Wednesday, December 31, 2014


Every year during the day on New Year's Eve I do the same thing I do during the day on Christmas Eve - I type W-2s and 1099s.
I have not gone out on New Year's Eve for at least 35 years.  I did 2 NYEs at Times Square in the 1970s - but would not want to be there tonight.
I will be celebrating at home with Turbo tonight, with Temptee and Ritz Crackers, potato skins, pizza bites, and "pigs in a planket", and, of course, bourbon and Coca-Cola, while watching the various count-down shows on television.  I will definitely be watching "Michael Feinstein's New Year's Eve at the Rainbow Room" on PBS from 10-11 PM.
I miss Dick Clark!

Tuesday, December 30, 2014


For another year the lyrics “piddle, twiddle, and resolve – not one damn thing do we solve” from the Broadway musical 1776 served as the perfect description of the current idiot-filled Congress.

The 2014 tax filing season (for filing 2013 returns) once again got off to a late start – also once again caused by the actions of the idiots in Congress.  This time the delay was a result of the October 1 – 16, 2013 government shutdown.  The IRS needed “time to program and test tax processing systems following the 16-day federal government closure”.  The Service announced it “would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4”.

And, once again, the delay did not affect me one bit.  For the past 40+ years the tax filing season has always started for me on February 1st.  And, as you should know by now, I prepare all my federal returns manually, so delays in processing electronically-filed returns don’t mean anything to me.

There was not much new that affected the 2013 Form 1040.  Most of the few new wrinkles concerned taxpayers who are considered to be “wealthy”.  These included the higher capital gains and top tax rate, the return of PEP and PEASE (at much higher levels), and the new Obamacare surtaxes – the additional .009 Medicare surcharge and the 3.8% tax on net investment income.

The bulk of my clients can be classified as “average middle class taxpayers”.  However I did have 6 clients who were hit by one or more of the new punishments for ambition, success, and entrepreneurship.  While the cost was not what I would consider substantial – it did add over $2,000 to the tax bill of some of these clients.

Generally I found overall 1099-B reporting by brokerage houses continued to be much more consistent and easier to follow, making things a bit easier.

As usual, I ended the tax season with too many GD extensions.

For the third time during a tax filing season in the 21st century the NJWebFile generated payment voucher code apparently identified the year for which the payment was being made as the prior year and not the current year.  Although the voucher itself clearly said “2013 Payment Voucher” the payment was applied to 2012 and not 2013.  As a result, taxpayers who made a full and timely payment of the balance due on their NJWebFile submitted 2013 NJ-1040 erroneously received underpayment notices for the previously paid balance due on their 2013 return, plus interest, in the fall. 

Applying the 2013 payment to 2012 would create an overpayment on the taxpayer’s 2012 tax account.  If there was an overpayment on a federal return tax year account the Internal Revenue Service would promptly send the taxpayer a notice identifying the overpayment and asking for an explanation of the payment or if the taxpayer wants the amount refunded.  One would think that the NJ Division of Taxation would do the same thing.  It certainly has a fiduciary responsibility to do so.  But, of course, the NJDOT remains silent and gladly accepts the overpayment unquestioned.

The last time this happened I was able to get the NJDOT to issue an actual letter of apology for the FU – a true rarity.  This time around there was no apology, or even an acknowledgement that an error occurred.  The response simply stated that based on the correspondence received (from me) there was no additional amount due.

On February 11th the US Court of Appeals put the final nail in the coffin of the IRS mandatory RTRP regulation regime.  In a unanimous ruling, a three-judge appellate panel upheld the lower court's January 2013 decision that the Internal Revenue Service does not have the power to impose test-taking and continuing education requirements on hundreds of thousands of “unenrolled” tax-return preparers.

"We agree with the District Court that the IRS's statutory authority ... cannot be stretched so broadly as to encompass authority to regulate tax-return preparers.”

The IRS decided not to take the case to the Supreme Court, suggesting that it might create a voluntary tax preparation credential.

