Tax Update Blog: October 2006 Archives
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IOWA: CRP 'MATERIAL PARTICIPATION' FOR CAPITAL GAIN EXCLUSION
October 31, 2006
Unlike the federal government, Iowa has no special tax rate for long-term capital gains. For a few taxpayers, though, it has something much better: a complete exclusion from income for long-term gains. Very long term.
Iowa allows taxpayers to exclude gains where they meet two ten-year requirements:
- The gain is on business property held for at least ten years; and
- The taxpayer "materially participated" in the business for ten years.
For retired farmers, there is a special rule: you are considered to have "materially participated" in any year if you materially participated for five of the eight years you farmed before retirement. "Material participation" is generally determinined under the federal tax law's "passive activity" rules.
Yesterday the Iowa Department of Revenue released a policy letter holding that participation in the Conservation Reserve Program (CRP) counts as "material participation." The fact pattern from the policy letter:
The situation posed in your letter involves farmland that was owned by the taxpayer for 41 years, the last 18 years as part of an S corporation. The taxpayer farmed the land until 18 years ago when it was put into CRP (Conservation of Reserve Program) for 10 years. The land was then taken out of CRP and farmed for one year, and then was put back into CRP seven years ago. The taxpayer retired three years ago, and has been cash renting his remaining land since retirement.
Citing two private letter rulings, the Department ruled that CRP participation counts as material participation, and the retired farmer was allowed to sell his farmland at a gain without tax.
So - if you are being paid to not farm, you are materially participating in farming. Is this a great country, or what?
Related:
IOWA'S REALLY LONG-TERM CAPITAL GAIN DEDUCTION
IOWA'S SUPER-LONG TERM CAPITAL GAINS DEDUCTION: IF YOU QUIT, DON'T WAIT TOO LONG TO RETIRE
You can find a recap of the basic rules defining "material participation" below in the extended entry.
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SEARCH ME
October 31, 2006
Tax law blogger Stuart Levine (Tax & Business Law Commentary) has added a handy feature to his site to let you do a Google search restricted to tax and business blogs. Very good of him.
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BEEN THERE, DONE THAT
October 31, 2006
From a letter to Tax Analysts from SMU law professer Henry J. Lischer, Jr. ($link):
It seems that, to address long-term fiscal problems, we have to have a short-term crisis. The thought struck me that a prescription for meaningful long-term tax and expenditure reform would be (1) to repeal the section 469 passive loss limitation rules to bring back tax shelters that will cause the public to agitate for tax reform and (2) in the upcoming November elections, to elect to Congress only those candidates that promise the highest level of fiscal irresponsibility so that the annual deficit will rise to a higher level relative to GDP.
Come on, Henry. We've been doing step 2 for years and years - what makes you think we'd stop now?
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NOW THE SUPREME COURT IS IN TROUBLE, TOO
October 31, 2006
From today's Tax Analysts online ($link):
Sixteenth Amendment. The Supreme Court has denied Bill Walker's petition for review of a Ninth Circuit decision, affirming a district court's dismissal of his suit against the members of Congress, the Treasury Secretary, and the Commissioner of the IRS for lack of jurisdiction. Walker alleged that they were criminally and civilly liable for failing to call a constitutional convention to consider the repeal of the 16th Amendment and the federal income tax. Walker v. Members of Congress et al., No. 05-35023 (9th Cir. May 22, 2006); S. Ct. Dkt. No. 06-244.
This must mean the Supremes are now "criminally and civilly liable" too. I bet they're scared.
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DUMPSTER DIVER DIGS DESPERATE DIVA'S DICEY PHOTOS, DEDUCTIONS
October 30, 2006
Now we know why the Housewives are Desperate. The shredder is jammed.
A Los Angeles trash picker claims to have unearthed 200 nude photos of Desperate Housewives actress Marcia Cross from her household garbage. He also claims to have copies of her tax returns. Now he's holding them for ransom - the pictures, anyway.
You might say we all should have such problems, but if you aren't careful with your confidential personal information, you'll find it's not so much fun. An identity thief can wreak havoc with your financial life with the information from your old returns, or with your old bank and credit card statements.
A good shredder is an important household appliance nowadays. Get one and use it for your excess tax returns tax returns. Same goes for your surplus nude pictures. Or, if you look like Marcia Cross, just forward them to your CPA for safekeeping.
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IRS ISSUES CAR EXPENSE 'FACT SHEET'
October 30, 2006
The IRS has issued a handy summary of the rules governing car and truck expenses. The "Fact Sheet" (FS-2006-26) discusses what car use is deductible and summarizes the standard mileage rules. From the fact sheet:
In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:
* Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)
* Visiting customers.
* Attending a business meeting away from the regular workplace.
* Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)
It also lays out the basic recordkeeping rules for car use:
It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.
To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.
For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.
And no, a log done just in time to give to an IRS agent doesn't work very well.
For more information, IRS Publication 463 has more details on vehicle expenses.
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MURPHY DEVELOPMENTS
October 30, 2006
The TaxProf reports that the taxpayers in Murphy have been given extra time to respond to the governments request for a rehearing of the Murphy decision by the full court. The decision, which ruled the taxation of Ms. Murphy's "whistleblower" damages unconstitutional, was made by a three-judge panel of the DC Circuit Court of Appeals.
The TaxProf also discusses a subscriber-only article in the National Law Journal about Murphy.
Link: Full Tax Update Murphy coverage
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LOW RATES VS. TARGETED TAX BREAKS IN SIOUX CITY SENATE RACE
October 27, 2006
If you're looking for a lab experiment on whether low tax rates are better for economic health than high tax rates with lots of targeted incentives, you don't have to look past Sioux City, Iowa. Sioux City "enjoys" Iowa's 8.98% top individual rate and our highest-in-the-land 12% corporate tax rate. This tax misery is treated with over 20 economic development tax credits under Iowa law.
Across the river, Sioux Falls, South Dakota has no income tax credits to offer; they have no personal or corporate tax at all.
These two approaches to tax policy are the focus of a State Senate race in Sioux City. From the KTIV website:
Thursday night, Republican Barbara Blanchard squared off with Democratic incumbent Steve Warnstadt on this and other issues, at a candidate forum sponsored by the League of Women Voters.
Both Barbara Blanchard and Steve Warnstadt say they have a solution to make Iowa more attractive to business.
While Blanchard says Iowa needs to lower corporate and property taxes to stay competitive with border states like South Dakota, Warnstadt says Iowans need to turn to Ethanol for job growth.
Yes, that will help us compete with South Dakota; they don't grow any corn there, do they? Corn alcohol is only a cure for Iowa's economy if you're a bartender.
“It will create jobs that will not be exported. That can't be said for a lot of other industries. The state needs to take a leading roll. There's other tax credits that we could be pursuing in a targeted way, such as historic preservation tax credits, that would again be a boon to Sioux City," says Warnstadt.
