Vacation

Posted on July 29, 2005 by Russ

I’ll be, in general, out of the office until August 9th, enjoying some time away from the office. While I’m away, take a look at some of the other excellent tax blogs noted in the blogroll on the right.

Posted in Taxable Talk | 1 Comment

Pork or Pork?

Posted on July 29, 2005 by Russ

As a member of the National Association of Enrolled Agents, every Friday I get an email with a summary of tax news. Today, I received the Ways & Means Committee’s Version of the new Highway Bill. You can find this document here. On the good news front, the requirement of prepaying offers-in-compromise has been eliminated.

Did you know that there’s up to a $10 excise tax on fishing rods? Yep, and it’s mentioned in the summary. I have no idea what the funds are used for.

On the other hand, the energy bill is also about to pass Congress. As Roth Tax Updates notes, “Pork is Good.” I know there are ethanol provisions in the legislation (ethanol mandates for gasoline), and who knows what other provisions are included in this mammoth, $14.5 billion legislation.

Hat tip: Roth Tax Updates

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Porn Website Tax?

Posted on July 28, 2005 by Russ

According to a wire service story, Senator Blanche Lincoln (D-AR) plans on introducing legislation this week that would add a 25% federal excise tax on pornography and additional requirements on adult websites. Lincoln’s spokesman wouldn’t comment on the bill’s provisions, stating, “We prefer to wait until the bill is introduced to discuss it.” As of this morning, the legislation has not been introduced.

I’m naturally skeptical about efforts to regulate sin. Sure, child pornography is bad, children viewing pornography is bad, etc.; however, if this legislation were to pass and it was effective, wouldn’t pornographic websites just move across the borders away from the US?

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IRS Help Centers: How Valuable?

Posted on July 27, 2005 by Russ

The Orange County Register reports today (one time subscriprtion required) that the IRS cannot tell whether its 400 help centers help taxpayers. The report, from independent auditor J. Russell George, the Treasury Department’s Inspector General for Tax Administration, was disputed by the IRS.

Of course, the telephone help has been plagued by possible incorrect answers—anywhere from 22% to 50% of the answers have been wrong, according to reports (see here, here, and here).

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Technical Corrections Act

Posted on July 27, 2005 by Russ

Today’s Wall Street Journal also reports that Senators Grassley (R-IA) and Baucus (D-MT) have introduced a “technical corrections act” to fix errors in last year’s tax law and other recent legislation. The Tax Technical Corrections Act of 2005 was also introduced in the House.

While this act, if passed, may fix problems, unfortunately these acts have, in the past, been used to add pork and other problems to the Tax Code. Time will tell.

Hat Tips: The TaxProf Blog

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New Rules on Tax Shelters for Accounting Firms

Posted on July 27, 2005 by Russ

The Public Company Accounting Oversight Board announced new standards for tax shelters yesterday. The Wall Street Journal reported on this in today’s editions.

The rules, which must be approved by the SEC, state that firms will be prohibited from auditing clients to which they sell aggressive tax shelters. Of course, there’s an exception to this: if the firms reasonably believe they have at least a 50% chance of prevailing in an audit with the IRS.

This new regulation stems from the continuing KPMG scandal. The US Department of Justice has not yet announced whether they will pursue criminal charges against KPMG.

Posted in IRS | 2 Comments

Your Tax Dollars at Work: Did I Really Compliment the IRWD?

Posted on July 27, 2005 by Russ

As mentioned previously, my home and office are served the the Irvine Ranch Water District (IRWD). Unlike the neighboring Orange County Sanitation District, the IRWD hasn’t elected to spiritualize its’ sewage. But the IRWD has committed its own sin: Late payments on electricity bills to the tune of $22,427, according to a story in the Orange County Register.

The IRWD says that the payments were late so that the bills, from Southern California Edison could be checked to ensure that SCE didn’t overcharge the IRWD. The IRWD has now changed its policy so that if the checking of the bills will cause them to be paid after the due date, the bills will be timely paid and a credit (if appropriate) will then be asked for.

Yes, the double-checking of the bills has found errors (of more than $160,000). But shouldn’t this procedure have been implemented after the first late payment? Definitely this shouldn’t have had to wait for an audit; according to the Register story, that was the cause of the change of procedure.

