The following standard mileage rates will apply:

• January 1 – June 30: 51 cents per mile for business miles driven

  • July 1 – December 31: 55.5 cents per mile for business miles driven

• January 1 – June 30: 19 cents per mile driven for medical or moving purposes

  • July 1 – December 31: 23.5 cents per mile driven for medical or moving purposes

• January 1 – December 31: 14 cents per mile driven in service of charitable organizations.

  • This can only be changed by an Act of Congress. So it rarely changes

These rates apply to the use of cars, vans, pickups, or panel trucks.

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For starters, most people do pay taxes. As Walker recognizes, they pay payroll taxes, excise taxes, sales taxes, state income taxes–and more. Tax reform could easily involve some of these levies, so even people who don’t pay federal income taxes today could be affected by reform.  And please don’t forget, while today’s credits and deductions do knock many low-income people off the tax rolls, those in the top brackets reap far greater benefits.

Also, as noted by my colleague Eric Toder, people don’t pay income taxes either because they have no taxable income (almost all of the elderly who don’t pay income tax, for instance), or because they qualify for credits that offset their tax liability. For the people in the second group, increases in tax rates could very well hit them in the wallet – either because they’ll owe net taxes or they’ll receive smaller refunds.

The Center on Budget and Policy Priorities recent analysis of those who don’t pay federal income taxes jibes with TPC’s. The conclusion? Most are elderly, poor, or unemployed (including people who are too disabled to work). Whom, I wonder, should the tax man put on the block? And how much money is there to be gained by doing so?

The Earned Income Tax Credit keeps many off the tax roles. But it’s not keeping wealthy people from paying income taxes. TPC estimates that in 2010, about 80 percent of its benefits went to households with income under $30,000.

Furthermore, people tend to receive the EITC for only a couple of years at a time. It might move people off the tax role in some years, but not all years. So even many people who temporarily aren’t paying income tax, likely will in the near future.

If the EITC were run as a spending program rather than a tax subsidy, government could separate its revenue and spending functions. This might diffuse some complaints about people who pay “no taxes.” But that sort of thinking overlooks the real advantages to delivering work incentives through the tax system.  It is administratively efficient, is more accessible to workers than traditional spending programs, and has increased work, especially among single parents. Why fix something that isn’t broken?

Of course, as a spending program it would be targeted for cost cutting while as a tax subsidy it has—so far—remained immune.

At a time when we have a serious budget problem, tax breaks should face the same serious review as spending. But tax breaks for low-income families should not be at the top of anybody’s target list. No matter what happens with tax reform, I know where my next meal is coming from. At least some of those who avoid federal income tax thanks to programs such as the EITC don’t. Adding to their income tax burden will not help.

Link to the original site

Not only is there little evidence that either of these tax breaks would create jobs but they also fly in the face of all the recent rhetoric about the need to eliminate such preferences from the tax code. Politicians give a speech on Tuesday decrying special interest tax breaks. They give another on Wednesday promoting these subsidies as job creators.

This might be defensible if it were true. But it isn’t.

Let’s start with the tax break for bringing back foreign earnings, a practice known as repatriation. To understand what this is about, take a second to review some history. Multinationals such as Google are highly skilled at reducing their U.S. tax bill to near-zero, in part by shifting income to low-tax countries. However, when they return that money to the U.S. they owe tax here at the top rate of 35 percent. As a result, they keep those earnings overseas more or less indefinitely.

Back in 2004, Congress  granted a two-year tax holiday to firms that agreed to use repatriated profits to make investments and hire workers in the U.S. In 2005, U.S. firms repatriated about $300 billion—far more than in prior years. They saved billions of dollars in taxes. But a 2009 study found that they used every repatriated dollar to pay down debt or make distributions to shareholders, rather than create jobs.  

There is no reason to believe the outcome would be different this time. The firms that are best able to take advantage of the tax holiday are awash in cash at the moment. If they want to hire or invest, they already have plenty of resources to do so without the benefit of another tax break.

Such as scheme would create few jobs and reduce federal revenues by nearly $80 billion over a decade. Most importantly, it would send a terrible signal. Congress would be rewarding firms for successfully manipulating the tax code. The biggest winners in fact would be the very companies that did the best job shuffling profits overseas.   

