Tax Update Blog: February 2009 Archives
« Previous · Tax Update Blog Home · Next »
Almost March cavalcade!
February 27, 2009
The new Cavalcade of Risk is up -- in New Zealand! This edition of the roundup of insurance and risk-management blog posts has much good stuff, including Hank Stern's piece on the benefits of being an informed patient.
Speaking of risk management, a friend who works at a national accounting firm office here in town had a heart attack at his desk this week. Thanks to alert folks in his office and an automated external defibrillator in the office, it looks like he'll live to see another tax season. I'm told that the EMT folks said that he wouldn't have made it without the AED and immediate treatment by folks in the office, including a former military medic.
So manage your own risks - eat right, exercise, and spend the money to get a defibrillator for your office.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
LIFO, high-income itemizers targeted in Obama budget
February 27, 2009
When you're spending like that, it has to affect taxes. The Obama budget aims at businesses and higher-income taxpayers to offset some of the projected spending. The Tax Prof has a great summary of the Obama Tax Proposals. Among the revenue raisers:
- Repeal of LIFO inventory method, effective in 2012.
- Require 1099 reporting for rental payments, effective in 2010
- "Reinstate superfund taxes." Is this the stupid AMT surcharge that disappeared in the 1990s?
- Reinstate the 36% and 39.6 brackets repealed in the Bush tax cuts, effective 2011.
- Reinstate the "hidden tax bracket" by phasing out itemized deductions and personal exemptions for high income earners
- Raising the maximum rate on dividends and capital gains to 20%.
- Taxing "carried interests" as ordinary income.
- A vague, but large, increase on taxes of multinationals.
The administration budget also includes some business tax cuts, including an exemption on capital gains for "small" business (small is beautiful in business, but not government, it seems), permanent enactment of the research credit, and expansion of the five-year carryback for net operating losses.
As expected, the bill proposes to make permanent the 2009 version of the estate tax.
Notably missing is any talk of reducing corporation tax rates, to the chagrin of such raving right-wingers like Charlie Rangel who point out the job-killing nature of the corporation tax.
The tax provision of the budget bill are a mishmash of tax ideas that have been floating around Congress for years. They are in no way a reform program, or even a coherent program of rationalizing the existing tax system. We're seeing a continuing of the largely spastic and random tax policies of the past 8 (really 20) years, except with a bias to tax increases rather than tax cuts.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Private tax collection zapped in spending bill
February 27, 2009
In a victory for the Treasury Employees union, the House of Representatives voted to kill the pilot private debt collection program for tax debts. While opposition is cloaked in concerns about taxpayer privacy, it's really about protecting the union's turf. Unless, of course, you believe the IRS is the gold standard of protecting taxpayer information.
Kay Bell has more
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Tax Court: Walter Anderson has to pay up.
February 26, 2009
The man convicted of what was called the "largest individual tax evasion case in U.S. history," is still fighting. Walter Anderson, a telecom entrepreneur who is serving a nine-year prison sentence, argued in Tax Court that he was innocent of tax fraud, despite of his guilty plea on federal tax charges.
When tax fraud is involved, there is no statute of limitations on asserting a tax liability. Absent fraud, the IRS would be unable to collect the taxes. Considering that the IRS says Mr. Anderson owes $183,779,618 for 1995-1999, the stakes are reasonably high. The IRS is also asserting the 75% fraud penalty for an additional $137 million or so.
The IRS says that his guilty plea for 1998 and 1999 prevents him from fighting fraud penalties for those years. As the guilty plea didn't cover 1995-1997, he can still argue that he didn't commit fraud then in fighting collection.
When Mr. Anderson was convicted, there was a little kerfuffle over his plea agreement, which didn't specifically require restitution of unpaid taxes. An appellate court later reopened the door to collection. It may not make much difference. His deficiency and penalties for 1998-1999 alone total over $253 million, and he has argued that he is indigent. As he argued his Tax Court case without a lawyer, it's not clear that he has much ready cash to give the IRS.
Cite: Anderson, T.C. Memo 2009-44.
Link • Walt • Comments (0) Bookmark: del.icio.us • Digg • reddit
What's in the Obama tax hike?
February 26, 2009
It looks like the Obama tax increase agenda will be more ambitions than just letting the Bush tax cuts expire. The Wall Street Journal reports:
The tax increases would raise an estimated $318 billion over 10 years by reducing the value of such longstanding deductions as mortgage interest and charitable contributions for people in the highest tax brackets. Households paying income taxes at the 33% and 35% rates can currently claim deductions at those rates. Under the Obama proposal, they could deduct only 28% of the value of those payments.The changes would be phased in gradually over the next few years. For the 2009 tax year, the 33% tax bracket starts with couples with taxable earnings of $208,850, when adjusted for personal exemptions and various deductible expenses. A taxpayer in the top bracket paying $1,000 of mortgage interest, for example, would see a tax break worth $350 reduced to $280.
I can't wait to see the form we'll use for this.
This will be on top of the increase of the regular tax rate from 35% to 39.5% when the existing tax rates expire in 2011. Capital gain rates will also rise, from 15% to 20%, absent legislation to keep them from rising in 2011. Of course, the way the markets are going, capital gains are largely a theoretical issue.
More links:
Link • Comments (2) Bookmark: del.icio.us • Digg • reddit
Five years in prison for Cedar Falls preparer
February 26, 2009
A woman who prepared taxes for Bosnian immigrants out of a Cedar Falls, Iowa hotel room in 2003 has been assigned a longer-term lease. Angelique Tinder was sentenced to 63 months years in prison Tuesday after being convicted of 31 counts of preparing false tax returns. She was released to report to prison as directed by the U.S. Marshal's office.
The U.S. Attorney press release on her conviction described her business this way:
TINDER traveled to Waterloo, Iowa in May 2003 and set up business in a hotel. She conducted cursory interviews of her clients’ originally filed tax returns for 2000, 2001, and 2002. She usually spent no more than 15 or 20 minutes for the preparation and signing of up to three amended returns for each client. She charged $35 or $40 for each return she prepared. She also advised her clients they could sign amended returns for other family members not present.TINDER prepared over 2100 amended returns and filed approximately 1700 returns with the Internal Revenue Service. An additional 400 amended returns were seized in a search of a hotel conference room in Johnston, Iowa, where TINDER was conducting her business in June 2003. All of the more than 2100 returns she prepared claimed an additional tax refund.
15-20 minutes to prepare returns? And every one of 2100+ returns had a refund? You can see why she was popular, which will be scant consolation where she is headed. She was certainly efficient, but sometimes efficiency isn't everything.
Link • Comments (2) Bookmark: del.icio.us • Digg • reddit
IRS issues form to claim $8,000 first-time homebuyer credit
February 25, 2009
The IRS has updated Form 5405 to enable taxpayers to start claiming the revised $8,000 first-time homebuyer credit on 2008 returns for 2009 home purchases. The same form will also be used to claim the $7,500 credit for 2008 purchases.
The credit is refundable for both 2008 and 2009 purchases, but for 2008 purchases it must be repaid in subsequent years, so it functions more like an interest-free loan.
The IRS has also issued an explanation of the credit, which is reproduced in full below.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Governor Culver adds his weight to repeal of Iowa's deduction for federal taxes
February 25, 2009
Radio Iowa's O. Kay Henderson reports:
Governor Chet Culver, a Democrat, today was asked during a telephone news conference whether he favored getting rid of the provision which lets Iowans deduct their federal tax bill from their income before they calculate their state income tax liability."I think we should have a conversation on that this session," Culver said. "There are a lot of advantages to doing that,: He added it is something that he and legislators should "seriously look at."
I asked what the advantages were.
"It's kind of complicated," Culver said, with a laugh, "and anything we can do to kind of simplify and streamline the tax code I'm for it. It's somewhat outdated in the way it's applied and I think that it might be time to just kind of look and see if we can make ....(the tax code) more straightforward and clear."
I think it would be good to build the deduction into Iowa's rates. A serious tax reform effort could achieve much lower rates and a much more business-friendly Iowa tax system. That would include reforming or repealing our highest-in-the-nation corporation tax rate and eliminating the thirty-plus special interest tax credits. Unfortunately, the Democratic leadership says "reform" means raising taxes on high incomes, which shows they're serious about raising taxes, not reform.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Does the IRS tell taxpayers not to hire a lawyer?
February 25, 2009
Tax Lawyer Peter Pappas says they do it all the time:
1. Many IRS agents tell taxpayers not to hire a representative. This is a blatant violation of the taxpayers’ right to representation and any IRS official who does this should be fired.2. In my 20 plus years of IRS practice, I have had hundreds of clients tell me that the IRS official they had been dealing with made them believe that if they hired a lawyer it would make matters worse for them, not better.
3. I have had numerous clients tell me that an IRS official told them that, instead of paying a lawyer or CPA, they should just give the money to the IRS.
I haven't run into that, but I have a different sort of practice. I deal with my clients every year, while a tax lawyer is more likely to get involved only after the IRS has contacted a client. Even the IRS doesn't normally tell you not to talk to your preparer.
Unless the dollars are trivial, get a tax pro involved when the IRS comes calling. The IRS agents know the system, while few taxpayers do. Having a tax pro on your side makes it much easier to face the leviathan.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Got more tax than cash?
February 25, 2009
William Perez lays out your options.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
When it absolutely, positively has to get to the IRS tomorrow
February 25, 2009
You can file returns with the IRS via a "designated private delivery service" and use the "timely-mailed, timely-filed" rule. A small problem: standard IRS instructions don't include street addresses for IRS service centers, and a private carrier can't deliver to a P.O. Box. Russ Fox comes to the rescue with a list of street addresses for IRS service centers, with California state filing addresses for good measure.
