Tax Update Blog: February 2010 Archives
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Aviva girls in tax trouble
February 26, 2010
Two words of advice, tax cheats: Shut Up!
Sure, you might be proud that you've filed bogus tax returns and haven't been caught yet, but here's a fact: the IRS can read the Internet. The two women accused of stealing from Des Moines insurer Aviva are just figuring this out, reports the Des Moines Register:
Marla Stevens once bragged about how she and her spouse, Phyllis, violated federal tax laws."We won't lie about our marriage on our tax forms, either, filing as the married people we are," Marla Stevens wrote on a blog in September 2005. "We've racked up about a million dollars in potential criminal fines and about a hundred years in potential prison time under the old sentencing guidelines between us - so far."
Well, now they know:
A federal grand jury has indicted the two women on five charges of income tax evasion and conspiracy, as well as filing false tax returns, U.S. Attorney Nicholas Klinefeld said in a news release Thursday.
In fairness, the charges probably have at least as much to do with their federal embezzlement problems as their incautious use of social media, but the point still holds. If you are dumb enough to commit tax fraud, you need to be smart enough to keep it to yourself. That may be a combination of dumb and smart that's hard to find.
Link: Copy of Indictment with tax charges
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Small banks don't like the big bank tax
February 26, 2010
The Independent Community Bankers oppose the Obama "Fiscal Responsibility Fee" proposal. Maybe they figure (reasonably enough) that they are next.
Related: Assigning Responsibility
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Follow Italy?
February 26, 2010
Phil Hodgen says Italy shows how the U.S. could do a tax amnesty.
A federal tax amnesty (and state amnesties, for tat matter) is unwise because it makes chumps out of everybody who has gone through the trouble to comply, and people start expecting amnesties. Perhaps the population of compliant Italian taxpayers was small enough to eliminate the Chump Factor.
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Hey, Pennsylvania!
February 26, 2010
If your tax is complex enough to annoy Professor Maule, you really need to rethink things.
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Net operating losses: use them or lose them
February 25, 2010
Can you have no taxable income but still pay income tax? Yes, you can, if you look at more than one year at a time. That's why the tax law allows you to carry net operating losses for other years - normally back two years and forwards 20 (a temporarary provision allows 2009 losses to be carried back up to five years).
But you can screw this up, as a Georgia taxpayer demonstrated in Tax Court yesterday. After good years in 1999 and 2000, with taxable income of $97,291 and $101,123, he ran into tough times. His 2001 and 2002 returns showed net operating losses of $26,628 and $38,345.
But he made one little mistake: he didn't get around to filing 2001 and 2002 returns until 2007. He claimed the losses against his 2003 return, which he filed in September 2006.
The tax law normally makes the 2-year NOL carryback mandatory. Taxpayers can waive the carryback and elect to carry it forward, but you have to do this on a timely return. You have three years after the due date of a loss year return to carry back its NOLs. By waiting until 2007 to file the 2001 return, he missed the three year deadline, so he didn't get the refunds he could have for 1999 and 2000. Even so, the tax law considers the loss to have been carried back anyway, absent a had timely carryforward election, so there was no loss left to carry forward.
The Moral? If you have a loss year, that doesn't mean you should ignore your taxes. It means you should get them done sooner to make sure you get your loss carryback refund.
Cite: Davidson, T.C. Memo 2010-38
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For the rest of us: mandatory. For Congress: impossible
February 25, 2010
Recessions stink. I know an engineer who was laid off from a big Chicago company after 18 years who is still looking for work 14 months later. I know businesses who have had to let go most of their employees to keep the doors open for the rest of them. These people have drastically cut their expenses to match their cash. So what about Congress? Martin Sullivan says it's just too difficult for our Real Congresscritters of Genius to balance their budget:
So how difficult would it be to achieve that goal? Using the best available estimates here are seven possible options:(1) Raise individual taxes only by 30%
(2) Raise all taxes by 15%
(3) Cut all Medicare, Medicaid, and Social Security by 25%
(4) Cut discretionary spending by 40%
(5) Cut all spending by 13%
(6) (a) Raise all taxes by 8% (b) cut all spending by 7%
(7) Impose of value-added tax of 7.7%In political terms these are nothing short of earth-shaking. Our gridlocked dysfunctional Congress simply cannot bring itself to absorb these types of painful shocks. They are orders of magnitude away from what is feasible in the current political environment.
A Congress that can find money for a Tom Harkin Learning Center and Charles Rangel Centers for Public Service can't cut its spending 13 percent? The poor dears. If their job is so hard, we'd better find them new ones.
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Great idea, if applied only to Congress
February 25, 2010
Via TaxVox: "Kucinich Jobs Bill: Lower the Retirement Age." For Congresscritters, age 60 or two terms, whichever comes first.
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Spend only what you have -- a novel concept in government
February 25, 2010
From the Tax Policy Blog:
While other states have kicked expenses into future years, coasted on stimulus funds, or raised taxes, Indiana under its Governor Mitch Daniels (R) has focused on balancing its structural budget with expected revenues and spending prioritization. Daniels argues that states should adjust to reduced revenues, and the sooner the better...
Or you can just drain reserve funds and keep hoping something will turn up.
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Other funds will be used to lose 25% of preparer paperwork
February 25, 2010
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Bipartisan tax reform?
February 24, 2010
Two Senators, one Crip and one Blood Democrat and one Republican, have proposed a tax reform plan. It features a reduction in the corporate rate to 24% and a reduction three-tiered individual rate system (15%, 25%, and 35%). It would allow small businesses to expense inventory and equipment, while repealing the silly Section 199 deduction and some other breaks.
It has some interesting ideas, but it needs to be much more ambitious to really simplify things. Also, reducing the business rate well below the individual rate is a recipe for complexity as people would shift income to corporate structures.
Why not have corporations and individual taxed at the same top rate (30% sounds good to me), but allow corporations a full deduction for dividends paid, while taxing them at ordinary rates to shareholders? It would solve the double-tax problem of corporate tax while eliminating the tax law bias for debt. Maybe there's a reason why this is a bad idea, but I haven't seen anybody explain why.
More coverage:
TaxProf Blog
TaxVox
Tax Policy Blog
Peter Pappas
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Where there's a refundable credit, there's fraud...
February 24, 2010
...and the First-time homebuyers credit is no exception. Forbes.com reports:
Continuing its long battle against tax preparers it considers incompetent or dishonest, the Internal Revenue Service on Tuesday sued a pair of Miami, Fla., practitioners, saying they wrongly claimed the first-time homebuyer's credit for dozens of clients.In separate civil lawsuits, lawyers for the agency said both preparers claimed the credit for clients who had not even bought homes. One preparer, Paula O. Patrice, who operates To the Max Professionals Inc., allegedly listed nonexistent addresses for purchased property while Henry E. Medina Jr., who runs Medina Group Inc., also known as Medina & Associates, purportedly listed the same bought-property address on tax returns of different clients.
Don't believe anybody who says you can get a credit for the home you've lived in for years, or that you don't really need to buy a house to qualify. To find out what the rules really are, the IRS first-time homebuyer page is a good place to start.
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Tell me again why defined benefit plans are 'safer'
February 24, 2010
We sometimes hear how flawed 401(k) plans are because of the way balances can fluctuate with the markets. Employees shouldn't have to worry their little heads about things like that. They should have a nice, safe defined-benefit plan instead.
Governments are the biggest holdouts of old-style defined benefit plans. How's that working out? Like this:
The Tax Policy Blog explains:
Since the plans are defined-benefit, the loss in portfolio value must be made up by increased contributions from the state budget or from employees. Many states are doing neither: just letting the bill run up. Some are still voting to increase benefits as they don't make payments. Other states (and localities, like our own DC Metro) must cut services or raise taxes to make room for the ballooning public pension payment.
