TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, May 19, 2017

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses a recent Tax Court case highlighting the perils of do-it-yourself tax preparation.

KristanThe perils of do-it-yourself tax prep.

I’ve tried to do plumbing myself. I have learned that it is cheaper in the not-very-long run to pay a plumber.

An insurance consultant learned a similar lesson about tax preparation in Tax Court last week. His client specialty was accountants. Whether out of thrift or because he didn’t want to be seen playing favorites, he used TurboTax. It went badly in Tax Court.

The taxpayer claimed disallowed deductions for alimony and for a net operating loss. The court determined that he reported too much Alimony, and that he whiffed entirely on the NOL. The deficiency was big enough to bring the 20% “accuracy related” penalty into play. Judge Holmes considers the issue:

The burden then swings to [the taxpayer] to show that his mistakes were reasonable and in good faith. See sec. 6664(c)(1). He cannot. He admitted during trial that he deducted items he shouldn’t have, and that he overstated certain losses. He tried to blame TurboTax for his mistakes, but “[t]ax preparation software is only as good as the information one inputs into it.” Bunney v. Commissioner, 114 T.C. 259, 267 (2000). We therefore find for the Commissioner on this issue.

While the decision doesn’t say what the penalty amount is, it is no less than $1,000, and is probably well over that. That money might have been better invested in an actual accountant who would understand what a net operating loss is.

The Moral?  As it ever was, garbage in, garbage out. And cheap tax preparation is often the most expensive kind.

Cite: Bulakites v. Commissioner, T.C. Memo. 2017-79 (May 11, 2017).

Monday, May 15, 2017

Annette Nellon, 10th Anniversary Blog Post. Congratulations, Annette!

Career Corner. What’s Your Job Search Plan?  (Marsha Leest, Going Concern)

Carl Smith, Taxpayer Who Detrimentally Relied on IRS Erroneous Filing Information Properly Tossed from Tax Court (Procedurally Taxing)

Dylan Grundman, South Carolina’s Gas Tax Deal: Could Have Been Worse, Could Have Been Better (Tax Justice Blog). “South Carolina lawmakers this week raised the state’s gas tax for the first time in 28 years, a time period that tied for the third-longest in the nation.”

Jack Townsend, New DOJ Charging and Sentencing Recommendation Guidance. “The perceived evils giving rise to the new guidance do not seem present in most tax crimes cases.” But they may apply anyway.

Jason Dinesen, Glossary: Non-Deductible IRA Contributions

Kay Bell, Tax audit lessons from ‘Mom’ on, of course, Mother’s Day. “You don’t see the connection? Then you missed the season finale last week of the CBS show ‘Mom.'”

Kristine Tidgren, First-Time Homebuyer Savings Accounts Are Coming to Iowa (Ag Docket):

The benefit of the new law is that account holders may exclude from their Iowa adjusted gross income (AGI) yearly deposits into FTHSAs in amounts up to $2,000 a year. Married taxpayers who file a joint return may exclude up to $4,000 a year if that money is deposited into a joint account. These exclusion amounts will be adjusted yearly for inflation. Yearly interest earned on these accounts is also excluded from Iowa income.  Individual account holders may not exclude from income more than $20,000 in FTHSA deposits during their lives. Although there are limits to the amount of deposits that may be excluded from an account holder’s income, there is no limit to the amount of non-tax-preferred deposits he or she may make to an FTHSA.

Let the games begin.

Lew Taishoff, LEW. “CSTJ Peter (“Modesty”) Panuthos is stepping down as Boss of the small judges of the small court, effective 9/1/17. He has served for twenty-five (count ‘em, twenty-five) glorious years as Chief, out of a total of thirty-four years on the USTC bench.”

Mike Feehan, Aetna out. Who’s still in? Anyone? Anyone? “It’s not like Aetna hasn’t been warning of doing exactly this, and for pretty much the same reasons, for months – many months, years even.”

Peter Reilly, Mississippi Taxing – Nuclear Power And Accusations Of Racism. “After nearly thirty years, the claims of racial bias still have not gotten a hearing.”

Robert D. Flach has a fresh Buzz roundup!

Roberton Williams, Caught Again By The AMT (TaxVox). “I wrote a big check to the IRS last month, but that’s not what bothers me. I don’t like having to calculate my taxes twice with two sets of complex tax rules. And no matter what I do, short of getting a huge raise or quitting my job, I’m stuck on the AMT.”

Robert Wood, How IRS Audits Can Become Criminal Investigations. “Many big, messy and expensive tax disputes come down to trying to morph personal into business to get a write-off.”

