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Corporate Deadbeats: How Companies Get Rich Off Of Taxes - Newsweek

Google IRS Federal Income Tax - Thu, 2014-09-04 03:12

Newsweek

Corporate Deadbeats: How Companies Get Rich Off Of Taxes
Newsweek
Delay is a modern philosopher's stone, but instead of turning lead into gold, this tax alchemy makes the black ink of profits look red when examined by Internal Revenue Service auditors. One technique is ... This is why big utilities—Pacific Gas ...
Actually, Burger King Has Been Trying To Dodge Taxes For YearsHuffington Post

all 171 news articles »
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Brunswick man charged with conspiring to defraud IRS calls federal court ... - Bangor Daily News

Google IRS Federal Income Tax - Wed, 2014-09-03 15:54

Brunswick man charged with conspiring to defraud IRS calls federal court ...
Bangor Daily News
F. William Messier, 70, who is charged with the same crime, as well as with failing to file federal tax returns and failing to pay federal income tax on nearly $400,000 from rental space on communication towers he owns in Brunswick, also will not ...

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Categories: Tax news

Brunswick man charged with conspiring to defraud IRS calls federal court ... - Bangor Daily News

Google IRS Federal Income Tax - Wed, 2014-09-03 15:54

Brunswick man charged with conspiring to defraud IRS calls federal court ...
Bangor Daily News
F. William Messier, 70, who is charged with the same crime, as well as with failing to file federal tax returns and failing to pay federal income tax on nearly $400,000 from rental space on communication towers he owns in Brunswick, also will not ...

and more »
Categories: Tax news

Governor Rick Scott Offers Mixed Bag of Tax Proposals for Florida

Tax Foundation - Wed, 2014-09-03 08:45

Governor Rick Scott (R) of Florida has launched a new bus tour as part of his re-election bid, advertising a plan to cut taxes in Florida by $1 billion. The key features of the plan are:

A constitutional amendment restricting property tax increases $200 million in new tax holidays A reduction automobile registration fees A reduction local telecommunications service sales taxes Permanent elimination of the sales tax on manufacturing equipment Continued phase-out of the state corporate income tax Elimination of the sales tax on commercial leases

These proposals are a mixed bag. Restrictions on property tax assessments can reduce local taxation, but only if there are also restrictions on property tax rates, effective standardization of tax assessing practices, and strict limits on other local revenue sources. Otherwise, if property taxes are ineffectively capped, localities will just raise the same revenues through less transparent means like excessive fees, fines, or budget gimmicks that just push expenses further out.

Tax holidays are even worse policy. While they may be politically expedient, sales tax holidays just create additional compliance burdens while failing to promote economic growth. Florida was an early-adopter of this distortionary tax policy, taking the practice from more highly-taxed New York in 1998. But a more economically productive course than narrow carve-outs for certain goods would be general sales tax relief. If policymakers believe it is worthwhile to offer $200 million in sales tax relief, a small across-the-board rate reduction could be passed, instead of a special provision for a few advantaged retailers.

That said, Governor Scott’s plan includes some valuable proposals as well. Florida has the 4th highest cell phone taxes in the nation, so tax relief in that sector would bring the Sunshine State closer to national norms. Eliminating sales taxes on business inputs, like commercial leases and manufacturing equipment, is also sound tax policy, because taxes on business inputs create tax pyramiding and significant economic distortions. Finally, moving to reduce or phase out the corporate income tax would follow with a broader trend around the nation. Many states have been experiencing declining corporate tax revenues due to increasing credits and deductions, falling tax rates, and changes in income apportionment formulas. In a competitive national and global environment, state-level corporate income taxes seem increasingly unable to raise sufficient revenues to justify their negative economic impacts.

Governor Scott’s tax proposals offer meaningful improvements in some areas like cell phone and corporate income taxes. But on other issues like the property tax cap, it’s not clear whether or how the plan will work; on sales tax holidays, the proposed “tax cut” would actually make the tax code more complicated and distortionary, while creating little or no economic growth.