Defined benefit plans rely on the same pool of investments as 401(k)/defined contribution plans. The only difference is that the 401(k) model is transparent -- what you see is what you get. Defined benefit plans are "safe" only to the extent that somebody is there to "guarantee" the benefit.
That's why businesses have moved away from the defined-benefit model: they have to stay in business. They can't just increase taxes. Yet even taxpayers have limits, though some states are determined to find out where that is.
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Film credit fraud tipped off by several weeks? More like a year
February 23, 2010
In the weeks leading up to the blow-up of Iowa's film tax credit program last fall, officials were scrambling to deal with "in-kind" expenses -- pretend expenses -- that were being used to qualify for tax credits that could be sold for cash. The Des Moines Register over the weekend teased this out of e-mails that were flying around the Deparment of Economic Development last summer and fall.
But if the Attorney General's documents accompanying the indictment of former Film Office head Tom Wheeler are correct, this issue was placed squarely before the Department of Revenue 10 months before the scandal blew up -- and someone at the Department had apparently blessed the practice. Mark Schuling, Department Director, says that the issue never reached him:
Department of Revenue chief Mark Schuling said this week that he had no idea Runge had sought credits for free or deferred expenses. He said he would not have approved them if he had known."The statute is pretty clear," he said. "Unless there's been an expenditure, it wouldn't qualify for the tax credit."
The attorney general's complaint doesn't say which IDOR official green-lighted tax credits for pretend expenditures. Mr. Wheeler's trial may give an interesting glimpse at Iowa's tax policy machinery.
Meanwhile, three more state officials have left their jobs in the wake of this weekend's Des Moines Register report, reports Charlotte Eby:
Those employees are Jeff Rossate, division administrator for business development, Amy Johnson, division coordinator for business development and the department’s general counsel, Melanie Johnson. Amy Johnson had been named interim manager of the beleaguered Iowa Film Office in September.
While a state flack won't say whether they were fired, it's pretty likely that they didn't suddenly all decide to quit and open a sushi bar together. Considering that these e-mails had to have been available to the Governor's office before the Register got them, it's very odd that they only got let go once the e-mails got out. It looks as though the Governor's office is still flailing in dealing with the film office scandal -- reacting to news stories rather than investigating and getting in front of events.
Related:
Film Fiasco: where was the Department of Revenue?
If this is a crime, they won't be able to build enough jails
Details, schmetials. We're here to give money away!
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Tax anger nearly causes another tragedy
February 23, 2010
A nation still staggering from the kamikaze attack on an IRS office by a self-absorbed, sad, blame-deflecting loser victimized taxpayer has narrowly escaped another tax-motivated tragedy, this time in St. Louis:
Police say a woman followed her husband to work at a barber shop on Natural Bridge Saturday morning. She wanted him to give her some of their tax return money. When the man refused, she tried to shoot him. The bullet went through a window of the couples SUV. The man ducked inside the back seat of the vehicle and police say that's when the woman shot two more times. Both of those bullets also missed. The man jumped out of the back seat and ran across the road.Investigators say the woman then went into the city of St. Louis and threw the gun in a sewer. Police contacted the woman a short time later and she turned herself in. Police say she didn't seem sorry.
Let's anticipate the responses. From Congressman Steve King:
I think if we’d abolished the IRS back when I first advocated it, he wouldn’t have a target for hisairplanewife. And I’m still for abolishing the IRS, I’ve been for it for thirty years and I’m for a national sales tax. [...] It’s sad the incident inTexasSt. Louis happened, but by the same token, it’s an agency that is unnecessary and when the day comes when that is over and we abolish the IRS, it’s going to be a happy day forAmericaAmerica's husbands with tax refunds and irate wives.
Tax Protest figure Bob Schulz:
Bob Schulz, founder of the anti-government We the People Foundation, said that while he only advocates non-violent means of protest, he can understandStack'sthe irate wife's motives and said it is a reflection of a movement unlike any he's ever seen."There's a huge
patriotviolent wife movement," Schulz said. "I've been doing this kind of work for 30 years. Never have I seen the likes of what's going on now. It's delightful."
Finally, Prof. Maule:
It won’t get better until American voters decide to make it better. It won’t get better if the electorate continues on the same path. It won’t get better when attempts to change things are obstructed by those with vested interests in the mess that generates so much anger among theJoseph Stacksrefund-denied wives of the nation. Hopefully the nation is learning that effective change requires more than changing a few things in Washington.
Stop the madness before the tax law claims another marriage!
Hat Tip: The TaxProf
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'There she blows! - there she blows! A hump like a snow-hill! It is Moby Dick!'
February 23, 2010
The Obama administration lowers the boats in grim pursuit of their white whale, destruction of the health care system health insurance reform. The unworkable and insane plan calls for increasing the medicare tax on wages of single taxpayers with incomes over $200,000 and couples over $250,000, as well as applying it to investment income of such taxpayers. This, of course, is a 2.9% increase in the marginal tax rate of investment income and capital gains, which is a wacky idea for an economy struggling to emerge from recession.
Russ Fox has a step-by-step analysis of the 19 or so tax elements of the proposal. The Tax Prof has a roundup, and TaxVox also weighs in.
UPDATE: Roger McEowen goes through the proposal.
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Supreme Court rejects related-party Sec. 1031 swap appeal
February 23, 2010
The Supreme Court yesterday declined to grant a hearing to a Hawaii taxpayer who acquired replacement party in a Sec. 1031 exchange from a related party (via Tax Analysts, $link).
Teruya Brothers had their exchange intermediary use the proceeds of the sale of property to outsiders to acquire replacement property from a related corporation. The Tax Court and the Ninth Circuit recast the deal as a swap between the related corporation and Teruya Brothers, followed immediately by a sale by the corporation to outsiders. The tax law says an exchange between related parties normally fails if the related party disposes of the property within two years, so recasting the transaction made it immediately taxable.
The Moral: If you sell a property through an intermediary to qualify for Sec. 1031 treatment, don't use the proceeds to buy a property from a related party.
Related:
A LIKE-KIND EXCHANGE DISASTER (RELATIVELY SPEAKING)
1031 swap with related LLC shot down
IRS ISSUES LIKE-KIND EXCHANGE 'FACT SHEET'
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A thousand words of value on the homebuyer credit
February 23, 2010
A great illustration of how the homebuyer credit works at TaxGrrrl's place.
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Deadbeat Nation
February 22, 2010
Hawaii, New York, North Carolina and Illinois are joining the Deadbeat Nation, reports the Tax Policy Blog. As welshing on debts from bad bets in real estate is acquiring some popularity, states are getting on the bandwagon by stringing out tax refunds and other expenses. This, of course, will cost more in the long run for everyone, but remember, the convenience of the politicians comes first.
Kerry Kerstetter and Russ Fox have more.
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If you are going to come clean, come clean.
February 22, 2010
People with lurking tax problems sometimes can file amended returns to help them sleep at night. But don't go go with the Nixonian "modified limited hangout," says criminal defense tax attorney Jack Townsend. He reports how one taxpayer's amended return just made things worse.
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How the estate tax repeal increases tax on some estates
February 22, 2010
Paul Neiffer at Farm CPA Today:
Therefore, due to not having an estate tax, we went from (1) complete step up in value to date of death value, (2) no estate tax being owed for all estates under $3,5 million, and (3) full write of assets over time as depreciation against other income to owing $350,000 in income taxes. This does not sound too good to me.
The loss of full-basis step-up will be a long term annoyance to heirs of 2010 estates if Congress doesn't get its act together. Unfortunately, it looks like they will continue to chase the white whale of "health care" for awhile longer.
