Roth & Company, P.C. Tax Update Blog
Maybe he thought the D.A. was shouting at him
December 16, 2009
In blog comments, writing in all capital letters IS TREATED LIKE SHOUTING! (See how that works?). Does that explain this strange statement by a tax defendant recounted by The Tax Lawyer's Blog:
For the record, my Christian name is Randy Lee, and my family name is Oliver. That is spelled capital R, lower case, a-n-d-y, capital L, lower case e-e, capital O, lower case l-i-v-e-r.
Actually, no. He's just a tax protester who has adopted a variant of the funky punctuation defense. With predictable results.
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On the first day of Christmas, TickMarks gave to me...
December 16, 2009
...the first installment of the annual "12 blogs of Christmas" feature. What could be more festive?
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Should you prepay your taxes due next year?
December 15, 2009
One of the most common tax planning tricks is to pay in December taxes that are otherwise due in January and April. For income taxes, this is usually done by sending the taxes in as additional estimated payments. For property taxes, you just send the check in early.
Does this make sense? Maybe, if you meet some conditions:
- If you are prepaying state and local taxes, you need to itemize. Many folks, especially those over 65, have a big enough standard deduction that they don't need to itemize.
- If you are subject to alternative minimum tax in 2009, a deduction for state and local taxes probably does you no good (though in some cases, taxpayers with capital gain income can get a benefit even if they are in AMT).
- If you are prepaying federal taxes, you have to live in Iowa or another state that allows a deduction for federal taxes paid.
- Of course, you have to expect to owe some taxes.
Assuming you meet these conditions, you still have to take into account that by prepaying taxes you are giving up interest you could otherwise earn on the money. The chart below measures whether getting the deduction sooner is worthwhile at different tax brackets, assuming that you can take the deduction in either year; a green number means prepayment is good.
As you can see, prepaying your 4th quarter taxes always pays if the deduction counts in either year. The value of prepaying declines as the ultimate due date of the return goes further out, and it never makes sense to prepay a tax due next September, like your second 2010 Iowa property tax payment.
Of course, the chart doesn't tell the whole story. You have to apply some common sense. For example, if you know you will be in AMT next year, you may want to pay a bunch of state taxes this year because the value of the deduction next year is probably zero. Unless, of course, that triggers AMT this year.
This is another installment of our exciting 2009 Year-end tax tips series!
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I spent $450 million and all I got were these localized intangible benefits.
December 15, 2009
Iowa will spend $450 million on tax credits this fiscal year, and darned if anyone can tell that they do any good. That's the short version of the much-awaited analysis of Iowa's tax credits that came out yesterday.
After the Iowa Film Credit program blew up in scandal this fall, the Governor asked the state agency heads in charge of running Iowa's tax credit programs to put together a report listing the state's "return on investment" on the credits. One looks in vain at their 123-page report for a straight answer to that question for even one of the 30-odd economic development credits. The report punts for most credits by saying "It is not possible to quantify a return on investment at this time." -- even though some of these credits have been around for 8 or more years. That was the only analysis provided for $48 million Research Credit, which is certainly popular among its recipients. The report shows one unnamed big company got a $16.7 million research credit for 2007; because that was almost certainly well in excess of that company, the state wrote them a check for the difference, courtesy the rest of us taxpayers.
The lack of any quantifiable benefit for the taxpayers sent the loophole lobbyists scrambling to defend their subsidies:
"We applaud the effort to put this forward, but we certainly want to be sure they continue to look at the credits more in depth," said Ed Wallace, president of the Iowa Taxpayers Association, whose 154 members use many of the state's incentive programs. "These are really, really important programs to many companies. There are thousands of jobs at stake ... and millions of dollars in capital investment in different parts of the state."
No doubt the company that got that $16.7 million check really thinks it important to continue to get more of our money.
