each partner is to take into account the “partnership items” which would include income, gains, losses and credits. Those items would be reported on Schedule C, F or E as would be appropriate for that partner.

That means the partnership has to provide each partner with the income from operations sorted in a way that enables the partner to properly file their 1040s. That’s exactly what Form 1065 and its Schedule K-1 do. Either you prepare a homemade document to do what the K-1 does, or you do a K-1. It’s hard to see why it’s cheaper to design a homemade K-1 than to use the one the IRS provides.

Tax pro Chris Hesse responds to Dr. Harl in the comments to his Tax Analysts piece:

Readers who carefully read Rev. Proc. 84-35 will conclude that Dr. Harl’s position is not sustainable. Those who follow Dr. Harl’s path will find themselves not only subject to the penalties for late filing, but incurring the professional costs of defending a losing argument. Advisors should counsel that it is less costly to comply.

I think that’s correct.  Even if you are convinced that Dr. Harl has the law right, I don’t see why it makes sense for a partnership to place its tax compliance, and the risk of severe non-filing penalties, in the hands of its least responsible partner.

Related: Roger McEowen, IRS Guidance on Reasonable Cause Exception to Penalties for Failure to File Partnership Return Upheld.

 

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Kristine Tidgren, DMWW Court Certifies Questions to Iowa Supreme Court (AgDocket). Developments in the Des Moines Water Works environmental lawsuit against upstream farming counties.

William Perez, New Rules for Deducting Repairs and Maintenance

Tony Nitti, IRS Continues To Whipsaw Taxpayers: Sales Of Land Generate Ordinary Income, Capital Loss

Robert D. Flach recaps THE FAMOUS STATE TAX SEMINAR last weekend in New Jersey.

 

Jim Maule offers Another Reason Tax Professors Don’t Need to Invent Hypotheticals. If you made up a case like the real one he discusses, everyone would say it was too far-fetched.

Question, answered:

Peter Reilly, How To Cash Your Powerball Winning Ticket Anonymously.

Robert Wood, Copy Hillary Clinton: Transfer Powerball Tickets Now Before Win, Avoid Taxes.

TaxGrrrl liveblogged the State of the Union. State Of The Union 2016 – LIVE. That’s dedication.

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David Brunori, Montana’s School Credit Is Unconstitutional, but Not for Obvious Reasons (Tax Analysts)

Joseph Henchman, Pretend You Won the Powerball. What Taxes Do You Owe? (Tax Policy Blog).

TaxProf, The IRS Scandal, Day 979

Renu Zaretsky, Tax Hikes, Relief, Dedication, and Resurrection. Today’s TaxVox headline roundup covers State of the Union tax talk, campaign tax proposals, and lots more.

 

Career Corner: Let’s Get Worked Up About: Email Pet Peeves (Caleb Newquist, Going Concern). Hey, Caleb sent me one yesterday!

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Tax Roundup, 1/12/16: IRS wants to shoot more jaywalkers. And: the benefits of IRS ethics training.

Tuesday, January 12th, 2016 by Joe Kristan

20120912-1They think it’s expensive because it is. Tax Analysts reports ($link) on a speech given by an IRS international tax deputy commissioner that shows how little the IRS cares about wreaking havoc on the lives of taxpayers who inadvertently fail to comply with the weird and obscure foreign account reporting rules. The talk by David Horton shows that the IRS continues to assume anybody who has failed to file FBAR forms is a bad actor. For example:

The IRS’s 2014 OVDP (Offshore Voluntary Disclosure Program) guidance provides transitional rules for non-willful taxpayers who entered the OVDP earlier, but could have been eligible for the streamlined program. [Robert] Panoff wondered why they were incurring lower penalties than similarly situated taxpayers who completed the OVDP. 

Horton explained that these taxpayers are still in the OVDP, so they will get criminal clearance and a closing agreement, while streamlined participants get neither. Criminal clearance and a closing agreement are worth paying for, the thinking goes. A streamlined participant could later get a notice of deficiency for penalties that are assessed as taxes.

So a non-willful failure to file still benefits from “criminal clearance?” That’s a funny thing to need for a non-willful violation, and it shows an “it’s all criminal” mindset. Shoot all the jaywalkers!

The article has this:

Every practitioner hopes to shoehorn his offshore-account-holder clients into the streamlined program. Indeed, the only taxpayers who don’t welcome the streamlined program are recent immigrants who think that 5 percent of a home-country bank balance is a stiff price to pay for a green card.

That’s because it is ridiculously expensive.

Nowhere in the piece is any evidence that they (or the author) are aware that accidental Americans and compliant taxpayers can be financially ruined for failing to meet a requirement unknown to 95% of the populace. There’s certainly no awareness of the fundamental injustice of hitting taxpayers with 5-figure fines for committing personal finance abroad without an FBAR.

There is a crying need for foreign financial reporting reform. Two good first steps:

  1. Increase the FBAR foreign account thresholds to the amounts that apply for reporting foreign financial assets on Form 8938. These don’t begin to apply until the assets exceed $50,000, or $200,000 for taxpayers abroad. Using this threshold for foreign financial account filing would eliminate the vast majority of filings, leaving them only for taxpayers who actually have enough income to justify the hassle.
  2. Provide an automatic and penalty-free option to enable taxpayers to come in out of the cold, as long as they file before they are contacted by the IRS and any unreported tax required is relatively small. This would work much like the programs states have for businesses who want to come into compliance. The states benefit from getting the taxpayers in the system, and the taxpayers get in from the cold without financial ruin.

Unfortunately, the IRS apparently wants to go the other way: “Horton reported that while the IRS is still getting a steady flow of offshore voluntary disclosure program filings every month, that program has to end eventually.” Then it will be a choice to either stay out of compliance and risk financial disaster, or come into compliance and guarantee it.

 

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But preparer regulation will help prevent preparer fraud! From a U.S. Attorney press release:

Yolanda Castro, 48, an employee of the U.S. Internal Revenue Service in Fresno, pleaded guilty today to aiding and assisting in the preparation of a false tax return, United States Attorney Benjamin B. Wagner announced.

According to court documents, Castro was employed by the IRS for approximately 20 years, including as a tax examiner and contact representative. Between 2007 and 2013, she prepared and filed false federal income tax returns for herself, her family members and others in which she fraudulently claimed tax deductions and credits. For instance, on her own 2008 tax return, Castro claimed a credit for education expenses that she did not incur, and provided the IRS phony textbook receipts to support the claim. Likewise, in tax returns she prepared for herself and others, Castro claimed child care expenses that had not been incurred.

Surely some ethics continuing education would have saved her.

 

Robert D. Flach has a little Buzz for your Tuesday. “Not much BUZZ today – but, as I always say, some BUZZ is better than no BUZZ.”

Russ Fox reminds us that it’s 1099 Time for 2016. “The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice.”

William Perez, What You Need to Know about Reporting Payments Using Form 1099-MISC

TaxGrrrl, No, You Can’t Actually File Your Tax Return Early (And More Info About Tax Refunds). “Some tax preparers are suggesting in ads and on social media that they can somehow help you skip the line and get you a refund before anyone else. Don’t be fooled.”

Robert Wood, 12 Surprising Items IRS Says You Must Report On Your Taxes. You won’t believe number 2!

Jason Dinesen, Glossary: Social Security Wage Base. “The term Social Security Wage Base refers to the maximum amount of wages or self-employment income on which the 6.2% Social Security tax is based.”