Read more on Florida here.

Follow Lyman on Twitter.

Categories: Tax news

IRS set to clarify who qualifies for tax-favored status in the shale patch - Environment & Energy Publishing

Google IRS Federal Income Tax - Wed, 2014-09-03 07:14

IRS set to clarify who qualifies for tax-favored status in the shale patch
Environment & Energy Publishing
Why couldn't a McDonald's restaurant chain in the shale patch -- or any food provider -- form a master limited partnership (MLP), thus avoiding the federal corporate income tax? Answer: It would have to ask the Internal Revenue Service, and MLP experts ...

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IRS wants to feast on 'free lunch' perk in Silicon Valley - Manteca Bulletin

Google IRS Federal Income Tax - Wed, 2014-09-03 01:35

Irish Independent

IRS wants to feast on 'free lunch' perk in Silicon Valley
Manteca Bulletin
Here's a question for Congressional Republicans: Why do I have to pay my federal income taxes and others don't to the tune of more than $400 billion a year? And according to the IRS Oversight Board, most of those taxes are owed by corporations and rich ...
Tax Collectors in the CafeteriaWall Street Journal

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Chris Tucker Blames Poor Management for IRS Lien After Settling Huge Tax Bill - Newswire (press release)

Google IRS Federal Income Tax - Tue, 2014-09-02 15:52

Newswire (press release)

Chris Tucker Blames Poor Management for IRS Lien After Settling Huge Tax Bill
Newswire (press release)
USA Today examined public records and found more than 50 people prominent in the entertainment industry who owe at least $50,000 in back taxes to the federal government, according to IRS tax liens. Many also are behind on state income taxes, according ...

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The IRS Is Giving Away $13 Billion A Year In Wind Energy Subsidies, Without ... - Forbes

Google IRS Federal Income Tax - Tue, 2014-09-02 12:36

The IRS Is Giving Away $13 Billion A Year In Wind Energy Subsidies, Without ...
Forbes
Back in December 2012, while Senate Minority Leader McConnell and Vice President Biden were negotiating a last-minute deal to prevent income taxes from rising across the board, special interests in the wind industry engaged in a flurry of lobbying ...

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Last call at Atlantic City's Revel: a few bettors, $5 bottles, state cops

Yahoo Tax - Tue, 2014-09-02 10:32

By Daniel Kelley ATLANTIC CITY N.J. (Reuters) - Shortly before sunrise on Tuesday, Morgan Capezzera reclined on the roulette table at the Revel Casino in her bikini and snapped a selfie before the Atlantic City gambling hall shut its doors for good. "I love Revel," said Capezzera, 30, of Toms River, New Jersey, who spent most of the day at the casino. "I lost, but I don't care." She was one of few fans who came out for the closing night of a two-year-old casino once heralded by Governor Chris Christie as a new model for the down-on-its-luck New Jersey shore gambling hub. The $2.4 billion project this year went into bankruptcy for the second time in its short history and is one of four Atlantic City casinos to announce that it would shut its doors this year, taking a heavy toll on the budget in a city where the property tax base is expected to fall to $10 billion by 2015, less than half its 2010 level.


Categories: Tax news

IRS Data Contradicts Kleinbard’s Warnings of Earnings Stripping from Inversions

Tax Foundation - Tue, 2014-09-02 04:45

One of the loudest critics of the recent wave of corporate inversions is University of Southern California law professor Ed Kleinbard, who warns that these transactions will erode the U.S. corporate tax base because these newly relocated firms will use “intragroup interest payments” to “strip” income out of their U.S. subsidiary.

While this is thought to be a common practice with multinational corporations, IRS data actually shows that the U.S. subsidiaries of foreign-based companies have smaller interest deductions relative to their total receipts than do American-headquartered firms and, interestingly, they have higher effective tax rates than their domestic counterparts. Thus, Kleinbard’s warnings would seem to be much ado about nothing.

