Tax Update Blog: January 2007 Archives
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BEG YOUR PARDON, GOV'NOR
January 31, 2007
The Des Moines Register has some new details about the proposed Iowa tax amnesty:
Under an Iowa Department of Revenue proposal, Iowans would be given roughly a two-month window of opportunity - from Sept. 4 through Oct. 31 - to pay delinquent taxes that are free of penalties, and with a 50 percent reduction in the amount of interest due.
The amnesty would cover the state income, sales, cigarette and motor fuel tax as well as other types of taxes collected by the state government. However, the program would not include property taxes or liquor taxes.
As a cheap gimmick to raise revenue, it's a bad enough idea to get support from both sides of the aisle:
Leaders of the 2007 Legislature agree it's worth a try to offer a new tax amnesty program - one of the budget recommendations that Culver, a Democrat, made Tuesday.
"I think it's a good thing to do. You don't have enough enforcement to catch everyone," said Senate Minority Leader Mary Lundby, a Marion Republican. "If you have an amnesty and get some money back from it, why not try it?"
This, of course, sends a bold bi-partisan message to the taxpaying public: "So you've paid your taxes on time all these years? Ha, ha, ha, Sucker!"
Prior coverage:
Link • Eye on the Legislature: 2007 ~ • Iowa Tax Law Bookmark: del.icio.us • Digg • reddit
SOMETIMES FURTHER NEGOTIATIONS AREN'T CALLED FOR
January 31, 2007
Bidyut Bhattacharyya is a principal engineer for Intel and, by all indications, a brilliant man. His papers include "Observation of Two-Dimensional Phase Separation in 3He-4He Films" and "Phase transition of two-dimensional 3He from a dilute to a dense phase."
When a guy like this has tax trouble, it just might mean the tax law is too complicated.
Mr. Bhattacharyya has done well at Intel. His W-2 for 2000 showed earnings of $746,192, including $606,963 from exercising non-qualified stock options. He also took premature IRA distributions. He didn't report his option income or all of the IRA distributions on his 1040, arguing (wrongly) that the options should be taxed as long-term capital gains.
The IRS notices when you don't report $600,000 in W-2 income, and they assessed additional tax of $314,372 and penalties of $38,837. In hindsight, Mr. Bhattacharyya should have taken the offer.
Instead, he went to the Tax Court and claimed he was owed a $9,000 refund. After reviewing the evidence that came out in the Tax Court proceeding, the IRS (with the Court's permission) boosted its assessment to $561,309 in taxes and $100,571 in penalties.
Things went badly for Mr. B. in Tax Court. Except for a relatively small amount of itemized deductions, the IRS swept the board. Goes to show: sometimes it's best to take the first offer from IRS.
One item must have been confusing for the scientist:
As described above, respondent met his burden of proving that petitioners are entitled to itemized deductions of only $243,363 and miscellaneous itemized deductions of only $84,581. However, petitioners argue that they are entitled to deduct the claimed expenses in full in 2000 because respondent allowed them to deduct similar expenses in 1999.
In the laboratory, identical inputs should produce identical results. The tax law isn't nearly so logical:
Petitioners' argument is without merit. Each taxable year stands alone, and respondent may challenge in a succeeding year what was condoned or agreed to in a former year... Respondent's allowance of certain itemized deductions in 1999 does not establish petitioners' entitlement to similar deductions in 2000.
The Moral? Brilliance is one thing; the tax law is something else entirely.
Cite: Bhattacharyya, T.C. Memo 2007-19
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TAX FOUNDATION ISSUES STATE TAX HANDBOOK
January 31, 2007
The Tax Foundation has published the new addition of "Facts & Figures: How Does Your State Compare?" It's a wonderful pocket guide to state tax systems. You can follow the link to read it in pdf, or you can request a free copy to give your friendly state legislator.
(via Tax Policy Blog)
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MATH IS HARD
January 31, 2007
Headlines on stories about Governor Culver's new budget:
Culver seeks 6 percent budget hike based on cigarette tax (WQAD, Moline)
Culver seeks 7.5 percent budget hike (Marshalltown Times Republican)
Culver Asks For 8.6 Percent Spending Boost (IowaPolitics.com)
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AN IOWA TAX AMNESTY?
January 30, 2007
Governor Culver proposed his first budget today. As expected, the budget proposes a $1 per pack cigarette tax to help finance an 8.6% increase in spending, pegged to bring in $138 million. It also includes a requirement that some corporate groups file thier returns on a "combined" basis; this was also expected, and it's scored to raise $25 million.
The next largest source of revenue comes as a surprise: a "tax amnesty." As far as I know, this is the first time this has come up. No details of the amnesty are included in the budget document.
Amnesties are bad tax policy. Politicians like them because can help bring some cowering tax delinquents into the system, generating some additional revenue.
The downsides:
- They increase the "shmuck factor" of law abiding taxpayers. Folks who have stretched themselves to pay their taxes on time see the delinquents getting off the hook and become cynical about the system. They feel like schmucks.
- They create an expectation of future amnesties. Taxpayers will expect an amnesty to come along every once in awhile when a governor is short of cash. This would be the second Iowa tax amnesty since I started doing tax work in Iowa; the first was around 1986, and we were told it wouldn't happen again.
An amnesty can only work if it's both a carrot and a stick. Tax delinquents are warned that if they don't come in from the cold, they're really in for it. Repeating it makes the stick more like a wet noodle. It's like a pushover parent saying "I swear to God, one more time and I'm going to turn this car around and drive home" when the family is already 400 miles into the drive to Wally World.
But if we're going to Wally World, we might as well enjoy the billable hours, baby! ride. We eagerly await details of the amnesty.
Links:
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SUN DOG DAYS IN DES MOINES
January 30, 2007
Click on photo for larger image
We only see sun dogs on some of the coldest days of the year. Like today.
UPDATE: Reader Jeff Jacobs sends a handy link about sun dogs.
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TREASURY ISSUES MORE HEALTH CARE PROPOSAL EXAMPLES
January 30, 2007
A new release from the Treasury provides more details on the President's State of the Union tax proposals. (Hat tip: The TaxProf.)
Prior Coverage:
TRY ON THE PRESIDENT'S HEALTH PLAN
STATE OF THE UNION HEALTH CARE PROPOSAL
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BLOWING THE WHISTLE
January 30, 2007
If you ever have suffered from the urge to turn in a tax cheat, you should read this Don't Mess With Taxes post on IRS rewards for tax informants.
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REHAB CREDITS, TAX BREAKS FOR SOLDIERS ON TAP IN LEGISLATURE
January 30, 2007
Among the new bills proposed last week in the legislature were efforts to make life for soldiers and veterans more tax-free. There was also a bill to expand the amount of Historical Rehab and "Cultural and Entertainment District" credits allowed each year.
The state has a generous credit to subsidize rehabilitation of historic buildings, but it is subject to an annual limit, which has been greatly oversubscribed. This bill, HF 130, would raise the cap from $2.4 million annually to $20 million.
These bills show how legislators look at tax bills as a sort of Swiss Army Knife of public policy - it can do everything, even if not particularly well. They also show how the road to Iowa's dysfunctional and complex tax system is paved with good intentions. Who can be against helping soldiers? Or fixing up old buildings? There's just no end to good causes, though, and ultimately these special breaks mean everyone else has to pay more, and the tax law just gets more complicated.
The rehab credits have another ugly effect. They subsidize one class of rental property at the expense of others. When the subsidized apartments financed by rehab credits hit the market, they compete with unsubsidized conventional apartments - taking money out of the pockets of the unsubsidized landlords. But that's harder to see than a nicely-rehabbed loft.
Follow all of the 2007 Iowa tax legislation at our 2007 Iowa Tax Legislation page.
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HAROLD HILL WANTS US TO FINANCE HIS FILM
January 29, 2007
The Iowa City Press Citizen has a one-sided piece up shilling for "incentives" for people to make movies in Iowa. It gives the standard excuse for offering subsidies to one business at the expense of the rest of us:
If neighboring states have incentive packages offering multiple tax breaks for filmmakers and Iowa does not, it is a no-brainer which state will get the film, (22-year old filmmaker Scott) Beck said.
The last time this came up, the welfare-seeking filmmakers were wanting "transferable" credits. These are tax credits that the filmmakers can sell at a discount to other taxpayers. They have the same effect as a direct cash subsidy.
The welfare-seekers act like films have some special magical economic impact:
One of the last larger films to be shot in the state is �The Final Season,� shot in Norway and Cedar Rapids in summer 2006.
Producer Steve Schott estimates that for the film they spent about $1.5 million in the state for goods and services alone. He estimates that the crew spent another half a million dollars on food.
More than 3,000 hotel nights were booked and more than 30 cars rented.
That sure is special. Still, filmmakers come and go, leaving nothing permanent behind. Business subsidies are bad enough when the business is going to stick around, but subsidies for people who you know will pack up and leave at the end of a project? Maybe we should just pay California taxes and skip the middlemen.
Then there's this:
Bruce Heppner-Elgin, founder of the Iowa Digital Filmmakers Guild and a Washington resident, knows of dozens of filmmakers across the state who will be lobbying for the bill to pass.
�The film incentives are very important in that they first off give a level playing field so we can compete with states around us,� Heppner-Elgin said. �There is money out there that Iowa is missing.�
Nothing compared to what will be missing when Harold Hill leaves town. Actually, there is money missing, but I don't think that's what they're talking about.
The article says Mark Davitt (D- Indianola) will introduce a money-for-Hollywood bill this week. We will track its progress on our 2007 Iowa Tax Legislation page.
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TRY ON THE PRESIDENT'S HEALTH PLAN
January 29, 2007
The Tax Foundation has posted a set of illustrations of the effects of the President's health plan on families in various circumstances. It helps give an idea of who stands to gain, and lose, under the plan.
