Archive for the ‘Iowa’ Category

Iowa Legislature Attacking EAs

Monday, February 29th, 2016

I’m exaggerating a bit, but I’m not happy when I find myself and my colleagues treated as second-class citizens. And that’s may become the case in Iowa.

There’s a proposal in the Iowa legislature to regulate tax professionals. CPAs are exempt; so are attorneys. However, Enrolled Agents are not exempt.

This is just bad legislation. Enrolled Agents are the only licensed tax professionals who must get all of their continuing education in tax. I’m pleased to note that the Iowa Society of CPAs is against this legislation.

Of course, this legislation has little to do with protecting the public and everything to do with the occupational licensing schemes of either making sure the current incumbents remain so or to raise money.

If you’re an Iowan, write your legislators to tell them they should have better things to do, like passing legislation so Iowans know what their 2015 state taxes will be. (Yes, Iowa hasn’t decided whether or not to conform to the changes made late last year to the federal tax code.)

How to Wynne Your Money Back in Maryland

Tuesday, September 29th, 2015

Earlier this year the US Supreme Court ruled that Maryland had to issue full tax credits–including the county add-on tax–to individuals facing double taxation (typically, Maryland residents who earned income taxed in other states). Kay Bell in Don’t Mess With Taxes today noted that the Comptroller of Maryland (Maryland’s state tax agency) has created a webpage for those impacted.

The webpage gives the basics on this, and notes that the Comptroller’s office will not be contacting impacted taxpayers. There’s a link within to a web page on the Wynne Case and the Comptroller’s office has a new form (From 502LC) designed for this specific situation. There’s also a detailed FAQ.

I also need to point out this decision likely impacts other states and jurisdictions. Other states with “add-on” local taxes include Indiana, Ohio, Kentucky, Michigan, Missouri, New York, and Pennsylvania. However, where this impacts taxpayers is residing in a state that does not allow a tax credit for local taxes (Indiana, Iowa, Kentucky, Maryland, North Carolina, and Wisconsin are some of the states so identified) and/or residing in a local jurisdiction that does not allow such a credit (jurisdictions in Ohio, Pennsylvania, Michigan, Missouri, Delaware, and Indiana have been so identified). I have not looked at each state/local jurisdiction to see who is impacted. If you think you’re impacted–remember, you would need to live in a jurisdiction that hasn’t been allowing such a tax credit and have taken such a tax credit on a recent tax return–you should contact your tax professional.

They’ll Know It in Dubuque

Sunday, July 19th, 2015

Perhaps someone will understand the reference in the title (it’s to one of my favorite novels). But this is a tale from Dubuque, Iowa about a scheme gone bad.

James Spaulding was the director of the Clarke University Bookstore; he and Thomas DeFelice came up with the perfect crime. Well, since you’re reading about it here it at least started off that way….

They created a phony book company; that company then invoiced the Clarke bookstore for books that hadn’t been sold to them (but that were approved by Mr. Spaulding). The fraud was over $300,000. Compounding Mr. Spaulding’s troubles he lied to a federal grand jury.

They both pleaded guilty: Mr. Spaulding of two counts of filing false tax returns and one of mail fraud while Mr. DeFelice pled to one count of filing false tax returns. Mr. Spaulding earlier received 57 months at ClubFed; Mr. DeFelice received 12 months at ClubFed.

As to the reference
, it’s to the Pulitzer Prize winning novel Advise and Consent. If you haven’t read this novel of Washington politics, I highly recommend it. As to why “They’ll Know It in Dubuque” is a reference to Advise and Consent, you will just have to read the novel to find out.

What Can Go Wrong? Nevada Democrats Want to Give Tax Breaks to Movie Industry

Sunday, May 12th, 2013

The Nevada Democratic Party proposed a tax increase on entertainment venues. (It’s doomed, as both Republican Governor Brian Sandoval and Republicans in the state legislature are opposed to it.) To balance it out, Democrats in Carson City are now proposing tax breaks for films in the Silver State. Jon Ralston was told by a state Democratic official, “This is a jobs issue. Democrats want to create jobs here and Republicans want to ship jobs overseas.”