If tax credits would be a "boon" to Sioux City, why is Sioux City not booming with the historic preservation credits and 20+ targeted tax credits we already have?
Blanchard disagreed saying, “We haven't begun to become competitive with South Dakota. We absolutely have to here in Northwest Iowa, go for zero corporate taxes. We have begun with some tax incentives. Those are going to wear out eventually, or have to be renewed and they are not going to be competitive with the zero corporate taxes in South Dakota."
Anybody who advocates more targeted tax incentives should have to explain just how many more it will take.
Related: IOWA'S TAX CLIMATE: STILL IN THE BOTTOM TEN
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TAX PATENTS: A LIVE CASE
October 27, 2006
AccountingWeb.com reports that at least one tax patent case is now in litigation:
John W. Rowe, the former chief executive of Aetna, is currently being sued by the Tax Strategies Group in federal court in Connecticut for using a patented tax strategy without permission. The suit charges that he infringed on a patent when he established a certain kind of trust to minimize taxes on stock options. Mr. Rowe’s attorney, Cheryl E. Hader, a partner in Ropes & Gray, says in the Times report, that the strategy he used was clearly authorized by the tax law and should not have been given a patent.
This business of patenting tax strategies is a crock. They are just a way for patent jackals to extract tribute from the already-costly process of complying with the tax law. The problems are obvious, as the article points out:
Congress has not ruled on whether patents on tax ideas are legal, but it seems obvious they would want to ensure equal protection under the law, the New York Times says.
“It is not right that Congress can give a taxpayer a benefit and someone can prohibit you from using that benefit to reduce your taxes,” Donna Belcher, a tax lawyer with the firm McGuire Woods in Richmond, Virginia, told Fortune.
Given the number of tax strategies that might be patentable, the Times envisions “lawyers and accountants rushing to the patent office as soon as a new tax law is passed, seeking to claim credit from dreaming up ideas that were made possible by the new law.”
It's enough fun trying to stay out of trouble with the IRS without worrying that some patent parasite is also going to try to take a cut. Congress needs to step in and end this nonsense, and soon.
Prior Tax Update coverage:
ABA ON TAX PATENTS: MEND, DON'T END?
'THE TAX LAW SHOULD BE AN OPEN ROAD, NOT A TOLL ROAD'
PAY YOUR TAXES ON TIME! (PATENT PENDING)
(Thanks to Hank Stern from InsureBlog for the tip)
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RISK MANAGEMENT FESTIVITIES
October 27, 2006
This week's Cavalcade of Risk is up at Hill's Personal Finance.
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VOC ED FOR FUTURE WHITE COLLAR CRIMINALS?
October 27, 2006
I hope they don't take their new powers to the Dark Side. From the New Mexico Business Weekly:
Accounting students help audit white collar crimes
COURTESY OF UNM
UNM Professor Rich Brody’s forensic accounting students are helping law enforcement agencies investigate white collar crimes like financial fraud.
Accounting students have joined forces with law enforcers to help fight white collar crime in Albuquerque and Bernalillo County.
In a pilot program begun this month, the Anderson Schools of Management at the University of New Mexico is sending master's degree students to help white collar crime units at the Albuquerque Police Department (APD) and Bernalillo County Sheriff's Office.
Hat tip: TaxGuru.net.
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STRANGER THAN THE TAX PROF
October 27, 2006
How many Joseph Kristans can there be?
By contrast, there are 100 Paul Carons. No wonder the TaxProf blog has so many readers!
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I AGREE; THE LESS EXPERIENCE THE POLITICIANS HAVE, THE SAFER WE ARE
October 26, 2006
The Wichita Eagle website, Kansas.com, has today's best headline:
Incumbent touts opposition to tax hikes, experience
Sure, everybody opposes tax hikes, but it takes a special kind of courage for an incumbent to come out against experience.
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BAD BARRINGTON BARRISTER BUSTED
October 26, 2006
Has this ever worked?
Step 1: Sell fraudulent certificates of deposit for $1.8 million.
Step 2: Set up a bank account in the name of an LLC in Florida for the money.
Step 3. Hire somebody to use the money to buy cashiers checks.
Step 4. Procede to blow hundreds of thousands of dollars on a girlfriend, a wedding, a honeymoon, and a Barrington, IL. lifestyle.
Step 5. Leave the money off your tax return.
Step 5 got Robert Wayne Hallock, an attorney from Barrington, Illinois, convicted this week on tax fraud charges in a bench trial held in Chicago. Mr. Hallock's defense attorney may have sensed he had a tough case. He submitted a trial memorandum with a section titled "A GOOD-FAITH BELIEF, EVEN IF CRAZY, NEGATES WILLFULNESS," which isn't the sort of argument that exudes confidence. From the trial memorandum:
Hallock honestly believed that the money which the Government claims Hallock should have reported as income was not income because Hallock was obligated to repay that amount plus over Two Million Dollars more. Hallock's obligation to repay arose, in part, under the applicable provisions of hte Univorm Commercial Code.
Hallock received money from the sale of certificates of deposit which Hallock believed were issued by Deutche Bank (the "Certificates"). Deutesche Bank dishonored the Certificates because they were fruadulent.
The memo explains that an indorser of a fraudulent instrument is obliged to repay the money; as Hallock felt he would have to repay someday, it wasn't really income. Never mind that he gave all that money to his girlfriend and her parents. Never mind the $100,000 honeymoon on the yacht. Never mind the funky bank account to hide the money. The spectre of someday having to repay the proceeds for the phony CDs haunted him, so he had a good faith belief that he had no income.
The judge didn't buy it. Now Mr. Hallock is a guest of the court system until his sentencing. If the judge goes along with the $325,000-$550,000 tax loss and other aggrivating factors in the indictment, Mr. Hallock hits offense level 21 in the 1997 federal sentencing guidelines. That means he might expect to enjoy the hospitality of the Bureau of Prisons for 37-46 months.
In presumably unrelated news, the TaxProf reports "Treasury Department Seeks to Hire Ethics Attorney." In any case, Mr. Hallock is unavailable for now.
Links:
Department of Justice Press Release
WebCPA coverage
Chicago Tribune coverage
Hallock Draft Jury Instructions
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WHAT MAKES TAX PROTESTERS TICK?
October 25, 2006
Columnist Katherine Pender uses the Wesley Snipes case as a hook to discuss the tax protest movement in an article reproduced in the Redding Record Searchlight of California. She notes how many folks who fall for tax protest arguments are folks you'd think would know better. She quotes tax attorney Fred Daly:
"I've seen people pay as much as $10,000 to sit in a seminar; they come away with a workbook that will show you how to untax yourself," he says.