Russ has an important warning:
It's very important to note that these addresses should be used only for private delivery services. Regular mail sent to these street addresses may be rejected as sent to a non-deliverable address and returned to the sender!
So: file by mail, use the standard IRS addresses in the form instructions. File by carrier, use the addresses on Russ's list.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Delayed Californigratification
February 25, 2009
California finally has a budget, but they're still sitting on tax refunds.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Missing a W-2?
February 24, 2009
The IRS explains what to do if you can't get a W-2 from an employer:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
* Employer's name, address, city, and state, including zip code;
* Your name, address, city and state, including zip code, and Social Security number; and
* An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
More from The Tax Guy.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Even the broken clock is right sometimes
February 24, 2009
Wisconsin Governor Doyle, who has come up with some truly wacky tax ideas, actually has something sensible to say. The Tax Policy Blog reports that he has called for repeal of Wisconsin's film tax credit. They quote Tax Analysts ($link):
According to an audit by the Department of Commerce, the film Public Enemies, starring Johnny Depp, received $4.6 million in tax credits but generated only $5 million in economic activity in the state, the Associated Press reported. Doyle addressed those figures at a February 19 press conference following the signing of SB 62, a separate budget repair bill that reduced the state's budget shortfall by $700 million. At the press conference, a reporter told Doyle of a film producer that had planned to bring a $6 million project to Wisconsin but threatened to go elsewhere if the incentive was removed."Probably saving us a lot of money," Doyle responded. "Can anybody seriously justify that we should be laying out $4 million for one movie that comes here that doesn't produce any long-term jobs in this state, where we end up paying portions of the director's salary? You know, I'd like to see what that movie finally makes.
Iowa has an extremely generous set of transferable film credits that subsidize up to half the cost of movies made here. The papers always cover the excitement of the filming sets. It's too bad they never cover the jobs that are lost and the businesses that never move to Iowa because of the high taxes needed to subsidize Hollywood.
As long as the legislature leaves Iowa's film credits in place, we know they aren't serious about tax reform.
Related: OUR LIBERTIES WE PRIZE AND OUR RIGHTS WE WILL MAINTAIN. AND WE'LL PAY TO DO UMA'S DRY CLEANING
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Beale's 'common law court' sentenced
February 24, 2009
Ever wonder whether you could beat a tax evasion rap via the simple expedient of kidnapping the judge until she agreed to drop the charges? It wouldn't have occurred to me, but it seemed like a good idea to Minnesota entrepreneur Robert Beale and some of his friends. It didn't work out for Mr. Beale, who yesterday got an additional 48 months in prison for his role in the plot. This will be tacked onto his 11-year sentence he is already serving on tax charges
Nor has it worked out for Mr. Beale's friends, two of whom were sentenced yesterday to to 24 months prison. They were charged with conspiring to "arrest" Mr. Beale's judge with a warrant from their own "common law court." The plot unraveled because authorities listened in on Mr. Beale's phone calls from jail.
According to prosecutors, during a phone call Beale made to another person from jail, he said, "God wants me to destroy the judge. That judge is evil. He wants me to get rid of her." During another conversation, Beale said, "God wants me to take the judge out, that's what he wants me to do."
So which is it? Destroy her, or take her out for dinner and drinks? Taxes can be so confusing
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
When the IRS is serious about collecting
February 24, 2009
Peter Pappas has posted a good overview of the IRS collection process. He talks about when you need to get help:
The simple truth is that the vast majority of taxpayers don’t possess the knowledge of the tax laws and the experience in dealing with a vast and powerful government bureaucracy necessary to competently represent themselves.If you owe less than $10,000 to the IRS it might not (for cost-benefit reasons) make sense for you to hire a tax lawyer or CPA.
But if you owe more than that, we recommend that you at least have a consultation with an experienced tax professional before you make a mistake that could cost you money or, even worse, your freedom.
He also has good insights on the frustrations of dealing with the IRS telephone collection staff. Though the Treasury employee union would have you believe otherwise, official IRS personnel can drive you at least as crazy as a private agency.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
A stimulus tax roundup...
February 24, 2009
...by ISU's Roger McEowen.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Iowa Tax Legislation tracker now up
February 23, 2009
We have finally added our 2009 Iowa Tax Legislation tracker to the site. We will monitor the progress of tax bills, especially as the Iowa legislature talks of tax reform, or at least of raising taxes by eliminating federal deductibility.
We've added a handy new feature: color-coding of the bill sponsors in the now-standard format of blue for Democrats, red for Republicans, to make it easy for readers to see where a bill is coming from and what its prospects are (hint: "red" = round-file).
Link • Eye on the Legislature 2009 • Comments (0) Bookmark: del.icio.us • Digg • reddit
More on the push to eliminate federal deductibility
February 23, 2009
WCF Courier Online has more details on the effort of legislative leaders to repeal deductibility of federal taxes on Iowa returns. They say it's not a disguised way to increase taxes -- "for now":
Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said preliminary discussions are focusing on reducing the number of tax rates to as low as three, making it "revenue neutral" to state government by plowing the new tax revenue from ending federal deductibility into relief for Iowans making less than $200,000 annually. However, the income thresholds and revised tax rates remain in flux as more computer runs are made on possible options, he added.
It would be a lot more of a convincing effort at tax reform if they didn't say things like this:
"We would be looking at a scenario that would try to lower income tax rates for most Iowa taxpayers and make the system fairer and make the system simpler," Bolkcom said. "The most well-off Iowans are likely going to pay a little more."
Making it look like they really just want to raise taxes on somebody. If they wanted to make it look like real reform, they wouldn't be focusing on making somebody pay more; they'd be looking at what system would best finance the state budget needs at a low compliance cost without driving businesses and jobs from the state.
Related:
Legislative Democrats hint attacks on deduction for federal taxes
I've tried state corporation taxes, they're not worth it
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Iowa and extender conformity
February 23, 2009
The Iowa Department of Revenue has issued the following e-mail alert (I can't find a link at the Department web site):
The Department has received numerous inquiries related to what are commonly referred to as the federal “extenders” and whether the federal provisions will be adopted for Iowa tax purposes. The extenders include the deductions on line 24 of the IA 1040 for Educator Expenses and Tuition & Fees; also the itemized deduction on Schedule A for state sales and use tax paid.The final determination on Iowa’s treatment of these items must be made by the Iowa Legislature. The Department made an assumption when printing the 2008 income tax booklet that Iowa would follow the federal treatment. This assumption was based upon past history. In prior years, Iowa has adopted these federal provisions. However, there is no guarantee this will be the case for the 2008 tax year until the Legislature makes its determination. We hope to have that determination by early to mid-March.
If Iowa returns must be filed in the meantime, the Department advises you to complete those returns based upon the premise we will ultimately couple with these federal provisions; with the understanding that an amended return may be required if that premise turns out to be incorrect.
Seeing that they're working nights and weekends at the legislature, you'd think they'd move faster.
Link • Iowa Tax Law • Comments (0) Bookmark: del.icio.us • Digg • reddit
California waking up
February 23, 2009
The California dream is dying just a bit more. The Governator has signed a budget agreement that will add 1% to the sales tax rate (the rate will be 8.75% in Orange County, for example) and increase income taxes to a top individual rate of (probably) 10.425% -- without federal deductibility. A comparable Iowa rate, with federal deductibility, would be approximately 15.23% (compared to our current 8.98% rate).
The Governator kindly eased the pain for the movie business with targeted breaks - so the non-beautiful people get to make up the difference.
Very strange. Blaming California's problems on inadequate revenues is like blaming a binge drinkers problems on the high cost of alcohol.
Links:
California Approves Budget; Taxes Going Up
More on California's New Taxes
What's Next for California
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Get yer ten bucks here!
February 23, 2009
The IRS has updated withholding tables to reflect the extra $10-per-week "making work pay" tax credits in the stimulus bill. The TaxProf, William Perez, and Kay Bell have more.
Expect it to stop the recession dead in its tracks, just like last year's $600 rebates did.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Maybe the Cardinals are still playing the Steelers too
February 22, 2009
The "prevailing wage" bill came up one vote short of passing Friday. The supporters, including the speaker of the Iowa House, refuse to take "no" for an answer. They have vowed to hold the vote open until 1:00 pm Monday in hopes of begging or bullying somebody enough to cast an additional "yes" vote. This requires them to keep somebody in the speaker's chair the whole time to hold the vote open.
Being in the neighborhood, the Tax Update stopped by the Iowa House of Representatives late Saturday afternoon, and sure enough, there they were.
A few of them, anyway, including at least one of the bill's opponents, who are working in shifts to keep an eye on things. It's a good thing the legislators aren't in charge of football, or the Super Bowl might still be going on, technically.
Methamphetamine is popular in some circles in Iowa when there is a need to stay awake and alert for unnaturally long shifts. Of course there are significant downsides to meth use, such as impaired judgement and bizarre behavior. Which makes you wonder if the House leadership broke out the meth a little early this session.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Legislative Democrats hint attacks on deduction for federal taxes
February 20, 2009
The good news: Iowa Legislative leaders are actually talking tax reform.
The bad news: it looks like they think "reform" means "increase."
