Friday, July 27, 2012

Can We Descend the Fiscal Cliff Safely?

  • Fiscal Cliff at Accounting Today

  • NOTE: I considered titling this "Forward Over the Fiscal Cliff," but decided that that headline would be more appropriate for Tax Guru Kerry Kerstettler.

    As the election and the end of 2012 approaches, the end of the Bush tax cuts also approaches and businesses are caught wondering what if any action will be taken for two seperate reasons: the sunset of the cuts and the need to raise revenues/cut spending/combination of both based on last year's debt ceiling compromise.  Present action does not look promising: the Democratic Senate has voted to extend only the cuts for taxpayers with AGIs under $200K/250K (based on marital status) while the Republican House almost surely will vote to extend all cuts.  Meanwhile, both Senators and House members of both parties have called on President Obama to announce where "sequestration" cuts will be made in defense and entitlements if the House and Senate cannot agree on $1.5 trillion in taxes/cuts by the end of the year.  So far, the President has not done this.  The article claims that inaction could lead to effective tax rates over 50% for some workers and small businesspersons and that willingness to hire new employees will be and may already be starting to be affected.  To increase the level of uncertainty, some Democratic Senators such as Patty Murray (WA) have threatened to end all Bush tax cuts unless Republicans compromise at some level regarding tax increases; anathema to the Tea Party branch of Republicans.

    One can hope for a compromise on the Bush tax cuts, perhaps at the $1-2 million per year level rather than the present $250,000.  While less than ideal, it would allow the Democrats a "half victory" while giving certainty to business planners.  I have even less hope on the $1.5 trillion and see sequestration as very possible--though this may not do much more than offset costs incoming from the recent Supreme Court decision on the Affordable Care Act/"Obamacare."  Finally, while President Obama's Roanoke remarks have gathered more attention; it may be that Senator Murray and the Democratic Senate is doing more real harm to business activity by increasing uncertainty about future taxation.

    Tuesday, July 17, 2012

    IRS Seizures Score a C+ (78%) on Proper Procedure

  • Tax Prof Review of TIGTA Study of IRS Seizures

  • TIGTA Report on IRS Seizures

  • The Treasury Inspector General of Tax Administration studied 50 seizures of taxpayer property by the IRS to see if the seizures complied with the IRS Restructing and Reform Act of 1998 (popularly known as the Taxpayer Bill of Rights) and IRC Sections 6330 through 6344.  No actual harm to taxpayers occurred.  However, on 11 of 50 seizures, IRS made one or more errors which had the potential to hurt the taxpayer.  Particular errors including incorrect information on either tax liability or proceeds from sale after seizure; incorrectly application of sale after seizure proceeds against tax liability and incorrect details on the sale of seized property.

    In one sense, the apparent lack of actual harm to taxpayer makes this report "much ado about nothing."  It is not that hard to see in other circumstances; however, that such errors could have done real damage.  It should be noted that the IRS consented to the findings of the study and made assurances of improving procedures.

    Obama vs. Ernst and Young?

    NOTE: Apologies for the long delay between posts.

  • White House Dismisses E&Y Analysis of Eliminating Bush Tax Cuts

  • Ernst and Young Study Says Tax Hike on Rich Could Cut 700K Jobs

  • Big Four CPA Firm Ernst and Young released a study today saying that four tax proposals of the Obama Administration: ending Bush tax cuts for taxpayers making over 200K/250K; reinstating a limitation on itemized deductions for high-income taxpayers; making dividend income fully taxable and increasing the basic capital gain rate to 20% for high-income taxpayers and instituting a new 3.8% tax on investment income would decrease national output by 1.3% ($200 billion); employment by 0.5% (710,000 jobs) and worker real wages by 1.8%.  The study was funded by a variety of business groups such as the National Federation of Independent Businesses and the U.S. Chamber of Commerce.  Reaction was predictable, House Speaker John Boehner castigated the president for adding another barrier to recovery while House Democrat Sander Levin criticized the study for bias and failing to consider all potential uses of extra tax revenue and Obama economic advisor Jason Furman also criticized the failure of the study to consider counterbalancing benefits of other Obama tax cut proposals.

    I can understand Levin's critique: the presence of business group funding leads to an appearance of conflict of interest and the study should have looked at the possible use of the tax hike on deficit reduction and not just spending or a "tax rebate" style cut [counterpoint: past history suggests that in practice Washington is MUCH more likely to use tax increases for extra spending vs. deficit reduction].  Furman's attack of the study is more questionable: he seems to be double counting the tax revenue from the extra "fair share" taxes both to reduce the deficit and to fund targeted Obama tax cuts.

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