But instead of doing what I suggested in my ACCOUNTING TODAY editorial “What the IRS Should Do About the RTRP”, Commissioner John Koskinen announced a new voluntary “Annual Filing Season Program” for tax return preparers at the end of June.

The Annual Filing Season Program does not issue to participants an actual identifiable credential or designation, like “Registered Tax Return Preparer”. Those who meet the program requirements will be issued a “Record of Completion” certificate and be added to “a database on that will be available by January 2015 to help taxpayers determine return preparer qualifications”.

The IRS explained that the new database will include information about those who have been awarded a record of completion and “practitioners with recognized credentials and higher levels of qualification and practice rights”, such as “attorneys, certified public accountants (CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS”.

In order to receive a Record of Completion currently unenrolled preparers must complete 18 hours of continuing professional education (CPE) classes annually from approved education providers.  The CPE must include:

  6 hours of a federal tax filing season refresher course,
  2 hours of ethics, and
  10 hours of other federal tax law topics.

The program does not require an initial competency test.  Participants are, however, required to pass a comprehension test upon completion of the filing season refresher course each year.

For the initial 2015 tax filing season preparers will only need to complete 11 hours of CPE in calendar year 2014, including the full 6-hour refresher course and 2 hours in ethics.

Preparers must also consent to the “duties and restrictions relating to practice before the IRS in subpart B and section 10.51 of Treasury Department Circular No. 230” before receiving the record of completion.

Under the new program, only preparers who have been awarded a record of completion (and, of course, EAs, CPAs, and attorneys) “will be permitted to represent taxpayers before the IRS during an examination of a return that they have signed or prepared”.

I discussed the flaws in this new voluntary program in my editorial “There Are So Many Things Wrong with the Annual Filing Season Program” at ACCOUNTING TODAY.

The AICPA filed a federal lawsuit challenging the legality of the program.  But D.C. federal Judge James E. Boasberg, the same judge who issued the initial decision in Loving vs IRS, dismissed the suit, stating “. . . the AICPA didn’t have the authority to sue the authority because it was not harmed by the Program”.

Judge Boasberg recognized the AICPA’s true motivation for filing the lawsuit -

. . . the crux of [the AICPA’s] concern is apparent:  its membership feels threatened by the specter of increased competition from previously uncredentialed tax return preparers who choose to complete the program.”  

The AICPA filed an appeal of Judge Boasberg’s decision with the DC Appellate Court.

Despite all the talk about the need for true tax reform in 2013 and 2014 the idiots in Congress did absolutely nothing about the federal income tax in 2014.  The tax reform debate limited its focus to corporate tax reform as the year progressed, with the issue of “tax inversions” taking center stage. 

The Tax Foundation did a good job of explaining just what a “tax inversion” is –

In its simplest form, an inversion is simply the process by which a corporate entity, established in another country, buys an established American company. The transaction takes place when a foreign corporation purchases either the shares or assets of a domestic corporation or a when a U.S. corporation purchases the share or assets of a foreign corporation. Some inversions involve the purchase of both the shares of ownership and the corporate assets. The shareholders of the domestic company typically become shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United States to another country. An inversion typically does not change the operational structure or functional location of a company.

The change in legal residence from the United States to another country allows the company to take advantage of the more favorable tax treatment of the new home country.” 

In September the Treasury Department took action to make inversions harder and less profitable, removing some of its appeal.

The tax inversion controversy brought attention to the fact that the US has one of the highest corporate tax rates in the world and calls for reducing corporate taxes.

In early December retiring Senator Tom Coburn’s added fuel to the tax reform debate by issuing “Tax Decoder”, a report that revealed more than 165 “giveaways” worth over $900 billion in 2014 and more than $5 trillion over the next five years.

Coburn agreed with me that Congress should “. . . throw out the entire tax code and start over”.

