Roth & Company, P.C. Tax Update Blog
Spending run through a tax return is still spending
February 08, 2010
The state issues a report saying that it can't show that a single one of Iowa's economic development tax credits does any good. So the legislature responds by eliminating the credits and lowering tax rates for everyone, right?
Well, no. Unfortunately this press release from Brad Zaun, a state legislator who is running for Congress, isn't an unusual reaction:
Let's create jobs, not raise taxesWe should utilize the Tax Credit Review Panel’s recommendations to create common sense solutions – not use it as an opportunity to create a crisis and then propose to solve it by increasing taxes on hard working Iowans. This is not the time to be raising taxes – we should instead be working together to find common sense solutions that will create and retain private sector jobs.
A subsidy is a subsidy is a subsidy. Running it through the tax return doesn't transform it to a "tax cut." The only tax cuts worthy of the name are those that are broad-based and go to all similarly-situated taxpayers. When you give a tax break only to taxpayers who jump thorugh a bunch of hoops, it's a subsidy.
Worse, when you have subsidies for specific activities -- say, for ethanol, or windmills, or biodiesel, or "research" -- you take for granted that the State of Iowa has any clue about where taxpayers should invest. Fat chance of that. These subsidies inevitably go to those who can afford the necessary lobbyists and fixers.
If you really want to encourage growth, you need a tax plan that works for the rest of us -- something like the Quick and Dirty Iowa Tax Reform Plan.
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More client service than the law allows
February 08, 2010
You can sell your skills to your clients, but you can't sell them deductions:
For no legitimate business purpose, Loeser's clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients' books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.
Jack Townsend, noting that the IRS suspended Mr. Loeser, a CPA, from IRS practice for 12 months, hints that the suspension would be a great result for the practitioner under the circumstances. Peter Pappas has more.
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And if you must fight, please don't bleed on the carpet
February 08, 2010
Sound tax client etiquette advice from Trish McIntire:
Don’t put the preparer in the middle of a family fight. The same can be said about putting down another person or group.
There is no "licensed social worker" part of the CPA exam.
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But he had to settle for second-best
February 08, 2010
Clarence Thomas: If Not for the Supreme Court Gig, I'd Be ... A Tax Lawyer
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Darkest secrets revealed
February 07, 2010
At Going Concern: Five Questions with Joe Kristan
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Snow on Court Avenue
February 05, 2010
We're freshening up the snowcover at 4th and Court today in Downtown Des Moines.
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Die early and save!
February 05, 2010
Elective deemed death may be the gimmick to break the estate tax deadlock. The Wall Street Journal reports:
A proposal to allow wealthy people to prepay estate taxes while they are still alive, in exchange for a lower tax rate, has caught the attention of Senate staff trying to craft a bipartisan, permanent compromise on the estate tax.The estate tax prepayment idea is being pushed by Sen. Maria Cantwell (D., Wash.) as a possible compromise between senators who want a permanent, 35% estate tax rate and the position of President Barack Obama, who supports a 45% rate on inherited wealth. ...
The plan would allow wealthy people to place assets in a prepayment trust while they are still alive. Those assets would be subject to a 35% tax, which the estate owner would have five years to pay, according to a document describing the plan, obtained by Dow Jones Newswires. ... [T]he measure could be expected to have a net positive effect on revenue over the next 10 years to the extent that wealthy families begin to prepay taxes to take advantage of the lower rate.
Actually, the just-expired tax law already has a provision that pretty much does that. It's called the gift tax. The tax cost of gifting assets is lower than that of passing them on at death because the gift tax rate is imposed only on assets that reach the next generation; the estate tax is imposed on the whole estate, including the amount that has to go to the government to pay the tax. Sure, you have to give assets away to qualify for the gift tax, but that's just a detail.
In real life, relatively few people make taxable gifts, even when it means estate tax savings. It's unlikely that Senator Cantwell's deemed death provision would be much more popular.
Via The TaxProf.
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Self-swappers seek Supreme Court review
February 05, 2010
A company whose attempted like-kind exchange failed because it replaced the exchange property with replacement party from a related party is seeking Supreme Court review, reports Tax Analysts ($link).
Teruya Brothers Ltd. used a qualified intermediary to hold funds on the $13 million sale of two properties to an unrelated party. They met the Section 1031 45-day and 180-day requirements for identifying and closing on the replacement property, but they acquired the replacement property from a corporation related to Teruya Brothers.