Paul Neiffer, Relief for Older Farmers with IRAs. And not just farmers.

 

Keith Fogg, Improving Payroll Tax Compliance (Procedurally Taxing). “From my perspective working on these cases within the IRS, the failure of employers to pay over the collected taxes usually resulted from poor cash management.”

Renu Zaretsky, New Taxes, Excess Profits, and a Windfall. Lots of cynical posturing by desperate politicians in today’s TaxVox headline roundup.

 


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TaxProf, The IRS Scandal, Day 978. The process of running out the clock continues.

Scott Greenberg, Which Tax Extenders are Left? (Tax Policy Blog):

Looking over the list below of remaining tax extenders, none of them seem like “must-pass” policies. As a result, the pressure is off of Congress to renew all of the tax extenders as a package. Instead, Congress should take the time to evaluate the remaining tax extenders one by one, making the good provisions permanent and letting the bad ones expire. Temporary tax policy is bad tax policy, and it’s about time that Congress laid the ritual of tax extenders to rest once and for all.

Let’s hope so.

 

The Critical Question. Would a cuddly mascot make the IRS lovable? (Kay Bell). That would look like a stuffed Cthulhu

The Critical Question II: Accounting Firms Allowing Side Gigs: Good Idea or Independence Mine Field? (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/11/2016: Hide the spoons, hold your wallets. The General Assembly is back.

Monday, January 11th, 2016 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

Same recipe, same dish. The 2016 session of the 86th General Assembly of Iowa convenes today. As the membership is about the same as last year’s session, we can expect pretty much the same tax policy results. There will be no fundamental reappraisal of Iowa’s dysfunctional income tax this year. If anything, it might get a little worse.

Iowa’s tax system is a rat’s nest of high rates and complexity, full of special-interest loopholes, feel-good spiffs for sympathetic groups, and subsidies for the well-connected. It’s a great deal for the insiders who can work the system, paid for by high rates on those of us without lobbyists and tax credit consultants.

What Iowa needs is an overhaul that lowers the rates significantly, paying for them by simplifying the rules and swearing off subsidies like the notorious Orascom deal and the now-defunct film tax program. In other words, something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

What Iowa is likely to get is more special interest tax subsidies. In a story about 10 issues likely to spark debate in Iowa Legislature, The Des Moines Register reports:

A host of Iowa business and farm groups are lobbying for state tax credits to attract investment in renewable chemical manufacturing and advanced bio-refining. The goal is to build upon Iowa’s renewable fuels industry. Iowa needs to move swiftly because of competition for businesses looking to invest in the industry, business lobbyists say.

“If we are looking at a game changer for this session, this is it. It is absolutely huge,” said Jay Byers, chief executive officer of the Greater Des Moines Partnership. Legislation to provide renewable chemical manufacturing tax credits was approved by the House last session, but failed to pass the Senate.

20120906-1A “game changer?” New tax credits? The dozens of tax credits we already have haven’t done the trick, so we need more?

Think about it. The idea that the state can constructively direct investment capital assumes that the insiders that make up the Greater Des Moines Partnership and the small town politicians who run the state legislature have some unique insight on what the industries of the future are. If so, they should be investing their own money in these “game changers,” because there’s obviously a great profit opportunity to be had. Instead they want to spend your money, and mine, on it. That tells you something important.

Remember, these are the same people who told us it would be a great idea to subsidize Iowa’s film industry with tax credits (page 6 at the link), and that worked out just great.

The only constructive thing likely to come out of the legislature is a “code conformity” bill that updates Iowa’s 2015 income tax rules for the retroactive passage of the federal “extenders” bill in December. The Department of Revenue cautions taxpayers to not file returns using the extended provisions until the conformity bill is passed. The Section 179 deduction, the educator expense deduction, and tax-free IRA gifts are key provisions that are affected. Last year the code conformity bill was one of the first bills passed, in mid-February.

 

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TaxGrrrl, Taxpayers Get A Breather On Passport Requirement For Domestic Travel As REAL ID Requirement Delayed:

The key date to know is January 22, 2018. That’s the date on which air travelers with a driver’s license or identification card issued by a state that does not meet the requirements of the REAL ID Act (unless that state has been granted an extension to comply with the Act) must present an alternative form of identification acceptable to the Transportation Security Administration (TSA) in order to fly domestic. Acceptable identification would include a passport or passport card, Global Entry card, U.S. military ID, airline or airport-issued ID, federally recognized tribal-issued photo ID.

Congress last year passed a provision allowing IRS to revoke passports for non-payment of taxes. And of course the IRS never makes mistakes.

 

William Perez, How Soon Can We Begin Filing Tax Returns?

Annette Nellen, PATH and Many Tax Changes – PL 114-113

Kay Bell, 24 top taxpayer problems of 2015. “IRS electronic approach to customer service tops National Taxpayer Advocate’s annual list”

Jack Townsend, Hawaii Businessman Sentenced to 46 Months

Peter Reilly, Poor Return Preparation Kills Facade Easement Tax Deduction. “Often the buildings already have so much restriction on them already that promising not to alter them is a little like me renouncing my super powers

Robert D. Flach has thoughts on FINDING A TAX PROFESSIONAL.

Russ Fox, Fraudster Tries Alchemy; Will Have 20 Years to Think That Over:

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

Tax Credits, fraudulent? Unthinkable!

 

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Scott Drenkard, Businesses Love Texas, Except this One Tax that Holds the State Back (Tax Policy Blog)

Renu ZaretskyLooking ahead to 2016 and beyond? It’s blurry. (Today’s TaxVox headline roundup covers the upcoming State of the Union Address, the Taxpayer Advocate report from last week, and more.

TaxProf, The IRS Scandal, Day 977

 

Something to look forward to. Winner Of $1.3 Billion Powerball May Face Suits By Friends, Co-Workers, Family (Robert Wood).

Career Corner. Unhappy Accountants: Go Get a 10% Raise (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/7/16: Taxpayer Advocate report describes IRS “pay to play” plans. And: IRS nixes plan to make charities collect tax ID numbers.

Thursday, January 7th, 2016 by Joe Kristan

20150107-2Have you heard about the IRS “Future State Plan?” Or “CONOPS?” Me neither.

The latest annual Taxpayer Advocate Report to Congress is the first I’ve heard about this mostly-secret IRS initiative. The report explains (my emphasis):

During the past year-and-a-half, the IRS has devoted significant resources to creating a “future state” plan that details how the agency will operate in five years. The plan is explained and developed in a document known as a Concept of Operations (CONOPS). There are many positive components of the plan, including the goal of creating online taxpayer accounts through which taxpayers will be able to obtain information and interact with the IRS.

However, the CONOPS also raise significant questions and concerns. Implicit in the plan — and explicit in internal discussion — is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers. The IRS is hoping that taxpayer interactions with the IRS through online accounts will address a high percentage of taxpayer needs. It is also developing plans to enable third parties like tax return preparers and tax software companies to do more to assist taxpayers for whom online accounts are insufficient — an approach that will increase compliance costs for millions of taxpayers.

Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

The IRS, as usual, is cooking this all up in secret, with only well-connected insiders in on the plan. Tax Analysts describes the report ($link):

A major concern is the aura of secrecy around the CONOPS documents. Despite the fact that the IRS is conducting internal discussions about its “future state” plans, Olson’s report says the Service has repeatedly declared CONOPS data elements and documents “official use only” and not for public dissemination. “Never before has the IRS made this assertion in so many instances,” the TAS report says. One area where the IRS has shared its CONOPS plans — the Large Business and International Division — caters to a group of taxpayers that can afford to “pay to play,” the TAS said, while future service plans remain under wraps for the roughly 150 million individual taxpayers and 54 million small business taxpayers.

If you look at it from the viewpoint of most taxpayers, this plan seems incomprehensible. But if you believe that the IRS is really trying to serve the interests of the national tax prep franchise outfits, national accounting firms, and the biggest law firms, it completely makes sense.  It actually fits in well with the IRS preparer regulation efforts to eliminate competition for the national tax prep firms — a regulation effort that the Taxpayer Advocate still regrettably and unwisely supports. Those who are drafting the new taxpayer service labyrinth can be expected get nice raises by going out into the tax industry to help their new employers navigate through it.

Related: Leslie Book, The National Taxpayer Releases Annual Report to Congress (Procedurally Taxing); Accounting Today, Taxpayer Advocate Concerned about IRS Plans for ‘Pay to Play’ Taxpayer Service,

 

Another IRS screw-up averted. I just received a Tax Analysts breaking news email saying:

The IRS has withdrawn proposed regulations that would implement the statutory exception to the contemporaneous written acknowledgement requirement for substantiating charitable contribution deductions of $250 or more.

These rules would have required donors to provide charities with their social security numbers — a horrible idea in the identity theft era. Expect the IRS to try to sneak them back in when they think people aren’t looking.

 

Nicole Kaeding, American Migration in 2015 (Tax Policy Blog).
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Four of the ten states with the most inbound migration have no personal income tax. Most of the states where the population is fleeing have very hign income taxes, including Illlinois, Connecticut, New York and New Jersey. To be fair, high-tax Vermont seems to be attracting people, probably from dysfunctional New York.

This won’t help inbound migration. Illinois Announces Plans To Delay Tax Refunds Through March (TaxGrrrl)

Kay Bell, Delayed state tax refunds in Illinois, Louisiana & Utah because of tougher tax identity theft procedures. And because Illinois is broke.

Robert Wood, Obama Executive Action? Tax Hikes Could Be Next. “President Obama has stretched executive authority with immigration and gun law changes. And he is “very interested” in executive action on taxes too.”

Jack Townsend, Government Asserts Wylys’ Fraud in Bankruptcy Court. It’s a multibillion dollar tax case involving offshore trusts and a “blame the tax pro” defense. Mr. Townsend goes deep on the cases being made by both sides.

Paul Neiffer, “BIG” Might Not Be a Problem. Paul discusses the now-permanent five year “recognition period” for S corporation built-in gains.

William Perez lists Tax Deadlines for 2016

Robert D. Flach posts MY ANNUAL POST FOR JOURNALISTS AND BLOGGERS, reminding us all that he doesn’t care for conflating “tax professional” with “CPA.”

Peter Reilly, No Foreign Income Tax Exclusion For Army Civilian In Afghanistan

Tony Nitti, Love In The 21st Century: Bad Breakup Leads To Form 1099, Lawsuit. I’m not a trained relationship professional, but I think its safe to observe that issuing a 1099 to your ex-girlfriend burns all the bridges.

 

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Megan McArdle, Closing Tax ‘Loopholes’ Would Choke the Middle Class. “If you want to pay for any major new program by “closing the loopholes,” it is these loopholes that you will need to close, because the amount of revenue raised by, say, doing away with carried interest treatment of sweat equity partnership stakes works out to a rounding error on the federal budget.”

David Brunori, Taxing Guns Is Just Wrong (Tax Analysts Blog). “The fact is that a gun tax will have no effect on gun violence.”

TaxProf, The IRS Scandal, Day 973. A dispatch from the denialist front.

 

News from the Profession. #BusySeason Has Arrived (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/6/16: Oh, I meant that other year. And: IRS won’t rule on truck rehab “glider kits.”

Wednesday, January 6th, 2016 by Joe Kristan

20160106-1Better increase their budget. The IRS provides a special “Identity Protection Personal Identification Number,” or “IP-PIN,” to identity theft victims to help them with future tax filings. The IP-PIN lets them tell the IRS that the return being filed is being filed by the real taxpayers, rather than by some grifter in Tampa (Florida) or St. Petersburg (Russia).

Now, after the IRS has already screwed up things for innocent taxpayers by sending their refunds to thieves, they have added insult to the injury. TaxGrrrl reports IRS Sends IP PIN Letters With Wrong Tax Year, Stresses It Will Not Affect Returns Filed In 2016.

Letters sending out IP PINs for the 2016 filing season (for the 2015 tax year) were mailed out at the end of December 2015 (but dated January 4, 2016) marked with the incorrect year. The letter, also referred to as a CP01A Notice, incorrectly indicates the IP PIN issued is to be used for filing your 2014 tax return when the number is actually to be used for your 2015 tax return. 

The IRS isn’t sending correction letters.

The funny thing: the IRS gets really mad if impatient taxpayers use forms for the wrong year and cross off the year at the top of the form, writing in the right year. Do as we say, not as we do…

Related:

IRS Notice on Your Identity Protection PIN.

Russ Fox, IRS Errs on Identity Theft PIN Letters. “One would think that the IRS proofed important letters and notices before they’re finalized.”

 

ice truck“Glider kit” guidance grounded. The IRS will decline to issue rulings on whether the excise tax on over-the-road tractors applies when a new cab, chassis, frame and axle — a “glider kit” is applied to an old engine and power train. Tax Analysts reports ($link):

Section 4052(f)(1) provides that if a modification to the chassis or body doesn’t exceed 75 percent of the retail price of a comparable new chassis or body, then it won’t incur the section 4051 tax. The IRS decided that it will not rule on whether a modification using a glider kit qualifies for the 75 percent exception under section 4052(f)(1).

A more recent legal memorandum (ILM 201403014) makes clear that the IRS has evolved its thinking on the issue, determining that when an outfitter combines an old engine and transmission with a new cab, chassis frame, and axles, the excise tax applies and the exception isn’t applicable. It also explains that taxpayers must include a 4 percent markup in the price of the refurbished truck for purposes of computing the tax, minus the value of used components if they’re customer provided.

The article adds:

The Iowa Motor Truck Association, in an alert (http://goo.gl/IXnYaS) issued to its members following the release of ILM 201403014, also warned that “the memo probably indicates that IRS auditors will now be more aggressive about glider-kit transactions, and that at least some transactions that have been regarded as exempt may turn out not to be.”

This is obviously a big deal to dealers and their customers. It’s terrible that the IRS is making this sort of policy by internal memos rather than through published guidance, leaving taxpayers hanging.

 

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

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

Megan McArdle has some wise thoughts on the tax law in Why We Fear the IRS (my emphasis):

Legal complexity does not accumulate linearly; it accumulates exponentially. When you have one law on the books, and you add a second, the new law may (or may not) have some unexpected interaction with the old law. This would be one complexity point for regulators to manage. But with each new law, the number of potential interactions grows quickly, until it passes the ability of any layman to grasp it (and eventually, surpasses the professionals as well, which is why they’re increasingly specialized in narrow areas). We are long past that point with the tax code.

That’s a point universally ignored by politicians who use the tax law as the Swiss Army Knife of public policy. A Swiss Army Knife the size of a railcar is interesting, but it’s not much good as a knife.