"What always amazes me is that the type of people who fall for this are otherwise fairly well-educated, sophisticated people - airline pilots, engineers, dentists," Daly says. "These people should know better, but if you want to believe something strongly enough and it's in your best interest to do so, you can suspend your powers of reason."
Of course, Redding is home to Al Thompson, a leading light of the tax protest world. Mr. Thompson is spending his time away from home nowadays.
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PODCAST ON STATE BUSINESS TAX CLIMATE
October 25, 2006
The Tax Foundation has posted a podcast (no iPod required) discussing their recent report on state business tax climates. This is the report that says Iowa has the 8th worst business tax climate in the country.
Hat Tip: The TaxProf.
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WEST DES MOINES EMBRACES TAXATION BY SPECIAL FAVOR
October 25, 2006
As expected, the West Des Moines city council adopted a proposal to provide tax breaks for large businesses moving in. The Des Moines Register reports:
West Des Moines' policy sets high standards, officials said. Businesses must have a total assessed valuation of $20 million or more, and the company must retain or create 500 full-time jobs during the life of the rebate. Such a business would provide about $200,000 a year in taxes to the city's general budget.
From the looks of things, it looks like this is only available to big new businesses moving in. Yet there may be other ways to get this break - if you have friends on the city council:
Councilman Brad Olson said he wanted to know if other businesses that didn't meet all of the city's requirements would be allowed to apply for the tax rebate.
City Attorney Dick Scieszinski said this is the standard the city has set but that it can always be reviewed.
"This is a discretionary policy with the city. ... The council can always take a look at the applicant" and decide to grant them the rebate, Scieszinski said.
This seems to mean there are two ways to qualify for the new property tax break: you can either meet a long list of quantifiable standards, or you can achieve a single quantifiable standard: 3 votes at a city council meeting. Not exactly a recipe for good government.
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RANGEL: DEMS WILL LEAVE 15% RATES ALONE
October 25, 2006
If the Democrats take over the House of Representatives, Charles Rangel, the committee's senior Democrat, will likely become the head House taxwriter. He has some words of assurance for fans of the 15% tax rate for dividends and capital gains. As reported by Janet Novack of Forbes.com:
Still, Rangel says he won't attempt to roll back the temporary tax breaks already in the law, including the special top 15% rate for capital gains and dividends. "I think that would be terrible, unacceptable tax policy," he says. His concession likely calms the markets and doesn't cost him much.
After all, even if the Democrats were to take control of the Senate as well as the House, it's highly unlikely they could override a certain veto by President George W. Bush.
The article says Mr. Rangel is likely to jump on the "tax gap" bandwagon:
Rangel is a lot more enthusiastic about tax gap closing, particularly when it's high income folks or big corporations that are allegedly getting away with something. (Say, stashing cash or profits offshore.)
As a number of tax-gap closers - primarily more information reporting - have been percolating this year, you can expect some legislation along these lines next year regardless of the election outcome. Look for requirements for brokers to report stock basis when stock is sold. You can also expect requirements that credit card companies and outfits like e-Bay and Paypal report payments over $600 to any individual.
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IT'S GOOD TO BE KING. PRINCE, NOT SO MUCH
October 24, 2006
From England's tabloid The Sun:
PRINCE Charles faces new scrutiny over his accounts as MPs demand to know why his main income benefited from tax exemptions.
The chairman of the Public Accounts Committee has written to the Treasury questioning why the Duchies of Cornwall and Lancaster do not pay corporation or capital gains tax.
Once upon a time, royalty could send an impertinent fellow like this chairman guy to Australia, or stick his head on a pike or something. Still, the job has its consolations:
The Prince of Wales has a private income of more than £14 million which he gets from the Duchy of Cornwall.
He uses the funds partly on fulfilling his public duties and partly on personal expenditure, including money for his wife the Duchess of Cornwall and Princes William and Harry.
Charles received £14,067,000 from the Duchy of Cornwall in 2005/06, compared to £13,274,000 the year before.
The Duchy, which has been dubbed the Prince’s cash cow, was established in 1337 by Edward III to provide income for his eldest son, the Black Prince.
Not to be confused, of course, with the Black Knight.
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TOO BAD YOU CAN'T BACKDATE YOUR SENTENCE
October 24, 2006
The stock option backdating scandal has netted its first guilty plea. From the Wall Street Journal online ($link):
The former chief financial officer of Comverse Technology Inc., David Kreinberg, pleaded guilty to securities-fraud charges in federal court today, after agreeing to cooperate in the investigation of a scheme to make millions of dollars by manipulating stock options.
Mr. Kreinberg is the first person to plead guilty in the stock-options backdating scandal that has roiled executive suites across the country. More than 100 companies are under federal investigation, and a number of executives have lost their jobs.
While the indictment mentions tax issues, the charges in the plea deal are securities violations.
The indictment is here.
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YOU'RE BEING UNREASONABLE. NO, WE WON'T TELL YOU WHY.
October 24, 2006
A strange set of cases came out of the Tax Court yesterday. The court decided four cases requesting the IRS pay attorney fees. All four cases involved the same preparer, one Vanya Tyrell, and the same attorney, Lowell E. Mann. The basic fact pattern:
-IRS requested documentation for deductions on the taxpayer returns.
-Mr. Mann protested the adjustments, requested the case be sent to appeals, but provided no support for the deductions.
-The IRS issued a notice of deficiency.
-Mr. Mann wrote asking the notice of deficiency be rescinded, again without supporting the deductions.
-Mr. Mann filed a petition in tax court.
-Shortly before the scheduled trial date, Ms. Tyrell provided support for the deductions, and the IRS dropped the case.
In each case, Mr. Mann said the IRS was unreasonable and unjustified in its conduct, and sued to have the IRS pay his fees. In each case, the Tax Court held that the IRS was reasonable in pursuing the case until documentation was provided, so it didn't have to pay the fees.
It's a strange way to deal with the IRS. Why would they push the cases all the way to the Tax Court calendar when they had documentation? A Tax Court footnote has this weird fact:
Petitioners' tax return was one of approximately 175 tax returns that were prepared by Vanya Tyrrell and chosen for examination by respondent's Correspondence Examination Unit. All such cases involve similar unsubstantiated deductions. Lowell E. Mann represents the petitioners in all such cases and has filed virtually identical petitions for each such case.
Very odd. There must have been a plan, but I can't imagine what it was - an attorney fee bonanza at the government's expense? If so, that was a blunder. I wonder if the clients will be any more willing to pay Mr. Mann's fees than the IRS was.
Cites:
Zeron, T.C. Memo 2006-221
Neylan, T.C. Memo 2006-222
Goon, T.C. Memo 2006-223
Cloward, T.C. Memo 2006-224
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TRUST INVESTMENT FEES: FLOOR OR NO FLOOR?