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TAX CHEAT ROUNDUP
January 29, 2007
Taxable Talk is on the celebrity tax beat with posts on recent tax convictions for Grammy-winning trumpeter Phil Driscoll and former NBA player Robert "Tractor" Traylor.
Mr. Traylor's attorney had this comment:
Robert Traylor is a basketball player, not a businessman. He got some bad advice and unfortunately he took it. So here we are.
No, that's wrong. Mr. Traylor made $1.6 million for the 2004-2005 season. He's a businessman, whether he thinks he is or not.
Meanwhile, out of New Jersey, shocking news: official corruption. A former county tax official was cheating on his taxes. Has anything like this ever happened in the Garden State?
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IRS WEB SITE HAS 2006 AMT ASSISTANT
January 29, 2007
The IRS has posted a handy little web-based program to help do-it-yourselfers determine if they have alternative minimum tax for 2006.
For a quick and dirty idea whether you are likely to have AMT for 2006, you can take my quick-and-dirty quiz:
Do you live in Iowa, New York, California, New Jersey, Massachussets, Connecticut, or another high tax state?
If yes, do you have gross income in excess of $150,000 but less than $500,000 ($700,000 in NY, NJ or CA)? If yes, you probably have AMT.
Do you have a big capital gain in 2006? If yes, you probably have AMT.
Do you have more than 4 kids? You probably have AMT.
Wasn't that easy?
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'VOLUNTEER' MUST NOT MEAN WHAT I THOUGHT IT MEANT
January 26, 2007
A new tax bill in the Iowa House of Representatives (HF 112) provides:
This bill excludes from the individual income tax the first $15,000 received by a taxpayer as a stipend or remuneration for services rendered as a volunteer fire fighter.
Apparently "volunteer" really means "part-time professional," at least under the Iowa tax law.
Follow the progress of HF 112 and all other tax legislation in the 2007 Iowa General Assembly at our 2007 Iowa Tax Legislation page.
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THE IRS APPROACH TO INFORMATION SECURITY
January 26, 2007
We've gotten used to reports of the IRS losing laptop computers, so it's hard to be shocked by this Tax Analysts report ($link):
A Kansas City, Mo., administrator told Tax Analysts on January 25 that the city is missing 26 IRS tapes containing sensitive taxpayer information.
"We can't locate them," Assistant City Manager Rich Noll said in a phone interview.
Noll said he was unsure how many taxpayers' information might be included on the tapes. He also said he wasn't sure exactly what kind of data the tapes contain, describing it only as "sensitive." The tapes have been missing since at least January 19, when The Kansas City Star first reported them gone.
The tapes are believed to be IRS tapes used to share data with local tax authorities. The report also also reveals that a surprising weapon to protect data:
Noll said information tapes are a fairly old technology and can only be read using specialized equipment that Kansas City keeps "under lock and key." The information on the tapes is also written in an uncommon programming language, he said.
We now know the real reason the IRS has taken so long to move its information processing away from 1960s technology - nobody has the machines that can read the old tapes. Unless, of course, the tapes fall into the hands of this notorious criminal gang:
The infamous UNIVAC mob, from an FBI surveillance photo.
More coverage at Tick Marks and WebCPA.
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STILL, A MALPRACTICE SUIT ISN'T EXPECTED
January 25, 2007
Oops.
Coloradan E. Warren Goss got into a dispute with the IRS that was docketed in Tax Court. On the eve of trial, he signed a settlement agreement with the IRS. There was one last item needed to close the Tax Court case, a "stipulated decision document." Things went wrong after that:
Subsequently, after trying unsuccessfully to secure a stipulated decision document from petitioner, respondent filed the instant motion with the Court. The motion states that the computations flowing from the settlement agreement result in a $33,146 deficiency in petitioner’s 1997 Federal income tax and a $8,286.50 addition thereto under section 6651(a)(1). In response to respondent’s motion, petitioner argues that the settlement agreement is incorrect in that the $30,000 of rental income shown in the agreement is already reflected in the $127,000 of gross receipts also shown in the agreement. Respondent argues that the $30,000 of rental income is in addition to the $127,000 of gross receipts.
He says his tax attorney signed a settlment doubling up on $30,000 income? I bet he fires that attorney! Oh, wait...
Even if petitioner had mistakenly signed the document as claimed, such a unilateral mistake is not a sufficient ground to set aside an otherwise enforceable settlement agreement... Such is especially so given that petitioner is a practicing attorney and that his signing of the settlement agreement was on the eve of his trial.
Oh, the taxpayer is the attorney. Maybe next time he'll want to spring for a good lawyer.
Cite: Goss, T.C. Memo 2007-16
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FIREFIGHTER CREDIT, SALES TAX HOLIDAY BILLS INTRODUCED
January 25, 2007
New bills in the Iowa Legislature would provide a $250 credit for volunteer firefighters and a one-week sales tax holiday for the purchase of school supplies. Both worthy causes, but isn't the tax law complicated enough?
You can follow all Iowa tax legislation at our 2007 Iowa Tax Legislation tracking page. It's always in the blogroll on the left side of the Tax Update main page.
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SHE WORKS HARD FOR HER MONEY, BUT THE IRS DON'T TREAT HER RIGHT
January 25, 2007
The IRS doesn't care what you do for a living. They do care whether you report it:
LAS VEGAS -- Nancy Adams, a former resident of Henderson, Nevada, was sentenced today in U.S. District Court to 15 months in prison to be followed by six months in a half way house for concealing the income she earned from an illegal pandering and prostitution business, announced Daniel G. Bogden, United States Attorney for the District of Nevada.
U.S. District Judge Philip M. Pro also ordered Adams to serve 3 years of supervised release, and pay a fine of $69,830.00 dollars. Adams pleaded guilty in October to Conspiracy to Impede, Impair, Obstruct or Defeat Taxes.
And in case you think there's any glamor in that business:
As part of the conspiracy, Adams admitted that she and Young put assets in other peoples' names to conceal and disguise the fact that they were receiving income. Adams and Young operated a fast food restaurant called L&N House of Foods in Henderson, Nevada, to conceal and disguise the fact that they received pimping and prostitution income.
No, no, no, I asked for condiments! What kind of restaurant is this, anyway?
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AN EXTRA DAY OF BONDAGE IS A FUNNY WAY TO CELEBRATE EMANCIPATION
January 24, 2007
An email release purportedly from the IRS is making the rounds saying that tax season will last until April 17 this year. It has been slated to end on April 16 because April 15 is a Sunday. The release says that taxpayers nationwide will have until April 17 to file because April 16 is a holiday (Emancipation Day) in the District of Columbia.
There's no confirmation yet on the IRS web site. It seems just awful enough to be true, but I'm not yet convinced.
Emancipation Day commemorates Abraham Lincoln signing the bill outlawing slavery in the District of Columbia in 1962. How strange that it would extend the filing season bondage of tax preparers 145 years later.
UPDATE: It's true. Yuck.
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STATE OF THE UNION HEALTH CARE PROPOSAL
January 24, 2007
As expected, the President proposed a bold new health care proposal in his speech last night. The proposal would end the tax-free treatment of employer-paid health insurance. It would replace it with a personal "standard deduction" for everyone with health insurance, along with proposals to give the states funds for low-income and high health-risk taxpayers and to open a nationwide market for health insurance.
Bitter Bush-baiting blogger Daniel Shaviro is actually sympathetic to elements of the plan:
Despite its limitations, the President's plan marks an encouraging step in the right direction. With appropriate modifications, it could expand health insurance coverage and improve market efficiency.
The right-leaning Tax Policy blog is, in contrast, surpisingly downbeat:
Tax Foundation economist Gerald Prante released a new study that reveals less than half of the uninsured would be able to claim such a deduction:
Over 50 percent of uninsured Americans owed no income taxes in 2004 after taking all credits and deductions. Therefore, if a healthcare tax incentive were passed in the form of either a deduction or a nonrefundable credit, over half of the uninsured would not even be able to claim any of it. The only way in which such an initiative would entice them to purchase any health insurance at all would be if the credit were made refundable.
But refundable credits have their own problems. We have already seen the number of non-payers explode during the Bush Administration and another refundable credit would continue that trend...
...Ultimately, this may be a death blow for serious tax reform. The pressure to fix an insanely complicated and unfair tax code will continue to dwindle as fewer and fewer Americans have to pay into the system.
The TaxProf has a good roundup of reaction to the proposal.
My views are here. I think the proposals are a good step. Much of the problem with health care is the insulation of consumers from health spending decisions caused by employer coverage, espeically "first dollar" coverage. The best way to address these problems is to break the link between employment and coverage and to create a nationwide health insurance market. I think the notion that the proposal is a "tax increase" is misplaced and gives short-shrift to its important market-opening features. It also ignores the important tax cut the bill provides to those who don't get insurance from an employer, including the self-employed.
Arnold Kling expresses similar views, but much more elegantly.
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IOWA SENATE LEADERSHIP INTRODUCES COMBINED REPORTING BILL
January 24, 2007
The head taxwriter in the Iowa Senate has introduced a bill (SSB 1074) that would require multistate "unitary" corporate groups doing business in Iowa to report their income on a combined basis. This is an idea pushed by ex-Governor Vilsack, and Tax Analysts reports ($link) that Governor Culver will also likely support it.
The bill would apply to groups eligible to file a federal consolidated return. It is designed to increase state tax receipts by restoring to the tax base income steered to corporations in low tax states through management fees and other intercompany income-shifting devices.
A bolder and wiser move would be a repeal of the state corporation income tax, which contributes insignificantly to Iowa's tax revenues. Not bloody likely with the current political makeup of the legislature.
We are tracking all tax bills in the legislature at our 2007 Iowa Tax Legislation page, which is linked from the blogroll on the left side of the main Tax Update page.
