Bramwell’s Lunch Beat: Happy Tax Day!

IRS chief: New rule on the way for tax-exempt groups
IRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to address complaints from the right and left that it goes too far.

It's a process he predicts will take “until the end of the year and beyond” to complete, according to the article by Susan Page. The proposed regulation of groups known as 501(c)(4)s drew a record 150,000 comments before the deadline in late February.

Koskinen said the new rule would take into account backlash from conservative Tea Party groups as well as some liberal advocacy organizations that the agency's proposal – intended to address concerns that the tax-exempt groups were engaged in partisan warfare – would bar, even voter education and registration programs.

“I think we have to take all of that into consideration,” Koskinen said, according to the article. “There are very thoughtful comments and concerns, and one of the questions that has evoked a lot of comment is, once you define what political activity is, to what organizations should it apply in the 501(c) context and how much of it should be allowed? All of that is going to be very important.”

April 15 not much of a deadline for most taxpayers
If you haven’t filed your federal tax return yet, chances are you don’t need to fret. If you’re due a refund – and about three-fourths of filers get refunds – April 15 isn’t much of a deadline at all, Stephen Ohlemacher of the Associated Press wrote yesterday.

“The IRS doesn't like to talk about it, but penalties for filing late federal tax returns apply only to people who owe money,” he noted. “The penalty is a percentage of what you owe. If you owe nothing, 5 percent [the failure-to-pay penalty] of nothing is ... nothing!”

But it doesn't make much sense to file late, especially if you are expecting a refund.

“Most people with refunds are filing early in January, February, and March because they'd like the refund early,” IRS Commissioner John Koskinen said, according to the article. “So we don't see an incentive and we don't see much experience of people waiting later for us to keep the money longer.”

About 12 million taxpayers are expected to request extensions, giving them an additional six months to file their returns, according to the IRS. However, these taxpayers still must pay at least 90 percent of their tax bill by Tuesday to avoid the failure-to-pay penalty, Ohlemacher wrote.

Don’t think you can fool the IRS
Yes, the IRS is cash-strapped and audit rates are down, but that doesn’t mean the average Jane or Joe can hide the ball from the taxman. The IRS is now using sophisticated software and data analysis that puts it in touch with taxpayers before the official audit process begins, Kelsey Snell of Politico wrote today.

The IRS reported it reviewed less than 1 percent of all tax returns in 2013, compared with slightly over 1 percent the prior year, continuing a downward trend, Snell noted. The average audit rate in 1996 was about 2 percent. Individuals with income topping $10 million saw an audit rate of more than 24 percent, while the rates for people who earned between $25,000 and $200,000 never climbed above 0.77 percent.

But the audit rates are somewhat misleading. The vast majority of taxpayers receive W-2 forms that detail automatically generated earnings from an employer, bank, or other institution. All of that information is simultaneously transmitted to the IRS and stored digitally. Agency computers can quickly and easily check to make sure the taxpayer’s figures match those reported by their employer or bank, the article stated.

If the numbers are off, the computer typically sends the taxpayer a letter telling them to settle up, all before the audit process formally begins.

Getting a big tax refund may not be a good thing
Why? According to National Foundation for Credit Counseling spokesperson Gail Cunningham, a refund of $3,000 adds up to about $250 in extra taxes each month – cash that may make the difference between missing a car payment or bouncing a rent check for many lower-income Americans, Jeff Reeves wrote yesterday for the USA Today.

And, Reeves noted, if you're not living paycheck to paycheck, you're still giving the IRS what amounts to an interest-free loan instead of putting your money to work by paying down debt or investing it so that cash grows.

“Why would you not maximize any asset that could work for you?” asks Chris Woehrle, an assistant professor of taxation at the American College of Financial Services, according to the article.

Read my lips: More new taxes!
Jonathan Cohn of the New Republic thinks a bigger April 15 tax bill would mean a better society.

