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fix the tax code friday

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It’s Fix The Tax Code Friday!
As part of the Fixing America’s Surface Transportation Act, or “FAST Act,” the federal government has now been tasked with yanking passports from delinquent taxpayers. Under the law, the IRS is required to turn over a list of seriously delinquent taxpayers to the State Department: the State Department may then refuse to issue or renew a passport or revoke any passport previously issued to a seriously delinquent taxpayer.
So what kind of tax debt will get you labeled a “seriously delinquent” taxpayer? Under the new law, the key number is $50,000: that’s the dollar limit for your total tax debt, including interest and penalties, before your name ends up on the IRS list.
Complicating matters, another law – this one from 2005 called the REAL ID Act – bars federal agencies, including the Transportation Security Administration (TSA), from accepting driver’s licenses and identification cards issued by states that do not meet certain standards. That means that within the next few years, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, such as a passport, for domestic air travel. If you live in a state that is not compliant, no passport = no flights.
That means that, depending on where you live, losing your passport could mean losing your freedom to fly not only internationally but domestically, as well.
(You can find out more about the new passport law and the REAL ID Act here.)
That, of course, brings us to today’s Fix The Tax Code Friday question:

Should the federal government revoke passports for taxpayers who have delinquent tax debts?

It’s Fix The Tax Code Friday!
Tax season opened on January 23. This year, some tax refunds are going to take a little longer: a new law requires the Internal Revenue Service (IRS) to wait until February 15, 2017, to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the additional child tax credit (ACTC). The delay is intended to give the IRS time to match tax forms issued to taxpayers with those issued by employers and make it more difficult for scammers and thieves to steal taxpayer funds.
The new law is just one way that the feds are tackling identity theft this year. Other steps include new verification codes, additional reviews, and a partnership between the IRS, state tax agencies, and the private-sector tax industry to fight fraud.
It appears to be working. Earlier this year, IRS Commissioner John Koskinen announced that these efforts have led to a 50% decline in the number of new reports of stolen identities on federal tax returns. The data also showed a nearly 50% drop in the number of fraudulent tax returns processed by IRS.
The IRS says there is still more work to be done. That will include increased information sharing between state and federal agencies, as well as between tax industry leaders. New metrics and security measures will also be introduced in an effort to keep taxpayer data safe.
The downside? The time that it takes to implement some of these security measures means that tax refunds take more time to process.
That, of course, brings us to today’s Fix The Tax Code Friday question:

Should the federal government continue to take steps to delay tax refunds to taxpayers if it means that tax fraud is also slowed down?

It’s Fix The Tax Code Friday!
On Thursday, President-elect Trump issued a warning to Toyota via Twitter that the company must “Build plant in U.S. or pay big border tax.”
trump-twitter
(For the sake of clarification, according to the New York Times, some of the details in the tweet were not “entirely accurate.” Specifically, Toyota is not planning to build a new Corolla factory in Baja, Mexico, where it already has a factory, but in Guanajuato, Mexico. Additionally, the new factory would not displace any U.S. workers in Toyota’s existing factories.)
Trump had previously indicated that American companies would face consequences if they moved workforces out of the country; he has since claimed credit for decisions made by Carrier and Ford not to relocate factories to Mexico. However, unlike Ford, Toyota is not a U.S. based company but has its headquarters in Toyota City, Aichi Prefecture, Japan. The comments pointed at the car manufacturer are the first Trump has directed at a foreign automaker, marking a potential shift in tax policy.
In an apparent response to the tweet, Toyota released a statement reminding customers that it has been “part of the cultural fabric in the U.S. for nearly 60 years.” The car manufacturer also confirmed that it had made a $21.9 billion investment in the United States. Further, Toyota said that it “looks forward to collaborating with the Trump Administration to serve in the best interests of consumers and the automotive industry.” The car manufacturer indicated, however, that it does not intend to change direction and will proceed with building the new plant in Mexico.
Trump’s comments have caused concern in some circles as the idea of a “border tax” seems at odds with a free market, traditionally a fixture of the Republican economic platform. In response to earlier criticisms involving government interference, Vice President-elect Pence has said, “The free market has been sorting it out and America’s been losing.”
That, of course, brings us to today’s Fix The Tax Code Friday question:

Should the federal government impose a “border tax” or other tax penalty on corporations with offshore operations? If so, should it matter whether the company is a U.S. company or simply a company which does business in the United States?