Roger McEowen announces his Summer Farm Tax/Farm Estate and Business Planning Conference. If you can’t make it to Sheridan, Wyoming, the conference will be webcast.

Russ Fox, Do You Need a License to Sell Bitcoins?. “Do I need a license to sell Bitcoins to a friend? The answer is likely no. But if I go into the business of selling Bitcoins the answer appears to be yes.”

Scott Drenkard, Tom VanAntwerp, How Stable is Cigarette Tax Revenue? (Tax Policy Blog). “Across almost all states, tax rate hikes are met with a momentary bump in revenue, followed by a falloff in collections in future years.”

TaxGrrrl, Anonymous Coinbase Users Seek To Intervene In IRS Efforts To Access Bitcoin Info

TaxProf, Grewal:  Congress Handcuffs The IRS. Quoting the University of Iowa tax law professor: “Nonetheless, the IRS may face hardships, because its funding remains significantly below its 2010 level ($13.6 billion) while its responsibilities have greatly expanded in recent years, especially because of the Affordable Care Act.”

TaxProf, Higher Taxes Lead To Consistently Worse Results In MLB, NBA, NFL, And NHL. Quoting a study by Erik Hembre, University of Illinois at Chicago:

Results of the analysis [Income Taxes and Team Performance: Do They Matter?] show that higher taxes consistently predict worse performance in every league — not just the N.B.A. but also Major League Baseball, the N.H.L., and the N.F.L. over the past 20 years. The findings do not change if I use championships or finals appearances instead of regular season wins, and no single city, team or year drives the results.

Taxes matter. They aren't everything, but they are a thing.

 

 

Tuesday, May 16, 2017

Andrew Mitchel has 5 New Tax Charts. These are great helps in navigating branch transactions.

David Brunori, Cynically Ignoring the People (Thomson Reuters Tax & Accounting Blog):

Do you want to know why people hate politics? Politicians? Just look to Oregon. Just last November, voters in Oregon rejected the creation of a gross receipts tax by a 59 to 41% margin. That is a landslide…

You would think that after a crushing defeat, pro gross receipts people would give it a rest. But six months later, they are back at it – legislatively. The people who want to adopt a gross receipts tax are taking their case to the legislature. That is right. After the citizens soundly rejected the idea, the pro taxers are asking the legislature to ignore them. I am not sure why that happens. It seems downright insulting to me.

Gross receipts taxes are an awful idea that seems to be gaining favor in the states in spite of the awfulness.

Howard Gleckman, Who Would Benefit From A Tax Cut on Partnerships And Other Pass-Throughs? (TaxVox):

There are a couple of reasons why the benefits are so skewed to upper-income households. First, nearly two-thirds of those with pass-through income are already in the 15 percent bracket or below. Thus, they wouldn’t benefit at all from cutting the pass-through rate to 15 percent. They are already there.

Second, while most pass-through filers are low- or middle-income people, most pass-through income is made by a relative handful of business owners. They may be doctors, lawyers, partners in investment firms, or even owners of large non-publicly traded businesses. TPC estimates that this year, nearly 90 percent of pass-through income will go to the top 20 percent of households and half to the top one percent.  And the benefits of the rate cuts follow the money.

While I think individual rates are too high, a pass-through cut is the wrong answer. People will game the system, and the tax law will become even more complicated as patches are enacted to fight the gaming. Better to make individual and corporate top rates the same, with integration so that corporation income isn’t taxed twice. A dividends-paid deduction with an excise on dividends paid to tax-exempts might be the way to go.

Jack Townsend, District Court Denies Sufficiency Motion for Tax Evasion and Tax Obstruction. ” During the pretrial proceedings, Pflum thrashed around in various ways, including representing himself pro se at times. The jury convicted.”

Jim Maule, Me, My Big Mouth (or Is It Irrepressible Keyboard?), and Taxes.

Kay Bell, Oklahoma freezes standard tax deduction amounts. “Federal tax reform is still a ways off, but the prospect of an Internal Revenue Code rewrite already has prompted Oklahoma to change one of its tax laws.”

Leslie Book, Oral Argument This Week on State Qui Tam Action Involving Citigroup (Procedurally Taxing). “Readers may recall from fall of 2015 a post by Professor Eric Rasmusen discussing a New York State False Claim complaint he filed in connection with allegations that the government’s purchase of Citigroup stock should have triggered Section 382 to apply to limit the bank’s net operating losses.”

Lew Taishoff, WENT FOR THE GOLD, GOT SILVER. “Whatever the fate of the Patient Protection and Affordable Health Care Act, I look forward to plenty of good blogfodder therefrom.”