The Tax Court and the Ninth Circuit appellate panel agreed with the IRS that the use of the related party converted the transaction to a swap between the two related parties, followed by an immediate sale of the $13 million properties to the unrelated party. As the tax law says that a sale of a property acquired from a related party within two years of the exchange disqualifies the original swap, this made the original transaction taxable.
Teruya Brothers argues that this result is an unauthorized IRS rewrite of Section 1031. The odds are always against taxpayers seeking Supreme Court review. Unless and until the Supreme Court reverses this result, taxpayers are wise to not have their qualified intermediaries acquire replacement property from related parties.
Related: A LIKE-KIND EXCHANGE DISASTER (RELATIVELY SPEAKING)
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'Indefinite' doesn't mean 'temporary'
February 04, 2010
Tough times force us to be flexible. Tough times forced an out-of-work electrician in Lake Mary, Florida to take a job 200 miles away in Delray Beach. The Tax Court picks up the story:
Although the position was permanent, petitioner intended it to be an interim position while he pursued other employment opportunities....
From August through December 2006 petitioner drove between Lake Mary and Delray Beach. Petitioner drove to Delray Beach at the beginning of the work week and stayed in a motel during the week. Petitioner returned to Lake Mary on the weekends so as not to incur additional motel costs for days he was not working. The 5 days a week petitioner was in Delray Beach he stayed at a motel. In mid-December 2006 petitioner signed a 1-year lease for an apartment in Delray Beach.
In September 2007 petitioner left his position with Meisner for a position with M.J. Electrical based out of Iron Mountain, Michigan. Petitioner began his employment with M.J. Electrical in Topeka, Kansas, but at the time of trial worked for that company in Morgantown, West Virginia.
The tax law allows you to deduct travel costs of work assignments when you are "temporarily" away from your "tax home." That means you have to be both "away from your tax home" and the assignment has to be "temporary." The Tax Court explains the tests (citations omitted):
As a general rule, a taxpayer's tax home is determined by the location of the taxpayer's principal place of employment, regardless of where the taxpayer's personal residence is located. Under an exception to the general rule, a taxpayer's personal residence may be his tax home where the taxpayer is away from home on a temporary rather than indefinite basis. The flush language of section 162(a) provides that a "taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year."Employment is defined as "temporary" only if the taxpayer can foresee its termination within a reasonably short period of time or it is for a fixed duration. Indefinite employment is employment where the prospect is that the work will continue for an indefinite and substantially long period.
The electrician's "tax home" became his place of employment when he took the full-time position in Delray Beach, even though he commuted from far away:
Given the circumstances surrounding his employment with Meisner, we can understand why petitioner might consider his position "temporary", as that word is used in common parlance. After all, at all relevant times it was his intention to resign the position with Meisner as soon as possible for business as well as personal reasons.Nevertheless, the position with Meisner was a permanent position with no foreseeable terminus. When petitioner accepted the position with Meisner, he had a reasonable expectation that the position would, and it in fact did, last more than 1 year... Petitioner kept his residence in Lake Mary for reasons of personal choice despite, rather than because of, the exigencies of his trade or business.
Consequently, because petitioner's position with Meisner in Delray Beach was an indefinite position, Delray Beach was his tax home for the relevant period. Because petitioner was not "away from home" within the meaning of section 162(a)(2) while in Delray Beach, he is not entitled to a deduction for vehicle expenses, lodging, and meals and incidentals incurred as a result of his position in Delray Beach. Instead, his costs were in the nature of personal or living expenses. We thus sustain respondent's determination on this issue.
Bottom line? No deduction for travel from Lake Mary and for the motel bills in Delray Beach.
The Moral? Indefinite isn't temporary, and your tax home is where your job is.
Cite: Durrance, T.C. Summ. Op. 2010-12
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XY to XX
February 04, 2010
More on the Tax Court's sex-change decision, from Peter Pappas. My coverage here.
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Movies, or teachers?
February 04, 2010
Kay Bell shows some less-than-full throated sympathy for film credits:
I love movies. I get a big thrill when one is made in Texas or especially here in the Austin area. And I think productions do help boost local economies somewhat.But the tax breaks to attract the film industry, like those to entice other economic sectors, can be badly abused.
They might boost a very local economy - the folks who get paid for the shoot - but there's a corresponding loss to those who unwillingly pay the cost of the credits - the rest of us. Iowa state senator Herman Quirmbach lays out the stakes:
"This last year, the (film) credits cost $38.6 million," he said. "For that kind of money, I could save the jobs of 1,000 teachers. You tell me what's more important to the future of Iowa: 1,000 teachers or having Meryl Streep come visit."
Exactly.