It’s Fix The Tax Code Friday!
Earlier this week, air conditioning and furnace giant Carrier Corporation, a brand of United Technologies Corporation Building & Industrial Systems, agreed to not to ship out 800 jobs that it had previously planned to move out of one of its Indiana plants to a facility in Mexico (about 600 jobs from that plant will still be moved to Mexico together with jobs from a second plant that is closing). The announcement that some jobs would remain in the Hoosier state was met with a mix of euphoria and skepticism.
While the decision by Carrier to stay in-state was initially characterized as the result of a cordial phone call from President-elect Donald Trump, it turns out that it was a bit more than that. In exchange for keeping jobs and promising future investment in the state, the company will receive about $7 million in state tax incentives. Those incentives up to $6 million in tax credits as well as $1 million in training grants to support workforce development. The tax incentives were described as a “standard package” of tax credits, and one that Vice President-elect Mike Pence says was not much different from what had been offered to the company before.
Tax incentives for companies have long been controversial. While providing companies with financial and tax assistance can result in retained jobs (as here) or growth in areas which might not otherwise attract industry, some view such breaks as government interference in the free market. The latter appears to include Sarah Palin who wrote in an opinion piece for the Young Conservatives website that “[w]hen government steps in arbitrarily with individual subsidies, favoring one business over others, it sets inconsistent, unfair, illogical precedent.” She went on to write that “fundamentally, political intrusion using a stick or carrot to bribe or force one individual business to do what politicians insist… isn’t the answer. (You can read the entire piece here.)
Trump, however, has indicated that the free market won’t actually make much progress without a hand from the government. Pence agrees, telling The New York Times, “The free market has been sorting it out and America’s been losing.” That philosophy is at odds with many in Congress, especially traditionally fiscal conservatives who tend to publicly eschew government interference in such matters.
The two competing issues – trying to preserve both jobs and the free market inside the country – has raised difficult questions about how much government should be involved in private corporate matters. That, of course, brings us to today’s Fix The Tax Code Friday question:

Should state or federal authorities provide targeted tax incentives to encourage (or discourage) certain corporate behaviors? If so, what sorts of behaviors?

It’s Fix The Tax Code Friday!
Earlier this week, Forbes contributor Stan Collender boosted his estimate of the chance that there will be a government shutdown from 67% to 75%. Those odds might have gone up even more. Today, Speaker John A. Boehner’s (R-OH) announced that he would step down at the end of October, saying:

My first job as speaker is to protect the institution. It had become clear to me that this prolonged leadership turmoil would do irreparable harm to the institution.

With that, it’s looking more likely than ever that there might not be a consensus in the House in time to stave off a shutdown. Boehner, of course, had been trying to negotiate a deal that would keep the lights on in government but found a roadblock when some in the Republican party advised they would not endorse any spending bill that did not defund Planned Parenthood.
Despite the holdouts, there’s not just one issue holding up a spending bill. Congress faces a number of obstacles in the path to a spending bill. On Thursday, I outlined seven:

  1. Sequestration
  2. Carried Interest
  3. Highway Trust Fund
  4. Cadillac Tax
  5. Medical Device Tax
  6. Planned Parenthood; and
  7. Timing (short term fix versus long term fix)

All seven are current part of the discussion about spending but are they equally important?
That brings us to today’s Fix The Tax Code Friday question(s):

If you could, with a wave of your hand, reduce the debate over the appropriations bill to the one issue you think most important, which would it be and why?

It’s Fix The Tax Code Friday!
Donald Trump ruffled some feathers in Kansas City when he suggested that what he wanted most in terms of tax reform was:

I want to put H&R Block out of business. I want to put ‘em out of business. A person with a simple tax return can’t figure it out. They have go out and pay a lot of money to these companies that go out and do your tax return for you. I want to put H&R Block out of business.

H&R Block, the nation’s top-ranked tax preparation company, was painted in an even more unfavorable light this week when it was heavily criticized for its role in writing the new rules for the Earned Income Tax Credit (EITC). The EITC is a refundable federal income tax credit targeted to low to moderate income working individuals and families. Refundable means that even if the amount of the credit exceeds a taxpayer’s liability, the taxpayer doesn’t lose the “extra” and is, instead, entitled to receive any overage as a refund. The amount of the EITC varies depending on income, family size and filing status but it can be pretty significant. A taxpayer with three or more qualifying children could be entitled to up to $6,242 for tax year 2015 – even if the taxpayer owed no tax and had no withholding.
According to the Internal Revenue Service (IRS), in 2013, about 28 million taxpayers took advantage of the credit to the tune of $66 billion. The average credit was $2,400.
Proponents of the EITC claim the credit gets money into the hands of taxpayers more quickly than traditional welfare programs; that’s statistically true since more families take advantage of the EITC than the Supplemental Nutritional Assistance Program (SNAP) or Temporary Assistance to Needy Families (TANF).
Critics call the credit confusing and an opportunity for fraud; that’s also statistically true since most billions of dollars are paid out for EITC in error every year. That fraud is what prompted the IRS to change the rules for EITC a few years ago with a Schedule EIC, used to verify eligibility for the credit – but those were only for taxpayers who claim EITC and used a paid preparer. This year, H&R Block lobbied to expand the Schedule EIC and have it apply to all taxpayers who claim the credit, including those filing self-prepared returns.
It’s a tough spot for preparers and taxpayers. On the one hand, the EITC is meant to apply to low-income taxpayers who are those who might not always have access to quality tax preparers. On the other hand, EITC fraud is a huge concern and cracking down of those fraudulent returns is a tough job.
That brings us to today’s Fix The Tax Code Friday question:

Should Congress make it more difficult for taxpayers to claim the EITC? And if so, should it only apply to taxpayers with paid preparers or should it also apply to self-prepared returns?