From O. Kay Henderson at Radio Iowa:
Democrats in the Iowa Senate say they may push through a massive overhaul of the state's income tax system and junk the practice of allowing Iowans to deduct their federal tax bill from their income before calculating their state income taxes."Clearly federal deductibility is a gigantic benefit to the wealthiest Iowans and some mechanism that would move away from that, simplify our tax code and give a break to middle class families is something that we're very much interested in," Gronstal says.
The legislature's talk of "reform" would be more credible if it didn't conveniently come at a time when tax receipts are plummeting just as the state is in a middle of a spending spree. From Mr. Gronstal's statement, we're not talking about lowering the rates, broadening the base, and making things simple. He just wants to take breaks from some and give more breaks to others, with the state taking a cut to finance its binge.
Republicans are up in arms, seeing (I think correctly) a crude attempt to ram a tax increase through in the guise of reform.
Even so, Iowa's tax law is badly in need of reform. With dozens of special tax credits and breaks, and with the highest corporate rate and one of the highest individual tax rates in the country, Iowa's tax system is dysfunctional. Maybe this will cause the legislature to actually start to fix things.
State deductibility is at best a flawed way to protect against tax increases. Anybody who has practiced tax in Iowa for any length of time has seen people who have wasted their federal deductibility because they waited until the year after they had a big taxable gain to pay their taxes - wiping out their subsequent Iowa income and wasting much of the deduction that could have been used in the big income year. Far better to build the benefit into the rate structure so you don't have to pay a tax advisor to benefit from it. But by verifying fears that attempts to eliminate federal deductibility are just a ruse to raise taxes, Gronstal & Co. have probably set back the cause of Iowa tax reform for years.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
IRS issues Applicable Federal Rates (AFR) for March 2009
February 20, 2009
The IRS has issued (Rev. Rul. 2009-08 the minimum required interest rates for loans made in March 2009:
-Short Term (demand loans and loans with terms of up to 3 years): 0.72%
-Mid-Term (loans from 3-9 years): 1.94%
-Long-Term (over 9 years): 3.52%
Historical AFRs are available at the "links" page at www.rothcpa.com. You can also click here for the rates for prior months as reported in the Tax Update.
Link • Applicable Federal Rates • Comments (0) Bookmark: del.icio.us • Digg • reddit
Why most defense attorneys advise against a lengthy armed holdout
February 20, 2009
Once they sensed that their tax protest arguments weren't working in their tax evasion trial, Ed and Elaine Brown retreated to their fortified New Hampshire country home to hold out against the feds. The holdout lasted over nine months, until Federal Marshals posing as Brown supporters arrested the couple.
Now the couple is back in federal court facing 11 new federal charges, including weapons violations and obstruction of justice:
A couple convicted of tax evasion said Thursday that the federal government has no right to bring 11 new charges against them, including gun violations and obstruction of justice.Ed and Elaine Brown and at least four co-conspirators stockpiled explosives and firearms at the couple's home for possible use against law enforcement, according to the indictment.
The Browns, in their 60s, are serving five-year sentences. Convictions on the new charges would keep them in the Greybar old folks resort for some time beyond that.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Can you have too much income to qualify for farm subsidies?
February 20, 2009
You can now. Roger McEowen posts an explanation of the rules, which limit payments to those with non-farm income over $500,000 or farming income over $750,000. So if your friendly neighborhood farmer made a mere $700,000 last year, you still get to subsidize him.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
There's more than one way to take a 401(k) haircut
February 20, 2009
A stylist offers to reduce the bill by the percentage your 401(k) plan has declined. Wisely, they limit the reduction to 50 percent.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulated!
February 19, 2009
An apparently disgruntled reader comments on our post (two separate comments) explaining the new, improved first-time homebuyer credit:
I bought in 08, why do I have to pay it back.I haven't taken the tax credit yet. What is the difference between you and I. The stimulis was written and signed for both of us . Please explain.
Why does he have to pay it back? Because it the tax law says so. Congress in it's minuscule wisdom decided to make the credit like an interest-free loan for 2008 buyers, but a gift for 2009 purchasers. It's just the way it is.
What's the difference between the commenter and me? The commenter gets a 15-year interest-free loan (which, I would bet, Congress will eventually forgive), while I just get to keep making my payments on the house I bought in 1994, with interest, with no cramdown for my lender, and no free money from the IRS, while folks who bought more house than they can afford get help to stay put in their McMansions from Uncle Sugar.
Or, troubled commenter, let me put it another way.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
S corporations: other fringes
February 19, 2009
We continue to get questions on S corporation fringes. From our December 27, 2007 post More on S Corporation Health Insurance comes this question:
Does this ruling and process apply to all insurances (dental/short term disability/supplemental)? I believe we are handling the medical premiums properly, but am not sure about the other insurances.
Many otherwise non-taxable fringe benefits are taxable to 2% or greater owners of S corporations. Notice 2008-1 explains how this affects health insurance, which would include dental insurance; such insurance is included in Box 1 W-2 wages, but not in FICA or Medicare wages.
Non-health fringes, like life insurance, would be includible for Box 1, FICA and Medicare.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Phishing in Indiana
February 19, 2009
The aggressiviness of states in collecting taxes and fees from out-of-state businesses has created a new niche of scammers. The Indiana Secretary of State's office warns that a letter asking for $125 or $150 has been sent to businesses:
Specifically, copies of the letter that have been forwarded to my office appear to come from the "Indiana Corporate Compliance Business Division." They include a return by date to give the false impression that action is necessary on your part.This letter is NOT an official correspondence from my Business Services Division or any other Indiana state agency.
Just because something looks official doesn't mean that it is.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
How excluded foreign income pushes you into a higher bracket
February 19, 2009
If you work overseas most of the year, the U.S. tax law allows you a foreign earned income exclusion. While most or all of your foreign earned income may not be taxable in the U.S., it can still push you into a higher bracket. William Perez explains at About.com:Tax Planning:
Any taxable income in the U.S. will be taxed starting at the tax bracket that would apply had the foreign exclusion not been claimed.
Follow the link for a full explanation.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
UBS flips
February 19, 2009
Swiss bank UBS yesterday entered a "deferred prosecution agreement" on charges of assisting wealthy Americans avoid taxes via Swiss bank accounts. UBS will pay a $780 million fine.
This makes an otherwise very puzzling sentencing agreement from last April make more sense. California billionaire Igor Olenicoff had admitted to evading taxes of $52 million, and was set to receive an astonishingly light sentence of probation and a $3,500 fine. The Olenicoff plea led to a guilty plea by UBS banker Bradley Birkenfeld, and now to a huge fine by UBS, names of more potential tax evaders, and cooperation in going after them.
A lot of UBS customers presumably are getting very familiar with their lawyers.
The TaxProf has a comprehensive roundup.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Palin per-diems taxable
February 19, 2009
Alaska has admitted they botched Sarah Palin's per-diems, and will issue her a corrected W-2. The Tax Prof has a roundup, but no word on whether this means she is in line for a cabinet position in the Obama administration.
Related: The tax perils of Palin
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Aw, shucks
February 18, 2009
The TaxProf lists The Tax Update ("Roth & Co.") as one of the "Top 10 Tax Blogs." Thanks, Paul!
Two years ago it was a challenge to find ten tax blogs.
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
Support fire safety by strengthening confidence in arsonists
February 18, 2009
The Treasury fact sheet on the administration's new proposals to support the housing market says our tax money will be used to "Support Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac."
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
California's budget problem, illustrated
February 18, 2009
Spending beyond sanity.
(Via the Tax Policy Blog)
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
I've tried state corporation taxes, they're not worth it
February 18, 2009
Mike Ralston, Former Director of the Iowa Department of Revenue, in the comments yesterday:
I believe (and I did even when I was the director of the Iowa Department of Revenue) Iowa should repeal its corporate income tax. The tax does not bring in enough revenue to justify the large amount of money spent in tracking and ensuring compliance. Sales and use taxes are much more important sources of revenue for our state.
Related: STATES COPING WITH BUDGET CRISES: COMPARE AND CONTRAST
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Naked Ladies and Taxes
February 18, 2009
It's just fun to find a way to put those words in the same sentence, but David Brunori's comments ($link) on a proposal for video poker in Pennsylvania -- for "education" -- inspire me:
The cool thing is that Rendell would allow video poker machines in strip clubs. Nothing says we value higher education like paying for it through drunk guys ogling naked women. Some legislators didn't like the idea, but others thought it was found money. Rep. Tom Caltagirone (D), who sponsored a similar bill last session, said the revenue would be like "manna from heaven." I'm sure that's how the ancient Israelites would have viewed the poker machines at the naked-lady club.
Then the strippers can book potentially-deductible flights to San Francisco to attend a Tax Workshop for Strippers & Sex Workers
Link • Comments (2) Bookmark: del.icio.us • Digg • reddit
Stimulus bill signed; Dow down 297.81
February 17, 2009
The TaxProf reports that we have been stimulated. The equity markets don't seem to be feeling it.
Link Bookmark: del.icio.us • Digg • reddit
How the $8,000 homebuyer credit works
February 17, 2009
The stimulus debacle awaiting the President's signature expands the "first-time homebuyer" tax credit. A call from a Des Moines Register reporter (for this story) got me to digging into it a bit more. It's a great deal for those who qualify, though there's no way it cures what ails the housing market. Some key points:
- The credit is refundable. That means if you qualify, and the credit you qualify is more than your actual tax for the year, you get the whole credit anyway. If you qualify for an $8,000 credit, your federal income tax before the credit is $2,000, and you had $2,100 tax withheld on your W-2, you will get a refund check $8,100 - all of your withholding, because your net tax is zero, and the $6,000 amount that the credit exceeds tax.
