The business groups claim that the regulations are making business harder for big companies to carry out transactions, referencing the proposed merger between U.S. drugmaker Pfizer and Ireland pharmaceutical company Allergan (both members of the Chamber of Commerce). That merger, projected to save the U.S. company about $35 billion in taxes, fell apart immediately after the new regs were released. See Michael Merced and Leslie Picker, Pfizer and Allergan Are Said to End Merger as Tax Rules Tighten, NY Times (Apr. 5, 2016). the lawsuit claims that Treasury did not have authority to issue the regulations and that there was insufficient notice to taxpayers under the Administrative Procedure Act.
As most tax practitioners realize, many people who hold themselves out as "tax return preparers" actually know nothing about the tax laws and may even assist their clients in cheating on their taxes by inventing home offices, travel-away-from-home expenses, or other fictional deductions. The U.S. Department of Treasury sought to deal with this by amending regulations governing "practice before the IRS" in Circular 230 to require those who prepare returns for payment to acquire an identification number and pass certification requirements. The ABA Tax Section has been supportive of these requirements, because it is clear that both individual taxpayers whose returns are not accurate and the U.S. government suffer when scams are perpetrated by shady tax return preparers.
But some of those regulated under Circular 230 objected and brought suit. They got the D.C. Court of Appeals, in Loving, to hold that the longstanding provision that permits the Treasury to regulate tax practitioners that 'practice before the IRS' covered only litigation-like controversies. This is, in my view, patently absurd. If anything constitutes practicing before the IRS, the preparation of taxpayers' tax returns must. It is the core interaction of a taxpayer with the IRS/Treasury, and is something that we must do. If an 'adviser' prepares the return for us, that adviser is representing us to the government. That clearly should constitute "practice before the IRS."
So once the Loving court ruled against the government on its ability to regulate these maverick 'tax return preparers' who do not have to know or follow the law, many tax practitioners and others pushed Congress for legislation to permit the Treasury to regulate tax return preparers. The ABA Tax Section wanted the Big ABA (the American Bar Association that includes all of the various "sections") to support a resolution urging Congress to pass legislation allowing the regulation of tax return preparers. But the Big ABA was not willing to even consider the resolution. That was a revealing moment for me, since it showed that attorneys in the leadership of the Big ABA are not really serious about wanting what is best for individuals that we serve or for the good of the country.
Nonetheless, there has been a push to enact legislation to permit regulation. And the Senate had a bill before it that included a provision authorizing regulation. But the AICPA (the national organization for certified public accountants) apparently lobbied heavily against the provision. So guess what. Congress--that dysfunctional branch of the Federal government that seems to think that holding hearings about scam videos and shouting at the former Secretary of State about Benghazi is reasonable expenditure of time--is showing itself dysfunctional again. The Senate Finance Committee, which will hold a markup of the bill this Wednesday, will not include the provision for regulation of tax return preparers.
Furthermore, the Senate Finance Committee continues to harass the IRS with more provisions demanding information on IRS audits. See JCX-30-16 Note that this will almost always work to the advantage of cheating taxpayers (especially the rich) and the disadvantage of the government, as IRS employee morale deteriorates and IRS employees fear that their jobs will be on the line if they are aggressive in pursuing likely tax cheaters. See JCX-30-16 (chairman's mark for "The Taxpayer Protection Act of 2016").
This is one more bad example of the influence money and profit-making have over congressional deliberation and the poor policy decisions that result.
Revenue Ruling 2013-17 released today builds on a much earlier ruling (Rev. Rul. 58-66) that recognized common-law marriages for federal income tax purposes. It states that same-sex couples whose marriage takes place in a state (including domestic and foreign jurisdictions entitled to grant marriage licenses) that recognizes same-sex marriages will continue to be recognized as married for federal law purposes even if they move to a state that does not recognize same-sex marriages. Its rationale is straightforward:
Although states have different rules of marriage recognition, uniform nationwide rules are essential for efficient and fair tax administration. A rule under which a couple’s marital status could change simply by moving from one state to another state would be prohibitively difficult and costly for the Service to administer, and for many taxpayers to apply.
As Treasury Secretary Lew noted, “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.” Id. This is a significant relief for such couples, since their federal tax obligation could otherwise have shifted markedly merely because of a move. The new guidelines will apply beginning September 16, but married couples can now also file an amended return for prior years to claim correct marital status.
In spite of the relief this federal ruling provides, same-sex couples will still face enormously complex legal issues because of the states that discriminate against such couples. They may have adopted children in the state in which the marriage was celebrated, but they may move to a state that doesn't recognize gay marriages and doesn't permit gay adoptions. What kind of issues will that raise? They may be able to transfer property at death without probate in their home state, but not in their new state of domicile. All of these issues continue to argue for an equal protection right to gay marriage and the rights and obligations that correspond to it, as well as sister state comity in recognizing gay marriages conducted in other states.
