Debate Prep: The Candidates’ Marginal Rate Proposals #debates

By Sam Brunson

In anticipation of tonight’s debate, I’m going to describe what both candidates propose to do with tax rates, provide a little commentary, and suggest a couple questions that the moderator might ask to clarify what the candidates plan on doing.

The candidates’ proposals for individual tax rates illustrate one of their biggest divergences. As best I can tell, in fact, their plans for tax rates are as different as it is possible to be. And what are those plans? Continue reading “Debate Prep: The Candidates’ Marginal Rate Proposals #debates”

Debate Prep: The Candidates’ Estate Tax Plans

By David Herzig

With the first Presidential debate tonight, we are sure (or at least I hope) to hear about various tax plans.  I would expect that the estate tax would be a topic of conversation since there is such a sharp contrast between the candidates.  The current reporting spins that Donald Trump wants to eliminate the estate tax; while, Hillary Clinton wants to tax the rich through a two-prong increase on the estate tax.  I thought it would be useful in advance of the debate to discuss the candidates’ actual estate tax plans. (If there is a PA for Lester Holt looking for some last minute questions for the candidates – scroll to the bottom and steal away no attribution needed!)

Currently, there is an estate (or death) tax. Unfortunately for the fisc, the tax accounts for less than 1 percent of federal revenue.  (See, Tax Foundation). What is amazing is that at other points in time, the tax actually raised revenue and effected many estates.  The primary reason for the drop in revenues even though overall net worth has increased, is related to the exemption amount available for taxpayers.  In 1976, the exemption amount per estate was $60,000 while today it is $5.45 million.  (I tackle a lot of these issues in my upcoming University of Southern California Law Review article).

Continue reading “Debate Prep: The Candidates’ Estate Tax Plans”

I’ve Got ITINs on My Mind

By: Francine J. Lipman

Individual Taxpayer Identification Number (ITIN) Holders Pay Over $45 Billion Annually in Federal, State, and Local Taxes

Among the many amazing opportunities I have had as a law professor at the University of Nevada, Las Vegas is continuing my work with immigrants on their tax issues. As I have written about at length unauthorized immigrants pay many tens of billions of dollars a year in taxes including federal (about 4.4 million ITIN tax returns were filed in 2015 paying over $23 billion including $18.1 in federal income taxes and $5.5 in self-employment taxes), state, and local income, property, sales, excise, etc. ($12 billion annually), and payroll taxes (about $12 billion a year in net Social Security and Medicare taxes for which they currently receive no current or future benefit).

ITINs GENERALLY

Nevertheless, Congress continues to challenge this population with respect to their tax compliance. If you do not know what an ITIN is then this issue likely does not directly effect you … however if you want a quick education the National Immigration Law Center (NILC) has a great primer available in English and Spanish here. Since 1996, IRS has issued about 21 million ITINs although only about 5 million are currently being used. Congress had previously enacted legislation causing any ITIN not used for five years to expire. However, that legislation was not given a chance to be enforced, because Congress has been busy enacting more recent ITIN expiration legislation that supersedes the five year law.

THE CURRENT ITIN on my mind ISSUE

ITIN EXPIRATIONS

In the recently enacted PATH Act of 2015 (Protecting Americans from Tax Hikes), among other matters, all ITINs issued before 2013 will be expiring and have to be renewed. An ITIN issued after December 31, 2012, will remain valid unless the person to whom it was issued does not file a tax return—or is not included as a dependent on the return of another taxpayer—for three consecutive years.

Congress has phased-in the expiration of ITINS as follows:

IF THE ITIN WAS ISSUED         THE ITIN EXPIRES ON

before January 1, 2008                    January 1, 2017
in 2008                                             January 1, 2018
in 2009 or 2010                                January 1, 2019
in 2011 or 2012                                January 1, 2020

In an effort to streamline the process, the IRS is identifying the first wave of ITINs expiring on January 1, 2017 as ITINs with the middle digits of 78 or 79. The IRS will identify the respective middle digits for the second, third, and fourth waves of expirations in time.