- The credit has to be repaid for over a 15-year period for houses purchased from April 9, 2008 through the end of 2008 -- making it more of an interest-free loan than a tax credit. But for houses purchased in 2009, the credit only has to be repaid if the house is sold, or not used as a principal residence, within 36 months of purchase.
- If you purchase a house in 2009, you can elect to claim the credit on your 2008 1040. If you purchase the house after you file your 2008 1040, you can amend your 2008 return and get your refund that much sooner.
The definition of "first-time homebuyer" is somebody who hasn't owned a house in three years - sort of a renewable virginity.
The credit phases out for adjusted gross incomes over a $20,000 range starting at $75,000 for singles and for $150,000 for joint fliers. The $8,000 credit limit - the lesser of $8,000 or 10% of the house price - applies going back to the original April 2008 effective date. only for houses purchased after 2008, due to a non-code effective date provision (Sec. 1006(f) of the bill).
Link: IRS web site on first-time homebuyer credit (not yet updated for new law).
Related: $15,000 homebuyer credit not in conference bill
UPDATE, 2/25: IRS issues explanation of credit and revised Form 5405.
Link • Comments (8) Bookmark: del.icio.us • Digg • reddit
States coping with budget crises: compare and contrast
February 17, 2009
Rhode Island:
Rhode Island Governor Calls for Repeal of Corporate Tax, Estate Tax ($link)
Minnesota:
The Governor’s 21st Century Tax Reform Commission released its final report on Friday, calling on Minnesota to repeal its corporate income tax and take other steps to reduce the state’s business-tax burdens. (Minneapolis-St. Paul Business Journal
Iowa:
-Proposal bumps the state's gas tax by 8 cents-Lawmakers heard Monday from business owners and others affected by a fast-moving and controversial labor bill that would set minimum standards for wages and benefits paid to workers on public projects. (all from dmregister.com)
So -- what approach is more likely to lead to job growth: repealing corporation taxes, or raising taxes and imposing economically nonsensical pricing regulations and additional lawsuit risks on businesses and municipalities? Take your time.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Signs of severe tax trouble
February 17, 2009
Is the IRS just after your money, or do they want your butt in jail? Peter Pappas has an excellent discussion of how to tell the difference at The Tax Lawyer's Blog. A sample:
If you have not filed your tax returns for several years, the IRS will usually send you repeated notices requesting that you do so. When they send you these notices it is safe to assume that the matter has not been referred to CID.However, many people assume that the absence of notification from the IRS means they are off the hook.
Nothing can be further from the truth.
It's short and to the point. Read it all.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Do you love me enough to assume my tax liabilities?
February 17, 2009
William Perez on when joint returns are a good idea, and not.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus bill NOL question
February 16, 2009
A few questions have come up on our posts on the new tax bill. One relates to the provisions allowing a five-year carryback of net operating losses for businesses with up to $15 million in gross receipts. We reported that owners of pass-through entities take into account their share of pass-through gross receipts to determine their eligibility for the credit.
The definition for an eligible small business is defined by new code secton 172(b)(1)(H). It provides that the 5-year carryback is available to a "eligible small business" defined in section 172(b)(1)(F)(iii), which says:
For purposes of this subparagraph, the term “small business” means a corporation or partnership which meets the gross receipts test of section 448(c) for the taxable year in which the loss arose (or, in the case of a sole proprietorship, which would meet such test if such proprietorship were a corporation).
The new law definition modifies "the gross receipts test of section 448(c)," which has a $5 million limit, for this purpose; it uses a $15 million ceiling.
Now what's confusing here is that of course a partnership can't by itself have a "net operating loss," as it doesn't pay its own taxes. Yet if the partnership loss results in an NOL for an individual owner ("sole proprietor"), will it be available to the individual for the five-year carryback? I think is should be available to the individual ("sole proprietor"), or the provision is pointless.
It's not clear to me what happens if the partnership's gross receipts exceed $15 million but its owners all have under $15 million in gross receipts. I am guessing that the IRS will say that if the $15 million test will be applied at both the entity and owner levels. Of course, Congress should have done a better job of drafting this (the committee reports don't help), but you can't expect much from an enormous bill drafted in back rooms in a great hurry.
Why do I think the individual owners have to take into account their share of partnership gross receipts in measuring their own for the $15 million test? It's a long-standing provision in the tax law that owners of pass-throughs take into account their share of the entity's gross receipts in determining their own. See, for example, Rev. Rul. 71-455.
Link • Comments (4) Bookmark: del.icio.us • Digg • reddit
Is there such a thing as an 'F minus'?
February 16, 2009
Tax Vox gives the tax provisions a "gentlemen's C." Of course, that's what the rich sons of major donors get on their transcripts when they would otherwise flunk out. Professor Maule is more old-school; he correctly gives it an F.
Tax Vox provides a grim lesson of what Maine's Olympia Snowe got for selling her soul to provide the critical 60th vote for the bill: diddly. They report that she used her influence to remove the $15 million gross receipts provision for the 5-year NOL carryback provision in the bill. Of course, the ceiling survived, and she voted yes anyway. So how's that mess of pottage tasting, Senator Snowe?
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Section 199: What about Co-ops?
February 16, 2009
Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation has a great piece up for anybody wrestling with the "Domestic Production Activities Deduction" as it affects cooperatives: Domestic Production Activity Deduction for Members of Cooperatives.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
I would sentence them to 87 months on a fire ant hill
February 16, 2009
There's something sad when somebody goes to jail. Even when the person is clearly guilty, prisons are grim places. Sometimes prison terms for tax violations seem especially cruel, even though you realize they do it to frighten the rest of us into compliance, to keep others from making the same mistake. Even though prison may be well-earned, it can take a hard heart not to have a twinge of sympathy for a convict who's about to go away from the comforts of home to the concrete dormitory.
But there are exceptions. Two tax convicts from Pennsylvania deserve whatever they get, and then some. Mark A. Ciavarella Jr. and Michael T. Conahan are judges who pleaded guilty to taking bribes from the operator of a private juvenile prison for railroading kids into the facility. From the Philidelphia Inquirer:
Many of the kids were railroaded, according to allegations lodged with the state Supreme Court last year by the Philadelphia-based Juvenile Law Center, an advocacy group.In asking the court to intervene in April, the law center cited hundreds of examples where teens accused of minor mischief were pressured to waive their right to lawyers, and then shipped to a detention center.
One teen was given a 90-day sentence for having parodied a school administrator online. Such unwarranted detentions left "both children and parents feeling bewildered, violated and traumatized," center lawyers said.
My tear ducts are just dry for these guys. The TaxGrrrl, a Pennsylvania lawyer, reports that they have little sympathy elsewhere:
As for Ciavarella and Conahan? The two men, clearly hated (shouts of “Rot in hell!” resonated on the streets as they left the courthouse) remain free on bail until sentencing.
The plea deal calls for 87 months in prison on charges that include not reporting their bribes as income, but the sentencing judge has the final say. Russ Fox and Jacob Sullum have more.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Roundup of business provisions of tax bill
February 16, 2009
My post today at IowaBiz, the Des Moines Business Record blog for entrepreneurs.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Presidents' Day Carnival
February 16, 2009
Don't know how to properly celebrate President's Day? You can make a good start at the new Cavalcade of Risk and Carnival of Taxes!
The Cavalcade rounds up blog posts on insurance and risk management. Among the good stuff is Insureblog's discussion of how many risk managers it takes to change a light bulb.
You can figure out for yourself what the Carnival of Taxes is about. Even if taxes aren't your thing (then why are you here, anyway?), it's worth the visit for the picture of the new Lincoln penny redesign.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus nets 60 votes
February 14, 2009
As you probably know by now, the Jellyfish swim together, and the big old spending spree is underway.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Friday the 13th, indeed: Feds sue to shut down Clive tax preparer
February 13, 2009
Don't tell the folks at SSC Services, Inc, a Clive, Iowa tax prep firm, that Friday the 13th isn't unlucky. The Justice Department today sued the suburban Des Moines firm and two of its operators, Howard Musin and Jill Schwartz-Musin, to bar them from preparing tax returns.
According to the complaint filed today in U.S. District Court in Des Moines, the firm fabricated deductible expenses for its clients, which included a number of Shaklee distributors. From the Justice Department press release:
The complaint also alleges the couple claim fabricated business expenses on customers’ returns—sometimes for tens of thousands of dollars—in order to reduce their taxes. The suit alleges the couple improperly claimed business expense deductions on customers’ returns for costs of such personal items as clothing, hair care, nail care, use of tanning salons, a hot tub, furniture in a vacation home, gifts to family members and vacation trips to Sweden and Cancun, Mexico. In what the complaint calls an egregious example of misconduct, the couple allegedly claimed business deductions on one customer’s return for wedding expenses that included payments for flowers, photography and makeup.
A "supporting memorandum" filed with the case says that the firm's owner pleaded guilty in 2000 to criminal charges relating to return prep, and that she hired another person to prepare and sign returns:
After serving her criminal sentence, Schwartz-Musin enlisted Musin to prepare and sign fraudulent tax returns. During a recent series of 168 audits of Defendants’ customers by IRS agents, 98 percent of the returns that SSC Services prepared and Musin signed contained significant errors.