The most popular topics at 2014 CPE offerings were the new IRS repair and capitalization regulations, issued in the fall of 2013, and the Obamacare individual mandate.  Both are complicated PITAs, and are expected to create havoc with 2014 tax returns filed in 2015.   

We had the opportunity to “vote the bastards out” in November, when all 435 seats in the House of Representatives were up for grabs.  I once again urged voters to “get a GRIP” (Get Rid of Incumbent Politicians), but my plea was ignored as, for the most part, the same idiots who have done nothing but take up space in Washington were re-elected.  I guess the voters felt “the idiot you know is better than the idiot you don’t”.  So the 114th Congress will be no better than the 113th Congress, which, if not the worst, was certainly the least productive Congress in history.

Once again the year ended with the idiots in Congress waiting until literally the last minute to pass an extension of all of the expired “tax extenders”.  However they were extended through December 31, 2014 only.  President Obama signed the bill into law on December 19th. 

So, also once again, thanks to the irresponsibility of our elected officials in Washington next year’s tax filing season will very likely have a late start, although the IRS Commissioner has said it would not.

And 2014 ends just like 2013 – with the status of the “tax extenders” for the coming year up in the air. 


Monday, December 29, 2014


Included in the “tax extenders” that Congress extended through December 31, 2014, and was signed into law on December 19th, was the Qualified Charitable Distribution (QCD) – the ability for taxpayers age 70½ and older to transfer up to $100,000.00 tax-free directly from an IRA account to a charity.  IRA owners age 70½ or older have until Wednesday, Dec. 31 to make a direct transfer of part or all of their IRA distributions to an eligible charity.

A Qualified Charitable Distribution can be used to satisfy the taxpayer's required minimum distribution (RMD) for 2014.  So if you have not yet taken your 2014 RMD from your IRA accounts you can use a QCD as your RMD.

Ely Mosynary, age 72, must take a fully taxable required minimum distribution of $4,263 from his IRA.  Ely also made a pledge of $5,000 to the YMCA building fund.  Ely can request that $5,000 be sent directly from his IRA account to the YMCA to cover both his required minimum IRA distribution for 2014 and his outstanding pledge.  The $5,000 is not reported as income on his Form 1040, and it is not deducted as a charitable contribution on his Schedule A.

Without this technique Ely would have to report $4,263 as gross income on Page 1 of his Form 1040 and claim a $5,000 charitable deduction on Schedule A.  The $4,263 would increase his Adjusted Gross Income (AGI) and could, as a result, increase the taxable portion of his Social Security or Railroad Retirement benefits by as much as $3,624, reduce his medical and miscellaneous itemized deductions by up to $405, and reduce or eliminate a number of other deductions and credits that are affected by AGI.

Many retired taxpayers who must take required minimum distributions (RMD) from an IRA cannot itemize because of the additional standard deduction for age 65 or older and the fact that their mortgage is paid off, and therefore get no tax benefit from charitable contributions.  By using a direct transfer to a to satisfy their annual RMD they will be able to get the full tax benefit for their contribution, as well as possibly reducing their taxable Social Security.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity.

Charitable transfers should only be made from a “traditional” IRA.  Qualified distributions from a ROTH IRA are totally tax-free, so there is no tax benefit in a direct transfer of funds from a ROTH IRA.  

Qualifying taxpayers may also want to consider making a direct transfer from a traditional IRA to a charity now, instead of having a cash bequest made from their estate.  Since your beneficiaries are taxed on monies received from an inherited traditional IRA, by making the contributions as a direct transfer you will -

* reduce the tax cost to the beneficiaries of their inheritance,

* reduce the balance in the traditional IRA, which will in turn reduce taxable required minimum distributions,

* get the money to the charity sooner,

* enjoy the appreciation of the charity during one’s lifetime, and

* see how the contribution is put to use.    

The direct tax-free transfer to a charity is not available from a SEP or a SIMPLE IRA.

This special tax break expires on December 31, 2014, and, unless extended again, or made permanent, by the idiots in Congress, is not available in 2015.