One of the common assumptions about health care costs (and the costs of benefit programs like Medicare) has been that the increasing life spans of Americans will result in significantly greater health care expenses. It is common knowledge that much of the highest cost medical care occurs near the end of life, as the elderly need more medicines and assistance in daily living. So speculation has suggested that as Americans live longer, health costs will increase correspondingly.
A recent study provides a glimmer of good news--apparently, most of the highest medical care costs occur in the last year of life, even for those that are living longer. That means that the longer lifespans aren't translating into more time in intense medical care, but rather more years of generally healthy and active lifestyle followed by a similar duration of end-of-life care. See Michael Fitzgerald, Old Age May Not Ruin Medicare Budgets After All, Salon.com (Aug. 22, 2013).
What should that information mean for policy makers? It seems to support the progressive, social justice goal of ensuring that we have a system for universal health care coverage like "Medicare for all". Under democratic egalitarianism, a combination of general revenue support and additional premium payments from those who have the ability to pay provides a means for decent protection of all of our citizens and the creation of a just society. By asking those with the ability to pay to carry more of the burden, such a system ensures adequacy for all even in times such as ours when there is extraordinary inequality of wealth or income. Our forebears handled that kind of situation through one-on-one charities, back when communities were much smaller and people knew that they depended on their neighbors for help in tough times, so were willing to help out when they were able. The modern version of that neighborly compassion is a government that creates safety net programs for all of its people, with public programs in those areas where a profit motive interferes with the creation of adequate, sustainable, just programs for everyone. Education and health services are clearly two key areas where people acting together through government create fairer and more adequate systems that serve all of the people.
I can't resist pointing readers to tax professor Jim Maule's excellent post chastising everybody--from those obviously slanted propaganda-tank tax gurus Chris Edwards (you all know him as the purported tax expert from the right-wing pseudo-libertarian Cato Institute, whose other associate, Dan Mitchell, makes similar ridiculous claims in touting the purported "Laffer Theory" about how tax cuts restore tax revenues--I should note that I debated Chris in the run-up to the 2012 elections on Herman Cain's ridiculous tax "plan") and Steve Malanga (you all know him as the purported tax expert from the right-wing Manhattan Institute) to generally reasonable Taxpayer Advocate Nina Olson--about their ridiculous claims of a tax code that runs to the tens of thousands of pages. See James Maule, Code-Size Ignorance Knows No Bounds, MauledAgain (June 5, 2013).
Many of those claims about a giganormous Code that is pressing down on taxpayers from the sheer weight of its pages stem from three facts: (i) that the CCH looseleaf service itself notes that the service (in 20-odd volumes, with extensive and often duplicative annotations to cases, private letter rulings, notices, and various legislative history and rev.proc and rev.rul. items as well as the actual current Code provisions and regulations promulgated thereunder) runs more than 70,000 pages; (ii) that it is very useful to propaganda tanks and others bent on painting a negative picture of IRS tax enforcement and collection and taxes in general to portray the rules as so complex and lengthy that no one in their right mind could think it appropriate; and (iii) people without those bad propaganda intentions frequently serve as shilling boom-boxes for those (false) claims, because they don't stop and think or do their own homework. So the claims are repeated, over and over, and --as psychologists have shown--once something is repeated often enough, it gets to be accepted as fact even by those who should know better.
What people need to know --besides the obvious one fact that Congress, not the IRS as often insinuated in those blogposts condemning the length of the "code", writes the tax laws--is that:
(1) the CCH tax service includes more extra "stuff" that tax practitioners find very useful to help interpret the actual statutory language and the regulations promulgated thereunder than actual Code and Regulations! The tax code itself is relatively short--you can read it quicker than most good novels. (Additionally, the regulations have a lot of specifics applicable to particular types of taxpayers and situations, but even they aren't tens of thousands of pages long. And the page counts also depend greatly on the size of print on the page, folks. Word counts are much more meaningful.)
(2) most of the complexity that actually exists in the Code affects only the 3 in 10 taxpayers who "itemize" their deductions on their tax returns--and then, mostly the ones in the very tip-top of the distribution--the 1 in 10,000 who have lots of complexity in doing that itemization; and
(3) most of that complexity is necessary to prevent abuses by those who can hire very expensive lawyers, accountants and banks to set up schemes to avoid (or even evade) taxes.