Among the alleged errors are deductions for "image" expenses:
Musin and Schwartz-Musin encouraged their customers to deduct as business expenses personal expenditures made to benefit the customer’s personal appearance, including expenses associated with hair care, nail care, tanning, and personal clothes. Musin and Schwartz-Musin falsely claim that because many of their customers sell cosmetics, they are “selling an image” and that, consequently, they may deduct “amounts spent to maintain a professional image” as valid business deductions. To the contrary, personal expenses such as hair care, nail care, and clothing are not deductible for a cosmetics salesperson just as they are not deductible for anyone else.
It's an interesting concept. For most tax people to maintain the image customers expect, we should be able to deduct beer, cheeseburgers, Doritos and things that stain our ties and shirts, but that doesn't sound wise.
A federal injunction action is not exactly what a tax preparer wants to see as tax season starts to really heat up. The firm's clients have apparently already recieved extra unhappy attention from the IRS.
Additional coverage already at the Des Moines Register.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus: the car thingie
February 13, 2009
I'm remiss in not mentioning the fate of the proposed deduction for interest and sales tax on new cars in the conference version of the stimulus monstrosity. Originally proposed as an above-the-line deduction for interest and taxes on new autos, it is now cut back to a deduction for sales and excise taxes only (still above the line). It applies to new vehicles weighing up to 8,500 lbs (helping to move that Hummer inventory), motorcycles and motor homes (Remember, if you live in the motor home, you can deduct the interest, too!). for calendar-year taxpayers, it applies to 2009 purchases.
Like so many lame tax breaks, it phases out at higher income levels - starting at $125,000 for unmarried filers and $250,000 for joint filers. It doesn't apply to any part of the the taxes attributable to a purchase price over $49,500.
Oh, and The TaxProf reports that the House has passed the bill, 246 Ds v. 176 Rs and 7 Ds. It's now in the hands of the Senate Jellyfish Caucus.
UPDATE, 3:45 p.m.: C-span says Senate vote slated for 4:30 pm Central. Will the Jellyfish hold together?
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
One more thing: 2009 estimated tax payment relief
February 13, 2009
I almost forgot to mention an odd little item of individual tax relief in the conference version of the stimulus monstrosity: limited relief for 2009 estimated tax payments for individuals with business income.
Most individuals avoid estimated tax underpayment penalties by paying in combined withholding and estimated payments either
- 90% of current year tax, or
- 100% of prior year tax (110% for those with prior year adjusted gross income over $150,000).
The bill has a provision for 2009 only reducing the 100% and 110% amounts to 90%. It applies to individuals with 2008 AGI up to $500,000 who had more than 50% of their 2008 income from a "small business." It leaves it up to the Treasury to certify what income is treated as from the a small business, defined as one with fewer than 500 employees. (Sec. 1212 of conference bill).
Link • Comments (5) Bookmark: del.icio.us • Digg • reddit
Stimulus fatigue
February 13, 2009
Well, that's it for this morning's analysis of the conference version of the stimulus bill. There's more there, but mostly dumb individual credits and targeted benefits that don't much affect business tax planning. If you don't find what you want, there's a place on the web to design your own stimulus benefit. It may not make the final bill, but it will make as much sense as most of what does.
We'll monitor the bill as the day goes on. Meanwhile, back to tax season.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus conference OID relief comes up short
February 13, 2009
The conference version of the stimulus monstrosity provides a narrow break for corporations that issue "applicable high-yield debt obligations." The tax law normally haircuts interest deductions for corporations on certain debts that carry an interest rate six or more percentage points higher than the applicable federal rate. The bill provides limited relief (Section 1232) for some obligations issued from September 1, 2008 through December 31, 2009.
The bill (Sec. 1231) also gives taxpayers with debt forgiveness income the option of taking the income into account over a five-year period. If the debt forgiveness creates an original issue discount obligation, the OID deduction would also be deferred.
This bill fails to address the obscure tax issue that makes it difficult for banks to liquify by selling off bad loans: the "Cottage Grove" income recognition rules of Regs. Sec. 1.1001-3. These rules cause phantom income to anybody who buys a bad loan and restructures it. It works like this:
- I buy a bad loan from Sadder and Wiser Bank. The loan has a face value of $100,000, and I buy it for $50,000, which is what the bank thinks it is worth.
- I then sit down with the debtor, and we figure out a way for him to pay off $70,000 of the $100,000 balance. We rewrite the debt to reflect a $70,000 balance, and he agrees to resume making payments on the $70,000 balance, at the old interest rate.
Under this deal, the debtor has $30,000 debt-forgiveness income (which the conference bill would allow him to defer over five years), but I have a $20,000 gain on a "deemed" sale for $70,000 of the bad loan I bought for $50,000. That gain, of course, comes before I see a dime from the debtor. The conference bill does nothing to fix this foolish Treasury policy, a policy that makes it harder for banks to liquify their troubled loan portfolio.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus conference bill keeps $250,000 Section 179 deduction through 2009
February 13, 2009
No surprise here. The Section 179 deduction has been scheduled to decline to $133,000 in 2009. The conference version of the stimulus monstrosity (Sec. 1202) keeps the $250,000 limit for 2008 in place through the end of this year.
Link • Comments (2) Bookmark: del.icio.us • Digg • reddit
S corporation built-in gain break in stimulus conference bill
February 13, 2009
The strange relief provision for some S corporation built-in gains made it into the conference version of the stimulus monstrosity.
The S corporation built-in gains tax (IRC Sec. 1374) applies a 35% tax when an S corporation takes "built-in gains" into income. "Built-in gains" are items for which a former C corporation had accrued economic benefit on the day its S corporation took effect, but which had not been recognized for tax purposes. For example, if the corporation had a piece of land worth $100,000 on the day it became an S corporation, and the land had a basis of $80,000, there would be a "built-in gain" of $20,000.
The Sec. 1374 tax normally only applies to a corporation's built-in gains taken into income during its first 10-years as an S corporation. The bill (bill Sec. 1251) temporarily reduces this ten-year "built-in gains period" to seven years for built-in gains recognized in 2009 and 2010. For 2009, that benefits corporations that made S elections effective in 2000-2002; in 2010, it would help S elections made in 2001-2003.
Why? Apparently S corporations that made their elections effective from 2000-2003 hold the key to economic recovery.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Bonus depreciation in conference stimulus bill
February 13, 2009
The conference version of the stimulus monstrosity extends the 50% bonus depreciation through 2009; it had expired at the end of 2008. It also gives corporations another chance to accelerate AMT and research credits in lieu of bonus depreciation (Sec. 1201 of the bill).
Under 50% bonus depreciation, a taxpayer gets to deduct half of the cost of an asset purchase in the year of purchase; the remaining 50% would be depreciated under the usual depreciation rules. For an asset with a five-year life, that means the taxpayer recovers 60% of the asset cost in the first year in computing taxable income (50% + 1/5 x 50%).
Link • Comments (5) Bookmark: del.icio.us • Digg • reddit
Stimulus conference bill has AMT patch
February 13, 2009
The conference version of the stimulus monstrosity "stimulates" us by including the alternative minimum tax "patch" for 2009 that was sure to pass eventually anyway. The bill (Section 1012) prevents the AMT from applying to 20 million or so new taxpayers by increasing the AMT exemption for 2009 to $70,950 for joint filers and $46,700 for unmarried taxpayers. Absent Congressional action, the exemption would fall to $45,000 for joint filers and $33,750 for unmarried folks.
The bill also extends the rule that allows a bunch of personal credits to apply in computing AMT, including the dependent care credit, the credit for the elderly and permanently disabled, the education credits, and the credit for "nonbusiness energy property."
Link • AMT • Comments (2) Bookmark: del.icio.us • Digg • reddit
Bank bad debt built-in loss notice repealed effective for 2009
February 13, 2009
As expected, the conference version of the stimulus monstrosity reverses Notice 2008-83, but only as of January 16, 2009 (Section 1261 of the conference bill).
More on Notice 2008-83 here.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
5-Year NOLs for businesses with 3-year gross receipts averaging up to $15 million
February 13, 2009
As rumored yesterday, the stimulus monstrosity conference negotiators trimmed back the provision that would allow businesses to carry net operating losses back five years, instead of the normal two years. The conference bill only allows businesses with average gross receipts for the prior three years of up to $15 million to carry back losses five years, and now the five-year carryback only applies to 2008 losses (years beginning or ending in 2008 for fiscal-year filers).
Individuals who generate 2008 NOLs via sole proprietorships or from pass-through entities will be eligible for the five-year carryback if their gross receipts, including their share of the pass-through entity's gross receipts, meet the $15 million limit.
So large businesses who are struggling for cash to avoid layoffs and keep the doors open, and who right now could really use some of the taxes they paid during the good times, are out of luck, because the government wants to keep their money to "create jobs." Score another moronic victory for the Jellyfish Caucus.
How does this work for alternative minimum tax?
The five-year carryback is allowed for computing AMT, but the 90% limit of Section 56(d)(1)(A)(i)(II), which keeps taxpayers from completely eliminating prior year liability with an NOL carryback, remains in place for the five-year carrybacks.
UPDATE: more on the NOL provisions
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
$15,000 homebuyer credit not in conference bill
February 13, 2009
The $15,000 credit for buying a principal residence that was in the Senate version of the stimulus monstrosity died in conference. There is no "Section 25E" credit in the new bill.
The conference bill instead increases the existing "first-time homebuyer" credit to $8,000, from the prior $7,500, and extends the deadline to buy the house an extra six months, to the end of 2009.
The bill has a very strange provision. The existing credit, as enacted in Code Section 36, requires the credit to be repaid over 15 years, so it functions as an interest-free loan instead of a straight subsidy. The new credit gets rid of the repayment requirement, but only for homes purchased in 2009. Those who bought their "first" homes after the April 9, 2008 effective date, but before 2009, remain on the hook. Sorry, chumps!
