Saturday, May 29, 2010
Maybe if the estate tax keeps making headlines, it will actually get addressed by Congress. Just maybe...
Wednesday, May 26, 2010
Joe writes about a new extender bill that would impose self-employment tax on certain S corporation K-1 income. He writes in his post titled Reputation and Skill:
If enacted, as seems likely, this rule would create odd problems.I agree that there are a lot of potential issues involved if the tax law were to require that we determine a monetary value for "reputation and skill."
It would penalize the smallest personal service providers to the benefit of their larger competitors.. A sole proprietorship would pay taxes at a rate at least 2.9% higher than a competitor whose "principal asset" is the reputation of more than three employees.
The bill also will require businesses and the IRS to determine what the "principal asset" of a personal service corporation is. The bill obviously requires the valuation of intangible assets -- reputation and skill -- but in a way not elsewhere attempted in the tax law. How do you do this?
This reminded me of a discussion in my graduate course on estate and gift tax, taught by the brilliant and engaging Dr. Boyd Randall. He told us about how previous tax law required that the gross estate include the value of gifts "made in contemplation of death." Answer.com echoes what Dr. Randall said:
Because determining whether a gift was in contemplation of death turned out to be subjective, difficult to prove, and somewhat morbid, a 1976 amendment to the estate tax law automatically included any gift that a decedent made within three years of death (26 U.S.C.A. § 2035(a)).If this professional service S corporation law is enacted, I will be interested to see how we talk about it a few years down the road. I'm guessing we'll say something like: "Because determining the value of a shareholder's reputation and skill turned out to be subjective, difficult to prove, and somewhat arbitrary, a 2016 amended to the tax code eliminated the self-employment tax on professional service S corporations."
I guess I'll just have to wait and see.
Tuesday, May 18, 2010
This seems to be a classic example of shooting the messenger (forgive the pun, as I don't know another way to say it!). And as long as the system is out of control, I wager we'll continue to see taxpayers blaming tax professionals. I figure the only way this will slow down is if we get a system in place that is transparent and understandable to taxpayers. We all know it, now we've got to figure out how to make it happen.
A place to start the dialogue is Professor Nellen's 21 Century Taxation blog, which recently celebrated its third anniversary (congrats!). If we can somehow manage to get a lot of us "messengers" in a dialogue and come to some agreement, maybe we could make progress on getting the public and Congress on board with serious reform. Of course, getting a large body of tax professionals to agree on a reform plan is going to take some work. I figure once I get these kids a little older, I'll make that one of my long, long term projects. Someday my kids will thank me for it! Maybe...
In the meantime, I'll be safe from angry Dayton taxpayers when I move to California in a few weeks. Although I'm guessing the taxpayers aren't much happier there.
Tuesday, May 11, 2010
The premise is the town of Pawnee, Indiana holding an all-night telethon. When the scheduled star doesn't show, they get really desperate, and the tax guy in front of the camera is evidence of their desperation. As the accountant drones on: "When it comes to preparing taxes..." the main character then observes: "This is a disaster."
What, people don't think accountants teaching how to prepare taxes makes for entertaining television?
TV really has fun with the accountant stereotype. Kay Bell has blogged about a comedy in the works about IRS agents. I'm guessing they won't all be perky and engaging.
This clip below has the second bit with the CPA, starting at around :50 seconds, as he concludes his "Quick look at Quickbooks." Classic! I just wish I could get both clips of him. (The first clip of him is at around 13:15 of the full episode here.)