I suggest Democrats in Carson City look at the gory details of film credits in Iowa. Or Michigan. Or the United Kingdom. Again, though, this is a plan that won’t be going anywhere (thankfully) as the votes aren’t there.

When a W-2G (or Other Information Return) Is Wrong

Wednesday, March 20th, 2013

Let’s say you’re self-employed, and you get a 1099-MISC from a customer. He notes he paid you $1,200. However, he really paid you $900. What do you do?

First, you contact the customer and attempt for him to correct the error. Hopefully, you can show him a copy of your invoice(s) or other documentation, and he or she will issue a corrected 1099-MISC.

But what if he refuses? Here, practicality must be used. Let’s say the total of your gross receipts is $32,000, and the total of your 1099-MISCs (and 1099-Ks) is $29,000. I’d likely just enter the 1099-MISC as received, and lower the “other” gross receipts by the extra $300. (IRS instructions on information returns state to use the actual number. The problem is that the automated underreporting (AUR) unit will almost certainly send you a notice if you use the wrong number.)

Earlier this week I was faced with a different situation. My client, an amateur gambler from Indiana, entered a poker tournament in Iowa. The tournament had a $300 buy-in, and my client cashed for $2,300. Under federal law, no W-2G would be issued because the amount of his win, $2,000, is less than the threshold for issuing a W-2G in a poker tournament ($5,000). However, under Iowa law withholding on nonresident’s winnings begin at gross winnings of $1,200 (at a rate of 5%). My client received a W-2G for $2,300, not $2,000. What should be done? (My client has excellent records, including the tournament buy-in receipt.)

The amount of the win is $2,000, not $2,300. Indiana does not allow gambling losses to be deducted on their state income tax returns, so this is an issue for my client. (This can be an issue for individuals on federal returns, too. Gambling losses are an itemized deduction, so they don’t impact Adjusted Gross Income (AGI). Many tax items are tied to AGI, such as being able to contribute to a Roth IRA.) However, if I enter $2,000 as the amount won for that W-2G, the IRS’s automated underreporting unit will flag the return.

The solution is to enter the W-2G as it was received, and then subtract out the $300 buy-in just below this. I included an explanation: “Buy-in for W-2G winnings.” Should the IRS, Iowa, or Indiana flag the return, we can respond with a perfect paper trail showing that what we did is to put the income my client really earned on the tax return. Given that this is a fundamental principle of US taxation, all should be well.

The same process can be used for other information returns that are erroneous: Enter the “wrong” numbers, and modify them with an explanation. Do realize that there is a chance that the AUR unit may ask for proof. This is yet another reason why the solution to many tax issues is to document, document, document.

Who Knew? Iowa Has a $50 Loss Limit on Fantasy Sports

Thursday, March 7th, 2013

As I end a very long work day, I notice that Jason Dinesen sent out a tweet that an Iowa legislator is attempting to increase the daily fantasy sports betting, er, skill, well gambling (in Iowa) limit from $50 to $500. In Iowa, fantasy sports are currently considered a form of gambling. As many states begin to consider online gambling, it will be interesting to see what kind of patchwork of rules we end up with.

Home Is Where the Family Is

Sunday, September 23rd, 2012

Last week there was an interesting case out of Iowa regarding domicile. A man was working in South Dakota but his family home was in Iowa. He decided to file as a South Dakota resident. Could it be that South Dakota’s 0% state income tax rate was more appealing than Iowa’s 8.9% rate? Perhaps I’m too cynical (not).

In any case, the taxpayer lost because he did many of the things that are necessary wrong. For those wondering about domicile cases, Joe Kristan’s report on the case is must reading.

A Structured Result

Monday, June 4th, 2012

A building needs a sound structure to survive. In the world of tax, structuring is something to be avoided. A used car dealer in Waterloo, Iowa has learned that.