Her post also covers important ground on why the tax law has gotten so bad. Recommended.

 

Paul Neiffer, Is Section 179 a Ticking Tax Time Bomb?. The ability to deduct up to $500,000 in new equipment may have unintended consequences:

On the face, this sounds like a great tax deduction for farmers, however, with continued low commodity prices, might this be a ticking tax time bomb for many farmers.  This is due to a farmer having to liquidate some farm equipment due to the bank requiring additional liquidity be put into the farm operation or perhaps the farmer has lost some ground and no longer needs the equipment.   This sale of equipment causes the Section 179 to be “recaptured” as ordinary income and since the farmer probably does not have sufficient liquidity to prepay additional farm expenses, causes the farmer to be in a high tax bracket.  This leads to a large tax bill which then requires the farmer to sell additional equipment or grain to cover the tax bill.  This is especially harsh when the equipment was financed 100%.

In theory, the tax savings from the original deduction should be available to cover that tax bill, but if you are having to liquidate to pay the bank, the savings have already been spent on other things.

 

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Robert D. Flach, THE PATH ACT OF 2015 AND TAX PLANNING FOR 2016

William Perez, What Is the Alternative Minimum Tax? “Essentially, this is a tax based on a person’s adjusted gross income if they aren’t itemizers.”

Kay Bell, Seattle gun & ammo taxes drive gun seller out of town.  The criminals, they get to stay.

Jason Dinesen, What is Form 1023-EZ? “Form 1023-EZ is a new IRS form used by some not-for-profits to apply for tax-exempt status as a 501(c)(3) organization.”

Jim Maule, Is This Proposed Tax Necessary or Even Sensible?:

Several days ago, in a New York Times editorial, Max Frankel proposed “a relatively simple new tax – officially called a user fee – “ based on “the grandeur of each lofty view” from the apartments being built in very tall luxury skyscrapers along the southern edge of Central Park. He suggested it could informally be called a “window tax” and he suggested various dollar amounts for windows and doors based on height, the existence or absence of obstructions, and the nature of what can be seen.

Gee, what could go wrong? A little history shows some problems with Mr. Frankel’s proposal:

The window tax was a property tax based on the number of windows in a house. It was a significant social, cultural, and architectural force in England, France and Scotland during the 18th and 19th centuries. To avoid the tax some houses from the period can be seen to have bricked-up window-spaces (ready to be glazed or reglazed at a later date).

Prof. Maule rightly criticizes the proposal.

 

Robert Wood, As Offshore Banks Agree To U.S. Tax Evasion Deal, Account Holders Must Deal With IRS. Betting on foreign bank secrecy is a bet against the odds.

Keith Fogg, Fulfilling the Requirements of Section 6751 When the IRS Imposes a Penalty (Procedurally Taxing). “In Legg v. Commissioner, the Tax Court issued a division opinion concerning this little known provision that serves as a gatekeeper to the assertion of many penalties.”

Peter Reilly, Tax Court Sorts Out Basis On Russian Fast Food Merger. “The IRS can argue that what you said you did – the form – is not what actually happened – the substance.  You can’t generally do that yourself, because you got to choose the form, so you are stuck with it.”

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Renu Zaretsky, The Case of Tax Scams, Private Debt Collectors, and Wishful Thinking (TaxVox). “There is one way Congress could make tax compliance and collection easier and tax avoidance harder, while improving the public’s perception of the IRS. It could simplify the tax code. Unfortunately, that’s a call Congress has not chosen to make.”

Stephen J. Entin, Michael Schuyler, Are Dividend Taxes Harmless? Don’t Bet On It!

TaxProf, The IRS Scandal, Day 972

 

Career Corner. New Year’s Resolutions That Will Make Busy Season Less Awful (Leona May, Going Concern). It’s hard to argue with “Stop stealing co-workers’ lunches”

 

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Tax Roundup, 1/5/16: Start your year-end planning today! And: private tax audits for fun and profit!

Tuesday, January 5th, 2016 by Joe Kristan

IMG_1182Welcome to 2016. We’ve just finished another round of 2015 year-end planning. It’s too soon for most of us to be working on our 2015 filings, given the need for 1099s, W-2s, K-1s, etc. But it is a good time to start getting things in order for 2016.

Too many people want to know the last day they can do something for their tax planning. It’s better to worry about the first day to do something. Many tax moves are best done at the beginning of the year. If you fund a tax-deferred account at the beginning of the year, you start sheltering the investment income from taxes 15 1/2 months sooner than somebody who waits until the end of the year.

Here are a few 2016 tax planning moves you can make right now:

Fund an IRA. You can fund a 2016 IRA to the extent of the lesser of your 2016 earned income or $5,500 – or $6,500 if you are going to be 50 years old by year-end. You don’t have to wait until you have earned that $5,500 or $6,500; if you are still working, you’ll get there. And don’t forget a spousal IRA, same limits.

Health Savings Accounts for 2016 can be funded up to $6,750, or $7,750 if you will reach age 55 by year-end.

A 55 year-old working couple with a high-deductible health plan can stash $20,750 in tax-deferred IRAs and HSAs today and shift the earnings on those funds to the non-taxable category now, instead of waiting until April 2017. Not only do they start their tax savings right away, but they aren’t tempted to spend that money between now and then.

While Section 529 plans can’t generate deductions like HSAs and traditional IRAs, they do shelter investment earnings like HSAs and IRAs, and they have more flexible contribution limits. The IRS explains:

Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.

Taxpayers filing in Iowa can deduct their contributions to the College Savings Iowa Section 529 plan up to $3,188 per beneficiary, per donor on their Iowa income tax return. A married couple funding plans for their two children can therefore deduct up to $12,752 in 2016 CSI contributions.

So start that 2016 year-end planning right away!

 

Tax Analysts reports ($link) that a Chicago Whistleblower Has Filed 938 FCA Tax Cases, Attorney Says. It quotes the director of the Illinois Department of Revenue, Connie Beard, talking about False Claims Act lawsuit trolling:

Beard told the lawmakers that the suits “are not true whistleblower lawsuits,” wherein an insider who has knowledge of a company’s fraudulent behavior seeks to report it to the state. “These are lawsuits that simply accuse business taxpayers, big and small, of incorrectly collecting and reporting tax,” she said.

As if Illinois wasn’t hopeless enough.

 

nytchart20151229-7Scott Hodge, IRS “Fortunate 400” Report Shows Evidence of Significant Income Shifting to Avoid Fiscal Cliff Tax Rate Hikes (Tax Policy blog). They show how taxpayers shifted income to beat the 2013 tax hikes:

Finally, we get to the bottom line and can see that taxable income declined 23 percent in 2013 to $85 billion from $111 billion in 2012.

So what explains this? Well, the more interesting narrative to come out of the IRS report is the evidence of income shifting in 2012 as the 400 wealthiest taxpayers anticipated the eventual tax increases on personal and investment income that would result from the fiscal cliff tax legislation.

Nearly all the major sources of income for these 400 taxpayers were up significantly in 2012 compared to 2011, as they pulled income from the future into a lower-tax year…

The lesson here is that high-income taxpayers have considerable flexibility as to how and when they report income. Headlines reporting that the rich are paying higher average tax rates as a result of the fiscal cliff deal don’t really tell the whole story.

