Tax Update Blog: May 2009 Archives
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Happy 529 College Savings Day!
May 29, 2009
Iowa State Treasurer Michael Fitzgerald has designated today as "529 College Savings Day."
College savings is on my mind right now, as Dan, the older of my two kids, graduates from high school Sunday. He will be pursuing Jazz Studies at Chicago's DePaul University. Hey, we can't all be accountants.
Rob and Dan
Iowa gives an individual deduction for contributions to College Savings Iowa, the state-sponsored Sec. 529 plan. I'm glad I selected their Vanguard "life-cycle" funds, which go progressively to bonds and cash as the beneficiary gets closer to college age -- leaving Dan's college funding in good shape in spite of the stock market debacle.
With family coming to town, posting may be spotty until Tuesday. Have a great graduation weekend. Enjoy Dan's last tune with his high-school Jazz Orchestra in the meantime:
Related: College Savings Iowa: a 529 with an Iowa tax bonus
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Because NASCAR is more important than your business
May 29, 2009
Wouldn't it be nice if the state forced your customers pay extra for your product, but let you keep the money? Wouldn't it be even better if they forced your competitors to also charge extra, but kept the money?
That's the sweet deal Iowa has given the Iowa Speedway in Newton. What's more, the benefit can now go primarily to out-of-state investors:
To attract initial investments, the state offered to give back the first 10 years worth of sales taxes as long as the track remained 60% Iowa-owned. The legislation signed by the governor reduces that to 25%. The sales tax break is capped at $12.5 million.
The Knoxville racetrack has to get by without that sweet deal, as does every other business competing for Iowans' leisure spending. It's good to have a corporate welfare enabler like State Senator Bill Dotzler on your side:
Dotzler, who holds season tickets at the Iowa Speedway, says without more outside investment the facility won't grow. "They've had some great races there and they've got great, nationally-known people who designed it, built it and are managing it," Dotzler said.
Mr. Dotzler seems to support every wacky idea that comes along, from the Earthpork jungle dome to taxpayer subsidies for struggling companies like Microsoft to Iowa's 50% subsidy for Hollywood.
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It happened in Elevator #1
May 29, 2009
Breaking news from the TaxProf:
Worker Faces 10 Years in Jail for Peeing in IRS ElevatorAccording to this affidavit filed on Tuesday in U.S. District Court in Michigan, an IRS worker faces ten years in prison for repeatedly urinating in the elevator at the IRS Service Center in Detroit and causing $4,626.25 of "deep cleaning expense."
Another argument for electronic filing?
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Obstructionist Republicans Obama appointment quagmire claims tax policy nominee
May 29, 2009
Anyone waiting for coherence in the Obama administration tax policy will just have to keep on waiting:
Elizabeth Garrett withdrew as President Barack Obama’s nominee to be his administration’s top tax-policy official, continuing a vacancy at the Treasury Department that may undercut his tax agenda.Garrett, 45, would have served as assistant Treasury secretary for tax policy. She cited “aspects of my personal family situation” for her decision in a statement last night.
Another victim of those stupid conservative obstructionists, surely:
Jeff Trinca, a tax lobbyist at Van Scoyoc & Associates in Washington who became friends with Garrett when both worked on Capitol Hill, said she wasn’t willing to undergo the rigorous vetting process Obama has imposed on his nominees following the administration’s early stumbles.“The nomination process has gotten so harsh that good people like Beth are unwilling to put them and their families through the wringer,” Trinca said.
It's amazing how those Republicans have so thoroughly infiltrated the Obama personnel selection team.
Via the TaxProf
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The big honking tax increase trial balloon
May 29, 2009
Like me, Christopher Bergin of Tax.com sees the Washington Post's article praising the Value Added Tax, or VAT, as a trial balloon floated by the Obama administration:
I think this administration lusts for a VAT. And to get myself in real trouble with my friends, I think Fox News got it right in saying the Post story floats a trial balloon for the VAT.
But Mr. Bergin remains unimpressed by the VAT frenzy:
In parts, the Post story absolutely gushes over the wonders of the VAT, saying it's "one of the world's most popular taxes." Now there's an oxymoron if I've ever heard one; like a welcome poke in the eye with a sharp stick.
Now there's a vivid image.
The VAT has advantages, the Post piece proclaims. It's "hard to dodge." Talk to the Brits about how badly their VAT system leaks. "It punishes spending rather than saving." That's true, and it can punish those who can least afford to spend the most. But the best line goes as follows: "And the threat of the VAT could pull the country out of recession, some economists argue, by hurrying consumers to the mall before the tax hits." Wow, now that's great tax policy: Buy now because soon you won't be able to afford anything.
So if the VAT hits the little guy, why does the administration that said it would never raise taxes on 95% of us lust to do just that?
Most of the folks currently in charge of our government don't just want big government, they want HUGE government. President Obama's proposals currently would add almost $10 trillion to the national debt in ten years. And that buys a lot of government. And it's probably just a start.
That, of course, is just a longer way of saying this:
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E-mail tax? Good luck collecting.
May 29, 2009
One Edward Gottesman, "a lawyer and chairman of an international investment company," proposes a tax on email to raise money and "curb spam." Dr. Maule is not impressed. He starts with an obvious point:
Gottesman presumes that spammers will gladly pay the tax, or pay it at all. The same skills that spammers use to work around spam filters and to hide their identities will be put to work finding ways to avoid the tax. The last time I checked, the OECD does not have a bureau of tax collectors nor a standing army.
There is, of course, the little problem of the technological absurdity of the project, too.
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Installment sales and the Iowa capital gain deduction
May 28, 2009
Iowa's "ten and ten" capital gain break eliminates the tax on certain capital gains on property held for ten years by a taxpayer who has also "materially participated" in the business for ten year. The state has issued a ruling explaining how it works for installment sales when the seller dies during the installment period, and the installment receivable goes to a trust with the taxpayer's spouse as the beneficiary:
Therefore, since the taxpayer is still receiving this capital gain income from the trust and the taxpayer met the ten year ownership and ten year material participation test at the time of the installment sale, the taxpayer is still entitled to claim the Iowa capital gains exclusion.
But while that works if the spouse is the trust beneficiary, it doesn't work if the beneficiaries are the materially-participating taxpayer's children:
Finally, you are correct that upon the death of the taxpayer and the subsequent distribution of the taxpayer and trust shares of the capital gains to the children of the deceased, these capital gains reported by the children would not qualify for the Iowa capital gains exclusion since the material participation and holding period requirements were not met by the children at the time of the original sale.
Cite: Policy letter 09201020
Related: IOWA CAPITAL GAINS DEDUCTION: WHAT IS MATERIAL PARTICIPATION?
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Plan to disclose large tax subsidies creates controversy
May 28, 2009
The recently-signed legislation to disclose the names of taxpayers who get more than $500,000 in research credits from Iowa has created some controversy, as discussed by the Des Moines Register:
Any business that collects more than $500,000 in refunds through the tax break will be made public, beginning with taxes filed on or after July 1.That's problematic because it tips off competitors about trade information that could harm the business, several business advocates said. It could also make Iowa a less attractive place to do business, one said.
"It won't stop research but it's going to change how companies plan for that research and may impact whether or not it's done in Iowa or somewhere else," said John Gilliland of the Iowa Association of Business and Industry.
The research credit is "refundable," which means that if it exceeds your tax bill for the year, the state writes you a check for the excess. This happens a lot.
The only "trade information" that's likely to be disclosed is how aggressive companies are in calling things they do anyway "research" to qualify for the credit. Far better to repeal Iowa's futile corporation income tax and the research credit giveaway together.
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$100 million: easy come, easy go.
May 28, 2009
Back in 2005 we noted a taxpayer victory in Tax Court on a transfer-pricing and research credit case that saved the taxpayers $120 million in taxes and penalties.
Never mind. An appeals court panel in the Ninth Circuit reversed the decision and found in favor of the IRS. The taxpayers lawyers may have still earned their fees, though, as the appeals court didn't think the $20 million penalty was necessarily in order:
When even the government has found it necessary to clarify the regulations, we have our doubts that imposing a penalty on taxpayers for their failure to follow the letter of the law is appropriate. On remand, the tax court may also consider any defenses Xilinx raised against the Commissioner's imposition of accuracy related penalties.
Cite: Xilinx Inc. et al. v. Commissioner; Nos. 06-74246, 06-74269
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We're all a little stupider for hearing this argument
May 28, 2009
Did he really say this with a straight face?
Gains in the S&P 500 over the last few months are more than enough to offset the adverse effect that President Obama's 2010 budget proposal might have on charitable giving, said Jeffrey Liebman, executive associate director of the Office of Management and Budget, on May 27.
Mr. Liebman is referring to a plan to cap the value of the charitable deduction at 28 percent to pay to destroy health care for everyone. It's a foolish proposal anyway, considering the complexity it adds to tax computations (if you really want to limit a deduction at a certain rate, just make it a credit).
To argue that recent gains in the stock market have anything to do with determining proper tax policy is so off-point that calling it a non-sequitur seems inadequate. Would a decline in the stock market justify creating a bonus deduction so you could get, say, a 50 percent benefit for a charitable deduction? If so, the rate ought to be about 90 percent, considering what's happened to the market in the last year.
As soon as he made that argument, a buzzer should have sounded, summoning rodeo clowns to hustle him from the room.
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Can you rule the world from jail?
May 28, 2009
The IRS is touchy about people who collect withholding and don't remit it. So touchy, in fact, that they'll even imprison the king of the world:
Frank L. Amodeo, an Orlando businessman who thought he had the powers of an Old Testament prophet and that he one day would rule the world, learned Tuesday where he'll spend his next two decades: in prison.A federal judge in Orlando sentenced Amodeo to 22 1/2 years behind bars for cheating the government out of $181 million in taxes. In addition, Amodeo was ordered to serve three years probation and pay $181 million in restitution.