Earnings Stripping

The “earnings stripping” transaction that Kleinbard and others worry about works like a normal bank loan except that the lender is the parent company headquartered in another country. However, since interest payments are a deductible business expense, the interest payments to the parent company (like any bank loan) act to lower the taxable income of the American subsidiary. And, depending on where the parent is located, the interest income from the subsidiary may be taxed at a low rate or not be subject to tax at all by the home country. Thus, the deductible interest payments are said to “strip” income out of the U.S. tax base and transfer it into the lower-taxed coffers of the foreign parent.

If foreign parent companies are indeed stripping income out of their U.S. subsidiaries we would expect to see a relatively large share of their income dedicated to deductible interest payments,  and that these interest payments would be greater than those claimed by domestic corporations. To see if this is true, we used IRS data to compared the deductible interest expenses of foreign-owned companies operating in the U.S. to the interest expenses of U.S. domestic firms.

Chart 1 below shows the interest deducted by foreign-owned and domestic corporations relative to their total receipts between 1994 and 2011. What is immediately noticeable is that the ratio of interest payments to receipts for both firm types seems to track the ups and downs of the business cycle very closely. Indeed, the debt load of all corporations peaked during the boom years of 2000 and 2007 and collapsed during the recessionary periods of 2001 to 2003 and 2008 to 2009.

What is also noticeable is that the interest burdens of both foreign-owned and domestic companies were almost identical during the 1990s, then began to diverge after 2000 when the interest burden of domestic companies began to rise above that for foreign-owned companies. Indeed, since 2000, the interest burden of domestic companies has averaged 6.5 percent of total receipts compared to a burden of 5.5 percent of total receipts for foreign-owned firms. In 2011, domestic firms had an interest burden of 4.1 percent of receipts, compared to foreign-owned firms which had an interest burden of 2.9 percent of receipts.

Why Do Foreign Firms have Lower Interest Burdens?

It is difficult to know exactly what explains why foreign-owned firms have had a lower interest burden than their domestic counterparts over the past decade or so. Perhaps the U.S. “thin capitalization rules” (also known as 163(j) rules after the tax code section) actually work to prevent foreign parent companies from loading up their subsidiaries with too much debt. Or, perhaps foreign parent companies prefer to fund the expansion of their U.S. subsidiaries with equity financing or with domestically-generated profits. Either way, it would take far more granular data than the IRS makes available to understand what is driving these results.

The Effective Tax Rates of Foreign-Owned and Domestic Companies

Another way in which we should see the results of excessive tax planning techniques by foreign parent companies is in the effective tax rates paid by their U.S. subsidiaries. Here again, when we compare the effective tax rates paid by foreign-owned companies to the effective tax rates of domestic companies we don’t see the results of excessive tax planning.

On the contrary, as Chart 2 indicates, IRS data shows that between 1994 and 2011, foreign-owned companies consistently paid a higher effective income tax rate than did domestic companies. Between 1994 and 2011, the effective income tax rate of foreign-owned companies averaged 28.6 percent while the effective income tax rate of domestic companies averaged 24.9 percent.  

Here, the differences can be partially explained by the foreign tax credit that domestic companies can claim for the income taxes they paid to other governments on any offshore earnings they bring home. In 2011, for example, U.S. companies claimed $105 billion in foreign tax credits on their repatriated earnings from abroad. Along with the general business credit, the foreign tax credit helped reduce the income tax liability of U.S. companies from $323.7 billion to $200.8 billion.

It is likely that it in the absence of the foreign tax credit, the effective tax rate of domestic companies would tend to look very similar to the effective tax rates paid by foreign-owned firms.

The Number of Inversions is Small Compared to Inbound M&A Activity

It is also interesting to put inversions within the context of the normal amount of inbound M&A activity in the U.S. each year because it illustrates  how over-the-top are the dire warnings by inversion critics such as Kleinbard, as well as lawmakers such as Senator Carl Levin and Rep. Sander Levin.