People aren’t stupid. If they have a choice between recognizing income in a low-tax or a high-tax year, a sensible person picks the low-tax one. As the biggest source of income of the “400” is capital gains, there was a lot of pressure to beat the 2013 rate hikes from 15% to 23.8%.

Related coverage here.

 

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Robert D. Flach gets 2016 started with a bang Buzz! A tremendous link fest to start they year.

William Perez, How Soon Can We Begin Filing Tax Returns?

Andrew Mitchel, Flowchart – Section 267(a)(2) & (3) Related Party Matching Rules (International Tax Blog). Andrew’s charts are a wonderful resource.

Annette NellenTop Ten Items of Tax Policy Interest for 2015 – #10. The “gig economy.”

Kay Bell, 2016’s first tax tip: Filing season starts on Jan. 19

Jason Dinesen, Choosing a Business Entity: LLC. “LLCs provide legal protection much like a corporation, but LLCs are easier to form and are generally easier to administer.”

Jack Townsend, Judge Criticizes Prosecutor’s Use of Language Directing Secrecy for Receipt of Grand Jury Subpoena. “I hope that all readers of this blog know that grand jury proceedings are generally secret and the grand jurors and government actors in the process must keep them secret.  FRCrP 6(e)(2), here.  But the obligation of secrecy is not imposed on witnesses before the grand jury.”

Jim Maule, Taking (Tax Breaks) Without Giving (What Was Promised). “Too many tax breaks are handed out in exchange for promises by the recipients to do something beneficial for the community at large.” Once the politicians issue the press release and cut the ribbon, they have what they want, and they don’t much care what happens next.

Peter Reilly, Family Partnership Valuation Discounts Approved By Tax Court. A big year-end Tax Court case is discussed.

Leslie Book, NY Times Article Today Highlights Why People Pay Taxes as Well as Some of My Favorite PT Posts of 2015 (Procedurally Taxing)

Robert Wood, 2016 Brings IRS Power Over Passports, Use Of Private Debt Collectors

TaxGrrrl, 100 Things You Absolutely Need To Know About Money Before You’re 35

Tony Nitti, Ben Carson Releases Tax Plan, Promises End To Mortgage Interest, Charitable Contribution Deductions.

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TaxProf, The IRS Scandal, Day 967Day 968Day 969Day 970Day 971.

Howard Gleckman, What Can Congress and President Obama Accomplish in 2016? Pray they don’t define “accomplish” the same way.

2015 top news from the profession. Going Concern Editor’s Picks for 2015: Relationships at Work, Bad Auditing, Women in Accounting and More (Caleb Newquist, Going Concern)

Russ Fox, My Day on Jury Duty. Congratulations to Russ on getting it out of the way January 4.

 

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Tax Roundup, 12/30/15: What needs to be paid by tomorrow. And: NY Times has fun with a chart.

Wednesday, December 30th, 2015 by Joe Kristan

20141226-1Things that have to be paid for by the end of the day tomorrow. The unforgiving calendar is nearly ready to turn, and that leaves only today and tomorrow to do some things to help lower 2015 taxes. Some expenses are only deductible if they are paid by the deadline.

For cash basis business taxpayers, payment needs to be made for most business expenses by the end of the day tomorrow. “Payment” means the check is written and postmarked, or a wire transfer is completed, or a legitimate liability has been incurred. If it’s on the credit card by the end of the day tomorrow, it’s considered paid for.

The only business expenses that normally can be paid and deducted after year-end for cash-basis taxpayers are pension and profit-sharing contributions. these are deductible this year if paid by the due date of the 2015 tax return, including any extensions.

For accrual-basis taxpayers, any expenses owed related parties are deductible only if paid by the end of the day tomorrow (Section 267). For C corporations, this generally includes expenses owed to 50% owners and their family members, and to corporations and partnerships owned by 50% owners. For S corporations and partnerships, any ownership at all makes you “related,” and the definition of “family” goes beyond ancestors, descendants and siblings to include aunts, uncles, nephews and nieces.. These rules can get complicated, so be sure to pay by tomorrow or consult your tax advisor if you aren’t sure.

Gifts are a different story. It’s not enough to mail a check by tomorrow to count as a 2015 gift; the check actually must be cashed. If you are trying to get an annual exclusion gift under the wire by tomorrow, consider a wire transfer or a cashiers check.

Charitable contributions can deducted this year if mailed this year, but be sure to get a certified mail postmark if it’s a big one — or better yet, use a credit card. If you are making a gift of appreciated stock, it has to be in the charity’s brokerage account by the end of the day tomorrow to count.

Finally, if you are spending money on depreciable property, even if you plan to use the Section 179 deduction, it’s not enough to buy and pay for the property by tomorrow. It must be “placed in service.” That means on-site, ready to go, not at the dealership or in crates on the dock.

This is the penultimate entry of our 2015 year-end planning tips series. Come back tomorrow for the finale!

 

The New York Times yesterday ran an article headlined For the Wealthiest, a Private Tax System That Saves Them Billions: The Very Richest Are Able to Quietly Shape Tax Policy That Will Allow Them to Shield Billions in Income. It offers a lot less than it promises. It pretty much establishes that really rich people can afford expensive tax advice, and they buy it.

The article includes this misleading chart:

 

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This shows that those 400 people are really putting one over on the IRS with their clever planning, doesn’t it?  Well, not really. I’ll superimpose the top capital gains rates that applied for the years on the chart (sourced here):

 

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Funny how that income tax rates of those sneaky 400 people correspond with the top capital gain rates. Why would that be — because those dastardly 400 rich people conspire to incur capital gains?

No. As we’ve pointed out here, capital gains are what get people on that top 400 list. They normally hit the top 400 only once, by having a once-in-a-lifetime capital gain, like the sale of a business.

You also may notice that the New York Times cuts off the chart conveniently right before two big increases in the capital gain rate — the 2013 expiration of the Bush 15% capital gain rates and the 2013 effective date of the 3.8% net investment income tax. You can bet that the line goes right back up starting in 2013.

Update, 12/30/15, 4:25 pm, from The Washington Post:

On Wednesday, the Internal Revenue Service published an update to its annual assessment of how much the 400 highest-earning Americans pay in taxes. It showed that the effective tax rate paid by those Americans jumped in 2013 to nearly 23 percent.

Gee, amazing how that works! I’ve updated the chart to show the new number.

Correction: this post originally stated in error that the Net Investment Income Tax took effect in 2014, instead of 2013.

Related: Scott Hodge, New Treasury Data Shows How Progressive America’s Tax Code Really Is (Tax Policy Blog):

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More coverage: TaxProf, NY Times:  How The Ultra Wealthy Buy Tax Policy

Robert D. Flach, THE YEAR IN TAXES 2015

TaxGrrrl, 12 Days Of Charitable Giving 2015: The Innocence Project

Robert Wood, Tax Double Whammy: IRS Can Revoke Passports And Uses Collection Agencies

Peter Reilly, World Class Rider Does Not Insure Allowable Tax Losses In Horse Case

Kay Bell, IRS seeks tax pros’ input on fighting tax ID theft fraud

William Perez, Forgiven or canceled mortgage debts could be nontaxable

Paul Neiffer, 50% Bonus Depreciation Applies to More Property. “Any interior improvement made to non-residential real estate will qualify for bonus depreciation with certain exceptions for (1) elevators and escalators, (2) internal structural framework, and (3) enlarging a building.”

