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Memo: Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.)
Memo: Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.) (PDF)
Source: U.S. Senate Permanent Subcommittee on Investigations
From press release (Sen. Carl Levin (D-MI):
Apple Inc. has used a complex web of offshore entities – including three foreign subsidiaries the company claims are not tax resident in any nation – to avoid paying billions of dollars in U.S. income taxes, a bipartisan investigation by the Senate Permanent Subcommittee on Investigations has found.
The subcommittee will spotlight Apple’s extensive tax-avoidance strategies at a Tuesday hearing. Witnesses will include Apple CEO Tim Cook, other Apple executives, Treasury Department officials and outside experts. Sen. Carl Levin, D-Mich., and Sen. John McCain, R-Ariz., subcommittee chairman and ranking member, respectively, will also issue a 40-page memorandum with findings and recommendations.
The subcommittee, which previously explored tax avoidance by other multinational corporations using offshore subsidiaries, found similar practices at Apple. In addition, the subcommittee review discovered an unusual tax scheme: Apple’s claim that two key offshore companies are not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no income taxes to any national tax authority for the past five years.
See also: Offshore Profit Shifting and the U.S. Tax Code – Part 1 (Microsoft & Hewlett-Packard)
Treasury Inspector General for Tax Administraion — Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review
Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (PDF)
Source: Treasury Inspector General for Tax Administration\
IMPACT ON TAXPAYERS
Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention. Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future.WHY TIGTA DID THE AUDIT
TIGTA initiated this audit based on concerns expressed by members of Congress. The overall objective of this audit was to determine whether allegations were founded that the IRS: 1) targeted specific groups applying for tax-exempt status, 2) delayed processing of targeted groups’ applications, and 3) requested unnecessary information from targeted groups.WHAT TIGTA FOUND
The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office. For the 296 total political campaign intervention applications TIGTA reviewed as of December 17, 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days (some for more than three years and crossing two election cycles).
More than 20 months after the initial case was identified, processing the cases began in earnest. Many organizations received requests for additional information from the IRS that included unnecessary, burdensome questions (e.g., lists of past and future donors). The IRS later informed some organizations that they did not need to provide previously requested information. IRS officials stated that any donor information received in response to a request from its Determinations Unit was later destroyed.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS finalize the interim actions taken, better document the reasons why applications potentially involving political campaign intervention are chosen for review, develop a process to track requests for assistance, finalize and publish guidance, develop and provide training to employees before each election cycle, expeditiously resolve remaining political campaign intervention cases (some of which have been in process for three years), and request that social welfare activity guidance be developed by the Department of the Treasury.In their response to the report, IRS officials agreed with seven of our nine recommendations and proposed alternative corrective actions for two of our recommendations. TIGTA does not agree that the alternative corrective actions will accomplish the intent of the recommendations and continues to believe that the IRS should better document the reasons why applications potentially involving political campaign intervention are chosen for review and finalize and publish guidance.
Taxes: Afghan Government Has Levied Nearly a Billion Dollars in Business Taxes on Contractors Supporting U.S. Government Efforts in Afghanistan
Source: Special Inspector General for Iraq Reconstruction
Since 2008, the Afghan Ministry of Finance (MOF) has levied over $921 million in business taxes, and associated penalties, on 43 contractors that support U.S. government efforts in Afghanistan. DOD, INL, and USAID have agreements with the Afghan government that provide exemption from certain Afghan taxes. SIGAR identified instances where contractors were taxed despite these agreements. For example, $93 million of the $921 million represented taxes levied on business receipts and annual corporate income—a tax category that both the U.S. and Afghan governments have agreed should be exempt for contractors operating under covered agreements. SIGAR also identified instances in which the MOF assessed tax liabilities on contractors even though the contractors held MOF-issued tax exemption certificates. For example, the MOF issued Business Receipts Tax and annual corporate income tax assessments on some DOD contractors, even though the contractors should have been exempt from both tax categories. Three DOD contractors in SIGAR’s sample that held MOF-issued tax exemption certificates were improperly assessed nearly $59 million in business receipts and annual corporate income taxes. U.S. and MOF officials disagree about the tax-exempt status of subcontractors. MOF officials assert that the DOD and State INL agreements provide tax-exempt status only to prime contractors, and not subcontractors, whereas U.S. government officials contend that the agreements provide tax exemption for all non-Afghan companies (both prime and subcontractors) supporting U.S. government efforts. Given these ongoing disputes and the ambiguous nature of the MOF-issued assessments, the 43 contractors in SIGAR’s sample have paid approximately $67 million of the $921 million in total tax assessments, and most still face unresolved assessments. As a result of the outstanding assessments, the MOF has restricted contractors’ freedom of movement and refused to renew business licenses, and the Afghan government has even arrested some contractor personnel. The combined effect is the potential interruption of support to U.S. military operations.
