tax news

The California Supreme Court gave a victory to taxpayers yesterday, unanimously ruling (PDF) that the City of Long Beach must recognize class claims to refund illegally collected telephone taxes. We filed a brief in the case, McWilliams v. City of Long Beach, where the city refused to refund the tax unless each taxpayer individually requested a refund. Our brief noted that class claims foster accountability and that state law requires government revenue agencies to adopt a fair and transparent refund process that disgorge illegally collected revenue.

Congratulations to the Court and to the people of Long Beach!

34 Colleges Underpaid Federal Taxes by $90-Million, IRS Says
Chronicle of Philanthropy (subscription)
Thirty-four colleges audited recently by the Internal Revenue Service underpaid their taxes on unrelated business income by nearly $90-million, and nearly 20 percent of the private colleges in the group violated rules for nonprofit organizations in ...

IRS Allows Continuation Of Partnership
Mondaq News Alerts (registration)
The IRS has confirmed in emailed advice (CCA 201315026) that a partnership whose partners continued the old partnership's business through a new entity under local law continued as the same partnership for U.S. federal income tax purposes.

Opposing Views
IRS fails on Earned Income Tax Credit; $11B in faulty refunds issued
Tribune-Review
... through its Earned Income Tax Credit last year, according to an inspector general's report released this week. Treasury Department Deputy Inspector General Michael McKenney found that the IRS has failed for the past two years to comply with a ...
IRS issued billions in improper refunds, report says - Washington PostWashington Post (blog)
IRS Issued $11 Billion In Improper Refund Payments, Is Totally In Trouble With ...The Consumerist
How to Pay Quarterly Taxes If You Receive a 1099Opposing Views

all 13 news articles »

Go Online to Check the Status of Your Federal Income Tax Refund
Newstar Media
Go Online to Check the Status of Your Federal Income Tax Refund Like millions of Americans, you may have waited until the tax deadline to file your federal income taxes online, hoping for a big refund. Now that you have filed, the IRS had made it easy ...
What Happens After I File My Taxes?The Chief-Leader

all 5 news articles »

The U.S. Senate this week is voting on the Marketplace Fairness Act, which would grant each state the power to require collection of sales and use taxes by sellers with no physical presence in the state (primarily catalog and Internet-based sellers).  Tax Foundation Vice President Joseph Henchman blogged on the legal background to the issue yesterday, and was part of Scott Horsley's NPR story on All Things Considered later in the afternoon.

 

Beaufort woman indicted on federal tax charges - Gasconade County Republican
Gasconade County Republican
“Business owners have a responsibility to withhold income taxes for employees and remit those taxes to the Internal Revenue Service,” said Sybil Smith, Special Agent in Charge of IRS Criminal Investigation in St. Louis. “We are committed to pursuing ...

IRS Includes Partnership Gross Receipts In Worthless Stock Deduction Gross ...
Mondaq News Alerts (registration)
In connection with an integrated restructuring plan, the foreign subsidiary classified as a corporation planned to make a check-the-box election to change its classification from a corporation to a disregarded entity for U.S. federal income tax purposes.

Opposing Views
IRS issued billions in improper refunds, report says - Washington Post
Washington Post (blog)
The Internal Revenue Service issued more than $11 billion in improper payments through its Earned Income Tax Credit program last year, according to an inspector general's report released this week. Treasury Department deputy inspector general Michael ...
How to Pay Quarterly Taxes If You Receive a 1099Opposing Views

all 13 news articles »

WASHINGTON (Reuters) - U.S. states' tax revenue likely continued growing in the second quarter of 2013, according to preliminary estimates for January and February that were released on Wednesday. The Rockefeller Institute of Government, an independent research group in Albany, New York, said revenue in 45 states grew 12.9 percent in January and February compared with the first two months of 2012. Personal income tax collections likely were up 23.6 percent and sales tax collections up 8.3 percent, according to the preliminary data. ...

 

In a report released on Monday, the Treasury Department found that the IRS overpaid between $11.6 billion and $13.6 billion through the Earned Income Tax Credit program in fiscal year 2012:

“The IRS has reported an EITC improper payment rate above 20 percent since Fiscal Year 2003. While the estimated EITC improper payment rate has declined over the years, the estimated payments made in error have increased from at least $9.5 billion in Fiscal Year 2003 to at least $11.6 billion in Fiscal Year 2012.”

This is a one-year overpayment rate of 25 percent (!) and a total of about $132.6 billion since Fiscal Year 2003.