 

TaxProf, The IRS Scandal, Day 965:

Donors listing the IRS as their employer have donated roughly $453,800 to Democratic candidates and causes and $221,400 to Republican candidates and causes since 1990. About one in four of the dollars for Democrats, or roughly $117,500, went to President Barack Obama.

But IRS employees since 1990 have also donated $203,000 to the National Treasury Employees Union, which in turn has given about 95 percent of its $6 million in political contributions to Democrats over the last 25 years, OpenSecrets.org data shows.

Yet we are asked to believe the IRS operates in a fair and neutral manner towards all political persuasions.

 

Harvey Galper, Five Questions to Ask When You Look at a Presidential Candidate’s Tax Plan (TaxVox). How about, “Should I seek counseling?”

 

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Tax Roundup, 12/29/15: No year-end basis, no S corporation loss. And: ACA 1095 deadlines extended.

Tuesday, December 29th, 2015 by Joe Kristan

S-SidewalkBasis or bust. With the re-enactment of bonus depreciation for 2015, some S corporations find themselves with taxable losses for 2015. That won’t do much for the 2015 tax returns of S corporation shareholders who have no basis in their stock at year-end. While they also have to get by the “at-risk” and “passive loss” limits, they don’t even get to those problems without basis.

A taxpayer’s initial basis in an S corporation is the amount paid for the stock. It is increased by capital contributions and by undistributed income of the S corporation. It is reduced by distributions of S corporation earnings and by S corporation losses. If there have been 2015 distributions, they count before the losses do.

A shareholder with no stock basis can still get deductions by loaning money to the S corporation by year-end. The loan has to meet the at-risk rules (it can’t be funded by another shareholder or by the corporation, for example), but if it meets those requirements, it can create basis for S corporation losses. But don’t do anything hokey like making a loan on December 31 and having the corporation repay it on January 3.

It’s a trap! Well, it doesn’t have to be, but remember that any losses you take against a loan reduce the basis of the loan. That means that if the loan is repaid before the losses are restored by S corporation income, the repayment will be taxable gain to the extent of the unrestored losses.

This is another installment of our 2015 year-end planning tips series running through December 31. Collect them all!

 

1095-C cornerIRS delays due dates for 1095-B and 1095-C reporting2015 is the first year many employers are required to file a new form documenting insurance coverage, or offers of coverage, for their employees. Apparently many employers are still scrambling to figure out how to comply with the complex rules, because yesterday the IRS announced (Notice 2016-4) a delay in the deadlines for providing these forms to employees and to the IRS. A summary:

2016-4 deadlines

Employers are encouraged to file under the old deadlines if they can, but they now have a blanket extension, with no need to file any extension request.

While the IRS will be processing forms starting January 16, this announcement tells us that millions of taxpayers will lack the forms they need to properly report their ACA tax credits or penalties for inadequate coverage. The IRS says that employees can rely upon “other information received” from employers or insurers, and do not have to amend returns if the 1095s they receive later show that their original amounts are incorrect. What could possibly go wrong with this? Aside from rampant errors and outright fraud, I mean.

We are now approaching six years since the enactment of the ACA, and it’s still a mess.

Related: Russ Fox, IRS: We’ll Trust You on Health Insurance for 2015 Because… “We won’t have delays regarding filing returns because taxpayers haven’t received Forms 1095-B or 1095-C as long as they’re aware of their health insurance coverage. That’s a very good thing for all.”

 

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If you are trying to lose weight added by holiday treats, go to Robert D. Flach’s place for a “slender” Tuesday Buzz!

TaxGrrrl, 12 Days Of Charitable Giving 2015: Red Paw Emergency Relief Team

Robert Wood, House Oversight Probes Hillary Speech Fees To Clinton Foundation. The assignment of income rules only apply to little people.

Leslie Book, PATH, CDP Venue and Berglund v Commissioner, A Recent Tax Court Case Where Venue Matters (Procedurally Taxing)

Jason DinesenFrom the Archives: Taxation of Emotional Distress Payments

Kay Bell, 10 tax-saving things to do by December 31

Jana Luttenegger WeilerLast Minute Tax Extenders – 2015 Edition (Davis Brown Tax Law Blog)

William Perez, Protecting Americans from Tax Hikes Act of 2015

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #6 and #7. Includes coverage of the return due date changes enacted this year.

Me, Forget April 15. Well, don’t, actually, but Dec. 31 matters more. My latest at IowaBiz.com, the Des Moines Business Record Business Professionals’ Blog.

 

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TaxProf, The IRS Scandal, Day 964.

Renu Zaretsky, Bans, Subsidies, Searches, and Bubbles. Today’s TaxVox headline roundup covers new EITC restrictions and Nevada’s corporate welfare cornucopia for Tesla, among other morsels.

Stephen Entin, Disentangling CAP Arguments against Tax Cuts for Capital Formation: Part 4 (Tax Policy Blog). “Most major tax bills of the last thirty years have provided serious tax reductions or refundable credits (resulting in negative taxes) for lower income families. These are extraordinarily expensive, but do next to nothing to promote capital formation to raise productivity, wages, and employment.”

 

Caleb Newquist, Opening Day of Tax Season Less Than a Month Away (Going Concern). “Anyone with a PTIN is due to report on January 4.” Haven’t renewed your PTIN yet? Get on it!

 

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Tax Roundup, 12/28/15: Harvesting without a combine. And: Tax Credits as a fiscal trap.

Monday, December 28th, 2015 by Joe Kristan

harvestThe corn’s in, but the harvest isn’t over. The tax law taxes capital gains for almost all individual taxpayers when you sell an appreciated asset, even though it shouldn’t. Still, if you’re like most of us, not everything you buy goes up.

The tax law allows individuals to deduct capital losses when they cash out a money-losing investment, up to the amount of capital gains plus $3,000. That means paying capital gain taxes is optional to the extent you have unrealized capital losses in your taxable portfolio. That’s a silly option to exercise. Here are some thoughts on loss harvesting:

You have to take the loss in a taxable account. A loss in an IRA or 401(k) plan doesn’t help you.

Normally the “trade date” is the effective date for tax purposes, so you can sell a stock as late as December 31 this year and still deduct the loss on your 2015 1040.

If you have a loss on a short sale, the tax law treats it as closing on the settlement date, not the trade date, so you can’t wait until the last minute to close a short sale to get a deduction. (See also Russ Fox, Harvesting Capital Losses: Act Quickly on Shorts!)

You don’t need to overdo it.  You can deduct your capital losses only to the extent of your capital gains, plus $3000.  But if you do overdo it, individual capital losses carry forward indefinitely.

Long-term losses can offset short-term gains, and vice-versa.

Harvesting losses helps taxpayers subject to the Obamacare/ACA Net Investment Income Tax to the extent it helps for regular taxes.

– Watch out for the wash sale rules. If you buy the same stock within the 30 days preceding or following the sale of a loss stock, your loss is disallowed. This is true even if you sell from a taxable account and buy in an IRA, according to the IRS.

See also

This is another installment of our 2015 year-end planning tips series running through December 31. 

Related — weekend tax tips:

Altaring your tax planning

Keep on giving! A high-end tax planning tip.

 

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

Tax Credits as a trapThe Sunday Des Moines Register this week told the story of a tax credit deal gone awry, leaving the small college town of Grinnell, Iowa in a financial pickle.

Grinnell once housed Spaulding Manufacturing Company, one of many small early Midwest automakers. The Spaulding story is told in my college buddy Curt McConnell’s fine book, Great Cars of the Great Plains.