Mr. Amodeo is 48, so he will be 70 before he can resume his quest for world dominion.
Peter Pappas has more.
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Get ready for the big honking tax increase II
May 27, 2009
Tax Update, 5/15/2009:
Get ready for a big honking tax increase - through "cap-and-trade," maybe through a "value-added tax," and maybe an income tax surtax.
Washington Post, 5/27/2009:
With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity. ...
There's another way to avert fiscal calamity: spend less. Spending less isn't on the agenda.
Hat Tip: TaxProf.
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What kind of parole violation would get Marion Barry put away?
May 27, 2009
Former D.C. Mayor Marion Barry didn't bother to file his tax returns for 2000. He was sentenced to three years probation. He was required to catch up on his old returns on time as a condition of his probation.
In 2007 a judge declined to revoke probation even though the former mayor hadn't gotten around to filing his 2005 1040.
He was late getting around to his 2007 return too. No matter; the judge last week declined to even require home confinement for Mr. Barry. She only extended his probation two more years.
Mr. Barry left the courtroom, perhaps to celebrate.
Mr. Barry has been very fortunate to violate parole twice and still enjoy the comforts of home. Still, he would be well-advised to not invite the judge over for pizza.
Link: Prior coverage.
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Single-sex marriage: tax pitfalls and opportunities
May 27, 2009
Roger McEowen taxes a shot at the tax consequences of single-sex marriage in Iowa. He points out some of the tax pitfalls, many due to the non-recognition of those marriages under federal law. Yet other opportunities arise because federal tax law related party rules don't apply.
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Corporate welfare publicity not retroactive
May 27, 2009
From the Des Moines Register:
One controversial provision vetoed in part by the governor included a provision to Senate File 478 that requires the state’s revenue department to release the names of businesses that receive more than $500,000 in refunds through a research tax credit program. Culver vetoed the retroactive language, meaning that businesses that file for such tax breaks in the future will be open to public records but not those filed before the bill was signed. Culver said he feared the information might affect taxpayers’ due process rights and lead to a lengthy court challenge.
It will be interesting to read how the state writes big checks to corporations - some of whom surely receive more in Iowa research credits than they pay in Iowa taxes. If you are writing big checks to private parties, it's nice to at least know who they are, but it would be better not to write the checks in the first place.
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Pirates of the Upper Mississippi
May 27, 2009
Arrgh! A Dubuque woman will go away for six months for software piracy. A Department of Justice press release says she made $85,000 selling illegal software copies online.
Six months isn't exactly a picnic, but it could have been worse.
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Signs of the times
May 26, 2009
Here's a blog that I hope can go dormant soon: Unemployed in Des Moines. From its initial post:
Hello, and welcome to Unemployed in Des Moines. I've been out of work since the beginning of February and over the past couple of months while looking for a job/career/work, I've realized two things:1. The unemployed (myself in particular!) need and want to talk about their situation. Although my husband and friends have been a huge support, there's something therapeutic about talking with someone in a similar position.
2. I've attended many networking events, joined a few clubs and created one of my own. I'd like to share future events that I know about with you so that you can take advantage of them. If there is an event that you know about, please share it on this blog.
Sadly, there should be no shortage of material.
(Via LinkedIn.com)
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IRS cancels web upgrade after spending $19 million
May 26, 2009
Remember how we were going to get online access to our tax account information? Well, never mind:
After spending two years and $19.5 million to develop its new website, the IRS has canceled the project six months before its scheduled completion date
For that kind of money, I'd have failed at least twice as fast.
In unrelated, but not really unrelated, news, Obama Set to Create A Cybersecurity Czar With Broad Mandate. Because the government is so good with this internet stuff. Especially internet security issues.
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You gotta believe...
May 26, 2009
...in the federal income tax.
Former 1969 New York Met pitcher Jerry Koosman has pleaded guilty to failing to file his 2002 tax return. Based on the sketchy information in the linked article mentioning "IRS Codebusters," I am guessing he fell for a tax protester pitch. The U.S. Attorney press release makes it look that way:
Finally, when interviewed during this federal tax investigation, Koosman was asked why he had not filed federal income tax returns for the years 2002-2004. He responded by stating that no law existed requiring him to file a return, that the filing of tax returns was voluntary, and that the Internal Revenue Code only applied to federal employees, corporate employees, and residents of the District of Columbia.
While I remain bitter about the 1969 Mets, it's still sad when someone is naive and foolish enough to risk prison by believing the tax protesters. Whether ex-Cub Ron Santo said "Yesss!" on hearing the news was not reported.
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Of course he's a flight risk. He's a pilot.
May 26, 2009
A pilot who claimed that he didn't have to pay taxes because he's not a citizen has fled the country to avoid prison:
Robert Mauro, a 52-year-old American Airlines pilot, fled the country attempting to dodge prosecution. His extradition from the United Kingdom was filed by the attorney general’s office in 2008 and he returned in 2009. Mauro admitted to willfully failing to file a tax return for the 1998 tax year and that he attempted to evade the payment of income taxes for tax years 2000 to 2001.
So if he's not a citizen, what passport did he use to get into the U.K.?
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Navel gazing: trackbacks return; link updates
May 26, 2009
We've tweaked a few things here:
- I have re-opened trackbacks. Trackbacks enable people who link to a post to put a link to the linking post at the bottom of the linked post - similar to a comment. I turned them off some time ago because all of the trackbacks I ever got were spam. In theory, they're a great way to help bloggers communicate, and to encourage back-and-forth traffic between blogs. In practice it doesn't always work that way, as you have to take the extra step of "pinging" the blog to make the trackback work.
We'll see how it goes; I have cleared my first spam already. I invite anybody linking to a post here to use it. I invite spammers to take a soothing kerosene bath while enjoying a relaxing cigar.
- I updated the blogroll. New additions include The Bean Walker, a Drudge Report-format blog for Iowa news; Tax.com from Tax Analysts; and Monica Lawver, The Tax CPA, a working-from-home CPA based in Dayton, Ohio.
Finally, a mystery resolved. We got a lot of visitor traffic here during tax season from "The Other McCain," a prominent right-side blog. I was mystified, as I didn't see any post where he seemed to reference me, but it was tax season, so I didn't spend a lot of time on it. Now I have stumbled on the answer. I never imagined the Tax Update would be mentioned in the same breath as high blog visitor traffic; we're an acquired taste at best. So you're welcome, Robert Stacy McCain, and thank you.
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Have a great Memorial Day Weekend!
May 22, 2009
Spare a thought for those who made it possible.
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You're broke? Prove it.
May 22, 2009
If you make a deal with your credit card companies to reduce your balances, you are also making a deal on behalf of the IRS. A Californian with staggering credit card debt learned this lesson earlier this week from the Tax Court.
Angela Bibb-Merritt ran up over $112,000 in credit card debt financing a business that failed. She hired a debt-relief outfit and got $10,888 of the balance forgiven. As required, the credit card companies issued her a Form 1099-C reporting the income to her.
The tax law normally requires you to pay tax on debt forgiveness income. The traditional loopholes out of this treatment are bankruptcy and insolvency. If you have the debt forgiven in a bankruptcy proceeding, it's not taxable. You are insolvent for purposes of the tax law if your debts exceed the fair market value of your assets; debt forgiveness is tax-exempt to the extent of your insolvency.
Working out a deal with creditors outside of court is not a bankruptcy proceeding. Ms. Bibb-Merritt pleaded insolvency, but the Tax Court said she failed to prove her point:
Petitioner testified that she was insolvent in 2005 when these debts were canceled. The Court advised petitioner that consideration of whether she was insolvent required a review of her assets and liabilities at the time of the discharge. Petitioner provided some information about her debts in 2005, as described above, but she did not introduce documentary evidence or testimony sufficient to determine the fair market value of her assets.The record does not demonstrate that petitioner was insolvent before the debt cancellation. Thus, petitioner failed to prove that she was insolvent at the time the debt was canceled.
I wouldn't be surprised if the taxaper really were insolvent. Unfortunately, she failed to put together the personal financial information she would need to prove it to the IRS and the Tax Court.
The Moral: If you are negotiating a debt settlement, talk to a tax pro. If you are insolvent, make the effort to document the case. Credit card debt can be tough enough without running up a tax bill, too.
Cite: Bibb-Merritt v. Commissioner; T.C. Summ. Op. 2009-78
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Good advice when selling a business
May 22, 2009
From Steve Sink at IowaBiz.com:
Check with your accountant for the best way to structure the sale. Allocation of the sale price can produce major tax savings, C Corporations have the possibility of double taxes, stock or asset sale. Remember, it is not what you sell if for, it is what you get to keep!
Just one tip of many; read the whole thing.
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So how's that Ethanol Economy thing coming along?
May 22, 2009
Times continue to be tough for the ethanol industry. Gasoline demand continues to fall and corn prices remain relatively high. In April, Aventine Renewable Energy Holdings, an Illinois-based ethanol producer, filed for Chapter 11 (reorganization) bankruptcy, and the largest West Coast ethanol producer, Pacific Ethanol, Inc., filed Chapter 11 on May 18.
Des Moines Register: Iowa farm values drop another 7%
Oh, and Ethanol Bankruptcies Continue Apace.
It's an economic development bonanza!
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They celebrate Festivus in Iran?
May 22, 2009
If they do this, maybe there is something to their reform government:
"Grievance Day scheduled for May 27 in Persia"
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Finally, tax increases that will hit Congress
May 21, 2009
Congress seems dead set on doing for your health care what it is doing for the auto, banking and housing industries, but it needs more money to do it to you. Among the policy items up for consideration:
- Capping tax-free employer health benefits.
- Soft drink taxes.
- Tobacco taxes.
- Alcohol Taxes.
This will put the taxpayers in the perverse position of needing to risk their health to pay for health care. But there is one comforting thought: alcohol taxes are among those hardest for our elected officials to avoid:
And thank you in advance, Sens. Kennedy and Dodd, for personally raising enough tax money so that Little Jimmy can finally get that operation. Indeed, you probably raised enough just by the end of that closed-door (hic!) meeting.
