Michele Singletary: Private collections no way to collect taxes
But a proposal to allow the IRS to turn over those delinquent accounts to private debt collection agencies isn't the solution. It's a bad idea, used before, in the late 1990s and again in the last decade. Both times the ... If it's determined they were ...
Beware Of Swiss Banks Urging Offshore Voluntary Disclosure To IRS
For years Swiss banks facilitated U.S. depositors' use of Swiss banking secrecy laws to evade U.S. income tax on income generated by their Swiss accounts. ... Actually, Article 5, Section 3 of the Agreement provides that when the Swiss Competent ...
DOJ secures verdict in excess of $2 million for failure to file FBARsLexology (registration)
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By Patrick Temple-West WASHINGTON (Reuters) - The U.S. Internal Revenue Service and manufacturer Illinois Tool Works Inc are battling in U.S. Tax Court over a $356.8 million dispute that highlights a type of cross-border tax avoidance strategy facing increased scrutiny worldwide. As governments crack down on tax-driven profit-shifting, the IRS is asserting that a loan used by Illinois Tool to bring foreign cash from a Bermuda-based subsidiary into the United States was not a tax-free transaction. “This is foreign tax planning 101 ... Every Fortune 500 company in America that is multinational does this,” said Jasper Cummings, a tax lawyer for Alston & Bird LLP, who reviewed the case for Reuters. Illinois Tool said it could owe $70 million if it loses the case, according to a May regulatory filing.
A bad idea for collecting unpaid taxes
But a proposal to allow the IRS to turn over those delinquent accounts to private debt collection agencies isn't the solution. It's a bad idea, used before – in the late 1990s and again in the last decade. Both times the ... If it's determined they ...
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IRS scam continues long after tax-filing season
"They say you didn't pay enough or the money wasn't received, and the only way to remedy this and make sure nothing bad happens to you is to get money to them immediately," explains Lois Greisman, associate director at the Federal Trade Commission ...
It's Way Past Tax-Filing Season, But Scammers Disguised as IRS Agents are ...eCreditDaily.com
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By Tim Reid and Michael Erman DETROIT/NEW YORK (Reuters) - Detroit's reliance on casino cash to help fund a recovery from the city's historic bankruptcy is a high-risk bet on what is an increasingly shaky source of income. A trial to approve Detroit's plan to exit its $18 billion bankruptcy, the largest municipal crash in U.S. history, begins in late July. Detroit Emergency Manager Kevyn Orr projects that wagering tax revenue from three local casinos, the city's third largest source of cash, will remain essentially steady as far ahead as 2023. Orr has described the gambling taxes as Detroit's most stable source of money.
How to get taxes withheld on a state pension
Raphael Tulino is the IRS spokesman for Southern California and he has volunteered to answer your tax questions. Q. I receive my late husband's pension from CalPers, and for the past 14 years they have taken $200 per month withholding for federal tax.
Dixie Press Online
IRS advises taxpayers living abroad
Dixie Press Online
PHOENIX — Taxpayers abroad qualifying for an automatic two-month extension must file their 2013 federal income tax returns by June 16, according to the Internal Revenue Service. This deadline applies to U.S. citizens and resident aliens living ...
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In 2005, Congress created a large omnibus tax bill called the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA.) Like most large tax bills, it had some actually-important provisions, like its two-year extension of President Bush’s reduced rate on capital gains.
However, like most large tax bills, it had some trivial and weird provisions as well. One of these provisions was a small, barely-noticeable change to the foreign housing exclusion.
The foreign housing exclusion is a policy designed to go along with the foreign income exclusion. The US does not tax income its citizens earn from working abroad, except when it reaches very high levels. For example, in 2013 only income above $97,600 was taxable. This is a recognition of a fact that those citizens pay taxes to the countries in which they work. Most countries simply don’t tax labor income earned abroad at all.
In addition to the foreign income exclusion, one can exclude the cost of housing up to a certain amount. TIPRA made this subtle change to the housing exclusion:
The Secretary may issue regulations or other guidance providing for the adjustment of the percentage under subparagraph (A)(i) the basis of geographic differences in housing costs relative to housing costs in the United States.