The report describes the benefits of the notorious film credit program:
Fiscal benefit to the state treasury is limited, however, other intangible and/or more localized benefits may exist. Growth in existing film, media and video infrastructure (personnel, technical expertise, etc.) has occurred over the past two years in Iowa. Even with these benefits considered, positive fiscal impact to the State treasury is not expected under current program structure
Intangible benefits like T-shirt purchases and tony parties! Let's spend another $300 million!
The lobbyists will certainly say we shouldn't be hasty about getting rid of these credits until we know whether they provide a benefit when the hearings on the credits open today. That's a funny way of looking at things. Most people like to know what the benefits are before they commit to spending another $566 million.
No doubt some folks will say that we need these credits to remain competitive, that we have no choice. For these people, I recommend the Tax Update's Quick and Dirty Iowa Tax Reform.
Related: Mismanagement: it's not just for film credits!
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Stupidity knows no borders
December 15, 2009
The U.K. and France are on an anti-banker tax frenzy; Britain has imposed a 50% tax on banker bonuses.
Tax Vox explains why this is folly, and why managing executive compensation through the tax law just causes more problems.
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Heads you win, tails IRS loses
December 15, 2009
Roger McEowen explains the estate planning implications of recent decisions blessing a technique that gives charity the benefit of IRS adjustments to the value of property held at death.
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Got the check? You got income.
December 15, 2009
Russ Fox explains.
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Why, oh why, must stimulus come but once a year?
December 15, 2009
The IRS Commissioner says tax season is a form of economic stimulus because of all the tax refunds (Via the Tax Lawyer's Blog):
Never mind that the refunds are a result of overwithholding, or anti-stimulus, the rest of the year. Actually, in a way, it underlines how all "stimulus" spending really works: it takes our money all year, and we're supposed to feel stimulated when they give a little of it back.
Instead of stimulus, try Stimulis:
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Faith-based tax credits!
December 14, 2009
The Iowa Department of Cultural Affairs has a touching faith in the effectiveness of the Historic Rehabilitation Tax Credit, according to the report issued today on Iowa's tax credit system:
While the DCA fully believes the return on investment is much greater than the aggregate cost of the tax credits, until a sufficient number of survey forms are returned upon project completion, there is insufficient data to back up this claim.
The credit has been in place since 2001, and the state has passed out millions of dollars in tax credits, but the jury is still out. Still, the Department "fully believes" that the credits work. So now all they have to do is click the heels of their ruby slippers together, and all will be well.
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Don't buy somebody else's mutual fund tax liability
December 14, 2009
The end of the year is a tricky time to buy mutual fund shares in a taxable account. The tax law forces mutual funds to distribute their recognized capital gains annually, and they often do so through a big December distribution. This means you can buy an entire year's worth of tax liabilty for a mutual fund share in a single day.
Fortunately, many funds, including the Vanguard family of funds, let you know when they plan to drop the capital gain bomb. It's worth a few minutes to check these figures before invest that check from Grandma.
This is another installment in our 2009 Year-end planning series. Accept no substitutes!
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It's a party in Ames!
December 14, 2009
Some of the 300 happy practitioners at the ISU Center For Agricultural Law and Taxation Farm Tax School this morning in Ames. This is our last school for the year. Thanks to everybody who has seen us in Ames, Sheldon, Mason City, Waterloo, Griswold, Ottumwa, Muscatine and Denison!
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Mismanagement: it's not just for film credits!
December 14, 2009
When the Iowa film tax credit scandal exploded in September, it raised an obvious question: were the other 30-odd Iowa economic development tax credits managed any better than the film credit?
The answer: maybe not. The Des Moines Register reports:
A Des Moines Register review of some of the state's biggest tax credit incentives found state leaders had reason to worry about runaway costs, lack of transparency and waste long before Iowa's botched attempt at using tax breaks to jump-start a film industry made international news.That review found the state auditor had identified almost identical oversight problems in another tax credit program; state law required almost no outside oversight of some of the biggest credit programs; and authorities already knew that a portion of projects that tapped the most widely used programs had problems...
