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tax policy

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The city of Seattle has the authority to impose a tax on guns and bullets according to Judge Palmer Robinson of King County Superior Court. Judge Robinson ruled in favor of the City of Seattle this week after the National Rifle Association (NRA), the National Shooting Sports Foundation, the Second Amendment Foundation, and others filed suit to protest the city’s tax on guns and bullets. The groups argued that the city did not have the authority to pass the law.
Under the law, called the “gun violence tax,” gun and ammo sales in Seattle are subject to a tax of $25 per firearm at sale and $0.05 for every round of ammunition at sale ($0.02 for every round of .22 caliber ammunition and smaller). Seattle’s City Budget Office estimates that the gun violence tax will raise between $300,000 and $500,000 per year: revenue raised under the tax will be used for education as well as violence prevention.
Judge Robinson ruled that the law is permitted as a tax measure to raise revenue and not gun control – a slight distinction but one that matters in this case. As in other matters (including the health care law which was challenged in the Supreme Court), whether a measure is considered a tax has a significant impact on whether it may be enforceable.
In his ruling, the judge relied heavily on the primary purpose of the law, as stated, as well as how the revenue would be spent. Judge Robinson ruled that the funds raised were for broad purposes and not regulatory in nature – that, he says, made it a tax. And, the judge ruled, Seattle has the right to impose certain kinds of taxes, including this one. He dismissed the case against the city, clearing the way for the tax to become effective, as planned, on January 1, 2016.
A related law which requires gun owners to report a lost or stolen firearm within 24 hours is already in effect in Seattle. Gun owners in Seattle who fail to report lost or stolen firearms can be slapped with a $500 civil penalty. Under federal law, firearms businesses holding a federal license, must report lost or stolen guns but not individual gun owners.
similar law is already in place in Cook County, Illinois, the nation’s second-largest county. Cook County imposes a $25 tax on the sale of firearms; an additional tax on gun cartridges is slated to take effect on firearm cartridges on June 1, 2016. One of the goals of those measures, according to Cook County Board President Toni Preckwinkle, was to reduce gun violence in the county. However, according to reports in the Chicago Tribune, gun violence continues to escalate in the city of Chicago with the numbers of persons shot in 2015 already eclipsing the numbers of those shot in 2014 by more than 10%.
The Second Amendment Foundation has vowed to appeal the ruling in Seattle and other groups are mounting challenges to stop Cook County’s ammo tax from taking effect this summer.
You can read the Seattle opinion here.

What if, instead of a series of complicated bureaucracies issuing welfare checks, food stamps, and tax credits, social benefits were distributed to everyone without regard to income or employment status?
That’s exactly what the government of Finland is contemplating. The Finnish government is investigating whether it might make good financial sense to make a tax-free monthly payment of about 800 euros ($871.86 US) to all adults in the country, regardless of income, employment status or qualification for other kinds of benefits. Those other benefits would largely be eliminated.
It’s far from being a done deal: at this point, it’s only a preliminary study. The study is being conducted by Kela, the Social Insurance Institution of Finland, which operates under the supervision of Finland’s Parliament.
The study began in October at the request of the Finnish government. It’s a collaborative effort between the Research Department at Kela; University of Helsinki; University of Tampere; University of Eastern Finland; University of Turku; Sitra Innovation Fund Tänk (a Finnish think tank); and VATT Institute for Economic Research. The project is headed by Professor Olli Kangas, director of research at Kela.
The purpose of the study is to find new ways to improve the current system, including making it more efficient. The study, which has been referred to as “a universal basic income experiment,” has as a primary goal, incentivizing going back to work; some in the present government believe that the current system serves as a disincentive to look for work. Finland’s unemployment rate is a whopping 9.5%, about twice the rate in the United States (which currently sits around 5.0%).
An additional consideration is the total economic impact of making monthly payments to all adults. From an expense perspective, the current government believes that it might save a considerable amount of money by reducing the types of benefits offered to its citizens and replacing it with a fixed amount. The current bureaucracy is expensive because of all of the moving parts.
If every adult receives the benefit, the program could cost more than $44 billion per year ($871.26/month for an adult population of roughly 4.2 million). It’s important to note that the amount of the payment hasn’t been settled: the 800 euros is an example of what might work. The total amount would be determined after an analysis of the study.

The program would be funded in the same way that benefits are funded now: through government revenue raised largely from taxes under the existing tax structure. The monthly payments would be tax-free and would resemble what we would consider welfare: the difference, however, from a traditional welfare system is that everyone would receive the benefits.
If the experiment goes forward in Finland, it would be launched in 2017.
Finland isn’t the only country considering such a plan. Switzerland is also mulling a variation on a national basic income. The Swiss government isn’t a fan of the proposal, but the proposal will nonetheless go up for a vote: the Popular Initiative for Unconditional Basic Income is scheduled to take place in 2016. An early poll suggests that more Swiss support the proposal than are opposed. Additionally, in the Netherlands, four municipalities (Utrecht, Tilburg, Groningen and Wageningen) have expressed interest in trial versions of a basic income payment; Utrecht could debut a variation of the experiment as early as January 2016.
It’s not a completely novel idea: a similar experiment was conducted in Manitoba, Canada, between 1974 and 1979. A lack of real data hampered efforts to make a concrete analysis about whether the experiment was a success. An after-the-fact examination (downloads as a pdf) of the experiment found that a broadly implemented form of the policy “may improve health and social outcomes at the community level.”
(Author’s note: I’ve reached out to Dr. Kangas for comment and as of this writing, have not received a response. I will update as information becomes available.)