While this is a (relatively) simple piece of legislative text, it authorizes the IRS to devise a worldwide cost-of-living adjustment for housing across the entire planet. This is not a particularly easy task, and it’s not within the IRS’s typical area of specialty. But nonetheless, it was made, and the IRS went to work.
They added to their foreign tax instruction booklet precisely what Congress had asked for. And there, you see it, in all of its glorious silliness. The IRS has different housing exclusions for a variety of world cities. Now I can see that, if I need to be in Hampshire, England, for my job, I can exclude a slightly higher per-diem housing cost ($121.10) for living in Southampton than if I lived twenty miles east in Portsmouth ($119.45). Is this really worth paying an IRS official to determine and print in a table?
The way they went about it is rather odd, too. It’s a very weird list; it includes many obscure towns in the Netherlands while ignoring, say, Calcutta, Prague, or Istanbul. It includes the Holy See, an ecclesiastical jurisdiction with fewer than a thousand residents, while ignoring the entire country of Sweden.
The main reason to question this policy is that it is bizarre and unnecessary. But it also violates the basic principle of tax neutrality. If Southampton rents are too high relative to Portsmouth rents, that is not a problem that American tax collectors should be trying to solve.
It is worrying to see non-neutral tax treatment extend even beyond American borders, and it is even more worrying to see little throwaway lines in hundred-page tax bills turn the IRS into some sort of worldwide arbitrator of fair real estate prices.
Last month, Cleveland voters renewed county taxes on a variety of "sin" products (4.5 cents per pack of cigarettes, 1.5 cents per 12-ounce bottle of beer, 6 cents per 750-milliliter bottle of wine, 32 cents per gallon of mixed beverages, 24 cents per gallon of cider and $3 per gallon of hard liquor) that fund local sports stadiums for the Browns, Cavaliers, and Indians.
It jumped back in the news yesterday, when county executive (and Democratic nominee for Governor) Ed FitzGerald proposed linking 20 percent of the sin tax revenue (some $2.6 million per year) to team performance. No win, no revenue.
The Cleveland Plain-Dealer editorial board offered their initial reactions.
Deputy Editorial Page Editor Kevin O'Brien: "If this nakedly populist pantomime of holding Cleveland's perennially losing sports teams 'accountable' can't win him a few more votes in the gubernatorial race, nothing can! How about just figuring out which facility needs what from year to year and making a sensible priority list? I know: not political enough."
Editorial Writer Thomas Suddes: "With all due respect, the two words that come to mind about this proposal are "publicity stunt.""
Editorial Writer Sharon Broussard: "This sounds like a "Saturday Night Live" skit and it's just about comical."
Opinion Director Elizabeth Sullivan: "This is a laughably bad idea that underscores how politically opportunistic -- and tone deaf -- FitzGerald is. It's unworkable, it's wrongheaded and it's going nowhere."
An article from the Austin American Statesman has been making the rounds lately, discussing how property values in Austin have risen precipitously, and thus taxes have risen too. Property taxes form the lion’s share of taxes for Texan local governments, so tend to be a very high-profile issue in the Lone Star State. One particular series of comments by a local homeowner has been criticized:
“I’m at the breaking point,” said Gretchen Gardner, an Austin artist who bought a 1930s bungalow in the Bouldin neighborhood just south of downtown in 1991 and has watched her property tax bill soar to $8,500 this year.
“It’s not because I don’t like paying taxes,” said Gardner, who attended both meetings. “I have voted for every park, every library, all the school improvements, for light rail, for anything that will make this city better. But now I can’t afford to live here anymore. I’ll protest my appraisal notice, but that’s not enough. Someone needs to step in and address the big picture.”
This homeowner has been held up as an example of someone who just doesn’t understand that, when you vote to increase spending, taxes go up too. However, Ms. Gardner has a point. Many (though not all) of those initiatives didn’t come with paired tax increases, and could be paid for with pre-existing tax revenues: rising property tax bills aren’t just a phenomenon of the usual tax-and-spend cycle. Austin’s city government is not an extremely high-spending government, compared to various peer cities (though it does have fairly high debt).