The report points out that the legislature and the state executive agencies have done little to monitor the credits:
Iowa's Department of Economic Development is the state agency responsible for administering the job-training and film tax credit programs, as well as several others. The auditor's report on the job training program identified some of the same sloppy record-keeping and oversight failings by IDED that were discovered four months later when mismanagement in the film office became public.
A state panel completed a report on Iowa's tax credits last Thursday, but the report has not been released to give the state time to spin "digest" it in advance of hearings on the credits that get underway tomorrow. (UPDATE, 12/14/09: the report was released today.)
The Register article goes on to discuss companies that have failed after taking tax credit money. The credits are budgeted to cost over $450 million this year -- an amount that will dwarf the $186 million in estimated corporation tax receipts for the year. While the Register's story has the obligatory "success stories" from folks who insist that it really does make sense for the state to tax the rest of us to give them money, it does a better job of detailing the problems of the state credits than anything the state has been willing to release so far.
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Coming to their senses: Iowa rules that non-resident partners not taxable on income of Iowa investment partners
December 14, 2009
Iowa has issued a policy letter that confirms that the Iowa has finally backed off from their (absurd) position that investment income of Iowa-based investment partnerships is "business income" taxable in Iowa:
In your scenario, the activities of A, LP are not being conducted by the nonresident in Iowa. Therefore, the nonresident is not considered to be conducting a trade or business within Iowa, and the interest, dividend and capital gain income would not be considered Iowa source income. Since the nonresident partners of A, LP do not have any other activity in Iowa, there is no requirement for the nonresident partners to file an Iowa individual income tax return.
Iowa is still issuing such partnerships lengthy questionaires to detect a whiff of "business income"; partnerships should answer those with care.
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Honest, honey, she's my travel agent!
December 14, 2009
Good luck explaining those checks to "Global Travel" to your wife now. But at least Tiger's assignations were tax-compliant.
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Kidnapped! Yeah, I was kidnapped! By IRS agents!
December 14, 2009
Another foredoomed tax evasion defense from a dentist who shopped for tax advice at the same place Wesley Snipes did. Russ Fox has the scoop.
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A college savings deduction just for Iowans
December 11, 2009
Mutual fund investors know all about high "loads" for investing in popular funds. It would be nice to have a fund vehicle where you receive a load, rather than pay one.
Actually, there is one vehicle that works that way: Iowa's "College Savings Iowa" Section 529 plan. Iowa law provides an "above the line" deduction for contributions up to $2,800 per donor, per donee. That means a married couple can deduct CSI contributions for each child of $5,600 on their Iowa return (there is no such deduction on the Federal 1040). For a top-bracket Iowan, the resulting tax savings are like getting a 6+% negative "load" on your investment.
The funds can be withdrawn free of Federal and Iowa tax for qualified higher education expenses, while accumulating income tax-free in the meantime.
Iowa invests through Vanguard "life-cycle" funds, which move to safer investmets as college age approaches -- a feature I learned to appreciate this year as my son began college. His CSI accounts were unscathed by the 2008 market collapse.
If you want to get a 2009 CSI deduction, you need to get the funds paid before December 31. If you don't have an account, you get the paperwork going at the CSI website.
This is another installment in our 2009 year-end tax planning series.
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Blowing .09 might cost you your license, but maybe not your casualty loss
December 11, 2009
So Justin goes to a party. He thought he'd have a few drinks, so he arranged to get a ride there and back. Sure enough, he has a few, but all goes well because he has a ride.
Then Justin gets home. He decides he's sobered up enough to drive, so he heads off in his $40,210.65 Ford F-350 pickup. He wrecks the truck, blows .09, and gets a DUI citation. The insurance company denies coverage because of the DUI, so he takes a $33,629 casualty loss on his Schedule A.
The IRS didn't care for the deduction. The IRS said that the loss wasn't allowable because the DUI constituted "willful negligence."