A grand tradition going back to the days of Wilbur Mills!
Kay Bell has more.
Link: Senate Finance White Paper on health care tax increase options.
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Memorial Day Weekend Cavalcade!
May 21, 2009
A new Cavalcade of Risk is up at The Sentinel Effect.
There's always lots of good stuff at this collection of insurance and risk-management blog posts. I like Bob Vineyard's discussion the the government's increasing dependence on nicotine and alcohol.
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Sinking in the West
May 21, 2009
California voters have decided that they don't care to pay more taxes to bail out their feckless politicians. How feckless? This feckless:
It's not surprising that Californians feel a bit overtaxed:
Source: The Tax Foundation
Will it get any better? The TaxGrrrl thinks not:
Cuts are inevitable now. So are higher taxes. Just months after California cut billions in spending, raised the state sales tax by a penny, borrowed and yes, begged, from the federal government, the state is expected to once again raise taxes. This time, income taxes are the likely target.
Californian Russ Fox thinks the voters who rejected their tax increases meant what they said:
Voters told Sacramento in no uncertain words it's time to cut programs, and spend only the money you have. It will be interesting to see if the Democrats in control of both houses of California's legislature get the message.
Expect variants of the "Washington Monument Ploy," named after the trick of shutting down the most visible and popular programs to shelter the less visible wasteful spending. Look for Charles Manson to be put up for work release.
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What's wrong with a little corporate welfare?
May 20, 2009
There's no such thing as bad free beer. Is there such a thing as a bad tax cut?
Surprisingly, yes. Not to the person who gets it, certainly, but to the person who doesn't.
If you had two widget makers in town and the city decided that ABC Widgets was tax-exempt, that would sure be a bad tax cut from XYZ Widgets point of view. The break would do for ABC all the good things tax cuts do, but it would stick it to competing XYZ and its employees.
This might seem like an extreme example, but it happens every time the Department of Economic Development allocates special tax credits to a company for building a new facility and "adding jobs." That break by definition hobbles competing companies and their workers; worse, the competitors have the privilege of paying extra taxes on behalf of the favored taxpayer.
A tax break doesn't have to be bad policy just because it goes to a business with direct in-state competitors. It's just as destructive if you tax one industry to subsidize another one. Iowa does that in a big way, taxing the rest of us to subsidize wind farms, ethanol plants, and, especially, movie makers.
There are always seductive arguments for any special tax break. Who doesn't want to have some big stars hanging out at the local A&W? Why not just throw some tax credits at them?
- It's a process that rewards industries with political clout, rather than potential profitability.
- It gives legislators and bureaucrats the power to allocate investment capital. Nobody who works with the legislators can possibly think that's a good idea.
- It drains funds from non-favored businesses, weakening them in favor of the ones with good lobbyists.
- The breaks often motivate taxpayers to find ways to get breaks from things they already do, rather than to do new things.
- Every tax break makes it that much harder to fix the broken tax system. Once somebody gets a tax break, they hate to give it up, even if doing so would make for a better tax world.
Backers of the tax breaks also ignore the opportunity costs involved. The tax credit transferred to filmmakers doesn't just come out of thin air. It comes out of taxes paid by somebody else who needs that money just as much as some carpetbagging production company from L.A.
Link: Film Tax Credits: Lower Taxes for Celebrities, Higher Taxes for You
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Senate approves unintended consequences, 90-5
May 20, 2009
The financial supergeniuses in the U.S. Senate have voted to make it harder for poor folks to get credit.
Here's what the politicians say they have done:
This effort requires new rules of the road that will protect consumers from predatory and unfair lending practices. Credit card reform is a key part of increasing those consumer protections– protections against deceptive and complex rules, from sudden rate hikes to hidden fees that have hurt millions of responsible borrowers.
Here's what they're really doing with the new law, and with new credit card regulations:
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”
In other words, people who pay their bills on time will subsidize deadbeats. It's the Hope and Change economy!
Here are the unintended consequences:
I'm one of those people that pay the entire balance every month to avoid paying any interest, and being told I've been taking a free ride all these years does not soften me up to pay my supposed fair share to support the credit card system. I just won't use the card if that's the deal. I'll switch to a debit card or pay cash.
The new rules prevent banks from properly charging the high credit risks. When the good credits stop using credit cards, declining to subsidize the bad credits, the banks will just have to not issue cards to risky borrowers if they want to stay in business. That means more customers for the payday loan and car-title loan people. Everybody loses, except for the politicians who will talk about how much good they've done for you, and the loan sharks.
Update: Similar thoughts here.
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If it's not repossessed, you're immune from arrest?
May 20, 2009
Now here's an interesting defense to a tax evasion charge, from attorney Ed Hinson:
"The last time I checked it wasn't a crime to drive nice cars," Hinson said in a hallway of the federal courthouse uptown. "He's always made his car payments."
So making car payments is a defense against tax evasion charges? If you aren't paying taxes, it would make it easier to pay for your cars.
The defendant is Bishop Anthony Jinwright, a man of the cloth, but not of cloth seats. It doesn't appear that Rev. Jinwright is accused of having nice cars, which would be an easy charge to prove:
The indictment lists ownership in a BMW 530i, a Mercedes-Benz S550V, five (yes, five) Lexus vehicles, a Bentley GT and a Maybach 57 (worth $250,000). Leases during that same time included a Cadillac, an Acura, a Volkswagen, a Maxima, a Durango, a Neon and a Toyota.
Rev. Jinwright is accused of evading taxes for five years.
Another pastor rises to Rev. Jinwright's defense:
"The press told us of the cars, of the houses, of the perks, but told us nothing of the ministry that has occurred over a 28-year period," Woods told his congregation on May 3. "We heard nothing of the baptisms, the weddings, the funerals, the hospital visits, the Bible studies, the sermons or the new church that was built since Bishop Jinwright came to Salem."
I wonder if you feel more saved if you are baptized in a Bentley.
Flickr Creative Commons photo by jorbasa
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IRS Issues June 2009 Applicable Federal Rates (AFR)
May 20, 2009
The IRS has issued (Rev. Rul. 2009-16 the minimum required interest rates for loans made in June 2009:
-Short Term (demand loans and loans with terms of up to 3 years): 0.75%
-Mid-Term (loans from 3-9 years): 2.25%
-Long-Term (over 9 years): 3.88%
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.
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California: knocking on that golden door, but nobody's answering
May 20, 2009
Megan McArdle explains:
California is completely, totally, irreparably hosed. And not a little garden hose.
All of the tax increases went down in yesterday's referendum. The Governator has hit the wall.
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Department of Revenue keeps dropping its bucket in the dry wells
May 19, 2009
Iowa's fiscal situation continues to worsen, reports State Auditor David Vaudt:
While the federal stimulus money rescued the budget this year, it is being used to finance ongoing programs that will cause big budget headaches in the following year, when Vaudt said the budget shortfall is projected to reach $1 billion.Looking at next year's budget, Vaudt said the state will collect $5.8 million in taxes, but lawmakers ended up spending $6.6 billion. They covered that gap with $529 million in stimulus money, and transferring another $317 million from other special state funds such as a cash reserve fund.
Iowa's deficit is certainly not due to a lack of wasted effort on behalf of the Iowa Department of Revenue. The department has just issued another round of notices looking for unreported income based on attempts to match state returns with federal 1040s.
This is a huge waste of postage and manpower. Many of these notices are being sent to taxpayers who have received similar notices for the prior two tax years, and who ended up demonstrating that they had filed their original Iowa returns correctly. Now Iowa is back for a third try at taxpayers who have already twice cleared themeselves.
It is also rude, abusive and expensive. Each notice requires the taxpayer to spend time or money reporting information. If they need to ask for this information year after year, they should have changed their forms by now to gather the needed information in the beginning. I have personally suggested such a change to the Director of the Department. He must have forgotten to write it down.
Or maybe this is just part of the state's job creation strategy. They provide paychecks to state employees to send out pointless notices, and revenue to tax preparers to respond to them. The only losers are the taxpayers.
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The BOSS's son is a ne'er do well
May 19, 2009
The "Son of Boss" tax shelter has had a rough time of it in court in the last few days.
On Friday the Fifth Circuit Court of Appeals joined other appeals courts in ruling that the widely-marketed tax shelter lacks economic substance. The shelter used offsetting option positions and a partnership to create artificial losses. The Treasury describes the shelter:
In one variant of this transaction, a taxpayer purchases a call option and simultaneously writes a similar offsetting call option. The offsetting option positions are then transferred to a partnership. Under the position advanced by the promoters of this arrangement, the taxpayer purports to have a positive basis in the partnership interest equal to the cost of the purchased call options, even though the taxpayer's net economic outlay to acquire the partnership interest and the value of the partnership interest are nominal or zero. This is because they claim that the taxpayer's basis in the partnership interest is not reduced for the partnership's assumption of the taxpayer's obligation with respect to the written call options. This artificially high tax basis in the partnership is then used to claim deductible losses (that can be used to shelter other income) by immediately selling the taxpayer's partnership interest, even though the taxpayer has incurred no corresponding economic loss.
It has fared poorly in the courts, including yesterday in the Tax Court. There a gentleman who used a Son-of-BOSS transaction to try to wipe out a $60 million capital gain came to grief. When the IRS disallowed the losses, he tried to get off on a technicality: that the Final Partnership Administrative Adjustment disallowing the loss wasn't adequate notice from the IRS. The Tax Court wasn't buying:
Petitioner waited until the partner-level proceeding, instead, to argue that the FPAA did not provide him adequate notice. He makes this argument despite the multiple determinations in the FPAA that disallow all tax benefits of the tax shelter. Petitioner's participation in a complicated basis-inflating tax shelter belies his naivete. Petitioner purchased a packaged tax shelter involving several sophisticated transactions to avoid paying taxes on a $60 million gain. He received the advice of multiple professionals, including counsel, regarding this purchase.