Friday, December 26, 2014


Some post-Christmas BUZZ.  I don’t expect to have a Tuesday BUZZ next week.

* Tax pros, PLEASE check out the December “issue” of THE TAX PROFESSIONAL and let me know your comments on my “Soapbox” editorial.

* New at BOB’S BABBLINGS – “LBJ Took The IRT Down to 4th Street USA. When He Got There What Did He See? The Youth of America on LSD!  Huh?  Also some Holiday Surfing USA.

* Kelly Phillips Erb, FORBES.COM’s TaxGirl, continues her annual “12 Days Of Charitable Giving 2014” with Pet Food Pantry Of Eastern North Carolina.

* It’s that time again.  Nominations Due for 2014 Tax Offender of the Year”.  Send your nomination to Russ Fox at TAXABLE TALK -

To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions.”

I vote for the idiots in Congress every year.

* Jean Murray talks about year-end payroll tax tasks in her weekly email newsletter at ABOUT.COM.

* Another Congresscritter caught cheating on his taxes.  So Robert W Wood reports in “Congressman Michael Grimm Pleads Guilty To $1M Tax Fraud”.

Rather than go to trial as he promised, U.S. Representative Michael Grimm of Staten Island, New York has plead guilty on tax charges related to his Manhattan health food restaurant Healthalicious.  The indictment claims that the Republican Congressman failed to pay taxes on $1 million in income and that he hired illegal workers. The charges are serious, even if he weren’t an elected official.

Among other things, the indictment claims that Mr. Grimm under-reported sales and wages of over $1 million, paid workers in cash under the table, and kept two sets of payroll ledgers. Rep. Grimm allegedly used cash to avoid payroll taxes, income taxes and workers’ compensation premiums. The immigration status of his workers has also been questioned.”

RWW goes on to say (highlight is mine) -

It is not clear whether Rep. Grimm will seek to maintain his seat in Congress, though he could face discipline from the House of Representatives, including expulsion. It does not appear that he would face automatic expulsion.”

Why not?

The item does not mention whether the idiot will do any jail time. 

So, like fellow tax cheat Chuck Rangel, will his punishment be limited to simply being shamed before Congress? 

* Speaking of Grimm and Rangel, at THE HILL Ben Kamisar reminds Grimm of his comments about Chuck back in 2010 in “Grimm in2010: Tax Cheating 'Unforgivable’” –
At best Mr. Rangel has proven himself to be incompetent of administrating the tax code and at worse, he was cheating on his taxes.  Either way his actions are unforgivable.”
Grimm also said at the time -
"Americans deserve better from their elected officials.  Ethics are not a political issue; either you have them or you don’t.”

Obviously Grimm "don't".
Another Congressional example of “Do as I say, not as I do.”

BTW - the item tells us -

"Rep. Michael Grimm (R-N.Y.) said Tuesday that he won’t resign after pleading guilty to tax fraud."

* A holiday rerun from Jason Dinesen deals with a still current issue for taxpayers with "unrented" property - "From the Archives: Tax Court: Vacant House Can Still Qualify as Rental" - 

"The U.S. Tax Court ruled . . . that a rental home that sits vacant for an extended period can still be considered a rental property."
* Let me end the BUZZ on the day after Christmas with "'Twas the Night Before Christmas (Legal Edition)" via TAXPROF Paul Caron.


Thursday, December 25, 2014


Wednesday, December 24, 2014


As I do every year on Christmas Eve I will be typing W-2s today.
I hope you have a successful Christmas!

Tuesday, December 23, 2014


* Tax pros, PLEASE check out the December “issue” of THE TAX PROFESSIONAL and let me know your comments on my “Soapbox” editorial.

* Kelly Phillips Erb, FORBES.COM’s TaxGirl, has begun her annual “12 Days Of Charitable Giving 2014” – starting with Goodwill Industries, The American Foundation For Suicide Prevention, and Neighborhood Bike Works.

