David Kirkpatrick

November 16, 2009

Business tax credit for job creation

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 4:56 pm

A good idea that ought to become a law:

A Democratic US senator on Friday unveiled details of a plan to create a tax credit for businesses that create jobs, as the White House has called a December summit to tackle sky-high unemployment

Senator Russ Feingold’s proposal would establish a tax credit over the next two years for businesses that hire new employees, expand work hours for current employees, or raise worker pay, his office said.

“While there’s no easy way to solve the unemployment problem, the jobs tax credit would be a targeted and responsible tool to help businesses hire workers and bring down unemployment,” according to Feingold.

The credit would amount to 15 percent of eligible payroll for 2010 and 10 percent in 2011 — and would exclude pay increases for very highly salaried workers, as well as the wages of firm owners or family members.

October 23, 2009

Bruce Bartlett comes out in favor of VAT

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:13 pm

Bartlett is an interesting read these days. One of the major supply-siders back in the day, his economic positions seem to have shifted a  bit. He says, and I tend to agree with him, he’s only reacting to the conditions on the ground and his fundamental economic beliefs are no different than when Reagan held the White House. Of course a value added tax was one tax vehicle in the supply-side economic toolbox.

In a move that probably makes the heads of his old pals in the GOP explode, Bartlett writes in Forbes an extended defense of, and recommendation for, a national value added tax.

From the middle link:

few years ago, I concluded that the magnitude of our looming fiscal problem was so enormous that higher taxes were inevitable–and that was long before the recent crisis made matters vastly worse. Moreover, I concluded that the magnitude of this tax increase is so great that it would seriously cripple the economy if accomplished through higher rates on an already dysfunctional income tax system. Reluctantly, I concluded that a value-added tax (VAT) is the best way to raise the revenue that would, in any case, be raised.

When I first made this suggestion in a Los Angeles Timesarticle in 2004, I was building on a large body of tax analysis showing that the VAT is the best known way of raising revenue. When I say “best” I mean that it raises large revenues from low rates and has minimal disincentive effects. In economists’ speak, it has a very small dead weight or welfare cost–the economic output lost by the tax over and above the revenue collected.

Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe’s average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.

October 20, 2009

UBS to clients …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 12:54 pm

… “oops.”

From the link:

UBS, the embattled Swiss bank that is being forced to divulge the names of about 4,450 account holders to the IRS, may have inadvertently tipped its hand on their identities by sending them registered letters through the U.S. Postal Service.

October 2, 2009

Is a value-added tax coming?

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 3:40 pm

I sure hope not.

From the link:

President Obama has been steadfast in his pledge that he won’t raise taxes on those making less than $250,000. But that doesn’t mean only high-income households will be subject to higher taxes.

An increasing number of influential Democrats and fiscal-policy experts have signaled that lawmakers will have to get a handle on the deficit. And they recommend seriously considering the creation of a value-added tax (VAT) on top of the federal income tax.

That could mean more money out of everyone’s pockets when buying virtually anything — sweaters, school books, furniture, pottery classes, dinners out.

A VAT is tax on consumption similar to a national sales tax. But it’s not just paid at the cash register. It’s levied at every stage of production. So all businesses involved in making a product or performing a service would pay a VAT. And then the end-user — such as the retail customer — ponies up as well.

August 28, 2009

Web 2.0 and the taxman

Filed under: Business, Politics, Technology — Tags: , , , , — David Kirkpatrick @ 3:35 pm

Don’t look now, but it seems state tax authorities are lurking social networking sites to track down tax deadbeats.

From the link:

Tax deadbeats are finding someone actually reads their MySpace and Facebook postings: the taxman.

State revenue agents have begun nabbing scofflaws by mining information posted on social-networking Web sites, from relocation announcements to professional profiles to financial boasts.

In Minnesota, authorities were able to levy back taxes on the wages of a long-sought tax evader after he announced on MySpace that he would be returning to his home town to work as a real-estate broker and gave his employer’s name. The state collected several thousand dollars, the full amount due.

Meanwhile, agents in Nebraska collected $2,000 from a deejay after he advertised on his MySpace page that he would be working at a big public party.

