Tax Update Blog: July 2003 Archives

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AUGUST 2003 AFRS ARE AVAILABLE

July 31, 2003

The IRS has issued (Rev. Rul. 2003-94) the minimum rates to be charged for loans made in Augsut 2003:

Short Term (demand loans and loans with terms of 1-3 years): 1.21%
Mid-Term (loans from 3-9 years): 2.70%
Long-Term (over 9 years): 4.36%

Historical AFRs are available on the “Links” page at www.rothcpa.com.

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TIME TO FLEE!

July 11, 2003

In honor of the tenth anniversary of the Great Flood of 1993, The Tax Update is leaving town for awhile. Just as we did then, we are heading for Minnesota.

Naturally, we are leaving on this vacation under better circumstances. We have power and water at home and at work, unlike in 1993. We have also been able to forego the trips up and down 14 floors to retrieve computers and the files. But we will still head to Minnesota, just like we did in 1993. We will come back recharged and ready to dive back into the tax law.

If you want to relive the flood via the web, here are some places to go:

Des Moines Water Works flood Photo Gallery
Captain Jack's Flood Photos
Des Moines Register Flood Review

Here is a copy of the first edition of The Des Moines Register after it was forced out of downtown by the flood:

See you at month-end!

PS: If you can't do without tax stuff for two weeks, visit "A Taxing Blog" for a fix.

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HEY! WHERE'S MY IOWA REFUND?

July 11, 2003

Many folks who filed returns the old-fashioned way - on paper - are wondering why Iowa has yet to mail their tax refunds. The short answer: they are bigger than you, and they can. The long answer has two parts:

1. The state is trying to encourage electronic filing, and this is a way to do that. E-filers received their refunds weeks ago.

2. The state is short of cash. By hiring fewer processors, it saves money. Keeping the refunds doesn't hurt cash flow, either.

Iowa said refunds would typically take 12 weeks to arrive, so they should be coming in about now. If you want to see whether your refund is on the way, you can visit the Department of Revenue web site to find out.

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EDUCATION IS ITS OWN REWARD (WHEN THERE'S NO TAX DEDUCTION)

July 11, 2003

"Furthermore, a general college education has more than economic utility. It broadens one's understanding and increases his appreciation of his social and cultural environment." Tax Court Judge Simpson, 1964

The broad understanding and increased appreciation are nice things, certainly, but on April 15, many folks would just as soon have the one thing that a general college education doesn't provide -- a tax deduction.

The tax law prohibits deductions that can train you for a new job. By contrast, "continuing" education to improve your skills for the job you already have are deductible. Two recent cases show how the Tax Court distinguishes "continuing" and "general" education.

NO DEDUCTION: YOU LEARNED TOO MUCH

George Warren was in his 40s when he felt called to the ministry in the United Methodist Church. He qualified to be a part-time local pastor by 1993. He decided he needed to hone his skills, so he began taking additional courses that led to a bachelors degree. He took a deduction for the educational expenses. The Tax Court gave him the bad news:

"We conclude that the courses, which ultimately led to petitioner's bachelor's degree, qualified petitioner in a new trade or business. The courses taken by petitioner provided him with a background in a variety of social issues that could have prepared him for employment with several public agencies and private non-profit organizations outside of the ministry. Whether or not petitioner remains in the ministry is irrelevant; what is important under the regulations is that the degree "will lead" petitioner to qualify for a new trade or business."

In other words, courses have to be helpful for your new job, but they can't qualify you to do anything else. Go figure.

GRAD STUDENTS FOLLOW THE SAME RULES

Yuanqiang Zhang, a Chinese national, worked in the Andersen Consulting office in Beijing from January 1997 to June 1999. He left Andersen Consulting to get an MBA at the MIT Sloan School. Upon graduation he took a position with Morgan Stanley in New York.

When the taxpayer attempted to deduct about $30,000 of MIT tuition on his 2000 Tax Return, the IRS balked. The Tax Court sided with the IRS on the grounds that you can't be improving skills for your current job when you are between jobs.

WHAT CAN YOU DEDUCT?