“Naturally, there are arguments to be had over how high taxes should go, exactly who should pay more, and what form those levies should take. Personally, I’d opt for some combination of taxes on wealth and taxes on carbon, figuring it'd be good to fight inequality and stop global warming. And while taxes should go up for most people, they should be a little lower for some of the working poor,” he wrote yesterday.

“But having that discussion feels a little silly, given that higher taxes are nowhere near the political agenda right now. That's why the first step toward a more sensible conversation about economic policy and our priorities in general is to admit that taxes can be a good thing, as long as they pay for worthwhile things. I still think they do.”

IRS taxing Tax Day freebies?
Tax Day can be painful, so collecting fun perks that also help businesses seems like a win-win. But could they themselves be taxed? Forbes contributor Robert W. Wood wrote that it’s not a silly question.

“In short, many bargains are taxed. Sure, most Tax Day freebies are small-scale. But if one customer wins a free trip to Paris or a free car? You guessed it, it’s taxed. If you pay $5 for a $20 meal on Tax Day for yourself, there should be no tax effect. But if an employer gives Tax Day freebies to employees?” he wrote.

“Depending on the employer’s line of business, it may be taxable as compensation, perhaps at the full $20 value, not just $5. If you get a Tax Day freebie and share the wealth with family and friends, there could be gift tax, although these gifts should fall within the $14,000 annual gift tax exclusion!”

Social Security stops trying to collect on old debts by seizing tax refunds
The Social Security Administration announced yesterday that it will immediately cease efforts to collect on taxpayers’ debts to the government that are more than 10 years old, Marc Fisher of the Washington Post reported.

The Washington Post found that the government was seizing state and federal tax refunds that were on their way to about 400,000 Americans who had relatives who owed money to the Social Security agency. In many cases, the people whose refunds were intercepted had never heard of any debt, and the debts dated as far back as the middle of the past century.

The effort to collect on old debts began with a single line in the 2008 farm bill that lifted the statute of limitations on debts to the government that are more than 10 years old, Fisher noted. The US Treasury Department then set up rules that allowed the government to settle such debts by intercepting taxpayers’ refunds. The department has collected about $2 billion in intercepted tax refunds this year, $75 million of that on debts delinquent for more than 10 years.

“I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law,” the acting Social Security commissioner, Carolyn Colvin, said in a statement, according to the article.

Colvin said anyone who has received Social Security or Supplemental Security Income benefits and “believes they have been incorrectly assessed with an overpayment” should contact the agency and “seek options to resolve the overpayment.”

What Obamacare means for your taxes
Sophie Novak and Sam Baker of the National Journal wrote a good article yesterday on how the Affordable Care Act will affect your taxes – both this year and next year.

“This year's changes are relatively technical and have a narrow reach,” said Brian Haile, senior vice president for health policy at Jackson Hewitt, according to the article. “Next year is a whole different kettle of fish.”

Quick Links:

  • The best (and worst) of #busyseasonproblems (Going Concern)
  • New IRS commissioner grapples with tumult and tax code (NPR)
  • Looking at some corporate tax loopholes ordinary citizens may envy (New York Times)
  • Higher 2013 US taxes surprise some investors, tax preparers say (Reuters)
  • Crimeware helps file fraudulent tax returns (Krebs on Security)
  • Happy Tax Day (The New Yorker)
  • Happy Tax Day: RNC files lawsuit against IRS for ‘illegal stonewalling’ of scandal documents (Fox News)
  • For Tax Day, Philly accountants dance (Philadelphia Inquirer)
  • On Tax Day, who wants the rich to pay more? (MarketWatch)
  • Happy Tax Day 2014! Now quit partying and file something! (Don’t Mess With Taxes)
  • Lessons from the late John Pinette, accountant-turned-comic (Don’t Mess With Taxes)
  • The gift that is Lois Lerner (Forbes)
  • Not implicated in the Lois Lerner IRS furor: The White House (Huffington Post)
  • Congress fiddles while bridges crumble (TaxVox)

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