August 21, 2009

Watch out for correspondence audits from the IRS

I’d like to see some legislation taking this ability away from the IRS. Too many problems, to many moving parts, not enough personal interaction and very clearly not enough protection for the taxpayer.

From the link:

A new report from the Treasury Inspector General for Tax Administration lends support to growing complaints about the Internal Revenue Service’s big audit-by-mail program.

The IRS has increasingly relied on these correspondence audits, focused on one or two narrow issues, to maintain its audit coverage of normal taxpayers as its auditor corps has shrunk. Taxpayers are sent a letter that, for example, says their charitable or un-reimbursed employee business deductions will be denied and a certain amount of extra taxes assessed unless they provide acceptable documentation supporting the deductions within 30 days.

But the TIGTA report concludes that the correspondence audit results reported by the IRS are “inaccurate and overstated” and that there are operational problems with the program, including significant mail processing delays. These delays can cause taxpayers who respond with documentation within the required time to be assessed extra taxes because their responses don’t get to the right IRS employee in time. Eventually, they may be able to get those taxes abated through an “audit reconsideration,” but the average time to conclude one of those is 159 days, TIGTA estimates.

August 20, 2009

Food for taxation thought

An interesting study out of the University of Michigan on the federal income tax and how that tax burden is spread out by region and size of your home town or city.

The release:

City dwellers bear disproportionate federal tax burden

Live in an expensive city? Think you pay too much in federal taxes? If so, a study in the current issue of the Journal of Political Economy finds that you’re exactly right.

According to David Albouy, a University of Michigan economist, workers in expensive cities in the Northeast, Great Lakes and Pacific regions bear a disproportionate share of the federal tax burden, effectively paying 27 percent more in federal income taxes than workers with similar skills in a small city or rural area.

Why the disparity? Workers in cities are generally paid higher wages than similarly skilled workers in smaller towns, so they’re taxed at higher rates. That may sound fair, until one considers the higher cost of living in cities, which means those higher wages don’t provide any extra buying power. The federal income tax system doesn’t account for cost of living. So the effect is that workers in expensive cities like New York, Los Angeles and Chicago pay more in taxes even though their real income is essentially the same as workers in smaller, cheaper places.

The extra burden wouldn’t be so excessive if more federal tax dollars were returned to urban areas in the form of higher federal spending. But according to Albouy’s research, that’s not the case. His data show that more federal dollars are actually spent in rural areas, despite the fact that cities send far more cash to Washington. The net effect of all this is a transfer of $269 million from workers in high-cost areas to workers in lower cost rural areas in 2008 alone.

Over the long haul, Albouy says, the larger tax burden causes workers to flee large urban centers in the Northeast and settle in less expensive places in the South. So to some extent, it may have been the federal tax system that put the rust on the rust belt.

Detroit is a perfect example of a city that gets the short end of the stick.

“With its high wage levels, Detroit was, until recently, contributing far more in federal revenues per capita than most other places for over one hundred years,” Albouy said. The recent federal bailout to Detroit automakers “is peanuts relative to the extra billions the city has poured into Washington over the 20th Century.”

One expensive area that escapes the higher burden is Hawaii. Costs in Hawaiian cities are high, but wages remain low because people are willing to accept lower pay to live by the beach. As a result, Hawaiians aren’t pounded by taxes the way New Yorkers are. But it also means that “powerhouse cities like New York indirectly subsidize people to live in really nice locations like Hawaii,” Albouy said.

Albouy’s analysis adds new empirical weight to a debate that started in the 1970s with the late New York Senator Daniel Patrick Moynihan. Moynihan commissioned a series of reports that showed the Northeast and Midwest sent far more money to Washington than it got back. Albouy’s research is the first to provide an estimate of how much more individual workers in cities pay.

Albouy says that city folk shouldn’t expect relief from this system anytime soon.

“Highly taxed areas tend to be in large cities inside of populous states, which have low Congressional representation per capita, making the prospect of reform daunting,” he writes.

 

###

 

David Albouy, “The Unequal Geographic Burden of Federal Taxation,” Journal of Political Economy 117:4, August 2009.