Even more, the report states that the IRS has yet to establish annual goals to reduce improper payments below 10 percent, violating an Obama-era law to reduce improper payments.

The Earned Income Tax Credit is a refundable credit which families can claim if they have earned income and are under a certain income threshold. For tax year 2012, the maximum income limit for a single parent with two children was $41,952 with a maximum benefit of $5,236. The program is designed to increase the credit’s value as your income increases, and then gradually phase-out to zero once your income hits a maximum threshold. In fiscal year 2012, the program cost the government about $59 billion and covered 27 million people; one of the largest welfare programs by reach and cost.

Theoretically and empirically, the claim is that this design will increase labor force participation compared to classic welfare programs and the minimum wage, while giving extra income for low-income families. For this reason, it is popular on both sides of the aisle; Right and Left.

However, the EITC is still haunted by the fact that it is extremely complex. With a 60-page handbook and rules that are anything but simple, a lot of this error could be attributed to this complexity. The IRS itself has made this connection, stating that “EITC complexity leads to improper claims by taxpayers—some intentional but many inadvertent—and to improper denials by the IRS.” Even worse, the population for which the EITC is meant for is even less likely to understand complex rules or speak English.

However, as popular as the program is, or as effective as it may be, the amount of error caused by its complexity is concerning. Just because the program is popular, and considered effective, does not mean it is immune from criticism. Another program that covers millions of Americans and was plagued with payment error for many years was the Food Stamp Program. In 1998, the error rate was over 10 percent nationwide. But due to a series of reforms that greatly simplified the program, the error rate is now 3.8 percent as of Fiscal Year 2012 even in the face of record caseloads.

If a 25 percent error rate, costing more than $11 billion per year does not indicate a need for reform, I don’t know what does. Lawmakers, regardless of their view on the EITC, need to take a serious look at this program. If they are truly concerned with helping those in need and think the EITC will help, the first thing to fix is the program’s immense complexity.

IRS Overpaid on Tax Credit for the Poor by Up to $13.6 Billion
DailyFinance
On Tuesday, The Hill reported that the IRS overpaid the benefit for the Earned Income Tax Credit program by between 21 percent and 25 percent -- or $11.6 billion to $13.6 billion -- in 2012. Put in context, the FBI spent just over $8 billion on ...

By Nanette Byrnes (Reuters) - From Louisiana to Ohio, Massachusetts and Nebraska, bold proposals to upend state tax laws are losing momentum in the face of political squabbles and special interest opposition. Just a short time ago, it looked as if several state leaders would show gridlocked Washington, D.C., how to do tax reform. Then some harsh realities set in. One case in point: Louisiana Governor Bobby Jindal. ...

The U.S. Senate this week is voting on the Marketplace Fairness Act, which would grant each state the power to require collection of sales and use taxes by sellers with no physical presence in the state (primarily catalog and Internet-based sellers). The Senate approved a cloture vote yesterday, wresting the bill away from Sen. Max Baucus (D-MT), who is skeptical of the bill.

Update: The vote will now occur on May 6. Check out our table graphic here.

Confused about this issue? Here's the run-down from when I testified to Congress on the bill last year:

