Archive | Internal Revenue Service

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.

IRS security puts taxpayer info at risk

The IRS won’t contact taxpayers by email, because of security concerns. When I am representing a client, auditors generally will not send me emails, for the same reason. And the Service regularly puts out notices telling taxpayers how to maintain their privacy and not get taken in by scammers claiming to be with the government.

But none of this concern for security seems to apply when it comes to the IRS’s own hiring practices. The Washington Post jumped on a report this week that the IRS didn’t do background checks on contractors who were given information on 1.4 million taxpayers–including their Social Security numbers.

The Associated Press, in an article picked up by the Santa Fe New Mexican and dozens of others newspapers, noted that the IRS also had sensitive documents being transported by a courier who had spent 21 years in prison for arson and other charges. Yep.

You can read the whole sad and kinda scary report from the Treasury Inspector General For Tax Administration here.

Corporate Cayman Islands tax shelters rip off U.S. taxpayers

*”Corporations are people, my friend.”
–Mitt Romney, August 11, 2011

Statistic of the day: A single five-story office building is the registered address of more than 18,000 companies.

How is that possible? Well, the building is in the tax haven of the Cayman Islands, and most of those businesses are registered there only for tax purposes.

As Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund explained in a report earlier this year, more than 70% of the Fortune 500 had subsidiaries in tax havens in 2013. The report estimates that multinationals are using these subsidiaries to avoid approximately $90 billion in federal income taxes annually.

US companies reported $129 billion in earnings in the Cayman Islands, Bermuda, and the British Virgin Islands in 2010. “Assuming you believe those figures, the productivity of workers in those countries is amazing,” Floyd Norris, his tongue almost bursting out of his cheek, wrote in The New York Times. “On average, United States companies had profits of $873,611 per person living in those islands.”

Such ridiculous numbers are merely a product of the process by which multinationals can–legally–reduce their U.S. taxes. Currently there is no significant movement on Capitol Hill to close any of the loopholes or change the laws that make these moves possible.

Why do taxpayers think the tax code is rigged in favor of large corporations? Maybe because it is.

IRS penalty on foreign account is more than total $$$ in the account!

Proof once again that the rule requiring U.S. taxpayers to report their foreign bank accounts is being used like a sledgehammer: The IRS has won a court case assessing a 150% penalty–that is not a typo–on the value of a Swiss bank account.

As Bloomberg reports, Coral Gables, Florida, resident Carl Zwerner, 87, was assessed a $2.24 million penalty on the approximately $1.5 million he held in an account with ABN Amro Group, NV.The penalty was for failing to file the Report of Foreign Bank and Financial Accounts. It’s worth noting that the penalty has nothing to do with Zwerner owing any tax on that money. Nope, the penalty is for the simple failure to file a form reporting the assets.

By the way, if you have foreign bank accounts subject to reporting, the deadline for electronically filing your 2013 FinCEN Form 114 (which replaces old friend Form TDF 90-22.1–isn’t this fun??) is June 30.

IRS abandons voters on campaign finance mess

Don’t look to the IRS for potential relief from a tsunami of political advertising during the 2014 off-year elections.

The Service announced in late May that it is pulling back proposed regulations on tax-exempt groups. That means that everyone from the billionaire Koch brothers to tree-hugging lefties will be able to fund ad campaigns through organizations that often aren’t required to disclose where their contributions come from. It also means the IRS probably will not be doing anything to challenge the tax-favored status of nonprofit “educational” groups until after the end of this year.

This is the one place where many people would like to see the IRS doing more, but nooooooo….