One of the oldest and most prestigious journals in economics, the Journal of Political Economy has since 1892 presented significant research and scholarship in economic theory and practice. The journal aims to publish highly selective, widely cited articles of current relevance that will have a long-term impact on economics research.

July 9, 2009

Paying for health care reform

Filed under: Politics — Tags: , , , , , — David Kirkpatrick @ 3:16 pm

Make no mistake about it, the Obama White House will accomplish some measure of health care reform. There are simply too many of the major players sitting at the table and willing to deal for nothing to make it to Congress. The big two health care questions are: how much service and how will the bill get paid?

Looks like in the early go the paying-for-it part is already a little sticky.

From the link:

Sen. Max Baucus, chairman of the Senate Finance Committee, has said repeatedly that health reform would be paid for with a combination of spending cuts and tax increases.

Baucus and others have made some progress through savings in Medicare, Medicaid and other programs.

On Wednesday, for instance, Vice President Biden said hospitals would reduce costs by $155 billion over 10 years. But nothing is final until that deal between the White House and business — and a similar one reached with drugmakers last month — is written into legislation.

And on the revenue side of the equation, there is still no apparent consensus.

This much is certain: Lawmakers must find ways to raise a lot of money.

May 29, 2009

Get ready for the long arm of the taxman …

… from your home state. Tax revenues from the states is down for Q1 this year, and unemployment is down in every state.

I haven’t linked to Paul Caron’s tax blog in a while and it’s my pleasure to provide these numbers from TaxProf Blog:

The Nelson A. Rockefeller Institute of Government reported today that state tax revenues are down 12.6% in the first quarter of 2009:

  • Corporate income tax:  -16.2%
  • Personal income tax:   -15.8%
  • Sales tax:  -7.6%

The decline was biggest in the Far West (-18.1%) and smallest in the Plains (-5.0%).  Here are the states with the ten biggest and smallest declines in tax revenues:

1 Alaska

-74.1%

2 Arizona

-20.8%

3 Georgia

-19.3%

4 Oregon

-19.1%

5 New Jersey

-18.9%

6 New York

-17.1%

7 North Carolina

-17.1%

8 Massachusetts

-16.8%

9 Colorado

-16.5%

10 Hawaii

-16.2%

   

 

  United States

-12.6%

   

 

1 Iowa

+5.6%

2 South Dakota

+3.8%

3 Arkansas

-0.2%

4 North Dakota

-0.4%

5 Alabama

-1.7%

6 Missouri

-3.3%

7 Delaware

-3.6%

8 Utah

-4.0%

9 Rhode Island

-4.2%

10 Wyoming

-4.3%

May 21, 2009

IRS announces tax breaks for small business

Another bone for Main Street from the IRS.

The release:

Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS Says

 
IR-2009-51, May 20, 2009

Small Business Week is May 17 to 23, and the Internal Revenue Service urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.

Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.

The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.

Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.

Expanded Net Operating Loss Carryback

Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two. For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.

This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15, 2009. For eligible individuals, the deadline is Oct. 15, 2009.

Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139. Details can be found in the instructions for each of these forms, and answers to frequently-asked questions are posted on IRS.gov.

Exclusion of Gain on the Sale of Certain Small Business Stock

The new law provides an extra incentive for individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.

Estimated Tax Requirement Modified

Many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. For details, see Publication 505.

COBRA Credit

Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit. For details, see Form 941. Answers to frequently-asked questions are posted on IRS.gov.

Other ARRA business provisions relate to discharges of certain business indebtedness, the holding period for S corporation built-in gains and acceleration of certain business credits for corporations. Also see Fact Sheet FS-2009-11.

April 30, 2009

Asinine tax target — digital goods

Filed under: Business, Media, Politics, Technology — Tags: , , , — David Kirkpatrick @ 4:50 pm

This is so beyond stupid, I don’t know where to start. I know the states are hurting for tax revenue, but going teh dumb doesn’t seem like a good place to start.