* New at BOB’S BABBLINGS – “LBJ Took The IRT Down to 4th Street USA. When He Got There What Did He See? The Youth of America on LSD!  Huh?  Also some Holiday Surfing USA.

* Prof Annette Nellen makes an excellent statement on temporary tax benefits in her 21st CENTURY TAXATION blog’s announcement that “Over 50 Provisions Retroactively Extended on 12/19/14” -

This is an odd way to design a tax system. When something is added temporarily, such as to help get out of an economic recession, it should be allowed to expire when the need no longer exists.  If another provision is deemed appropriate for a tax system, such as allowing individuals who itemize to deduct either their sales tax or their income tax (assuming there is even a reason to deduct either), make it a permanent part of the system.”

* In his announcement of the same thing at TAXABLE TALK Russ Fox suggests something good coming from the cuts in the IRS budget –

The IRS is anticipating answering just 50% of the phone calls it receives. On the bright side, since many of the answers given on the IRS help line are wrong this might have a positive component.”

* Robert W Wood tells us that we can actually learn something from opportunist Al Sharpton, the black Donald Trump, or at least from his situation, in his post “Rev. Al Sharpton's Key Tax Tips...From Lois Lerner” at FORBES.COM.

First he tells us of Sharpton’s good luck (highlight is mine) –

In ‘Tell it to the Reverend Al’, the New York Post says Rev. Sharpton still owes New York State $916,000 from tax liens filed against him between 2008 and 2010. In all, Mr. Sharpton is said to have $4.5 million of tax liens. He claims he paid them, but state officials say otherwise. This isn’t the first time his records do not line up. Indeed, on two prior occasions he suffered inconvenient fires that destroyed records.”

The lessons to be learned - 

ü       Keep your business and personal transactions separate.  For example, don’t have your business, or your charity, pay for your clothes or your daughters’ private school tuition.

ü       Keeping good records can help you in a tax controversy or keep you out of tax trouble in the first place. Most audits are correspondence audits. You may be told your deductions will be disallowed unless you mail back records substantiating them.”

And keep your records in fire-proof file cabinets.

* No surprise here. Kay Bell reports that according to a recent Gallop poll “Congress Gets Low Marks for Honesty, Ethical Behavior” at DON’T MESS WITH TAXES –

Congress comes in dead last when it comes to professions known for honesty and ethical behavior.

Only 7 percent of people Gallup polled in early December rated members of Congress as being honest of having high or very high ethical standards.

That's one point lower than the proverbial used car salesman. It's also one point lower than Congress' honesty and ethical acts rating last year.

It gets worse when the issue is approached from the other side. In the same poll, 61 percent of the Gallup respondents said that Congress is full of folks with low or very low levels of honesty and ethics.

That's 16 percent worse than the folks pushing vehicles on car lots across America.”

Yet we, or rather you, continue to re-elect the idiots.   

* And Key also brings the word that “the IRS is the government agency that gets sworn at the most” in “The Blankety-Blank IRS!

However, when compared to the NJ Division of Taxation, the IRS is a model of efficiency, honesty, and “taxpayer friendliness”.

An example.  If you overpay the IRS, or it receives a payment it does not know what to do with, you will promptly get a letter of inquiry from the Service.  If you overpay, or double pay, the State of NJ on a state tax return or report the NJDOT remains unethically silent, hoping you do not discover the overpayment.

* While this has nothing to do with taxes (although, as you will see, I do provide a tie in), it is another “no surprise here” story.  From Karen Kaplan at the LA TIMES comes “Real-World Doctors Fact-Check Dr. Oz, and the Results Aren't Pretty” –

What do real-world doctors have to say about the advice dispensed on ‘The Dr. Oz Show’? Less than one-third of it can be backed up by even modest medical evidence.

If that sounds alarming, consider this: Nearly 4 in 10 of the assertions made on the hit show appear to be made on the basis of no evidence at all.”