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Alpine street biking
February 19, 2010
So it's snowing again.
Pedal on over to Going Concern for lots of good stuff, including my new post on futile stupid violent tax protesters.
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IRS issues Applicable Federal Rates (AFR) for March 2010
February 19, 2010
The IRS has issued (Rev. Rul. 2010-08) the minimum required interest rates for loans made in March 2010:
-Short Term (demand loans and loans with terms of up to 3 years): 0.64%
-Mid-Term (loans from 3-9 years): 2.69%
-Long-Term (over 9 years): 4.35%
The Long-term tax exempt rate for Section 382 ownership changes in March 2010 is 4.03%.
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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Taxing the heck out of the top 400 taxpayers won't help the bottom 20 million
February 19, 2010
The IRS has issued one of its occasional summaries of the tax lives of the 400 taxpayers with the highest adjusted gross income. As usual it shows that they have lower tax rates, which is no surprise - most people only show up on the top 400 list once, when they have a big capital gain, which is taxed at the lower rate. And as usual, the list triggers lamentations of the unfairness of it all.
If the government took away 100% of the income from these 400 folks, it wouldn't improve the lives of the poor a lick. In fact, it would make the lives of the poor harder by destroying the productive ability of those 400 and their capital to hire people and do things.
The real problem isn't the tax structure at the top. It's the hidden tax structure at the bottom:
Chart courtesy Ludwig von Mises Institute
The chart shows that the phase-out of welfare benefits as income rises can lead to implicit tax rates in excess of 100%. Taxing capital gains isn't going to fix this. Arnold Kling has a better ideas:
There are two potential solutions. One solution is to base eligibility for means-tested benefits on total income, including other government benefits programs. Another approach would be to abolish a lot of specific programs and replace them with generic cash assistance.
Either idea will work better than going after the top 400.
Oh, and thanks to Ryan Clutter and Andrew Leonard for our first Salon link. I hope to have more to say on the subject next week.
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Bye bye Bernie
February 19, 2010
This sort of thing has to be really embarrassing for a policeman:
Former New York City Police Commissioner Bernard Kerik was sentenced to four years in prison on Thursday after pleading guilty to eight felony charges. Among these were tax fraud and lying to Bush administration officials during his unsuccessful nomination for US Secretary of Homeland Security in 2004.
The tax charges arose from $255,000 worth of renovations to his apartment from a municipal contractor that failed to report on his tax return. He now gets to learn about Homeland Security from the other side.
Link: U.S. Attorney Press Release
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Flight of folly
February 19, 2010
There's not too much more to say about the troubled loser who flew his plane into an IRS office in Austin, Texas. He joins a sad list of taxpayers who have violently tried to solve their tax problems. Unlike some others, he did, sort of. At least he won't have to spent the rest of his life in prison.
If you want some of the pathetic details, the tax bloggers are all over this. The TaxProf has a link-rich roundup. Other coverage:
Kay Bell, Man angry at IRS crashes plane into Austin building
Kerry Kerstetter, Insane Tax Protest
Russ Fox, Austin Plane Crash
Tax Policy Blog: Austin Suicide Pilot Appears to Be Upset About the Tax Reform Act of 1986 (Seriously), and
Austin Suicide Pilot Allegedly Upset By Denial of Ind. Contractor Status to Non-Ind. Contractors
Trish McIntire, This is So Wrong
Also: Going Concern, The Full Text of Joseph Stack’s Insane Manifesto: It Details His Struggles With IRS
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Got a tax filing horror story?
February 19, 2010
Share it with the TaxGrrrl; the's giving away five copies of Turbotax Premier to those who take the trouble.
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The IRS as a work camp for unemployed lawyers?
February 19, 2010
What an awful idea. I like Prof. Maule's take:
Someone with the username save_the_rustbelt noted, "Hire lawyers to do audits? Sorta like using a screw driver to pound nails." Exactly. This commentator then described a deposition in which a trial lawyer did not know the difference between revenue and income. Strange, because that’s something all lawyers should know whether or not they decide to practice tax.
If the IRS really wanted to recruit effective agents, it would seek out people laid off from big accounting firm tax departments with at least 3 years of experience. Those folks could do some damage.
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Francisco Franco is still dead...
February 19, 2010
...and limited liability company members still aren't limited partners under the "passive loss" rules, despite continued IRS assertions to the contrary. Roger McEowen explains.
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Shopping opportunities
February 18, 2010
Now Mississippi is considering a sales tax holiday on guns, reports the Tax Policy Blog.
Sure, sales tax holidays are bad policy, but we go shopping with the tax policy we have. Iowa has a sales tax holiday for clothes. Why not combine the holidays?
Our Louisiana Sales Tax Holiday model courtesy Alex Compos's Flickr Photostream
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You can't extend paying your taxes, can you?
February 18, 2010
Normally, no. But if you are a C corporation and you expect to have a 2010 net operating loss that will let you recover your 2009 taxes, you can file Form 1138 to avoid paying taxes that will come back anyway via the NOL carryback. Stacie Clifford Kitts explains.
Be careful: your 2010 C corporation losses will have to wipe out your income for 2008 before they can apply against 2009 income. Also, Form 1138 only works for C corporations; individuals just have to pay 2009 and then get it back with their Form 1045 carryback.
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Mmmm. Cookies.
February 18, 2010
Kay Bell ties together the themes of weight loss, charitable deductions and Girl Scout cookies, all of which will be issues when the official Tax Update 7-box order arrives any day now.
Flickr image by Collin Anderson under Creative Commons license.
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Iowa releases list of research credit winners
February 17, 2010
The Iowa Department of Revenue yesterday quietly released the list of taxpayers claiming over $500,000 of Iowa research credits between July 1 and December 31, 2009. The credit piggybacks the federal research credit, but only applies to research performed in Iowa. It also has a twist that the federal credit lacks: it is "refundable." If your Iowa research credit exceeds your Iowa tax, the state writes you a check for the difference. In other words, Iowa is making cash grants to businesses.
How much of the research credit is actually a cash subsidy to businesses, rather than a reduction in taxes otherwise due? It looks like the great majority of it. For the six month reporting period, $6.7 million of the $8.8 million in credits claimed -- approximately 75% -- were pure cash subsidies to the recipients. If that holds for all of the approximately $40 million of research credits claimed each year in Iowa, that means the state is issuing cash grants of $30 million to private businesses each year.
The chief lobbyist for the research credit is unhappy that we know this now:
Ed Wallace, president of the Iowa Taxpayers Association, said the report could place Iowa at a competitive disadvantage if companies fear the information will tip off competitors. The nonpartisan research group in Des Moines represents more than 150 businesses."In a globalized economy, many companies can do research and development in other parts of the world like India and China," Wallace said. "We have to balance the desire of economic development with the desire to provide greater amounts of transparency."
The desire for secrecy can arise from a need to protect secrets, but it can also stem from a desire to keep the rubes from finding out how much they are being taken for. If you are willing to accept cash grants out of taxes paid by your competitors and their employees, you may not get much sympathy for the ensuing loss of privacy.
Whatever benefits come from these credits -- and the state hasn't been able to show that they do any good -- the state would surely be better off with no corporate tax and a simpler system with much lower rates. Something like the Quick and Dirty Iowa Tax Reform plan.
Related:
Report: ax the film credit, cap others.
State of Iowa Tax Credit Review Report
Quad City Times: Iowa issues report on research tax credits
Iowa Fiscal Partnership press release.
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Liquored up
February 17, 2010
The taxpayers will continue the accidental "black liquor" subsidy to the paper industry of $20 million per day until they get around to passing their "jobs" bill, thanks to a bipartisan deal struck between Senators Grassley and Baucus, reports Martin Sullivan.