Parks, libraries, school improvements, and light rail all probably do improve quality of life. But better quality of life means more people want to live in a given area. This demand will create inward migration, which will drive land prices up no matter what. Housing prices (for, say, a fixed amount of square footage) will go up or not depending on if land-owners respond by building more multi-unit housing or not. In other words, better public services (especially “free” public services like parks or schools) drive up property values.
This means that, in a city funded by property taxes, desirable public expenditures that are fully funded even without a tax increase can still drive taxes higher, unless some kind of effective property tax cap exists (easier said than done). This is the classic story of gentrification. Neighborhood services and quality of life start to improve, so more people want to move in, and the old residents (often lower-income than new migrants) have to sell their properties and move.
This phenomena points to a basic issue in the economic model often espoused by advocates of higher government spending. Location-tied services may indeed improve quality of life, but new induced migration will tend to drive changes in cost of living, which means that the people who voted for those improvements are often priced out by other people who want and can pay more for those services. Publicly-provided services, then, are a two-edged sword: they may indeed make a place more desirable to live and work by providing benefits to anyone who lives in the area, but that very desirability can make the area more expensive, making it, ultimately, harder to make a living.
Read more on Texas here.
Read more on property taxes here.
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IRS Issues Another Significant Ruling On Spin-Off Of Real Estate - Mondaq News Alerts (registration)
IRS Issues Another Significant Ruling On Spin-Off Of Real Estate
Mondaq News Alerts (registration)
In addition, in determining the extent to which a corporate business purpose motivated the distribution, the regulations state that the potential for the avoidance of federal taxes by the distributing or controlled corporations (or a corporation ...
Early this week, the Robert Wood Johnson Foundation touted a new study which found that taxing a sugary drink based on the amount of calories it contains rather than its size would be more effective in reducing caloric consumption.
According to the study, a .04 cent per-calorie tax on sugary drinks would reduce beverage-based calorie consumption by 9.3 percent, while taxing beverages at a half-cent per ounce would reduce consumption by just 8.6 percent. Targeting the amount of calories is said to also “save consumers $736 million per year nationwide,” when compared to a per-ounce tax, but with the crucial caveat that this figure does not take into account the potential economic responses from producers and retailers (more on this important part later).
This report is well-timed, as public health organizations that engage in the policy sphere have met this week for a “Soda Summit” in attempts to invigorate discussion around taxes on soda, limitations on advertising for beverage companies, and bans on beverages based on size. Most soda tax attempts have failed at the state level, though there is talk from Rep. Rosa DeLauro (D-Connecticut) of introducing a federal bill at some point.
We have detailed before why targeting specific foods and beverages via sin taxes is poor tax policy. Principally, they often fail to create the desired changes in behavior because people just consume more calories elsewhere. In fact, even the lead author of the study released this week has previously published research which shows that a soda tax simply induces consumers to substitute soft drinks with other unhealthy foods high in sodium and fat. Although taxing calories specifically represents a more direct (and thus effective) tax, it likely would still result in a similar substitution effect – mitigating supposed improvements in public health.
The fiscal motivation for attempting to curb obesity is sometimes stated by proponents this way: because obese people get sick more often, they create greater costs for other members of society in the form of higher entitlement spending or higher health insurance premiums, and taxing them is appropriate to compensate society. Economists call this cost-shifting a negative externality. But what proponents miss is that this cost-shifting problem is totally intrinsic to the structure of our government health care programs, not some market failure that needs to be combatted with tax policy. A much better way to limit these shared costs is by adjusting public health programs to build better incentives into the programs themselves.
Additionally, while a soda tax would not likely have the health benefits proponents promise, it would impose extra costs on all consumers of sugary drinks, regardless of their weight or other nutritional habits. What’s more, the proposed tax would disproportionately harm low-income individuals, who have been shown to consume more drinks with sugar in the context of their overall diet than higher-income individuals.
The bottom line is that whether you are taxing based on size or calorie count, a tax on sugary beverages is regressive, ineffective, arbitrary, and costly. The solution to our obesity problem does not lie in government building ill-contrived, heavy-handed incentives into our tax code. Rather, it lies in private individuals making sensible lifestyle and dietary choices based on their respective resources and preferences.