According to Congressional Research Service data posted on Rep. Levin’s website, just five U.S. companies completed inversion transaction in 2013 and 55 have completed inversions since 2000. By contrast, in 2013 alone there were 1,278 transactions—worth roughly $60 billion—involving U.S. assets purchased by foreign companies. It is worth noting that both of these figures were at a ten-year low. Since 2004, however, the number of transactions involving the purchase of U.S. assets by foreign buyers has averaged about 1,500 annually, while the value of these transactions has averaged $105 billion each year.

If these critics were consistent in their logic, they should oppose all foreign acquisitions of U.S. companies. Because, in their view, if inversions are a major threat to the U.S. tax base, then these M&A figures would suggest that the foreign purchases of American firms also ought to be a bigger threat to the corporate tax base.

But as the IRS data indicates, the fears may be greater than the actual threat. Moreover, history has shown that foreign direct investment is very beneficial to the U.S. economy and should be encouraged, not chased away.

The Solution

Of course, the real threat to the U.S. corporate tax base is our corporate tax code itself, with the third-highest overall rate in the world and a worldwide system that requires American companies to pay a toll charge to bring their profits back home. Thus, the solution to the inversion “problem” is to dramatically cut the corporate rate and to move to a territorial tax system, not add even more unnecessary rules to an already complicated tax code.

******

Data sources:

The corporate tax and interest data for foreign and domestic companies is derived from the IRS Corporation Complete Report, Tables 16 and 24, for years 1994 through 2011. Since Table 16 (Returns of All Active Corporations, Form 1120) includes the returns of foreign-owned companies, it was necessary to subtract the data for receipts, interest, and taxes found on Table 24 from the aggregate data in Table 16 for each year. The residual data is considered from “domestic” corporations.

http://www.irs.gov/uac/SOI-Tax-Stats-Table-16-Returns-of-Active-Corporations,-Form-1120

http://www.irs.gov/uac/SOI-Tax-Stats-Returns-of-Active-Corporations-with-50-Percent-or-More-Foreign-Ownership-Table-24

The Mergers and Acquisition data is found at the UNCTAD website:

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx

 

 

Categories: Tax news

IRS Denies Exempt Status Under Section 501(c)(4) For Too Much Political Activity - Mondaq News Alerts (registration)

Google IRS Federal Income Tax - Mon, 2014-09-01 09:19

IRS Denies Exempt Status Under Section 501(c)(4) For Too Much Political Activity
Mondaq News Alerts (registration)
Section 501 (c)(4) of the Internal Revenue Code provides for the exemption from federal income tax of organizations not organized for profit but operated exclusively for the promotion of social welfare. Section 1.501(c)(4)-1(a)(2) of the Income Tax ...

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The Color of Money | Tax alert on health premiums - Columbus Dispatch

Google IRS Federal Income Tax - Sun, 2014-08-31 08:14

The Color of Money | Tax alert on health premiums
Columbus Dispatch
However, if your income for the year was too high (relative to the federal poverty line) to qualify for the credit, you'll have to repay all of the payments that were made on your behalf as an additional income-tax liability, according to the IRS. If ...

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Categories: Tax news

Driving Ferrari But Reporting Low Income To IRS Gets Ticket To Jail - Forbes

Google IRS Federal Income Tax - Sat, 2014-08-30 12:47

Forbes

Driving Ferrari But Reporting Low Income To IRS Gets Ticket To Jail
Forbes
Don't argue our tax system is voluntary either. The IRS hates this. Don't argue that wages, tips, and other compensation are not income. Avoid saying Federal Reserve Notes are not income or that only foreign-source income is taxable. This has ...
Blue Jays give Derek Jeter a trip to Canadian RockiesNBCSports.com

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Eater Tastings: Tavernita Shutters Amidst Tax Debt; RPM Steak Debuts; More

Yahoo Tax - Fri, 2014-08-29 10:27

This week's top dish from Eater Chicago, Curbed's restaurant, bar, and nightlife blog... RIVER NORTH—Mercadito's Spanish drinking and eating hotspot Tavernita shuttered yesterday amidst a revoked liquor license and $75,000 in state tax debt. Their casual Mercadito Counter opened this...