HOW TO RENEW BEGINNING October 1, 2016 

ITINs scheduled to expire as of January 1, 2017 (middle digits 78 or 79 or any ITIN not used on a tax return for the last three consecutive years (e.g., 2013, 2014, and 2015)), can be renewed using the newly revised for this purpose Form W7 (available here) also know as an Application for IRS Individual Taxpayer Identification Number. No tax return is required for a renewal application.

The application including all required original documents (e.g., passport) must be mailed to Internal Revenue Service, ITIN Operation, P.O. Box 149342, Austin, TX 78714-9342. The anticipated time that the IRS will take to renew or issue an ITIN outside of peak processing times (between January and April) has historically been about six weeks. However, in a recent press conference the IRS said that they would be sending 400,000 letters to ITIN holders with expiring ITNs so there could be a much longer waiting period. The National Taxpayer Advocate has written about the ITIN application backlog and bottleneck in her 2015 Report to Congress as Most Serious Problem Number 18.

Any original documents or certified copies submitted in support of an ITIN application are supposed to be returned within 65 days. Taxpayers who do not receive their original and certified documents within 65 days of mailing them to the IRS may call 1-800-908-9982 to check on their documents.

CERTIFIED ACCEPTANCE AGENTS   Not surprisingly, many immigrants will not want to send original documents to the IRS. In lieu of sending original documentation, taxpayers may be eligible to use an IRS authorized Certified Acceptance Agent (CAA) or make an appointment at a designated IRS Taxpayer Assistance Center location. CAAs often charge a fee for services rendered although some of the large chains of retail tax preparation companies are advertising free ITIN renewal services. I would advise taxpayers to proceed with caution as their may be ancillary costs, charges, or fees. The Consumer Federation of America, among others including myself, have written about the high cost of tax assistance services for low-income taxpayers and the potential for consumer abuse including price gouging.

FAMILY ITIN APPLICATIONS   The IRS will accept a Form W-7 renewal application from each member of a family if at least one of the family members listed on a tax return has an ITIN with the middle digits of 78 or 79. If one family member has middle digits 78 or 79, all family members who have an ITIN may submit a Form W-7 renewal application at the same time.

FINANCIAL CONSEQUENCES IF ITINs Are NOT Renewed

Until ITINs are renewed, returns with expired ITINs will be processed and treated as timely filed, but the returns will be processed without any exemptions and/or credits claimed and no refund will be paid. The taxpayer will receive a notice from the IRS explaining the delay in any refund and that ITINs must be renewed. Once ITINs are renewed, any exemptions and credits will be processed and any allowed refunds will be paid. If ITINs are not renewed, taxpayers may be subject to interest and penalties for any tax owed as a result of disallowed exemptions and credits.

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HELP IS AVAILABLE

The more than 130 Low-Income Taxpayer Clinics across the country should be able to answer questions and point you in the right direction to get assistance. To find the contact information for a LITC in your area look at this user-friendly map and list in English and Spanish here.

Moreover, the NILC and other immigrant advocate groups and pro bono lawyers like myself are always here to lend a hand. On November 16th, UNLV will be hosting a Continuing Legal Education program titled “Everything You Need to Know About the NEW Taxpayer Identification Number (ITIN) Renewal Process” from 12:30 – 2:30 p.m. at William S. Boyd School of Law, Moot Court Room. Join us.

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Does Enforcement Reduce Compliance?

Shu-Yi Oei 

Boston College Law School held its first Tax Policy Workshop of the semester last Thursday and the speaker was Surly Blogger Leandra Lederman. Leandra presented a draft paper entitled “To What Extent Does Enforcement Crowd Out Voluntary Tax Compliance?” The draft isn’t publicly available yet, but you can email Leandra for a copy.