Tax Court Judge Gerber was more sympathetic:
While petitioner's decision to drive after drinking was negligent, that alone does not automatically rise to the level of gross negligence...Petitioner's level of intoxication and the manner in which he drove do not suggest that he was consciously indifferent to the hazards of drunk driving. Unlike the defendant in People v. Bennett, supra, petitioner was less impaired and not severely intoxicated when he chose to drive. At the time of the accident petitioner's blood-alcohol level was 0.09 percent, which is slightly over California's legal limit of 0.08 percent. See Cal. Veh. Code sec. 23152 (West 2000). Further and significantly distinguishing petitioner's situation from that in People v. Bennett, supra, petitioner made arrangements not to drive immediately after consuming alcohol. He arranged for transportation home and thus allowed some time for his body to process the alcohol before driving. If petitioner truly did not care what happened, he would not have gone to the trouble to arrange for transportation.
Likewise, there is no evidence in the record that petitioner was aware his actions would result in injury. In addition, there was no evidence that excess speed or alcohol directly caused petitioner's accident. On brief, petitioner claimed he lost control of his vehicle because of the windy conditions on the road, and no evidence was presented at trial as to what the precise cause of petitioner's accident was.
So the IRS tried another tack, saying that allowing a casualty loss for a DUI accident would "frustrate public policy." The court said there are plenty of other public policy tools that oppose drunk driving, including jail time and fines, and that the casualty loss deduction doesn't diminish them. Decision for taxpayer.
The Moral? Driving drunk is still a bad idea. The deduction was worth $6,230 in tax savings -- not much consolation for wrecking a $40,000 truck, losing your license, and all the other headaches of a DUI conviction.
Cite: Rohrs, T.C. Summ. Op. 2009-190
UPDATE: The TaxProf has more.
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Want to have your tax loss without walking away from the losing stock?
December 11, 2009
Good luck with that, says TaxMama. If you take a stock loss, you can't purchase other shares of the same stock within the preceding or following 30 days from the trade date.
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Both pedals to the floor at the same time
December 11, 2009
TaxVox points out how tax breaks, like those in the House "extender" bill, often work at cross-purposes:
Finally, there are my favorites—the contradictory energy breaks. The bill tries to encourage the use of alternative fuels by extending a subsidy for hybrid trucks at the same time it attempts to keep the cost of fossil fuels low by continuing breaks for marginal oil wells. This, I guess, is symbolic of the entire exercise. It only makes sense if you are in Congress.
Outside the extender bill, there are lots of examples of this sort of thing; for example, the Homebuyer Credit to increase demand for unsold homes while the low-income housing credit increases the supply. One credit works to keep homes from becoming more affordable, the other tries to provide affordable housing. Go figure.
More on extenders from Robert D. Flach and 21st Century Taxation.
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We just took your money to build the factory. We never said we'd keep it open.
December 11, 2009
Dell chumps North Carolina, reports David Brunori at Tax.com:
Curious development in North Carolina. Apparently, Dell Inc., the giant computer manufacturer is refusing to pay the state back money it recieved as incentive. Dell, as many know, received millions of dollars in tax breaks and direct grants from North Carolina when it promised to build a plant in Forsyth County. It built the plant, received millions, but then closed it down after only four years. North Carolina says that Dell is obligated to pay the state back a lot of the cash. Dell says go pound salt. Actually, Dell says it complied with the terms of the incentive package by opening up a facility in the state.
At least Dell is still around to fight over the tax credits, which is more than you can say about the tax break-financed ethanol companies going belly-up across Iowa.
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S corporation basis: is it time for an S corporation holding company?
December 10, 2009
Entrepreneurs are restless. It's not unusual for them to have a lot of things going on, with a different S corporation for each business. When one business has losses, the entrepreneur takes funds out of the successful businesses to finance them. But when the entrepreneur runs low on basis in the money-losing S corporation, this can lead to problems. You can only deduct S corporation losses if you have basis in S corporation stock or debt.
The man who started the successful Dart Transportation business had this problem a few years back. He borrowed money from his S Corporation A and then loaned it to S Corporation B to get basis to deduct the losses. S Corporation B then loaned the funds back to S Corporation A, and the money was all back where it started.
The IRS didn't like this, and after a long court battle, the IRS won. The courts said, in effect, that because the cash ended up where it started, the intervening steps -- the loans -- didn't count.