There is only one known surviving Spaulding vehicle. It was to be a crown jewel of a transportation museum to be built around the dilapidated remains of the old Spaulding plant. But it hasn’t gone well, according to the Register:

Three years after it opened, the Iowa Transportation Museum has hit a dead end, losing its building to foreclosure and leaving the city of Grinnell on the hook to repay more than $4 million in federal aid for the project.

The museum, which had operated in a renovated portion of the old Spaulding manufacturing plant in downtown Grinnell, closed in October, unable to pay its mortgage to Iowa City’s MidWestOne Bank. The bank even took possession of the museum’s crown jewel, a rare 1913 Spaulding automobile built at the Grinnell plant.

It sounds as though the business plan of attracting auto tourists to Grinnell was hopelessly optimistic, but it was tax credit failure that finished things off:

The museum built its budget around receiving $900,000 in federal historic tax credits that never arrived. A 2012 federal appeals court ruling about a real estate project in New Jersey shook up the market for historic tax credits. A subsequent IRS memo explaining the ruling said, essentially, that investors should not stand to profit from historic tax credits without shouldering some of the risk. As a result, investors backed away from historic tax credit projects.

“That is where things really started to come apart on us, and it was just kind of a chain reaction from there,” Brooke said.

This is where I find myself puzzled. By their terms, federal historic rehab credits have never been transferable. A transferable tax credit can be sold by the original recipient to cash in on a tax break too big to use by itself. Tax credit middlemen tried to make them transferable by setting up “partnership” structures where investors were nominal partners, but really were in it only for the tax credits, with economic gains and losses from the rehab project allocated elsewhere.

To my surprise, the Tax Court had gone along with that structure, but the Third Circuit Court of Appeals reversed them in Historic Boardwalk Hall LLC (CA-3, No. 11-1832). The court held that because the tax credit investor didn’t share meaningfully in either potential income or loss from the project, it wasn’t a partner eligible for tax credits.

That was the risk I had always seen in these deals, and it came home to Grinnell.

The Moral? When it takes tax credits to make a deal work, it doesn’t really work. It’s just crony capitalism.

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Robert D. Flach has started a new organization, TAX PROFESSIONALS FOR TAX REFORM. “We believe that the one and only purpose of the Tax Code is to raise the money necessary to fund the government.” A worthy cause.

William Perez, Understanding Canceled Debt Income and Taxes

Kay Bell, Uncommon charitable gifts still provide donors the typical tax deduction. A discussion of property donations. “As with all tax deductible donations, you also need to make these more uncommon ones by Dec. 31 in order to claim them on this year’s taxes.”

Paul Neiffer, Farm and Ranch Provided Housing. A partnership, sole proprietor or S corporation cannot provide and deduct employee related housing for any of its owners (unless they own less than 2% AND are not related to any other owners).”

TaxGrrrl, 12 Days Of Charitable Giving 2015: Fender Music Foundation

 

Seventh Avenue, Des Moines, this morning.

TaxProf, Hemel:  Taxes To Cause Vanguard Fund Fees To ‘Quadruple’? Not So Fast. We know the nosy busybodies would punish Vanguard’s small saver base with higher fees to feed the federal black hole. The only dispute is how much.

Tax Policy Blog, Apple CEO Tim Cook: We Need a Tax Code for the Digital Age. “The solution to ‘profit shifting’ is not a new patch to an already complicated tax code. The solution that the U.S. needs is a comprehensive tax reform that reduces both the corporate tax rate and the complexity of the entire tax code.”

TaxProf, The IRS Scandal, Day 961Day 962Day 963. The Day 961 post notes the obvious problems of giving one of the most aggressively secretive agencies power over passports. Day 962 inadvertently confirms one of the driving forces of the IRS scandal — ongoing bitterness over the Citizens United decision preventing bureaucrats from selectively restricting free speech rights.

Robert Wood, More Calls To Impeach IRS Chief Over Targeting, Bonuses, Obstruction

 

Stuart Gibson, Unlikely New Year’s Resolutions (Tax Analysts Blog). Like these:

-Citizens of Greece: Pay all the taxes they owe.

-Greek tax collectors: Pay all taxes they collect into the Greek treasury.

Unlikely indeed.

 

Peter Reilly, Did You Hear The One About Bernie Sanders And Kent Hovind Walking Into A Tax Blog? Well, Bernie is evidence of the co-existence of dinosaurs and hominids.

 

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Tax Roundup, 12/23/15: The wisdom, or not, of paying taxes by year-end. And: Deep thoughts at Think Progress.

Wednesday, December 23rd, 2015 by Joe Kristan

dimeIs it wise to prepay deductible taxes? Paying 4th quarter estimated taxes before December 31 is a standard piece of the year-end tax planning toolkit. Sometimes taxpayers go further and pay in December all of their taxes that would be due in the following April. Is it wise to pay all of your taxes 3 1/2 months early to move a deduction up a year?

The first question you have to answer, with regard to payments of state and local taxes deductible on your federal return, is whether you will be paying alternative minimum tax this year or next year. For example, a taxpayer with an unusual lump of income this year who waits until next year to pay state taxes may trigger AMT next year, wasting those state tax deductions. On the other side of the coin, taxpayers who are in AMT this year get no value from prepaying deductible taxes, so they might as well put the money to work until the taxes are due.

If the taxes are just as deductible in either year, it’s a time value of money question. What is the present value of spending a dollar now to get a fraction of that back as a tax benefit a year earlier? I’ve run some numbers, using the top Iowa marginal tax rate and the rates at the different federal brackets:

2015 year-end payments pv2

This shows a benefit at all brackets from prepaying estimates due in January, but prepaying taxes due in April only makes sense at higher brackets, and it never works to prepay September property taxes in the prior year if AMT is not a factor.

This is another installment of our 2015 year-end planning tips series

 

Think Progress is an openly partisan agitation outfit, so we shouldn’t expect it to know much about taxes. Still, it is a regular source of talking points for a certain breed of politicians who promise to spend everything on everyone, all to be paid for by someone else. That makes it worthwhile to occasionally correct it for saying something half-baked like this (my emphasis):

There may be some truth to the, as no one has accused Apple of doing anything illegal. But while Cook has advocated for lowering the corporate tax rate and closing loopholes, corporate taxes are already a shrinking portion of the government’s revenue, getting replaced instead by payroll taxes paid by working people.

Yes, corporate taxes are a shrinking portion of government revenue. But it’s not because the corporate tax law has suddenly become lax. It’s because most businesses are no longer taxable as corporations in the first place.

entity forms chart

Source: Tax Foundation

The 1986 tax reforms made it sensible for most closely-held businesses to be partnerships or S corporations. Unlike C corporations, which pay corporation taxes, these “pass-through entities” don’t pay taxes; instead, the income is reported on their owners’ 1040s.

Think Progress says the C corporation taxes are being replaced by “payroll taxes on working people.” That’s demonstrably wrong. C corporation taxes are being supplanted by business taxes paid on 1040s, which are generally paid at high tax brackets. Perhaps Think Progress has developed a strange new respect for hard-working high-bracket individuals.

Tax foundation Distribution of Federal Taxes in 2014

Chart Courtesy Tax Foundation

Cracking down on C corporations, as Think Progress advocates, will do nothing but confirm the trend away from C corporation taxation. I suppose then they’ll just continue the beatings until morale improves.