Remember: bipartisanship is what happens when the Crips and Bloods run across an untended armored car at the same time.
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It's not just UBS customers
February 17, 2010
The IRS bags a guilty plea from a doctor for conniving with bankers and lawyers to stash cash offshore. Tax defense attorney Jack Townsend ponders what it might mean for others with offshore money.
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Do we really do things differently in the Midwest?
February 17, 2010
Things are done differently here, says Brian Gongol. He cites the small size of our business world and our exposure to climate disasters as factors that lead to high levels of trust, concern with reputation, and awareness that things can go badly wrong. For example:
To use the Omaha example, the entire state of Nebraska has just 1.8 million residents. In a state of that size, everyone knows everyone else, particularly when they are in the same field of business. It's often joked -- and with no small measure of accuracy -- that if the rest of the world runs on six degrees of separation, the Midwest runs on two.
I'm not sure that is as distinctive as it appears. Most industries are a small world in themselves, and a bad reputation of a supplier, for example, can race across the country and even the world. But this this sounds right:
As a result, business is often conducted on a handshake and a verbal agreement on deals where people in other places might bring out a six-page written contract full of terms and conditions.
And it usually works out pretty well. Still, in the internet age, the idea that you only do business "in the Midwest" may not last much longer. But maybe a smaller world will make everyplace more like the Midwest, rather than the other way around.
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But you could end up paying your payroll taxes twice.
February 17, 2010
If your payroll service goes to the dark side and takes your money, the IRS still wants it. My new IowaBiz.com post tells you how to protect yourself.
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You only get to take the exemption once!
February 17, 2010
William Perez talks about some of the tricks of preparing a dependent's tax return.
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Yaris, the new luxury nameplate! IRS issues 'luxury' auto depreciation limits for 2010.
February 16, 2010
The IRS has issued the 2010 auto depreciation limits under the Section 280F "luxury auto" rules (Rev. Proc. 2010-18). For passenger autos, the limits are:
Year 1............... $3,060
Year 2............... $4,900
Year 3................$2,950
Year 4 and after: $1,775
Luxury is so affordable! These rules limit depreciation starting at a cost of $15,300. The lowest-price "luxury" vehicle I can find in the Des Moines area on Cars.com is a Toyota Yaris for $15,353. A Yaris looks like this:
Flickr image by David McKelvey under Creative Commons license
So buy now and impress your friends!
For trucks and vans, the depreciation limits are:
Year 1............... $3,160
Year 2............... $5,100
Year 3................$3,050
Year 4 and after: $1,875
Related: Drive away in luxury for $14,800
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Explaining something doesn't mean you agree with it.
February 16, 2010
If your doctor tells you that you're sick, he's not pro-virus. And if the TaxProf says he thinks the tax law makes something taxable, that doesn't mean he likes the tax.
Paul Caron explained to the Wall Street Journal that the tax law could, in theory, make olympic medals taxable. He got this response:
Not that I expect the IRS to make such an assertion. The IRS is politically savvy enough to not push some things. But if you think Paul Caron is an unreconstructed Commie, you must really hate the Tax Update. Here's photographic proof that the Tax Update is to the left of Paul Caron:
Paul Caron, with the Tax Update author to his left!
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Food blogging: a recipe for deductions?
February 16, 2010
TaxGrrrl has an excellent post on taxes for foodie bloggers. This may be the most important point:
It’s important to remember the hobby loss rules. If you’re blogging as a business, you may have deductions in a year that exceed your blogging-related income; you don’t want to make this a habit or IRS will believe that your blog is a hobby, not a business. If you’re blogging for a hobby, then your deductions may not exceed your blogging-related income.
Also important: the need to send food to the Tax Update. Why? Because I'm shameless. I'll link for food, if it's tasty enough.
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'No 1099' doesn't mean 'tax-free'
February 16, 2010
CPA Donna Bordeaux explains.
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Big media fail?
February 16, 2010
The coverage of the "repeal" of the estate tax is a big media failure, says Chicago estate planning attorney Joel Schoenmeyer, because they failed to point out how the loss of the basis step-up actually increases taxes for many taxpayers. He makes a good case.
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It's still winter carnival
February 16, 2010
Feeling defeated by winter?
Forget the winter blues on Fat Tuesday at Kay Bell's Carnival of Taxes, the one-and-only roundup of tax posts from around the blog world.
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It only works if it doesn't work
February 15, 2010
The Iowa General Assembly is again looking at combined reporting of corporate income. David Brunori comments ($link):
My position is that if you're going to tax corporate income, you need combined reporting. I realize my friends at the Council On State Taxation don't agree. Anyway, the Iowa Taxpayers Association says that if the state adopts combined reporting, all of its businesses will leave. If that is true, how come all the businesses in the 23 states with combined reporting haven't moved to Iowa? In fact, no one can show that combined reporting leads to migration anywhere.Look, I still think the state corporate income tax is kind of dumb. But we should at least be having honest arguments about it.
Why haven't they moved to Iowa? Maybe because that even without combined reporting, Iowa still has the nation's fifth-worst business climate. We have the highest stated corporate tax rate and the second highest effective tax rate. The only reason the Iowa corporation tax hasn't destroyed business here entirely is that it is so loophole-ridden. If it actually becomes effective, we'll be battling New Jersey for worst-in-the-nation status.
Far better to repeal the futile corporation income tax as part of the Quick and Dirty Iowa Tax Reform.
Related: Making Taxes More Certain: Iowa State Legislators' Guide to Combined Reporting.
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Fleeing Jersey
February 15, 2010
The Wall Street Journal looks at a study implying that New Jersey's high tax rates drive away high-income taxpayers. Mary O'Keeffe draws the logical conclusion:
Many of the wealthy have lots of options for where to live, so they are highly elastic in making location choices.From the point of view of wealthy taxpayers, there are many good substitutes for living in New Jersey, so a highly progressive income tax is going to have behavioral effects.
Like getting the heck out of Jersey.
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You just have to ask the right questions
February 15, 2010
The Des Moines Register comes out with another poll this morning full of useless information for our state policymakers. The poll says Iowans oppose having the legislature do anything hard.
As we mentioned last week, such "issue" polls are worthless because, unlike in real life, the polls don't require respondents to choose how to spend limited resources. That's why you can get polls showing majority support for things as as stupid as Film Tax Credits and corporate welfare.
The Tax Update made its own poll to show that requires a choice:
Requiring a choice (and asking the right questions) makes the support for tax credits look softer:
Unlike the Register's poll respondents, Governor Culver and the Iowa legislature have to choose. They can't just say "it's all a good idea" -- though the Governor's 10% across-the-board spending cut shows that they can try.
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Yes, I favor both free ice cream and free beer
February 12, 2010
Asked whether a six-week vacation in Cancun starting right now would be a good idea, a majority of Iowans would surely vote "yes." But if you then asked if it would still be a good idea if it meant they would lose their jobs and move into a homeless camp by the river, support would decline.
So it is with today's Des Moines Register Poll showing Iowans in favor of film tax credits even though the program has ground to a halt in scandal and corruption. The poll shows 61 percent of respondents in favor of film tax credits.
Here's how the poll asked the question:
Now, I'd like to ask about tax credits to movie productions. Overall, do you think tax credits to companies that produce movies in Iowa would be good for the state or bad for the state?
The problem with that question is the same as the problem with the vacation question -- It doesn't say anything about a cost. If it's free, who wouldn't be for it? It's too bad the Register didn't follow up:
Would you still favor the film credits if they cost every Iowan $26? What about $121?Would you favor the film credits if it meant firing 1,000 teachers?