From the link:

CNet News.com reports that Mississippi has passed a law that will levy sale and use taxes on goods delivered electronically, including digital movies, digital audio (including music and ringtones) and digital books. HB1461 which was adopted in mid-March and goes into effect July 1.

A growing number of states are considering laws to tax digital goods, such as iTunes songs, Amazon MP3s, or electronic books. Yet at a time when governments say they want to encourage broadband adoption and the development of a low-carbon economy, opponents say taxing digital goods sends exactly the wrong message.

And that’s just the beginning. In addition to Mississippi, at least 18 other states have their eye on lucrative digital downloads from the likes of iTunes and AmazonMP3 and plan to tax them shortly.

April 27, 2009

Online sales taxes?

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 4:51 pm

Looks like they are coming. Too many taxing jurisdictions are losing revenue.

Of course placing a brand new tax burden on a still-growing retail sector and hitting consumers directly in the wallet sounds pretty counterproductive in a severe economic downturn. A downturn that has no horizon at the moment.

Hopefully most e-tailers can find workarounds for the coming spate of governmental overreach.

From the link:

States and local governments hope sales taxes would help them recoup part of the revenue lost amid a recession that has diminished property values and crimped demand for items sold in stores. In the fourth quarter, state sales tax collections dropped 4%, the steepest decline in 50 years, according to the Nelson A. Rockefeller Institute of Government. Online sales taxes could help states generate at least $52 billion in added revenue over the next six years, according to an Apr. 13 study conducted by three University of Tennessee professors. Requiring virtual stores to collect taxes, even in parts of the country where they don’t have physical operations, would also place e-tailers on a more even footing with brick-and-mortar stores such as Wal-Mart (WMT), which collect sales taxes on in-store as well as online purchases.

Companies that sell products over the Internet say the taxes would hamper growth. “The introduction and passage of an Internet tax bill would have adverse effects on e-commerce,” George Askew, an analyst at Stifel Nicolaus , wrote in a recent note. After New York’s law was passed, Overstock.com says it had to terminate agreements with some 3,400 Web sites that once promoted the closeout retailer in the Empire State.

Overstock ceased operating in New York altogether, says the company’s president, Jonathan E. Johnson III. After losing a court battle seeking to repeal the law, Overstock plans to file an appeal in the coming weeks, Johnson says. “These states are signing up for a lawsuit, or for businesses to pull out of their states,” he says.

April 17, 2009

Friday video fun — tax facts via Reason Magazine

Filed under: Business, Media, Politics — Tags: , , , , — David Kirkpatrick @ 5:54 pm

Points to ponder this week. Went out to dinner Wednesday night and ran into my CPA with his family. He looked pretty relieved.

It’s been a long time since I’ve done any video, so without further ado , courtesy of Reason Magazine, here’s “W-2 WTF?!?!: Tax Facts to Make Your Head Explode!”

April 14, 2009

IRS list of “dirty dozen” tax scams

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:00 pm

The release from the IRS:

Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

 
IR-2009-41, April 13, 2009

Video: English     American Sign Language  Text
   
WASHINGTON — The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. More information is available on IRS.gov.

False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is “Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service.”

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

April 2, 2009

IRS website gets traffic spike

No surprise IRS.gov’s traffic is up here on the homestretch to tax day, but almost 25% over last year? That’s a significant uptick.

The IRS release:

Visits to IRS.gov Up Sharply as Taxpayers Go Online to Get Tax Information

 
IR-2009-31, March 31, 2009 WASHINGTON — The number of visitors to IRS.gov is up more than 24 percent compared with last year, and more taxpayers rely on the Internal Revenue Service’s online resources to get answers to tax questions on the economic recovery legislation and to prepare and file tax returns accurately and timely.More than 138 million taxpayers already visited the IRS Web site this year, up from about 111 million from the same period last year.

Taxpayers can find the latest information about the American Recovery and Reinvestment Act of 2009, including details on extending health insurance for people who lost their jobs and tax breaks for first-time homebuyers. IRS also has developed “What if” scenarios and the possible tax implications for people who may be facing financially difficult times. Taxpayers periodically should check for updates to these pages.