State and Local Sales Tax Rates in 2013
State and Local Sales Tax Rates in 2013
Source: Tax Foundation
Retail sales taxes are one of the more transparent ways to collect tax revenue. While graduated income tax rates and brackets are complex and confusing to many taxpayers, the sales tax is easier to understand: people can reach into their pocket and see the rate printed on a receipt.
Less known, however, are the local sales taxes collected in 37 states. These rates can be substantial, so a state with a moderate statewide sales tax rate could actually have a very high combined state-local rate compared to other states. This report provides a population-weighted average of local sales taxes in each state in an attempt to give a sense of the statutory local rate for each state. See Table 1 at the end of this Fiscal Fact for the full state-by-state listing of state and local sales tax rates.
The Geographic Distribution of the Mortgage Interest Deduction
The Geographic Distribution of the Mortgage Interest Deduction
Source: Pew Charitable Trusts
The mortgage interest deduction is one of the largest tax expenditures in the U.S. tax code but the rate at which it is claimed and the average amount deducted vary widely across and within states.
With changes to tax expenditures under consideration, data showing the current distribution of the mortgage interest deduction are key to understanding how federal tax decisions would affect the states.
Policymakers continue to debate how to reduce the federal budget deficit and how to simplify the federal tax code. One point on which there seems to be emerging agreement is that reducing or eliminating tax expenditures could contribute to one or both efforts.
The mortgage interest deduction allows tax filers who own a home and itemize their deductions to subtract interest paid on mortgage debt from their gross income. In tax year 2011, filers deducted about $360 billion in mortgage interest, resulting in roughly $72 billion in forgone federal income tax revenue. Only two federal tax expenditures were larger that year. In years past this deduction has often ranked second behind the exclusion for employer-provided health insurance.
Using detailed ZIP code-level data for the first time — along with state-level data — this report shows that mortgage interest deduction claims vary widely not just across states but across areas within the same state:
- The percentage of tax filers deducting mortgage interest ranged from nearly 37 percent in Maryland to 15 percent in West Virginia and North Dakota.
- The average mortgage interest deduction for all tax filers (not just those taking the deduction) varied from a high of $4,580 per tax filer in Maryland to a low of $1,192 per filer in North Dakota.
- The variation across metropolitan areas within states is even greater. In Texas, for example, the state’s highest claim rate — in the Austin area — was 4 times larger than the lowest rate, in the Odessa area. The Austin area’s average deduction per filer was over 6 times the average in the Odessa area.
New From the GAO
New GAO Reports and Testimonies
Source: Government Accountability Office
Reports
1. Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion. GAO-13-318, March 27.
http://www.gao.gov/products/GAO-13-318
Highlights – http://www.gao.gov/assets/660/653370.pdf
2. VA and IHS: Further Action Needed to Collaborate on Providing Health Care to Native American Veterans. GAO-13-354, April 26.
http://www.gao.gov/products/GAO-13-354
Highlights – http://www.gao.gov/assets/660/654224.pdf
3. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management. GAO-13-432, April 26.
http://www.gao.gov/products/GAO-13-432
Highlights – http://www.gao.gov/assets/660/654234.pdf
Testimonies
1. Department of Homeland Security: Opportunities Exist to Strengthen Efficiency and Effectiveness, Achieve Cost Savings, and Improve Management Functions, by Cathleen A. Berrick, managing director, homeland security and justice, before the Subcommittee on Oversight and Management Efficiency, House Committee on Homeland Security. GAO-13-547T, April 26.
http://www.gao.gov/products/GAO-13-547T
Highlights – http://www.gao.gov/assets/660/654210.pdf
2. Social Security Administration: Preliminary Observations on Key Management Challenges, by Daniel Bertoni, director, education, workforce, and income security issues, before the Subcommittee on Social Security, House Committee on Ways and Means. GAO-13-545T, April 26.