The piece quotes a study published in a recent issue of The BMJ (the journal of the British Medical Association) -

Consumers should be skeptical about any recommendations provided on television medical talk shows.  Viewers need to realize that the recommendations may not be supported by higher evidence or presented with enough balanced information to adequately inform decision making.”
I seem to recall reading a while back that Dr. Oz had a strange obsession with excrement, and I don't mean reality tv.

You should take any advice – medical or financial – spouted by a so-called tv “expert” with many grains of salt.  In most cases the motivation of the “expert” giving the advice is to sell books, programs, or products, and not to share accurate and helpful advice.

Never, never, never act on advice or information provided by Dr Oz, Suze Orman, Dave Ramsey, etc, etc, etc without first discussing the matter with your own doctor, broker, financial advisor, or tax professional.

To be fair, I have found Ed Slott to be more accurate than his “contemporaries” when it comes to retirement issues, based on the information on his website I have reviewed over the years.

The Final Word –

I never thought I would hear this said in a holiday season radio advertisement -

A new luger under the Christmas tree will mean a lifetime of pleasure!

I realize I now live in “the country”, where guns and hunting are often a part of everyday life, but this still sounds wrong to me.


Saturday, December 20, 2014


It’s official—President Barack Obama signed H.R. 5771, The Tax Increase Prevention Act, into law on December 19th. 
This Act extends the “tax extenders” that expired on December 31, 2013 through December 31, 2014. 

Friday, December 19, 2014


* Tax pros, PLEASE check out the December “issue” of THE TAX PROFESSIONAL and let me know your comments on my “Soapbox” editorial.

* At MAINSTREET.COM I provide some more year-end tax advice in “Tax-Wise Holiday Giving: Generosity That Warms Your Heart and Protects Your Money” and discuss the Senate finally passing the tax extenders bill in “Senate Passes the Tax Extenders Act Finally: How It Benefits You”.

* Jason Dinesen goes into more detail on how he is “Changing the Way I Work with Business Clients” at DINESEN TAX TIMES.

While I have prepared Schedule C’s for sole proprietors over the years based on just a worksheet of income and expenses provided at tax time, with no year-round “relationship”, I have never prepared a corporation or partnership business income tax return or report based solely on a year-end worksheet or spreadsheet. 

In most cases I have personally maintained the general ledger.  For two active full-time corporations I have been the year-round accountant and “full-charge bookkeeper” for the business.  In all cases I have prepared any payroll tax returns and at the very least reconciled the balance sheet, whether or not required on the federal return (a balance sheet has always been required on the NJ state returns).

My practice has always primarily been a 1040 practice.  I have not solicited corporate or partnership accounts, and have only prepared corporate and partnership returns for existing 1040 clients (with the exception of the two full-time corporations mentioned above).

I agree with Jason that business entity returns have an increased potential for agita and aggravation, including federal and state preparer penalties, and that this potential has increased in more recent years.  And I think his changes are good ones. 

Recently I have been looking back over my 40+ year career and thinking about what, in hindsight, I would have done different.  If I were starting out today I would truly limit my practice to 1040s, and would NOT prepare corporate or partnership business income tax returns - although I would, out of necessity, provide bookkeeping services and prepare payroll tax returns.

* I agree with the advice given by Jim Blankenship in “Retirement vs College Saving in a Nutshell” at GETTING YOUR FINANCIAL DUCKS IN A ROW –

“. . . a general rule of thumb with regard to this conflict is to put money aside for retirement first, and college second.”

* Trish McIntire returns to blogging at OUR TAXING TIMES after a too-long absence with an overview of “The New ABLE Accounts”.

I came across a list of the qualified disability expenses for the ABLE account at another source.  They include:

• Education
• Housing
• Transportation
• Employment training and support
• Assistive technology and personal support services
• Health, prevention and wellness
• Financial management and administrative services
• Legal fees
• Expenses for oversight and monitoring
• Funeral and burial expenses
• Other expenses approved by the IRS

* Jean Murray’s weekly ABOUT.COM email newsletter on business taxes deals with holiday topics.