The conference bill allows homebuyers to use the credit if they buy a home financed with mortgage revenue bonds, but only starting in 2009.
UPDATE, 2/17: more here.
Link • Comments (4) Bookmark: del.icio.us • Digg • reddit
Friday the 13th: Stimulus day!
February 13, 2009
It's all stimulus today at the Tax Update Blog, as the Senate Finance Committee has posted the "Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions" of the "stimulus" monstrosity. They posted it after my bedtime last night and will try to have a vote today. Assuming a vote by 3 p.m. Eastern, they have, starting at 8:00 am Eastern, 43.8 seconds to read, ponder and debate each page of this 575-page "Division B" of the bill.
The Tax Update team will be reading and posting on the tax pieces until I get through them. Keep checking back. Check out the Tax Prof's roundup in the meantime.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Happy Birthday, Abraham
February 12, 2009
Today is the anniversary of Abe Lincoln's birth in Kentucky. Among his lesser-known works are the first U.S. Income Tax and the appointment of the first Commissioner of Internal Revenue. Lincoln's initial tax had a top rate of 5% on incomes over $10,000.
Letter from Treasury Secretary Chase to President Lincoln recommending George Boutwell as the first Commissioner of Internal Revenue. It is not believed that failure to report personal use of autos affected any of Lincoln's cabinet appointments. Click here for full-size image.
Greatest president? Maybe. George gives Abe a good run for the money, but I could be giving too much weight to Washington's pre-presidential career. Anyway, Lincoln was by far the better tax litigator.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
5-year NOL carryback limited to businesses with less than $5 million revenue?
February 12, 2009
As part of the diabolical plot to convince us that we sent 535 (or so) morons to do our business in Washington last November, it appears that the 5-year NOL carryback will be limited to businesses with only $5 million or less of revenues - meaning it applies to only a very small segment of the losses incurred by businesses in 2008-2009. The conference committee working out the details of the "stimulus" debacle has apparently so agreed. (UPDATE: The final bill has a $15 million revenue cap, and only applies to 2008 losses).
It's odd, because the loss carryback is one of the pieces of the bill that is arguably "stimulus" that could actually enter the economy by the end of this year.
We don't have the text of the bill, so it's not clear how this will be applied to owners of pass-through entities that generate losses. We'll be following developments closely.
UPDATE: For what it's worth, here is the "bill status widget" from opencongress.org for HR 1:
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
It's good to be missed
February 12, 2009
As you may have noticed, the Tax Update is back after a bout with the flu or something. I had shots, so it can't really be the flu, can it? So the traffic here is up about 10% from normal on the days I'm home sick and silent. Hmmm.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
2001 Allianz Champion faces tax charges.
February 12, 2009
Jim Thorpe faces a penalty much more severe than a loss of a stroke.
The winner of the inaugural Allianz Championship in West Des Moines (now the Principal Charity Classic) is charged with four counts of failure to file returns and three counts of failure to pay taxes on $5.2 million of income from 2002, 2003 and 2004.
It appears that Mr. Thorpe's attorney is already preparing a Geithner defense:
Thorpe's attorney, Mark Horwitz, said his client plans to plead not guilty."We look forward to having a trial," Horwitz said this afternoon. "We don't think he's willfully violated the law. That's not to say he doesn't owe the tax; but we don't think he's guilty of a crime."
Horwitz called the facts outlined in the charges "the government's spin."
"I think the timing of it is sort of interesting in the sense of what we've just seen coming out of Washington with a Cabinet secretary and some other Cabinet-level appointees," he said, referring to the tax troubles of some of President Obama's nominees.
The maximum penalty for the charges would be seven years in prison and fines of $3.2 million; federal sentencing guidelines would call for a 41-51month sentence for a tax loss that size, not taking into account aggravating or mitigating circumstances.
The TaxProf has a roundup, and Peter Pappas has more.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Tax Update downed by virus!
February 11, 2009
The old-fashioned analog kind. Look for normal operations to resume tomorrow.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
How would the $15,000 home purchase credit work?
February 09, 2009
Based on questions we've received in the comments and on conversations outside the office, a lot of people are excited about the proposed one-year $15,000 tax credit for buying a new principal residence. Oddly, the questions I've gotten in person are from people building or buying a house already, which tells you that the credit will mostly reward folks for doing what they would do anyway.
Keeping in mind that this hasn't been enacted and may not be, we'll tackle some of them. You can read the available statutory language here.
I am having a little difficulty understanding the 'Limitation Based on Tax Amount' section. With the previous tax credit, you would actually receive the $7,500 less any tax liability. Meaning if you owed the $1,500 in taxes, you could receive back $6,000.Does this work in the same manner?
The proposed new credit is limited to your actual tax liability. If you don't have $15,000 in federal taxes, you can't use the full $15,000 maximum credit. You can split the credit evenly over two years, starting with the year you purchase the house, to maximize the use of the credit. Unlike the first-time homebuyer credit, it is non-refundable, but it doesn't have to be repaid (although the House stimulus bill would repeal the requirement to repay the first-time homebuyer credit).
I'm building a house already. Can I get the $15,000 credit?
If you move in after the date of enactment, Yes! At least as it is written now. The proposal uses the language of the D.C. homebuyer tax credit, which considers a home under construction to be "purchased" when you move in (IRC Sec. 1400C(e)(2)(B)):
Construction. A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence.
So if this passes, the law rewards you for building the house you've already started. Stimulus, indeed!
My home was financed through mortgage revenue bonds. I was not eligible for the $7,500 credit. Will I be eligible for this new $15,000 credit? Thanks so much for any help!
Under the proposal as written, houses financed through mortgage revenue bonds would be eligible for the credit. If you have already purchased the house, though, you will not be eligible for the credit; if passed in its current version, it will only apply to houses "purchased" within one year of enactment.
WARNING: This credit hasn't passed, and it might not pass. It's only in the Senate bill, which will have to be reconciled with the House bill. We'll be keeping an eye on it.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Fraud in the old hometown
February 09, 2009
This week's fraudulent tax preparer roundup at Russ Fox's place features a preparer who had an office just a few blocks from my urban-pioneer sister's house. Dewayne Preacely, who ran three tax preparation offices, including one at the 1400 block of Washington Street in Waukegan, IL, pleaded guilty to preparing false tax returns with fraudulent deductions:
According to court documents, Preacely was responsible for filing false tax returns of at least 67 clients from 2003 to 2006.The returns had false information regarding deductions, business losses, dependents and child-care expenses, which allowed Preacely's clients to fraudulently claim tax refunds.
The office is in what passes for a historic neighborhood in Waukegan, as Jack Benny grew up there; he lived in the house marked "A" on the map below. The Personal Tax office is on the block labeled "B." Ray Bradbury also spent his childhood in this neighborhood.
By the miracle of Google Street View, you can see the block where Personal Tax was located. You can see why they located there, considering the other fine professional services providers on the block.
In spite of their difficulties, it appears that Personal Tax soldiers on, at least on the web ("You Relax, Let Us Do The Tax!"). I don't think I'd want to be one of the personal references listed on the site (Tight on cash, refer some friends and Rack in the Dough!!!!).
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
Arthur's dead, but its tax shelters litigate on
February 09, 2009
A U.S. District judge in California last week ruled that another "Son of BOSS" tax shelter - this one marketed by the late Arthur Andersen firm, lacked economic substance. In addition to denying the shelter benefits, the court smacked the participants with the 40% penalty for valuation misstatements.
Court victories for the mass-marketed tax shelters of the 1990s and early 2000s are thin on the ground.
Links:
Link • Tax Shelter News • Comments (0) Bookmark: del.icio.us • Digg • reddit
S corporation banks: got TARP yet?
February 09, 2009
The Iowa Banking Law Blog reminds us that the deadline for S corporation banks to apply for TARP money is this Friday, February 13.
Related: Treasury issues terms for S corporation bank TARP funding
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Bargains abound in a depressed real estate market
February 06, 2009
It looks like you can practically steal the capital city of Tennessee at an IRS auction, if you can get it for close to the minimum bid:
I suspect this is somehow the work of a notorious Knoxville law professor.
Here's a screen grab in case the IRS tries to hush this up.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Nominee tax problems: scandal, or trivial pursuit?
February 06, 2009
While there has been a lot of gleeful piling on related to the Obama nominee tax troubles, there is some dissent. Howard Gleckman at TaxVox says:
In truth, if most of us had our returns picked over this way, we too would be fingered as tax scofflaws, or perhaps as suckers who paid more than we owed.
Reason blogger Katherine Mangu-Ward notes:
Should you be tapped for higher office, this is a brilliant path to shame and ruin for you, your family, your party, your president, and yes, your nanny. Yet for all of your peers, it is simply normal conduct.
Not all tax sins are created equal. The "offense" of Nancy Killefer -- a $298 nanny tax underpayment that she had made good a long time ago -- is laughably trivial, except that it cost Ms. Killefer ner nomination. If sins that trivial disqualify you from office, we might finally achieve a sensibly small government because they won't be able to staff it. The problems of the Labor Department nominee's husband are likewise minor.
The Geithner and Daschle problems are at a different level. Mr. Geithner, who will be in charge of the IRS, after all, should be held to a higher standard. The importance of the Treasury position in the current financial crisis might justify cutting him some slack, but botching his employment taxes on his IMF job after being warned repeatedly and in writing of the issue is the tax equivalent of running red lights all the way through town. At the least it makes you question whether his judgment is all that it is cracked up to be.