After the bitter experience of the Articles of Confederation, the Constitution empowered Congress with the responsibility to rein in state tax overreaching when it threatened to do harm to the national economy. Consequently, states were not permitted to tax items in interstate commerce at all, from the Founding until approximately the 1950s. Since then, as formally adopted by the U.S. Supreme Court in the Complete Auto decision (1977), states may tax interstate commerce so long as the tax is non-discriminatory, fairly apportioned, related to services, and applies only to businesses with substantial presence (nexus). In a series of decisions, most recently the Quill decision of 1992, the U.S. Supreme Court explained that “substantial nexus” for sales/use tax purposes means physical presence of property or employees. The Court ruled that it exceeds to state powers for them to be able to demand use tax collection from companies that are not physically present in the state. States have sought to overrule the Quill decision, either legislatively (“Streamlined”) or through defiance (“Amazon” tax statutes). The defiance approach in particular has caused significant disruption and uncertainty to the economy. The "lost" revenue for states from untaxed Internet transactions is somewhere around $3 billion nationwide. Every state with a sales tax also imposes a use tax, levied on taxable items upon which no sales tax has been paid. In other words, use taxes seek to thwart competitive pressure from other states with lower tax rates. Taxpayer compliance with these protectionist use taxes is minimal. (Use tax, with a few exceptions, is imposed on the consumer and not the seller.) Congress has passed a number of statutes limiting the scope of state tax authority on interstate activities (“preemption”), carefully balancing (1) the ability of states to set tax policies in line with their interests and that allow interstate competition for citizens over baskets of taxes and services and (2) limiting state tax power to export tax burdens to non-residents or out-of-state companies, or policies that would excessively harm the free-flow of commerce in the national economy. When a resident of a state purchases from a brick-and-mortar retailer, they generally must pay sales tax. When the same resident in the same state purchases the same product from an online retailer, they often do not pay sales tax. Many large Internet retailers are expanding the number of states in which they have physical presence, to enable next-day delivery, but that is not the case for many smaller sellers that remain in just one location and use common carriers to deliver purchases. There are approximately 9,600 jurisdictions in the United States that collect sales tax, a number that grows by several hundred each year. Subscription tax software is inadequate and can be expensive for occasional sellers, and few states provide adequate tax lookup or consolidated tax filing options. Sales tax can vary by product, by time, and by location in the state. In 7 states, local governments can have a different sales tax base from the state tax base. Congress has five basic options on how it may proceed: Reaffirm the physical presence rule for sales taxation, and by implication, the disparity of treatment between brick-and-mortar sales and Internet sales. Reaffirm the physical presence rule but adopt a new tax approach that mitigates the disparity of treatment between brick-and-mortar sales and Internet sales (such as an origin-based system or a national sales tax on online purchases). Modify the physical presence rule in the limited context of state collection of use tax from out-of-state sellers, by those states that have adopted simplified sales tax systems under minimal federal standards, to reduce the harm to interstate commerce. This trade-off would replace the check on state power provided at present by the physical presence rule. Repeal the physical presence rule without conditions on the states, granting states unchecked authority to export tax burdens and damage interstate commerce. Do nothing and risk the continued growth of unchecked and fragmented state authority to export tax burdens and damage interstate commerce.

The bill as proposed does that third option, although it's missing a few key things such as federal court jurisdiction, uniform definitions of terms, the option of blended sales tax rates for each state, and notification for sales tax base changes. More on that here.

Today's Weekly Map looks at state income tax collections per capita, for calendar year 2011. New York State, with its high marginal tax rates and wealthy tax base, collected the most - an average of $1,864 per resident. At the bottom of the list are seven states with no state income tax - Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.  Arizona collected the least income tax per capita ($444) of states that levied an income tax on wage income.

Click on the map to enlarge it.

View previous weekly maps here.

Opposing Views
IRS overpaid up to $13.6B in low-income tax credits, report finds
The Hill (blog)
The refundable credit, calculated to be based on income and family size, allows low-income working families and individuals to pay less in federal taxes or receive a refund. Economists claim the program has lifted millions out of poverty. Despite the ...
Didn't file taxes? What if the IRS owes you?MSN Money
IRS Tries To Help Non-Compliant Taxpayers - Tax-News.comTax-news.com
Developers Rejoice! IRS Issues "Begun Construction" GuidanceMondaq News Alerts (registration)

all 33 news articles »

Philly.com
Lauryn Hill Faces Sentencing In NJ For Tax Evasion - Huffington Post
Huffington Post
... "Lil Wayne" Carter. Lil Wayne had an IRS lien filed with Miami Dade County in late March 2011. The lien <a href="http://www.mtv.com/news/articles/1661259/lil-wayne-tax-lien-irs.jhtml" target="_hplink">noted</a> that Lil Wayne had unpaid income ...
Grammy-winning singer Lauryn Hill faces tax sentencingMyCentralJersey.com

all 10 news articles »

PR Web
Get Rid Of Unfair Income Taxes
Jamestown Post Journal
2013 marks the 100th year of the IRS, the federal income tax and the Federal Reserve. Anyone throwing an anniversary party? When first created, it was known as the Bureau of Internal Revenue. By the 1950's the name was changed to the Internal Revenue ...
Some mortgage aid recipients hear from IRSCharlotte Observer
Owe IRS? Make adjustments nowHouston Chronicle
Know the penalty of filing lateMartinsburg Journal
Tribune-Review
all 18 news articles »

Two dozen indicted in federal fraud case
MarketWatch
Most U.S. taxpayers spend far more time worrying about making a mistake on their tax return than trying to scam the system. Not so for some IRS workers and tax preparers. This week, two dozen former and current IRS workers were charged with bilking U.S ...

and more »

Local Woman Faces Federal Tax Charges
The Missourian
“Business owners have a responsibility to withhold income taxes for employees and remit those taxes to the Internal Revenue Service,” said Sybil Smith, special agent in charge of IRS criminal investigations in St. Louis. “We are committed to pursuing ...

and more »