Monday, April 29, 2013

Tax Break for Moving Abroad for Work

A taxpayer can generally deduct moving expenses if he or she is moving for a new job more than 50 miles away and that lasts more than ten months.  This deduction is a very beneficial "above-the-line" deduction that is unlimited in amount and does not require the taxpayer to itemize deductions.  For most taxpayers, the deductible costs are the costs of travel (including lodging, but not meals) and of moving household items. 

But Internal Revenue Code section 217(h) provides that for a taxpayer who is moving to work outside the United States (a "foreign move"), the deductible costs also include the costs of storing items and of moving items in and out of storage. 

The typical "foreign move" is from the United States to a foreign country, but the tax break is also available for moves within a foreign country, or from one foreign country to another foreign country.  In contrast, a move from a foreign country back to the United States does not count, nor does a move from Georgia to Hawaii in 1987 count (someone unsuccessfully tried that argument).  As a result, someone who moves for a new job within the United States cannot deduct storage costs, while someone abroad can deduct an unlimited amount of such storage costs.

The extra deduction for foreign moves was added by the Tax Treatment Extension Act of 1977, which was a bit of a misnomer since it (a) contained a large number of newly created tax benefits for Americans living abroad and (b) was enacted on November 8, 1978.  At the time, section 217(h) did not draw much attention because very few Americans moved abroad and the moving expenses deduction had a total monetary cap, but those facts have changed.

Monday, April 22, 2013

Tax Loophole for Non-Profit Organizations Running Bingo

A teenager was arrested earlier this year for yelling a fake "bingo" at a Cincinnati bingo hall.  “At first, everybody started moaning and groaning when they thought they’d lost,” Police Sergeant Richard Webster said. “When they realized it wasn’t a real bingo, they started hooting and hollering and yelling and cussing. People take their bingo very seriously.” 

The Internal Revenue Code also takes bingo very seriously.

Tax-exempt 501(c) non-profit organizations are subject to federal income tax if they engage in certain commercial activities (so-called "unrelated trades or businesses").  Internal Revenue Code section 513(f) provides that the term “unrelated trade or business” does not include "any trade or business which consists of conducting bingo games."

Likewise, section 527 organizations are formed to raise funds for political campaigns.  They are allowed to receive tax-free contributions of money, membership dues, political fundraising proceeds, and (naturally) the "proceeds from the conducting of any bingo game."

In order to clear up any confusion about what constitutes "bingo games,"  the statute provides that the term "bingo game" means any "game of bingo," of a type in which usually,
1. the wagers are placed,
2. the winners are determined, and
3. and the distribution of prizes or other property is made, in the presence of all persons placing wagers in such game (i.e., no Internet bingo).

The games cannot violate any State or local law, and the tax-exempt organization must not conduct the games as ordinarily on a commercial basis.

The definition of "bingo" has been a hotbed of litigation by many non-profit organizations.

Waco Lodge No. 166, Benevolent & Protective Order of Elks had to pay federal income tax on its weekly bingo earnings because it could not use the section 513(f) exception, since bingo was illegal under local Texas law.

The Julius M. Israel Lodge of B'nai B'rith No. 2113 learned that its "Instant Bingo" did not count as bingo, because bingo requires the players to "place markets over randomly called numbers in an attempt to form a preselected pattern."  Instant Bingo provided the players with pre-made cards with pre-determined arrangements, and were no different from lotteries.  The Fifth Circuit noted the crucial distinction that: "Instant Bingo involves no random selection of numbers by a caller, nor does it require the player to participate in the game by covering the squares on his card that correspond to randomly drawn numbers."

Dayton, Ohio-based Help the Children, Inc. lost its tax-exempt status because its principal activity was the operation of bingo games (and a soda bar).

The bingo exception was enacted in 1978, but effective retroactively from 1970.  Pup Tent No. 14 Military Order of the Cootie of the United States had paid taxes on its 1971 and 1972 bingo earnings, but it discovered that it was not allowed a refund due to the statute of limitations.  The retroactive effect benefited only the non-profit organizations that were not as law-abiding and who did not pay taxes on their bingo earnings in the first place.

Tuesday, April 16, 2013

Tax Credit for Mine Rescue Training

Internal Revenue Code section 45N provides a lucrative tax credit for American mining companies to train their employees in mine rescue operations.  

The tax credit is equal to 20% of the training costs of the employee, up to $10,000 of credits per employee each year.   

The employee should complete a 20-hour initial training course or a 40-hour refresher course in mine rescue during the year.  Congress did not explain why the "refresher" course has to be longer than the initial training course.

Tax credits are normally provided to encourage taxpayers to do things that they would otherwise be reluctant to do (hire summer teenagers, guard agricultural chemicals, buy homes in 2009-2010).  It is not clear why a special tax credit is necessary for a class in rescue operations, given the bad publicity usually associated with unrescued miners.  The credit is not available to companies operating mines only outside the United States.

The Internal Revenue Code does not contain special tax incentives for checking the brakes on school buses, cleaning aircraft engines, and other safety-related tasks in other industries.