Mr. Daschle's problem is significantly worse. Not only did he ignore an issue -- personal use of company cars -- that is constantly asserted against small business owners; he failed to report $80,000 in cash income. Coming from a man who as senator talked loosely about enforcing tax laws "to the letter" and throwing scofflaws in jail, it shows a level of arrogance and hypocrisy that should disqualify him.
Not all tax problems are equal. At the moment the politicians can't distinguish the trivial from the serious. Until that changes, folks wanting a high government office should have their heads examined, not their tax returns.
Related: DASCHING AWAY FROM TAXES
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
When you have a tough problem to solve, hire somebody who works cheap.
February 06, 2009
BenefitsBlog has the latest on price controls for executives of companies taking money from Uncle Sugar. Of course when you are trying to keep a multi-billion dollar financial institution off the rocks, you don't want to pay much.
Price controls always backfire, but this may have an unintended benefit: it will finally give corporations a good reason not to take government money. Heck, lower the comp limit from $500,000 to $1.98 then.
TaxGrrrl has more.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulus gone bonkers
February 06, 2009
It's not as if we haven't been "stimulating" for a long time. The Treasury Inspector General for Tax Administration released a report on how well the continuing "stimulus" of the Earned Income Tax Credit, a sort of negative income tax for low-income earners, is going:
The report concludes that the IRS has successfully developed processes to identify erroneous EITC payments prior to their issuance to taxpayers. However, the IRS estimates that between $10 billion and $12 billion in erroneous EITC payments were made in Tax Year 2006. This estimate was based on data for Tax Year 2006, which was the latest data available at the time the audit was conducted. The IRS received $43.7 billion in EITC claims during that time.
This is a preview of how well "stimulus" is likely to be spent and how well "targeted" tax provisons hit their mark.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Koko Taylor's got a right to sing the blues...
February 05, 2009
...because the Tax Court ruled today that the IRS may proceed to collect her unpaid federal taxes by levy.
From the opinion (footnotes omitted)
Both petitioner and respondent repeatedly commented on petitioner’s stature as a beloved and well-known professional singer as support for their respective positions in these consolidated cases. We disagree with both parties insofar as they contend that a taxpayer’s celebrity status is somehow relevant to what this Court must do in deciding whether the Commissioner’s collection action may proceed. Every taxpayer, no matter how famous or notorious, has a legal obligation to honestly report and pay his or her income tax liability each year and is entitled to fair enforcement of Federal tax laws. A taxpayer like petitioner whose business income is generated by performances must carefully comply with estimated tax requirements. The record establishes that petitioner had outstanding tax liabilities for 1998, 2000, and 2001 because she did not make required estimated tax payments when due and that respondent did not abuse his discretion in determining that the filing of an NFTL was appropriate and that respondent may proceed to collect petitioner’s outstanding tax liabilities by levy. Respondent gave petitioner ample opportunity to rectify her failure to pay estimated tax when due and considered petitioner’s collection alternatives in accordance with applicable administrative and legal requirements.
Professional musicians are sometimes more musicians than professionals, at least when it comes to the business side of the job. It can be a lot to manage, and it doesn't always work out well.
Cite: Taylor, T.C. Memo 2009-27
Links:
UPDATE: The TaxProf says sees the wording of the decision as a rebuke to Daschle, Geithner, et. al.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Stimulating the stupidity sector, housing edition
February 05, 2009
The Senate has added a new one-year tax credit on the purchase of new homes to the "stimulus" mish-mosh. The credit would be 10% of the purchase price of any principal residence, up to $15,000, and it would be available for one year starting with the date of enactment of the bill.
So how did we get to this crisis again? Didn't it have to do with an unsustainable housing bubble inflated by government subsidies provided to people who could barely afford the houses they were buying? I'll have another round of that!
This is just so... wrong. So we have a one-time spiff. Will this stop the collapse in inflated housing values? It goes away after one year. That means every buyer will know that the $15,000 prop won't be there when they go to sell, so they won't pay any extra for the house just because they have a subsidy now.
At best, the spiff will be a windfall for those looking for a house now. It might persuade some fence-sitters to make the plunge before the subsidy goes away. It will allow some folks to buy more house than they could otherwise afford, setting up the next round of credit failures.
And who's to complain? I mean, besides those of us who don't plan to buy a house in the coming year, who get to pay for it (along with our grandchildren and great grandchildren)? Oh, and landlords, who have to price their empty units against yet another homebuyer subsidy.
But hey, it's bipartisan! Proposed by a Republican and approved by voice vote! Showing once again that when both parties get together, they're just ganging up on us.
Update: I see Tyler Cowen is already on this.
Update II: No, it doesn't have to be paid back (responding to question in the comments). As I can't find a link to the text of the text of the credit amendment, I'm reproducing it below.
UPDATE III: We answer your questions on the credit.
Link • Comments (7) Bookmark: del.icio.us • Digg • reddit
Politician tax compliance: The Maule proposal and the Kristan amendment
February 05, 2009
As tax compliance among politicians seems to be out of control, something must be done! Professor Maule has some worthy thoughts:
Over the years, I have suggested that members of Congress be required to do their own tax returns. My rationale is that if these folks were compelled to suffer through what other taxpayers must endure they might think twice before using the tax law to accomplish what ought to be handled by the Department of Energy, the Department of Commerce, the Department of Education, and a long list of other agencies that somehow cannot achieve their objectives without assistance from the Internal Revenue Service. Until now I haven't embellished my suggestion, but perhaps it makes sense to explain that after members of Congress prepare their returns, they would be examined by tax professionals before they were filed. Otherwise, there's too high a risk that all or nearly all of the returns would be wrong. I don't think I'd permit them to use tax return preparation software, because I don't want them to have a scapegoat for their return preparation inadequacies.
The proposal is fine as far as it goes, but it fails to take advantage of modern technology to provide transparency and immediate feedback to the process. Not only should congresscritters do their own returns, they should be required to do them via a live webcast. A comment bar would run along the page enabling viewers to comment on the work in process.
Unlike Dr. Maule, I would not only allow them to use tax software, I would mandate it - with the input screens and output available in real time as part of the webcast. Of course, all 1099s, W-2s and the like should also be electronically accessible to webcast viewers. The whole webcast would also need to be available for review permanently on the Library of Congress servers. Of course the webcast would also let us look at their telegenic faces as they try to figure out how to report their spouses' lobbying income.
Sure, it would be a loss of privacy for the congresscritters, but considering the information they make us share with the government, it's only fair. And they would benefit from an Army of Davids Maules providing real-time review and (surely gentle) real-time correction as they make mistakes on their filings.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Where are my 1099s?
February 05, 2009
Getting antsy for your 1099s? Relax. They probably haven't been sent yet. Thanks to the complexity they added to the tax law, Congress has extended the mailing date to February 15 for brokerage and mutual fund composite 1099 forms.
The TaxGrrrl has more.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Equal justice, Treasury style
February 05, 2009
Tim Geithner screwed up his taxes. When caught, he wrote a check for the taxes, without penalties, for the years not yet past the statute of limitations. He then became head of the Treasury, which makes him second only to the President in the tax administration chain of command.
How does it go for lesser Treasury employees when they botch their taxes? Like this:
Had Geithner been working at the IRS, here is what he could have expected for being suspected of shorting the government tens of thousands of dollars in payroll taxes: He might have been rousted from bed before dawn in a commotion that terrified his children and embarrassed his wife when it awoke the neighbors. He would have been treated like a scheming criminal and, while not subjected to what the Bush administration euphemistically called "enhanced interrogation techniques," he would have been scared enough to suffer a stroke or heart attack, like some of those grilled by the agents from the Treasury Inspector General for Tax Administration.
This is from David Cay Johnston's Tax Notes column ($link), reproduced this week with permission of Tax Analysts by the TaxProf. Read the whole thing.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Sink 409A!
February 05, 2009
A call to action by Southern Illinois University professor William Drennan against the code section voted "worst of the Bush era" (via the TaxProf).
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Interest deduction for car buyers?
February 04, 2009
Like every stimulus bill, the current one promises to stimulate the tax preparation business. The Senate yesterday voted to add an above-the-line deduction for interest on loans to buy new cars.
Which only makes sense. The economic crisis was largely caused by reckless government-subsidized borrowing. Let's do some more of that! Like so many other misguided tax subsidies, this would phase out at higher income levels, adding still more complexity to the tax law. But it will be just the ticket to enable some buyers to move up to a Lexis from a Toyota, which is what this country really needs.
To his credit, Senator Grassley opposed the bill. The TaxGrrrl has some more thoughts.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Vive la difference
February 04, 2009
Lee Sheppard ($link):
What's the difference between Michael Phelps and former Senate Majority Leader Tom Daschle, who on February 3 withdrew from his nomination for health and human services secretary? Both engaged in behavior that is inconsistent with the deal they made with the public.Phelps acted inconsistently with his highly marketable hero status. Daschle betrayed the public trust by failing to report fairly large amounts of income. Phelps, however, is endangering only his future income stream. While Daschle cost himself some money, to be sure, he also put much more in play. As information dripped out about the holes in Daschle's tax returns, he put the credibility of the entire Obama administration to the test.
What's the real difference between Mr. Phelps and Mr. Daschle? One engaged in reckless, arrogant and antisocial behavior, and one just smoked dope.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
'If that's his goal, he may want to get some new glasses.'