The IRS learned of alleged structuring of deposits for Century Finance, a lending arm of Champion Motors in Waterloo. The IRS raided the business. I’m unsure if they found any structuring, but they did find an alleged theft of $71,000 from the business by Brian Beckman. Mr. Beckman wasn’t prosecuted for the theft, but for the tax loss from the theft. Now that loss is only $6,400 but it has also led to Mr. Beckman pleading guilty to filing a false tax return.

For those who aren’t aware, structuring in tax is making cash deposits smaller to avoid currency reporting requirements. If you make a cash deposit of $10,000 or more, a currency transaction report is required. So some unscrupulous individuals break that up into two $5500 deposits. That’s a felony (if done deliberately): structuring.

As for Mr. Beckman, it’s likely he’ll receive probation and restitution.

I Spilled my Coffee Thanks to Joe Kristan

Tuesday, July 26th, 2011

This morning, Joe Kristan posted about an Iowa couple who had a unique method of preparing tax returns. I made the mistake of reading the actual court decision while drinking my morning coffee:

According to [the defendants], if you believe that looking successful helps make you successful, your clothes, hair care, and manicures are deductible. If your dog barks while you are away from your home based business, it’s deductible. If your child’s nanny ever answered the business phone, the nanny is deductible. If you visit a business associate while on vacation, it is deductible. If you pay rent to yourself, or even if you don’t, it’s deductible. If you have a six year old child, payments to the child are deductible employee expenses. If you have used your living room television in a business meeting, it’s deductible. And your hobbies, like scuba diving, pet cats and flying, easily deductible.

The trouble was that I was laughing so much that the coffee hit the carpet. As you hopefully know, none of the items noted by the Court are deductible; the defendants in this case absolutely deserve their permanent injunction.

On a more serious note, Joe noted,

The case is noteworthy in another respect: it shows how useless competency exams and CPE requirements are in stopping rogue preparers. One of the preparers — the one who signed all of the disputed returns — was an Enrolled Agent. That meant he had to pass a competency test that is certainly more difficult than any that will be imposed by the new IRS preparer regulation regime. He also had to take continuing education to maintain that status. [emphasis in original]

I disagree somewhat with Joe regarding competency exams, but agree with him regarding CPE.

Competency exams will weed out the lowest of the low hanging fruit. There are undoubtedly some preparers who are so incompetent that they have no chance of passing any exam. In that respect, the RTRP exams will have an impact.

However, CPE is what you make out of it. For most tax professionals, CPE gives us a chance to learn new material in tax. True tax professionals attend courses and want to learn.

That said, it’s relatively easy for an incompetent preparer to obtain CPE. Just go to courses, doodle on the materials presented, and go home still believing that petting your dog is deductible. As long as you attend the full course (typically, your badge is scanned upon entering and leaving) you will get CPE. Attend enough CPE and your license can be renewed.

Joe would prefer that the money being spent on building a new bureaucracy be used to spot rogue preparers. Originally, I was indifferent about the new PTIN and registration requirements. (For the record, the National Association of Enrolled Agents, of which I am a member, strongly supports both.) I am now moving more towards Joe’s opinion (that this is more or less a power grab by the IRS with no real benefits to taxpayers or tax professionals).

Hawaii Likely to Increase Film Credits; What Could Go Wrong?

Monday, May 2nd, 2011

Do you like Hawaii Five-0? No matter, it’s very likely you will see far more films and television productions made in Hawaii in the near future. The legislature in Hawaii is considering increasing the film credit rate from 15% to 35% in Oahu and 20% to 40% on all other islands. One film company has a goal of ten movies and two television shows a year! It sounds great, as it would lead to thousands of jobs. What could go wrong?

Plenty. Joe Kristan has been covering the Iowa film credit scandal; see, for example, this update from last week. Let’s just say when there’s a lot of money involved, there’s the urge by some to stick their hands in the cookie jar. Perhaps this won’t happen in Hawaii, but instead of making Hawaii a better place for filmmakers, why not lower the tax rates for everyone so that Hawaii encourages all industries to locate their. A far simpler solution than targeted tax breaks, but its also one that usually can’t lead to corruption.