[A] report issued by the Pew Charitable Trusts – an independent nonprofit organization and the sole beneficiary of several trusts established by heirs of Sun Oil Company founder Joseph N. Pew – determined that the percentage of tax filers deducting mortgage interest ranged from nearly 37 percent in Maryland to only 15 percent in West Virginia and North Dakota. The disparity between some of the metropolitan areas within states was even greater. For instance, in Texas the deduction rate for the Austin area was approximately four times the going rate for the Odessa area. The size of the deduction also varies significantly across the individual states. In 2010, the average deduction ranged from $4,580 per filer in Maryland to $1,192 per filer in North Dakota. The study pinpointed the national average at $2,713. [AWEB, Pew]
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Senator Tom Coburn Would Like ATR to Back Off a Bit
“Rather than demanding that Senate conservatives violate their consciences and support distortions in the tax code that increase spending and maintain Washington’s power over taxpayer’s lives, your organization should assist our efforts. Calling for the elimination of tax earmarks without qualifications would be a good start,” Coburn wrote. “Continuing to issue blanket defenses of all tax expenditures is a profoundly misguided embrace of progressive, activist government and a strategy for tax complexity, tax deferment, excessive spending and unsustainable deficits.” [The Hill]
Marlee Matlin Can Add ‘Constitutionally Challenged’ to Her List of Disabilities
Academy-Award winning actress Marlee Matlin admits to People mag that she owes $50,000 to the IRS and isn’t at all embarrassed by this fact. ”I’m paying it back. I’m not shying away from it and I’m certainly not ashamed of it,” Matlin told the magazine. “It doesn’t mean I’m a bad person. It’s reality. It’s the reality that a lot of people in America are facing.” You tell ’em, girl!
The Celebrity Apprentice “star” (we use that term loosely, not being a huge fan of D-lister reality shows featuring hot messes such as Gary Busey and Lil’ Jon) tells People celebrity isn’t all it’s cracked up to be and, in fact, it’s her four kids and modest middle class life in the ‘burbs that is to blame. “Living modestly in a suburban neighborhood while trying to support four children through private school is not extravagant or living large,” Matlin said. “My husband is a Los Angeles area police officer and between the two of us we have always made ends meet in the past — and we will in this circumstance as well.”
To adjust to their new life as (probably accidental) tax protesters, the Matlin clan plans to make some important financial adjustments, like putting their poor children into public school. “At the end of the day, it’s about the best interests of the children,” she said. “Transitioning out of a private school environment will certainly relieve some of the financial pressures but hopefully this will not compromise the kids.”
Yes, hopefully it will not. Let the record reflect AG is a product of public school and we all know how horribly I turned out; someone pray for those kids.
Despite these hardships, Matlin seems upbeat and not at all worried about what this means for her reputation (let’s hope the IRS didn’t put her in the non-TIGTA-friendly “Tax Terrorist” category). “I’m not broke. Like everybody else, I owe money. My family is healthy and happy.”
S Corporations are Entity of Choice; 68% of S Corps Misreport
A recent IRS study shows that S corporation return filings (Form 1120S) increased dramatically and continue to be the most prevalent type of corporation filing. For Tax Year 2006, almost 2/3rds of all corporations filed a Form 1120S. The total number of returns filed by S corporations for Tax Year 2006 increased to nearly 3.9 million, from nearly 3.2 million reported in Tax Year 2002 and 722,444 in 1985. In 2006, there were 6.7 million S corporation shareholders. S corporations became the most common corporate entity type in 1997.
According to IRS data, about 68% of S corporation returns filed for tax years 2003 and 2004 (the years data were available) misreported at least one item. About 80% of the time, misreporting provided a tax advantage to the corporation and/or shareholder. The most frequent errors involved deducting ineligible expenses. Even though a majority of S corporations used paid preparers, 71% of those that did were noncompliant.
Reasonable compensation still an issue for S corporations – The GAO report also focused attention on the loophole that allows shareholders to reduce payroll taxes by reducing wage compensation. The IRS admitted that their efforts to enforce the adequate compensation rules for S corporation shareholders have been limited. For fiscal years 2006 through 2008, the IRS examined less than half of one percent of S corporations who filed.
Misreporting of shareholder basis is also a common problem, permitting shareholders to claim excess losses averaging $21,600 per taxpayer based on IRS audits for the period 2006 to 2008.
(Note: The above information was excerpted from Vern Hoven’s manual used in CPE Link’s Federal Tax Update: Part 4 webcast.) Webcasts are scheduled November-January. In Part 4, you’ll get an update on all corporate changes, partnership changes, and IRS audit issues.