For an update on the Internet Tax Freedom Act, click here.
For an update on Tax Extenders, click here.
Congress made a lot of noise this year about tax reform and other tax bills. Mostly, it was just noise. With the exception of some administrative moves (like changing due dates), there wasn’t a lot of movement. With just a few weeks to go in the calendar year and Congress scheduled to break for the holidays shortly, here’s a quick peek at some hot tax issues:
1. Tax Extenders. After 2014’s last minute dash to approve tax extenders, many taxpayers (including me) were encouraged when Sen. Orrin Hatch (R-UT), together with Sen. Ron Wyden (D-OR), announced in July that the Senate Finance Committee would begin markup on a tax extenders bill. But July came and went without any movement on the extenders bill. By September, taxpayers were growing anxious. On September 10, the Broad Tax Extenders Coalition sent a letter to members of Congress asking them to “act immediately” to either extend or make permanent the expiring tax provisions. Over 2,000 businesses signed the letter which was apparently ignored – that, or Congress has a significantly different understanding of the word “immediate.” Cut to December. Still no movement.
About 55 individual tax breaks expired at the end of 2014. That’s right: expired, past tense. That means that Congress has 27 days to decide whether to extend these tax breaks to make them retroactive to January 1, 2015. Of the breaks, making the most news is bonus depreciation, which allows businesses to deduct the cost of certain business expenses at once rather than depreciate the cost over a number of years. Also included in the bill? The research and development tax credit. A deduction for educator expenses. A deduction for state and local sales taxes. The mortgage insurance premiums deduction. The energy-efficient home improvement credit. And don’t forget the popular charitable IRA rollover.
So where is it now? Nobody seems to know. Congress claims to be in talks but there are reports that “extras” in the tax deal are gumming up the works. The cost of the extenders is the big hold up which makes you wonder: if it’s too expensive, why not just let the extenders die? The problem, of course, is that Congress lacks the willpower to say no to spending. The uncertainty is bad for taxpayers.
2. Internet Tax Freedom Act. Currently, taxing internet access is barred by law – that’s been the rule since 1997. It’s not a permanent law: it’s a moratorium. To keep the moratorium in place, Congress has to extend it. As of last year, this had happened four times so far: in 2001, 2004, 2007 and 2014. But hold on because it gets more confusing. The moratorium was supposed to end in November of 2014 – just before the midterm elections – and was not so coincidentally extended for a few weeks through December 11, 2014. It was then re-upped to October 1, 2015 (stay with me). In another band-aid, it was again extended to December 11, 2015. That’s in seven days.
So where is it now? Earlier this year, the House approved H.R. 235, the Permanent Internet Tax Freedom Act, which “amends the Internet Tax Freedom Act to make permanent the ban on state and local taxation of Internet access and on multiple or discriminatory taxes on electronic commerce.” A companion bill, the S.431, the Internet Tax Freedom Forever Act, was read in the Senate. There’s been no additional movement.
3. Highway Bill. The Highway Trust Fund has been losing money for years. In 2005, the Highway Trust Fund actually had a surplus of $10 billion: now, it will need almost $15 billion each year in additional gas tax receipts to make up the hole. The Senate passed a multi-year extension for the trust fund this summer, but the House didn’t agree. Additionally, Congress has been squabbling over how to pay for much-needed infrastructure improvements.
The Fixing America’s Surface Transportation Act, or FAST Act, was introduced earlier this year. The final version of the bill is a five-year measure meant to “improve the Nation’s surface transportation infrastructure, including our roads, bridges, transit systems, and rail transportation network.” But it has lots of extra stuff in it because that’s what Congress likes to do. Included in the final text? Provisions that revive the charter of the U.S. Export-Import Bank, allow the government to revoke your passport if you owe “seriously delinquent taxes” and an order to make Internal Revenue Service (IRS) turn over collections of delinquent accounts.
So where is it now? The House and the Senate passed conflicting versions of the bill. Those versions were reconciled this week. President Obama is expected to sign the $305 billion bill today – the day that transportation spending is set to expire.
4. Corporate Tax Reform. Remember when tax reform was all the rage? Last year, tax reform was constantly in the news – especially corporate tax reform in response to allegations that companies were paying pennies on the dollar due to loopholes (I don’t love that word). In 2013, then-Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Dave Camp (R-MI) took their quest for tax reform on the road, saying both were “committed” to reform. Both have since retired. In 2014, Sen. Michael F. Bennet (D-CO) introduced a bill, Partnership to Build America Act of 2014 (S. 1957), that would provide for investments and improvements in infrastructure projects with a catch: it included a repatriation tax holiday; it moved to committee where it sits (dead) today. Presidential hopeful Donald Trump has introduced his own version of the plan which would raise revenue through a one-time repatriation tax of 10% for corporate cash held overseas but of course, that’s just a proposal.
So where is it now? Corporate tax reform was tops on the list of priorities, for now, Rep. Paul Ryan (R-WI) before his ascent to Speaker of the House. There’s nothing new happening now and most pundits don’t expect any real action until after the 2016 election.
5. Licensing Tax Preparers. Efforts by the Internal Revenue Service (IRS) to license tax return preparers were shot down by the courts in Loving v. Commissioner (and subsequent appeals). The IRS eventually gave up on appeals and moved to a voluntary program with the hope that Congress would grant IRS the authority that the courts found lacking.
In September, Senate Finance Committee Chair Orrin Hatch (R-UT) and Ranking Committee Member Ron Wyden (D-OR) announced they would mark up a bill that would, among other things, require licensing to “help root out the bad actors who pose as law-abiding return preparers” as a step towards protecting taxpayers from identity theft and fraud. The markup session was postponed and has not, to date, been rescheduled.
So where is it now? Congress is taking another stab at legislation to license tax preparers: Representatives Diane Black (R-TN) and Pat Meehan (R-PA) have introduced H.R. 4141, the Tax Return Preparer Competency Act. The bill currently sits in committee.
Author’s Note: The status of these provisions could change at any time. Check back for updates.