The same thing applies to another "finding" of the poll - majority support for business tax credits, though only at a 51 percent level.
This is why "issue" polls aren't very useful: they ignore the trade-offs. You probably can't have both a long warm vacation right now and keep your job and house (if you can, why are you here?). The Pew Research Center did a poll that illustrates this. Katherine Mangu-Ward summarizes the findings:
The Pew poll [PDF] inquired about 20 different issue areas, ranging from "dealing with the problems of the poor," to "strengthening the military," to "reducing the budget deficit." For virtually every issue, the combined total of people who chose "top priority" or the second-highest option—"important"—approached 95 percent. Just take a minute to think about that: In January, a bunch of Pew pollsters asked a solid sample of 1,503 people about what their elected officials should select as top priorities, and those people essentially responded by saying, "Gee, it all sounds really, really important to us."
Since the Des Moines Register Poll won't ask the right questions, we will:
No, it's not scientific, but its findings are as useful as those of the Register Poll.
Related:
Let them eat canapes.
Film Fiasco: where was the Iowa Department of Revenue?
If this is a crime, they won't be able to build enough jails
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When they talk about a bill to save jobs, they mean their own
February 12, 2010
TaxVox reports:
Senate Finance Committee Chair Max Baucus (D-MT) and senior Republican Chuck Grassley (R-IA) today proposed a big new jobs bill. The centerpiece of the measure would exempt businesses that hire unemployed workers this year from the employer portion of the Social Security payroll tax.Beyond that proposal, which is a somewhat different version of the hiring tax credit proposed earlier this month by President Obama, the Baucus/Grassley bill would do little more than extend or tinker with a potpourri of expiring tax breaks.
Of course, any targeted tax credit bill like this is doomed to fail; businesses hire because they need the employees to take care of their customers, not because Congress waves a few dollars at them. An empty order book trumps a tax credit.
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Blogging deductions?
February 12, 2010
TaxGrrrl has a long and useful list of potentially deductions for bloggers.
A note of caution: If the deductions exceed your blogging income, or the income from the trade or business for which you blog, think twice. The tax law's "hobby loss" rules only allow net losses from activities conducted with a profit-making objective. If your blogging is a hobby, and it only produces a few dollars annually from Google Ads, don't expect your tax return to help pay for new computer equipment and a video-casting studio. But if your blogging makes you some real money, or if you blog as part of your business marketing, go for it.
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Whither fly the Minnesota snow birds?
February 11, 2010
A Minnesota think tank looks at where Minnesotans flee:
Where are Minnesota’s out-migrants going and why? According to the Internal Revenue Service (IRS), between 1995 and 2007, the top five states are Florida (21,256), Arizona (19,605), Wisconsin (9,449), Colorado (6,894) and Texas (6,551)—states with far more competitive state tax structures. Income left Minnesota in every year—even in years when more people moved in than moved out—which suggests that people with higher-than average incomes have been leaving the state.
I'll quibble with the notion that Wisconsin has a better tax structure than Minnesota, but that is true of the other states. Of course, South Dakota has a better tax structure than all these states, except maybe Florida. Minnesota neighbors South Dakota, but South Dakota isn't a top-5 destination for fleeing Gophers. Perhaps there is a mysterious additional factor behind some of these moves.
The study is no doubt right, though, that high income taxpayers are the most mobile taxpayers. As their news release points out,
From 2002-2009 Minnesota lost an estimated 54,113 residents to other states, according to the new report, Minnesota’s Out-Migration Compounds State Budget Woes. These out-migrants also take their incomes with them. Between 1995 and 2007, the total amount of income leaving the state was at least $3,698,692,000 on which state and local governments would have collected an estimated $423,317,000 in additional taxes.
States that try "millionaire taxes," like those in Oregon, California and Maryland, are likely to see their millionaires head somewhere warm.
Via The Corner
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Crime doesn't pay?
February 11, 2010
It's funny but true; thieves must pay income tax on stolen property they keep or face tax evasion charges. (As they say, it's how they got Capone.) But since the Constitution protects individuals from incriminating themselves, you can tuck it into the "Other Income" line.
It must be a rare thief whose conscience lets him steal but makes him file an honest tax return.
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When can you deduct your lawyer fees?
February 11, 2010
When they defend your business, for starters. TaxGrrrl has the scoop.
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Moving to a new job?
February 11, 2010
Roni Deutch tells you what you can deduct, and what you can't.
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Make them buy my stuff!
February 10, 2010
Ethanol factories everywhere are struggling. So maybe we should stop building them?
Nah. Legislative supergenius Jack Kibbe has a better idea: make it illegal to not buy ethanol. He proposes a requirement that all gasoline sold in Iowa for vehicles contain at least 10% ethanol.
Kibbie, who also has sponsored a bill that would require all diesel fuel in Iowa contain at least 5 per cent biodiesel, said "Iowans should be proud of their renewable fuels industry,"
I'd be more proud if I didn't have to subsidize it. Now will Mr. Kibbe extend this to every struggling Iowa industry? I hear the filmmakers are struggling. Let's require all films and DVDs sold in Iowa to have a 10% Iowa content. Tourism isn't doing well? All vacations must be spent 10% in Iowa destinations. You dumb people wouldn't support your fellow Iowans otherwise!
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Film Fiasco: where was the Iowa Department of Revenue?
February 10, 2010
Did the Iowa Department of Revenue know that things were badly amiss with the film credit program almost a year before the program collapsed in scandal last September? A passage in the criminal complaint against former Film Office Director Tom Wheeler, makes it look as though the practice of running "in-kind" expenses through the program -- that is, imaginary ones -- was put before the department as early as October 2008:
During the Months of October and November, 2008, the producers filmed "the Scientist" on locations in Omaha, Nebraska, Bellevue, Nebraska, and Council Bluffs, Iowa...During production of "the Scientist," a representative of Iowa Department of Revenue informed [producer] Weiner and her accountant that any single "service in kind" could not qualify as the basis for both an Expenditure Tax Credit and an Investment Tax Credit. Through Chad Witter, who was listed on the project both as an investor and as a consultant, the producers sought, but did not receive, a change in this ruling.
I'm unable to find any such "ruling" in the Department of Revenue online library. If this account is accurate, though, the Department not only knew that pretend expenses were being run through for tax credits, they apparently approved the practice, as long as any single "in kind" expense was used for only one of the two film credits.
Bureaucracies are ponderous things, and it's not shocking that the Department of Revenue didn't ask the Film Office what they were smoking. Still, it's apparent that Mr. Wheeler's out-of-control operation wasn't a closely-guarded secret, known only in his cubicle at the Department of Economic Development. The truth was out there in the fall of 2008. Somehow it wasn't enough to trigger action.
Related: If this is a crime, they won't be able to build enough jails
Other blog coverage:
Tax Policy Blog
Bleeding Heartland
WebCPA
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Let's hope he was a better Chiropractor than criminal mastermind
February 10, 2010
From TaxGrrrl, a story of a Chiropractor who should have not branched out into unlicensed activities:
At the time of the fire, Wiktorchik implicated a gang. He said that he was attacked by Spanish-speaking gang members shouting “Viva trece!” which means, “Long live thirteen!”Wiktorchik had previously pleaded guilty to insurance fraud and lost his chiropractic license...
Wiktorchik also is charged with lying to the IRS. At the time of the fire, he was under investigation from the IRS for the tax year 2005. Wiktorchik claimed that his 2005 business tax records were destroyed in the fire but those records were actually in his home, and not at his office.
If his chirporactic skills aren't better than his criminal skillz, Bucks County, Pennsylvania is full of people with horrific back pain.
The Moral: If you are going to commit arson to keep your records from the IRS, make sure the records are in the building you burn. Or don't get to where you feel you need to hide your records.