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FRAUD ROUNDUP
January 24, 2007
Taxable Talk has posted a roundup of recent tax fraud cases. This is curious:
Finally, remember the Florida evangelist who had the dinosaur theme park? Kent Hovind, aka "Dr. Dino," will enjoy ten years at ClubFed. As this story notes, Hovind believes that dinosaurs and humans walked the earth together but didn't believe you had to send employment taxes to the government. As the judge sentencing Hovind noted, "[he refused] to accept what the law is." He'll have plenty of time to pray about it.
Well, hominids and dinosaurs did coexist on The Flintstones. Shouldn't that count?
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WHITHER HEALTH INSURANCE TAX?
January 23, 2007
UPDATED
President Bush is expected to propose a dramatic change in taxation of health insurance in his State of the Union address. The plan is probably dead on arrival, as the new Congressional Majority will stick by its one guiding principle: opposition to Satan George Bush and all of his works. It's a pity, because the proposals actually make a lot of sense. From what I understand from media reports, the plan works like this:
- Starting in 2009, employer health insurance will no longer be a tax-free fringe benefit, and employer paid health insurance will be included in W-2 income.
- Individuals will be granted a standard personal above-the-line deduction for health insurance of up to $7,500 annually for single coverage and $15,000 for family coverage.
- Money would be redirected to new grant programs to states to develop programs to cover the uninsured.
- In order to qualify for funds, states would have to open their insurance markets to out-of-state carriers and drop coverage mandates that require insurers to cover, for example, mental health treatment.
This would sever the link between employment and tax benefits for health coverage. It would also make it possible for people in a number of states (New York, for example) to buy the kind of insurance they need, rather than the kind the state legislature makes them buy.
These are the kinds of reforms that could make the market for health insurance much like that for other kinds of insurance. Had it been introduced when President Bush was popular, it might have even had a chance.
Unfortunately, political silly season is upon us, and the opportunistic opposition will block any plan that doesn't implement their real heart's desire: nationalization of the health care industry, with its inevitable calamitous results for health care quality and costs.
Links:
UPDATE: It's a "standard" deduction, not an actual deduction. You'd get a $15,000 per-person deduction regardless of how much your health care expense is.
This is bolder than I had guessed. There would no longer really be a health-insurance deduction. Your real taxable income would depend entirely on how much your health insurance costs. The tax law would no longer help subsidize more costly insurance. In the unlikely event that the plan is adopted, it could do a lot to make taxpayers more sensitive to health care costs and premiums and to encourage high-deductible policies.
UPDATE: 1/24: Reaction to the proposal.
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DEATH TO TROLLS
January 23, 2007
The American Bar Association tax section's Partnerships Committee met last week to talk about tax patents. Tax Analysts's Lee Sheppard was there ($link):
"I originally thought that this topic was kind of a circus freak show," Blake Rubin of Arnold & Porter told the American Bar Association Section of Taxation's Partnerships Committee at its January 19 meeting in Hollywood, Fla. He was referring to patenting tax advice, which has progressed from nuisance to real problem. "It's all about lawsuits. It's all about suing people for infringement," he said. Yes, readers, some of the folks who have patented tax advice are patent trolls.
Really? You don't say?
They make fixing the problem sound hard:
Treasury is having continuing discussions with the Patent and Trademark Office, according to Treasury Tax Legislative Counsel Michael Desmond. "There is not a real silver bullet answer," he told the Partnerships Committee.
I guess it only seems easy because I'm not a lawyer. I would think you could stamp out tax patent jackals by inserting something like this in the appropriate part of the U.S. Code:
(a) No patent shall be granted for any method of compliance or planning with respect to Title 26 of the U.S. Code.(b) Any patent granted prior to the date of enactment of this Section with respect to a patent referred to in subsection (a) shall be null and void.
Who would block such eminently sensible legislation?
Treasury is discussing legislative solutions with the House Ways and Means Committee, which is sympathetic to the long-term tax policy issue raised by patents. Trouble is that Ways and Means has no jurisdiction over patents. In both houses, that jurisdiction belongs to the Judiciary committees, which, not surprisingly, are influenced by patent lawyers. "They believe in patents. It's their life," (Loyola tax professor Ellen) Aprill quipped. Desmond worried that the discussion could degenerate into a jurisdictional dispute.
Ah, yes. The jackal lobby.
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INADVERTENT FILING STATUS PLANNING
January 23, 2007
Via Tick Marks comes this great moment in tax client service:
Elizabeth Dittrick of Dittrick & Associates in Cleveland was a staff accountant with Arthur Andersen when she witnessed a particularly uncomfortable client meeting with a married couple. The deduction was legitimate; it was the underlying asset that proved to be the problem.
"We were going over their tax information and the tax manager asked the gentleman, 'Now what about the mortgage interest deduction for the condo in Utah?' Unfortunately, the wife didn't know about the condo in Utah, where he had set up his mistress. It was a big 'oops' moment. There was this stony silence in the room. It was absolutely awful," she recalls.
Oh, honey, I meant the condo to be a surprise! Bad accountant!
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MEANWHILE, BACK AT THE STANDOFF
January 22, 2007
More folks are noticing convicted tax evader Ed Brown's vow to go down like a New Hampshire David Koresh. Fox News has a story up, and the TaxProf and TaxGirl are also on the case.
Mr. Brown says he will go quietly from his compound with "sensors," private solar power and generators, and 8-inch thick concrete walls, if someone will just show him the law that requires him to pay taxes. He apparently doesn't have internet access in his little fortress, as we gave him that answer last week.
The government is probably wise in biding its time about arresting Mr. Brown, given the possibility of a bloody result. History doesn't suggest much hope for Mr. Brown ultimately prevailing, though. George Washington set the standard for dealing with armed tax resisters way back in 1791.
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E-FILING: NO BENEFIT FOR THE SAVVY?
January 22, 2007
A reader asked whether e-filing makes sense for "savvy" taxpayers. I think it does, but he raises some interesting issues for folks who prepare their own returns. It seems that some of the software hassles involved can make it more convenient to drag a paper return to the post office than to e-file from home. Our email exchange is in the extended entry below.
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Carnivals!
January 22, 2007
It snowed again this weekend. For those of us who like snow, we have something to celebrate. And if you don't like snow, these blog carnivals might make you feel better.
The Carnival of the Capitalists is up at Davidmaister.com. Don't miss the InsureBlog post on the millionaire who is trying to get an insurance settlement for damage he caused by elbowing his own Picasso painting.
The Carnival of Personal Finance is up at Blueprint for Financial Prosperity. Many good posts there, including Teaching Your Child About Money.
Finally, the Wandering Tax Pro makes his debut as host of the Carnival of Taxes.
A West Des Moines winter scene. Click for larger view.
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MORE IOWA LEGISLATION
January 20, 2007
Two significant Iowa tax bills went into the hopper in the Iowa Senate on Thursday. One is a "code conformity" bill that would retroactively adopt all federal tax law changes enacted in 2006. I expect this one to pass.
Another bill, proposed by the new Democratic Chair of the Senate Ways and Means Committee, would increase Iowa's earned income credit from 6.5% of the federal credit to 15%, and would make it refundable. This is actually far more likely to help low-income families than the proposed increase in the minimum wage, but is far less likely to pass.
Remember, we are following all Iowa tax legislation on our 2007 Iowa Tax Legislation page, which is bookmarked in the blogroll on the left side of the main Tax Update page.
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LOOKING TO LOSE A SPARE KIDNEY?
January 19, 2007
Twisted humor-blogger Iowahawk passes on the news that a friend of his is needing a kidney transplant.
Every day somebody dies waiting for a transplant. The nice thing about making a kidney donation is you don't have to be dead. Author Virginia Postrel is a live-donor, and she has some important thoughts on the current organ donation system.
One of Iowa's more obscure income tax deductions is the one for unreimbursed organ donation expenses. From the Iowa Administrative Code:
For tax years beginning on or after January 1, 2005, a taxpayer, while living, may subtract up to $10,000 in unreimbursed expenses that were incurred relating to the taxpayer's donation of all or part of a liver, pancreas, kidney, intestine, lung or bone marrow to another human being for immediate human organ transplantation. The taxpayer can claim this deduction only once, and the deduction can be claimed in the year in which the transplant occurred. The unreimbursed expenses must not be compensated by insurance to qualify for the deduction.
The unreimbursed expenses which are eligible for the deduction include travel expenses, lodging expenses and lost wages.
If you are interested in making this sort of incredible gift, you can contact the Iowa Donor Network to learn more. Even if you aren't ready to make that step, you still should register as an organ donor in case some unhappy event causes you to not need your organs anymore (just checking "organ donor" on your drivers license doesn't necessarily do the trick). There are lots of folks out there who can use the help:
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INGRATES
January 19, 2007
The TaxProf highlights a story showing that many federal employees are happy to take it, but they'd rather not dish it out:
According to press reports, more than 450,000 active and retired federal employees owe $2.8 billion in federal income taxes. WTOP Radio created this Excel Spreadsheet from data obtained through FOIA requests.
The report breaks it down by agency. Some of the tax delinquency rates:
* House of Representatives: 4.81%
* SEC: 3.05%
* Senate: 3.76%
* Tax Court: 4.85%
* White House: 2.95%
The Treasury Department is the second-most compliant agency, with 98.7% of its employees up to date on their taxes. The U.S. Commission on Civil Rights has the worst record, with over 9% of their employees delinquent on their taxes.
This doesn't speak well for the current IRS collection system. If the government can't collect taxes from folks that it issues checks to every two weeks, that's pretty lame. I'd bet that very few of these government-issue tax delinquents get behind on their monthly bills for premium cable TV or cell phone service.
17 senators have proposed to prohibit private collection of federal tax debts. If the government collectors can't even collect from government employees, it's hard to argue that private collectors shouldn't get a shot at it.