Bottom line: $12 million in additional taxes.
Cites:
Klamath Strategic Investment Fund, CA-5, No. 07-40861
Napoliello, T.C. Memo 2009-104
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Michigan: poster child for economic development incentives!
May 19, 2009
Michigan may be the most aggressive user of the Iowa strategy of high tax rates with lots of "targeted" tax subsidies to favored industries. So how's that going?
Michigan's major economic development tool has produced only about 24,000 new jobs over its 14-year life, a Free Press examination has found.
AdvertisementState officials also say the program -- tax incentives granted for jobs that are created or saved -- has retained more than 43,000 positions.
The state, however, has shed more than 700,000 jobs since the decade began. In March of this year alone, 25,000 people in Michigan joined the unemployment rolls.
Of course Michigan's problems go much deeper than the tax structure, but at best the "targeted" approach is spitting into the wind. By making it harder for the non-favored businesses to survive and compete, the state's high rates probably chase away far more jobs than the corporate welfare attracts. When you lose 700,000 jobs, attracting 25,000 others isn't that impressive.
Via Tax Rascal's Twitter feed
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Now maybe I want an iPhone
May 19, 2009
The Complete Internal Revenue Code for the iPhone. Don't leave home without it!
Via the TaxProf.
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More is less
May 19, 2009
Maryland imposed an additional tax on high-income earners. How did that work out?
On May 13, Maryland Comptroller Peter Franchot (D) wrote in a letter that the number of tax returns reporting income over $1 million has dropped by a third. More to the point, revenue from those earners has dropped by $100 million.
Oops.
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Some people just can't tell good IRS jokes
May 18, 2009
Sometimes even the best joke is out of place when told by the wrong person. A trial judge probably shouldn't indulge in electric chair humor from the bench. Layoff humor is unwise for CEOs of struggling companies. And whole classes of professions should stay away from the rich vein of death humor.
President Obama jokingly said he would have the IRS audit the Arizona State University board of trustees after they failed to vote him an honorary degree. Not everybody appreciated the joke:
Made by Jay Leno it might have been funny. But as told by Mr. Obama, the actual president of the United States, it's hard to see the humor. Surely he's aware that other presidents, most notably Richard Nixon, have abused the power of the Internal Revenue Service to harass their political opponents.
Of course, Nixon was a piker compared to a President considered a role model for the current one:
One of the most brazen instances of a political vendetta during a Presidency was the Roosevelt Administration's attack on Andrew Mellon. No historian has been able to determine why Mellon so enraged F.D.R., but there is speculation that the New Deal President saw the millionaire who served as Republican Treasury Secretary from 1921 to 1932 - a time of Wall Street excesses followed by the Great Depression - as the symbolic enemy. Nor has a document emerged that directly links Roosevelt to the decision to go after Mellon.Elmer L. Irey, head of the criminal division of the Treasury's tax enforcement branch in Washington from 1919 to 1946, acknowledged in his 1948 autobiography that Treasury Secretary Henry Morgenthau Jr. ordered him to develop tax charges against Mellon even though he, Irey, knew that the former Treasury Secretary was innocent.
The world could use more humor, but President Roosevelt probably spoiled the IRS audit joke catalog for his successors.
Additional coverage:
And more from Althouse, with a good comment discussion.
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IRS allows suspension of plan contributions
May 18, 2009
BenefitsBlog reports:
The IRS has come up with some new rules to "ease the pain" of these dire economic conditions and has issued some proposed regulations allowing employers to reduce or suspend their 401(k) or 403(b) safe harbor nonelective contributions mid-year in the case of a "substantial business hardship described in section 412(c) [of the Internal Revenue Code]." The IRS notes in the preamble to the proposed regulations (in today's Federal Register) that the new rules will "provide an employer an alternative to the option of terminating the employer's safe harbor plan in such a situation."
The IRS does require 30-day advance notice.
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IRS boosts its sex drive?
May 18, 2009
It's hard to tell when a few headlines become a trend, but the IRS seems to have developed a fetish for paid sex.
Last week the Justice Department announced a 58-count indictment of alleged Florida brothel operators for, of all things, failure to withhold employment taxes. While I'm no expert on this, I don't think that business is about withholding anything.
Now comes news from Texas of a sentencing of another alleged pimp:
Randall Bradley Jones, who authorities say cheated the Internal Revenue Service out of taxes on income from his six houses of prostitution, on Friday was sentenced to 33 months in federal prison and ordered to pay $15,000 restitution.U.S. District Judge Melinda Harmon sentenced Jones, who pleaded guilty in February to one count of tax evasion for failing to inform the IRS of about $665,962 in cash he acquired.
The $665,962 number makes you wonder about their price structure. $2?
An IRS spokeswoman offered som helpful advice:
IRS spokeswoman Robin Sabin of Houston said that even income derived from illegal activities has to be reported to the IRS.She suggested Schedule C for the small-business owner and the 1040 line “other income” for the freelancer. “You should report your ill-gotten gains just like you report any legal income,” Sabin said when Jones entered his guilty plea.
I wonder if there is a NAICS code for that business?
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You mean buying stock of a doomed company is a less-than-prudent investment?
May 18, 2009
The IRS has started an exam of the Chicago Tribune that could make folks reluctant to do ESOP acquisitions, especially when a struggling company is involved:
Under scrutiny is a $250-million purchase of Tribune shares in April 2007 by the company’s newly minted employee stock ownership plan. The ESOP was the first step in Mr. Zell’s privatization of the company. The IRS disclosed the audit in a motion filed Friday in Tribune’s Chapter 11 bankruptcy proceedings.IRS investigators are “attempting to determine if the transaction was for the benefit of employees,” according to a declaration filed by a Waukesha, Wis.-based agent in charge of the probe. If the IRS determines that the transaction wasn’t prudent, Tribune could be subject to an excise tax and corporate income tax for 2008, the declaration said.
ESOPs are supposed to be set up for the benefit of the employees, rather than the corporate raiders. Leaving aside the question of whether it is ever really prudent to make company stock a big part of a company's retirement package, this audit is a warning that ESOP buyouts might be getting more scrutiny.
Hat tip: Peter Pappas.
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Get ready for the big honking tax increase
May 15, 2009
President Obama says our budget deficits are unsustainable:
“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”
If you think that means he's going to spend less, you haven't been paying attention.
Get ready for a big honking tax increase - through "cap-and-trade," maybe through a "value-added tax," and maybe an income tax surtax. Just to get us through the emergency, of course.
Or, maybe he's playing the same game he did during the campaign, sounding fiscally responsible while spending like a Russian hacker with a bad coke habit who's just penetrated the IRS cash management system.
More here.
Update: here's somebody else who smells a tax increase.
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Ohio tries to be half as dumb as Iowa
May 15, 2009
The insane desire of states to subsidize Hollywood has spread to Ohio, where lawmakers are poised to subsidize 25% of the cost of films shot there. That's precisely half as stupid as Iowa's 50% tax-credit subsidy.
Ohio appears to be buying the same stupid arguments we did:
- Everyone's doing it, so we have to!
“It’s imperative,” said Ivan Schwarz, executive director of the Greater Cleveland Film Commission and co-producer of the HBO mini-series “Band of Brothers.” “Forty states have it. We don’t.
What's imperative of taking money from taxpayers and giving it to filmmakers? If other states are stupid enough to do so, that makes it "imperative" for Ohio?
Also: Jobs! Ohio proponents of film giveaways point to the subsidies offered by their neighbors in Kentucky:
And one of the state’s most vocal supporters of the incentives is first lady Jane Beshear. Proponents of the measure hope her influence with the governor will help.“The one thing she really likes about the program is that it’s a job creator,” said Todd Cassidy, director of economic and community development for the Kentucky Tourism, Arts and Heritage Cabinet.
And if that money wasn't taken from taxpayers and spent on carpetbagging filmmakers, it would just... disappear? It couldn't be spent by the businesses you're taking it from to hire people? It wouldn't be spent by taxpayers to buy things or build things? It just moves the money from jobs created in obscurity to less-productive jobs that politicians can pose with.
The Tax Policy Blog hits it on the head:
Because the costs and benefits aren’t estimated and studied—either before or after implementation—tax incentives commonly end up channeling taxpayer dollars directly into the pockets of rent-seeking film companies, generating no corresponding economic benefits on a net basis.Ultimately, the main beneficiaries are not taxpayers but lawmakers. Every incentive package that attracts a rent-seeking company allows lawmakers to make public announcements taking credit for “new jobs." Location-based incentives can therefore be thought of as a market transaction between lawmakers and film companies. Lawmakers purchase favorable media coverage for themselves, film companies accept payment for filming in economically unprofitable places, and taxpayers finance the deal. It's hard to see how that's good policy.
But it's good for the politicians, so expect it to happen.
(Article updated to clarify why the Kentucky people are involved )
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IRS releases 2010 HSA limits
May 15, 2009
The IRS has released the 2010 dollar limits and requirements for Health Savings Accounts:
The 2010 contribution limits are $3,050 for single plans and $6,150 for family plans.
You have to have a "high deductible" plan to qualify to make an HSA contribution. That's a plan with an annual deductible of at least $1,200 for single plans and $2,400 for family coverage. The plans can't have annual out-of-pocket expenses (besides premiums) in excess of $5,950 for single coverage and $11,900 for family coverage.
Link: IRS publication 969 on HSAs.
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Tips for the self-employed, and a rule.
May 15, 2009
Peter Pappas has 59 tips for the self-employed. I don't buy all of them ("Don’t work out of your home"), but they are sound overall. I especially like:
6. Don’t hire your relatives;40. Prepare a business plan;
57. Reconcile your bank accounts every month; and
58. Produce a detailed profit and loss statement every month
You can't tell where you're going if you don't know where you are.