In fact, yet another tax holiday would likely discourage future investment in the U.S. Multinationals would, perfectly reasonably, come to expect a repatriation tax break every couple of years. So instead of investing in the U.S., they’d increase their stash of foreign profits while they await the next holiday.

The payroll tax story is not so different. Last December, President Obama convinced Congress to include a one-year payroll tax break for workers as part of the deal that extended the 2001 and 2003 tax cuts. Now, Democrats would like to continue it for another year. But with Republicans unwilling to support an extension aimed at workers, Obama and Senate Democrats are peddling a payroll tax cut for companies (most likely for hiring new workers). 

This also promises to be a boondoggle.

We don’t know what the tax cut would be, but let’s say it would reduce the employer share by half, or about 3 percent. That comes out to an average tax cut of about $1,200 for each new employee. Would a company hire a new worker for, say, $38,800 instead of $40,000? Most wouldn’t.  At this point in the business cycle, firms hire when they need workers to fill orders, not to get a relatively small tax break.

Of course, companies operating at full capacity would be happy to take the tax cut. But for them, it would be little more than a windfall for doing what they were going to do anyway.

I understand that the unemployment rate is still 9 percent and, with an election looming, pols are desparate to do something to reduce it. But I wish they’d at least come up with some new bad ideas instead of recycling the same old ones.

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The IRS was on notice that its address on file for Terrell was incorrect, because the United States Postal Service (“USPS”) had already returned three of the IRS’s prior mailings to Terrell as undeliverable. The IRS thus had a duty to exercise reasonable diligence to search for her correct address, but failed to do so before sending the Notice. The Notice sent on April 6, 2007 was, therefore, not sent to her “last known address,” and became null and void when it was subsequently returned as undeliverable. Terrell’s ninety days began to run only after the IRS re-sent the Notice to her correct address on May 14, 2007. Because Terrell filed her petition with the Tax Court within ninety days of the May 14th Notice, her petition was timely. Accordingly, the Fifth Circuit Court of Appeals REVERSES the ruling of the Tax Court and REMANDS it for a determination of the petition’s merits.

Terrell argues that the IRS did not mail the Notice to her “last known address,” because the IRS failed to conduct a “reasonably diligent” search for her address before mailing the Notice. She asserts that her ninety-day petition period did not begin until she received the re-sent Notice, making her petition timely and giving the Tax Court jurisdiction.

The Court’s inquiry into these claims proceeds in two parts. First, the Court must determine whether the IRS failed to exercise “reasonable diligence” in locating Terrell’s correct address and thereby failed to send the Notice to her “last known address” as required by § 6015(e). Second, if the Court finds that the IRS failed to exercise “reasonable diligence” and the Notice was therefore not sent to her “last known address,” the Court must determine the date on which Terrell’s petition period started in order to assess whether the Tax Court had jurisdiction over her petition.

A. Validity of the April 6, 2007 Notice

An individual who requests Innocent Spouse Relief “may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available . . . not later than the close of the 90th day after” the date the IRS “mails, by certified or registered mail to the taxpayer’s last known address, notice of the Secretary’s final determination of relief available to the individual.” I.R.C. § 6015(e)(1)(A). Although there is a dearth of cases interpreting § 6015, the Tax Court and the parties correctly cite to analogous cases from IRC §§ 6212 and 6213 concerning the IRS sending tax deficiency notices. 2 See Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 479 (1992) (“[I]dentical termswithin an Act bear the same meaning.”). In both § 6015 and § 6213, the Tax Court has no jurisdiction over a taxpayer’s petition if it is not filed before the deadline.

In order to have jurisdiction to hear a taxpayer’s petition, § 6015(e) requires that the taxpayer request review within ninety days of the IRS sending notice to the taxpayer’s “last known address.” I.R.C. § 6015(e)(1)(A). The Tax Court’s jurisdiction is a question of law that we review de novo. Ferguson v. Comm’r, 568 F.3d 498, 502 (5th Cir. 2009). However, whether the IRS properly sent notice to the taxpayer’s “last known address,” thereby starting the ninety day response period, is a question of fact that we review for clear error. Ward v. Comm’r, 907 F.2d 517, 521 (5th Cir. 1990).