Russ Fox has more.
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Amazon taxes, Mauled.
February 10, 2010
Villanova law prof Jim Maule addresses the push for "Amazon taxes" on online vendors:
Instead of arguing for the closing of a tax loophole that does not exist, the advocates of SSTA or other use-tax-collection-burden-shifting devices ought to lobby their state legislatures to compel their revenue departments to figure out how to do their job.
The trouble is that politicians and bureaucrats are much happier collecting from out-of-state vendors than from their own voters.
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Is there an estate tax, or isn't there?
February 10, 2010
Right now there is no Federal estate tax. That doesn't mean you should die today or anything, as they could re-enact the estate tax retroactively. Or maybe not. Roger McEowen updates the state of the undead death tax.
Meanwhile, alert reader Bruce Zweig notes that American Century Funds says that we do have an estate tax for 2010 -- or at least an estate tax exclusion of $3.5 million:
If they really have this insight into the future, it's no wonder they are a successful fund family.
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If this is a crime, they won't be able to build enough jails
February 09, 2010
Welcome, Instapundit readers! For some background on the film credit scandal, the including taxpayer-funded Mercedes, go here. Our full film credit coverage can be found here.
It's now a crime to be a bungling bureaucrat? At least that's the way it looks from the first indictments in the Iowa Film Office criminal investigation. O. Kay Henderson reports:
Former Film Office manager Tom Wheeler of Indianola was fired in September after questions were raised about how state tax credits to film and TV productions were being managed. Wheeler has been charged with non-felonious misconduct in office, a serious misdemeanor. If convicted, Wheeler faces a fine of up to $1875. In addition, he could be sentenced to up to a year in prison.
I'm sure that to Mr. Wheeler the charges are deadly serious, but if that's all they can come up with after a four-month investigation, it's pretty weak. They make no allegations that Mr. Wheeler benefited from the incontinent granting of film credits. It appears to be a charge of criminal ineptitude. If that's illegal, then the State Capitol, the Hoover Building and the Lucas State Office Building are dens of crime.
The Iowa State Capitol: a den of criminals?
Attorney General Tom Miller also announced more serious theft charges against two Minnesota filmmakers, accusing them of submitting inflated expenses to claim excessive film credits for a film called "The Scientist." These expenses include two $225 brooms and a $1,225 12-foot stepladder.
Documents in the case allege a newly-disclosed way the Film Office permitted the creative class to loot the state treasury:
Wheeler permitted filmmakers to allow owners of the filmmaking entity to be paid to provide "qualifying expenditure" services to the film project, provided those parties had tax IDs different from the tax ID of the filmmaking entity. This artifice, which was among those employed by the producers... allowed issuance of expenditure tax credits for payments to producers, directors and others who are expressly excluded in the Act's definition of "qualified expenditures."
So the State of Iowa subsidized the creation of tax ID numbers. That surely did great things for economic growth.
The documents also outline now-familiar practices of using strawmen LLCs to pretend that money spent out of state was really an Iowa expense, and using "in kind" (i.e., imaginary) expenses to obtain more credits.
The charges are interesting for what they leave out. In addition to not charging Mr. Wheeler with taking any improper personal benefit, the Attorney General has filed no charges relating to the infamous tax credits for a Land Rover and a Benz.
Mr. Wheeler denies any wrongdoing. From a criminal perspective, that could well be true. But from a policy and administrative viewpoint, Mr. Wheeler has plenty to answer for. So do his 147 accomplices in the legislature and his bosses in the Department of Economic Development and the Governor's Office.
Links:
Des Moines Register Coverage
AP Coverage
Tom Miller Press Release
Documents in the Wheeler Case
Documents in the Filmmaker Charges.
Related:
Tax Update Coverage of the Film Criminal Investigation
UPDATE: More from the Tax Policy Blog
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The 1986 Massacre of the Innocents
February 09, 2010
Future archaelogists will puzzle over the apparent loss of millions of children in 1986. About seven million dependents claimed on 1040s failed to show up in the following year. Freakonomist Steven Levitt puts a human face on this tragedy (via the TaxProf):
He told the story ... of the midlevel employee who had been with the IRS for some 30 years who became fascinated over time by what sort of creatures and things taxpayers listed as dependents. Clearly, many of these “dependents” were pets, made-up children and even objects. For many years, the IRS only asked taxpayers to put down a name for their dependents, so the employee suggested that tax forms also require that dependent social security numbers be listed. The IRS resisted until finally taking his advice in 1986, and in that first year, some seven million "children" and other "dependents" disappeared from the United States, resulting in increased federal tax collections of nearly $3 billion.Levitt told this story to his father, "and he admitted that I had lost a brother and sister that fateful night."
This tragic story was repeated nationwide millions of times. Oh, thou bloody tax law!
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Ever since Fort Sumter, they've been looking for ideas
February 09, 2010
Russ Fox reports:
...from South Carolina comes the word that anyone who wants to overthrow the United States Government must register with the South Carolina Secretary of State for $5.
It's not clear whether Confederate notes are required as payment.
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Spending run through a tax return is still spending
February 08, 2010
The state issues a report saying that it can't show that a single one of Iowa's economic development tax credits does any good. So the legislature responds by eliminating the credits and lowering tax rates for everyone, right?
Well, no. Unfortunately this press release from Brad Zaun, a state legislator who is running for Congress, isn't an unusual reaction:
Let's create jobs, not raise taxesWe should utilize the Tax Credit Review Panel’s recommendations to create common sense solutions – not use it as an opportunity to create a crisis and then propose to solve it by increasing taxes on hard working Iowans. This is not the time to be raising taxes – we should instead be working together to find common sense solutions that will create and retain private sector jobs.
A subsidy is a subsidy is a subsidy. Running it through the tax return doesn't transform it to a "tax cut." The only tax cuts worthy of the name are those that are broad-based and go to all similarly-situated taxpayers. When you give a tax break only to taxpayers who jump thorugh a bunch of hoops, it's a subsidy.
Worse, when you have subsidies for specific activities -- say, for ethanol, or windmills, or biodiesel, or "research" -- you take for granted that the State of Iowa has any clue about where taxpayers should invest. Fat chance of that. These subsidies inevitably go to those who can afford the necessary lobbyists and fixers.
If you really want to encourage growth, you need a tax plan that works for the rest of us -- something like the Quick and Dirty Iowa Tax Reform Plan.
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More client service than the law allows
February 08, 2010
You can sell your skills to your clients, but you can't sell them deductions:
For no legitimate business purpose, Loeser's clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients' books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.
Jack Townsend, noting that the IRS suspended Mr. Loeser, a CPA, from IRS practice for 12 months, hints that the suspension would be a great result for the practitioner under the circumstances. Peter Pappas has more.
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And if you must fight, please don't bleed on the carpet
February 08, 2010
Sound tax client etiquette advice from Trish McIntire:
Don’t put the preparer in the middle of a family fight. The same can be said about putting down another person or group.
There is no "licensed social worker" part of the CPA exam.
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But he had to settle for second-best
February 08, 2010
Clarence Thomas: If Not for the Supreme Court Gig, I'd Be ... A Tax Lawyer
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Darkest secrets revealed
February 07, 2010
At Going Concern: Five Questions with Joe Kristan
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Snow on Court Avenue
February 05, 2010
We're freshening up the snowcover at 4th and Court today in Downtown Des Moines.
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Die early and save!