TaxProf has provided considerable converage of the media sharkfest over the disclosure on Friday that the IRS's division responsible for overseeing the applications for tax-exempt status had used terms like "patriot" and "tea party" and "9/12" to select applications for scrutiny as to the potential for having passed the cap on political activity permitted for a social welfare organization. See, e.g., WaPo and WSJ agree: IRS targeting of conservatives is appalling, which includes a plethora of links to various Hill and national papers covering the disclosure.
The fact that the IRS searched for suitable key terms to find groups that would have the greatest potential for conducting too much political activity to qualify as a social welfare organization is not at all surprising. As Lois Lerner stated on Friday, this was done as a "shortcut" to pick applications for review, not from "political bias." It is also odd to say that including the term "patriot" would only identify conservative groups--it is quite possible that there are liberal groups using that term, since progressives do think of themselves as patriots who care deeply about our nation. Similarly, there might well be a liberal group with an "anti-tea-party" name, intended to provide a political counterpoint to right-wing tea party groups--that group would be, and appropriately should be, selected for deeper scrutiny to be sure it satisfied the requirements for a social welfare group with such a key-word search. A problem would exist, however, if there were no progressive groups --also likely to be over-involved in politicial activity--identified for deeper scrutiny: that hasn't been established, as far as I can tell from the media reports.
After considering the problems caused by incompetent or fraudulent tax return preparers who were not attorneys, accountants oradmitted to practice before the IRS as enrolled agents, the IRS released a study in 2010 on tax return preparation with recommendations for regulation of the industry. Amendments to Circular 230, the set of regulations providing standards for "practice" before the IRS under 31 U.S.C. section 330 (originally enacted in 1884), set forth various requirements to bring formerly unregulated tax return preparers under a set of standards, including use of preparer tax identification numbers (PTINs), competency testing, continuing education, and standards for the various work done in tax preparation.
Three tax return preparers that would be subject to those rules sued claiming that the new rules were beyond the IRS's authority. In Loving v. IRS, No. 12-385, 2013 WL 204667 (D.D.C. Jan. 18, 2013); ECF No. 21 (Order), the United States district court for the District of Columbia found in their favor, granting both declaratory and injunctive relief on the basis that tax return preparers do not "practice" before the IRS and hence cannot be regulated under the statute.
The IRS moved quickly for a stay of the injunction against enforcement of the tax return preparer regulations pending appeal to the D.C. Circuit. That motion was denied, but the court did modify the injunction "to make clear that its requirements are less burdensome than the IRS claims." See Loving v. IRS, No. 12-385 (D.D.C. Feb. 1, 2013) (link here is to BNA).
The court acknowledges that Congress specifically authorized the PTIN schema by statute in 26 U.S.C. section 6109(a)(4). The court claims that the PTIN provision does not fall within the scope of the injunction and the IRS may continue to provide PTINs, but it cannot condition eligibility on authorization to practice under the various conditions set out in Circular 230 as required in final regulation 1.6109-2(d). The court has enjhoined the requirement that tax return preparers who are not attorneys, CPAs, enrolled agents or enrolled actuaries must pay fees, pass a qualifying exam, and complete continuing education requirements.
It is to be hoped that the Circuit Court will quickly overturn this overreaching district court's "stuck in the past" interpretation of the 1884 statute. If that doesn't happen immediately, then Congress should act expeditiously to "clarify" current law by providing that the PTIN provision includes the ability of the IRS to regulate tax return preparation and that tax return preparation constitutes practice before the IRS. We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.
The IRS released several bulletins this week providing relief for victims of Hurricane Sandy.
IR-2012-83 extends the return filing and tax payment deadline to Feb. 1, 2013 for hurricane victims in Connecticut (Fairfield, Middlesex, New Haven, and New London Counties; the Mashantucket Pequot Tribal Nation and the Mohegan Tribal Nationa within New London County), New Jersey (Atlantic, Bergen, Cape May, Essex, Hudson, MIddlesex, Monmouth, Ocean, Somerset, and Union) and New York (Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester). The New Jersey relief starts with the Oct. 26 onset of the storm, while the Connecticut and New York relief start Oct. 27. The release notes that the relief may be extended to taxpayers in other locations "based on additional damage assessments by FEMA.
The tax relief postpones various tax filing and payment deadlines that occurred starting in late October. As a result, affected individuals and businesses will have until Feb. 1, 2013 to file these returns and pay any taxes due. This includes the fourth quarter individual estimated tax payment, normally due Jan. 15, 2013. It also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on Oct. 31, 2012 and Jan. 31, 2013 respectively. It also applies to tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period.