Even if the loans do count, an S corporation owner can get surprised with taxable income if the corporation repays shareholder loans before the corporation has had enough profit to restore basis used to take losses.
An S corporation holding company can avoid these problems. S corporations can own other S corporations if they own 100% of the stock and make a Qualified Subchapter S Subsidiary (QSUB) election. The QSUBS retain their identity under state law, but they are "disregarded entities" for computing taxes. This structure allows you to put all of your S corporation stock basis in one place, eliminating the need to throw money around at year end to deduct losses. Your corporations remain separate legal entities, protecting them from each other's problems. But if you want to do this by year-end, get together with your lawyer and tax pro right away, because time is short this year.
This is another installment in our 2009 year-end tax planning tips series. Don't miss a one!
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House extends Extenders
December 10, 2009
The House of Representatives approved the extension of 45 "expiring" provisions for 2010. These provisions include tax breaks ranging from the Research Credit to seven-year depreciation for "qualified motor sports facilities."
One tax scholar says temporary provisions like this are a good idea because they allegedly make Congress reconsider them every year. Unfortunately for that theory, Charlie Rangel was just too darned busy this year to take a hard look at any of them, so they all just passed them all for another year. Worse, the House bill has a permanent tax increase on hedge funds and private equity funds to "pay for" a temporary extension of tax goodies. Because Nascar is more important for economic recovery than private equity.
The bill still has to clear the Senate; while it will take awhile, it's likely to happen.
The TaxProf has a roundup. More from Kay Bell and TaxGrrrl.
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Now he's got a right to sing the blues
December 10, 2009
A Minnesota bluesman had a great day job. Unfortunately, he neglected to pay the taxes. Startribune.com reports:
Steven Mark Renner, 53, was found guilty by a jury of four counts of tax evasion.According to the indictment and evidence presented at trial, Renner diverted substantial amounts from his Internet-based money transmission business, Cash Cards International (CCI), between 2002 and 2005 to pay personal expenses as well as make investments in coins, oil wells, art, stamps and vintage musical instruments.
He also was accused of using CCI money to promote his band, Stevie Renner and the Renegades.
He never got around to filing tax returns for 2001 through 2005.
This video shows him in happier times:
As the father of a music major, it's nice to see that he has potential to make enough money to owe $300,000 in taxes someday. On the other hand, I hate to see that the guy had to use the day job to promote the band. But we can't all be accountants.
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Renaissance director faces a 78-month dark age
December 10, 2009
Creating fake home-based business deductions is a scam that never goes out of style, but that doesn't make it a good idea, as a Tennessee man learned yesterday:
The former tax director of Topeka-based Renaissance, The Tax People, Inc., has been sentenced to 78 months in federal prison for tax fraud.61-year old Daniel Joel Gleason of Franklin, Tennessee was also ordered to pay more than $3 million in restitution and barred from preparing tax returns.
Gleason admitted assisting in the preparation of 56 false income tax returns - either falsely inflating or falsely creating business deductions for personal living expenses.
Renaissance - The Tax People was in some ways the essence of multi-level marketing tax scams. While many folks use the pretext of marketing vitamins or household items for deducting personal expenses, RTP in effect just marketed the tax scam. RTP people tried to get downstream people to explain to other downstream people the the benefits of taking deductions for personal expenses.
RTP had a "dream team" of tax professionals, including a former IRS District Director. Their dream has created a tax nightmare for them and for those gullible enough to believe their claims.
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Coulda woulda shoulda quote of the day:
December 10, 2009
From the International Tax Blog:
Taxation depends on actual events, not on what might have happened.J.E. Seagram Corp, f.k.a. Seagold Vineyards Holding Corporation v. Commissioner 104 TC 75 (January 24, 1995)
Keep that in mind with your year-end planning.
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Year-end planning: Make sure you have enough basis to deduct your S corporation losses.