* TAX MAVEN Diane Gilabert explaims “How Roth IRA Conversions can Optimize Year-end Tax Planning” –

In the right situation, a Roth IRA conversion can permit a client to preserve tax benefits that might otherwise expire unused.  And the long-term benefits of a Roth IRA as compared to a traditional IRA are compelling.”  

His 7 principles are –

1. Economic growth, entailing cuts in tax rates.
2. Fairness, through broadening the tax base.
3. A simpler tax code to reduce compliance costs.
4. Permanence, to avoid the large number of tax provisions that expire.  
5. Competitiveness, by reducing the high tax rates on businesses.  
6. The promotion of savings and investment.
7. Revenue neutrality.

I support all 7, and am glad he included #4. 

I am also glad that the conversation on substantive tax reform remains alive, although I do not hold any hope for true substantive tax reform any time soon.

* Michael Cohn reports that “Congress Requires Self-Preparers and Consumer Tax Software to Check for Improper Tax Credits” at ACCOUNTING TODAY (highlight is mine) –

The $1.1 trillion spending bill passed by Congress this week and signed into law by President Obama on Tuesday contains a provision directing the Treasury Department to implement uniform standards for taxpayers claiming refundable credits such as the Earned Income Tax Credit to stem improper payments.

The language contained in the recently passed federal appropriations bill directs ‘… the Department of the Treasury to ensure that the same questions are being asked of taxpayers whether they are preparing their returns with a paid tax preparer or via do-it-yourself methods such as paper forms, preparation software, or online preparation tools’.”

This clearly refers to Earned Income Credit claims.  The article references “the TIGTA report, which estimated EITC improper payment rates ranged from $16 to $19 billion for the fiscal year ended Sept. 30”.

The piece does not suggest just how this will be implemented.  Will “self-preparers” be required to prepare and separately sign a form similar to the 8867 (Paid Preparer's Earned Income Credit Checklist)?  I look forward to seeing how this will take “form”.

Of course the best way to do away with the tax fraud resulting from refundable credits like the Earned Income Credit and the Additional Child Tax Credit is to remove them from the Tax Code!

BTW – I like the comment.


Thursday, December 18, 2014


The title of Robert W Wood’s FORBES.COM blog post - “20 Really Stupid Things In The U.S. Tax Code” - grabbed my attention immediately.

My first reaction - only 20?

Robert’s opening paragraph is a wonderful, and spot on, description of the mucking fess that is the current US Tax Code –

The U.S. tax code is the most complex in the world by any measure. It is chock full of perks to special interests, political pork and social engineering. Like a hodgepodge built with spare parts and constant add-ons, some of the results it produces are pretty unjust. In short, our tax code cries out for reform in practically a primal scream.”

The 20 “really stupid things” to which he refers are highlights from retiring Oklahoma Senator Tom Coburn’s “Tax Decoder”, which reveals more than 165 “giveaways” worth over $900 billion in 2014 and more than $5 trillion over the next five years.

Here are some of the 20 items listed by RWW, followed by my comments –

1. In 1913, our whole tax law was 27 pages. It’s now over 4 million words, 9,000 bloated pages. From 2001-2012 alone, there were 4,600 changes, more than one a day.”

The one and only purpose of the federal income tax is to raise the money necessary to run the government.  Period.  The majority of the growth from 27 pages to 9000 pages represents the “perks to special interests, political pork and social engineering” Robert references in his opening statement – which have absolutely nothing to do with raising the money necessary to run the government.

4. Many individuals pay nothing. Of 145 million personal tax returns in 2011, 54 million (more than a third) had zero tax liability or got refunds.

6. The Earned Income Tax Credit is plagued by fraud, up to 29% of all payments. The IRS paid out $125 billion in fraudulent refunds in the last 10 years, over $12 billion a year.