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TEACHER CREDIT, GAIN EXEMPTION BILLS PROPOSED IN IOWA HOUSE
January 19, 2007
Several new tax bills have been put in the hopper in the Iowa legislature this week. HF 40 would provide teachers a $250 credit for out-of-pocket expenses; this would pair up nicely with the federal above-the line deduction for such expenses. This doesn't seem entirely hopeless, given that a former teacher now has a certain amount of influence in state government, but it might not fit in budget constraints.
Jamie Van Fossen has proposed to exempt gains from the sale of equity interests held for more than 36 months from Iowa income tax (HF 41). This would greatly liberalize the current exemption, which now requires 10 years of ownership and 10 years of material participation. This has no chance of passing.
From a policy standpoint, they are both misguided, as they benefit a targeted group of taxpayers. That means the rest of us get to make up the difference. But as a wise man once said,
They don't like to actually cut taxes; they prefer to move them from constituency groups to non-constituency groups.
Follow the progress of all Iowa tax legislation in the current session at our 2007 Iowa Tax Legislation page.
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FEBRUARY 2007 APPLICABLE FEDERAL RATES (AFR) ISSUED
January 19, 2007
The IRS has issued (Rev. Rul. 2007-09) the minimum interest rates for loans made in February 2007:
-Short Term (demand loans and loans with terms of up to 3 years): 4.93%
-Mid-Term (loans from 3-9 years): 4.69%
-Long-Term (over 9 years): 4.86%
Historical AFRs are available at the "links" page at www.rothcpa.com.
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YOU'LL DO WHAT FOR FOOD?
January 19, 2007
Headline in the Tax Policy blog:
Tax Swap: Porn for Groceries
I suppose for some people the one is a subset of the other...
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MINIMUM WAGE TAX RIDER ADVANCES
January 19, 2007
The Senate Finance Committee has approved the tax package that is expected to pass as part of a bill to increase the minimum wage. I haven't found actual bill language, but a summary of its provisions is available. The TaxProf has a roundup.
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THIS MAN NEEDS TO GET OUT MORE
January 18, 2007
A New Hampshire man on trial for tax evasion has barricaded himself in his home. If this report from the Boston Globe is any indication, he may be taking more trouble than it's worth:
PLAINFIELD, N.H. --Ed Brown, with a handgun tucked in his pants and home prepared for a raid, hunkered down in his cement-walled home and waited for the U.S. marshals to descend.
The law never came.
Brown, on trial with his wife for not paying federal income taxes since 1996, faces charges of conspiring to evade taxes, conspiring to disguise large financial transactions and disguising large transactions. He said there is no law that requires federal income taxes.
He should have called me a long time ago. I could have saved him some trouble:
"Show me the law and I'll pay the taxes," said Ed Brown, who met with reporters standing in his driveway Wednesday.
Ed, if you're reading this, follow along closely:
U.S. Code Title 26, Section 1, has the useful name "Tax Imposed." It begins:(a) Married individuals filing joint returns and surviving spousesThere is hereby imposed on the taxable income of--
(1) every married individual (as defined in
section 7703) who makes a single return
jointly with his spouse under section 6013,
and
(2) every surviving spouse (as defined in
section 2(a)),a tax determined in accordance with the following
table:
Section 1 goes on to list the taxes and rates on single individuals, heads of households, and estates and trusts, as well.
"Taxable Income" is defined in Section 63 of Title 26. Other sections of Title 26 will give you helpful definitions like "gross income." And Section 6012 provides a useful listing those required to file tax returns.
Mr. Brown, now that you've been shown the law that requires you to pay taxes, I'm sure you can work out something with the government. And good luck with the standoff thing.
More here.
UPDATE: Guilty on all counts.
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DALLAS COUNTY LEADS THE WAY TO THE TREASURY
January 18, 2007
Dallas County doesn't merely lead Iowa in its incidence of alternative minimum tax. A Tax Foundation report issued yesterday says the fast-growing county on the western edge of the Des Moines metro area leads the state in payment of all federal income taxes.
In 2004, according the the report, Dallas County filers paid on average 12.62% of their adjusted gross income in federal taxes, leading Iowa and placing 97th amount America's 3,142 or so counties. It's average tax bill of $8,224 placed it 90th nationwide.
The Peoples Democratic Republic of Johnson was Iowa's next highest-taxed county; it's 11.16% of AGI was 214th nationally, and its average bill of $5,668 was 245th. Polk County, Iowa's most populous county, was third in the state and 222nd nationally with a tax rate of 11.12% of AGI; it's average tax bill of $5,953 was actually higher than Johnson's, good enough for 213 in the nation.
The Iowa counties with the lowest taxes nationwide are all on the Missouri border. Decatur County's 4.8% of AGI average rate was the state's lowest, placing it 2,823rd nationwide. Wayne, Ringgold, Taylor and Appanoose round out Iowa's bottom five.
Links:
Tax Foundation main report page
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YOU THINK YOU HAVE PROBLEMS?
January 18, 2007
A Tax Court case yesterday highlightes some of the challenges of running a small business overseas:
Lok, who is an Australian citizen, moved to Beijing in 1997 and spotted an opportunity to import Western food for the growing expatriate population there. Lok took the leftover money from the chicken venture, Yung supplied some additional capital, and Gourmet Down Under was born. Gourmet Down Under specialized in importing and distributing Australian dairy products, but also sold American beef and even some authentic Mexican food. Lok opened his shop next to the U.S. embassy, and at first the store did well. But then, in 1999, Lok discovered that several of his employees were importing yogurt from France in direct competition with Gourmet Down Under. Even worse, they were using company facilities, storage, delivery trucks, and business contacts to do so. Lok fired five employees. Unfortunately, he fired them during Chinese New Year-- which, as he credibly testified, is a big taboo in Chinese culture.
Retribution was swift: the storefront was torched, the office was ransacked, and the bank account was drained. Everything was destroyed, including the business records.
What's worse, Mr. Yung Chong, a U.S. citizen, was an investment partner in the venture. With the records destroyed, he was unable to provide detail for his losses or for the amount of his investment in the partnership. The Tax Court ruled he could not deduct his unsubstantiated partnership losses:
And the Commissioner has conceded that Yung contributed at least $88,500 to the partnership since 1993. However, even if we take that as a starting point to determine his adjusted bass, we have no record of Yung's distributive share of income or losses in the partnership during the previous five years. A line item on the 1998 balance sheet shows "losses carried forward," which implies Yung was unable to claim prior losses due to a zero adjusted basis. But the Court probed the Chong brothers on their understanding of partnership tax law and finds that this item on the statement is, more likely than not, Lok's estimate of prior losses that should have been claimed but weren't.
Mr. Chong faced a problem most partnership investors don't have: because the partnership had no U.S. activity, it didn't file a partnership return. Even so, U.S. taxpayers are required to report income and loss from their foreign partnerships. If the foreign partnership doesn't report U.S.-basis taxable income to the U.S. partner, the partner has to compute it himself.
It's clear that Mr. Chong lost at least $88,500. He probably was a "passive" investor in the partnership, as it was conducted across the Pacific Ocean, so even if he had kept track of his losses, the passive loss rules would probably have deferred the deductions until the year the business was destroyed.
It seems the Tax Court could have given Mr. Chong the benefit of the doubt here. Now at best he gets a capital loss deduction that he can use at the rate of $3,000 per year; if he has no capital gains, he will finish using them up after 29 1/2 years.
Cite: Chong, T.C. Memo 2007-12.
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IF THIS IS A FREE RIDE, I'D HATE TO PAY FULL FARE
January 17, 2007
As part of its 100-hour end-zone dance, the new Congressional Majority is proposing to deny some tax breaks to domestic oil companies that are available to other industries.
Leaving aside the questionable logic of legislation that has the effect of favoring imports over domestic oil production, it's rich of the government to say that the price gougers in the petroleum supply chain are the ones that find, pump, refine and ship the stuff. The Tax Policy Blog reminds us who the real price-gougers are:
In the most recent flap over “excessive” profits, ExxonMobil reported paying over $26 Billion in federal, state, and local taxes in the third quarter alone – roughly two and a half times what they made in net profits.
Income taxes: $7.68 billion
Excise taxes: $7.76 billion
All other taxes: $10.79 billion
Total taxes remitted/paid: $26.24 billion
That has to be the most expensive “free ride” in history.
Indeed.
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PRIVATE TAX COLLECTOR DEFENDS PROGRAM
January 17, 2007
One of the private collection agencies involved the the controversial IRS tax collection outsourcing projects is located in Iowa. The company's president defends the program in today's Des Moines Register:
Finally, some have leveled accusations that private collection agencies will harass taxpayers. The facts: The agencies chosen for the IRS pilot program passed a stringent evaluation process and are continually monitored to ensure taxpayers are treated with respect. They were selected from a field of more than 30 of the most reputable firms in the country, based on low consumer complaints and highly ethical operations.
I think the article makes a good point when it says additional IRS resources should focus on the examination function; some aspects of the collection function are less technical and might be done better through outsourcing. I'm open-minded to collection outsourcing; I don't think a Treasury Employee union card is needed to enable somebody to phone tax delinquents. It's not as though the IRS employees have a spotless record in protecting taxpayer privacy.
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CIETC: ANOTHER SHOE TO DROP?
January 17, 2007
With four sets of federal indictments and one plea deal, the CIETC scandal exploded back into the news yesterday.
The Central Iowa Employment and Training Consortium was a multi-county "jobs training" agency that, if the indictment is to be believed, really was a publicly-funded pinata for its top executives. The indictment charges former executive director Ramona Cunningham with taking exorbitant salaries and bonuses (up to $360,000 in a year) while CIETC employees did landscaping at her house, accompanied her on gambling junkets on company time. She also is charged with running thousands of dollars in personal expenses on a CIETC card in the name of (unindicted) city council member Tom Vlassis, who said he functioned as a "rubber stamp" in his role on the CIETC board.
As a tax nerd, I can't help notice that there are no tax charges in the indictment. It seems unlikely that Ms. Cunningham, if she did do the things charged in the indictment, reported the value of her CIETC-funded landscaping and gambling sprees on her tax returns. Maybe those will come later.