December 09, 2009
S corporations are popular for many good reasons. One of them is the ability to deduct corporate losses on the owners' 1040s. It's been a rough year for a lot of folks and many taxpayers are looking forward to a nice tax refund from their 2009 business losses. If you are one of them, make sure you don't lose your loss deduction for lack of basis in your S corporation; shareholders can only deduct losses to the extent of their 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.
A shareholder can also deduct losses of an S corporation to the extent of loans to the S corporation. The loans have to be loans made by the taxpayer; guarantees of debt do not work.
EXAMPLE: Wally starts an S corporation. He contributes $10,000 to the corporation in exchange for 100% of its stock. The corporation borrows $5,000 from Wally and $50,000 from the bank, guaranteed by Wally. The S corporation loses $20,000 in its first year. Wally can deduct $15,000 of losses this year, based on his $10,000 cash contribution and his $5,000 personal loan. The guarantee from the bank does nothing to enable Wally to deduct losses.
LESSON: Wally could have borrowed the bank loan personally and loaned it to the company; this "back-to-back" loan would have given him enough basis to deduct the remaining $5,000 S corporation loss.
Taxpayers need to be careful in dealing with S corporation basis. A few points to keep in mind:
- The basis is determined on the last day of the S corporation's tax year. This means that the taxpayer needs to project taxable income before year end to determine whether additional loans or capital contributions to the corporation are called for.
- Taxpayers also need to pay careful attention to how year-end basis contributions are structured. If a shareholder borrows money from one S corporation and loans it to the money-losing corporation to get basis, the money-losing corporation shouldn't send the money right back where it came from; the IRS will disregard all of the transfers.
Basis is only one hurdle S corporation shareholders need to clear before they can deduct losses. Taxpayers also need to be "at-risk" for their basis and the losses can't be "passive" under the "passive activity" rules. It's time to project your year end income and visit your tax pro to make sure you can deduct those 2009 tax losses.
This post originally appeared at IowaBiz.com. It is part of the Tax Update's series of 2009 year-end planning tax tips.
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House extender bill doesn't include Sec. 179 and bonus depreciation, but Obama 'Stimulus II' will
December 09, 2009
The TaxProf reports that the House will vote today on extending for one year 45 expiring tax provisions, including the all-important seven-year depreciation for qualified motor sports facilities. They will "pay" for this temporary extension of these provisions with a permanent increase in tax on hedge funds and private equity partnerships. Because Nascar is more important to the economy than private equity.
While the temporary bonus depreciation and $250,000 Sec. 179 deduction provisions are not in the extender bill, President Obama yesterday said he would include these in his newest stimulus proposal, so there is a good chance they will continue through 2010. TaxVox is underwhelmed by Stimulus II.
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Blizzard Ballot
December 09, 2009
Peter Pappas is running a tax blog popularity poll at his Tax Lawyer's Blog. It's a great snowy day to stuff the ballot box with votes for the Tax Update!
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Blizzard buzz
December 09, 2009
If you're looking for something to do while snowed in, you could do worse than Robert D Flach's "Buzz" roundup of tax blog posts.
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Snow day!
December 09, 2009
My driveway this morning:
The Roth & Company offices are closed today, but the Tax Update continues operations from an undisclosed basement location. The numbers:
Source: National Weather Service
All the schools and government offices are closed. The coffee is hot, I can get the office network from here, the wind is howling out there -- I'm staying in.
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Leapin' Blizzards!
December 08, 2009
So I chickened out and headed home, taking this picture on the way. I have enough provisions, remote network access, computer equipment and work to keep busy and productive through tomorrow, if necessary -- and considering the blizzard warning, foot of snow, and 40 mph winds predicted, it may be necessary. Now for the self-discipline to actually work, instead of, say, posting pictures...
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The Mid-Quarter trap
December 08, 2009
While year-end asset purchases can be a great way to reduce taxes, sometimes they can backfire.
The tax law normally computes depreciation for fixed assets (other than buildings) as if they were placed in service at the mid-point of the tax year. But if more than 40% of fixed assets are placed in service in the last three months of the tax year, the assets are all treated as placed in service in the middle of the quarter in which they were purchased.