Some IRS online publications contain hyperlinks allowing users to get the answers they need quickly. The links allow users to jump immediately to other parts of publications and external Web sites, reducing the time it takes to access information.

A total of 14 publications contain tailored hyperlinks that provide easier access, including Publication 3, Armed Forces’ Tax Guide, Publication 970, Tax Benefits for Education, and Publication 936, Home Mortgage Interest Deduction. Publication 17, Your Federal Income Tax, was issued for the first time with hyperlinks last year, and the new version now has more links than ever before. Publication 17 also is available online in Spanish for the first time.

Available on IRS.gov this year is a new on-line tool that allows taxpayers to complete tax forms, perform basic mathematical calculations and e-file their federal income tax returns free of charge. Free File Fillable Forms is most suited for those who prepare their own paper returns without the assistance of a tax return preparer or tax preparation software. There are no income limitations to use Free File Fillable Forms, and the most commonly-used federal tax forms are available.

Also available to taxpayers is Free File, which provides taxpayers with an adjusted gross income of $56,000 or less in 2008 with free federal income tax preparation and electronic filing. Free File is free, fast and accurate.

Taxpayers also can download IRS audio podcasts on a variety of topics in English and Spanish. Video tax tips are also available.

Other electronic tools can be found on IRS.gov. Highlights include the following:

  • Where’s My Refund? — Whether taxpayers opted for direct deposit or asked the IRS to mail a check, they can track their refund through the Where’s My Refund? tool.
  • The Recovery Rebate Credit Calculator —The recovery rebate credit is a one-time benefit for people who didn’t receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion of the credit. In most cases, taxpayers who received the full amount of the stimulus payment last year will not be eligible for it this year. The recovery rebate credit can be calculated using the online tool, Recovery Rebate Credit Calculator.
  • How Much Was My 2008 Stimulus Payment? — Taxpayers will need to know the amount of their 2008 economic stimulus payment to calculate the recovery rebate credit. Taxpayers can use the online tool, How Much Was My 2008 Stimulus Payment?, to check how much their payment was in 2008.Taxpayers don’t need to report the 2008 stimulus payment as income because it’s not taxable.
  • EITC Assistant — The earned income tax credit is a substantial credit for people who work but don’t earn a lot of money. Find out if you are eligible for the EITC by answering some questions and providing basic income information using the online EITC Assistant.

 

Taxpayers looking for the IRS online should type http://www.irs.gov into their Internet browser. Taxpayers should also beware of Web sites that may resemble IRS.gov but end in .com, .net, .org, .biz or any other domain name extension.

 

Also available isIRS.gov/Español, the IRS Web site offering tax forms, publications and information in Spanish. Interactive tools such as the following are available for individuals: EITC Assistant, (Asistente EITC); Free File(Presentacion FreeFile) Where’s My Refund? (¿Dónde Está Mi Reembolso?), How Much Was My 2008 Stimulus Payment (¿Cuánto fue mi Pago del Estímulo Económico?) and Recovery Rebate Credit (RRC) Calculator (Calculadora para el Crédito por Recuperación de la Devolución de Estímulo Económico.)

Go below the fold for 2009 filing season stats: (more…)

March 30, 2009

Wild tax deductions

Filed under: Business — Tags: , , — David Kirkpatrick @ 12:37 pm

Tax season is nigh and insane tax deductions are always a rich vein to mine. Here’s nine “wacky” deductions curtesy of MSN Money.

From the link:

3. At least it wasn’t ‘travel and entertainment’

Sometimes business owners will try to slide a fast one by the IRS by classifying a business deduction in a category where the dollar signs might not raise an eyebrow.

 

One such fastball didn’t pass the eyebrow test with this Oklahoma accountant, however.

“We were reviewing a business client’s accounting entries and noted a check for over $2,000 written to a gynecologist. It was classified on the business books as ‘repairs and maintenance.'”

March 19, 2009

House votes to tax AIG bonuses

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:23 pm

To the tune of 90 percent. We’ll see if the Senate does likewise and this bit of taxpayer outrage becomes a reality. I don’t like government being used in this fashion, but AIG is a pretty unsympathetic victim.