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Uh Oh….

Posted on July 26, 2005 by Russ

I noticed a headline in today’s Orange County Register that grabbed my attention: “IRS Will Audit 5,000 Firms to Gauge Unpaid Taxes Nationwide” (one-time registration required). Then I read the article. If I hadn’t had heartburn before, now I did. After talking for several years about looking at S Corporations, the IRS has finally decided to see how bad the salary problem is. (You can find the IRS’ news release here.)

S Corporations are the most popular form of corporate ownership in the US because of their pass-through nature combined with liability protection. While S Corporations do not (generally) pay taxes, they must file returns; the owners of the S Corporations include their shares of the income on their individual (1040) returns.

Over the past few years, whenever I attended meetings with enforcement personnel from the IRS, they mentioned that (they believe) that many owners are not taking required salaries from their S Corporations and instead are taking all distributions as dividends (which allows them to avoid payroll taxes). Owners do need to take “reasonable” salaries. Of course, there is plenty of room for debate on what is reasonable. However, it’s unlikely that the Tax Court would find $0 reasonable.

In any case, the IRS now wants to quantify this problem (and any others they may find) by returning to…the audits from hell.

I’ve missed out on these (thankfully), but these audits were of people unlucky enough to be randomly selected and had to justify every line of their individual return, and usually had to state what every deposit in their bank accounts represented. Ugh.

Now, under the guise of “research,” these audits have returned to haunt us. A lucky 5,000 S Corporations will be selected out of the 3.3 million S Corporations (or one of every 660, or a 0.15% chance). I echo the thoughts of Roth & Company: Please, Mr. Taxman, go somewhere else; Clayton Financial & Tax’s returns are fine (and yes, we’re an S Corporation). Please?

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Once Burned ,Twice Shy

Posted on July 26, 2005 by Russ

The Tax Court was in a foul mood today, as they disposed of several frivolous taxpayer cases. In one case, they note, “We advised petitioner at the 2001 trial that his arguments were frivolous, and we admonished him against advancing them again. Our admonition at the 2001 trial was insufficient to deter petitioner from returning to the Court and advancing the same frivolous and groundless position in the instant case.” That’s one $5,000 penalty (under Section 6673(a)).

Then I read, “Despite warning petitioner at least six times at trial that his arguments were frivolous and groundless, petitioner persisted in making those arguments at trial and on brief.” There’s another $5,000.

In the third case, the Court stated, “Petitioner has advanced shopworn arguments characteristic of tax-protester rhetoric that has been universally rejected by this and other courts….We shall not painstakingly address petitioner’s assertions “with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984).” This taxpayer escaped with a warning.

Cases: Leggett v. Commissioner, Rhodes v. Commissioner, and Delgado v. Commissioner

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Your Tax Dollars at Work: Spiritual Counselor for Sewage

Posted on July 21, 2005 by Russ

Luckily, I’m not served by the Orange County Sanitation District (OCSD). That’s because the Orange County Register disclosed that the OCSD has been paying a “spiritual counselor” $15,000 per month (or $180,000 per year). The Register reported on July 12th that Dharma Consulting would have made $570,000 by the expiration of its’ contract.

That smells pretty bad: spiritual sewage?

The OCSD finally realized that Assemblyman Chuck DeVore (R-Irvine) might be right when he said, “What if a local government decided to bring in a representative of a nearby Catholic diocese to help coach their city employees on spirituality, teamwork and ethics? … The ACLU would sue more quickly than you could say, ‘Establishment Clause.'” The OCSD ended the contract; Dharma Consulting is left with its’ take to date ($400,000).

Blake Anderson, OCSD General Manager noted, speaking to the Register, that, “While I certainly understand and respect the concern raised about the cost and length of the contract, the intention and outcome has ALWAYS been directed toward one thing: making the Sanitation District a highly effective and efficient public agency.” The contract was cut on the 19th.

But that’s not the end of the story. The Register reported today that Anderson has offered to resign.

For the record, my home and office are served by the Irvine Ranch Water District, which, as far as I know, hasn’t jumped on this particular fadconsulting program.

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