Liz Cuthbertson, UK Property – still the real deal? (Tax Plus Blog, U.K.). “Further tax complexity for real estate purchases has not cooled down and, from 6 April 2017, all UK residential property is in the scope of UK inheritance tax, regardless of the vehicle it is held in.”

Margaret Van Houten, Digital Assets Bill Signed by Governor Branstad (Davis Brown Tax Law Blog): “This Act allows individuals to give their fiduciaries the authority to gain access to their digital assets including accounts, information, media, and electronically stored documents, whether on a personal computer, tablet, cell phone, or in the cloud.  It also provides a legal means to pass them along to their heirs in accordance with their wishes.”

News from the Profession. One Accountant’s Obsession with BMWs Cost Him His Family, His Freedom, and His CPA License (NYSSPA). “I need to tell you both something. My wife left me. My kids won’t talk to me. I lost my job. I embezzled almost a half a million dollars because I’m addicted to BMWs, and have been hiding them all over the state. I’ll probably be going to prison soon.”

Robert D. Flach, DEAR GRADUATE. “As it is college graduation time I thought I would reprint some advice to recent graduates that I had given in a post from a couple of years back.”

Robert Wood, If You Pay Ransom, Write It Off On Your Taxes. “If you pay hackers ransom to keep your business operating, is it tax deductible?”

TaxGrrrl, All Parties Claim Victory In Russian Money Laundering Case. It seems dangerous to be in the vicinity of upper-story windows in Russia.

 

Wednesday, May 17, 2017

Andrew Mitchel has 5 New Tax Charts. These are great helps in navigating branch transactions.

David Brunori, Cynically Ignoring the People (Thomson Reuters Tax & Accounting Blog):

Do you want to know why people hate politics? Politicians? Just look to Oregon. Just last November, voters in Oregon rejected the creation of a gross receipts tax by a 59 to 41% margin. That is a landslide…

You would think that after a crushing defeat, pro gross receipts people would give it a rest. But six months later, they are back at it – legislatively. The people who want to adopt a gross receipts tax are taking their case to the legislature. That is right. After the citizens soundly rejected the idea, the pro taxers are asking the legislature to ignore them. I am not sure why that happens. It seems downright insulting to me.

Gross receipts taxes are an awful idea that seems to be gaining favor in the states in spite of the awfulness.

Howard Gleckman, Who Would Benefit From A Tax Cut on Partnerships And Other Pass-Throughs? (TaxVox):

There are a couple of reasons why the benefits are so skewed to upper-income households. First, nearly two-thirds of those with pass-through income are already in the 15 percent bracket or below. Thus, they wouldn’t benefit at all from cutting the pass-through rate to 15 percent. They are already there.

Second, while most pass-through filers are low- or middle-income people, most pass-through income is made by a relative handful of business owners. They may be doctors, lawyers, partners in investment firms, or even owners of large non-publicly traded businesses. TPC estimates that this year, nearly 90 percent of pass-through income will go to the top 20 percent of households and half to the top one percent.  And the benefits of the rate cuts follow the money.

While I think individual rates are too high, a pass-through cut is the wrong answer. People will game the system, and the tax law will become even more complicated as patches are enacted to fight the gaming. Better to make individual and corporate top rates the same, with integration so that corporation income isn’t taxed twice. A dividends-paid deduction with an excise on dividends paid to tax-exempts might be the way to go.

Jack Townsend, District Court Denies Sufficiency Motion for Tax Evasion and Tax Obstruction. ” During the pretrial proceedings, Pflum thrashed around in various ways, including representing himself pro se at times. The jury convicted.”

Jim Maule, Me, My Big Mouth (or Is It Irrepressible Keyboard?), and Taxes.

Kay Bell, Oklahoma freezes standard tax deduction amounts. “Federal tax reform is still a ways off, but the prospect of an Internal Revenue Code rewrite already has prompted Oklahoma to change one of its tax laws.”

Leslie Book, Oral Argument This Week on State Qui Tam Action Involving Citigroup (Procedurally Taxing). “Readers may recall from fall of 2015 a post by Professor Eric Rasmusen discussing a New York State False Claim complaint he filed in connection with allegations that the government’s purchase of Citigroup stock should have triggered Section 382 to apply to limit the bank’s net operating losses.”

Lew Taishoff, WENT FOR THE GOLD, GOT SILVER. “Whatever the fate of the Patient Protection and Affordable Health Care Act, I look forward to plenty of good blogfodder therefrom.”