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Maybe she should have tried the gold-fringed flag argument
February 04, 2010
Are courts tired of tax protesters? This terse 10th Circuit opinion, reproduced in full, gives that impression:
Marian L. Moline is another tax protester who insists on clogging the system with ridiculous arguments. She appeals an adverse decision of the Tax Court. We have jurisdiction under 26 U.S.C. § 7483. We affirm for the reasons cogently explained in the Tax Court's memorandum opinion in this case.
Link: Tax Court opinion
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Deducting the ultimate 'Brett Favre" move
February 03, 2010
The Tax Court rules on whether you can deduct the costs of switching from Team XY to Team XX. Tax Update coverage is up at Going Concern.
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Tax reform: It's just resting its eyes.
February 03, 2010
TaxVox reports that President Obama's moribund tax reform commission, featuring long-disfavored economists Paul Volker and Austan Goolsbee, may be nearly officially dead.
If true, this may be the best possible end to an embarrassing episode. The commission began life under impossible constraints, including the directive that it could consider nothing that raised taxes on those making less than $250,000.Eventually, the White House put out the word that the panel would produce only a laundry list of possible reforms, but would not make any recommendations. The final blow came in December when the panel’s deadline came and went with only a White House promise that the group would complete its work “after the holidays.” Which holidays, exactly, were never specified.
Now, it seems the tax panel’s work will be rolled into a deficit reduction panel to be named later—another group whose mandate is unclear, to say the least.
It's probably more than just a coincidence that the commission is dying just as the admistration takes Mr. Volker out of mothballs.
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Moore corporate welfare in Michigan
February 03, 2010
Michael Moore, director of Capitalism, A Love Story, is all about the unholy links between business and government. Like his:
Moore isn't just any filmmaker. He is a current member of the Michigan Film Office Advisory Council, a state organ created to advise the Michigan Film Office, which is responsible for approving applications for Michigan's film incentive program. I do not believe it strains credulity to suggest that Moore's very presence on the council may have led to the film office approving special tax treatment for his work.Giving an advisory council member's project tax credits makes this government "jobs" program look like a good ole' boys network where "la familia" takes care of its own - and with taxpayer dollars. This is not the only instance of high-ranking state officials appearing to benefit directly from the state program in which they play (or played) a role.
While Mr. Moore thinks capitalism is terrible, I understand you do have to pay to see the movie. It's good that Michigan is doing so well that it can afford to give money to somebody to explain how awful capitalism is. Oh, wait...
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When you draw a full house, the IRS is all aces
February 03, 2010
Gambling tax maven Russ Fox explains how the IRS sits in on your poker game in a new podcast.
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Loans that don't generate 'interest'
February 03, 2010
The Fifth Circuit has joined our Eighth Circuit in ruling that loans to closely-held corporations don't qualify as "business interests" for the estate tax break for interests in closely-held businesses. Roger McEowen has the details.
Link: Estate of Mary Roppolo Artall, No. 09-60092
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97 years old, if it's a day.
February 03, 2010
Andrew Mitchel reminds us that the 16th Amendment, which paved the way for the modern income tax, is 97 years old today. Unless you are one of those folks who think it hasn't been born yet (and good luck with that).
That means it's time to hear from the Old 97s:
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Accounting Blogroll is stealing taxupdateblog.com content
February 02, 2010
I can't wait to see this on the content thief's page. The "Accounting Blogroll" site (aka "Accountants Directory") is aggregating and reprinting posts from here and elsewhere without attribution. Thanks to Russ Fox for the tip.
Update: It's sweet when my evil plans work:
Screenshot from "Accountant's Directory," a/k/a "Accounting Blogroll." Click to enlarge.
Why haven't I linked? I hate to send them traffic. If you want to see for yourself, it's www.accountants-directory.info/ .
Oh, and thanks to Stacie Clifford Kitts for follow-up.
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The $40 million gain? I must have overlooked that.
February 02, 2010
A Maryland cardiologist, Pradeep Srivastava, had some heart-stopping gains from day trading in the 1990s bull market -- $40 million or so. But like so many bull market geniuses, he lost his touch in 2000. This left him with a quandry, one beyond those usually seen when you lose your shirt in the market -- he had never bothered to mention his gains to his tax preparer.
The Department of Justice picks up the story:
The evidence proved that in 2000, the value of Srivastava’s portfolio collapsed and he incurred massive capital losses. Disclosure of the full extent of those losses, however, would have potentially alerted the Internal Revenue Service to his massive, undisclosed short-term capital gains for 1998 and 1999, therefore, trial testimony showed that Srivastava filed a false tax return which understated his capital losses for 2000.