The mine safety tax credit was enacted in late 2006 by the Tax Relief and Health Care Act, by a Congress eager to show that the can do something after the Sago Mine disaster earlier that year.  The credit originally expired after three years, but the credit has been continually extended (most recently through December 31, 2013).

No tax deduction is permitted for the 20% of training costs allowed as a credit.  The remaining 80% of training costs are fully deductible, which provides an even greater tax benefit for training mine employees in rescue operations.  

Monday, April 15, 2013

Tax Credit for Guarding Agricultural Chemicals

The Internal Revenue Code provided a tax credit for certain companies to guard their agricultural chemicals, but this credit expired at the end of 2012.  It is too early to tell whether the failure of the sequester tax legislation to extend this credit will lead to a rash of disasters resulting from unsecured chemicals.

Specifically, the Heartland, Habitat, Harvest, and Horticulture (4-H) Act of 2008 created an "agricultural chemicals security credit" equal to 30% of the cost of certain security expenditures paid between May 22, 2008 and December 31, 2012.

The credit is allowed only to an "eligible agricultural business" engaged in selling agricultural products at retail to farmers and ranchers, or engaged in manufacturing, distributing, or aerially applying agricultural chemicals. It is not allowed to farmers and ranchers in general for securing their own agricultural chemicals. 

The eligible agricultural business is entitled to a tax credit equal to 30% of its expenditures to protect certain agricultural chemicals, including for employee security training and background checks, access controls, perimeter protection with security lighting and other equipment, and implementation of computer security measures.  The expenditures must be used to protect certain hazardous chemicals, pesticides, and fertilizers. 

The maximum credit allowed for each facility is $100,000 over every five years, but each taxpayer may claim up to $2 million of the credits each year for all of the taxpayer's facilities.

Wednesday, April 10, 2013

Tax Credit for Wood-Burning Stoves

Humans have burned wood for warmth for several millennia.  In order for Americans to boldly catch up to the 18th century wood-burning technology of the Amish people, the Internal Revenue Code provides a tax credit of up to $300 for wood-burning stoves used in people's homes. 

Specifically, Internal Revenue Code section 25C provides a tax credit of up to $300 for the purchase of any "energy-efficient building property," which includes "a stove which uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and which has a thermal efficiency rating of at least 75 percent."  It is one of several credits for renewable energy used at home, since wood is renewable in the sense that the trees grow back after 30-60 years.

Biomass fuel is any plant-derived fuel, such as trees, wood pellets, and plants (including aquatic plants). In order to deter any smarty-pants who claims that coal is plant-derived, the fuel must be "available on a renewable or recurring basis."

The tax credit does not apply to electric heaters made out of wood in order to look Amish.

The wood-burning stove tax credit originally expired at the end of 2011, but it was extended to apply to property placed in service in 2012 (retroactively) and through the end of 2013 as part of the urgently needed sequester tax legislation.

The section 25C tax credit when enacted in 2005 originally applied only to energy-efficient natural gas boilers, geothermal heaters, air conditioners, etc.  The Emergency Economic Stabilization Act of 2008 expanded the qualifying property to include certain wood-burning stoves purchased through the end of 2009.  Congress encouraged the burning of wood in order to reduce America's reliance on foreign oil and reduce pollution in general, though it is not clear how burning wood is cleaner than burning wood-derived fossil fuels.  The credit has been extended several times since then.

Tuesday, April 2, 2013

Tax Credit for the Renewable Energy of Indian Coal

Internal Revenue Code section 45 provides a tax credit for various renewable energy resources, including wind power, geothermal power, solar power, hydroelectric, biomass, and ... the production of Indian coal.

Specifically, the owner of an "Indian coal production facility" receives a tax credit of $1.50 per ton of "Indian coal" produced from 2006 to 2009, and a credit of over $2 per ton of "Indian coal" produced from 2010 to 2013.  The $1.50 and $2 amounts are further increased for inflation.

The Indian coal renewable energy credit originally expired at the end of 2012, but it was extended through 2013 as part of the urgently needed fiscal cliff legislation enacted on January 2, 2013.

"Indian coal" is defined as coal produced from reserves that were owned by an Indian tribe on the very specific date of June 14, 2005. 

An "Indian coal production facility" is any facility that produced coal before 2009.  The facility's owners, who are entitled to receive the tax credit, are not required to be ethnically Indian, either tribal or subcontinental. The Indian coal must be sold to a buyer unrelated to the facility owner.

Coal owned by Indian individuals are not considered renewable energy and do not qualify for this tax credit, nor does coal merely mined by Indians.

The tax credit for Indian coal was enacted by the Energy Tax Incentives Act of 2005 to originally apply for the seven years from 2006 to 2012.  It was introduced as a separate stand-alone tax credit, but the Conference Committee made it part of the renewable energy tax credits.  Congress did not explain how Indian coal was more renewable than other forms of coal.

For no apparent reason, the Indian coal renewable energy credit may reduce the alternative minimum tax (AMT) for the first four years, but not during the later years.