Liz Cuthbertson, UK Property – still the real deal? (Tax Plus Blog, U.K.). “Further tax complexity for real estate purchases has not cooled down and, from 6 April 2017, all UK residential property is in the scope of UK inheritance tax, regardless of the vehicle it is held in.”

Margaret Van Houten, Digital Assets Bill Signed by Governor Branstad (Davis Brown Tax Law Blog): “This Act allows individuals to give their fiduciaries the authority to gain access to their digital assets including accounts, information, media, and electronically stored documents, whether on a personal computer, tablet, cell phone, or in the cloud.  It also provides a legal means to pass them along to their heirs in accordance with their wishes.”

News from the Profession. One Accountant’s Obsession with BMWs Cost Him His Family, His Freedom, and His CPA License (NYSSPA). “I need to tell you both something. My wife left me. My kids won’t talk to me. I lost my job. I embezzled almost a half a million dollars because I’m addicted to BMWs, and have been hiding them all over the state. I’ll probably be going to prison soon.”

Robert D. Flach, DEAR GRADUATE. “As it is college graduation time I thought I would reprint some advice to recent graduates that I had given in a post from a couple of years back.”

Robert Wood, If You Pay Ransom, Write It Off On Your Taxes. “If you pay hackers ransom to keep your business operating, is it tax deductible?”

TaxGrrrl, All Parties Claim Victory In Russian Money Laundering Case. It seems dangerous to be in the vicinity of upper-story windows in Russia.

 

 

Thursday, May 18, 2017

Career Corner. Are You Working for a Donald Trump?  (Caleb Newquist, Going Concern). There’s more than one?

Carl Davis, Investors and Corporations Would Profit from a Federal Private School Voucher Tax Credit (Tax Justice Blog). Left or right, not every problem is a tax problem.

Jack Townsend, CCA on Application of Refund Statute of Limitations in OVDP

Jason Dinesen, If Newly Self-Employed, Beware of Self-Employment Tax. “Self-employment tax is the bane of existence for many sole proprietors. And it’s often a surprise to people who are new to self-employment — they file their tax return and find out that things often turn out much differently when you’re self-employed.”

Kay Bell, Rep. Ben Sasse says we’re not helping kids grow up. Do tax breaks contribute to Americans’ extended parenting? “In the book, which is subtitled ‘Our Coming-of-Age Crisis — and How to Rebuild a Culture of Self-Reliance,’ Sasse also points to what he calls misbegotten government programs that have helped stall young people’s participation in traditional coming-of-age rites, such leaving home, starting a family and becoming economically self-reliant.”

Kristine Tidgren, Regularly Review Those Estate Planning Documents (Ag Docket). “…a poorly drafted “right to purchase” clause and a failure to update the trust upon the exchange of property spawned expensive litigation…litigation from which no one emerged victorious.”

Leslie Book, Court Rules Abusive Tax Shelter Penalty Has No SOL; Laches Also Not A Defense (Procedurally Taxing). “Over the last couple of decades there has been a vast increase in the number of civil penalties in the Code. When Congress gets around to revising the civil penalty regime, it would be well served to look at these non return based penalties and impose some outside limits on when the government can  assess these penalties.”

Lew Taishoff, “DELEGATI NON POTEST DELEGARE” – PART DEUX. “The improperly-signed SNOD is an old rounder’s gambit, and Leroy Muncy, dodge-flogger and dodger, played it well.”

Peter Reilly, IRS Leans On LA Tax Assessors For Land Building Allocation. Peter discusses a real estate owner who apparently allocated no value to the land and depreciated the whole thing:

The IRS looked at it differently and brought in some additional data.  In 2012 the Los Angeles County Office of the Assessor valued the first property at $435,324 ($189,032 improvement $236,292 land), the second at $795,000 ($305,800 improvements $489,200 land) and the third at $532,807 ($163,940 improvements $368,867 land).  That gave improvement percentages on each of the three properties of 44.4%, 38% and 31% respectively cutting the depreciation deduction for he year by more than 50% for a deficiency of $5,297.

A good discussion of the tax issues involved, and the lack of a “rule of thumb” for allocating costs between land and buildings.

Peter has a slight twist on a favorite tax aphorism:

I suspected the couple might have fallen victim to Reilly’s Eleventh Law of Tax Planning     – “Pigs get fed.  Hogs get slaughtered.”

I had always thought it was “fat,” not “fed,” but I guess “fed” makes just as much sense.