Last week, a television news station in Indiana ran an exposé allegedly revealing a new kind of identity fraud aimed at taxpayers. The report alleged that illegal immigrants were using stolen Social Security Numbers for tax-related purposes and not only does the Internal Revenue Service (IRS) know about the fraud, there is a “secret IRS policy” to encourage and hide the fraud from taxpayers.
The report drew a lot of interest because fraud! Illegals! IRS! Secret! Policy! All of the buzzwords. The report was read pretty extensively and passed along via social media – which is how it ended up in my lap. Financial planner (and 2015 Forbes Money Master) Michael Kitces tweeted the story to me, copying Kay Bell.
(You can read Kay Bell’s response here.)
It’s not a pretty story. Identity theft is concerning – and evidence suggests that it’s getting worse, not better. Specifically, high profile cases involving the IRS (improper access of taxpayer accounts using the “Get Transcript” app); the Office of Personnel Management (21.5 million federal employees had their Social Security numbers and other data stolen) and, of course, the health insurer Anthem (potentially 80 million customers affected by a security breach), have heightened fears about how much data is available to the bad guys – and how easy it can be to get it.
But let’s pull the curtain back a little. We know that identity theft is a big problem: a 2015 study found that there were 12.7 million victims of identity theft in the U.S. in 2014. That works out to a new identity fraud victim every two seconds. Identity theft has topped the list of consumer complaints made to the Federal Trade Commission (FTC) for the last 15 years. And, of course, identity theft has claimed the top spot on the IRS’ Dirty Dozen list for several years running.
So yes, identity theft is a problem. But do I think IRS is in any way driving identity theft? No. Do I think IRS has a policy that encourages identity theft? No. Do I think IRS is doing a terrific job to curtail identity theft? No. Those answers are not at odds with each other. Here’s the dilemma. By law, U.S. taxpayers are supposed to report and pay tax on all income unless otherwise excluded. It doesn’t matter if you’re here legally or not: you still report and pay. It doesn’t matter if your income is earned legally or not: you still report and pay.
Those laws, as you can imagine, make it difficult for those who are not in this country legally and for those who are not earning income through legal means. And maybe you think that’s a good thing. But here’s the important part: folks who are not here legally are earning money and using services. They should be paying in. Whether you want them here or not isn’t important in terms of collecting revenue and spending money. They’re already here and if you’re here – legally or not – you need to pay your taxes.
In order to file your taxes, you need either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). For years, ITINs were handed out all too easily. According to a 2012 study by the Treasury Inspector General for Tax Administration (TIGTA), there was significant potential for “the improper assignment of ITINs to individuals who have not substantiated their identity or foreign status.” The process, TIGTA suggested, was flawed. Of the 1,638,737 ITINs assigned between January 1 and December 31, 2011, TIGTA found that supporting documentation such as work papers was certified by a Certifying Acceptance Agent only about a quarter of the time. There was, alleged TIGTA, a lack of oversight which contributed to widespread fraud. The answer? A rule change. Now, it’s a little more difficult to get an ITIN and it’s no longer permanent: it’s a hoop you have to jump through more than once.
The sole purpose of an ITIN is to file a tax return. To file a tax return, you generally need to earn money. To earn money, you have to get a job. And to get a job, you need a Social Security Number. Why? Because as federal agencies crack down on illegal workers, they are increasingly auditing forms I-9 (downloads as a pdf) and other employment data. And you know what it asks for on a form I-9? A Social Security Number. Not an ITIN. To be clear, an ITIN does not provide legal immigration status nor does it provide work authorization.
A Social Security Number, however, is required for a form I-9. And if you can’t get one? You “borrow” one (often from someone you know – like a family member – who has one already). You steal one. Or you buy a stolen one. The latter is mostly likely. The reality is that most of the folks who illegally obtain a Social Security Number aren’t hacking into your Wi-Fi to do it. They’re getting it from someone else (who, granted, might have hacked into your Wi-Fi to do it or snatched it up by some other means). But don’t be fooled. Buying and selling data related to your identity isn’t a one-off operation: it’s an entire industry.
Employees know this. Employers know this. In fact, it’s not unheard of in some employment sectors, like hospitality, for employers to assist in the cause. Early on in private practice, I was shocked to find out that employers sometimes illegally obtained blocks of Social Security numbers to assign to potential employees who couldn’t obtain legal documents on their own; my older colleagues assured me that this was nothing new.
In fact, that busboy clearing your table? The line cook prepping your food? The janitor cleaning up after? If they are not working legally (and please don’t assume that I’m suggesting that most are not), chances are that their employer knows this. And depending on geography and industry, there’s also a good chance that not only does the employer know, the employer assisted in getting paperwork together so that they could work. Why? Because the employer needs low wage workers. And those employees were willing to work for low wages.
These hiring practices are not relegated to small businesses. In 2005, Wal-Mart agreed to pay an $11 million settlement following accusations that it used illegal immigrant labor for janitorial services; twelve businesses that provided contract janitor services to Wal-Mart were also part of the investigation and settlement. According to Department of Homeland Security, from 2009 to 2012, there were 9,140 administrative workplace inspections resulting in $31.2 million in civil fines imposed on employers who knowingly hired illegal workers. It’s clearly an issue that isn’t going away.
The WTHR report argues that IRS could mitigate some of the problem by being more diligent and more forthcoming. I think we’d all agree that IRS could be both. But to be clear, the IRS isn’t handing out Social Security Numbers. That’s the purview of the Social Security Administration. Neither is it the responsibility of the IRS to audit immigration papers related to employment. That’s the purview of the U.S. Immigration and Customs Enforcement (ICE) as part of the Department of Homeland Security.
What the IRS is doing is processing tax returns and collecting revenue. When illegal workers file their tax returns during tax season, they’re going to report their income together with an ITIN. But chances are that wage information as reported by their employer is reported using a bogus Social Security Number. The result? An ITIN/SSN mismatch. That, the report alleges, should be a red flag that something is wrong. I agree. But the jump from saying that IRS isn’t doing enough to suggesting IRS is somehow pushing illegal workers to acquire and use stolen identities is a big one.
WTHR says that the “agency actually encourages undocumented immigrants to file with a mismatched Social Security number that does not legally belong to them.” The first part of their statement is true: the IRS does encourage illegal workers to file a return because the law says they must. To suggest more is, I think, a stretch. When an employer reports income on a form W-2 or 1099 using a bogus Social Security Number, that may be criminal on behalf of the employer, employee or both. But finding/buying/using that Social Security number didn’t start with IRS. And while IRS may be aware of a SSN/ITIN mismatch at filing season, not every mismatch is a crime or a clear indication of identity theft.
I reached out to IRS for their response to the report. They were predictably concerned about the implication that they were somehow complicit in identity theft cases. An IRS spokesperson released the following statement:

Identity theft protection is a top priority for the IRS. We’ve dramatically increased our efforts in this area to protect taxpayers and the tax system through prevention and detection of fraud and prosecution of thousands of criminals. The IRS administers the tax code, as written by Congress, which requires anyone who has earned taxable income to pay taxes if their income exceeds a certain threshold. The job of the IRS is to ensure that everyone who has taxable income, and has a filing requirement, has the ability to file a tax return and pay their fair share of taxes. We continue to look for other ways to help taxpayers and are currently reviewing the results of a pilot program looking at the use of Social Security numbers by other individuals for the purposes of obtaining employment.

I’ve been covering the results of identity theft for some time now. I’ve talked to many affected taxpayers, some of whom are also friends, family, and clients, who have struggled with the consequences of having their identity compromised. Their reactions span the spectrum from scared to angry, frustrated to helpless. I’ve heard – and in some instances, watched in real time – the horror stories.
I’ve also talked with the IRS, including Commissioner Koskinen, and with the National Taxpayer Advocate, Nina Olson. I’ve reached out to individual tax preparers, companies that provide consumer tax preparation software, professional associations, security experts and individual taxpayers. They all agree that identity theft is a real problem. Not one person I’ve talked to has ever been dismissive of the consequences to taxpayers. And yes, like me, they think IRS could do more. Criticisms that IRS has been slow to react to an increase in identity theft fraud are certainly valid. The agency has focused on taxpayer privacy laws to a fault, leaving the impression that the focus was on protecting the privacy of the fraudsters, not the victims. It wasn’t until this year that IRS announced, in a change of policy, that it would provide victims of identity theft with copies of the fraudulent tax returns filed using their personal and financial information; that change was in response to a request made by Sen. Kelly Ayotte (R-NH).
For its part, IRS has questioned where the resources to do more to protect taxpayers from identity theft are supposed to come from. Those IRS budget cuts are no secret. The IRS budget level for Fiscal Year 2015 of $10.9 billion was $1.2 billion less than it was in 2010: the IRS is now at its lowest level of funding since 2008. Those reductions – as IRS responsibilities (like overseeing Obamacare) have increased – haven’t been helpful in the battle against tax fraud. And, I was reminded by an IRS employee, it’s not their job to also police immigration. They can, I was told, only do so much.
That said, that doesn’t mean IRS has given up, despite implications to the contrary. They are still working angles to stem identity theft, from increased emphasis on tax fraud from IRS Criminal Investigations (more on that in the coming days) to working within the industry. On Thursday, IRS will be providing an update with their partnership with the private sector (including companies like Intuit’s TurboTax, H&R Block, Liberty Tax and Jackson-Hewitt). Check back here for a full report.
Additionally, as we move into tax season, you can count on the Forbes tax team for great coverage including news on identity theft concerns.