He also has a rule, but I'm not sure how this helps most small businesses.
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Hatch sprung
May 14, 2009
The Naked Guy is now free to wear colors other than prison orange. "Survivor" Richard Hatch was released five months early on his 51-month tax evasion sentence for good behavior, reports Usmagazine.com, which says Mr. Hatch now begins a stint in a halfway house.
Perhaps next time he wins $1 million in front of the whole country, and gets a 1099 for it, he will remember to report it on his tax return.
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Teaching a lesson in piddly deductions and tax policy
May 14, 2009
The Des Moines Register notices that our crackerjack legislature has caused thousands of Iowa teachers to botch their tax returns:
Iowa educators who took a state tax deduction this year for school supply expenses will be required to pay a few dollars back to the state, tax leaders say.Iowa legislators this year declined to adopt the deduction filed by many of Iowa’s 30,000 educators, which would have allowed them to deduct up to $250 in out-of-pocket supply costs from their income.
Teachers in the state’s highest earning bracket who claimed the $250 in supply costs would pay back $22.50. Most teachers, who earn less, would owe fewer dollars back.
The Register misplaces the blame:
The high number of filing errors this year stemmed from accountants, tax preparers and tax software that assumed Iowa legislators would renew federal deductions that have been in effect in Iowa since at least 2004.
In fact, the "accountants, tax preparers and tax software" were actually doing what the Department of Revenue told them to do in an e-mail sent to preparers:
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.
They later changed their mind, but only after thousands of returns were filed.
This fiasco provides two lessons for Iowa tax policy:
1. Iowa should change its rules conforming to federal tax law to automatically adopt federal changes unless the legislature votes specifically against them. It's good tax policy to not make taxpayers compute their income two different ways, and it would avoid this sort of comedy.
2. Iowa should avoid piddly Iowa-only provisions. The cost of compliance and administration for these piddly tax payments will far outstrip any additional revenue the state will generate; if it were an Iowa only deduction, any benefit of the deduction would not worth the hassle.
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30 Months for Minnesota Bank President/embezzler/tax cheat
May 14, 2009
A former bank president in Le Roy, Minnesota, just across the border from Iowa, is going away for 30 months:
The former president and majority owner of First State Bank Minnesota also has to repay over $600,000. From StarTribune.com:
Gerald Alan Payne, 54, pleaded guilty in October to one count of bank fraud and one count of tax evasion. Payne admitted to obtaining money from customer bank accounts, charging personal expenditures on the bank's credit cards and cashing checks written to the bank and others while keeping the cash for himself. Payne also admitted he defrauded individuals for whom he served as a trustee.
If you're interested in a nice bank, this may be your chance:
Payne will sell his stake in First State Bank Minnesota to pay restitution and the taxes he owes. The estimated value of Payne's bank shares is $1.8 million, according to Robert Sicoli, Payne's attorney. He owes the IRS $474,000.
So -- why on earth did he loot his own bank? Especially considering that bank insider theft is a crime that is close to 100% certain to be detected.
Link: Prior Tax Update coverage.
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Soda Jerk Poll
May 14, 2009
Senator Harkin, who has grown wealthy on his public servant salary because of the lucrative work people just coincidentally give to his wife, thinks a junk food tax is just a swell idea.
Of course, we know why wealthy congresscritters are cool with higher taxes -- they have no intention of paying them.
Ramona Cunningham and Senator Tom Harkin at the dedication of the $1 million CIETC Tom Harkin Learning Center. Photo copied from CIETC website before it disappeared.
TaxGrrrl is running an online poll on junk food taxes, so go and vote.
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Fools in Paradise II
May 14, 2009
When they were imposing the highest state income tax rate in the country, Hawaii legislators also were busy raising their tobacco tax.
Of course, Hawaii has a reputation for growing another type of smokable diversion. That might explain how they actually ended up cutting their cigarette tax:
A mistake in a newly enacted state law is good news for pipe and cigar smokers, as well as those who use snuff and chew tobacco. The error gives them a four-month tobacco tax holiday.Legislative researchers calculate it will cost the state $400,000 in lost revenue.
The Legislature enacted the law earlier this month when Democratic lawmakers voted to override a veto cast by Gov. Linda Lingle. The Republican governor had warned the measure was filled with technical mistakes.
There's another "technical mistake":
Lingle had said there was another problem with the legislation, resulting in the tax on cigarettes being raised to 14 cents per cigarette now and then dropped to 12 cents on Sept. 30.
So in Hawaii, smoke 'em if you got 'em. But don't do anything foolish, like have taxable income there.
Via The Tax Policy Blog.
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Hey, you!
May 14, 2009
Now I'm really going to be confused:
Although my son now has the dilemma of deciding if he wants to refer to himself as "Dr. Maule," and I doubt that he will, my daughter-in-law unquestionably is "Dr. Maule." This is going to confuse Joe Kristan. Just nine days ago, in Saving the Right of States to Pick the Athlete's Pocket, he referred to me as "Dr. Maule," though he also refers to me as Jim Maule, in that post and elsewhere on his blog. He's not the only one to do so, as I have several colleagues who alternate between the two forms of address. But now that there is another Dr. Maule, or two or three (my youngest sister also has a J.D. degree) in the family, it will take a wee bit of contextual interpretation to determine which of us is getting Joe Kristan's attention. It should be an easy task, because both my son and my sister are careful, quite affirmatively, to resist any attempt to characterize them as tax attorneys though both can handle the subject well. Role modeling has its limits, I presume. Contextual interpretation also requires clarification of the word "family," for if the entire family were to be considered, Joe and anyone else referring to "Dr. Maule" could be referring to a long list of people, including Dr. Lawrence Maule, Dr. Jake Giles Maule, Dr. William Maule, Dr. Cynthia Maule, Dr. Marion Maule, Dr. Rosanna Maule, Dr. Linda Maule, Dr. Charles Maule, the long-gone Dr. Patrick Maule, Dr. Colette Maule, Dr. John Maule, or any one of dozens and perhaps more than a hundred Dr. Maules.
I actually had been trying to break the habit of calling him "Dr.," because I didn't know for a fact that he had a PhD and I'm too lazy to look it up. Yet he's just so, you know, doctoral. Maybe I'll just fall back on "that Jim guy from Villanova."
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Obama budget and net operating losses: lets do something, who knows what
May 13, 2009
If you were hoping that the Obama budget would liberalize the net operating loss rules - say, by applying the temporary five-year loss carryback period to 2009, and allowing it to apply to all businesses - keep hope alive! But don't count on it. Here is the Obama NOL proposal, in full:
The Administration looks forward to working with the Congress to make a lengthened NOL carryback period available to more taxpayers.
That's pretty wishy-washy, even by politician standards.
Link: Complete Tax Update coverage of the Obama 2010 budget tax proposals.
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Obama budget would move foreign account reporting to 1040s
May 13, 2009
The tax proposals in the Obama budget include a series of measures attacking offshore banking. One proposal would have individuals do their foreign bank account reporting with their 1040s. Under current law that reporting is done on a separate form, TD F 90-22.1, due June 30.
It probably makes sense to integrate the foreign account, or FBAR, reporting with forms that people are already accustomed to filing. It will also avoid confusion caused by the weird June 30 due date.
Link: Complete Tax Update coverage of the Obama 2010 budget tax proposals.
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Girlfriend's financial maneuvers get Cedar Rapids landlord jailed while awaiting tax evasion sentence
May 13, 2009
She was only trying to help, no doubt. But now Robert Miell gets to await his tax evasion sentence in jail. The Gazette Online reports that a judge granted a prosecution request to jail him as a flight risk:
The motion to revoke Miell's pre-sentence release and a request for an arrest warrant were unsealed in which the government alleged structuring of deposits."Intentional structuring" is when cash deposits are made in a such a way to avoid filing currency transaction reports. Any cash deposited of more than $10,000 must be reported to the government.
...
Two transactions stood out. On March 23, four deposits totaling $8,765 were made at more than one bank branch. All the deposits were made by Miell and his former employee/girlfriend, Cindi Peacock. Peacock then attempted to make one more deposit at the end of the day that would have brought the day's total to more than $10,000. When the teller asked Peacock for her driver's license to file the required report, she refused, and when the teller insisted, Peacock asked that the deposit be reversed and the cash returned.
On the following day, Peacock made two cash deposits into Miell's business account, each one minute apart, totaling $2,679.
The moral? If you want to get a teller's attention, come in four or five times in a day making $1,000+ deposits that add up to more than $10,000.
Link: Prior Tax Update coverage.
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Coralville thanks Iowa City
May 13, 2009
The vote stands. Iowa City has approved the transfer of the remnants of its retail economy to neighboring Coralville by seven votes. Coralville, home of Eastern Iowa's largest mall, voted to accept the gift by 8 votes.
Those are the margins by which Iowa City approved a 1 cent increase in its sales tax, and by which Coralville voted the tax down. No word yet on whether pro-tax forces will try to force a re-do, like they did in nearby Linn County when they turned down the tax increase the first time.
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Soda Jerks
May 13, 2009
The Wall Street Journal reports that some congresscritters are actually considering a tax on soft drinks, because they're bad for us and we're too stupid to know that without their help.
It is time for a tax on things that are much worse for us than pop. Let's start with a 100% tax on income paid to congressional spouses, boyfriends, and relatives by taxpayers with an interest in federal legislation. Congressional gifts to favored businesses, and Barney Frank's lover's gift of no oversight to Freddie Mac, are much worse for us than soda pop.
More from TaxGrrrl and Peter Pappas.
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Fools in Paradise
May 13, 2009
Hawaii has raised its top state income tax rate to 11%, the highest stated rate in the country. The legislature overrode a veto to do it. Of course, Hawaii doesn't allow a deduction for federal income tax; an equivalent rate with federal deductibility would be 15.98%. By contrast, Iowa's (too high) rate with federal deductibility is 8.98%.