October 24, 2006
When individuals pay fees to a financial advisor, the fees are treated as a "miscellaneous itemized deduction." The fees are combined with other "miscellaneous" deductions, like union dues and tax preparation fees, and are deductible only to the extent all miscellaneous deductions exceed 2% of adjusted gross income (and not at all for alternative minimum tax).
What about trusts? The courts are split. In the three federal appeals circuits, the courts hold that the 2% floor applies to trust investment advisory fees. In the Sixth Circuit, the court says is no floor. There is no ruling yet in the Eighth Circuit, which covers Iowa. If the split is not resolved, the Supreme Court may eventually step in. In the meantime, "Everything Tax Law" tells where we stand:
The result: the federal deduction for investment advisor fees paid by trusts is not subject to the two percent floor in Michigan, Kentucky, Ohio, or Tennessee, but they are in New York, Vermont, Connecticut, Virginia, West Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia.
I should note that the proprietor of "Everything Tax Law" has been posting regularly the past several days; this is a welcome change from his prior habit of sporadic updates. When he does post, he is a good read; if you want the perspective of a someone embittered from trench warfare with the IRS, he's your man.
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BACKDATING AND BOARD MEMBER GOSSIP
October 23, 2006
A new study seems to imply that the practice of backdating options spread like a flea-borne disease from company to company on the backs of corporate directors. Many of the companies also use the same law firm. Footnoted.org picks up the story:
Of the 120 [companies tied to option backdating] so far, the study found that over 40% have at least one director who sat on a board at two companies involved in options backdating. Six directors sat on the boards of three of the implicated companies. The bottom line is that options backdating seems to have spread via word-of-mouth from one director to the other.
The study also found that at the center of that circle — the monkey in the middle — seems to have been Silicon Valley power lawyer Larry Sonsini and other principals and partners at the law firm of Wilson Sonsini Goodrich & Rosati (WSGR). Though the report notes that there’s no evidence to suggest that WSGR invented options backdating or that WSGR attorneys did anything illegal, it does point to a number of odd coincidences.
Interesting. I figured some sort of country-club gossip grapevine helped spread the backdating craze, but it never would have occured to me to try to connect the dots this way.
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SMELLS LIKE BIOMASS
October 23, 2006
In another example of how the whole alternative energy business smells like the bottom of a pork barrel, the Des Moines Register has an article: "Biomass firms: Taxpayers must share financial risk." From the article:
A leading producer of traditional grain ethanol, Broin Cos., is one of 24 companies applying for an $80 million federal grant to build a plant to produce ethanol from corn stover - the stalks, cobs and leaves. Broin plans to build the $220 million project in Iowa.
The Department of Energy expects to award $160 million in grants by December or January for two to three demonstration plants.
"We can take a lot more risk with the government's help," said Mike Muston, Broin's executive vice president of corporate development. "Without that assistance, it will require more thorough testing and development to assure us of the viability."
Well, yes, we all can take a lot more risk with the government's help. If the government gave me $80 million, I could buy a bunch of penny stocks, and maybe a few million lottery tickets. That doesn't mean the government should enable me to take that risk.
If biomass is truly a solution to our energy problems, the energy companies, which already invest it these biomass startups, will make sure it happens; all throwing government money at them does is gives them the incentive to buy the technological equivalent of lottery tickets.
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WEST DES MOINES PREPARES TO ENLIST IN CIRCULAR FIRING SQUAD
October 23, 2006
It looks like West Des Moines is joining the tax incentive game. The Des Moines Register reports:
West Des Moines officials hope the reversal of a long-standing policy against tax breaks will stop a trend that has seen five companies leave the city to take advantage of offers elsewhere.
City Council members will vote Monday on incentives that some believe should be more attractive than what companies can find in neighboring cities. The move would represent West Des Moines' first experiment with an economic development tool already in wide use across Iowa and the nation.
"If we're going to get in the game, should we make it better than what other communities are offering?" asked Councilman Ted Ohmart, who supports a six-year tax break, not to exceed 80 percent of the total bill, for companies that guarantee 500 or more jobs. Many communities offer a five-year, 75 percent maximum rebate or abatement.
Let's see: five companies moved, for reasons that may or may not have anything to do with property taxes, so now West Des Moines is going to let some businesses dump their property tax responsibilities on others. Only the largest businesses can qualify, so it is specifically designed to let the big carpetbagging businesses dump their property taxes on the established and smaller businesses. That will save the big guys money until they get a better offer in Clive in a few years, when they'll pack up the carpetbag and move again.
Based on the article, it looks like this has already been greased to slide through at tonight's city council meeting. The idea of central Iowa municipalities fighting tax incentive wars against each other is just absurd from any policy standpoint. The central Iowa economy isn't any better off if a West Des Moines resident commutes 3 miles to West Des Moines or 3 miles to Clive. It certainly isn't as though people have stopped building in West Des Moines for want of tax incentives.
This is being justified in the name of "economic development." That's a sure clue that it's really just a new way for the well-connected to get over on the rest of the taxpayers.
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YOU KNOW YOU'RE IN A SMALL TOWN WHEN...
October 20, 2006
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401(k) LIMITS INCREASE FOR 2007
October 20, 2006
The IRS has announced the pension plan deduction limits for 2007. Taxpayers will be allowed to defer up to $15,500 per year in their 401(k) plans next year. The 2006 limit is $15,000. The "Catch up" amount for taxpayers aged 50 or older by the end of 2007 will remain at $5,000.
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CORRECTION TO PIECE ON IOWA TAX CLIMATE
October 20, 2006
Chris Atkins calls our attention to an error in his response last week to our questions about the Tax Foundation's rating of Iowa's tax climate:
Iowa does index their individual brackets, standard deductions, and exemptions for inflation. Happily, though, that was merely a misstatement on my part; in the Index, we correctly note that Iowa does index the major features of their individual system for inflation.
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MURPHY TO GET FULL-PANEL REHEARING?
October 20, 2006
The TaxProf thinks that the full Federal Circuit Court of Appeals may be leaning towards a rehearing of the Murphy decision. He notes that the court has asked Ms. Murphy's attorneys to respond to the government's request for a rehearing of the three-judge panel's report, and observes:
This suggests that the D.C. Circuit may be considering granting the the petitiion, as Rule 40(a)(3) provides:
(3) Answer. Unless the court requests, no answer to a petition for panel rehearing is permitted. But ordinarily rehearing will not be granted in the absence of such a request.
In short, if they weren't thinking about allowing a rehearing, they wouldn't bother to get a response from the other party to the government's request.
The Murphy decision held that the Constitution doesn't permit the taxation of compensatory damages. It's a bafflingly bad decision.
Link: Complete Tax Update Murphy coverage.