Bitcoin is money.
That was the gist of a ruling this week from the European Court of Justice (ECJ), the highest court in Europe. The ruling was in response to a dispute originally filed in Sweden. In the case, Skatteverket (Swedish Tax Agency) v. David Hedqvist, the ECJ was asked to rule on whether transactions to exchange a traditional currency for bitcoin (or vice versa) would subject to value added tax (VAT). The question was important because Hedqvist intended to use the currency in commerce as part of on online bitcoin exchange. At first, the Swedish Revenue Law Commission advised Hedqvist that bitcoin was exempt from VAT but the Swedish Tax Authority disagreed. Eventually, the question made its way to the ECJ.
The ECJ ruled that bitcoin was exempt from VAT because it is not tangible property. Instead, the ECJ cited the Advocate General’s position that “virtual currency has no purpose other than to be a means of payment.” That means that in the European Union, for purposes of tax, bitcoin is considered – and taxed – as currency. By rule, in the EU, there is no tax on “currency, bank notes, and coins used as legal tender.”
You can read the decision in English here.
The ruling is an important step towards resolving lingering tax disputes globally over how to treat bitcoin. In 2014, the UK finally clarified its position on the taxation of bitcoin, finding it to be a currency while Germany’s official position had been that bitcoin was “personal” or “private” money, to be treated like a commodity and subject to sales taxes. Those conflicting positions have been clarified in the EU.
But don’t count your tax-free bitcoin just yet: while the ECJ has ruled bitcoin a currency in the EU, the U.S. disagrees. Just last year, the Internal Revenue Service (IRS) issued guidance to taxpayers on how to treat bitcoin – and other virtual currency – for federal income tax purposes. Their decision? It’s not money. Noting in IRS Notice 2014-21 (downloads as a pdf) that “virtual currency is not treated as currency that could generate foreign currency gain or loss for US federal tax purposes,” the IRS determined that bitcoin and similar currencies are to be treated as a capital asset. For taxpayers, this means that bitcoin and other virtual currency will be subject to capital gains rules for any applicable gains or losses.
(You can read more on the IRS tax treatment of bitcoin for income tax purposes here and more on the IRS treatment of bitcoin for FATCA purposes here.)
That treatment is fairly consistent with other U.S. treatment of bitcoin and virtual currency. Earlier this fall, the U.S. Commodity Futures Trading Commission (CFTC), in a decision involving Coinflip, Inc. d/b/a Derivabit (Coinflip) and its chief executive officer Francisco Riordan, ruled that “[B]itcoin and other virtual currencies are properly defined as commodities.”
The characterization of bitcoin has been confusing for users since its introduction more than five years ago. Bitcoins are widely digital currency. Bitcoin doesn’t rely on an exchange of paper and there is no centralized bank that records your transaction. Instead, bitcoins – sort of like online credits – are stored in a digital “wallet” which can be found on your computer and can be exchanged for anything from buying cupcakes to shopping at Overstock. A New Hampshire State Representative is even hoping to add bitcoin to the list of ways you can pay your taxes.
(You can read more about how bitcoin works here.)
While the U.S. treatment may stand in the way of efforts to characterize bitcoin as money, the ECJ ruling was met with relief in Europe. The EU is the largest economy in the world. It’s also the largest trader of manufactured goods and services, ranked as the top trading partner for 80 countries (in contrast, the US is the top trading partner for about 20 countries).

