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

Let them eat canapes

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!

...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.

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 taxes

We 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.

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.

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.

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.

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)

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

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.

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