How can a state with no snow removal budget, road salt expense or winter heating bills possibly need so much revenue?
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Continuing the expiring provision deception
May 12, 2009
Every administration going back to Reagan has understated the true cost of special tax breaks by pretending they will expire. This fiction reduces the stated budget cost of the breaks. Of course, these breaks never actually expire, as Congress keeps re-enacting them for a year or two at a time. They do provide a handy fund-raising tool for Congresscritters, as lobbyists have to keep returning and giving to keep their pet breaks alive.
The President of Hope and Change finds this a tradition worth cherishing, if his budget proposals are any indication. The proposal would continue through 2010:
... the optional deduction for State and local general sales taxes, Subpart F "active financing" and "look-through" exceptions, the exclusion from unrelated business income of certain payments to controlling exempt organizations, the new markets tax credit, the modified recovery period for qualified leasehold improvements and qualified restaurant property, incentives for empowerment and community renewal zones, credits for biodiesel and renewable diesel fuels, and several trade agreements, including the Generalized System of Preferences and the Caribbean Basin Initiative.
The proposals would make permanent the Research Credit, providing an important incentive for businesses to book expenses they would be making anyway as "research expenses" on their financial records, while supporting the nations' strategic research credit study industry.
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Obama budget would double information return penalties and expand coverage
May 12, 2009
Failure to file information returns can be very costly. If you don't bother to file 25 1099-MISC forms for independent contractors, you will find yourself owing $1250 - $50 per missed return.
The Obama budget proposals would double the information return penalties:
The first-tier penalty would be increased from $15 to $30, and the calendar year maximum would be increased from $75,000 to $250,000. The second-tier penalty would be increased from $30 to $60, and the calendar year maximum would be increased from $150,000 to $500,000. The third-tier penalty would be increased from $50 to $100, and the calendar year maximum would be increased from $250,000 to $1,500,000. For small filers, the calendar year maximum would be increased from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard would be increased from $100 to $250. The proposal would also provide that every five years the penalty amounts would be adjusted to account for inflation.
The new penalties would take effect in 2011.
The proposals would expand 1099 reporting to rental businesses employing independent contractors. They would also require businesses to issue 1099s to corporations; currently 1099s are issued only to individuals, partnerships and lawyers. These proposals would take effect in 2010.
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Obama budget proposes expansion of disallowance of interest for businesses owning insurance policies
May 12, 2009
Under current tax law, businesses have to reduce their interest expense deduction to the extent it's attributable to the cost of life insurance, using a pro-rated formula. Policies for officers, directors, employees and 20% owners are generally exempt from this disallowance.
The Obama budget proposals would repeal the exemption for everyone except 20% owners for contracts entered into after the disallowance is enacted.
This effective date is likely to set off a frenzy of life insurance sales activity. Be aware of the special consent and information reporting rules that already apply to life insurance on employees.
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Obama proposals: no more inventory markdowns
May 12, 2009
One of the drawbacks of LIFO inventory is that LIFO taxpayers aren't allowed to write down their unsold inventory if it declines in value. You would think that getting this ability would be some consolation to taxpayers who will lose LIFO under the Obama tax proposals.
Think again.
In addition to repealing LIFO, the Obama 2010 budget would repeal the ability to write down inventory to market. So, for example, a taxpayer with a stock of unsold 486 computers that they have written down to replacement cost would have to add back their writedowns to income over a four year period, and would be unable to recover the losses until the inventory is actually sold or scrapped. The proposal is described this way:
The proposal would statutorily prohibit the use of the LCM and subnormal goods methods. Appropriate wash-sale rules also would be included to prevent taxpayers from circumventing the prohibition. The retail method would be allowed only if the taxpayer employs the method for purposes of financial accounting.
The effective date is "taxable years beginning 12 months after the date of enactment."
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Goodbye LIFO?
May 12, 2009
The "Last-In, First-Out" inventory method allows businesses to value their inventory based on their most recent inventory purchases. The LIFO method, while often complex and confusing, provides a better theoretical income measurement than First-In, First-Out accounting -- but at the cost of building in balance sheet error. It is popular in businesses that tend to see inflation over time; it's very big among auto dealers, for example.
If the Obama tax proposals are enacted, LIFO will go the way of the Dodo for the first tax year beginning after 12/31/2011. The LIFO reserve would be taken into income over an eight-year period.
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Obama tax details target high incomes, inventories, life insurance
May 12, 2009
The details for the tax proposals in the Obama fiscal 2010 budget came out yesterday. Considering how deep the budget hole is getting, a bunch of these are likely to get enacted. A few key points:
- The Bush ordinary income rate cuts go away, and the top stated rate goes to 39.6%.
- The top stated rate is a lie; the budget restores the stupid provisions to phase out personal exemptions and itemized deductions, adding a hidden top rate at least 1% higher.
- The top rate for interest and dividends will go up to 20%, from the current 15%.
- They're going after inventories - and not just for LIFO taxpayers.
- They seem to dislike life insurance.
Today is Obama Fiscal 2010 Tax Proposal Day at the Tax Update; we'll cover some key points one post at a time. To see all of our Obama 2010 Tax Proposals coverage in one place, click here. For an explanation of how the higher rates affect taxpayers, visit The Tax Lawyer's Blog. Visit the TaxProf for a roundup of Obama Tax Proposal documents and coverage.
UPDATE. Posts so far:
Goodbye LIFO?
Obama proposals: no more inventory markdowns
Obama budget proposes expansion of disallowance of interest for businesses owning insurance policies
Obama budget would double information return penalties and expand coverage
Continuing the expiring provision deception
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Beware Zombies
May 12, 2009
Fashion and tax maven Lee Sheppard, quoted in Tax Analysts ($link):
Japan kept zombie banks alive with infusions and guarantees instead of forcing them to take the hits and closing them. Japan tried to prop up prices of equities. All of this delayed recovery. That was the lost decade. That's what America is repeating.
Just to cover the bases, we'll also go with Japan's lost decade government spending policies.
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More outsourcing in the print media
May 11, 2009
Back in the day, nobody could beat the newspapers at this; now another core competency is outsourced.
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This information would have been more useful before the sales tax referendum
May 11, 2009
You know how voters in Eastern Iowa were told that they needed to approve a sales tax increase to provide flood relief? And how the voters in most jurisdictions approved the tax?
Some of the communities that OK’d the 1 percent local-option tax — pitched as the answer for flood-related projects — will not be using the funds for flood relief because there is no need, their leaders say.
When the politicians tell you they need more money, there's a sure way to tell if they're lying: if they say they need more money.
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When does your pet tax break expire?
May 11, 2009
Roger McEowen points us to to a handy list of tax laws turning into pumpkins in the next few years, including the current 35% top rate.
flickr image under Creative Commons license courtesy Tambako the Jaguar
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Amazin'.
May 11, 2009
While I remain bitter about the collapse of the 1969 Cubs, to the benefit of the evil Mets, this is still sad:
Former All-Star pitcher Jerry Koosman plans to plead guilty to tax evasion in a federal court on May 22, according to a report by Bloomberg News Service.Koosman was charged with a misdemeanor on April 15 in a Madison, Wis., federal court for failing to file a U.S. tax return for 2002. He faces a possible prison sentence of up to one year and a $25,000 fine.
"Right now, we're working and cooperating with the U.S. Attorney's Office in Madison," Koosman's attorney, Robert Bernhoft, said. "After [May] 22nd, we'll be much freer to discuss the case."
Yes, his attorney is that Robert Bernhoft, the guy who led Wesley Snipes legal defense. It sounds like he may be taking a different approach here.
Russ Fox has more.
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Locust Street Friday
May 08, 2009
The workweek winds down downtown.
Have a great weekend!
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IRS: Law firm skips 45 quarters of employment tax payments
May 08, 2009
The IRS has sued to force a Brooklyn, New York law firm to pay over $1 million of employment taxes allegedly withheld from employees but not paid to the IRS. The complaint says the Pruzan Law Firm hasn't paid over withholdings since 1997.
Maybe the firm has just been too busy constructing its web site.
It's hard to imagine how a little law firm like that could ever dig its way out of a $1 million hole. It's a reminder that you should always pay your employment taxes, even if you have to stiff everyone else.
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Is an increase in the capital loss allowance on the way?
May 08, 2009
Two senators have proposed increasing the net capital loss deduction to $10,000 for individuals, from the current $3,000. The increase is long overdue. I expect it to continue to be long overdue.
Other than the $3,000 break, individuals can only deduct capital losses to the extent of their capital gains. Unused losses carry forward indefinitely, but some taxpayers will have to outlive Noah to use their carryforwards at $3,000 per year.
More coverage:
Kay Bell
Peter Pappas
James Maule
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Four E&Y partners convicted of promoting fraudulent shelters
May 08, 2009
Four partners of national accounting firm Ernst & Young now face federal prison after being convicted yesterday of promoting fraudulent tax shelters. The members of the now-disbanded E&Y "VIPER" group were convicted on an indictment that involved "Contingent Deferred Swap" and "COBRA" transactions. These transactions involved offsetting option or currency positions to provide tax benefits without anything really happening economically, other than fees to accountants and lawyers.
The indictment said the Jenkens & Gilchrist law firm was involved in the COBRA transactions. This can't be reassuring for others involved in the Jenkens deals.
The TaxProf has a roundup.
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Pushback on a 10.25 percent sales tax
May 08, 2009
Cook County, Illinois the highest current sales tax in the U.S., at 10.25%. Hey, that kind of politician doesn't come cheap. But there's a limit to the abuse even Chicago voters will take, and this appears to have crossed the line.
Now the county board has voted to roll the tax back to 9.25%. The board President is threatening a veto, but with Mayor Dickie Daley now backing the repeal, he appears to be wavering.
If even Cook County voters gag on a 10.25% sales tax, why does anybody think the 30% "Fair Tax" -- which would be imposed in addition to state and local sales taxes -- is a good idea?