On Wednesday, October 7, 2015, the National Hockey League will kick off its season with a handful of games including what many consider the main attraction: Toronto Maple Leafs vs. Montreal Canadiens. The matchup, one of the greatest rivalries in league history, is focused on two Canadian teams. That’s not surprising considering that a whopping 68.7% of NHL players are Canadian. Just 14.8% are from the United States.
According to the NHL, more than 33% of NHL players hail from outside North America from 14 nations. Last season there were 71 NHL players from the Czech Republic, 64 players from Russia, 50 from Sweden, 38 from Finland, 25 from Slovakia, six from Germany, five from Latvia, four from Ukraine, three from the United Kingdom, two from Poland, two from Lithuania, and one each from Belarus, Norway, and Switzerland. It’s a truly international league. In contrast, just 2% of active players in the National Football League hail outside of the fifty states (NFL Report downloads as a pdf).
With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.
According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes. That, according to Grover Norquist, president of Americans for Tax Reform, is telling. Norquist says, “Successful hockey players can choose their team in free agency and thus, their hometown for tax purposes. So can millions of Americans and Canadians who move from high tax areas to low tax areas. Better than any poll, this tells us what taxpayers want: Lower taxes and less government.”
I don’t know if it actually speaks to less government but taxes are clearly part of the economic equation that most workers – including professional athletes – take into consideration when making career choices. That doesn’t mean that taxes always control the decision but when flexibility allows, taxes matter.
As part of the report, analysts examined income taxes and payroll taxes of NHL players (stripping away tax preference items so as to have an apples to apples comparison). To further keep matters simple, to figure the total tax burden, it’s assumed that players are residents of the city where their team is located (that’s not always the case). Total tax burdens were calculated using the salaries paid to players for the 2014-15 season using 2015 tax rates. Total tax burdens assumed state, local and federal income taxes, as well as payroll taxes.
Here’s what the report found. Not surprisingly, American teams with no state income tax have the lowest total tax rates in the NHL (a tax shift in Alberta resulted in those teams having a higher rate than the lowest American teams for the upcoming season). That means that for 2015, the Dallas Stars (Texas), Florida Panthers (Florida), Nashville Predators (Tennessee) and Tampa Bay Lightning (Florida) have the lowest overall tax burdens for players at 40.6%.
The most expensive place to be an NHL player in the U.S. is in California with the Anaheim Ducks, Los Angeles Kings and San Jose Sharks topping out at a whopping 53.1% total tax rate. Those teams don’t have the highest overall burden, however. That honor belongs to the Montreal Canadiens with a total tax rate of 54.2%.
The difference between a high tax team and a low tax team can mean tens of thousands to hundreds of thousands of dollars in taxes. Practically speaking, that means that when given the chance (and hockey gods being equal), a majority of players should want to seek out no-trade contract clauses to avoid being sent to high tax jurisdictions. According to the report, Winnipeg defenseman Tyler Myers saved nearly a half million dollars when he left the Buffalo Sabres for the Jets. Center Marc Savard benefited as well, saving $360,268 with a move from Boston Bruins to the Florida Panthers.
When it comes to UFAs, 54% of those who changed teams picked teams with lower taxes. The best example? Right winger Jaromir Jagr who will pay nearly a half million dollars less in taxes playing for the Florida Panthers than he would playing for the New Jersey Devils. Center Artem Anisimov will save $392,322 after moving from the Columbus Blue Jackets to the Chicago Blackhawks.
Overall, players moving to lower-tax jurisdictions will save more than $4 million.
Realistically, this means that players earning the same salary will have more or less take-home pay, depending on state and local tax rates. That said, as with any other job, all things aren’t always equal. Salaries are often adjusted upwards in places like New York City to accommodate a higher cost of living and, of course, skill levels and audience draws also figure into the equation.
And no, the intention isn’t to skim over skill levels in this discussion. That bit is indeed important. Just as you and I are limited in our ability to negotiate our salaries depending on how valuable we are to our employers, so are professional athletes. The inclusion of no-trade clauses and other controls over employment are tied to perceived value: the goaltender who blocks more shots likely has more control over his contract than a mediocre tender just as the CEO of a multinational corporation has more sway over the terms of his or her contract than does an entry-level worker.
So why wouldn’t states and localities adjust their tax rates to attract the best talent overall – from professional athletes to tech gurus? Money. Taxes paid by NHL players do a lot for the local, state and federal economies. Last season, NHL players paid an estimated $891 million in tax (that’s just in player salaries, not counting support staff, ticket sales and merchandising). At the top of the heap were the New York Rangers who paid a league-high $41.8 million. The Arizona Coyotes paid the least in taxes, just $39.2 million, a combination of lower taxes and low salaries.
Of course, NHL players with tax and other homes outside of the U.S. may still be subject to taxes in both places. Typically, the U.S. imposes a tax on worldwide income which means that ventures and income earned outside of the country (including image and other licensing rights) are still reportable and potentially still taxable in the U.S. For those international players, especially Canadians playing in the U.S., credits, treaty treatment and other tax breaks may be available to offset those obligations.
You can read the full report here.

Last year, Internal Revenue Service (IRS) Commissioner John Koskinen announced the Annual Filing Season Program, a voluntary and temporary program intended to fill the holes left after the IRS lost the right to regulate tax preparers following Loving v. Commissioner. At the time, Commissioner Koskinen called the program “not the ideal solution” and was hopeful that Congress would enact a proposal that would give the IRS the authority for mandatory oversight of return preparers.
He wasn’t alone. Nina E. Olson, the National Taxpayer Advocate, has long been a proponent of tax preparer regulation: she has been urging Congress to move forward on such a program since 2002. Post-Loving, Olson has pushed Congress to pass legislation to authorize the IRS to reinstate the RTRP program.
Now, more than a year – and a few more lawsuits – after Loving, it appears that both Commissioner Koskinen and Taxpayer Advocate Olson may get their wishes.
On Wednesday, the Senate Finance Committee, led by Committee Chair Orrin Hatch (R-UT) and Ranking Committee Member Ron Wyden (D-OR), will mark up an original bipartisan bill that will, among other things “help root out the bad actors who pose as law-abiding return preparers” as a step towards protecting taxpayers from identity theft and fraud.
The proposal, as written, would provide the Department of the Treasury and the IRS the authority to regulate “all aspects of Federal tax practice, including paid tax return preparers.” Specifically, the proposal would amend Title 31 of the U.S. Code (“Money and Finance”) to encompass all aspects of federal tax practice “without regard to whether or not it includes representation before the Treasury.” That distinction is important since Title 31 already regulates certain paid tax return preparers such as attorneys, certified public accountants (“CPAs”), enrolled agents and enrolled retirement plan agents. The new language would target those outside of those designations and would include the preparation of tax returns for compensation. In other words, in a post-Loving world, the Loving rulings would be “overridden legislatively.”
What does this mean for tax professionals? Preparer tax identification numbers (PTIN) remain in play: tax professionals who prepare returns for compensation will have to maintain a valid PTIN. Also, expect the return of exams and continuing education credits.
What does this mean for taxpayers? Congress, IRS and the Taxpayer Advocate believe that it means better service and more competent representation. Those of you who have followed my coverage of the original proposal to regulate tax preparers (as announced by former IRS Commissioner Doug Shulman) and subsequently, Loving, know that I ‘m not so sure. I’ve long believed that the attempts to regulate tax preparers have too many holes (your trademark attorney would be allowed to prepare tax returns without oversight but a long time tax preparer would not), held the potential for increased prices to consumers, is somewhat duplicative (mechanisms already exist for dealing with unscrupulous preparers) and ultimately, will create an uptick in the black market of so-called “ghost preparers.” It’s my feeling that the bad guys are the bad guys: forcing you to take ethics courses doesn’t change that. Incompetent and lazy preparers are incompetent and lazy: forcing someone to sit through continuing education courses (likely while text messaging, trust me, I’ve been a speaker at these things) doesn’t make that person smarter or more conscientious. The reality is that smart, competent tax professionals do the right things already. But that doesn’t make for good press. So, instead, we add more layers.
The Senate Committee on Finance, as part of the proposal, is encouraging the Department of the Treasury and the IRS to act “expeditiously” on those matters. “Expeditiously” is, of course, an interesting choice of words. Congress hasn’t exactly sprinted to IRS’ assistance on the regulation of preparers before now. It was noted – repeatedly – as IRS litigated Loving that the whole matter could have been avoided if Congress would just give the word. They didn’t. Now, it looks like that could change. Stay tuned.
(Update: Dan Alban (@Frimp13), who successfully argued against IRS in Loving, noted: IRS *already* regulates tax preparers under numerous federal statutes & regs – new bill would authorize . His correction is reflected in the headline. Thanks, Dan.)