“‘[L]ast known address’ is a term of art and refers to that address which, in light of all relevant circumstances, the IRS reasonably may consider to be the address of the taxpayer at the time the notice of deficiency is mailed.” Mulder v. Comm’r, 855 F.2d 208, 211 (5th Cir. 1988) (emphasis added) (citing Brown v. Comm’r, 78 T.C. 215, 218 (1982)). This Court has interpreted Mulder as standing for the rule that “absent a subsequent, clear and concise notification of an address change, the IRS is entitled to consider the address on the taxpayer’s most recently filed return as the taxpayer’s ‘last known address.’” Pomeroy v. United States, 864 F.2d 1191, 1194 (5th Cir. 1989) (citations omitted). This rule, however, does not dispense with the requirement that the IRS must use “reasonable diligence” to determine the taxpayer’s address in light of all relevant circumstances. When the IRS knows or should know at the time of mailing that the taxpayer’s address on file may no longer be valid because of previously returned letters, “reasonable diligence” requires further investigation. See Mulder, 855 F.2d at 212 (finding no “due diligence” where “two letters posted shortly before the notice . . . were returned undelivered” and the notice itself was neither delivered nor returned); see also Pomeroy, 864 F.2d at 1195 (“Given that the two returned letters put the IRS on notice that the taxpayer had changed his address, the IRS in Mulder should have done further investigation prior to sending the deficiency notice . . . .”); Ward, 907 F.2d at 522 (“[W]hen the IRS was aware before mailing the deficiency notice that the taxpayer had moved, the Internal Revenue Service was required to exercise greater diligence . . . .”); Follum v. Comm’r, 128 F.3d 118, 119–120 (2d Cir. 1997) (“The Commissioner has an obligation to exercise reasonable diligence to ascertain the taxpayer’s correct address if prior to mailing the deficiency notice she has become aware that the address last known to the agency may be incorrect.”).

Here, the Tax Court clearly erred in finding that the IRS exercised reasonable diligence. The proper inquiry for reasonable diligence examines the facts the IRS knew or should have known at the time it sent the Notice. The Tax Court instead focused on the fact that after the IRS sent the Notice and it was returned as undeliverable, it then checked its database and found an updated address from Terrell’s recently filed tax return. But when the IRS sent the Notice on April 6, it should have already known that Terrell’s address on file was incorrect because three separate mailings had been returned as undeliverable. Although the IRS had not received “clear and concise notification” that her address had changed, the IRS is not entitled to rely on a lack of notification once it is on notice that its address on file is incorrect. See Pomeroy, 864 F.2d at 1195.

Because the IRS failed to take any steps to determine Terrell’s correct address after receiving the returned mail and before mailing the Notice, we are compelled to find it did not exercise reasonable diligence. The IRS could have done a computer search through the DMV, contacted Terrell’s employer, searched using Terrell’s social security number, or undertaken any number of actions that might have located the Dallas address. See Mulder, 855 F.2d at 212 (listing different actions taken in other cases that might constitute reasonable diligence). Because the IRS failed to exercise reasonable diligence, the IRS did not mail the Notice to Terrell’s “last known address.”

B. Effective Start Date of the Petition Period

Having determined that the Notice sent on April 6 was not sent to Terrell’s “last known address,” we must now determine the date on which Terrell’s ninety-day petition period began. The Commissioner urges this Court to adopt the “no prejudice” rule espoused by the First, Second, Third, Sixth, Ninth, and Eleventh Circuits. This rule holds that despite failing to mail the notice to the taxpayer’s “last known address,” the IRS satisfies the statutory notice requirement if the taxpayer actually receives the notice without delay prejudicial to her ability to petition the Tax Court. Under the “no prejudice” rule, the Commissioner asks us to apply the ninety days beginning from April 6, as Terrell still had ample time to respond after receiving the re-sent Notice.

Terrell urges this Court to adopt the position of the Fourth, Seventh, and D.C. Circuits. These courts have held that where the IRS fails to send the notice to the taxpayer’s “last known address,” but the taxpayer receives subsequent actual notice, the limitations period begins to run on the date the taxpayer receives actual notice. Under this rule, the ninety days would begin when Terrell received the Notice the IRS re-sent on May 14.

We decline, however, to weigh in on this circuit split. We hold that because the IRS not only failed to send the original Notice to Terrell’s “last known address,” but also had the Notice returned as undeliverable, the Notice as originally sent is null and void. As the Notice was returned undelivered to the IRS, we need not decide whether we would apply the “no prejudice” rule if the original Notice had actually reached Terrell.