From the link:

Spurred on by a tidal wave of public anger over bonuses paid to executives of the foundering American International Group, the House voted 328 to 93 on Thursday to get back most of the money by levying a 90 percent tax on it.

March 12, 2009

Tax break hints from AICPA

Helpful tax hints curtesy of the American Institute of Certified Public Accountants.

From the link:

AICPA to Taxpayers: Take Advantage of Tax Breaks to Help Offset Economic Hard Times
PR Newswire via NewsEdge :

WASHINGTON, March 11 /PRNewswire-USNewswire/ — The American Institute of Certified Public Accountants is reminding taxpayers to use the special provisions in the tax law that can help them save money and deal with the current difficult economic environment.

“In these tough economic times, taxpayers need every advantage they can get,” said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants. “Losing a home to foreclosure, losing money on investments, and/or losing a job are some of the most stressful events in people’s lives, and they need these breaks.”

Taxpayers who lost their homes to foreclosure or had their mortgage restructured get a pass on paying taxes on the amount of debt the lender discharged under the Mortgage Forgiveness Debt Relief Act of 2007. The exception applies only to principal residences, not to second homes or vacation homes. Married taxpayers can exclude up to $2 million and single taxpayers up to $1 million.

The Mortgage Bankers Association’s National Delinquency Survey reported on March 5 that mortgage delinquencies are continuing to climb, making it increasingly important that taxpayers remember this tax break. According to the survey, the seasonally adjusted delinquency rate for one-to-four-unit residential properties rose to 7.88 percent of all outstanding loans at the end of 2008. The 2008 fourth-quarter increase was up 89 basis points from the third quarter of 2008.

Individuals who sold investments at a loss in 2008 can use those losses to reduce their 2008 tax bill. First, they can use the losses to offset any profits made from selling stocks, bonds or property. Second, up to $3,000 of losses not used to offset capital gains can be deducted from other income. If losses exceed these amounts, the remaining losses can be applied in future years.

“If you lost your job and moved to take a new one, remember that moving expenses you paid are deductible, but only if the new job is at least 50 miles from the previous job site and you stay for a certain period of time,” said Ochsenschlager. “If you did not have a full-time job before the move, then the new job has to be at least 50 miles from your old home. Also, be sure to keep good records of your moving expenses and note that meals are not a deductible moving expense.”

Ochsenschlager also added some job search expenses, such as the cost of printing a resume or hiring a consultant to help with the job search, are deductible.

It’s important that taxpayers not procrastinate. “Always file your tax return on time – even if you do not have the money to pay the entire amount,” said Ochsenschlager. “The IRS often allows taxpayers to pay their tax bill in installments. If you are getting a tax refund, file your tax return as soon as possible, so you can put the money to work for you rather than making an interest-free loan to Uncle Sam.”

About the AICPA

The American Institute of Certified Public Accountants (www.aicpa.org) is the national, professional association of CPAs, with more than 350,000 CPA members in business and industry, public practice, government, education, student affiliates, and international associates.

It sets ethical standards for the profession and U.S. auditing standards for audits of private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination.

The AICPA maintains offices in New York, Washington, D.C., Durham, N.C., Ewing, N.J., and Lewisville, Tex.

SOURCE American Institute of Certified Public Accountants

February 12, 2009

DC to get a representative?

Looks likely. This is something the GOP has long fought under the assumption any elected official from Washington D.C. will be a Democrat. Of course D.C. residents have long — rightly — claimed they toiled under a taxation without representation condition.

I’m guessing with Democrats in charge of Pennsylvania Avenue and Congress this gets approved.

From the link:

A Senate committee voted 11-1 Wednesday to give the District a full voting seat in Congress, adding momentum to legislation that would end decades of frustration for residents of the nation’s capital. Backers declared that they have enough support pass the measure, while critics expressed concern about its constitutionality.

Senate Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, Connecticut independent, said he is confident that the measure granting the District a House seat will win the 60 votes necessary to override a filibuster.

“This year, the 111th Congress has the opportunity to make history… by passing this legislation,” Mr. Lieberman said.

