Accounting Today visitors: click here for the post on the updated auto depreciation limits.
Happy Lincoln’s Birthday. President Lincoln signed the first U.S. income tax into law in August, 1861, to cope with costs of the Civil War and the loss of income from customs collections in the rebellious states. Wikipedia says the tax was initially 3% on income over an $800 exemption. Right away they started tinkering, and adding expiring provisions:
The income tax provision (Sections 49, 50 and 51) was repealed by the Revenue Act of 1862. (See Sec.89, which replaced the flat rate with a progressive scale of 3% on annual incomes beyond $600 ($12,742 in 2009 dollars) and 5% on incomes above $10,000 ($212,369 in 2009 dollars) or those living outside the U.S., and perhaps more significantly it was explicitly temporary, specifying termination of income tax in “the year eighteen hundred and sixty-six“).
The rates were increased again in 1864 to a top rate of 10%, but it actually was allowed to expire after the end of the war.
For some reason, this early version of the income tax isn’t a big topic in history books. Something else must have been going on then.
Tax-refund fraud is expected to soar again this tax season, and hit a whopping $21 billion by 2016, from just $6.5 billion two years ago, according to the Internal Revenue Service.
And the problem—which the agency admits is growing quickly—is compounded by an outdated fraud-detection system that has trouble identifying many attempts to trick it.
$21 billion. The entire tax system of the state of Iowa raises maybe $8 billion, and the IRS issues $21 billion annually to thieves. Not counting earned income credit fraud, of course.
I’m no IT expert, but saying the IRS is helpless sounds like a cop-out. Even with obsolete technology, the IRS has been slow to stop obvious fraud, such as multiple (say, hundreds of) refunds going to a single bank account. The agency allowed this crisis to spin out of control years ago. Practitioners certainly knew about it during Doug Shulman’s execrable term as IRS commissioner, but he spent his efforts trying to regulate practitioners and harass the Tea Party, while grossly failing at the more basic duty of not wiring money to theives. Commissioner Koskinen obviously hasn’t solved the problem. I think it’s fair to conclude that they just haven’t considered it their biggest problem.
This should be the highest IRS priority, certainly more so than the “voluntary” preparer program. It should also be the highest oversight priority of the tax writing committees in Congress, who should be able to find a way to find the necessary funding in a way that keeps the Commissioner from diverting it to pet projects. Of course, the history of IRS technology upgrades isn’t very encouraging.
It’s possible that the solution will also require taxpayers to wait longer for refunds. It takes a lot longer to get a refund when your identity is stolen anyway, so it’s probably worth taking a little more time. But when technology exists to enable the credit card company to call me when my wife is buying an expensive dress in Chicago, the IRS ought to be able to notice someone like Rashia Wilson before she fills her purse with Benjamins.
Related: TurboTax Fraud May Impact Federal Returns Too, FBI Investigating (Robert Wood)
Iowa’s $37 million corporate subsidy program. Not everybody knows that the State of Iowa mails subsidy checks to business taxpayers, including $11.7 million just to one. Iowa’s research credit is “refundable,” which means once it wipes out your Iowa tax, the state sends you a check for any remaining credit.
The total 2014 Iowa research credits claimed was $56,918,030 for 2014, according to the newly-issued Iowa Research Activities Tax Credit Annual Report for 2014. (Hat tip: Iowa Fiscal Partnership). Sixteen companies claimed $42 million of the credit, according to the report:
I know everybody thinks they have earned whatever cash they have coming from the state, and I’m not shy about claiming refundable credits for my clients. When the state offers you cash, you’d be foolish not to take it. Still, there’s no way this makes any sense from a tax policy perspective. The money sent to a few taxpayers should be used to lower rates for everyone, or to help eliminate the futile Iowa corporation income tax.
TaxGrrrl, IRS Releases Latest Version Of Its Mobile App – And Something’s Missing. Service!
Russ Fox, A Bipartisan Tax Bill? I’ll Drink to That! “It’s to end age discrimination against bourbon and whiskey.”
Peter Reilly, Lois Lerner’s Old IRS Team Looking Anti-tech. “…now I’m thinking there might be a full blown Luddite cult operating in there.”
Andrew Lundeen, Proposed Tax Changes in President Obama’s Fiscal Year 2016 Budget (Tax Policy Blog). “In total, the plan includes $2.4 trillion in proposed tax increases offset by $713 billion in new credits, deductions, and other offsets, for a total tax increase of nearly $1.7 trillion over the next ten years.”
Cara Griffith, Series LLCs: The Next Generation of Passthrough Entities? (Tax Analysts Blog). I think they will continue to be the wave of the future, as they have been for years now.
TaxProf, The IRS Scandal, Day 644
Career Corner. Interruptions at the Office: Good or Bad? (Adrienne Gonzalez, Going Concern). Bad, unless cookies are implicated.