Our decision is in line with the distinction adopted by the Ninth Circuit in Mulvania. In Mulvania, the IRS sent an erroneously addressed notice of deficiency to the taxpayer, which was eventually returned as “[n]ot deliverable as addressed.” Mulvania, 769 F.2d at 1377. While the mistake here was based on a typographical error, the notice was similarly not sent to the taxpayer’s “last known address.” Despite its adherence to the “no prejudice” rule, the Ninth Circuit distinguished situations where the original notice of deficiency is returned to the IRS as undeliverable. The Ninth Circuit held that this notice “became null and void when it was returned to the IRS.” Id. at 1379; see also Holof v. Comm’r, 872 F.2d 50, 56 (3d Cir. 1989) (citing agreement with the Mulvania “null and void” principle). The Mulvania court further distinguished this situation from one where “the notice was improperly addressed, but the postal authorities nonetheless delivered the letter to the taxpayer.” Mulvania, 769 F.2d at 1379.

This “null and void” principle does not conflict with the decisions of the other Circuits that have adopted the “no prejudice” rule. The cases the Commissioner cites from these Circuits all concern situations where, despite the IRS’s error, the original notice was actually delivered either to the taxpayer himself, the taxpayer’s Post Office box, or the taxpayer care of his accounting firm. See Sicari, 136 F.3d at 927 (USPS informed taxpayers of notice waiting at Post Office); Patmon & Young Pro. Corp., 55 F.3d at 216 (notice sent to Post Office box returned as “refused” and “unclaimed”); Borgman, 888 F.2d at 917 (notice automatically forwarded to the taxpayer by USPS); Pugsley, 749 F.2d at 692 (notice automatically forwarded to the taxpayer by USPS); Delman, 384 F.2d at 930 (notice sent to the taxpayer care of his accounting firm and duplicate sent to his attorney by regular mail, who promptly informed the taxpayer). Here, unlike these cases and like the taxpayer in Mulvania, Terrell never received the original Notice sent by the IRS. Therefore, the “no prejudice” rule is not directly applicable to the facts at hand. We reach only our narrow holding today and leave for another day the question of whether this Court will adopt the “no prejudice” rule or instead the “actual notice” rule.

The Commissioner expresses concern that failing to adopt the “no prejudice” rule creates a difficulty in determining the effective date of the Notice because of practical problems in discerning the date when the taxpayer received the Notice. Our decision does not, however, implicate this concern. After the original Notice was returned as undeliverable, the IRS subsequently mailed a second Notice on May 14 to the correct address. As the May 14 mailing was legally effective, we use the mailing date of this Notice as the beginning of the ninety day petition period rather than the day Terrell received the Notice. Because Terrell properly filed her petition within ninety days after May 14, the Tax Court was not without jurisdiction to hear the petition.

IV. CONCLUSION

Given the IRS’s notice that Terrell’s address on file was no longer valid, it failed to exercise “reasonable diligence” in locating Terrell’s correct address before sending the original Notice. Therefore, the Notice was not sent to Terrell’s “last known address.” This, and the fact that the Notice was returned by USPS as undeliverable, rendered the original Notice null and void. The statutory petition period began only when the IRS re-sent the Notice to Terrell’s correct address on May 14, 2007. As Terrell filed her petition within ninety days of this date, the Tax Court erred in finding itself without jurisdiction to hear the merits of Terrell’s petition.

REVERSED and REMANDED.

The Court’s opinion was filed November 1, 2010 under case number 09-60822.

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Every couple years, the Congressional Budget Office publishes a very scary document, The Long-Term Budget Outlook.  As in previous reports, the conclusion is that a continuation of current policies would lead to an unsustainable increase in the national debt.

Here’s how you read the report.  CBO simulates two scenarios.  One is called “extended baseline,” in which all of the Bush tax cuts expire on schedule after 2012, the AMT engulfs the middle class in a web of higher taxes and mind-numbing complexity, and payments to providers under Medicare are slashed.  While all of these things are technically scheduled to occur under current law, none is likely.  Congress recently extended the Bush tax cuts, the AMT “patch” (which protects most middle class people from the dread tax), and the Medicare “doc fix,” and is likely to do so again. 