While nominally about an obscure agency that few Iowans had ever heard of, this scandal could have profound implications for central Iowa politics and government. Some possible implications:
WHAT ABOUT "PROJECT DESTINY?" The proposal to boost the local sales tax rate from 6% to 7% was deferred when the CIETC scandal first hit the news. Boosters thought it was unlikely that voters would want to send more money to local government when Ms. Cunningham's $360,000 compensation was still fresh. Now the trial and the stories of taxpayer-financed gambling junkets will be in the news on a regular basis. Continuing coverage of county and city fiscal incontinence isn't likely to get voters excited about sending more money to Mr. Vlassis and his associates.
ARE THERE MORE CIETCS? CIETC was a "28E" organization. Last month the Des Moines Register reported:
Although 28-E organizations are publicly funded, they receive very little public scrutiny. State officials are not even sure how many there are in Iowa. By some estimates, there are more than 1,000, and at least 100 of those have annual budgets of more than $100,000.
Obscurity enabled shenanigans at CIETC to continue for two decades, according to the charges. How much tax money is going down other ratholes?
WHY IS A FORMER CIETC DIRECTOR WHO TOOK THE 5TH STILL ON THE PRAIRIE MEADOWS BOARD? I'm all for the exercise of constitutional rights, but if you can't talk about your work on one agency board because of self-incrimination problems, it doesn't seem you should be on another board that handles billions of dollars of cash annually.
WHERE IS THE MONEY? The CIETC board held its meetings at the Prairie Meadows casino. The indictment says the executive director liked gambling junkets. Perhaps that gives the forensic accountants a place to look.
Links:
The indictment
David Yepsen's comments
State 29
Ted Sporer
Political Forecast
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DAYS INN A DAY LATE
January 17, 2007
The tax law treats postmarks from some private delivery services the same as Postal Service postmarks for purposes of determining whether a tax filing is timely. A taxpayer learned the hard way that you need to make sure that the postmark is timely.
Joanne Austin was filing a Tax Court petition. She was in Baltimore on business the day the petition needed to be shipped, so she left it with the desk clerk at a Days Inn hotel to give to the Federal Express driver later in the day. The petition was time-stamped the following day by Federal Express. The Tax Court says that the time stamp, not the desk clerk, determined whether the petition was timely filed. She was late, and the case was thrown out.
Tax Attorney Krieg Mitchell thinks it was dirty pool for the IRS to challenge the timeliness of the filing. Maybe so, but it gives a sobering lesson for the rest of us: make sure you get the postmark or delivery date-stamp in your own hands to prove timely filing. Don't rely on a motel desk clerk; don't rely on an office postage meter; and especially don't rely on the IRS to cut you any slack.
Russ Fox is also on the case.
Cite: Austin, T.C. Memo 2007-11.
Related: IF YOU AREN'T E-FILING, USE CERTIFIED MAIL
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RISK IN THE SNOW
January 17, 2007
It remains cold here, so stay safe and warm and visit the new edition of the Cavalcade of Risk at Health Business Blog.
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IRS RULES ON TAXATION OF CREDIT CARD CHECK NSF FEES
January 16, 2007
You probably have some unused "convenience checks" from your credit card issuer sitting in a drawer at home. If you try to use one of these when you have maxed out your credit card borrowing limit, the card issuer is likely to hit you with a Not Sufficient Funds (NSF) fee. The IRS has issued a ruling (Rev. Rul. 2007-01) explaining how the card issuer reports such fee income.
The ruling says outlines a cardholder who writes an overlimit check that is presented to the issuing bank. The bank refuses to honor the check and assesses a $25 NSF fee to the cardholder.
The ruling holds that an accrual method bank will incur credit card check NSF income at the time the NSF check is presented for payment and dishonored. The fee is not "interest" because it isn't for the "use of funds." It is instead fee income on that date because all events have occurred to determine the amount of NSF fee income for the bad check, and the amount of the fee is determinable.
The ruling doesn't address how the borrower will treat the fees, but unless it is a business account, such NSF fee expense is non-deductible.
Hat Tip: The TaxProf.
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I WONDER IF THIS EVER WORKS
January 16, 2007
The IRS does its part to help find missing children. From the current issue of the Internal Revenue Bulletin (4th page):
Who knows? Maybe this is how they found those boys in Missouri.
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FREEZING COLD CARNIVALS
January 16, 2007
It's four below zero this morning in Iowa, so curl up with some hot cider in your favorite coffeehouse and visit this week's Carnival of the Capitalists and Carnival of Personal Finance.
The Capitalist event is at the Endless Gibberish Personal Finance Blog this week. It's worth the visit just to find Insureblog's discussion of the changes in Health Savings Account rules for 2007.
The Personal Finance carnival is at Young and Broke. I like this carnival because it attracts a lot of common-sense savings and financial management posts, like The top credit card mistakes made by college students. These mistakes - like "Opening Store Credit Cards for Discounts" - aren't just made by college students.
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AMT: IT'S THE DISHONESTY
January 15, 2007
Some of the big-time blogs were discussing the alternative minimum tax over the weekend. The alternative minimum tax is computed with fewer deductions and credits, but with a lower top rate; you compute both "regular" tax and "AMT," and you pay the higher amount. The biggest culprits in triggering AMT are state and local taxes and business tax credits.
Mickey Kaus said that the hassle of computing tax a second time is the real reason people hate it. Ann Althouse replies, "No, Mickey, it's the money." ($4,900 for Ms. Althouse, a law professor in Madison, Wisconsin)
Even the Instapundit weighs in, blaming Turbotax for tax complexity. Of course, regular Tax Update readers know that the root of tax complexity is the HP 12-C financial calculator.
As a confirmed AMT taxpayer, I would tend to agree with Ms. Althouse - it's the money. When I can use the office tax software to do my own return, the complexity doesn't make computation much harder (though it makes tax planning more difficult).
THE AMT BAIT AND SWITCH
But to me, it's really the dishonesty. The AMT has provided cover for sleazy tax policy ever since it was enacted. It works like this: a politician promises a tax benefit. The tax benefit is written so that it doesn't work for AMT.
When the technicians compute the revenue effect of the tax break, they take into account that it won't work for AMT. This makes the tax break much less costly than it would be otherwise.
The politician gets to brag about a brave new loophole, and the taxpayers think he's a great guy, or gal. Then they complain about how that darn AMT got them. It's the ultimate bait-and-switch of tax policy.
This trick has been part of every major tax break in the last 20 years, and many of the minor ones. Perhaps the biggest example is the 2001 Bush tax cuts, which reduced the top regular tax rate from 39.6% to 35%. AMT rates weren't reduced, so many taxpayers had their regular taxes cut, only to pay AMT. Other examples of this are the deduction for state and local sales taxes, the hybrid car tax credit, and the research credit.
Like any bad habit, this one is catching up with Congress; absent new legislation, up to 20% of tax filers will pay AMT for 2007. The politicians are making loud noises about repealing AMT, but they can't afford to. If the Bush tax cuts are to be kept in place, the AMT will provide $1.3 trillion of tax revenue in the next 10 years. So don't believe any politicians who promise to repeal AMT; they'll get it back from you somewhere else. They have to.
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S CORPORATION PROVISIONS IN MINIMUM WAGE BILL?
January 15, 2007
Last week the top two Senate taxwriters introduced a tax bill that may be attached to the minimum wage increase that the new Congress is expected to pass. The bill extends a few existing tax breaks, including 15-year depreciation for leasehold improvements and restaurant buildings. It extends the increased Section 179 amount an additional year, through 2010, and it makes cash-basis accounting available to businesses with receipts up to $10 million, regardless of whether the business has inventories.
The bill also makes some changes in S corporation rules.
NON-RESIDENT ALIEN OWNERSHIP. The S corporation rules have never permitted non-resident aliens to own S corporation shares, presumably because of the difficulty of collecting tax on income allocated offshore. The bill would permit non-resident aliens to own S corporation stock through "electing small business trusts" (ESBTs). These trusts were created in 1996 to enable more trusts to own S corporation shares.
When an ESBT owns S corporation stock, a tax is imposed on the trust itself at the highest individual rate. This differs from the usual treatment of trusts, where S corporation income is taxed directly to trust beneficiaries. The ability to collect the tax at the trust level is presumably what makes Congress willing to allow non-resident aliens to use them to hold S corporation stock.
CAPITAL GAINS. The bill removes capital gains from the category of "passive investment income" for the arcane and obsolescent tax on such income that can apply to former C corporations. Why they don't repeal this tax altogether is beyond me.
BANK DIRECTOR SHARES. The bill allows the issuance of "qualifying director shares" required by banking law that may be ignored for S corporation purposes. Owners of such shares would not be allocated S corporation income and loss from an S corporation bank.
RESERVE-METHOD BANKS. When a bank makes an S corporation election, it must give up the "reserve" method of accounting. Under the reserve method, banks can take a deduction for estimated bad debts using a formula. S corporation banks can only write off debts as they actually go bad.
The reserve for bad debts normally is taken into income over four years following an S corporation election. This income is typically "built-in gain" to the S corporation, taxed at both the bank level and the shareholder level. The bill allows banks that make S corporation elections to take the reserve into income in their last C corporation year.
QSUB DISPOSAL. If an S corporation owns 100% of a subsidiary, it can elect to treat the subsidiary as a "Qualified subchapter-S subsidiary," or "QSUB." The QSUB is then taxed as a division of the parent S corporation.
If the S corporation were to dispose of 1% of the its QSUB stock, it would be deemed to contribute the QSUBs assets to a new corporation with a 1% minority owner; the transaction would be tax-free as a "Section 351 transaction." The subsidiary would then be taxed as a C corporation.
If, however, the corporation were to dispose of 21% of its stock, it would be taxable as if it sold all of the assets of the QSUB; Section 351 has an 80% "control" requirement to qualify for tax-free treatment.