The U.S. Department of Justice on Thursday extended for one month the deadline for so-called category two Swiss banks suspected of helping wealthy Americans evade taxes to turn over information by one month. The Justice Department said it had extended the original June 30 deadline because some banks were having trouble verifying whether an account was undeclared or disclosed in a timely manner to the U.S. Internal Revenue Service. The Swiss government-brokered program requires the category two banks to hand over some previously hidden information and face penalties equivalent to up to 50 percent of the assets they managed on behalf of wealthy Americans.
People with High Incomes Paying Zero Federal Income Taxes
The Internal Revenue Service has released the spring 2014 edition of its quarterly Statistics of Income Bulletin, with statistics up through 2011 indicating there are still people who earn over $200,000 a year who pay no federal income taxes, although ...
The U.S. Public Interest Research Group (USPIRG) and the Citizens for Tax Justice (CTJ), have released a report called “Offshore Shell Games 2014,” which claims that Fortune 500 companies use more than one thousand subsidiaries in foreign countries in order to avoid U.S. corporate taxes. It also claims that the average effective tax rate of 55 corporations was under 10 percent on their foreign earned income. It then advocates to end deferral and proposes remaining one of the only countries in the world to tax corporations on their worldwide profits.
Unfortunately, with such a small sample of corporations, this study paints a misleading picture of the tax burden corporations pay overseas. Its findings contradict other studies and more importantly IRS data, which reports corporations actually paid a tax rate of about 27 percent on their reported foreign income. It also doesn’t mention the fact that its proposed changes to tax law would move the United States further from international norms and would harm the economy.
They try to Paint a Complete Picture with Incomplete Data
One of the main findings of the PIRG study is that these Fortune 500 companies allegedly paid an average effective tax rate of 6.7 percent on their foreign earned income. From this PIRG implies that most corporations are avoiding taxes. The issue though is that they try to paint this picture of tax avoidance using only a sample of 55 companies. Many exogenous factors, chiefly business cycles, can affect any corporation’s effective tax rate for any given year. Cherry-picking 10 percent of the Fortune 500 corporations does not produce a reliable result.
Additionally, PIRG forget to mention that 15 of the 55 of the companies that they have data on reported an effective tax rate of over 20 percent and five of those companies had effective tax rates over 30 percent.
Loose Definition of Tax Haven
The PIRG report has such a broad definition of a “tax haven,” that they include countries such as the Netherlands, Singapore, Hong Kong, Switzerland, and Ireland. These countries all have internationally recognized normal tax systems. What they do have in common, though, are lower corporate income tax rates than the United States. If that is what makes a country a tax haven, almost every country on the planet is a tax haven compared to the United States.
Reiterates Misleading Claims Based on Flawed Data Source
The PIRG report cites a recent Citizens for Tax Justice report that claimed that more than half of all foreign corporate income was reported in 12 low-tax jurisdictions such as Bermuda and the Cayman Islands and paid an effective tax rate of 7 percent using data. Whether CTJ or USPIRG knows it or not, data from that source substantially double-counts foreign after-tax income that is transferred from one subsidiary to another. As a result, income is inflated relative to taxes paid, driving down the effective tax rate. Their analysis is akin to counting every transfer you make from your checking account to your saving account as taxable income.
Findings Contradict Other Studies and IRS Data
The biggest issue is that PIRG's findings go against what other, more rigorous studies have found and what IRS data shows. The effective tax rate they find on their tiny sample of companies is far lower than other studies on the same issue. For instance, the GAO, using BEA data estimated effective tax rates between 16 and 28 percent when they adjusted for double-counted foreign income. A study using a sample of over 9000 corporations found that U.S. multinationals paid an effective tax rate of 28 percent on their worldwide income, one of the highest effective tax rates in the world.
Even more, their study contradicts IRS data—data collected on what corporations actually paid on the foreign income they repatriate. According to our overview of IRS data, U.S. multinationals paid $128 billion in foreign income taxes on $470 billion in reported taxable income in 2010. This is an effective tax rate of 27.2 percent. Over two decades, the effective tax rate was 26.4 percent.