Raise taxes or else. Those were the marching orders issued to the Alabama House of Representatives from Gov. Robert Bentley (R) earlier this year. Specifically, the “or else” included a threat to cut a number of services to taxpayers including closing prisons. Kicking up the rhetoric, he warned taxpayers in April, “You might not care about prisoners but when you have them in your basement, you’re going to care.”
The House answered the call this week, passing five bills to raise taxes and fees in the state. Among the taxes and fees that are going up? Cigarette taxes, automobile title fees, car rental taxes, pharmacy taxes and nursing home taxes. The combination of tax increases will raise approximately $107 million in more revenue for the state in the next fiscal year. The problem? The state was $200 million short.
As the House scrambles to make up the difference, Rep. Jack Williams (R) thinks he has the answer: a tax on porn. He has proposed a 40% (no, not a typo, that’s 40%) excise tax on receipts from “the sale of sexually-oriented materials and certain charges related to sexually-explicit businesses.”
I know what you’re thinking: how would you even define those sexually-oriented materials and sexually-explicit businesses?
In an effort to avoid any Justice Potter Stewartesque “I know it when I see it” standard, the bill goes into some pretty serious detail of what constitutes sexual conduct, sexually-oriented material and sexually-explicit business. For purposes of the tax, for example, the bill defines sexual conduct as “[a]ny act of sexual intercourse, masturbation, urination, defecation, lewd exhibition of the genitals, sado-masochistic abuse, bestiality, or the fondling of the sex organs of animals.” (Really, Alabama?)
The definition goes on to include “any other physical contact with a person’s unclothed genitals, pubic area, buttocks, or the breast or breasts of a female, whether alone or between members of the same or opposite sex or between a human and an animal, in an act of sexual stimulation, gratification, or perversion.” (Seriously, Alabama?)
The bill further defines sexually-oriented material as “Any book, magazine, newspaper, printed or written matter, writing, description, picture, drawing, animation, photograph, motion picture, film, video tape, pictorial presentation, depiction, image, electrical or electronic reproduction, broadcast, transmission, video download, telephone communication, sound recording, article, device, equipment, matter, oral communication, depicting breast or genital nudity” or any of that sexual conduct defined earlier.
That covers quite the gamut. To be more specific, the law basically targets any “entertainment product that’s adult in nature” meaning, according to Rep. Williams, that you have to be over 18 to purchase the product. In that way, he says, it’s the same as an excise tax on cigarettes and tobacco. He feels so strongly about this point that it’s reiterated in the introduction to the bill.
So, I get it. Anything more sexually charged than, say, a Pixar movie, could result in a massive tax, right? That means no adult movies for you, Alabama. Because I’ve seen – I mean, I’ve heard – that some mainstream movies do, in fact, show a little skin. And some of those mainstream movies even pick up an Academy Award or two (Gwyneth Paltrow, anyone?). But if you have to be an adult to see it, you’re out of luck: Alabama is going to tax it.
But wait, as it turns out, the drafters thought of that, adding that “the tax levied by this section shall not apply to motion pictures designated by the rating board for the Motion Picture Association of America by the letter “R” for restricted audiences, persons under 17 years of age not admitted unless accompanied by parent or adult guardian, or the designation “NC-17” for persons under 17 years of age not admitted.” So, to be clear, any movies that are rated R or NC-17 would be okay – but any magazine shots or books about the same would be taxed since we don’t have a ratings system for those. Got it. I think.
As for those sexually-explicit businesses? They are defined as a business at “which any nude or partially denuded individual” performs “any of the following services” which include “Striptease, burlesque, or drag shows” or “Massages.” And no, there’s no further distinction when it comes to massages. Somewhere, someone in the healthcare industry is banging their head against a desk. There is, however, this bit that exempts “any contraceptive device or medication” as well as “any medication that is prescribed by a physician that is intended to enhance sexual performance or sexual enjoyment.” That’s right, you don’t have to read too much between the lines: Alabama politicians have declared that, as it applies to this bill, Viagra remains tax-free. (Insert your own joke here).
Try as I might, I can’t find any details on how much revenue Alabama expects to raise by slapping a tax on porn but clearly, Rep. Williams, believes that it might be significant. He might be onto something. A state-by-state ranking of the 37 million users of cheating website Ashley Madison arranged by spending (dollars per capita) put Alabama right at the top. So clearly there is a market in Alabama willing to spend money to engage in at least some kind of sexual conduct. I’m sorry, I meant discreet encounters.
Still, it doesn’t appear that there are any concrete revenue projections. Similarly, I haven’t seen any firm numbers on associated costs (I don’t even want to think how you would enforce tax collections on that beat: “I’m sorry, ma’am, but I’m going to have to watch that lap dance one more time before I render my decision.”). Nonetheless, the Alabama House Ways and Means Committee seems to think it’s a good idea and has passed the bill along to the House for consideration.
You can read the full text of the proposal bill here (downloads as a pdf).