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IT'S A GOOD EXCUSE FOR SOMETHING; JUST NOT THIS
October 20, 2006
Floridian Thomas Sweeney was in Tax Court because he didn't report income from his K-1 from an S corporation he owned with his wife. He argued his case without a lawyer, but maybe he didn't need one. His straightforward argument didn't rely much on technicalities:
This is my whole argument, Your Honor. During the second week of January 2002, my wife proceeded to throw me out of my home, which is where the business was located. She changed the locks. She stripped our corporate bank accounts, our personal bank accounts, charged up all the cash she could on my credit cards to over $50,000, $60,000, and she physically, lock, stock, and barrel, locked me out of the corporation.
The marriage didn't last, but the S corporation election did. The judge said he had to report the K-1 income, no matter how mean his ex is.
The moral? An S corporation election can truly be a tie that binds.
Cite: Sweeney, T.C. Summ. Op. 2006-169
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NOVEMBER 2006 APPLICABLE FEDERAL RATES (AFR) ISSUED
October 20, 2006
The IRS has issued (Rev. Rul. 2006-55) the minimum interest rates for loans made in November 2006:
-Short Term (demand loans and loans with terms of up to 3 years): 4.89%
-Mid-Term (loans from 3-9 years): 4.69%
-Long-Term (over 9 years): 4.9%
Historical AFRs are available at the "links" page at www.rothcpa.com.
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OUT LATE
October 19, 2006
I got home at 3:00 this morning, courtesy of United Air Lines, so this may be it for posting today. So behold this wonder of the world, Toronto's CN tower, as seen the bus to Pearson airport yesterday.
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IRS GOES SNIPES HUNTING
October 18, 2006
Would you take tax advice from this man? Actor Wesley Snipes did. Now Wesley Snipes has a real problem.
Mr. Snipes was indicted last week on federal tax charges. The charges allege that Mr. Snipes swallowed the "Section 861 argument" that U.S. income isn't taxable, hook, line and sinker. The 861 argument is absurd, but that hasn't stopped a small coven of tax protestors from promoting it. One of the better-known promotors is Eddie Kahn, the sharp-looking man in this picture.
Mr. Kahn has found it worthwhile to move to Panama in recent years, but he didn't get there before he he helped Mr. Snipes get in trouble, according to the indictment:
22. In or about March 2000, defendant KAHN had a telephone conversation with defendant SNIPES' tax advisors in which defendant KAHN asserted that defendant SNIPES was not subject to federal income tax based on the "861 argument."
That must have been an interesting conversation for the tax advisors.
23. On or about April 19, 2000, defendant SNIPES signed and caused to be sent to the IRS, a fraudulent amended federal income tax return (Form 1040X) for defendant SNIPES for the tax year 1996, wherein a false claim for an income tax refund in the amount of $4,032,806.00 was made based on the "861 argument."
This would be a misstep. $4 million is big enough for even the IRS to notice.
24. In or about June 2000, defendant KAHN traveled to California and gave a private seminar at defendant SNIPES' house to defendant SNIPES and others regarding the "861 argument" and other fraudulent tax positions.
25. Sometime after the meeting in California, defendant SNIPES had a discussion with a worker of his loan-out company about not withholding taxes from the pay of loan-out company workers.
26. On or about June 28, 2000, defendant SNIPES had a telephone conversation with one of his tax advisors in which defendant SNIPES tried to persuade his tax advisor to handle his tax matters in accordance with the "861 argument," notwithstanding his tax advisor's unequivocal advice that there was no merit to the "861 argument," that he was subject to federal income tax, and that he was required to file federal income tax returns.
No, Wesley, really, it doesn't work. Honest. Wait, you say he wears a string tie? Well why didn't you say so, that changes everything.
27. On or about June 29, 2000, one of defendant SNIPES' POA representatives ("Conspirator One") sent a letter on behalf of defendant SNIPES to an IRS employee who previously had issued a letter informing defendant SNIPES that his 1996 Form 1040X claim for refund had been rejected as frivolous; said letter threatened to seek the termination of the IRS employee and requested payment of the refund claim with interest.
This would be another foot fault. Most professionals would agree that threatening to have an IRS employee fired is futile. Even coming from their supervisors, that would be an empty threat.
28. On or about October 17, 2000, defendant SNIPES executed an "Affidavit of Incompetence" in which he falsely claimed, among other things, that he did not understand the tax laws and did not know if they applied to him.
The "incompetence" part rings true.
29. On or about November 30, 2000, defendant SNIPES caused to be sent to the Secretary of the Treasury a fictitious "Bill of Exchange" signed by defendant SNIPES, fraudulently denominated in the amount of $1,000,000.00, together with an IRS Payment Voucher (Form 1040-ES) bearing defendant SNIPES' name and Social Security Number.
30. On or about January 18, 2001, defendant SNIPES caused to be sent to the Secretary of the Treasury a fictitious "Bill of Exchange" signed by defendant SNIPES, fraudulently denominated in the amount of $12,000,000.00, together with two IRS Payment Vouchers (Forms 1040- ES) bearing defendant SNIPES' name and Social Security Number.
Sending the IRS $13 million in play money is typically frowned upon by tax planners. Not that we like to send real money, either...
The law treats Mr. Snipes as innocent until proven guilty. If he is so proved, he is likely to go away for quite awhile. If the IRS has suffered a $13 million tax loss, that would get him to Level 26 of the federal sentencing guidelines, which suggests a 63 to 78-month sentence.
Meanwhile, Mr. Kahn seems to be making a splash in Panama. A Google search of his name comes up with an article headlined "Far right Gringo Hustlers Bring Their Show to Panama." It's good to make friends wherever you go.
The TaxProf has a comprehensive set of links for the Snipes indictment. Don't Mess With Taxes also is on the case.
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DO TAX CUTS PAY FOR THEMSELVES?
October 18, 2006
There are two tax rates where no taxes are collected- 0% and 100%. That implies a curve where sometimes lower rates actually collect more taxes than higher rates, depending on where you are between 0% and 100%.
That doesn't mean tax cuts always increase revenue. It does mean that revenue losses from a tax cut may not always be as high as you might otherwise think - for example, a 10% rate cut may not reduce revenue by 10%.
The Tax Policy Blog has a smart discussion of these issues posted, focusing on recent tax cuts:
Almost surely, federal tax revenues would have increased from 2002 – 2006 relative to their low 2001 level, even without the tax cuts. If you look at many of the key provisions of the tax cuts, many would have little economic feedback at all, especially the initial 2001 tax cuts that included rebates and an expansion of the child tax credit, which are really no different than the government having an agency just write billions of dollars worth of checks to families, which would merely be called government spending.Cutting marginal tax rates on labor would have a larger feedback effect in terms of additional economic activity being generated than these credits/rebates, especially because of the progressivity of the federal income tax code which means we rely on the more pro-cylical income of high-income individuals, but labor is still fairly inelastic nationwide, meaning the tax cuts on ordinary income at their given rates would still cost the Treasury revenue. On the other hand, the revenue losses associated with the 2003 round of tax cuts, which included cutting dividend tax rates, may not be as large as static estimates would suggest. These tax cuts could have a significant level of feedback because investment is highly elastic relative to labor, and thereby long-run revenue losses are much smaller compared to cutting taxes on wage income.