The “alternative fiscal scenario” assumes that federal tax revenues return to their historical levels (18.4% of GDP) and health care spending continues to grow at roughly its historical rate (2 percentage points faster than GDP).  The alternative scenario should really be labeled “current policy,” and it’s pretty bleak, as shown in the chart above (from the cover of the CBO report).  Within 10 years, debt will exceed 100% of GDP.  By 2037, it would be more than double the size of the economy.

That scenario, as dreadful as it is, is wildly over-optimistic, because it doesn’t account for the effect of rising debt levels on interest rates and the economy.  In recent years, CBO has gotten more forceful in explaining this point.  I’ll quote from the summary:

CBO’s projections in most of this report understate the severity of the long-term budget problem because they do not incorporate the negative effects that additional federal debt would have on the economy, nor do they include the impact of higher tax rates on people’s incentives to work and save. In particular, large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States. Taking those effects into account, CBO estimates that under the extended-baseline scenario, real (inflation-adjusted) gross national product (GNP) would be reduced slightly by 2025 and by as much as 2 percent by 2035, compared with what it would be under the stable economic environment that underlies most of the projections in this report. Under the alternative fiscal scenario, real GNP would be 2 percent to 6 percent lower in 2025, and 7 percent to 18 percent lower in 2035, than under a stable economic environment.

Rising levels of debt also would have other negative consequences that are not incorporated in those estimated effects on output:

• Higher levels of debt imply higher interest payments on that debt, which would eventually require either higher taxes or a reduction in government benefits and services.
• Rising debt would increasingly restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, the effects of such developments on the economy and people’s well-being could be worse.
• Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would confront policymakers with extremely difficult choices. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.

If you’d like to see a graphic description of the “sudden fiscal crisis” scenario, see my article, ”Countdown to Catastrophe.”  It’s terrifying.

Back to CBO, the obvious conclusion (at least if you’re not a lawmaker):

To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches. Making such changes while economic activity and employment remain well below their potential levels would probably slow the economic recovery. However, the sooner that medium- and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt. Earlier action would permit smaller or more gradual changes and would give people more time to adjust to them, but it would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations.

Translation:  big tax increases or spending cuts right now would be a bad idea given the fragile state of the economy, but committing to serious debt reduction that will take effect once the economy has recovered is urgent if we are to avoid a budget catastrophe.

For fun, I looked at the first edition of the long-term budget outlook from 2000.  It may surprise some readers that we were worried about long-term fiscal trends more than a decade ago, but independent budget analysts and the CBO recognized that rising health care costs and the aging of the baby boomers would put enormous pressure on the federal government.  Of course, the fiscal situation seemed much brighter back in 2000.  The economy was running surpluses and CBO was projecting them continuing for many years.  So CBO’s discussion was about what we should do with the surpluses:

The aging of the large baby-boom generation and growth in the cost of health care will dramatically increase spending for federal health and retirement programs under current law. If policymakers act to ensure that the budget remains in surplus over the near term, the resulting drop in debt held by the public and the lower interest costs that follow will help offset some portion of that increase. Preserving the full amount of the projected surpluses could substantially delay the onset of fiscal problems and help boost GDP, providing a larger base of resources from which to meet the increased demand for spending. But even if policymakers preserved all projected surpluses, spending and revenues would be unlikely to balance over the next 75 years.

When the stock market bubble burst in 2000, the projected surpluses vanished too so there was no surplus to save.  CBO’s 2000 analysis would seem to suggest that reducing deficits would be a matter of some urgency even then, but instead we enacted a series of large tax cuts and increased spending on national security, Medicare, and, later, economic stimulus.

Which explains why the current report has a much stronger sense of urgency.

This was originally posted on my blog, The Impertinent Economist.

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As a result, those who most need social insurance—single women, low-wage workers, the disabled, and the very old—get much less than they need. On the other hand, those who need benefits least get the most.

If Washington policymakers could hold the twin goals of solvency and modernization in their heads at the same time, they could take a few relatively modest steps needed to reform Social Security—and enhance a key pillar of the social safety net for the most vulnerable elderly.

The trick will be to get past the dissonant squabbling that passes for debate these days. Conservatives need to recognize that Social Security will remain a defined benefit program for the foreseeable future.  Liberals must overcome their fear that any change at all is the death knell for social insurance. 

While Social Security played a key part in reducing poverty rates among the elderly from more than one-third to less than 10 percent over the past half-century, the system is increasingly leaving some seniors behind. Just a few examples: Divorced and never-married women are three times more likely to be poor in old age than married women, and more than one-third of retired workers and widows get benefits that fall below the poverty level.