February 8, 2009

Sunday video fun — Sharon Jones and the Dap Kings

Filed under: Arts, Media, Politics — Tags: , , , , — David Kirkpatrick @ 3:39 pm

Providing a lesson in civil disobedience.

February 7, 2009

SCHIP and tobacco taxes

Filed under: Politics, Science — Tags: , , , , , — David Kirkpatrick @ 11:44 am

Master blender of pipe tobacco, G.L. Pease, makes a great point on the increase in tobacco taxes and the recently passed SCHIP. One, it’s absurd on so many levels; and two, major cigarette companies were allowed to basically tax their competition (roll-your-own tobacco) out of existance.

Bad politics, bad policy and it’s based on faulty research. If you’re curious about the last bit there, do some background — the research, I think from the 60s, that all tobacco stats are based on is terminally flawed. When the government didn’t get the desired result, the stats were altered mid-stream to ensure the research was sufficiantly negative. Bad, bad science and bullshit politics. Don’t get me wrong. Tobacco is not a healthy item in large quantities, but it is not the evil it’s somehow been made out to be.

From the link:

This following mercilessly swiped table indicates the new Federal excise tax on tobacco products, along with the current taxes we all know and despise, and the proposed taxes vetoed twice by ex-prez G.W. The new rates go into effect 1st April, 2009. Fortunately, for most of us, pipe tobacco isn’t hit as badly as it could have been, resulting in a price increase of only about 20¢ per ounce. Nor have cigars, taken a serious beating, but it may herald the death of many RYO tobaccos currently on the market. Is it any wonder that Big Tobacco supported this? Nothing like taxing your competition into oblivion in the spirit of free trade.

Tobacco Product Current Tax SCHIP 2007
(Vetoed)
SCHIP 2009
(New Tax)
Tax Increase
(April 2009)
% Increase
(April 2009)
Cigarettes $0.39/pack $1.00/pack $1.01/pack $0.62/pack 158%
RYO Tobacco 1 $1.10/lb $8.89/lb $24.78/lb $23.68/lb 2,159%
Pipe Tobacco $1.10/lb $2.81/lb $2.83/lb $1.73/lb 158%
Large Cigars $0.05 ea (Max) $3.00 ea (Max) $0.40 ea (Max) $0.35 ea (Max) 722%
Small Cigars $0.04/pack $1.00/pack $1.01/pack $0.97 2,653%
Chewing Tobacco $0.195/lb $0.50/lb $0.50/lb $0.31/lb 158%
Snuff $0.59/lb $1.50/lb $1.51/lb %0.93/lb 158%

What truly amazes me about this is that the fools who author this sort of nonsense don’t seem to be able to comprehend that building social programs based on revenues derived from taxing something they’re hoping to extinguish is the worst sort of fiscal folly imaginable.

January 12, 2009

Nanny state in action — New York-style

Filed under: et.al., Politics — Tags: , , , — David Kirkpatrick @ 2:07 pm

All I can say is man. Really.

From the link:

Can taxing junk food solve the obesity crisis? This controversial idea has never been given a real-world tryout, but the combination of a budget busting fiscal crisis and a citizenry that keeps getting fatter is causing legislators and executives around the world to give a so-called “obesity tax” serious consideration. New York Governor David Paterson is the most serious of all, proposing in his 2009 state budget that an 18% sales tax be levied on non-diet soda and sugary juice drinks. Such a tax, he says, would raise $404 million in the fiscal year starting in April, and $539 million in the year after that—all to be earmarked for obesity-fighting public health programs.

December 23, 2008

And now it begins …

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:05 pm

China is laying its legal case against the US in preparation for calling all its notes. Maybe not, but this does merit some attention.

Eight years of the Bush 43 regime has left the US in a very precarious position economically and militarily.

From the link:

China has asked the World Trade Organization to investigate whether the United States is illegally taxing Chinese goods such as steel pipes and off-road tires.

It’s the first time Beijing has ever sought a WTO panel in a trade dispute.

Washington delayed the panel’s establishment at a meeting of the WTO’s dispute body on Monday, but an investigation will likely be launched early next year.