Report Overstates the use of So-Called Tax Havens
The PIRG report paints a picture that a substantial amount of corporate foreign income is booked in overseas tax havens. This is misleading. According to IRS data, over 60 percent of foreign corporate income is reported in Europe and Asia, where this income faces effective tax rates of 31 percent and 26 percent, respectively.
Even more, IRS data shows that more than 75 percent of foreign earned income faced effective tax rates over 20 percent in 2010.
Proposed “Solutions” would Make the United States Less Competitive and Harm the Economy
USPIRG proposes several changes to U.S. corporate law. The biggest change would be to end what is called deferral. This allows corporations to defer the U.S. tax liability on their foreign earnings, which have been taxed already by the foreign country in which they earned those profits, until they bring the profits back home. They also advocate against moving to a territorial tax system that only subjects U.S. citizens and corporations to U.S. taxes on their income earned within its borders.
What they do not mention is that remaining a country that taxes corporations on a worldwide basis and ending deferral moves us in the opposite direction of other major countries' tax policy. From 2000 to today, the number of countries that taxed corporations on a world-wide basis has shrunk from 17 to 6. Remaining a country that taxes corporations on a world-wide basis makes the U.S. an international outlier. Ending deferral would make it worse.
USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.
There’s no doubt that U.S. corporations use a variety of legal methods to reduce their corporate tax bill on their overseas operations. But this study is not an accurate portrayal of what multinationals pay overseas. If we are going to reform our tax code, it is best to be informed by the best information available. This study doesn’t cut it.
More on how much corporations pay in foreign income taxes: here.
IRS Releases Final Guidance on Tribal Government Benefits Excluded as Income
CPA Practice Advisor
“Today's guidance provides important clarity for Indian tribes that certain member benefits and services are exempt from federal income tax under the general welfare exclusion. This guidance was developed as part of our ongoing government-to-government ...
Inmate accused of $44k tax return scam
According to the indictment, between April 2007 and April 2011, Savage knowingly filed false claims for income tax refunds with the IRS by preparing and filing false federal income tax returns for other individuals. The intended loss to the IRS due to ...
Earlier this week, the Environmental Protection Agency outlined a new plan to reduce carbon emissions. This “Clean Power Plan” is based on what is, for the EPA's CO2-related initiatives if not for other pollutants, a new strategy: outlining broad state-level goals for reducing emissions-per-megawatt hour of electricity, instead of regulating power plants directly. This “climate federalism” has attracted a lot of attention because it’s a new phenomenon in climate policy in the US, and thus its policy implications are unclear.
Not all states have been given the same targets. States that are more dependent on carbon-intensive fuels like coal have, in general, been assigned smaller reductions as a percent of emissions, while states that use very little coal have been assigned much bigger per-megawatt hour emissions cuts. But, as many commentators have noted, a small percent reduction in coal usage in states highly dependent on coal may be more difficult than a large percent reduction in states using little coal. Put more simply, Washington’s 70 percent reduction may be easier than Kentucky’s 18 percent reduction, because Washington has fewer major coal plants.
Interestingly, these changes have tax implications. As has been noted in many different news outlets, the new rules could serve to push states towards either state- or regional-cap-and-trade plans, or a carbon tax. State-level carbon taxes have been proposed before, and states like California and much of New England participate in cap-and-trade schemes. Because a new carbon tax could not only help a state comply with the new EPA rules but also raise new revenue for policymakers to use, it’s possible some states may favor a carbon tax.
Unfortunately, state-level carbon taxes pose serious problems. From an environmental perspective, as noted, different states have different reduction targets: which means it is likely different states would have to impose different tax rates. Charging different taxes for the same product can create serious economic distortions. States with lower carbon costs could see relatively more new investment in carbon-intensive power generation (or energy-intensive industries), and export power and carbon-intensive goods to states with higher taxes, creating a phenomenon known as “carbon leakage.”