Here we see what I truly believe to be the biggest problem with the current Tax Code.  It should NOT to be used to “redistribute income” (the Tax Code is not Robin Hood) and should NOT be used as a way to deliver social welfare and other government benefits.  The Earned Income Credit and the refundable Child Tax Credit, the education tax credits and deduction, the energy credits, and many other “tax expenditures” do NOT belong in the Tax Code.

I am not saying that the government shouldn’t provide financial assistance to the working poor and college students, or provide encouragements for making energy-saving purchases and improvements. What I am saying is that such assistance and encouragements should not be distributed via the 1040.

The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the energy credit and other such personal and business credits should be distributed via “Cash-For-Clunkers”-like direct discount or rebate programs funded by the budget of the appropriate Cabinet department.

10. The alternative minimum tax (AMT) is a complex parallel tax system that has grown like cancer. It’s results are hard to predict and can be perverse. If you win a lawsuit and pay contingent legal fees, you can end up taxed on more money than you received. AMT can ruin your stock options too.”

The dreaded Alternative Minimum Tax, referred to years ago by a colleague (I forget who – it was back in 2007) as “the poster child for complication, frustration, indiscriminant penalization, and a disregard for the best interest of Americans”, should be abolished. 

The existence of the dreaded AMT is a prime example of the laziness of the idiots in Congress.  When told in 1969 that 155 individuals with Adjusted Gross Income of more than $200,000 (over $1 Million in today’s dollars) paid “0” tax on their 1967 tax returns, rather than responding by acting logically, and eliminating the loopholes in the Tax Code that allowed the high income individuals to avoid paying tax, the idiots reacted and created the complicated alternative tax system.

The 20, and the many more in Coburn’s report, include many examples of ridiculous corporate loopholes which lobbyists paid the idiots in Congress to pass.  They have absolutely nothing to do with proper tax administration – they just unfairly benefit specific industries.

All industry-specific loopholes should be removed from the Tax Code.  Businesses, whether they be treated in the Code as corporations, partnerships, or sole proprietorships, should be taxed on net book income with minimal, if any, adjustments.  There should be a “dividend paid deduction”.  If corporations want to reduce their income tax liability they can distribute profits to shareholders in the form of dividends and claim a tax deduction.  

As I said in the BUZZ reference to Coburn’s “Tax Decoder”, I will continue to refer to the members of Congress as idiots as long as they continue to act like idiots – but I will also acknowledge a Congressperson who actually says something smart (a rarity).

Coburn tells us -

Ideally, Congress would throw out the entire tax code and start over, but at the very least the code should be made simpler, fairer and flatter.”

I believe that “at the very least” we need to shred the current Tax Code and start from scratch.  Start with “everything is taxable” and “nothing is deductible” and add back only those exclusions and deductions that are absolutely appropriate.

Coburn is correct in saying that the code should be simple, fair, and flat.  Most importantly, when writing a new Tax Code the idiots in Congress must “keep it simple, stupid!”  The simpler the better.  Simplicity for simplicity’s sake.

Will this ever happen?  I expect not in my lifetime, and certainly not before I have completed my 50th tax filing season and officially retire.


Wednesday, December 17, 2014


This just in.

In “The 2014 Tax Breaks You'll be Able to Take” CNN’s Jeanne Sahadi tells us –

Congress on Tuesday night extended dozens of expired "temporary" tax breaks for 2014.

It took the Senate, by a 76 to 16 vote, until the week after Congress was supposed to adjourn to pass the bill, which the House had already approved.

The bill will now be sent to President Obama, who is expected to sign it.”

Since the “tax extenders” were only extended for 2014 they will once again expire in 2 weeks.  We can only hope that the idiots in Congress will not wait until next December to deal with these tax benefits, many of which should not be extended, for 2015 and beyond – but I wouldn’t bet on it.

No word from the IRS yet on the delay to the start of the “tax filing season” that this irresponsibility will cause.