Richard Auxier, A Tale of Two Tax Triggers (TaxVox).  “Triggers can help states provide fiscally responsible tax relief—if designed well. They can also make it easy for lawmakers to pass large tax cuts that imperil future budgets—if executed poorly.” Triggers, which implement rate cuts only if financial goals are met, might help Iowa to pass tax reform without risking a fiscal mess.

Robert Wood, Tax Write-Offs For Government Settlements Could Be Restricted. “In recent years, some of the largest settlements between corporations and federal government agencies included significant tax deductions for the corporation.”

Roger McEowen, Insights Into Handling IRS Disputes. Gleanings from a day spent by Tax Court Judge Paris at Washburn Law School.

Scott Greenberg, Permanent Bonus Expensing is a Step in the Right Direction (Tax Policy Blog):

Under the current U.S. tax code, businesses are not generally allowed to deduct the full cost of their capital investments – such as equipment, buildings, inventory, and intangible property – in the year that the investments are made. Instead, companies are required to deduct their investment costs over long periods of time, according to a set of depreciation schedules. Not only is the depreciation system one of the most complicated aspects of the federal tax code, but there is also good reason to believe that requiring businesses to deduct their capital expenditures over such long periods of time discourages them from making investments in the first place.

In recent years, Congress has enacted a temporary provision known as bonus expensing, which allows businesses to immediately deduct 50 percent of the cost of their investments in equipment, machinery, and other short-lived property. This is a significant provision: about 67 percent of all business investment is eligible for bonus expensing, and economists have found strong evidence that the provision has led to higher private investment levels overall.

I doubt this will pass unless part of a bigger tax reform effort. It’s not clear anyone is capable of leading such an effort in Washington right now.

Thomson Reuters Tax & Accounting Blog, Trump Administration’s Principles for Tax Reform. “On the individual side the focus is on expanding the tax base and lowering the tax rates to support the expressed goals of tax simplification and tax relief. These would be accomplished primarily by eliminating deductions currently available and reducing the top tax rate and number of brackets.”

 

 

Friday, May 19, 2017

Iowa Congressman David Young has introduced the “Freedom from the ACA Tax Penalty Act” in reaction to the likely unavailability of ACA exchange policies in Iowa starting in 2018. From his press release: “His legislation would waive this tax penalty and requirement under Obamacare for Iowans, and any American, who has no access to health coverage because of the failing health care law.”

Jim Maule, No Tax Benefit for Being Nice. “One hopes that people would be nice for reasons other than a tax incentive to do so.” To listen to some people, nothing good happens without a tax credit.

Kay Bell, 3 big tax breaks for Americans who go into home debt.

Leslie Book, 9th Circuit Reverses District Court in Case Involving Exceptions to SOL For Failing to Disclose a Listed Transaction (Procedurally Taxing). “In an opinion that surprised me, in May v US, (an unpublished opinion) the 9th Circuit reversed and held that the taxpayer’s failure to file the form resulted in the application of an extended SOL on assessment even when the IRS admitted that it had knowledge of the information that the form itself would have contained.”

Lew Taishoff, THE RIGHT PAPER. “But once again, the power of attorney is useless if it fails to empower the agent to do what is needful.”

Meg Wiehe, State Rundown 5/18: Tax Debate Heat Wave Hitting States (Tax Justice Blog). “Late-session discovered revenue shortfalls, for example, are creating friction in Delaware, New Jersey, and Oklahoma, while special sessions featuring tax debates continue in Louisiana, New Mexico, and West Virginia.”

Mercatus Center, “Fixing” the tax code: Key  principles for successful, sustainable reform. “Successful reform should lower current individual and corporate tax rates.”

Morgan Scarboro, Which Places Pay the Most in Property Taxes? (Tax Policy Blog).

News from the Profession. Your Technology Disorder Has a Name (Megan Lewczyk, Going Concern)

Kay Henderson, The Branstad record on business, property and gas taxes(Radio Iowa). “Terry Branstad’s tenure as governor appears to be nearing its end and his impact on state tax policy is assessed differently by his supporters and critics.”

Peter Reilly, Motion To Stop IRS From Examining Marijuana Dispensary Up In Smoke. “My own view is that activists and advocates use the Constitution like a drunk uses a lamppost – More for support than illumination – but that’s just me.”

TaxGrrrl, My Mother’s Maiden Name Is Cumberbatch (And Other Lies I Tell For The Sake Of Security). “When information gleaned from social media sites can be matched to other data – say, from a recent hack or breach – it’s incredibly valuable. It can be used not only to access your existing financial accounts but also to open new accounts in your name.”

TaxProf, Tax Policy In The Trump Administration . A roundup of news on Trump and Congressional tax news.

 

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