Categories: Tax news

Brunswick pair charged with federal tax-evasion scheme - The Forecaster

Google IRS Federal Income Tax - Fri, 2014-08-29 09:41

Brunswick pair charged with federal tax-evasion scheme
The Forecaster
David E. Robinson, 75, and F. William Messier, 70, are charged with multiple counts of conspiracy to defraud the U.S. government by impeding or impairing an IRS investigation, according to court documents. Messier has not filed a federal income tax ...

Categories: Tax news

The Simple Solution to Corporate Inversions

Tax Foundation - Fri, 2014-08-29 06:45

Inversions have been in the news consistently this summer as multiple companies have looked for legal paths away from the U.S. corporate tax system. Burger King became the latest corporation to add to the list after they announced their planned moved to Canada. The reason: Our corporate tax system is out of date.

The average corporate tax rate across the 34 member Organization for Economic Cooperation and Development has dropped from 47.5 percent in 1981 to 25.3 percent in 2014. Since the late 1980s the U.S. rate has remained stagnant at around 40 percent. Additionally, the U.S. is one of only six OECD countries that still tax income on a worldwide basis (the lack of a territorial system is likely the main driver of inversions).

So what’s the solution? Greg Mankiw has an idea. From the New York Times:

“Perhaps the boldest and best response to corporate inversions is to completely rethink the basis of corporate taxation. The first step is to acknowledge that corporations are more like tax collectors than taxpayers. The burden of the corporate tax is ultimately borne by people — some combination of the companies’ employees, customers and shareholders. After recognizing that corporations are mere conduits, we can focus more directly on the people.

“So here’s a proposal: Let’s repeal the corporate income tax entirely, and scale back the personal income tax as well. We can replace them with a broad-based tax on consumption. The consumption tax could take the form of a value-added tax, which in other countries has proved to be a remarkably efficient way to raise government revenue.”

Many OECD countries have been going this way as they have moved to replace taxes on corporations with taxes on consumption.

This method isn’t without its critics though:

“Some may worry that a flat consumption tax is too easy on the rich or too hard on the poor. But there are ways to address these concerns. One possibility is to maintain a personal income tax for those with especially high incomes. Another is to use some revenue from the consumption tax to fund universal fixed rebates — sometimes called demogrants. Of course, the larger the rebate, the higher the tax rate would need to be.”

The point is: we need to reform the U.S. tax code (both corporate and individual). Not just to stop inversions, but to improve U.S. competitiveness and grow the U.S. economy (and I’m not talking about -2.1 percent growth followed by 4.2 percent, but real, long-term growth). If all sides are willing to come to the table with those goals in mind, then, as Mankiw suggests, there are solutions to be found. Trading the corporate tax for a VAT with a rebate might be one option.

Categories: Tax news

Detroit says Barclays agrees to $275 million financing

Yahoo Tax - Thu, 2014-08-28 13:32
(Reuters) - Barclays Capital Inc has agreed to raise up to $275 million to fund Detroit's exit from municipal bankruptcy, the city announced on Thursday. The funding will involve financial recovery bonds issued through the Michigan Finance Authority then purchased by Barclays at a price equal to par, according to deal's term sheet. Barclays will be the exclusive underwriter and syndication agent for the so-called exit facility. The bonds, which include up to $200 million of tax-exempt debt, will be secured by a lien on Detroit's income tax revenue.
Categories: Tax news

Explaining Migration from Blue States Takes More Than Housing Prices

Tax Foundation - Thu, 2014-08-28 10:15

Matt Yglesias at Vox today argues that migration out of “blue states” is caused by high housing prices, not taxes, and high housing prices are essentially a function of bad zoning laws in “blue” cities. Yglesias literally wrote the book on this topic, and his argument is backed up in some ways up by some compelling academic research, so it’s well worth taking seriously. And, as far as it goes, there’s an element of truth: virtually every academic studying migration would agree that cost of living factors, especially housing costs, have an important role in determining migration patterns.