In this environment, AARP deserves tremendous credit for declaring its willingness last week to sit down and work out a Social Security deal. By doing so, it recognizes two essential realities:  the seven decade old Social Security system needs to change, and it will.

But how can lawmakers and advocacy groups build a consensus with the dual aims of securing long-term solvency and modernizing the system? I think they can by agreeing to a six common-sense principles:

1. Create a respectable minimum benefit for low-income workers, increase some widows’ benefits, and create an additional benefit for the very old (say, 85 or older).
2. Raise the retirement age, including the minimum benefit age of 62. An extra year of work would solve about one-third of the program’s funding problems. More and more of us can work into our 70s and a modern Social Security system should reflect that.  It makes no sense for government to signal that we should stop working at 62 when we are likely to live for two more decades.
3. Protect those who work physicially demanding jobs. While the percentage of older Americans who do manual labor is shrinking, those who do this work need to be protected. Long overdue reforms in Social Security’s badly broken disability system would help.     
4. Increase contributions and reduce benefits for high-earners. Everybody would still get some benefit—Social Security is not welfare and must retain its status as social insurance. But there is no reason why it can’t be made more progressive.
5. Preserve the defined benefit nature of Social Security. Adding an additional savings component is a good idea. But the public is not interested in taking on additional risk with their retirement.
6. Be absolutely transparent about benefits and structural changes. Whatever Congress does, there should be no surprises. As it is, many young people have no confidence in Social Security. Reforms should restore their faith in this key piece of the old-age safety net. But government should also be clear that in the future Social Security will only supplement—and not replace– other retirement savings for middle- and upper-income retirees.

By following these principles, Congress and President Obama could fix Social Security in a way that makes it both solvent and relevant to a 21^st century world.

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Because of changes to the tax law, you may now be able to pass estate tax-free a total of $10 million to your children and other heirs. Technically speaking, a surviving spouse, assuming an election is made by the executor of the deceased spouse’s estate, will be able to increase his or her applicable exclusion amount by the amount of the unused exclusion amount of the deceased spouse (dying after 2010). This new ability to increase the surviving spouse’s applicable exclusion amount by the unused exclusion amount of the deceased spouse has been described by estate planners as the “portability of unused exclusion between spouses.”

For more on this, the American Institute of CPAs has a pretty good article by clicking at this link. For estate tax planning help from a California tax attorney, call Mitchell A. Port at (310) 559-5259.

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As a result of all the disasters in Missouri earlier this year, IRS has suspended certain stringent requirement for the low-income housing credit properties in the United States as a result of the devastation caused by severe storms, tornadoes, and flooding in Missouri beginning on April 19, 2011. They are allowing the properties to provide temporary emergency housing for people who have lost their homes or apartments – who would not otherwise meet the low-income qualifications.

The Electronic Tax Administration Advisory Committee (ETAAC) today released its 2011 Annual Report to Congress during a public meeting. The report discusses five groups of recommendations on issues in electronic tax administration.

The report includes recommendations on the following topics:

• standards for security and accuracy for the electronic tax community,
• 1040 Modernized e-file (MeF) platform,
• barriers to e-filing employment tax returns,
• tax filing simplification
• collaboration and partnership with the electronic filing community

And IRS has sent out a survey asking for opinions on what we think is important for the new breed of registered tax return preparers to know about for the test they will start taking this fall. I can’t give you the link to it. Unfortunately, once I took the survey, the link no longer works.

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Of course, not a single House Republican is willing to publicly acknowledge this obvious fact.  They’re all in the thrall of Grover Norquist’s no-tax pledge, which Lori Montgomery reported he dreamed up as a 14-year-old boy.  Fact is, most of the ideas that pop into the adolescent male mind would be a poor guide for public policy and none more so than “the pledge.”  Then again, male politicians of both parties seem particularly prone to adolescent behavior.  (But there are 24 Republican women in the House.  Surely, they’re immune to male adolescent fantasies…)

But I digress.

As Lori discusses, at least in the Senate, some Republicans are open to the idea of cutting “tax expenditures”–the tax credits and deductions designed to subsidize particular activities.   In fact, just yesterday, the senate, including most Republicans, repudiated Grover by voting to end ethanol tax breaks.  It’s a small step, but suggests that perhaps the dark lord’s death grip on sensible budget policy is weakening.

