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Forbes columnist Tony Nitti makes even taxes entertaining

The IRS, bless ‘em, gave us new rules in the summer of 2014 covering how a shareholder in an S Corporation can establish the right to take losses on his tax returns.

This involves looking at ways the shareholder can show that he has debt basis in the corporation…and at the phrase, “debt basis,” most normal citizens’ eyes will rightly glaze over.

But Tony Nitti, a terrific contributor to Forbes, does a great job of explaining what’s going on in this long piece, including a Q & A that begins, “Please remind me why I should continue to read this?”

I leave it to Mr. Nitti to explain why shareholder basis in an S Corp matters.

Oh, and just for fun, here’s a link to another Nitti column in which he surveys the “tax lessons” to be learned from watching part or all of Fox’s marathon 522-episode airing of “The Simpsons” (already showing and continuing through September 1). Undoubtedly he wrote this so he could take a business deduction for the beer and pizza he consumed during his own viewings.

Multinationals seek tax heavens, er, havens . . . oh, what’s the diff?

More and more U.S.-based corporations are growing wings and flying away from their U.S. tax obligations.

Bloomberg puts it as simply as possible: “U.S. companies looking for lower tax bills are heading for the exits, and Congress is doing nothing to stop them.”

The immediate impetus for the story was Pfizer’s proposed purchase of AstraZeneca, which would result in Pfizer reincorporating in Britain while tapping literally billions of dollars it has been holding outside the U.S., as The New York Times reported.

What’s the solution? Congress could grow a set and change the tax laws so that there is a crackdown on companies that use tax havens to keep profits outside of the U.S. system, as Steven Rattner suggests. Rattner also suggests in essence giving up on taxing corporations and instead increasing taxes on profits at the shareholder level, which would effectively increase the taxes paid by the wealthiest Americans.

I don’t know what the solution is, but when you consider that the effective federal tax rate paid by corporations has dropped from more than 40% in the 1950s to about 15% today, it seems clear that something has to change.

Bitcoin: IRS says, “It’s property, and it’s taxable!”

A lot of people are still trying to figure out just what Bitcoin is, but the IRS has seen enough to decide: It’s a type of property and not a form of currency.

So what, you say? Here’s what: Because, as The New York Times has reported, the IRS is going to treat Bitcoin as property, people who buy and sell it are going to have to calculate the change in value from when they acquired it, and pay tax (or claim losses) on the difference.

That means you could buy Bitcoin, use it to purchase something, and then have to report a “trade” on the change in Bitcoin value between when you bought it and when you used it.

Oh, and if you’re one of those smart guys or gals who can actually electronically “mine” a Bitcoin, you are going to have to report the market value of the Bitcoin as income.

Could government-gathered tracking info show up in your tax audit?

As ProPublica points out, despite the veritable explosion of stories about secret government surveillance programs, there’s a whole lot we still don’t know. We don’t know how long the government has been collecting our phone records or how much is collected. It would be nice to know what government officials think they can do under the Patriot Act, but….that information is classified.

We do know, though, as The Washington Post has been reporting (along with several other outlets), that the government has been engaged in internet data mining of video chats, emails, documents and photos, and is able to track when calls are made, from where, and for how long.

What does this have to do with taxes? Well…what if the data that one arm of government gathers up could be used by another arm…like the IRS?

There’s no evidence that anything like this is happening. But as UC Berkeley sociologist James B. Rules mused in The New York Times, “Imagine that analysis of telecommunications data reliably identified failure to report taxable income. Who could object to exploiting this unobtrusive investigative tool, if the payoff were a vast fiscal windfall and the elimination of tax evasion?”

Wow–there’s a nightmare for you. Do I think this is going to happen? No. But these kinds of questions just reinforce something that I and other tax pros always tell clients: Always keep track of everything that is going to be part of your tax return as if you are going to be audited. Hate to have to give you such a downer of a blogpost, but sometimes That’s The Way It Is.

Apple avoids billions in taxes, and it all looks legal; those guys really are smart

Lawmakers are using words like “gimmicks” and “schemes” to describe how Apple Corporation has used a web of subsidiaries spanning the globe to avoid taxes. There are hearings this week at which Congressmen are expected to say they are shocked, shocked, to hear of tax loopholes being exploited.

As The New York Times reported, Congressional investigators have determined that “some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.”

One of Apple’s Irish affiliates reported profits of $30 billion between 2009 and 2012, but because it did not technically belong to any country, it paid no taxes to any government, The Washington Post reported. Another paid a tax rate of 0.05 percent in 2011 on $22 billion in earnings, according to the report.

It’s not expected that any of this will be determined to be illegal–just a highly proactive use of the existing tax rules. Interviewed by The Times, University of Southern California law professor Edward Kleinbard, a former staff director at the Congressional Joint Committee on Taxation, gets the Quote Of The Week Award. “There is a technical term economists like to use for behavior like this,” said Kleinbard. “Unbelievable chutzpah.”