It’s Fix The Tax Code Friday!
One of the points that was stressed repeatedly in the presidential debates is the complexity of the Tax Code. Almost all candidates agree that some kind of tax reform is needed but there are differing views of what that reform should look like (you can see a brief overview of the types of tax plans here).
A consistent obstacle in the road to tax reform is the dependency on tax deductions. We like our tax deductions. Making a tax plan more simple would mean letting go of some of those deductions. Making a tax plan very simple – like a pure flat tax – would mean letting go of all of those deductions.
What sorts of tax deductions do taxpayers typically benefit from? Here’s a short list:

  • Medical and Dental Expenses
  • State and Local Income Taxes
  • Sales Taxes
  • Real Estate Taxes
  • Home Mortgage Interest
  • Charitable Contributions
  • Job Search Expenses
  • Unreimbursed Business Expenses
  • Investment Expenses
  • IRA Deduction
  • Home Office Deduction
  • Business Use of Car
  • Business Travel Expenses
  • Business Entertainment Expenses
  • Educational Expenses
  • Employee Business Expenses
  • Casualty, Disaster and Theft Losses

So, today’s Fix the Tax Code Friday question is:

If we scrapped all of the deductions under the Tax Code except one, which one would you want to hold onto?

It’s Fix The Tax Code Friday!
This week, there has been a lot of focus on structuring following several high profile cases that made news, including charges against former Speaker of the House Dennis Hastert. Structuring occurs when large transactions are broken into smaller ones in order to avoid bank reporting requirements which kick in at $10,000. If you do that with the intent to evade, it’s illegal.
The actual practice of making cash deposits (or withdrawals) of less than $10,000 is not illegal under the federal statute at 18 U.S.C. § 5324(a); it only violates the law when the transactions are structured “for the purpose of evading” those reporting 1requirements.
I know what you’re thinking: 18 U.S.C. § 5324(a) is not a tax statute. That’s true. Title 18 of the United States Code is the criminal and penal code; the Tax Code is found at Title 26. But structuring is commonly linked to tax evasion or other tax charges (as happened in the FIFA and Hovind matters) since it’s a financial crime.
Some taxpayers suggest that the statute, as written, is merely a trap and that it threatens the freedom of bank customers to make deposits and withdrawals as they see fit. Others, however, note the progress made against prosecuting money launders by relying on the statute.
So today’s Fix The Tax Code question is:

Should structuring stay on the books as a crime? If so, should the $10,000 limit remain – or go higher? Or should the statute be wiped completely?

Earlier this week, the Supreme Court struck down Maryland’s personal income tax scheme as unconstitutional because it discriminated against interstate commerce “without regard to the tax policies of other States.”
A great deal of the opinion hinged on the notion of the dormant Commerce Clause, which, as spelled out in the opinion, prohibits “certain state taxation even when Congress has failed to legislate on the subject.” While the majority embraced this opinion, some Justices took issue with whether the dormant Commerce Clause really existed or was instead, as Justice Scalia claimed, a “judicial fraud.”
For now, the dormant Commerce Clause has heft. But it brings us to today’s Fix The Tax Code question:

Should the Supreme Court be allowed to rein in state taxation when Congress has not specifically acted on the subject? Or in the absence of specific direction, should states (and individuals) be allowed to make their own policy without regard for how it affects interstate commerce – and thus, other states?

Warren Buffett was in the news again for suggesting that rather than raise the minimum wage, we should tackle the income gap through tax policy. Specifically, Buffett recommended modifying (likely expanding) the earned income tax credit (EITC).
The EITC is a refundable federal income tax credit targeted to low to moderate income working individuals and families. Refundable means that even if the amount of the credit exceeds a taxpayer’s liability, the taxpayer doesn’t lose the “extra” and is, instead, entitled to receive any overage as a refund. The amount of the EITC varies depending on income, family size and filing status but it can be pretty significant. A taxpayer with three or more qualifying children could be entitled to up to $6,143 – even if they owed no tax and had no withholding.
According to the Internal Revenue Service (IRS), last year, about 28 million taxpayers took advantage of the credit to the tune of $66 billion. The average credit was $2,400.
In addition to the federal EITC, 24 states and the District of Columbia offered EITCs in 2014. The credit is refundable the large majority of those states.
Proponents like Buffett say that the EITC gets money into the hands of taxpayers more quickly than traditional welfare programs; that’s statistically true since more families take advantage of the EITC than the Supplemental Nutritional Assistance Program (SNAP) or Temporary Assistance to Needy Families (TANF).
Critics call the credit confusing and an opportunity for fraud; that’s also statistically true since most billions of dollars are paid out for EITC in error every year.
So, today’s Fix the Tax Code Friday question is:

Is the EITC working for taxpayers? Should it be scrapped, expanded or something else?