From a tax policy perspective, carbon taxes have other problems. Consumption taxes (which is what a carbon tax is) are only non-distortionary if they are evenly-applied, and, like most excise taxes, carbon taxes can be very uneven. Legal, healthcare, and other services, which already receive preferential taxation due to being exempt from the sales tax, have very low carbon footprints: and thus would be even more preferentially treated under a carbon tax. Meanwhile, manufacturers would suffer as the carbon tax shifted spending away from their more carbon-intensive products. Moreover, carbon taxes, due to driving up the price of utilities and many goods relative to services, have a tendency to be regressive, making lower-income people bear the burden of climate change.
Many proposals to implement carbon taxes call for a “grand bargain” or revenue-swap, where higher carbon taxes offset a reduction in income taxes. If previous carbon tax proposals in Massachusetts are any indication, this grand bargain may largely amount to the creation of new credits and deductions, complicating the tax code. But even if the tax reductions offered are well-structured, if carbon taxes actually work, then they will reduce the amount of carbon emissions, which will, in turn, reduce the amount of revenues raised from the tax. Policymakers will either have to renege on the earlier non-carbon tax decreases, or increase the carbon tax even more, creating a cycle of narrowing bases and rising rates.
If that trend sounds familiar, it’s because we’ve seen it all before. Just like using cigarette taxes to fund education, taxing carbon to finance other government priorities will drive revenue instability, distort consumer behavior, and create a perverse linkage where government priorities are rendered financially dependent on a practice the government itself officially regards as damaging.
It remains to be seen how states will respond to the new EPA rules, or even if those rules will hold up to potential legal challenges. Climate change policy is a major interest for many states, and there are many non-tax policy concerns involved in the debate. But when states do assess their response, they should keep in mind that carbon taxes are not substantially different, in tax policy terms, from other narrow, distortionary excise taxes, except that they are an excise tax on a vital business input important to many of the most high-value-added industries: energy itself.
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Read more on carbon taxes here.
Sometimes IRS publications go to unexpected places:
Kidnapped child. You may be able to treat your child as meeting the residency test even if the child has been kidnapped. See Publication 501 for details.
This comes across awkwardly, to say the least. In response to a kidnapping, the best condolences the IRS can offer are that your son or daughter may still count as a qualifying child for exemption purposes. Quite the silver lining.
Publication 501, which explains filing statuses and exemptions, gives the details. Unfortunately, they just get more depressing:
Kidnapped child. You can treat your child as meeting the residency test even if the child has been kidnapped, but both of the following statements must be true.
1. The child is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family.
2. In the year the kidnapping occurred, the child lived with you for more than half of the part of the year before the date of the kidnapping.
This treatment applies for all years until the earliest of:
1. The year the child is returned,
2. The year there is a determination that the child is dead, or
3. The year the child would have reached age 18.
It is difficult to imagine that any legislator designing the exemptions system realized this section would have to be written. Publication 501 also has to handle the tax statuses of children who die, or children who were born and died in the same year, or stillborn children.
Even outside of these worst-case scenarios, Publication 501 handles a number of uncomfortably specific situations, like the details of custody arrangements after divorces. These scenarios show the troubling extent to which the IRS is required to adjudicate deeply personal matters.
Voters and legislators get to “think of the children” in the abstract, and pass rules to lower taxes on households with children. These tax provisions allow us to imagine happy families benefiting from the tax break.
The IRS has the unfortunate task of dealing with real life, where circumstances aren’t always as clean. It has to actually think of the children, even those who have complicated or difficult lives through no fault of their own. The IRS has to investigate these difficult circumstances – even if it means asking sensitive personal questions.
The problem with asking sensitive questions is that you’ll get some answers you wish you hadn’t heard. If the IRS booklets seem insensitive or tone-deaf, that is perhaps because taxes are insensitive and tone-deaf by nature. Attempts to legislate feelings through the tax code invariably fall flat. Taxes collectors are best at collecting taxes, not at distributing compassion.
It absolutely makes sense to want to help taxpayers who are providing for children. A direct way to do that is to lower their tax burdens. But these moments of intrusiveness are a price that we pay for getting our children involved in tax law.