Cutting tax expenditures is appealing because revenue would rise without requiring higher tax rates.  Conservative economist Marty Feldstein has proposed limiting the value of tax expenditures to 2 percent of income.  Since the value of tax breaks tends to rise with income, the proposal would be progressive.  And it would raise a lot of revenue.  Feldstein estimated that a fairly comprehensive cap could cut the deficit by almost half over time.

The obvious problem with cutting tax expenditures is that people like their tax breaks.  They include popular items like the mortgage interest deduction, tax-free health insurance, and the charity deduction.

Another problem is that even if voters could somehow be convinced to support big cuts, raising taxes (or cutting spending) significantly right now could thrust the fragile economy back into recession.

There may be a solution to both challenges.  We know that Americans are impatient.  Why not bribe them to give up their tax breaks?  For example, suppose that individual income tax breaks are worth about 10% of adjusted gross income.  (This is probably not a bad approximation, but I haven’t crunched the numbers.)  It’s unrealistic to assume that all could be eliminated, but we might be able to cut the cost of tax expenditures by half.  (See the Bipartisan Policy Center plan, which I helped craft, as an example of how to do this.)

We could phase in a version of Feldstein’s plan by offering a “tax break credit” of 10% of AGI for tax year 2011 in exchange for eliminating tax breaks worth 5% of income.  The credit rate could be phased down to 2% of AGI over 5 years.  For the first three years, this would be a tax cut compared with current law and provide a needed economic stimulus .  To make the stimulus even more effective and help those most in need of aid, the first $5,000 for joint filers could be made refundable ($2,500 for single returns).  That amount could also be phased down over time.  This would raise taxpayers’ incomes by roughly half a trillion dollars in 2011, and smaller amounts in 2012 and 2013, providing a helpful prod to the economic recovery.

The bottom line is that this plan would boost the economy in the short term, substantially reduce the deficit over the long term with tax rates, and significantly simplify the tax system.

Since I’m a tax geek, I want to get into some technical stuff below.  Non-geeks can stop reading now.

Unlike Feldstein’s plan, which caps tax breaks at 2% of AGI, a simpler approach would be to simply deem tax breaks equal to that amount.  Set a floor on the credit equal to 15% of the standard deduction and then the standard deduction can be eliminated also.  (In Feldstein’s plan, taxpayers have to decide whether to take the standard deduction or itemize subject to the AGI cap.)  In addition, the AMT should be eliminated.  It wouldn’t cost much if major “preference items” like the state and local deduction were also eliminated.

Some provisions would have to be phased in.  For example, part of the plan should be to cap or eliminate the tax exclusion for employer-sponsored health insurance.  There’s a near consensus that this exclusion is poorly targeted and contributes to rising healthcare costs.  However, it wouldn’t be possible to limit the exclusion in 2011 because employers are not required to measure and report the value of health insurance benefits until 2012.

Also, it would be unfair to prevent taxpayers from taking tax breaks they had counted on this year.  Thus, they should be allowed to elect to claim all of their tax breaks in 2011 in lieu of the credit.  Most taxpayers would not make this election, but this transition rule is probable necessary.

An earlier version of this post was originally published on my Forbes blog. 

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To the extent possible, probate should be avoided, and although there are many different techniques that exist under California probate law that can allow someone to avoid probate, there will be cases when probate cannot be avoided, and the process must be started in order to transfer ownership of the decedent’s property to the rightful heirs.

Examples of situations which do not avoid probate:

· Life insurance which names the insured’s predeceased spouse when the insured never got around to changing the beneficiary designation before the insured died.

· Annuity contracts, like the insurance contract, must change the beneficiary who may have died before the contract matures; when the beneficiary is deceased, the contract must be probated.

· Property whose title is held in “joint tenancy” and both joint tenants are now deceased. Without a surviving joint tenant to own the property, the property goes through probate.

· Mom and dad have a living trust which leaves property to an adult child. But if the child dies before mom and dad, the property goes through probate when both mom and dad die if the trust doesn’t say who else besides child gets the property. So even when a living trust exists, probate may still be necessary.

Speak with a probate attorney in Los Angeles, California about your probate matters. Call Mitchell A. Port at (310) 559-5259.

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