But Yglesias’ “explainer” doesn’t offer a real explanation of what this means, and how housing prices relate to the broader migration debate. He suggests that the price map we created is merely a reflection of housing prices, yet doesn’t even offer a comparison to other price categories. The BEA makes available four different sets of price parities: all consumption, rents, goods, and other services. Our state and metro area maps presented just the parities for all consumption, but it’s easy enough to compare to other categories.

Yglesias, and others he cites, suggests that, because the amount of variation in rent price parities is very large (larger than other categories), it is therefore the only really important component. The problem, of course, is that this argument is wrong. While rent does vary more widely than prices for goods or other services, it varies in a systematically similar way. Even when no controls for housing policies are included, variation in service prices can explain 65 percent of the variation in housing prices, and while variation in goods can explain 58 percent. These are very high numbers for a single-variable explanation.

This suggests that we can’t just draw a line from housing policy to migration, because we can’t even draw a direct line from housing policy to price levels: areas with restrictive zoning policies are closely correlated with areas that also have restrictive geographies and other significant price effects. Migration and regional economics are too complicated to just blame housing policy. Zoning definitely drives up prices: but apparently a large part of high housing prices is explained by generally higher price levels for all kinds of goods.

The argument that housing prices are simply driven by high demand for high wages in areas of restrictive zoning is likewise complicated by the actual data on the subject. It may be that people move to New York City for high wages, and so demand for housing rises, thus prices rise. But it also may be that firms in DC have to offer high wages in order to persuade people to tolerate high rents, bad traffic, and crowded urban living.

In fact, if we look at price changes instead of price levels from 2008 to 2012, there is very little correlation between changes in nominal wages (a reasonably proxy for changes in labor demand, used in the academic research Yglesias cites) and changes in price levels, except in the most extreme cases. This suggests that, whatever the connection between local labor demand and housing prices, it isn’t as simple as Yglesias explains.

It’s true that housing prices matter. Local job creation likewise obviously impacts migration and prices. But, as we’ve pointed out, local fiscal policy can also impact housing prices. Furthermore, housing prices aren’t all that matter, especially for migration. People migrate for weather, for family, for jobs, for a better quality of life, and, yes, for a lower cost of living: including both lower housing costs and lower tax burdens. The trite suggestion that everybody wants to move into “blue state” cities, but is simply priced out by zoning laws, simply isn’t true. As surprising as it may be to Yglesias, not everyone wants to live in mid-rise apartment buildings surrounded like light rail and dog parks: people have widely varying preferences, and many people (this author included) enjoy rolling hills, open land, and cheap backyard barbecue.

Read our responses to Paul Krugman, CBPP, and the Upshot blog on migration issues.

Read more on migration here.

Follow Lyman on Twitter.

Categories: Tax news

Two Brunswick men indicted on tax fraud conspiracy charges - Press Herald

Google IRS Federal Income Tax - Thu, 2014-08-28 10:14

Two Brunswick men indicted on tax fraud conspiracy charges
Press Herald
Messier is accused of failing to file a federal income tax return since 1997. In 2012, the IRS began a collection action against him for back taxes, interest and penalties for the years of 2000 to 2004 totaling $172,000. From 2006 to 2012, Messier ...
Brunswick duo charged with allegedly conspiring to cover up tax evasion schemeBangor Daily News

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Early tax planning may be needed because of the Affordable Care Act - Washington Post

Google IRS Federal Income Tax - Thu, 2014-08-28 07:01

Early tax planning may be needed because of the Affordable Care Act
Washington Post
However, if your income for the year was too high (relative to the federal poverty line) to qualify for the credit, you'll have to repay all of the payments that were made on your behalf as an additional income tax liability, according to the IRS. It's ...

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