The whole piece is worth reading.
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MAULE ON MURPHY REHEARING PETITION
October 17, 2006
Dr. Maule ponders the recent petition by the government for an en banc review of the Murphy decision. He had pointed out that Murphy fails to properly deal with the statute involved, even without addressing the constitutional issues; yet the petition for hearing brushes past the statutory construction problem. He worries:
Now, in addition to concerns over the chances of the petition being granted and the en banc outcome being decided correctly, there is another worry, namely, that the inability to understand how Internal Revenue Code inclusion and exclusion provisions work will become a problem not just for three judges but for many more. Perhaps this matter can be clarified at oral argument. That, of course, assumes a favorable reaction to the petition. It's tough to imagine the full court letting the three-judge panel's horrific opinion stand without comment.
For Dr. Maule it's a brief post, and as always, well worth reading in full.
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THOSE ARE UPS UNIFORMS, NOT WEDDING DRESSES
October 17, 2006
Taxpayers can deduct the cost of work uniforms as a "miscellaneous itemized deduction," subject to a 2% of adjusted gross income floor, and to the straight-face test. A Miami couple struggled with this second test in a Tax Court decision yesterday:
Petitioners deducted $5,625 for uniforms for the taxable year and stipulated that the uniforms Mr. Harrell wore were washed and ironed at petitioners' home. The expense of uniforms is deductible under section 162(a) if: (1) The uniforms are of a type specifically required as a condition of employment; (2) the uniforms are not adaptable to general usage as ordinary clothing; and (3) the uniforms are not so worn.
Mr. Harrell, in his position with United Parcel Service, was required to work in a clean uniform every day. Mrs. Harrell washed and ironed Mr. Harrell's work uniforms at home. The employer provided the uniforms but did not reimburse Mr. Harrell for the cleaning of his uniforms. Although petitioners would be entitled to a deduction for the cost of washing and ironing the uniforms, they provided no evidence upon which we can estimate the amount thereof. At trial, Mrs. Harrell testified that the amount claimed was a guess that was based on the hypothesis of paying to have the uniforms cleaned commercially. Deductions are based on actual, not hypothetical, costs.
As the uniforms were not sent to a commercial cleaner but were laundered and ironed at home, the amount claimed is not allowable. Moreover, the amount claimed ($468.75 per month) appears grossly inflated. In the absence of a rational basis for estimating the cost of the cleaning of the uniforms, we sustain respondent's disallowance of this component of the claimed unreimbursed employee and other miscellaneous expenses.
I think that would mean he was changing uniforms three or four times each day, unless hypothetical laundries in Miami are much more expensive than real ones in Des Moines. Still, if you are going to use a hypothetical laundry, why cheap out?
Cite: Harrell, T.C. Summ. Op. 2006-165
UPDATE: The TaxProf is on the case.
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WHERE IN THE WORLD IS THE TAX UPDATE?
October 16, 2006
The Tax Update is on the road in pursuit of continuing education. This photo will tell you where I am, if you can tell where it was taken.
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ROAD RAGE
October 16, 2006
I'm out of town today at a tax school, I got in late and overslept a bit. Look for posts later on. If you have an extended 1040, don't forget to file today!
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IT TOLLS FOR THEE
October 13, 2006
Monday, October 16, is the final, final day to file your extended 2005 1040s (and 1041s and 1065s, if you have those). Don't forget! And if you are filing the old-fashioned way, on paper, remember: use Certified Mail, Return Receipt Requested to document your timely filing. Save the postmark and the return receipt when it comes back. Electronic filing avoids these hassles.
If the IRS says you filed late, the office postage meter postmark will be no help at all.
Iowa filers have until October 31 to file their Iowa returns; of course, Iowans have to file their federal returns by Monday like everybody else.
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YET ANOTHER TAXPAYER AMT-INCENTIVE STOCK OPTION DEFEAT
October 12, 2006
The Tax Court shot down yet another theory for avoiding alternative minimum tax on incentive stock options that go bust.
Incentive stock options, or ISOs, are employee stock options with a special tax feature. When you exercise ordinary employee stock options, the excess of their value over the price you pay to exercise the shares is taxed as ordinary wage income at rates up to 35%. In contrast, if you exercise ISOs and hold the stock for one year after exercise, there is no ordinary wage income. Instead, the excess of your sales price over your option price is capital gain, currently taxed at only 15%.
The catch? In computing AMT, the "bargain element" of ISOs is taxed at the time of exercise. That means you have to pay tax up front and hope that the stock is still worth something a year later. It's still a good deal if the stock price goes up, because you get a credit against your regular capital gain tax for the AMT paid when you sell the stock. If the stock tanks, though, it's a bad, bad deal.
Many telecom employees with ISO shares ended up paying large AMT bills on stock that became worthless not long after exercise. Iowa's Ron Speltz, who got clobbered on his McLeod ISOs, is a type specimen. Taxpayers have tried a number of ingenious arguments to avoid the ISO AMT on worthless telecom shares, but to no avail.
ARE AMT CAPITAL LOSSES DIFFERENT?
The Tax Court shot down the latest attempt yesterday. Jonathan Palahnuk exercised ISO in his emplooyer, Metromedia Fiber Network. He paid $99,949 to exercise shares worth $2,185,959. He had no regular taxable income on the exercise, but $2,086,009 in AMT income. As a result he ended up paying $586,066 of AMT in 2000.
Things didn't go so well for Metromedia in the next year, and he sold his shares in 2001 for $248,410. For regular tax purposes, he had a capital gain of $148,461 on the stock that had already cost him $586,066 in taxes. For AMT purposes, he had a $1,937,547 capital loss.
The catch? Capital losses are only deductible up to the amount of your capital gains, plus $3,000. The taxpayer tried to convince the Tax Court that the $3,000 loss limit shouldn't apply in computing AMT. The Tax Court didn't buy it. That means the taxpayer can take $3,000 of AMT capital losses against his AMT ordinary income for the next 646 or so years.
The Moral? I see two. For taxpayers, if you exercise ISOs, and you can't pay the AMT if the stock goes bust, sell enough shares right away to cover your taxes. You'll convert some potential capital gain into ordinary income, but at least you'll stay solvent.
For policymakers, it shows how unintended consequences can turn tax breaks, like ISOs, into tax nightmares.
Cite: Palahnuk, 127 T.C. No. 9.