Last year, the Senate waited until just over two weeks left in the calendar year to pass a bill that extended certain tax provisions through December 31, 2014 (retroactive to January 1, 2014).
In contrast, this year it felt like Congress was getting a jump on things when they began contemplating a tax extender package in July. Granted, it was still seven months behind schedule (remember, these are tax provisions which expired at the end of 2014) but there was promise.
By promise, I meant wishful thinking.
Two months later, we’re no further along than we were before. Tax provisions which expired at the end of 2014 remain expired – and they’re joined by a slew of other provisions which will be expiring at the end of 2015. The “now you see them, now you don’t” tax provisions remain in limbo.
Today, the Broad Tax Extenders Coalition sent a letter to members of Congress asking them to “act immediately” to either extend or make permanent those tax provisions. The letter stated:

The undersigned organizations, representing millions of individuals, employees, businesses of all sizes, community development organizations and non-profit organizations, urge Congress to act immediately on a seamless, multiyear or permanent extension of the expired and expiring tax provisions, including appropriate enhancements. These tax provisions are critically important to U.S. jobs and the broader economy.
Failure to extend these provisions is a tax increase. It will inject instability and uncertainty into the economy and weaken confidence in the employment marketplace. Acting promptly on this matter will provide important predictability necessary for economic growth.
The expired provisions should be renewed as soon as possible this year. We urge all members of Congress to work together to extend seamlessly on a multiyear basis, and where possible enhance or make permanent, these important tax provisions.

The letter was signed by over 2000 organizations, representing a cross section of industries including tax and accounting (Grant Thornton & Intuit Inc.), health care (Aetna Inc.), retail and clothing (Aeropostale & Macy’s, Inc.), restaurants (McDonald’s, Starbucks Coffee Company & Red Lobster), heavy equipment (Caterpillar Inc.), banking (Bank of America), pharma (Eli Lilly and Company & GlaxoSmithKline) and tech (Cisco Systems, Inc. & Intel Corporation).
You can see all 2000+ signatures here (downloads as a pdf).

GOP presidential candidate Donald Trump prides himself on speaking his mind. And what he has on his mind is getting rid of Kansas City-based tax preparation company H&R Block.
When asked on “Fox & Friends” about tax policy, Trump offered up a few words, “Put H&R Block out of business.” Trump was referring to efforts to simplify the Tax Code – something that many taxpayers can get behind – calling the current system  a “mess” though he had little in the way of specifics beyond his zinger. He suggested that he would like to make it “nice and easy” for taxpayers to understand the tax system.
Later in the day, during a call-in appearance to CNN’s “New Day,” Trump was again pressed on his tax plan. When asked what he thought should be the top tax rate, he refused to name a top tax percentage, saying that he wanted to remain flexible. He suggested that he didn’t need a plan in advance, recalling a number of real estate purchases that he bought because he simply “went in and got it done.”
Trump reiterated that the current system is too complicated and suggested that it could “easily” be simplified. When Chris Cuomo asked how he would simplify the system, he responded, “using intelligence, by having common sense.” He then doubled down on H&R Block, saying:

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.

Trump went to say that, “Here’s what you can do: you can have a Fair Tax, you can have a flat tax, or you can leave the system alone, which is probably the simplest at this point. Leave the system alone, and take out deductions, and lower taxes, and do lots of really good things, leaving the system the way it is.” He then added, “And I know exactly what I want to do, I just don’t want to announce it yet.”
Cuomo responded that he didn’t get the response and asked for more details. Trump replied, “I’m just not prepared to tell you right now on your fantastic show that’s getting better ratings all of the time because you have Trump on.” When reminded that this was the first time that Trump had appeared on the program, Trump corrected himself to say, “Trump-related.”
The candidate didn’t say why he targeted H&R Block but it’s likely because the company is the world’s largest tax services provider. According to its website, an H&R Block branded retail office is located within five miles of most Americans.
In response to the comments, Kathy Collins, H&R Block Chief Marketing Officer posted the following on the company’s website:

At H&R Block we support all intelligent efforts to reform the tax code. We have 80,000 tax professionals focused on one thing: getting our clients back every dollar they deserve. We give our clients confidence that someone has their back no matter how simple or complicated their tax return.