Say Joe, Inc., a calendar-year taxpayer, bought $2.4 million of new computers in July 2009 and 1,599,000 in October 2009. His depreciation for these assets for the year would be $2,399,400: $1,999,500 in "bonus" depreciation and $399,900 in regular depreciation.
But now Joe buys and installs another $2,000 computer in December. Suddenly his purchases in the last 3 months of the year are 40.0149% of fixed asset purchases for the year, and the mid-quarter convention applies. Joe's depreciation is now $2,230,525 for his 2009 additions:
- $2,000,500 in bonus depreciation
- $180,000 non-bonus depreciation for property placed in service in the third quarter, and
- $ 50,025 non-bonus depreciation for property placed in service in the fourth quarter.
The $2,000 December addition reduced depreciation expense by $168,875 for the year.
The moral: be careful in your year-end fixed asset purchases. Sometimes a little more assets can mean a lot less deductions.
Follow all of the Tax Update's 2009 year-end planning tips!
Photo Credit: Image courtesy Redjar's Flickr Photostream,
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Hiding the report on transparency
December 08, 2009
So much for transparency and tax credits. The Des Moines Register reports:
Gov. Chet Culver's office does not intend to release reports expected this week on tax credit programs that affect thousands of Iowa workers and businesses before holding public hearings next week that will help decide the incentives' fate.Erin Seidler, the governor's communications chief, said policy advisers in the governor's office decided the analyses of about 30 tax incentives - to be completed by Thursday - should be kept confidential until public hearings next Tuesday and Wednesday.
Yes, you wouldn't want the public to have any information ahead of the public hearings. They might want to ask questions or something.
The move means the public will not have access to the agency chiefs' own research on overall cost benefit, oversight, transparency and use before being asked to provide input.A state official who monitors compliance with Iowa's open-government laws said the decision runs counter to common practice elsewhere in government. Other branches of government routinely release reports as they are released to panel members, such as city council members or county supervisors.
Well, we're only talking about $450 million or so of taxpayer money being funnelled to special interests, out of a $6 billion budget, or $150 for every man, woman and child in Iowa. Why would we want the public to know about that?
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Missing the target
December 08, 2009
The tax code has achieved uprecedented levels of ugly in the last 15 years, and targeted tax credits are the reverse cosmetic surgery behind much of it. The conceit is that by careful rewarding certain behaviors with tax credits, Congress can make the world a better place. The reality is much messier. Dan Meyer explains how this works out with the "Hope Credit" for college costs:
The Treasury Inspector General for Tax Administration (TIGTA) asserted that the Hope credit for underclass (freshman and sophomore) college students probably allowed hundreds of millions of dollars in undeserved credits because of two significant defects in the administration of the credit. The first defect is that a given taxpayer could in practice claim the credit for the same student for more than the two permissible years. TIGTA estimates that nearly $600 million in excess credits were taken based on that defect. A second flaw is that many colleges failed to report the amount of tuition and other school-related expenses that qualified for the credit; allowing taxpayers to claim more than the permissible amount.
While TIGTA says the problem is with the administration of the credits, the real problem is in believing these things can ever be accurately targeted. They are complicated -- even tax pros have to keep going back to their books when they claim these -- and errors are inevitable. The IRS barely can process the returns with its creaky computers, let alone catch all of the mistakes. Colleges have proven hopeless in meeting their information reporting requirements, without which the IRS is helpless in enforcing the limits. As Robert D Flach says today in another context,
Many government programs and subsidies are administered through the Tax Code – and this should not be. The purpose of the Tax Code is to raise revenue. Period.
It's hard enough just for the IRS to compute taxable income and process returns. Now the IRS is supposed to manage health, education, research, energy policy, antipoverty efforts -- you name it. It's not surprising that it's a mess; it's a surprise they can function at all.
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Blizzard Carnival!