Related Tax Update Coverage:
ANOTHER BAD DAY FOR AMT-ISO VICTIMS
DES MOINES REGISTER TAKES UP SPELTZ CAUSE
TAX COURT TO ISO-AMT VICTIMS: YOU'RE STILL SCREWED
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SOMETIMES YOU WANT THE IRS TO CATCH UP WITH YOU
October 12, 2006
A few years back a multi-level marketing firm built around tax scamming popped up in Topeka. It's coming to a sad end, as Taxable Talk reports:
Back in 2000, the IRS raided "Renaissance, The Tax People." The company was a multi-level marketing firm specializing in tax. Nothing wrong so far. However, the Department of Justice alleged in 2004 that the company told clients to add non-existant exemptions to their W-4 forms, decreasing the tax the clients had to pay. And it would be just enough money to buy the Renaissance tax package! Additionally, they were accused of having a pyramid scheme.
Michael Cooper, the former head of Renaissance, fled the United States in 2003, but was caught re-entering the U.S. near Laredo, Texas. Mr. Cooper will be tried next year.
Daniel Gleason, the former tax director for Renaissance, pleaded guilty today to defrauding the IRS. He'll face up to five years in prison when sentenced.
Perhaps there was some merit in the Renaissance multi-level marketing approach - they just went straight to the tax scamming, without pretending to sell vitamins, cosmetics or household stuff. Apparently the IRS doesn't award bonus points for being straightforward.
While Mr. Cooper didn't leave the IRS a forwarding address, Kreig Mitchell explains why you should. If you file Form 8822 when you move, the IRS is officially on notice where you live, and if they don't send your notices to your new address, then it's their fault if you don't get them.
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WHAT'S WRONG WITH IOWA'S TAX CLIMATE
October 11, 2006
I asked Chris Atkins of the Tax Foundation to comment specifically on Iowa's tax climate, which the Foundation ranks as one of the ten worst in the nation. His reply:
Iowa ranks 43rd overall in our 2007 state business tax climate index. This is a three spot improvement from their 2003 rank of 46th.The overall ranking is based on scores in five component areas: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes. A state that has a relatively low, single rate and a relatively broad base will score better in these component areas than a state with a relatively high rate (or multiple rates) and a relatively narrow base.
Iowa’s corporate and individual income tax systems drag down its overall ranking. On these two component areas, Iowa respectively ranks 46th and 45th.
Iowa’s corporate tax system scores poorly because it features a top rate of 12 percent on income earned in excess of $250,000—the highest top corporate income tax rate of any state. Iowa also scores poorly because it narrows its tax base by offering tax credits for investment, job creation, and research and development. Iowa also gets a low score because it is one of only 8 states with a corporate alternative minimum tax (AMT) and it fails to index its tax brackets for inflation.
For individuals, Iowa scores poorly because it has 9 different tax brackets, ranging from .36 percent to 8.98 percent on income earned in excess of $57,106. Only one other state (Missouri) has more individual income tax brackets, and only two other states (Hawaii and Ohio) have 9 brackets. Not helping matters is the fact that Iowa allows the double taxation of interest, dividends, and capital gains, fails to index its standard deductions, exemptions, and its tax brackets for inflation, and levies an AMT on individual filers.
I know that Iowa gives deductibility for federal taxes paid. While this undoubtedly helps to keep Iowa’s tax burden low (Iowa ranks just below average—26th—in our annual calculation of the state tax burden) it unnecessarily complicates Iowa’s tax structure. The state would be better off if it eliminated this deduction and used the revenue generated to move toward a lower and simpler rate structure for corporate and individual income taxpayers. It is good for states to reduce the tax burden on their citizens, but they shouldn’t complicate their tax systems in the process. When you reduce taxes by offering unwarranted credits and deductions, you just substitute a whole new set of problems for your taxpayers. Lowering the rate is the most economically efficient way to reduce taxes and improve your overall business tax climate.
It's hard to find anything to argue with here. I can only add that the tax credits tend to go to well-connected constituencies, making things even worse for those of us without lobbyists.
Correction: Mr. Atkins points out an error in his response - Iowa does index brackets. He says Iowa's ranking does take the indexing into account.
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IOWA'S TAX CLIMATE: STILL IN THE BOTTOM TEN
October 11, 2006
Iowa retains its firm hold as one of the states with the 10 worst business climates, according to a new report by the Tax Foundation.
The Foundation's State Business Tax Climate Index rated Iowa's business tax climate 43rd out of 50 states this year. We are a hair ahead of Nebraska, but a mile behind #2-rated South Dakota.
Click to enlarge.
How did Iowa get such a lame ranking? Consider what the Foundation uses as criteria for a good tax system:
Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same. Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with these politically motivated preferences the less likely it is that business decisions will be made in response to market forces.
Without "politically motivated preferences" Iowa would hardly have an income tax. And it looks like our candidates for governor like that just fine.
The top 10 states in the rankings were:
1. Wyoming
2. South Dakota
3. Alaska
4. Nevada
5. Florida
6. Texas
7. New Hampshire
8. Montana
9. Delaware
10. Oregon.
Our companions at the bottom of the barrel:
41. Minnesota
42. Maine
43. Iowa
44. Nebraska
45. California
46. Vermont
47. New York
48. New Jersey
49. Ohio
50. Rhode Island.
The Foundation also has a piece on their site linking tax climates and economic growth. They note:
In fact, between 2000 and 2005, income in the top 10 states in the 2007 Index grew 44 percent faster than in the bottom 10 states. Employment in the top 10 states grew 115 percent faster, output 52 percent faster and population 164 percent faster.
Yet our candidates for governor think that what we really need are more tax breaks for old folks and more targeted tax credits. Look out, Nebraska!
UPDATE: Chris Atkins from the Tax Foundation sends us specifics on why Iowa has a rotten tax climate.
Tax Foundation Tax Climate Links:
Full Study (pdf)
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NEW CAVALCADE OF RISK UP
October 11, 2006
Wenchypoo is hosting this week's Cavalcade of Risk, a roundup of insurance and risk management blog posts. This edition introduced me to the Specialty Insurance Blog via a post on "Do our clients want us to be in the insurance business or the risk management business?" Also, don't miss the classic Scott Adams Dilbert Guide to Personal Finance.
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D.C. SEX, TAX SCANDAL LOOMING?
October 10, 2006
From The Smoking Gun:
With the capital already mired in its latest sex scandal, federal agents last week raided the home of a woman they allege has, for the past 13 years, operated a Washington, D.C. escort service that dispatched college-educated prostitutes to the homes and hotel rooms of well-heeled clients. A two-year probe by Internal Revenue Service and Unites States Postal Inspection Service agents has targeted the Pamela Martin & Associates escort service and its owner, Deborah Jeane Palfrey (picture at right).
They didn't have that major when I was in school.