Traditional continuing education courses, such as those required for licensed professionals, are deductible; if you are filing on a Schedule C, or are a partner - for example, in a law or accounting firm - they are deductible in full. If you are an employee, they are deductible on Schedule A, subject to the 2% of AGI floor on miscellaneous itemized deductions.

WHAT CAN YOU EXCLUDE?

If your employer is paying your educational expenses directly, you can generally exclude up to $5,250 of the payments from income each year. This is often a better deal than a deduction - not only do you avoid the 2% of AGI floor, but you can exclude employer-paid "general" course tuition from income, even though you could not deduct it if you paid it yourself. The employer payments have to be under a "qualified" program that does not discriminate in favor of highly-compensated employees.

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IOWA'S EFFORTS TO ATTRACT TECH FIRMS TAKE A BLOW

July 10, 2003

High-tech businesses may look upon Iowa in a whole new way after Governor Vilsack admitted to the Des Moines Register that he has his email printed for him by his staff:

"I don't read my e-mails. E-mails are printed off - some of them, not all of them - for me to read. I'm technologically deficient, and I don't understand it. I probably should, but I don't."

It's great to live in a state on the high-tech edge!

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THE WAR ON FATTY FOOD TAKES AN UGLY TURN

July 10, 2003

Mayhem at Miller Park.

"The nightly sausage race, a popular feature at Milwaukee Brewers home games, took a bizarre, ugly turn Wednesday night at Miller Park that led to sheriff's deputies taking Pittsburgh Pirates first baseman Randall Simon from the park in handcuffs."

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THANKS A MILLION!

July 09, 2003

A million-dollar tax opinion is found to to be fertile and pungent food for thought (via A Taxing Blog).

What do you expect for a million dollars, anyway?

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WE HOPE YOU HAD A GREAT JULY 4TH!

July 07, 2003

Our friends in Estonia have Independence Day traditions well worth adopting here.

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I DID A HECK OF A JOB, IF I DO SAY SO MYSELF

July 03, 2003

A while ago the Treasury announced that the parents were home to break up the tax shelter party. It looks as though Dad's heading back out to the bar. The tax bar, that is.

B. John Williams, credited (by us, anyway) as the father of the Treasury's drive against tax shelters, has resigned as IRS Chief Counsel to return to the practice of law. He is capping his tenure with a settlement with a national accounting firm, involving a $15 million settlement and procedural agreements to police tax shelter promotion.

Mr. Williams seems pleased with his work, based on his letter of resignation:

I am pleased to report to you that, working with the excellent executives in the Office of Chief Counsel, Assistant Secretary for Tax Policy, Pam Olson, and the General Counsel, David Aufhauser, my tenure at Treasury has been successful. The team I assembled after my confirmation had two major goals: (1) to interdict the spread of abusive tax avoidance transactions, and (2) to increase the published guidance that the IRS offers to taxpayers to help them understand our overly complicated tax laws and system. We have accomplished both of these objectives.

That depends on what the meaning of "interdict" is. The Treasury has certainly taken a firmer stand in the past two years against tax shelters. It has launched a broad assault on offshore credit card schemes. It has subpoenaed the records of law and accounting firms to learn the names of tax shelter participants. It has identified a number of schemes as "abusive" and won court battles involving some notable shelters.

Mr. Williams deserves credit for his work. Still, the tax shelter industry is far from dead. Tax shelter beneficiaries continue to fight in the courts, tying up IRS resources and scoring occasional victories. Tax shelter product designers continue to whittle away at new schemes, only more quietly.

As Mr. Williams returns to private practice, it will be interesting to see whether tax shelter promoters and defendants will attempt to obtain his services. It wouldn't be unprecedented; Mark Weinberger, the last tax policy chief for the Treasury, is now a vice-chariman of the accounting firm that made this week's $15 million settlement.

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DON'T STAY OUT TOO LATE CELEBRATING THIS

July 01, 2003

The Iowa Department of Revenue and Finance is dead. Long live the Department of Revenue!

Yes, today Iowans everywhere celebrate as the state tax collection agency is reborn with a new name and a spiffy new logo:

This replaces the tired old logo:

No news is available on what wild parties might now be occurring at the Department's Hoover State Office Building to celebrate the name change.

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