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Another vital service funded by your tax dollars
May 08, 2009
Federal regulation of your garage sale. Fines in the thousands for selling your old kids books and toys!
Clearly, there isn't a thing the government is doing that we can afford to do without.
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Want to bring your foreign accounts in from the cold?
May 07, 2009
The federal tax law has horrendous penalties for failing to disclose foreign bank accounts. With offshore banking secrecy eroding, folks are quietly considering taking advantage of the current IRS penalty amnesty for foreign bank accounts.
Now the IRS has posted a 30-question FAQ on offshore accounts. Question 12 has a nice example showing how a taxpayer with a $1 million offshore account that has earned $300,000 in interest would fare under the amnesty - total taxes and penalties of $386,000. If they fail to disclose and the IRS discovers the account, the total taxes and penalties could reach $2,306,000 - pretty stiff for a $1 million account.
Via the TaxProf. More on the amnesty offer here.
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One big happy voice
May 07, 2009
I'm reading The Great Influenza, about the horrendous 1918 version of the current flu virus. This struck me:
Outside Des Moines, Iowa, at Camp Dodge, also, influenza was killing hundreds of young soldiers. Within the city a group called the Greater Des Moines Committee, businessmen and professionals who had taken charge during the emergency, included the city attorney who warned publishers -- and his warning carried the sting of potential prosecution -- "I would recommend that if anything be printed in regard to the disease it be confined to simple preventative measures -- something constructive rather than destructive."
So people are dying like flies. Be constructive!
The Greater Des Moines Committee's Partnership's creepy "One Voice" tradition apparently has deep roots. "One Voice" is a strange goal for an organization so committed to diversity.
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Tax Party!
May 07, 2009
The new Carnival of Taxes is up at Kay Bell's place.
Always good stuff at this roundup of tax blog posts.
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Principal freezes withdrawals from one fund
May 07, 2009
If you are a 401(k) investor in the U.S. Property Separate Account, you might as well make yourself comfortable, because you aren't going anywhere:
Investors in the Principal U.S. Property Separate Account said they understood the risk of losses, but didn't think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven't been able to make any withdrawals or transfers since late September."To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations," said Terri Hale, spokeswoman for Principal Financial Group Inc., the parent of the fund's manager. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.
The fund is down 25% for the last 12 months, which may make investors a bit antsy.
Via BenefitsBlog.
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This bugs me too.
May 07, 2009
Why do so many people including the IRS and now the U S Supreme Court continually refer to unincorporated LLCs as "limited liability corporations"? To wit:" As a part of the scheme, respondents invested in various stock warrants through newly created limited liability corporations (LLCs), which are also respondents in this case."
It's limited liability COMPANY, people! Marc blames Harvard Law School, but plenty of non-Harvard lawyers boggle this too.
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Mop fire on 14!
May 06, 2009
We had a little excitement in the office today - an actual fire on the floor. The offending combustibles:
The fiery mops. Click for larger picture
The elevator room for the lower 13 floors is on our floor, and somehow some old mops caught fire.
We cleared out on the alarm, since it actually smelled like something was burning. I grabbed the backup tapes, along with my cell phone, car keys, and I-pod, and walked down the stairs, where most of the office already was hanging out.
The Roth & Company refugees.
One of the shareholders thoughtfully started a fresh pot of coffee before fleeing, which turned out quite tasty. The taste of danger, maybe.
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Cavalcade of Risk!
May 06, 2009
Welcome to this running of the Cavalcade of Risk, the Blogosphere's collection of current insurance and risk-management blog posts.
The Tax Update is a Des Moines, Iowa tax blog focused on tax issues for closely-held businesses and their owners. Des Moines is a big-time insurance town, with U.S. headquarters for companies from giant Principal Financial Group down to little risk-retention groups. Enjoy our little picture tour of the local insurance scene as you check out the Cavalcade.
Thanks to all those who submitted posts to the Cavalcade. I only accepted posts I deemed sufficiently insurance or risk-management related. We received a lot of good personal finance submissions, but that's a different carnival, so they ended up on the virtual cutting room floor.
Update! Risk, managed! Funny that we'd have an actual fire on our floor the day we host the Cavalcade of Risk.
So - down to business.
Over at Insureblog, the granddaddy of risk management blogs, Hank Stern talks a little swine flu, with a free 1980s TV reference at no extra charge. We prefer that the H1N1 disease be named after two-legged beasts.
Is it really a big deal? The Wise Curve isn't overly worried. Neither is threeseven. I'm reading a book about the 1918 pandemic, which featured a version of the current swine Politician Flu virus, and I think some concern may be in order, though not the cable-news panic.
Coverage issues.
So if swine Politician Flu strikes, Workers Comp Insider wonders whether you might get hit with a Workers Comp claim. They also have a handy roundup of flu resources for employers.
Meanwile, Jaan Sidorov ponders how swine Politician Flu might affect the debate over healthcare reform at the Disease Management Care Blog.
What about your own Politician Flu coverage? Matthew Paulson asks Is Poor Health Insurance Better Than No Insurance? posted at Fine Tuned Finances. That prompts the question, "what makes the coverage 'poor'"? Just because it doesn't cover first dollar of your tummy tuck doesn't mean it's a bad policy.
Louise at the Colorado Health Insurance Insider deals with a problem that is coming up a lot these days - the problem of getting health coverage after being laid off. Doesn't COBRA help? Maybe not: "People who worked for a company that went out of business (or stopped offering health insurance for whatever reason) won’t qualify, because there won’t be a health insurance policy for them to opt to continue via COBRA."
My own contribution: Iowa is leaping onto the slippery slope of using tax returns to browbeat parents into getting coverage for their kids.
Health Economics
Health Insurance is just one aspect of the problem of paying for health care.
Almost every day is a health care economics carnival at Econlog. Arnold Kling has a typically smart observation:
Saying, "We don't need to have any restraint on the use of medical services. Look at Medicare" is like saying, "We don't have to worry about the fish population. Look at all the fish we just caught."
Jason Shafrin at Healthcare Economist looks at using "Markov modelling" to evaluate drugs. For a post with less math, he also looks at the economics of giving away surgical masks, complete with unintended consequences.
David Williams deals with Billing data, PHRs, and pay for performance at Health Business Blog.
KevinMD ponders questions conventional wisdom on whether some medical specialties are more risky than others: "The answer isn't as clear as you think, as doctors practicing what they're trained to do shouldn't be inherently risky. So, whether you're a neurosurgeon or internist, all doctors theoretically are exposed to the same degree of risk." I suspect a malpractice underwriter might not entirely agree.
Miscellaneous Risks
Getting sick isn't the only risk out there. That's why you should look at a good umbrella policy. Laura Utter explains umbrella coverage at Iowabiz.com.
No matter how good our health coverage is, we all eventually get to where health coverage is no longer an issue. That's why Nora Dunn presents How (and Why) to Buy Life Insurance at Wisebread.
But while you're still here, there's always Facebook. You don't want your high school rival to hijack your Facebook and give you a virtual wedgie, so Peter Whittaker presents Voices in a vacuum - securing a Facebook account at EdgeKeep - Securing The Edge.
While Facebooking, you might be wondering whether the extended warranty on your mousepad was really worth buying. ReKitchen ponders the same question for stoves.
Even the best extended warranty won't keep your electric range going when the lights go off. That's why you should learn How to Prepare for a Power Outage - Without a Generator at fivecentnickel.com.
Cars
Of course, just getting to the doctor to get your Swine Politicial Flu treated can be risky. Vitalmotion tells which cars are cheapest to insure, along with a handy guide to car insurance jargon.
But what happens when you get into a wreck on the way to get your flu shot? The Low Cost Auto Insurance Guru say Don't be Afraid to File a Claim, as part of what promises to be a thrilling six-part series.
Thanks for stopping by! We're here with the latest in tax stuff every business day. The Cavalcade of Risk moves to The Sentinel Effect in two weeks. If you want to host a Cavalcade, send a note to the Calvacade Master.
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Obama international proposals leave think tanks cold
May 06, 2009
President Obama is going after multinationals. Tax Vox, the blog of the center-left Tax Policy Center, says the President is misguided:
Second, Obama is conflating two issues: tax abuse and legitimate efforts by multinationals to reduce their tax liability. To the degree he is trying to crack down on real abuse, bravo. Washington has been yapping about this for years, but never pulled it off. Maybe Obama will. It is about time.But a company’s decision to defer paying U.S. tax on foreign income by leaving profits overseas is not abuse. It is a perfectly sensible response to a U.S. system of taxing multinationals that is out of synch with most of the world.
The center-right Tax Foundation is less charitable:
"The proposal, however, is flawed and fails to recognize that in the increasingly global economy where capital flows freely across borders, the United States can no longer expect other countries to follow its policies. The proposal will penalize the foreign operations of U.S. companies operating abroad and make it more difficult for them to compete with foreign companies."The manufacturing of tractors or generating facilities in places like China and India will be less likely to be done by U.S. companies. Rather, these business opportunities will more likely be won by the foreign competitors of U.S. companies with the economic rewards—jobs and profits—going abroad rather than U.S. companies.
"The real problem that the U.S. faces is that the U.S. tax system is increasingly out-of-line internationally. The U.S. now has the second highest corporate tax rate, exceeded only by Japan. Other measures of corporate tax rates show the same downward trend in corporate tax rates abroad.
It seems that these proposals will struggle, in spite of Democratic control of both houses of Congress.
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Iowa City sales tax boost wins by 6 votes
May 06, 2009
Iowa City voted to jack up its tax rate by a penny by an overwhelming margin of six votes, out of 7,268 cast.
Meanwhile, several Linn County municipalities that voted down a penny sales tax increase last month approved it this time around. Now that they've voted "yes," the politicians don't want to do another re-vote next month. Funny how that works.
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But of Course!