No doubt the raid was the culmination of a lengthy process that involved dozens of IRS agents who volunteered to take part to part in undercover investigations. Sometimes you have to go pretty far in the interest of serving the taxpayer.
Hat Tip: The Tax Prof.
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GOVERNOR CANDIDATES: SAME OLD, SAME OLD
October 10, 2006
Iowa's two major party candidates for governor had their first debate. Any voters looking for a new direction for Iowa's tax policy will need to wait at least another four years.
From the Des Moines Register:
Democrat Chet Culver and Republican Jim Nussle disagree on whether Iowans ought to be able to vote on major tax increases, one of several markers in the candidates' limited tax plans.
Neither candidate for Iowa governor has proposed wholesale changes to Iowa's tax law. Both have said they would leave the heavy lifting of restructuring the tax system to the task forces each has proposed be convened after the election.
Punting an issue to a "task force" shows that the candidate has no serious thoughts on tax policy of his own. If you need a panel to give you a policy approach, you haven't done much thinking for yourself.
NUSSLE: MORE LOOPHOLES FOR OLD FOLKS
"If I come out with a tax-cut plan ... half the Legislature will be against it. So I start off with one foot in the hole," Nussle told Des Moines Register editors and reporters.
Nussle has said he would earmark about one-third of surplus revenue for tax relief. It would be up to a commission, chosen by Nussle and the Legislature, to recommend how to apply it, Nussle said.
That's leadership for you...
He has also suggested eliminating taxes on Social Security and pensions in Iowa, saying they prompt Iowa seniors to leave the state.
Of course, the resulting high taxes on those of us still working prompt businesses to stay the heck out of the state.
CULVER: MORE TARGETED LOOPHOLES
Culver supports getting rid of federal deductibility, which would raise the tax burden on some Iowans, while Nussle supports keeping it.
Culver has proposed $40 million in property tax relief through increasing state aid to schools. He would also seek to allow more Iowans to receive the state's earned-income tax credit, estimating $21 million in income tax relief to low- and middle-income families.
He has also proposed tax credits for child care and to promote energy conservation.
Still more social policy through the tax law.
Culver says his tax proposals could be financed through $1 billion he estimates would be available through surplus revenue, a higher tobacco tax and savings achieved by gutting government of waste.
More government, less waste. That's sort of like saving gas by buying a bigger car.
And what about Iowa's highest-in-the-nation corporate tax rate? Or our state tax law that rivals California and New York in baroque complexity? Our high individual tax rates? Our 20-plus targeted tax credits for the well-connected? We'll just have to wait for the "task force" to complete its doomed-to-be-ignored study.
Additional Links:
Radio Iowa Coverage of Culver Tax Plan
Related Tax Update Coverage:
OLDSTERS THRASH WHIPPERSNAPPERS
TAX FOUNDATION: IOWA NINTH WORST STATE FOR BUSINESS TAXES
DES MOINES REGISTER HIGHLIGHTS TAX INCENTIVES
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TURNING LEAF CARNIVALS
October 10, 2006
The leaves are starting to turn in Iowa, and that means it's Carnival Time!
The Carnival of the Capitalsits is up and running at BusinessPundit.com, where Bob from Insureblog sees more government involvement in health care coming down the road.
The Carnival of Personal Finance is at its home site this week.
The Carnival of Business is at Kristin McAllister's blog at the Dayton Daily News. It includes a review of one of my favorite books.
Many great posts at all of the Carnivals; have some cider and enjoy.
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EX-IRS AGENT FINDS AUDIT WORSE THAN HURRICANE
October 09, 2006
Ronald Heidel was profiled in a 2004 Washington Post piece on Hurricane damage to Sanabel Island. The piece chronicles his saga of trying to get back to the island to appraise the damage, and his relief at finding his home relatively unscathed.
Now the news for Mr. Heidel isn't so good. From the U.S. Attorney for Maryland blog (yes, a U.S. Attorney with a blog!):
Ronald C. Heidel, age 59, of Sanibel, Florida, a former IRS agent, pleaded guilty today to making false statements on his and his wife’s joint tax return for the year 2001, announced U.S. Attorney for the District of Maryland Rod J. Rosenstein.
According to the statement of facts submitted to the court as part of the plea agreement, Heidel worked as a revenue agent for the IRS in the mid-1970's to early 1979. In March of 1999 Heidel purchased the Gentlemen’s Gold Club (the GGC), a restaurant and bar located on 5801 Pulaski Highway in Baltimore County that also featured entertainment by exotic dancers. Heidel sold the club in July 2002. From late 2000 through mid-2002, Heidel also owned a vending machine business named Rossville Vending that supplied cigarette and video game machines to restaurants, clubs and bars around the Baltimore area.
As president of the GGC, Heidel received the cash generated by door admissions charges and sales of food and drink at the Club on a daily basis. Between May 3, 1999 and December 27, 2001, Heidel deposited $1.467 million in cash derived in part from the operations of the GGC and Rossville Vending into various personal bank accounts, rather than the company’s bank accounts. Most of these cash deposits were between $7,000 and $9,000. Heidel often made two deposits at different branches of the same bank or at two different banks on the same day. As such, and by keeping the amounts to less than $10,000, Heidel avoided triggering the requirement that the financial institution file a cash transaction report (CTR) on these transactions.
Just goes to show - there are worse things than hurricanes. Getting caught cheating on taxes, for example.
Other coverage:
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IRS ANNOUNCES BREAK FOR AMERICANS OVERSEAS
October 09, 2006
U.S. workers overseas got an unwelcome surprise this spring when Congress retroactively increased their taxes. The U.S. Treasury tried to take a little sting out of the increase this weekend by increasing the exclusion for housing costs for Americans working in other countries.
The "Tax Increase Prevention Act" capped the amount of housing allowance that overseas workers can exclude from US income. It also changed the rules so that the exclusion for income earned overseas applies first against a taxpayer's lowest brackets, rather than the highest brackets.
This provision apparently was inserted into the bill at the last minute, and like many hasty decisions is having unintended consequences - like making it more attractive for multinationals to hire Europeans than Americans.
The IRS released Notice 2006-87 over the weekend to increase the housing exclusion for Americans in high-cost overseas postings.
Links:
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IRS REQUESTS RE-HEARING ON MURPHY
October 06, 2006
The government yesterday asked the Court of Appeals for the Federal Circuit to have the full panel of judges re-hear the Murphy case. Murphy, in holding that "whistleblower" damages weren't "income" under the constitution, threatens to undermine much of the federal income tax.
The government's brief addresses the constitutional issues directly, raising many of the same points discussed here. The brief explains the source and broad scope of Congress's taxing power, and how the 16th Amemdment only removed the requirement that income taxes treated as "direct" taxes be apportioned among the states by population.
The brief also atta