The bill would recast such a transaction as a sale of 21% the QSUB assets to an unrelated party, followed by a contribution of the assets to the "new" corporation. As a result, only 21% of the asset gain would be taxed, instead of 100%.
Some version of this bill seems likely to pass with the expected minimum wage boost. We will keep you posted.
Link: Joint Committee Explanation of "Small Business and Work Opportunity Act of 2007."
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GIANT LAW FIRMS DROPPING ESTATE PLANNING PRACTICES?
January 15, 2007
The Death and Taxes blog has a post saying some big city law firms are dumping their estate planning practices:
All of this makes sense, I suppose. Law firms have increased their focus on profits, and estate planning simply isn't as profitable a practice area as corporate or litigation. You can probably get away with charging Microsoft of AT&T $1 million a year (or more) for representation. Needless to say, I've never charged $1 million to do an estate plan, or to administer an estate.
It may be that big firms don't need estate planning groups (or don't think they do -- big firms, like Kirkland & Ellis, are famous for changing their minds on this point). But I think that goes both ways -- good estate planners don't need big firms, either. We're probably going to see more T&E boutique firms (like this one) spring up in the near future, which is a good thing.
That's not a phenomenon we've yet seen in Des Moines; we just don't have many of those $1 million legal fee clients.
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ADVENTURES IN TAX TRANSLATION
January 15, 2007
From the Jordan News Agency, a press release from somebody who apparently learned English from Google's translation utility:
PM: recursion of Tax evasion deemed crime of honor
Amman, Jan.14 (Petra) __ Prime Minister Marouf Bakhit on Sunday underscored the recursion of tax evasion is one of crimes that offends honor of citizenship. In an interposition during Lower House debating on the draft law of income tax, Premier elucidated on the light of majority of deputies who demand to find a successful way to tackle this phenomenon, the government considered and from its confidence to put this sentence to reach a stage where paying a tax is a national and ethics responsibility before it becomes an obligation of law.
Premier asserted that int’l practices of tax evasion deemed great crime of honor, which requires a capital punishment for tax evaders.
I'm not sure what it means, but if you get in tax trouble in Jordan, it sounds like the consequences could be more serious than late payment penalties.
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SNOW TRACKS
January 13, 2007
A little snow today, maybe a lot tomorrow.
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CIGARETTE TAX BILL PUBLISHED
January 13, 2007
The bill (HF 14) to jack up the cigarette tax by $1 per pack is available online at the Iowa Legislature web site.
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PROCRASTINATION IS EXPENSIVE
January 12, 2007
One of the most common questions for tax practitioners is deadlines. People want to know what is the last day they can do this or that. That's often the wrong question.
A savvy taxpayer also asks about first days. A wise investor wants to know what the earliest day is for funding an individual retirement account, health savings plan, or section 529 plan. The answer: January 1. By funding the plan on the first available day, the taxpayer begins to shelter investment earinings up to 15 1/2 months earlier than they would otherwise.
So don't waste another day of 2007. Fund your contributions now. The 2007 limits are:
IRAs (Traditional and Roth): $4,000, plus an additional $1,000 for those who are 50 years old by the end of 2007.
HSAs: $2,850 for single coverage and $5,650 for family coverage, if you have a qualifying high-deductible plan. Taxpayers who are 50 years old by the end of 2007 can contribute an additional $700.
College Savings Iowa: Iowa taxpayers can deduct on their Iowa 1040s contributions of up to $2,595 per donor, per donee for 2007. That means an Iowa couple with two children can deduct $10,380 in 2007. You can contribute larger amounts, too. You can also contribute to other Section 529 plans; other 529 plans also offer tax deferral of earnings and tax-free withdrawals for college costs, but they provide no Iowa deduction.
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PLEA DEAL ILLUSTRATES TAX SHELTER INDICTMENTS
January 12, 2007
A plea agreement this week illustrates how the government's case in the indictment of former KPMG partners isn't simply a matter of criminalizing an aggressive tax position. The government's case alleges the use of straw men, non-existent transactions, and falsified documents used to mislead IRS agents investigating the shelters. From the Statement of Information for the guilty plea($link):
In particular, I was instructed to falsely misrepresent that one of the David Greenberg's tax shelter transactions was an investment transaction that I had devised and implemented with the client in December 2000, in truth and in fact, the transaction under investigation was a David Greenberg tax shelter, and the transaction was in fact never entered into by the client. I was instructed to conceal the fact that the client never entered into any transaction in 2000 or at any other time and conceal that David Greenberg and I agreed to back date documents to make it appear that the client made an investment in 2000. As directed by Greenberg ,* * * and * * *, when interviewed by the Special Agent and in the presence of * * *, I lied to the Agent to conceal the true facts of the transaction..
The case of the KPMG ex-partners has been controversial, especially the way the government bludgeoned KPMG to cut off legal fees to the defendants by threatening to indict the firm itself. The prosecution has been on the defensive procedurally, but this plea shows that the defendants still face very serious charges.
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2007 IOWA INTEREST RATE FOR LATE TAXES 10%
January 12, 2007
The Iowa Department of Revenue announced that the interest rate on tax underpayments will be 10% for 2007. It was 8% last year.
Link: History of Iowa interest rates.
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2007 NISSAN ALTIMA QUALIFIED FOR HYBRID CREDIT
January 12, 2007
The IRS has certified the Nissan Altima as qualifying for the hybrid car tax credit. If you want one, though, you may need to go for a little drive::
Nissan's first hybrid, the forthcoming 2007 Altima HEV will only be sold in eight states. To put a geographical point on it, the Japanese automaker will sell the eco-friendly sedan in the Northeast and California: New York, Massachusetts, Connecticut, Vermont, Rhode Island, Maine and New Jersey will join the Golden State. All of the states in question have adopted versions of the latter's zero-emissions vehicle program, which in effect will force manufacturers to sell hybrids.
More coverage at Don't Mess with Taxes.
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CHET BY THE RAILCAR
January 11, 2007
The train to Iowa City for the Culver Coronation awaits its passengers this noon at the old Rock Island Depot in downtown Des Moines.
"Coronation" is the right term because Iowans just don't vote governors out of office. The last three governors served a total of (I think) 42 years in office. Robert Ray served four terms, Terry Branstand five (including one two-year term when they moved the election to the off-year cycle), and Tom Vilsack two. They all left office without losing an election; the only reason Governor Vilsack didn't win a third term is his desire for a promotion.
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IRS GETS 'PROFESSOR IN RESIDENCE'
January 11, 2007
The IRS has renewed its long-disused "professor in residence" program. From the press release:
WASHINGTON — The Internal Revenue Service Office of Chief Counsel is reviving its Professor-in-Residence program.
Dormant since the late 1980s, the Professor-in-Residence program provides some of the nation’s top legal academicians the opportunity to contribute to the development of legal tax policy and administration. Reporting directly to IRS Chief Counsel Donald L. Korb, the Professor in Residence provides advice and assistance on a wide array of legal issues within the scope of his or her expertise.
Korb has selected Calvin H. Johnson, the Andrews & Kurth Centennial Professor of Law at the University of Texas Law School, as the 2007 Professor in Residence for the IRS Office of Chief Counsel.
They shouldn't stop there. It's high time for a "practitioner in residence" program to "contribute to the development of tax policy and administration." Ideally it would be a cranky old veteran of the tax wars with nothing to lose by hitting the IRS with a cluebat. I can think of one or two potential candidates. Not to name any names or anything:
Bruce Croll, CPA
The TaxProf has more on the Professor in Residence.
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TRACKING THE 2007 TAX BILLS
January 11, 2007
The state legislature is back at work. It's always a good idea to keep an eye on those people. We're adding a new feature to the site today: a listing of 2007 tax proposals in the legislature. It may be found at www.rothcpa.com/archives/2007taxbills.htm.
We will attempt to track the progress of all tax bills put in the legislative hopper. The bills are listed by bill number and introduction date, with a link to the introduced bill on the Legislature's web site. I include a brief description of the bill and a "prognosis" if I have any idea whether the bill is likely to pass.
I welcome any suggestions or input, and certainly any corrections, on this information. The list is linked in the blogroll on the left side of the main Tax Update page under "Legislation."
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AMT: WHERE YOUR COUNTY STANDS
January 10, 2007
Des Moines' western suburbs are outpacing the rest of the state in economic growth. They also have a less-prized honor: they are also the alternative minimum tax capital of Iowa.
The Tax Foundation has just issued a statistical summary of the AMT that ranks states, counties and congressional districts by how many of their taxpayers were subject to AMT for 2004. The AMT applies a 26 or 28% rate to a taxable income computed with fewer deductions - and no deduction for state and local taxes. There is a large personal exemption, but it phases out. Not surprisingly, high-tax states lead the way in the AMT rankings.
Nationally, New York's Westchester County has the highest incidence of AMT; 12.3% of the tony suburban county's taxpayers had AMT in 2004. Following closely are Hunterdon County in New Jersey and Manhattan.
In Iowa, 3.45% of Dallas Countians filing returns had AMT in 2004, making it first in Iowa and 103rd out of 3,142 counties nationwide. The incidence of AMT was 2.6% in the Peoples Democratic Republic of Johnson and 2.22% in Polk County. The three Iowa counties least hit by AMT were Pocohontas (.13%), Decatur (.16%) and Wayne (.24%).
Thirty-one counties nationwide had no AMT taxpayers in 2004, including two in Kansas and one each in Illinois, Missouri, South Dakota and Nebraska.
When AMT incidence is ranked by state, New Jersey edges out New York for the top rank. Iowa falls all the way to 35th in the percentage of tax returns hit by AMT. If you have taxable income from $150,000 to $500,000 in Iowa, or have lots of kids or capital gains, you are probably helping bring our rank up.