December 08, 2009
The weather soothsayers say we're going to get buried with a foot or so of snow today and tomorrow, followed by blizzard winds. Warm up the hot chocolate, then, and cozy up with Kay Bell's Carnival of Taxes! There's always warm reading at the blog worlds roundup of the latest and greatest tax posts.
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Fixed assets and year-end planning
December 07, 2009
For many businesses, a new piece of equipment can be more just a good investment; it is often the easiest way to knock down an income tax liability. Changes in the tax rules that take effect after this year make fixed-asset planning especially important this year.
Bonus Depreciation: "Stimulus" legislation allows taxpayers who buy new property to get "bonus" depreciation equal to half of the cost of the property in the year it is placed in service, with the balance depreciated over the regular life of the property. For five-year property, this lets taxpayers recover 60% of the cost in the property's initial year. For most property (aircraft is a limited exception), this rule expires for property placed in service after December 31.
Section 179 allows taxpayers to deduct currently property that would otherwise be capitalized and depreciated. Under the "stimulus" legislation, taxpayers can elect Section 179 treatment for up to $250,000 of property for year. Unless Congress acts -- which isn't imminent -- this number goes down to $134,000 in 2010.
These provisions give taxpayers some flexibility to manage their 2010 taxable income, but they need to keep some things in mind:
- Bonus depreciation only applies to new property; Section 179 applies to both new and used equipment.
- Bonus depreciation can create or increase a net operation loss, enabling taxpayers to recover taxes paid in prior years; Section 179 is limited to active business income.
- While Section 179 starts to phase out dollar-for-dollar as property placed in service in the year exceeds $800,000, there is no such limit for bonus depreciation property additions.
- Neither Section 179 nor bonus depreciation are allowed for buildings.
- "Placed in service" isn't the same as "bought" or "ordered." It's probably not enough to have the equipment sitting in shipping containers on your loading dock at year-end. It needs to be put together and ready to go.
- Iowa does not recognize bonus depreciation or the $250,000 Section 179 limits; the Iowa Section 179 limit for 2009 is $133,000.
Remeber that there is a potential trap for some taxpayers who rush property into service before year-end: the "mid-quarter convention" rules. We'll disuss them tomorrow.
This is part of the Tax Update's series of 2009 year-end tax tips. Collect them all!
Flickr image by infraredhorsebite,
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Destination: Denison
December 07, 2009
It's a beautiful, cold snowy morning in Denison in Western Iowa, where a fast freight races through the Loess Hills. This picture is taken from the back patio of The Boulders Conference Center, where I am a speaker at the seventh sesson of this year's Iowa State University Center for Agricultural Law and Taxation Farm Tax School. There are still a few spots available for the final session next week in Ames!
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The Supreme Court Case that Never Was
December 07, 2009
Tax protest pied piper William Benson has reached the end of the road in his efforts to keep his "reliance defense" tax reduction business alive. The Supreme Court last week denied a hearing to his appeal of a permanent injunction against his:
...promoting, organizing, or selling (or helping others to promote, organize, or sell) any other tax shelter, plan, or arrangement that incites or assists others to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities or unlawfully claim improper tax refunds.
Mr. Benson is author of "The Law that Never Was," a book that argues that the 16th Amendment was never properly ratified, invalidating the income tax. Courts routinely dismiss the argument as frivolous.
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Snowman Cavalcade!
December 07, 2009
The new Cavalcade of Risk is up! The blog world's roundup of insurance and risk management is at Insurance Copywriter.
I like the InsureBlog story of a patient whose trips to a strip show cost her disability benefits.
Not in the cavalcade, but worth your while, is Lara Utter's post at IowaBiz.com on insurance risks posted by electronic data.
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No good deed goes unpunished
December 07, 2009
Iowa State State Sen. David Hartsuch, R-Bettendorf, faces a primary challenge this year. It seems so wrong. Sen. Hartsuch was the only legislative Republican to vote against the Film Tax Credit program that blew up in corruption, scandal and outrageous expense this year. He was joined by only two Democrats. For that alone, all three should have a pass on the current election, if not an automatic promotion to higher office.
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The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
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