Penalties and interest that would otherwise apply will not apply, and taxpayers don't have to apply for this basic filing extension. Failure-to-deposit penalties for deposites due when Sandy struck or later are waived if the deposits are made by Nov. 26, 2012. Details on this are available at disaster relief.
The IRS also noted that it will work with taxpayers who don't live in the designated areas "but whose books, records or tax professional are located in the areas affected by Hurricane Sandy." Those taxpayers do need to contact the IRS to claim the relief. The number to call is 866-562-5227.
IR-2012-84 alerts employers and others that qualified disaster relief payments made by an employer or other person in respect of damage from Hurricane Sandy (which has been designated a "qualified disaster") can be excludible from taxable income and that "employer-sp9onsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without affecting their tax-exempt status.
Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance.
IR-2012-86 expands availability of housing for victims of Hurricane Sandy by temporarily waiving the low-income housing tax credit rules that prohibit owners of low-income housing from providing housing to Sandy victims who do not qualify as low-income. Other assistance through FEMA may be available:
Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses, and other programs to help individuals and business owners recover from the effects of the disaster. FEMA has also approved Transitional Sheltering Assistance (TSA) in New York and New Jersey for eligible disaster survivors who have a continuing need for shelter because they are unable to return to their homes for an extended period of time. Individuals and business owners who sustained losses can apply for assistance from FEMA by calling 1-800-621-FEMA (3362) via mobile device at m.fema.gov, or online at http://apps.irs.gov/app/scripts/exit.jsp?dest=http://www.disasterassistance.gov/
Doug Shulman, the 47th Commissioner of the Internal Revenue Service, has stated that he will leave the IRS at the end of his five-year term. Ordinarily, that would be November 12, 2012, but since it is a holiday, November 9 will be his last day. Steven Miller, the Deputy Commissioner for Services and Enforcement will serve as acting commissioner until a new Commissioner is appointed. Miller is a 25-year veteran with the agency.
“Today is a great day for all the honest Americans out there who work their job and pay their taxes. Today is a great day for tax fairness. Today is a terrible day for big-time tax cheats.” Birkenfeld's bonanza, The Economist (Sept. 11, 2012).
The very public and very large whistleblower award should do two things:
1) encourage other insiders who are aware of egregious company or individual tax-evading behavior to blow the whistle and
2) discourage other insiders and companies from egregious company or individual tax evading behavior.
There have always been anonymous brown-envelope tips to the IRS from those who know what is going on but don't want to participate in it and don't want their competitors to gain a competitive advantage because they do. But whistleblowers generally have access to inside information that can break the dam on enforcement. That certainly was the case with Birkenfeld, whose information-- about smuggling diamonds for UBS's private banking clients and other means taken to help such clients avoid reporting their assets to the US government--was instrumental in increasing awareness about tax crimes and increasing the fear of God (or rather, the fear of the "revenuer") in sophisticated, wealthy taxpayers who had been able to hide some of their assets and wealth relatively easily before.
By the way--we still do not know whether GOP presidential candidate Mitt Romney participated in the amnesty program that was introduced in the wake of the UBS exposure of banking secrecy's connection to tax evasion by wealthy Americans. As most Americans know by now, Romney refuses to release his tax returns for the relevant years when he might have participated in the amnesty program to avoid criminal prosecution. See, e.g., Kenneth Thomas, UBS Whistleblower's Award Reminds Us Romney Banked at UBS. Until Romney does release his returns back to 2003 o4 so, there will continue to be questions regarding his taxes, as the wealthiest nominee ever with offshore holdings galore and his sole business experience being a hedge fund with numerous offshore entities and blocker corporations. Specifically, Americans will wonder how his self-proclaimed patriotism and love of nation plays out in his ordinary decisions. His hedge fund, Bain Capital, has also made the news as a participant in a claimed conspiracy of hedge funds to deflate the prices they pay for companies they acquire. See Lichtblau & Lattman, Equity Firms Like Bain Are Depicted as Colluding, New York Times (Sept. 11, 2012). Both tax evasion and price-rigging are criminal activities, so it behooves Romney to release his returns and ancillary information so Americans can assess how he practices what he preaches in terms of love of country and rule of law. Did he report his foreign assets as required all along? Did he invest abroad (so that any purported "job creation" activity didn't benefit us)? Was he still influential in Bain during the period that it began, or carried on, price-fixing agreements with other powerful hedge funds? Americans deserve to know.
Will this lead to better compliance in the future? One suspects that there will always be those who enjoy the game of avoiding taxes so much that they will be willing to pay to play the tax evasion games even on the harder-to-manipulate playing field created by the crackdown on banking secrecy and offshoring of funds. But hopefully they will be fewer, and less successful!