Outside the lower 48, both Aleutians East County in Alaska and Kalawao County in Hawaii had no AMT taxpayers. I suspect one of these counties has more moose, and the other has better weather.
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ARNOLD LOSES HIS MIND
January 10, 2007
California Governor Schwarzenegger has has announced the latest plan to make Nevada look wonderful. Russ Fox has the scoop:
The plan would mandate that all Californians have health insurance, and the state would mandate what would and wouldn't be covered. The plan would be funded by a 4% payroll tax, a 4% tax on hospital revenues, and a 2% tax on physician's income.
A 4% payroll tax on top of an income tax that tops out at 10.3%. When you can hire people anywhere nowadays and communicate at lightning speed over the internet, why would any multi-state business expand in California?
UPDATE: More here.
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THE GRIM REAPER RELOCATES
January 10, 2007
Joel Shoenmeyer has moved the Death and Taxes blog to a spiffy new location at www.deathandtaxesblog.com.
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BIPOLAR TAX DISORDER
January 09, 2007
Parhaps somewhere there is a Ph.D paper waiting to be written about a the bizarre phenomenon of folks smart enough to make a living as a physician in a difficult and dangerous specialty, yet stupid enough to file tax returns with nothing but zeros while earning over $250,000 in W-2 wages.
Julie K. McCammon, M.D., whose saga is chronicled in a Tax Court case issued yesterday, could be a case study for the dissertation. Ms. McCammon practices in high-risk obstetrics, a heroic and difficult area of practice. Dumb people don't last long in that business.
Yet she somehow can bring herself to say this to a Tax Court Judge:
I was led to believe that it was my right to file zero if I expected that I would not owe taxes because of my deductions and allowances.
THE COURT: Who told you that?
THE WITNESS: My previous accountant had obtained some information.
THE COURT: Your accountant told you that?
THE WITNESS: Yes, my previous accountant.
THE COURT: Do you wish to identify that person?
THE WITNESS: Not really.
She is also thick enough to drag her feet, delay her case, and substaniate no deductions, saying she was just "too busy."
One important characteristic of a good doctor is an ability to learn. The Tax Court has put that ability to the test (citations omitted):
By her repeated refusals to provide substantiation of her deductions and other claims, petitioner has unreasonably failed to pursue available administrative remedies. Even if she had belatedly produced acceptable substantiation, a penalty under section 6673 might be appropriate. We are not imposing a penalty at this time, because dismissal of the petitions is sanction enough. However, inasmuch as petitioner has filed another petition in this Court for 2003 (docket No. 10677-06), she is hereby warned that the type of recalcitrance, obstruction, and procrastination evident in these cases may result in an additional sanction of up to $25,000.
If we see a decision in her 2003 case, we'll know that the judge's lesson didn't sink in.
Cite: McCammon, T.C. Memo 2007-3.
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WHITHER TAX POLICY?
January 09, 2007
Tax Analysts today publishes a diverse collection of commentary on the tax policies of the upcoming Congress. It's good stuff, but unfortunately for most readers, its available only to subscribers.
Diverse? There's this from left-side economist Martin Sullivan ($link):
In the likely event that gridlock returns, we may be in for a repeat of 1992. Back then a Democrat-controlled Congress spent months on a tax bill President George H.W. Bush promised to veto. There was no pretense of enacting real law.
And this from right-leaning Tax Foundation's Scott Hodge ($link):
Twenty years ago, it took Democratic Sen. Bill Bradley reaching out to Republican President Reagan to bring about the Tax Reform Act of 1986. The tax code has deteriorated badly since then. But with the right spirit of cooperation, perhaps the conditions are right for a Democratic Congress and a Republican president to put aside their differences and give our 21st-century economy a 21st- century tax code.
And the amazing thing: they're both right! The stars are right for either gridlock or major reform.
One person who is right for sure is former Assistant Treasury Secretary for Tax Policy Mark Weinberger when he says ($link):
The Trees Are Taking Over the Forest
Well, yes, that's why they're called "forests," instead of, say, "prairies," "deserts," or "parking lots."
Finally, we pass on the sage advice to Congress from the Tax Analysts president himself, Chris Bergin ($link):
If you and the president manage to do nothing for the next two years when it comes to the tax laws, the country should be grateful -- and whether or not most of us are grateful, we'll all be better off.
Amen to that.
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BCS HANGOVER CARNIVAL
January 09, 2007
Florida rules the BCS. You can celebrate, or forget your Ohio sorrows, at this week's blog carnivals.
The Carnival of the Capitalists is at Diary of a Startup this week. You can find a link to an Insureblog piece about a form of "health insurance" that is less than it seems.
The Carnival of Personal Finance is up at Get Rich Slowly. Taxin' Texan Kay Bell hosts the current Carnval of Taxes at Don't Mess with Taxes.
Finally, I am delinquent in linking to this week's Cavalcade of Risk, the insurance and risk-management blog Carnival. It's up at Health Care Economist. Perhaps the Buckeye coach is pondering the risk management of that fourth-and-one call in the second quarter last night.
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THE LEGISLATURE'S IN TOWN
January 08, 2007
The Iowa legislature meets today. For the first time in my 20+ years of living in Iowa, a legislature controlled exclusively by Democrats will be sending its work to a Democratic governor.
From a tax side, it looks like higher cigarette taxes are inevitable. Higher gas taxes also seem likely, with the Des Moines Register beating the drums for more road money.
Meanwhile Governor-elect Culver is holding hearings on property tax relief. They may come to nothing, or they may be part of a package that tries to trade property tax relief for income tax increases. While a straightforward income tax rate increase is unlikely, we may see an attempt to repeal the deductibility of federal taxes on Iowa returns. An attempt to make Iowa a "unitary" state for corporate taxation - where related corporations get dragged into Iowa's corporation tax on a "combined" return when one affiliate is taxable in Iowa - is also a possibility.
We'll see how well my November forecast goes.
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THEY MUST GIVE AWAY FREE DRINKS WITH THE REFUNDS
January 08, 2007
Taxilicious passes on a funny, if disturbing, real tax service advertisment that you shouldn't miss:
Wait until you see the end. After seeing the proprietors' deranged smiles, I wouldn't drink any coffee or eat any snacks they might have around the office...
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IRS: CENTS-PER-MILE METHOD AVAILABLE FOR EMPLOYER-PROVIDED VEHICLES UP TO $15,100 VALUE
January 08, 2007
The IRS has updated their rules (Rev. Proc. 2007-11) for determining how much compensation employees must pick up for their personal use of employer vehicles. Employers can put the personal use on employee W-2s using the IRS cents-per-mile rate (currently 48.5 cents) for cars values at up to $15,100 and for trucks or vans valued up to $16,100.
For more expensive vehicles, employers normally must use the "lease value" method to determine employee income from company cars.
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LILO FAILS
January 05, 2007
The IRS won another courtroom victory in the tax shelter wars yesterday. A federal judge in North Carolina ruled on summary judgement that a LILO (lease-in lease-out) tax shelter had no substance and could be disregarded.
BB&T Corporation set up a "lease" with Sodra, a Swedish paper manufacturer, where it leased Sodra's manufacturing equipment on a 36-year lease. It "borrowed" $68 million from a subsidiary of Dutch Bank ABN-AMBRO and paid $18 million of its own money. All of this money went into BB&T's ABN bank account.
$68 million then went from the ABN account to "lease" the equipment from Sodra, who then leased it right back from BB&T. Sondra had to pay the $68 million right back to ABN as part of the deal. Over the term of the "lease," Sodra's rent payments to BB&T equalled BB&T's debt payments to ABN, and the debt was non-recourse to BB&T.
The tax angle was the interest deduction purportedly generated by the $68 million "loan." The court said it didn't work:
When the intermediate payment steps are disregarded, which must be done in order to consider the substance of the loan transaction and not the form selected by the parties, it becomes clear that the loan transaction is only a circular transfer of funds in which the HBU loan is paid from the proceeds of the loan itself. There was no money lent to BB&T in a substantive sense, and the HBU loan does not reflect genuine indebtedness
No debt, no interest; no interest, no deduction.
Cite: BB&T Corp. v. United States, No. 1:04CV00941 (M.D. NC 1/4/06)
Links: TaxProf coverage
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AMT REPEAL - SO SIMPLE!
January 05, 2007
After many years of hand-wringing, the incoming and outgoing chairmen of the Senate Finance Committee have cut the gordian know and proposed a bill to just repeal the Alternative Minimum Tax. An as-yet unnumbered Senate bill introduced yesterday by Max Baucus and Charles Grassley would simply make the AMT $0 for individuals starting this year.
Nothing to it. Well, nothing except the need to find an additional $750 billion to $1.3 trillion dollars to replace the AMT revenue that the government would lose over the next 10 years.
But it's simple! Just ask Senator Grassley:
I hope the new congressional leaders don't fall into traps on AMT repeal. One is counting on the revenue that the AMT raises for more government spending. It's ridiculous to rely on revenue that was never supposed to be collected in the first place.
That's priceless. Every tax bill passing through Senator Grassley's Finance Committee since 1986 has counted on AMT revenues. It's nice to know that they were just joshing us, that the revenue they projected to justify their tax and spending policies "was never supposed to be collected in the first place." We should remember that next time they issue revenue projections for one of their tax bills.
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FACT SHEET FRENZY
January 05, 2007
The IRS just issued a batch of "fact sheets." Some of these are quite handy. Here is a summary of the new fact sheets, with links (from the IRS web site):
Credit Available for Taxpayers Who Purchased or Leased Hybrid Vehicles In 2006
FS-2007-9, January 2007 — Taxpayers who purchased or leased any of 44 different models of hybrid vehicles in 2006 may be entitled to a tax credit on their 2006 returns worth as much as $3,150 for the most fuel-efficient models.
2007 IRS E-file
FS-2007-8, January 2007 — Find out all the options available to taxpayers who file their returns electronically in 2007.
Tax Packages for the 2007 Filing Season
FS-2007-7, January 2007 — Tax packages are in the mail.