So, what’s the paper about? The standard economic model tells us that a taxpayer will weigh the magnitude of the penalty and the likelihood of audit to reach an “expected” cost of punishment for tax evasion. Allingham & Sandmo (1972). So, if the audit rate is low (which it is), the expected cost of evasion also remains low, absent draconian penalties. Yet, we see relatively high voluntary compliance rates in the U.S. Some scholars claim that this is a “puzzle” and theorize that there is some sort of “intrinsic motivation” to comply with tax obligations, regardless of the low expected costs of punishment. Leandra has pointed out in several articles that this simple comparison presents a false puzzle because it ignores information reporting (and withholding), which IRS voluntary compliance statistics show is highly effective. She argues that information reporting is akin to an invisible audit. Nonetheless, some scholars suggest that enforcement and deterrence action are “extrinsic motivators” that might actually reduce compliance by displacing (i.e., “crowding out”) preexisting internal motivations to comply.

Leandra’s paper synthesizes the empirical literature on the effects of audit threats and fines as well as the growing tax and non-tax literature on contexts in which enforcement can lead to reduced compliance. In brief, the paper finds:

Continue reading “Does Enforcement Reduce Compliance?”

2015 Poverty Measures Released: Antipoverty Relief Delivered through the IRC = EITC & CTC

By:  Francine J. Lipman

“Few topics in American society have more myths and stereotypes surrounding them than poverty, misconceptions that distort both our politics and our domestic policymaking.” Mark R. Rank

The U.S. Census Bureau of the Department of Commerce: Economics and Statistics Administration has released the 2015 poverty measures and the news is eye-poppingly good. The Supplemental Poverty Measure (SPM), the most comprehensive poverty measure, dropped one percent from 2014. Down from 15.3% to 14.3% — nevertheless more than  Continue reading “2015 Poverty Measures Released: Antipoverty Relief Delivered through the IRC = EITC & CTC”

Trump, Churches, and Politics – Counterpoint

By Benjamin Leff

A few days ago, my good friend and fellow Subgrouper, David Herzig, wrote a post about Donald Trump’s appearance at a church in Flint Michigan, the Bethel United Methodist Church. Herzig argued in his post (and on Twitter) that the interruption of Trump’s attacks on Hilary Clinton by the church’s pastor, Rev. Timmons, was necessary to protect the church from violating the prohibition on campaign-related speech by churches (and other charities). He also quoted Professor Lloyd Mayer’s tweet on the topic, arguing that the church could have violated the prohibition simply by permitting Trump to speak at all, regardless of the topic. I lamely tweeted back that the short video that had been released failed to provide sufficient facts to make a determination about whether the church violated the law or not. I want to say more about the law and the IRS’s current interpretation of the law to supplement Herzig and Mayer’s valiant efforts, since I think I have a slightly different view on the issue than either of them.

The most important point is that the Constitution protects all churches’ right to engage in speech (as well as religious practice). Statutory law — including the prohibition on campaign intervention (sometimes called the “Johnson Amendment”) — does not (could not) interfere with those very basic and fundamental rights. In my view, the IRS’s interpretation of the law gets some things a little bit wrong, but even its interpretation is extremely permissive of speech that takes place in churches and other charities in deference to their very real speech rights.

So, what’s the law with respect to hosting a political candidate at a church or other charity (including, by the way, a university)? Is it the case that any appearance by a known candidate at any event hosted by a 501(c)(3) organization is a violation of the law? Continue reading “Trump, Churches, and Politics – Counterpoint”

Can His Fans #SaveNelly?

By Sam Brunson

Photo by reeb0k2008. CC BY 2.0
Photo by reeb0k2008. CC BY 2.0

I listened to Nelly’s “Hot in Herre” last night. And I’m not alone—apparently, over the last couple days, Nelly’s Spotify streams have tripled as compared with the week before.

Why? Taxes, of course.