February 05, 2010
Elective deemed death may be the gimmick to break the estate tax deadlock. The Wall Street Journal reports:
A proposal to allow wealthy people to prepay estate taxes while they are still alive, in exchange for a lower tax rate, has caught the attention of Senate staff trying to craft a bipartisan, permanent compromise on the estate tax.The estate tax prepayment idea is being pushed by Sen. Maria Cantwell (D., Wash.) as a possible compromise between senators who want a permanent, 35% estate tax rate and the position of President Barack Obama, who supports a 45% rate on inherited wealth. ...
The plan would allow wealthy people to place assets in a prepayment trust while they are still alive. Those assets would be subject to a 35% tax, which the estate owner would have five years to pay, according to a document describing the plan, obtained by Dow Jones Newswires. ... [T]he measure could be expected to have a net positive effect on revenue over the next 10 years to the extent that wealthy families begin to prepay taxes to take advantage of the lower rate.
Actually, the just-expired tax law already has a provision that pretty much does that. It's called the gift tax. The tax cost of gifting assets is lower than that of passing them on at death because the gift tax rate is imposed only on assets that reach the next generation; the estate tax is imposed on the whole estate, including the amount that has to go to the government to pay the tax. Sure, you have to give assets away to qualify for the gift tax, but that's just a detail.
In real life, relatively few people make taxable gifts, even when it means estate tax savings. It's unlikely that Senator Cantwell's deemed death provision would be much more popular.
Via The TaxProf.
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Self-swappers seek Supreme Court review
February 05, 2010
A company whose attempted like-kind exchange failed because it replaced the exchange property with replacement party from a related party is seeking Supreme Court review, reports Tax Analysts ($link).
Teruya Brothers Ltd. used a qualified intermediary to hold funds on the $13 million sale of two properties to an unrelated party. They met the Section 1031 45-day and 180-day requirements for identifying and closing on the replacement property, but they acquired the replacement property from a corporation related to Teruya Brothers.
The Tax Court and the Ninth Circuit appellate panel agreed with the IRS that the use of the related party converted the transaction to a swap between the two related parties, followed by an immediate sale of the $13 million properties to the unrelated party. As the tax law says that a sale of a property acquired from a related party within two years of the exchange disqualifies the original swap, this made the original transaction taxable.
Teruya Brothers argues that this result is an unauthorized IRS rewrite of Section 1031. The odds are always against taxpayers seeking Supreme Court review. Unless and until the Supreme Court reverses this result, taxpayers are wise to not have their qualified intermediaries acquire replacement property from related parties.
Related: A LIKE-KIND EXCHANGE DISASTER (RELATIVELY SPEAKING)
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'Indefinite' doesn't mean 'temporary'
February 04, 2010
Tough times force us to be flexible. Tough times forced an out-of-work electrician in Lake Mary, Florida to take a job 200 miles away in Delray Beach. The Tax Court picks up the story:
Although the position was permanent, petitioner intended it to be an interim position while he pursued other employment opportunities....
From August through December 2006 petitioner drove between Lake Mary and Delray Beach. Petitioner drove to Delray Beach at the beginning of the work week and stayed in a motel during the week. Petitioner returned to Lake Mary on the weekends so as not to incur additional motel costs for days he was not working. The 5 days a week petitioner was in Delray Beach he stayed at a motel. In mid-December 2006 petitioner signed a 1-year lease for an apartment in Delray Beach.
In September 2007 petitioner left his position with Meisner for a position with M.J. Electrical based out of Iron Mountain, Michigan. Petitioner began his employment with M.J. Electrical in Topeka, Kansas, but at the time of trial worked for that company in Morgantown, West Virginia.
The tax law allows you to deduct travel costs of work assignments when you are "temporarily" away from your "tax home." That means you have to be both "away from your tax home" and the assignment has to be "temporary." The Tax Court explains the tests (citations omitted):
As a general rule, a taxpayer's tax home is determined by the location of the taxpayer's principal place of employment, regardless of where the taxpayer's personal residence is located. Under an exception to the general rule, a taxpayer's personal residence may be his tax home where the taxpayer is away from home on a temporary rather than indefinite basis. The flush language of section 162(a) provides that a "taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year."Employment is defined as "temporary" only if the taxpayer can foresee its termination within a reasonably short period of time or it is for a fixed duration. Indefinite employment is employment where the prospect is that the work will continue for an indefinite and substantially long period.
The electrician's "tax home" became his place of employment when he took the full-time position in Delray Beach, even though he commuted from far away:
Given the circumstances surrounding his employment with Meisner, we can understand why petitioner might consider his position "temporary", as that word is used in common parlance. After all, at all relevant times it was his intention to resign the position with Meisner as soon as possible for business as well as personal reasons.Nevertheless, the position with Meisner was a permanent position with no foreseeable terminus. When petitioner accepted the position with Meisner, he had a reasonable expectation that the position would, and it in fact did, last more than 1 year... Petitioner kept his residence in Lake Mary for reasons of personal choice despite, rather than because of, the exigencies of his trade or business.
Consequently, because petitioner's position with Meisner in Delray Beach was an indefinite position, Delray Beach was his tax home for the relevant period. Because petitioner was not "away from home" within the meaning of section 162(a)(2) while in Delray Beach, he is not entitled to a deduction for vehicle expenses, lodging, and meals and incidentals incurred as a result of his position in Delray Beach. Instead, his costs were in the nature of personal or living expenses. We thus sustain respondent's determination on this issue.
Bottom line? No deduction for travel from Lake Mary and for the motel bills in Delray Beach.
The Moral? Indefinite isn't temporary, and your tax home is where your job is.
Cite: Durrance, T.C. Summ. Op. 2010-12
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XY to XX
February 04, 2010
More on the Tax Court's sex-change decision, from Peter Pappas. My coverage here.
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Movies, or teachers?
February 04, 2010
Kay Bell shows some less-than-full throated sympathy for film credits:
I love movies. I get a big thrill when one is made in Texas or especially here in the Austin area. And I think productions do help boost local economies somewhat.But the tax breaks to attract the film industry, like those to entice other economic sectors, can be badly abused.
They might boost a very local economy - the folks who get paid for the shoot - but there's a corresponding loss to those who unwillingly pay the cost of the credits - the rest of us. Iowa state senator Herman Quirmbach lays out the stakes:
"This last year, the (film) credits cost $38.6 million," he said. "For that kind of money, I could save the jobs of 1,000 teachers. You tell me what's more important to the future of Iowa: 1,000 teachers or having Meryl Streep come visit."
Exactly.
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Maybe she should have tried the gold-fringed flag argument
February 04, 2010
Are courts tired of tax protesters? This terse 10th Circuit opinion, reproduced in full, gives that impression:
Marian L. Moline is another tax protester who insists on clogging the system with ridiculous arguments. She appeals an adverse decision of the Tax Court. We have jurisdiction under 26 U.S.C. § 7483. We affirm for the reasons cogently explained in the Tax Court's memorandum opinion in this case.
Link: Tax Court opinion
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Deducting the ultimate 'Brett Favre" move
February 03, 2010
The Tax Court rules on whether you can deduct the costs of switching from Team XY to Team XX. Tax Update coverage is up at Going Concern.
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Tax reform: It's just resting its eyes.
February 03, 2010
TaxVox reports that President Obama's moribund tax reform commission, featuring long-disfavored economists Paul Volker and Austan Goolsbee, may be nearly officially dead.
If true, this may be the best possible end to an embarrassing episode. The commission began life under impossible constraints, including the directive that it could consider nothing that raised taxes on those making less than $250,000.Eventually, the White House put out the word that the panel would produce only a laundry list of possible reforms, but would not make any recommendations. The final blow came in December when the panel’s deadline came and went with only a White House promise that the group would complete its work “after the holidays.” Which holidays, exactly, were never specified.
Now, it seems the tax panel’s work will be rolled into a deficit reduction panel to be named later—another group whose mandate is unclear, to say the least.