Related: Individual Tax Rates Also Impact Business Activity Due to High Number of Pass-Throughs (Scott Hodge, Alex Raut)

 

WOWT.com, Former Omaha IRS Agent Arrested for Tax Fraud Scheme. And yet we are told that these people need to regulate preparers to stop tax fraud.

 

Jared Walczak, States Lag Behind Federal Government on Small Business Expensing (Tax Policy Blog). “Forty-five states and the District of Columbia allow first-year expensing of small business capital investment under Section 179. Of those, thirty-four states are in conformity with the now-permanent $500,000 federal expensing level.”

William Perez, How Do You Claim a Sales Tax Deduction on Your Federal Taxes?

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #3. Thoughts on the Quill decision.

Kay Bell, Home energy tax breaks are extended, just in time for the arrival of, for many, an unusually warm winter

Jack Townsend, U.S. Taxpayer Seeks Declaratory Judgment that Goevernment Must Prove Willfulness for the FBAR Willful Penalty by Clear and Convincing Evidence. Given the stakes, it seems only fair, but the IRS prefers to be able to cause financial ruin with cloudy and unconvincing evidence.

 

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Jason Dinesen, From the Archives: Taxpayer Identity Theft, Part 2

Jim Maule asks Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit? I say its a revenue grab combined with moral preening.

Stephen Olsen, Summary Opinions for November (Procedurally Taxing). A roundup of tax procedure headlines.

Robert Wood, 5 Things To Know About Year-End’s Massive Tax Bill

TaxGrrrl, Real Housewife Teresa Giudice Released From Federal Prison

Tony Nitti, Moving? Don’t Forget The Tax Deduction. “At 23 years old I packed up my life, and in a move made popular by members of the witness protection program, fled New Jersey for the quiet of the Colorado mountains.”

Robert D. Flach talks about priorities in A YEAR-END TAX QUESTION FROM A CLIENT

 

Cheer up! Social Security is Still Going Broke (Arnold Kling)

TaxProf, The IRS Scandal, Day 958

Howard Gleckman, Trump Would Slash Taxes for the Top 0.1 Percent By An Average of $1.3 Million, Add Nearly $10 Trillion to the Debt (TaxVox)

 

Thanks a bunch, Prof. Avi-Yonah. CBS News:  Vanguard Investors, Your Fund Fees Could Quadruple If Michigan Tax Prof Reuven Avi-Yonah Is Right (TaxProf). A great example of how with a little corporation-bashing, busybody do-gooders would screw millions of small investors.

 

Holiday Giving News from the Profession. This Flask-Calculator Is the Perfect Gift for the Accountant Who Drinks Everything (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 12/22/15: If you want a 2015 qualified plan, time to fly! And lots more.

Tuesday, December 22nd, 2015 by Joe Kristan
The view from Tax Update world headquaters yesterday.

The view from Tax Update world headquaters yesterday.

10 days to get a qualified plan in place. Some of the best deductions for sole proprietors and one-owner corporations are found in the tax law’s “qualified plan” rules. A payment to a qualified pension or profit-sharing plan is deductible now, grows tax free, and is only taxable on retirement. For one-employee companies, it’s a deduction for taking money from one pocket and putting it in another.

One of the best of these opportunities is the “Solo 401(k),” which allows a deduction of up to $53,000 for contributions to a solo owner-employee’s retirement plan. But there’s one little catch: the plan has to be in place by December 31 of this year to allow a 2015 deduction.

If that sort of deduction sounds attractive, you should consult a qualified plan professional. Some brokerage houses can steer you the right way, as can the Vanguard mutual fund company.

Remember, though, that once money is in a qualified plan, expect it to stay there. Early withdrawals face a 10% penalty, as well as income tax liability. 401(k) plans generally can’t be investors in or lenders to the plan owner’s business. There are annual compliance costs that inevitably reduce the tax benefits. Still, for an annual deduction that size, some inconvenience can be tolerated.

This is the second installment of our 2015 year-end planning tips series. Collect them all!

 

Kay Bell, Upcoming filing season will start on time: Jan. 19, 2016. Almost none of my clients are ready by then. While I’m glad that the season isn’t delayed by a failure to pass an extender bill, I think identity theft requires a later start to issuing tax refunds. They shouldn’t be processed until W-2 and 1099 information is in the IRS system – preferably with special W-2 codes like those the IRS is experimenting with this season to catch fraudulent claims. 

Of course, that means the government will sit on overpayments longer. That should be addressed by changing the “I got a big refund!” culture. That could be done by lowering to 75% the amount of taxes that have to be paid in by April 15 to avoid a penalty and by changing the withholding tables to make refunds less likely.

 

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Robert D. Flach comes through with a “meaty” Christmas Week Buzz, with lots of Extender bill discussion and a hint of perhaps the most unusual Christmas Eve tradition ever.

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #4 – Who Can Qualify As A Real Estate Pro?

Russ Fox, Are Tips (Gratuities) at the Poker Table Deductible? “As long as the tip is reasonable, it’s clear that a professional poker player can deduct the tip as a business expense.” You’ll have to read the post to see whether it works for amateurs.

William Perez, All About the Earned Income Tax Credit. “The easiest way to find out if you qualify for the earned income credit is to use an application found on the IRS Web site called the EITC Assistant.”

Andrew Mitchel offers a True / False Quiz on FAST Act Passport Revocation Provisions

Hank Stern, Major O’Care Disappointment (Insureblog). “Now that the (disastrous) first phase of the 2016 Open Enrollment season is behind us, lets’ take a look at what a huge disappointment it was.”

Carlton Smith, Tilden v. Comm’r: Postal Service Tracking Data Determines Timeliness of Tax Court Petition (Procedurally Taxing)

TaxGrrrl, 12 Days Of Charitable Giving 2015: PACT For Animals

 

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Scott Greenberg, Fact-checking Hillary Clinton on Millionaires’ Taxes (Tax Policy Blog). “There are very few millionaires in the U.S. that pay “10 percent to nothing” in taxes.”

TaxProf, The IRS Scandal, Day 957. Today’s link goes to a Washington Post story that says “There is no love lost between Republicans in Congress and the Internal Revenue Service, whether it’s their dislike for the tax code, the current tax commissioner or their fury at the agency’s treatment a few years ago of conservative groups.” If you want to see increases in the IRS budget, you want Commissioner Koskinen to resign.

Howard Gleckman presents The TaxVox Lump of Coal Awards for the Ten Worst Tax Ideas of 2015. While I might quibble with one or two of the choices, it’s a strong list. For example:

8. Tax credits for what ails you. Hillary Clinton has taken a page out of Bill Clinton’s fiscal playbook: Identify a kitchen table problem and propose a modest tax subsidy to relieve the pain. She has tax credits for families burdened by the high costs of education, caring for aging parents, and high medical costs. And she’s proposed another credit to encourage employers to give workers a stake in their companies. My TPC colleague Gene Steuerle has a name for this: tax deform.

It’s more than a federal problem, for sure.

 

Matt Gardner, What Apple’s Tim Cook Gets Wrong About Its Tax Avoidance (Tax Justice Blog). Mr. Cook has the temerity to think that he has a duty to shareholders, instead of to grasping politicians.

 

Career Corner (or, News from the Profession). Former EY Employee Who Liked Secretly Filming People in the Bathroom Given Four Years to Think About His Choices (Caleb Newquist, Going Concern).

 

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