The Geneva-based body can authorize trade sanctions if countries fail to comply with rules.

China says U.S. charges on some Chinese goods violate numerous trade agreements.

The U.S. says the goods are being exported at below-market value and that it is lawfully defending American manufacturers.

December 2, 2008

Value-added taxation …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:59 pm

… Bush 43’s parting “gift?” After eight years of cutting taxes and spending like a drunk monkey, George W. Bush may leave on last steaming pile on our lawn, value-added taxation. I’m all for cutting taxes, but I’m also all for cutting spending.

The Bush 43 years may be the doom of the GOP and maybe that’s not a bad thing since the RINO-accusing right seems to not get what it means to be conservative. Being an American conservative does not mean you want a christianist theocracy. It does mean letting government handle the big picture (like national defense) and then getting out of the way of all of us out there pursuing happiness and liberty.

From the link:

It’s highly possible, if not inevitable, that Americans will soon live under a radically different tax system – one that the pundits and politicians aren’t talking about.

It’s called a value-added tax, or VAT, and it’s been used for decades to pay the bills and sustain the immense growth of governments around the world, from France to Mexico to Australia. Created in 1954 by a French economist, the VAT is the most potent, efficient machine for revenue generation yet invented.

And if there’s one thing the U.S. government needs as the federal budget balloons, it’s a ton of new revenue. “The bottom line is that the income tax cannot support the level of spending that’s projected, something other countries faced years ago,” said Roberton Williams of the Tax Policy Center, a non-partisan research institute. Today the VAT raises almost half of the total government revenue in France, and a similar share in most of the developed world.

The VAT is essentially a sales tax, except that it’s charged at each stage in the development of a product instead of at the moment when the product is sold.

Take, for instance, a car with a sticker price of $30,000 and a value-added rate of 10%. Ford might buy its steel and other materials for $8,000 plus $800 in a VAT tax. A dealer then pays $25,000 plus a $2,500 tax for the finished vehicle. Ford takes an $800 credit for the tax it already paid and sends $1,700 to the government. A buyer then pays $30,000 for the SUV and $3,000 in taxes. The dealer collects the $3,000, takes a credit for the $2,500 worth of taxes already paid, and sends $500 to tax authorities. Ultimately, the government pockets $3,000, or 10% of the retail price of the car, in taxes.

October 22, 2008

2009 inflation adjustments from the IRS

Filed under: Business, et.al., Politics — Tags: , , , — David Kirkpatrick @ 6:02 pm

Here’s the key changes for your 2009 tax return from the Internal Revenue Service.

From the link:

  • The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
  • The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
  • The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
  • The annual gift exclusion rises to $13,000, up from $12,000 in 2008.

Information about the pension and retirement plan-related changes can be found in
IR-2008-118. Other inflation adjustments are described in Revenue Procedure 2008-66.

August 22, 2008

IRS sending new warning letter

Filed under: Business, et.al., Politics — Tags: , , , , , — David Kirkpatrick @ 6:22 pm

More evidence the “kinder and gentler” Internal Revenue Service of the last several years is long gone. This warning letter sounds a bit more ominous than the missive it’s replacing. The lack of detail ought to make the recipient pore over their entire questioned return.

From the link:

The new warning letter, the CP2057, will differ from the CP2000 letter that the IRS has been sending out for years, according to The Wall Street Journal. The earlier type of letter included suggestions for proposed changes to areas such as income, credits and deductions, while the CP2057 will mainly ask taxpayers to double-check parts of the return and file an amended return if they have made a mistake. Unlike the CP2000, it will not include the exact amount owed.

The IRS will begin testing the new automated notices later this year and expand their use if they succeed in collecting extra revenue.

“The Automated Soft Notice (CP2057) is a test involving approximately 31,000 notices mailed this fall,” said IRS spokesman Bruce Friedland in an e-mail. “If the test results indicate limited underreporting in the subsequent year and self-correction of unreported income, we hope to expand the use of this notice. A very small portion of our staff is assisting in this test – again, it is designed as an automated notice. The CP2057 asks the taxpayer to file an amended return, or work with the document issuer to correct erroneous documents.”

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