It's probably more than just a coincidence that the commission is dying just as the admistration takes Mr. Volker out of mothballs.
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Moore corporate welfare in Michigan
February 03, 2010
Michael Moore, director of Capitalism, A Love Story, is all about the unholy links between business and government. Like his:
Moore isn't just any filmmaker. He is a current member of the Michigan Film Office Advisory Council, a state organ created to advise the Michigan Film Office, which is responsible for approving applications for Michigan's film incentive program. I do not believe it strains credulity to suggest that Moore's very presence on the council may have led to the film office approving special tax treatment for his work.Giving an advisory council member's project tax credits makes this government "jobs" program look like a good ole' boys network where "la familia" takes care of its own - and with taxpayer dollars. This is not the only instance of high-ranking state officials appearing to benefit directly from the state program in which they play (or played) a role.
While Mr. Moore thinks capitalism is terrible, I understand you do have to pay to see the movie. It's good that Michigan is doing so well that it can afford to give money to somebody to explain how awful capitalism is. Oh, wait...
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When you draw a full house, the IRS is all aces
February 03, 2010
Gambling tax maven Russ Fox explains how the IRS sits in on your poker game in a new podcast.
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Loans that don't generate 'interest'
February 03, 2010
The Fifth Circuit has joined our Eighth Circuit in ruling that loans to closely-held corporations don't qualify as "business interests" for the estate tax break for interests in closely-held businesses. Roger McEowen has the details.
Link: Estate of Mary Roppolo Artall, No. 09-60092
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97 years old, if it's a day.
February 03, 2010
Andrew Mitchel reminds us that the 16th Amendment, which paved the way for the modern income tax, is 97 years old today. Unless you are one of those folks who think it hasn't been born yet (and good luck with that).
That means it's time to hear from the Old 97s:
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Accounting Blogroll is stealing taxupdateblog.com content
February 02, 2010
I can't wait to see this on the content thief's page. The "Accounting Blogroll" site (aka "Accountants Directory") is aggregating and reprinting posts from here and elsewhere without attribution. Thanks to Russ Fox for the tip.
Update: It's sweet when my evil plans work:
Screenshot from "Accountant's Directory," a/k/a "Accounting Blogroll." Click to enlarge.
Why haven't I linked? I hate to send them traffic. If you want to see for yourself, it's www.accountants-directory.info/ .
Oh, and thanks to Stacie Clifford Kitts for follow-up.
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The $40 million gain? I must have overlooked that.
February 02, 2010
A Maryland cardiologist, Pradeep Srivastava, had some heart-stopping gains from day trading in the 1990s bull market -- $40 million or so. But like so many bull market geniuses, he lost his touch in 2000. This left him with a quandry, one beyond those usually seen when you lose your shirt in the market -- he had never bothered to mention his gains to his tax preparer.
The Department of Justice picks up the story:
The evidence proved that in 2000, the value of Srivastava’s portfolio collapsed and he incurred massive capital losses. Disclosure of the full extent of those losses, however, would have potentially alerted the Internal Revenue Service to his massive, undisclosed short-term capital gains for 1998 and 1999, therefore, trial testimony showed that Srivastava filed a false tax return which understated his capital losses for 2000.
Busted for filing a return understating your income? That's different. In addition to that, a jury convicted Mr. Srivastava of evading $16 million in taxes in 1998 and 1999. Last week he was sentenced to 48 months in prison. It could have been worse; federal sentencing guidelines indicate a 63-78 month sentence for a $16 million tax loss.
The Moral? Next time you make $40 million day-trading, write it down somewhere so you don't forget to put it on your tax return.
Link: Washington Post 2005 writeup on Mr. Srivastava's legal troubles.
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Got Basis?
February 02, 2010
There's a handy S corporation basis worksheet to determine your deductible S corporation loss at The Tax Lawyer's Blog.
It's a shame that the IRS has never built this into the 1120-S Schedule K-1.
For more on S corporation basis and loss limitations: Got Business Losses? Get Basis
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Other than that, the President's budget is just fine
February 02, 2010
Now that the President and his budget director Peter Orszag have abandoned the leadership of achieving minimally necessary deficit reduction I hope we never hear them again talking tough about deficit reduction. Yes, it's hard work, but that is why we call them leaders, give them big offices, and get them good seats at the Kennedy Center. They wimped out of their most basic responsibility of putting the budget on a sustainable path.
Oh, well.
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Take a walk through the 1040 Schedule M
February 02, 2010
TaxGrrrl conducts a handy step-by-step tour through Schedule M, the form used to claim the "Making Work Pay Credit."
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Six more weeks of Winter Carnival!
February 02, 2010
It's cold, and it's getting colder. Six more weeks of winter seems like a safe bet. Time to go somewhere warm for hot coffee and a fresh Groundhog Day Carnival of Taxes at Kay Bell's place.
And tip your waitress.
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Starlets or teachers?
February 02, 2010
Senator Herman Quirmbach, on film credits:
"This last year, the (film) credits cost $38.6 million," he said. "For that kind of money, I could save the jobs of 1,000 teachers. You tell me what's more important to the future of Iowa: 1,000 teachers or having Meryl Streep come visit."
Exactly so. And it's the same kind of consideration that should be applied to all of the corporate welfare credits. These things cost real money.
Related: Let them eat Canapes
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Yes, it is getting harder to do this.
February 01, 2010
From CCH, via Kay Bell, comes a great illustration of what a hash Congress has made of the tax law:
The circled bookshelf represents the tax law in 1984, when I got out of school and started doing this for a living. It shows what happens when Congress sees the tax law as the Swiss Army Knife of public policy -- it can do it all! All the preparer regulation in the world isn't going to make up for the errors caused by tax complexity. Congress, it's your fault.
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Trust your payroll service, but not too much.
February 01, 2010
Vincent Mangione, an upstate New York payroll service provider was a small businesman's worst nightmare. Russ Fox reports:
Assistant US Attorney Michael DiCiacomo told the Buffalo News,"Unbeknownst to the businesses, Mangione would secure from the businesses the proper amount of quarterly tax due to the IRS and then submit a false tax return on behalf of the business that underreported the amount of tax due," DiGiacomo said. "According to the indictment, Mangione would then keep the difference for his personal use." Mr. Mangione, through his attorney, denies any wrongdoing.
The worst part:
None of the small businesses that hired Mangione to handle payroll have been criminally charged in the case, but they face potential tax problems with the IRS."They still have obligations to the IRS for taxes not fully paid," DiGiacomo said of the companies.
Having to remit payroll taxes and withholding twice -- once to the IRS, and once to a thief -- is enough to kill many businesses. That's why anybody who uses a payroll service should still enroll in the Electronic Federal Tax Payment System, EFTPS, so they can go online and verify that the money that goes to the payroll service actually gets to the IRS.
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Feeling risky?
February 01, 2010
Then take your chances and head over to the new Cavalcade of Risk at Wenchypoo's place.
Among the worthy posts at the greatest roundup of blog posts on insurance and risk management on the planet is Hank Stern's analysis of how cell phones seem to help dementia in mice. How they teach the mice to use the little phones, I'll never know.
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New York Buffaloes Bed Buffaloes
February 01, 2010
New York goes after a tax blogger's dependent deduction. Bureaucracy ensues.
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One step over the (state) line
February 01, 2010
My new post at IowaBiz.com talks about how easy it is to find yourself subject to taxes in other states.
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Metaphor wars
February 01, 2010
Christopher Bergin, 2/2/2010 ($link):
When the IRS talks about transparency, it's a one-way street.
Tax Update, 1/27/2010:
Transparency is a one-way mirror as far as the IRS is concerned.
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