February 04, 2009
The Tax Policy Blog comments on Tom Daschle's decision to not be a "distraction."
Link Bookmark: del.icio.us • Digg • reddit
We missed the party...
February 04, 2009
...but the 16th Amendment, which paved the way to the modern income tax, turned 96 years old yesterday.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
The Tax Lawyer's guide to bad news
February 04, 2009
Peter Pappas has a great guide to typical IRS notices, from worst to not-so-bad.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Estate planning is a valuable f'ing thing. You don't just give it away.
February 04, 2009
Roland Burris, Estate Planner?
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Tax Update: the Grand Forks Herald of blogs
February 04, 2009
By daily visits, according to Gongol's EconDirectory.
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
Another heartbreaking filing season horror story
February 03, 2009
Through a mysterious anomaly in the Internet two entries in the TaxGrrrl's contest for worst tax filing horror story ended up coming to the Tax Update instead. That probably disqualifies them from the free Turbotax copy she's giving as a prize, so I am reprinting them here.
I was once one of the most powerful men in the country. That entitled me to a limo and a driver. The pay wasn't so great, but my wife more than made up for it because people just fell over themselves to hire her.Then the voters of my Podunk state disappointed me and I was out of a job. Of course I'm not going to move back there. One of my very good friends set me up with a great job where I pretended not to be a lobbyist. The pay was good, the work was easy, and I got a car and driver. And the best part: he never 1099'd me, so it was tax-free!
But once you've serviced, er served, the public, it's in your blood. So when I got an offer to work for the President, I was game. But then they tell me I have to pay taxes on the cash, car and driver, even though I never got a 1099. What's up with that? I was disappointed, needless to say. But the President had somebody tell me I had to act sorry and pay up, so I do. So far, everything's cool.
Then some woman who got nominated for some "performance officer" job drops out just because she didn't pay $298 in taxes on her baby sitter. Like it's 1993 or something. That just cut me off at the knees. What can I do? They tell me I'm toxic and I have to withdraw my name. And now I still have to pay all of these taxes, even though I never got a 1099. Is that right? I've never been more disappointed.
If I win the Turbotax, you aren't sending me a 1099, are you?
The Dash.
You can read the other misdirected entry here.
Link • Comments (3) Bookmark: del.icio.us • Digg • reddit
A tax filing horror story
February 03, 2009
Tax Grrrl is collecting tax filing horror stories. The winner of her contest gets a free copy of TurboTax. Through some inexplicable Internet glitch, a couple of the entries ended up coming to me. They're fascinating. Here's the first one.
You won't believe my tax filing horror story. I went and got Turbotax. I even got the current one, though I still had my copy from the year before, and it still worked just fine.I sat down to do my return, boring stuff. I punched in the W-2 and all the other crap. I knew that there was no FICA and Medicare withheld from my checks, and I got all this BS paperwork saying I would have to pay tax on it, but Turbotax didn't say anything about it. I thought, that's cool, and I filed it that way.
A few years later I get offered a great government job. Some dweeb asks to see all of my tax returns, and sure enough, he says I was supposed to pay the tax. WTF??? So I call a CPA - I hate using them. I'm smarter because I always come up with a better number than those pansies. He says I have to pay up. So now it ends up in all of the papers and I have to write a big check.
Still, I got the job. If I win, you can keep the Turbotax.
Tim
I'll post another one soon.
UPDATE: the other misdirected entry.
Link • Comments (1) Bookmark: del.icio.us • Digg • reddit
Here they come to bury the survivors.
February 03, 2009
Governor Culver signed a bill yesterday to allow an accelerated process for voting approval to local sales tax increases "to help pay for recovery efforts" from last summer's floods and storms. The first votes could be as early as March 3.
It will be interesting to see how the votes come out. If I were trying to rebuild a flood-damaged house or business, it wouldn't be immediately obvious to me that paying higher sales taxes would help. It wouldn't be too cynical to think this is really about helping the politicians get more money in a hurry.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Sometimes it's income even when it isn't paid
February 03, 2009
Politicians are making news for not paying income tax on cash they received. In Tax Court last week, a corporation was told that it had to pay income on cash it didn't receive.
Trinity Industries, a manufacturer of big stuff, including barges, sold barges to two companies. Part of the purchase price was due right away, with the rest due in 18 months.
Deferred payment sales can sometimes be treated as "installment sales," and the gain is only reported when the payments are received. The tax law doesn't allow installment sales treatment to apply to manufactured goods, so normally the entire gain on the barge sales would be reported in the year the sale closed.
Trinity got into a dispute with the barge buyers, and the buyers withheld part of their contract price. The company argued that it didn't have to pay tax on the income that the buyers were disputing. The Tax Court ruled that Trinity's dispute with the buyers had arisen under a different contract, and that withholding the payment should be viewed much as if Trinity had received the payment and then remitted an offsetting payment in the first dispute.
The Moral? It's tough to defer tax on a sale of ordinary income property.
Cite: Trinity Industries, Inc., 132 T.C. No. 2.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Six More Weeks of Winter Carnival
February 03, 2009
The Groundhog Day edition of the Carnival of Taxes is up at Kay Bell's place.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Why would I think it was a problem?
February 03, 2009
The annoying habit of saying "no problem" instead of "you're welcome" comes under deserved attack today at IowaBiz.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Guys Gone Missing!
February 02, 2009
Joe Francis, the "Girls Gone Wild" guy awaiting trial on tax charges, failed to show up for a hearing in federal court today, so there's a bench warrant out on him. As a service to law enforcement, here's what he looks like:
He's the tall one in the brown shirt.
UPDATE: He showed up five hours late and was arrested. His lawyer said he was ill, but he must have not had a note.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Dasching away from taxes
February 02, 2009
Another Cabinet nominee is finding public service to be unexpectedly expensive. Tom Daschle had to write a $140,000 check to the IRS as his entry fee to the HHS Secretary job.
The Senate Finance Committee report says that the former South Dakota Senator paid up because of three, er, "mistakes" on his 1040s:
- He failed to pay tax on the value of chauffeur and car services provided by a private equity fund run by a big Democratic fund raiser.
- He also failed to pay tax on $80,000 cash he received from the same fund.
- He claimed a bunch of charitable contributions that weren't to actual charities.
People can be too hard on politicians when they run into tax problems. John Edwards' use of an S corporation to reduce his self-employment liability strikes me as routine tax planning. Al Franken's failure to file returns in all of the states where he did comedy shows highlights the expense and difficulty small businesses face every day with the states as they become more rapacious in going after non-residents. Sarah Palin came under a fire for her per-diems, but while it showed incompetence in Alaska's payroll processing, it was really just a pretext for feigned partisan outrage.
This is different. Small businesses get audited every day on personal use of cars. Most businesses are painfully aware that there are at least tax issues involved in personal use of vehicles; how can a Senator who writes the tax laws miss the boat? And failing to report $80,000 of cash? How do you miss that? You aren't surprised to hear the "no 1099, no taxes" excuse from somebody who takes cash on the side for odd jobs, but from a former Senator? Especially a former Senator who threw lots of stones from his glass house.
As bad as these tax problems are, they highlight a worse scandal: how Senators like Mr. Daschle and Iowa's Tom Harkin become millionaires on their $174,000 Senate salaries via their wives' "lobbying" jobs. When Rod Blagojovich pointed out that a Senate seat is "a ... valuable thing," he knew what he was talking about.
It does imply an explanation for an odd Washington phenomenon: millionaire Senators supporting higher taxes on millionaires. They just don't think they'll ever have to pay them. And unless they want a cabinet job, maybe they're right.
Additional coverage:
TaxProf, plus more TaxProf.
Kay Bell
Tax Grrrl
Peter Pappas
Instapundit is all over this, in too many places to link to.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Corporate welfare: the solution to state budget problems?
February 02, 2009
State revenues are down all over the country. So does this mean politicians are slashing futile and optional "economic development" giveaways to protect schools, health care and essential state services?
It is to laugh.
The Wall Street Journal reports that instead of cutting corporate welfare, "More States Considering Tax Breaks to Woo Jobs." The first example they cite: "Under Gov. Jon Corzine, a Democrat, New Jersey has promised to send small businesses a $3,000 check for every new hire."
New Jersey ranks dead last in the Tax Foundation's index of business tax climates. With a ridiculously aggressive collection program, high rates, and confusing rules, they expect to turn the economy around with a $3,000 spiff that promises to be complex and nearly impossible to administer.
But nobody calls a press conference to brag about all the jobs that have left a state because of a bad tax system. They only issue press releases when they bribe a business to relocate. So the circular firing squad of state economic development programs just reloads.
Source: The Tax Foundation
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Winter shutdowns
February 02, 2009
The Great Lakes Shipping Season closes in January when the Soo Locks are shut down for the winter. Likewise, the New Jersey tax blogging season closes when The Wandering Tax Pro disappears into his Garden State hermitage to deal with tax season. He's one of the very few remaining preparers who eschews computers in preparing returns. With my penmanship, that was never an option.
View of the Duluth Ship Canal via their webcam this morning.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Getting back your taxes at IowaBiz
February 02, 2009
I have a new piece up at IowaBiz, the Des Moines Business Record blog for entrepreneurs, on using losses to recover prior taxes.
Link • Comments (0) Bookmark: del.icio.us • Digg • reddit
Tax Updates
Subscribe to Tax Updates
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Search Tax Updates
Friends and Neighbors
Economics Nerds
Hard-Core Tax Nerds
Gigablogs
Insurance Folk
Goners
Legislation
Tax Update Data Feeds