Busted for filing a return understating your income? That's different. In addition to that, a jury convicted Mr. Srivastava of evading $16 million in taxes in 1998 and 1999. Last week he was sentenced to 48 months in prison. It could have been worse; federal sentencing guidelines indicate a 63-78 month sentence for a $16 million tax loss.
The Moral? Next time you make $40 million day-trading, write it down somewhere so you don't forget to put it on your tax return.
Link: Washington Post 2005 writeup on Mr. Srivastava's legal troubles.
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Got Basis?
February 02, 2010
There's a handy S corporation basis worksheet to determine your deductible S corporation loss at The Tax Lawyer's Blog.
It's a shame that the IRS has never built this into the 1120-S Schedule K-1.
For more on S corporation basis and loss limitations: Got Business Losses? Get Basis
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Other than that, the President's budget is just fine
February 02, 2010
Now that the President and his budget director Peter Orszag have abandoned the leadership of achieving minimally necessary deficit reduction I hope we never hear them again talking tough about deficit reduction. Yes, it's hard work, but that is why we call them leaders, give them big offices, and get them good seats at the Kennedy Center. They wimped out of their most basic responsibility of putting the budget on a sustainable path.
Oh, well.
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Take a walk through the 1040 Schedule M
February 02, 2010
TaxGrrrl conducts a handy step-by-step tour through Schedule M, the form used to claim the "Making Work Pay Credit."
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Six more weeks of Winter Carnival!
February 02, 2010
It's cold, and it's getting colder. Six more weeks of winter seems like a safe bet. Time to go somewhere warm for hot coffee and a fresh Groundhog Day Carnival of Taxes at Kay Bell's place.
And tip your waitress.
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Starlets or teachers?
February 02, 2010
Senator Herman Quirmbach, on film credits:
"This last year, the (film) credits cost $38.6 million," he said. "For that kind of money, I could save the jobs of 1,000 teachers. You tell me what's more important to the future of Iowa: 1,000 teachers or having Meryl Streep come visit."
Exactly so. And it's the same kind of consideration that should be applied to all of the corporate welfare credits. These things cost real money.
Related: Let them eat Canapes
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Yes, it is getting harder to do this.
February 01, 2010
From CCH, via Kay Bell, comes a great illustration of what a hash Congress has made of the tax law:
The circled bookshelf represents the tax law in 1984, when I got out of school and started doing this for a living. It shows what happens when Congress sees the tax law as the Swiss Army Knife of public policy -- it can do it all! All the preparer regulation in the world isn't going to make up for the errors caused by tax complexity. Congress, it's your fault.
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Trust your payroll service, but not too much.
February 01, 2010
Vincent Mangione, an upstate New York payroll service provider was a small businesman's worst nightmare. Russ Fox reports:
Assistant US Attorney Michael DiCiacomo told the Buffalo News,"Unbeknownst to the businesses, Mangione would secure from the businesses the proper amount of quarterly tax due to the IRS and then submit a false tax return on behalf of the business that underreported the amount of tax due," DiGiacomo said. "According to the indictment, Mangione would then keep the difference for his personal use." Mr. Mangione, through his attorney, denies any wrongdoing.
The worst part:
None of the small businesses that hired Mangione to handle payroll have been criminally charged in the case, but they face potential tax problems with the IRS."They still have obligations to the IRS for taxes not fully paid," DiGiacomo said of the companies.
Having to remit payroll taxes and withholding twice -- once to the IRS, and once to a thief -- is enough to kill many businesses. That's why anybody who uses a payroll service should still enroll in the Electronic Federal Tax Payment System, EFTPS, so they can go online and verify that the money that goes to the payroll service actually gets to the IRS.
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Feeling risky?
February 01, 2010
Then take your chances and head over to the new Cavalcade of Risk at Wenchypoo's place.
Among the worthy posts at the greatest roundup of blog posts on insurance and risk management on the planet is Hank Stern's analysis of how cell phones seem to help dementia in mice. How they teach the mice to use the little phones, I'll never know.
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New York Buffaloes Bed Buffaloes
February 01, 2010
New York goes after a tax blogger's dependent deduction. Bureaucracy ensues.
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One step over the (state) line
February 01, 2010
My new post at IowaBiz.com talks about how easy it is to find yourself subject to taxes in other states.
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Metaphor wars
February 01, 2010
Christopher Bergin, 2/2/2010 ($link):
When the IRS talks about transparency, it's a one-way street.
Tax Update, 1/27/2010:
Transparency is a one-way mirror as far as the IRS is concerned.
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