Free Tax Help Available
FS-2007-6, January 2007 — Taxpayers who need free assistance from the IRS have several options available to them.
Taxpayers Have More Direct Deposit Options for Their 2006 Refunds
FS-2007-5, January 2007 — For the first time, taxpayers will be able to have their refunds split and directly deposited to up to three separate financial accounts.
Special Steps Needed for Paper 1040 Filers to Claim Late Tax Changes
FS-2007-4, January 2007 — Because of late tax legislation, taxpayers will have to follow special instructions when using the major tax forms while claiming certain deductions.
Recently Enacted Tax Law Extends State Sales Tax Deduction
FS-2007-3, January 2007 — Taxpayers who itemize on their tax return may choose to deduct state and local sales taxes instead of state and local income taxes this year and next.
Highlights of 2006 Tax Law Changes
FS-2007-2, January 2007 — Taxpayers will find new credits, incentives for saving and special rules for charitable donations this year.
One-Time Tax Refund Available to Long-Distance Telephone Customers
FS-2007-1, January 2007 — Individuals, businesses and tax-exempt organizations can request the refund as a credit on their 2006 tax return.
This selection from the "Late Tax Changes" fact sheet will get a lot of use:
State and Local General Sales Tax Deduction:
* The deduction for state and local general sales taxes will be claimed on Schedule A (Form 1040), line 5, “State and local income taxes.” Enter "ST" on the dotted line to the left of line 5 to indicate you are claiming the general sales tax deduction instead of the deduction for state and local income tax.
* The IRS also will issue Publication 600 for 2006, which includes the state and local sales tax tables, a worksheet and instructions for figuring the deduction.
* This option is available to all taxpayers regardless of where they live, though it’s primarily designed to benefit residents of the eight states without state and local income taxes.
Higher Education Tuition and Fees Deduction:
* Taxpayers must file Form 1040 to take this deduction for up to $4,000 of tuition and fees paid to a post-secondary institution. It cannot be claimed on Form 1040A.
* The deduction for tuition and fees will be claimed on Form 1040, line 35, “Domestic production activities deduction.” Enter "T" in the blank space to the left of that line entry if claiming the tuition and fees deduction, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.
Educator Expense Adjustment to Income:
* Educators must file Form 1040 in order to take the deduction for up to $250 of out-of-pocket classroom expenses. It cannot be claimed on Form 1040A.
* The deduction for educator expenses will be claimed on Form 1040, line 23, “Archer MSA Deduction.” Enter "E" on the dotted line to the left of that line entry if claiming educator expenses, or "B" if claiming both an Archer MSA deduction and the deduction for educator expenses on Form 1040. If entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.
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MINIMUM WAGE VS. TAX BREAKS
January 05, 2007
At both the statehouse and in Washington, it looks like there is going to be a minimum wage increase tied to some sort of tax breaks for "small business." While this will likely be railroaded through by the new Democratic majorities, it still doesn't hurt to point out what a minimum wage increase is. From the Bush-hating bitter blogger Daniel Shaviro:
The subsidy is geared to people based on hourly wage not household circumstances. So you get, e.g., teenagers from affluent households getting a lot of the $$. I think of it as conceptually a wage subsidy to low-hourly-wage workers, financed by a tax on commodities produced with low-wage labor. Not the design one would really want in a wage subsidy program that was being designed from any coherent set of criteria grounded in efficiency or distributional concerns. Note also that if, say, it ends up increasing consumer prices for commodities produced with low-wage labor (e.g., fast food), then it's a bit like a retail sales tax targeted at consumer goods that poor people disproportionately buy.
A minimum wage increase can only be two things: meaningless or harmful. If all employees already earn more than the minimum wage, it's meaningless. Otherwise, it's harmful, because it forces employees to choose between paying employees more than they are worth - not a way to grow a small business - or finding a way to make it up elsewhere, by trimming benefits, automating, or making fewer hires.
If you think a minimum wage doesn't affect employment levels, then the logical conclusion isn't a $7.50 minimum wage. You'd raise the minimum wage to say, $20 per hour. Or maybe $100. If a higher minimum wage doesn't affect employability at the bottom of the wage scale, it shouldn't at any salary level.
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FINGERS FINGERED
January 05, 2007
The Baseball Hall of Fame is no tax haven. Hall of Famer Rollie Fingers is reported to owe over $1.4 million in back taxes to Wisconsin from his time with the Milwaukee Brewers in the early 1980s.
Considering what baseball salaries back then, that's a big number for a state tax debt. Presumably much of it is interest and penalties. The press coverage doesn't say how the tax debt was figured, how it arose, or whether the amount owed is in dispute.
Hat Tip: the Political Madman. Don't Mess With Taxes also has coverage.
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WE HAVE A WINNER!
January 04, 2007
Celebrities ran away with our first ever reader-selected Taxpayer of the Year award. While Wesley Snipes made a strong run, Richard Hatch held on as the people's choice for 2006 Taxpayer of the Year.
This award comes with prestige only, which is not required to be included on form 1099, so Mr. Hatch has the added benefit of not incurring additional income from this award.
Complete poll results:
Go here to read more about the nominees
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NEW YEAR'S RESOLUTION?
January 04, 2007
You could do worse for your New Year than by following a 12-step, 12-month financial plan laid out in Death and Taxes.
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IOWA TAX POLICY: MIXING CIGARETTES AND GASOLINE
January 04, 2007
Closer to home, the Iowa legislature looks like it will embrace its nicotine addiction by increasing its reliance on cigarette tax revenues:
Less than two weeks after (Governor-elect) Culver is sworn into office on Jan. 12, he must deliver a state budget of more than $5 billion to the Legislature. That budget "very likely" will call for an increase in the state's cigarette tax, Culver said.
"I said throughout the campaign that we should raise the cigarette tax," said Culver. "I've been very clear about that, and that's the only tax that I've talked about raising."
That's not the only tax his friends in the legislature are talking about, though. It looks like they'd like to raise gas taxes, too, but only if the legislative Republicans will jump over the cliff with them:
Another tax issue that could shove its way onto the Legislature's agenda is the state's gasoline tax. Transportation officials are projecting that gas tax collections in 2007 would decline by about $700,000, the first drop in 26 years.
That would slow job-producing highway programs, and the highway lobby is already gearing up to push for an increase. Murphy said there's only one way that would happen.
"If it doesn't get done in a bipartisan way, it doesn't get done," (incoming House Speaker) Murphy said.
The other legislative hot-item is a minimum wage increase, coupled with some sort of subsidy for health insurance. This will help small businesses by increasing their costs, but giving a little back with tax credits. What would business do without the legislature?
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TODAY STARTS THE FIRST 100 HOURS OF THE REST OF YOUR LIFE
January 04, 2007
The new Congress, now with a Democratic majority, starts today with a "100 hour" legislative frenzy. The tax provisions in the bill are primarily ways to flog oil companies for being impertinent enough to make money be getting gasoline to us.
While none of the bills have been introduced yet, Hoyer said the bill to end subsidies for oil companies will be on the floor on January 18. The legislation will result in about $15 billion in savings that will then be redirected toward alternative energy research, he said.
Tax Anaysts reports ($link):
Hoyer said the details of the energy package are still being fleshed out, but he told reporters that among the ideas being considered are repeal of the section 199 manufacturing deduction for oil and gas companies and a change to the amortization schedule for geological and geophysical expenses for major integrated oil companies. Those two provisions would raise about $5 billion in revenue over 10 years, he said.Another provision that Hoyer described as a "royalty fix" would target companies holding leases given by the Interior Department in 1998 and 1999. That would raise between $9 billion and $11 billion, according to Hoyer.
Fascinating. First the congresscritters say we should wean ourselves from foreign oil. The only way that will happen is if the price goes up. They weren't suicidal enough to vote for a big gas tax increase, but the price of gas went up anyway. When the price goes up, that's good, but not if the oil companies make money. The congresscritters, who produce only carbon dioxide themselves, find this unacceptable. So they nibble away at the profits that enable the oil companies to develop U.S. oil and alternative sources like tar sands.
It's energy policy by hissy fit. At least we can take comfort in the continuity the new Congress brings to tax policy - a continuity of incoherence.
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WISCONSITES GET A NEW REASON TO E-FILE?
January 03, 2007
The Wisconsin Department of Revenue last week sent tax return packages to 170,000 taxpayers who filed the state's long tax form for 2005. As a public service to the state's identity thieves, they printed the taxpayers' social security nubmers on the outside of the mailer, Don't Mess with Taxes reports:
The misprinted forms primarily went/will go to filers who previously used the basic Form 1, long paper form for individuals. Wisconsin taxpayers who filed other forms, used a professional tax prep service or e-filed don't have to worry, at least not about this mailing mess.
I know that the states want to encourage electronic filing, but this seems like a drastic way to go about it.
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EXTRA DAYS OFF
January 02, 2007
The Tax Update is staying home for a couple of days to share in the end of the school break. For your blog fix, stop by the Carnival of the Capitalists over at Free Money Finance, or the Carnival of Personal Finance at the Mighty Bargain Hunter. These roundups of blog postings have many gems, including the InsureBlog's discussion of why your employer may suddenly seem concerned about your well-being (hint: healthier is cheaper). You can also learn why credit cards have expiration dates.
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START YOUR YEAR-END PLANNING NOW!
January 02, 2007
We spend a lot of time on year-end planning, but some tax moves are best made at the start of the year. For example, today is the best day of the year to fund your individual retirement accounts, health savings accounts and section 529 plans. The sooner you fund these plans, the sooner your investments are working for you tax-free. If you fund an IRA today, instead of the last possible day in April 2008, your earnings are tax-sheltered an extra 15 1/2 months.
Today is also the last full day of voting for our 2006 Taxpayer of the Year. Wesley Snipes is closing in on Richard Hatch. You can make a difference!
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