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I’m certainly not endorsing him for President, but this online ad for Mike Huckabee made my day (yes, pun intended).

I’m going to expand on this in a future post (now that I’m past the CPA exam and have some time) but I wish out of the 19 Presidential candidates there was one that I could support. I’ve taken several online quizzes and each time I come up with a different answer for closest to me (and they range from Duncan Hunter to Barack Obama). But each time the connection is weak.

I guess I’ll have to wait until the national election, hold my nose, and just pick one again.

I’ve been watching with bemusement the case of Ed and Elaine Brown. This couple are nutcases from New Hampshire that decided that the Federal government couldn’t tax their incomes and stopped paying taxes for a decade. The holed up in their compound (it really was a compound) with Federal marshals outside waiting to take them into prison. They swore that any attempt to arrest them would result in a violent confrontation and the marshals held off not wanting another Ruby Ridge (in fact, the guy from Ruby Ridge was one of their biggest supporters and often visited the house).

I could never understand why the Federal marshals allowed the Browns so many visitors. Other nutcases tax freedom fighters would visit them daily and bring in supplies and comfort. The marshals had cut off electricity and water to the compound, but the Browns had solar panels and wells dug. They had daily podcasts and blog postings that made them the most recent cause celebre for the militia crowd, with which Ed Brown had been affiliated in the 90s.

So how did the marshals bring down the couple that said they would only leave the compound free or dead? By posing as supporters! The marshals went up to the door and in the words of one of the marshals, Stephen Monier, “they invited us in and we escorted them out”. Apparently, the couple went down without a fight.

I’m just glad it’s over and ended without incident. Maybe if they don’t believe in Federal prisons they’ll make themselves believe they’re still at home?

Dear Congress,

I know that you’re busy coming up with things that will never become law and generally chasing your tail, but could you do something about the AMT? At this point, I literally have no idea what I am going to owe for the year and it’s October 2nd. It’s literally keeping me from taking advantage of one of the millions of incentives that you have written into the Tax Code in the past five years because I couldn’t tell you if I’d be able to use the incentive come mid-February (when I generally file my returns).

Oh, and I do this for a living. (more…)

You keep using that word. I do not think it means what you think it means.  -Inigo Montoya, The Princess Bride

I came across an article on Bloomberg a couple of weeks ago on the tax reform proposal put forth by Charlie Rangel, the Chairman of the House Ways and Means Committee. Rangel described his tax package as “The Mother of All Reforms“, but like Inigo, I don’t believe that anyone in Congress has a firm grasp of the meaning of the word reform.

Rangel’s proposal would kill the Alternative Minimum Tax (AMT), which is a good start. The AMT was a bad idea from the beginning and has only gotten worse as Congress didn’t bother to index the stupid thing for inflation (see more AMT backup here). However, the reform part of the proposal goes down quickly from there.
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This post has been updated to present correct percentages in Paragraph 2 

No, this is thankfully not about another company whose accountants decided to pretty the books for the markets. It’s about a more sinister force in the universe…Congress. See, Congress imposed rules upon itself to help balance the books known as “pay as you go” (PAYGO). What that means is that in order to pass tax cuts or new spending Congress has to find the money elsewhere in the budget. Unfortunately, this has only led Congress to shift money from one budget year to the next or employ budgetary tricks to get around the PAYGO rules.

My favorite gambit thus far has been to change the amount that corporations in estimated taxes in certain months. For 2012, Congress mandated the corporations have to pay 114.25% of their normal estimated taxes for the 3rd calendar quarter (July-September) and decrease the 4th calendar quarter payment by the same amount. Basically, that shifts 14.25% of the payments from one fiscal year to another without changing the amount actually collected. Another tax change came about and needed some money (ed: actually it was a 8 month free trade pact with Bolivia, Columbia, Ecuador, and Peru). So Congress, doing what Congress is apt to do, changed that requirement from 114.25% to 114.5% for that particular year to find the money to fund whatever it was that they wanted to do.
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As someone that does battle in the state corporate income tax realm every day, I understand the reactions of lawmakers and citizens to reports like the one recently in Maryland that stated that 68 out of the 132 largest employers paid no corporate income tax. That statistic alone, though, is misleading because, as the Tax Foundation so eloquently pointed out there are a myriad of perfectly logical ways that a corporation could owe no state income tax.

I don’t agree entirely to the Tax Foundation’s response, however. The Tax Foundation is dismissive of combined reporting for corporations.  Combined reporting is where a state requires companies to file as one economic unit rather than separately for each legal entity. A lot of the state tax shelters that corporations have used (and I consider to be abusive) would be eliminated under a combined reporting model. 
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Kay over at Don’t Mess with Taxes has posted the 21st Carnival of Taxes. It’s a dog (and cat, since she prefers cats) days of summer edition. It includes my column on the Michigan Business Tax. Go over and check out some excellent tax tips and tricks.

For those in the tax field (and even if you just have a passing interest) Dr. Paul Caron’s TaxProf blog is a must read. Though, I can’t tell if this recent headline was intentional or not.

Oh, the jokes that could be made.

Well, it’s official. Michigan has replaced the much reviled Single Business Tax with the Michigan Business Tax. The Michigan Business Tax is a two part tax that contains a tax on “modified gross receipts” and a traditional corporate net income tax. The Single Business Tax was Michigan’s attempt at a value added tax that penalized companies for expanding into Michigan.

Determined to not make that mistake again, the compromise Michigan Business Tax will give plenty of good soundbites to state politicians looking to take credit for the legislation. That’s about the best thing that I can say about the bill. The tax levies $3.4 billion in taxes to collect $1.8 billion annually. The other $1.6 billion goes to various tax credits and other tax breaks that legislators slipped into the legislation.

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When I initially discussed the Blackstone Group’s upcoming IPO, one of the issues that I pointed out was the murkiness of the tax situation. Congress has come out with a bill that essentially takes away the tax advantage that Blackstone would have over other publicly traded entities. The reason for the difference is that Blackstone is structured (technically) as a limited partnership while most publicly traded entities are corporations. Partnerships do not pay tax on their income while corporations do.

Well, the IRS didn’t much like that idea. Senators Baucus and Grassley, the Chairman and Ranking Member of the Senate Finance Committee respectively, have introduced a bill to eliminate that advantage by taxing all publicly traded entities as corporations. On top of not paying taxes, the companies can generally structure their operations so that all their income is treated as capital gains in the hands of their partners. That lowers the partner’s tax bill from 35% to 15%.

While private equity and hedge funds are the primary focus of the bill, there could be precedent in Canada for the type of tax playing that goes on when such an advantage is available. Canada used to have a structure called an income trust that worked similarly to a Real Estate Investment Trust. As long as the company paid out a high percentage of earnings (usually 90%), there was no tax levied at the company level.

Well, when tax consultants figured out how to shoehorn other companies into this structure many companies converted to this income trust. The initial target for this kind of trust was small oil and gas companies that have little operations and basically operate as partnerships, large corporations began converting so that they would have a market advantage. The two largest telephone companies in Canada, Bell Canada and Telus, planned to convert until the government took the exemption away. The value of income trusts dropped around 20% in the days after the budget was introduced.

Could the same happen here? Blackstone has said that the legislation would have a material effect on their valuation and stock price, and some analysts have floated the idea of 20%. The Washington Post says that the Senators were concerned about other firms testing the waters after Blackstone’s IPO, expected by next Friday.

I wouldn’t have invested in the IPO before, but the murkiness of the tax situation has to give investors additional pause. Like I said earlier, I doubt that Blackstone will have trouble placing the shares, but I’m not sure I want to be holding them at the end of the day.