Apparently, Nelly has joined the storied ranks of popular entertainers who don’t pay their taxes. (See also Willie Nelson, Lauryn Hill, MC Hammer, and Jerry Lee Lewis, among others.[fn1])  Continue reading “Can His Fans #SaveNelly?”

Imputed Income and Donald Trump’s Tax Deduction for Stay-at-home Moms

By: Jennifer Bird-Pollan

This week Republican presidential nominee Donald Trump released a series of proposals aimed, presumably, at improving his approval ratings among women.  Much of the focus in reporting on this plan has been on the proposed six weeks of maternity leave that employers will have to make available to all of their female employees.  Another element of the proposal is focused on mothers who do not work outside of the home.  Trump’s plan offers a tax deduction for childcare expenses to all parents (including adoptive parents and foster parents) with children under the age of 13 living at home.  In a unique twist, rather than having a uniform cap for the amount of childcare expenses taxpayers can deduct, the plan caps the amount of the deduction at the average cost of childcare in the state of residence.  In another radical departure from current law, Trump’s childcare deduction would be available to stay-at-home parents who provide care for their own children in their own homes.  In the explanation of this proposal Trump claims that allowing the deduction to be claimed by stay at home parents means the government would be allowing families to decide for themselves”what’s in a family’s best interest.”   Further, the proposal claims that giving a deduction to stay home parents is “a belated recognition by the federal government of the economic value of the work provided by stay-at-home parents.”  Continue reading “Imputed Income and Donald Trump’s Tax Deduction for Stay-at-home Moms”

Trump, Churches and Politics

Photo: Evan Vucci/AP

By David J. Herzig

One of the leads in today’s news cycle was the Flint Pastor, Rev. Faith Green Timmons of the Bethel United Methodist Church, interrupting Republican Presidential Candidate Donald Trump during a speech at her church.

According to the story, Rev. Timmons, intervened during Mr. Trump’s speech  when he started attacking Democratic Presidential Candidate Hillary Clinton stating, “Mr. Trump, I invited you here to thank us for what we’ve done in Flint, not give a political speech, …”. To which Mr. Trump responded, “OK. That’s good. Then I’m going back onto Flint, OK? Flint’s pain is a result of so many different failures, …”.

I headed to Twitter to state that Rev. Timmons was doing the right thing protecting her churches charitable exemption by halting the political speech.  Quick blackletter law: churches, like other public charities, are exempt from tax under section 501(c)(3). But like all exemptions there are certain limitations, including an absolute prohibition on supporting or opposing candidates for office.  In IRS Publication 1828, the IRS position is clear,  “churches and religious organizations, are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”  (For a primer on the topic, my co-blogger Sam Brunson wrote for Surly here and for a full blown analysis see his work for University of Colorado’s law review here).  Churches can’t (although they often do) engage in political speech.  Maybe Rev. Timmons was attempting to protect the church’s exemption.

However, as Lloyd Mayer pointed out on Twitter, having a candidate appear at your church two months before the election might in itself be political speech regardless of the topic actually discussed.  This would be true unless the church gave the same amount of “air time” to the opponent.  Publication 1828 supports Professor Mayer’s view.  Statements made by the religious leader of the church at an official church function or through use of the church’s assets would be improper political campaign intervention.  Hosting only one candidate regardless of the topic would seem to be an endorsement of that candidate and thus improper political campaign intervention.

Continue reading “Trump, Churches and Politics”

The Freedom Caucus and Koskinen

To follow up on Leandra’s post from two weeks ago: various news sources are reporting that the House Freedom Caucus is planning to make a “privileged resolution” sometime today to force a vote on impeaching Commissioner Koskinen. (Which makes sense: the Freedom Caucus’s Twitter feed seems to be all-impeach-Koskinen-all-the-time.) If they pass the resolution, they hope to force a vote on the impeachment within the next two days.

Stay tuned.