May 06, 2009
Tax: "The Top of the Pecking Order"
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Taxes might have been the least complicated part of this relationship
May 05, 2009
An upcoming tax evasion trial in Ohio promises to be entertaining -- and not just to tax geeks. An Ohio woman, Marsha Parenteau, has copped a plea ahead of her husband's trial, where she may have an interesting story to tell:
During her plea hearing, Parenteau admitted that, from 2003 through 2008, she and others, including her husband, their shared accountant and her husband’s mistress, sought and obtained millions of dollars in loans from various financial institutions by falsely misrepresenting her income and assets, as well as the income and assets of others involved in the scheme.
They shared the accountant, but apparently not the mistress.
According to the plea agreement and evidence presented during the plea hearing, Parenteau and others used the proceeds of the fraudulently obtained loans to, among other things, pay funds to her husband’s mistress and pay funds to Parenteau and her husband to fund their lifestyles, including the renovation of a property known as Loretta Estates. Loretta Estates is a mansion located on the Scioto River in Columbus, Ohio, which consists of approximately 4.5 acres with five buildings and more than 27,000 square feet of living space.
Big enough for three, anyway. I wonder if Mr. Parenteau was properly appreciative. After all, not every gal will commit tax and bank fraud to finance the other woman.
Three other Ohioans have also entered guilty pleas in a related case involving bank fraud.
As the IRS closed in, the mistress, referred to daintily as "Witness A" in court documents, flipped, according to the indictment:
In July 2008, Witness A began to correct many of the false statements she had earlier made and agreed to cooperate fully, including wearing a recording device on her body...
A bold move for a mistress. Or maybe her guy was into that sort of thing.
Links:
Marsha Parenteau criminal information.
Indictment of Thomas Perenteau, Dennis Sartain, and Bonnie Helt
Press release: Columbus, Ohio, Home Builder, Accountant and Realtor Indicted in Tax Fraud and Money Laundering Scheme
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S corporations and compensation planning
May 05, 2009
Peter Pappas addresses the John Edwards problem of S corporation compensation:
An investor/employee wears two hats: First, he is an investor who is entitled to expect a return on his investment. Second, he is an employee who performs services for compensation.Consequently, it makes sense that there be some apportionment between what the shareholder is paid for his services and how much he receives as a return on his investment.
However, there is much abuse in this area of tax planning and taxpayers should consult their tax advisors before determining how to apportion payments between wages and shareholder distributions.
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Drive out the multinationals!
May 05, 2009
President Obama wants to increase taxes on non-U.S. income of multinational corporations based in the U.S. Other countries don't tax out-of-country income of their multinationals.
Any guesses where multinationals will locate their headquarters?
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Subsidizing slow trains to old buildings
May 05, 2009
The Des Moines Register reports:
Gov. Chet Culver today signed into law bills to expand tax breaks for historic sites and to make it easier for Iowa to expand passenger rail service.“By making it easier to connect between our state and key cities throughout the Midwest and the nation, we can attract new companies and bring new jobs to Iowa,” Culver said before signing the rail bill, Senate File 151.
Here in Iowa, the future lies technology that has been obsolete for 50 years, and in old vacant buildings. But at least we'll have plenty of time to read on the way.
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Nothing to see here, there's no wreck, move along.
May 05, 2009
Tax maven and lobbyist Ken Kies today in Tax Analysts ($link):
So, we are not driving past a roadside wreck. We are in a multicar pileup, with flames licking close and occupants still trapped inside. And every plan being debated will only make things worse. The budget proposed by President Obama would add another $4.8 trillion in annual budget deficits over the next decade. Under Democratic alternatives, the picture would be $600 billion to $700 billion better than under the president's proposal. Even the House Republican plan -- titled "The Path to American Prosperity" -- would increase deficits relative to the budget baseline by $1.5 trillion over the next decade and leave the nation with an annual budget deficit of $580 billion by 2019.
The country is in the very best of hands.
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Saving the right of states to pick the athlete's pocket
May 04, 2009
Another bill to make it harder for states to ding their temporary visitors is in the hopper in Congress. H.R. 2110, the "Mobile Workforce State Income Tax Fairness and Simplification Act," would eliminate many tax compliance headaches, reports Jim Maule:
Essentially, the legislation would prohibit a state from taxing the wages of nonresident employees who perform services in the state for fewer than 31 days, and would relieve their employers from any obligation to withhold income taxes on behalf of a state in which an employee performed services for fewer than 31 days unless the employee was a resident of the state.
But as a good professor, Dr. Maule zeroes in on the exceptions, which turn the bill into a great screw job for the athlete, musician or self-employed entertainer. He notes this provision of the proposal:
The term ‘employee’ shall be defined by the State in which the duties are performed, except that the term ‘employee’ shall not include a professional athlete, professional entertainer, or certain public figures.
In other words, this bill would fail to solve the Al Franken problem. Mr. Franken, Minnesota's senator-in-waiting, was embarrassed by the need to pay $70,000 in back taxes in 17 states for appearances as an entertainer or speaker. For a self-employed musician or entertainer, filing in 17 states is an expensive burden - and almost all the cost is time and professional fees. Living in Minnesota, Mr. Franken probably was eligible for a full credit for taxes paid in other states on his Minnesota return.
Dr. Maule dislikes the occupation based exclusion:
But does it make sense to permit states to continue taxing nonresident professional athletes and entertainers whose income is relatively small, considering the transaction cost to those individuals of complying with the income tax laws of dozens of states and filing tax returns with dozens of states? ... Would it not make more sense to tie the exclusion from the bill's protection to total income, so that professional minor league ballplayers earning survival wages are relieved of dealing with multistate income tax return filing, while high-income attorneys, architects, and other professionals who work for five or six days in each of fifteen states are treated in the same manner as high-income athletes or entertainers who perform for five or six days in each of fifteen states? In other words, why single out individuals on the basis of the name of their occupation rather than their income?
My view: Have the 31-day exclusion apply to everybody. Yes, it would keep California from taking a piece of LeBron James's salary when he comes to play the Clippers, but it would also keep Ohio from taxing Kobe Bryant in Cleveland, and it would save a lot of largely futile pencil pushing for everyone involved, including the states themselves.
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Those that do can't get paid to teach
May 04, 2009
My rant on the barriers that keep accounting practitioners from moving to the classroom draws comment from Dan Meyer, himself a (worthy) accounting professor:
Non-educators typically are made adjuncts and adjuncts are grossly underpaid. I can also understand Joe's lukewarm reaction to the "Accounting Doctoral Scholars" program. While ADS is a worthy effort, the AICPA plan still places sizable financial hardship on practitioners who are still raising a family when wishing to start transition.Some universities have "Executive in Residence" programs which may be an answer.
There are good historic reasons why universities moved to a PhD model, but requiring doctoral degrees in a professional school is a great way to keep students from exposure to actual professionals. Nowadays the PhD requirement serves largely as a barrier to entry to artificially limit the supply of college teachers, and to artificially enhance their income.
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Whither Bruce?
May 04, 2009
Bruce the TaxGuy tweets this morning that his blog is "falling to side for now." That's too bad, as he has a good one, but the blogging life isn't for everyone. Best wishes, Bruce, and come back soon.
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Tax protesting can be an expensive hobby
May 01, 2009
You'd think Robert Rodriguez would have given up on the Tax Court by now, as it had not only rejected his tax protest arguments for seven prior years, but had fined him $35,000 for making frivolous arguments.
Yet he went back to fight his 2004 and 2005 taxes there using the same sort of arguments:
Petitioner does not challenge the accuracy of the information on the transcripts, only that he did not receive income from any taxable source. He claims: "I looked at section 861 and the definition in the Internal Revenue Code specifically states that sources of income are from foreign entities, corporations." Apparently, petitioner is relying on the discredited tax-protester argument that the regulations under section 861 establish that a citizen's income in the form of remuneration for services and bank interest received from sources within the United States is not taxable income. See Takaba v. Commissioner, 119 T.C. 285, 294-295 (2002). We have said: "The 861 argument is contrary to established law and, for that reason, frivolous."
If anything, the results were worse this time. Not only did they uphold over $44,000 in taxes, plus penalties, for the tow years, the Court hit him with a $25,000 penalty for each year for wasting their time with stupid arguments.
The moral? As convincing as the guy was at the seminar in explaining why Sec. 861 lets you off the hook for taxes, there's not a judge in the country that will buy it. Don't waste your time and money.
Cite: Rodriguez, T.C. Memo 2009-92
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Hiding cash in the Caymans, I can see. But Oskaloosa?
May 01, 2009
There's no understanding the criminal mind sometimes.
Bismarck, North Dakota man embezzled millions from his employer. Then what does he do with it? The Jamestown Sun reports:
Glasser allegedly invested about $1 million in embezzled funds in a Wyoming ethanol project, and as much as $300,000 in a Richardton ethanol plant. He also bought real estate in Bismarck and Oskaloosa, Iowa, using stolen funds, court documents show.
Blowing other people's money on doomed energy boondoggles? Who does he think he is, the Iowa Office of Energy Independence?
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Can't sell them? Better make some more of them
May 01, 2009
News item 1 (via thebeanwalker.com):
Equitable Building, Des Moines landmark, hit with foreclosureThe lender who bankrolled developer Bob Knapp's purchase of the Equitable Building in 2005 filed for foreclosure on the 85-year-old downtown landmark Thursday.
...
Knapp purchased the 19-story building from a Chicago firm in 2005 for $5 million with plans to develop its top floors into high-end condominiums and rent its lower floors to commercial tenants.
But when the housing market stalled, demand for the high-end units dried up. Knapp's attorney, Bob Douglas, said scant demand combined with tight credit markets caused Knapp to fall behind on the loans.
Three condos have been sold in the building, and a majority of the commercial space has been rented out, Douglas said.
News Item # 2: The Iowa House has passed a bill that more than doubles the state tax credits available for preservation of historic properties.
Gargoyles on the side of the Equitable Building symbolically attempt to support its mortgage.
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