http://www.gao.gov/products/GAO-13-545T
Highlights – http://www.gao.gov/assets/660/654214.pdf
New From the GAO
New GAO Reports and Testimony
Source: Government Accountability Office
Reports
1. Office of National Drug Control Policy: Office Could Better Identify Opportunities to Increase Program Coordination. GAO-13-333, March 26.
http://www.gao.gov/products/GAO-13-333
Highlights – http://www.gao.gov/assets/660/653355.pdf
2. Air Force Electronic Systems Center: Reorganization Resulted in Workforce Reassignments at Hanscom Air Force Base, but Other Possible Effects Are Not Yet Known. GAO-13-366, April 25.
http://www.gao.gov/products/GAO-13-366
Highlights – http://www.gao.gov/assets/660/654163.pdf
3. Explosive Ordnance Disposal: DOD Needs Better Resource Planning and Joint Guidance to Manage the Capability. GAO-13-385, April 25.
http://www.gao.gov/products/GAO-13-385
Highlights – http://www.gao.gov/assets/660/654171.pdf
4. Internal Revenue Service: 2013 Tax Filing Season Performance to Date and Budget Data. GAO-13-541R, April 15.
http://www.gao.gov/products/GAO-13-541R
Testimony
1. Federal Real Property: Excess and Underutilized Property Is an Ongoing Challenge, by David Wise, director, physical infrastructure, before the Subcommittee on Government Operations, House committee on Oversight and Government Reform. GAO-13-573T, April 25.
http://www.gao.gov/products/GAO-13-573T
Highlights – http://www.gao.gov/assets/660/654160.pdf
New From the GAO
New GAO Reports and Testimonies
Source: Government Accountability Office
Reports
1. Acquisition Workforce: Federal Agencies Obtain Training to Meet Requirements, but Have Limited Insight into Costs and Benefits of Training Investment. GAO-13-231, March 28.
http://www.gao.gov/products/GAO-13-231
Highlights - http://www.gao.gov/assets/660/653438.pdf
2. Managing For Results: Agencies Have Elevated Performance Management Leadership Roles, but Additional Training Is Needed. GAO-13-356, April 16.
http://www.gao.gov/products/GAO-13-356
Highlights - http://www.gao.gov/assets/660/653796.pdf
3. Grants Management: Oversight of Selected States’ Disbursement of Federal Funds Addresses Timeliness and Administrative Allowances. GAO-13-392, April 16.
http://www.gao.gov/products/GAO-13-392
Highlights - http://www.gao.gov/assets/660/653806.pdf
4. IRS Website: Long-Term Strategy Needed to Improve Interactive Services. GAO-13-435, April 16.
http://www.gao.gov/products/GAO-13-435
Highlights - http://www.gao.gov/assets/660/653777.pdf
Testimonies
1. Federal Support for Renewable and Advanced Energy Technologies, by Frank Rusco, director, natural resources and environment, before the Subcommittees on Oversight and Energy, House Committee on Science, Space, and Technology. GAO-13-514T, April 16.
http://www.gao.gov/products/GAO-13-514T
2. Aviation Safety: FAA Efforts Have Improved Safety, but Challenges Remain in Key Areas, by Gerald L. Dillingham, Ph.D., director, physical infrastructure, before the Senate Committee on Commerce, Science, and Transportation. GAO-13-442T, April 16.
http://www.gao.gov/products/GAO-13-442T
Highlights - http://www.gao.gov/assets/660/653802.pdf
New From the GAO
New GAO Reports
Source: Government Accountability Office
1. President’s Emergency Plan for AIDS Relief: Per-Patient Costs Have Declined Substantially, but Better Cost Data Would Help Efforts to Expand Treatment. GAO-13-345, March 15.
http://www.gao.gov/products/GAO-13-345
Highlights – http://www.gao.gov/assets/660/653067.pdf
2. Corporate Tax Expenditures: Information on Estimated Revenue Losses and Related Federal Spending Programs. GAO-13-339, March 18.
http://www.gao.gov/products/GAO-13-339
Highlights – http://www.gao.gov/assets/660/653121.pdf
A Third of Americans Say They Like Doing Their Income Taxes
A Third of Americans Say They Like Doing Their Income Taxes
Source: Pew Research Center for the People & the Press
As April 15 approaches, a majority of Americans (56%) have a negative reaction to doing their income taxes, with 26% saying they hate doing them. However, about a third (34%) say they either like (29%) or love (5%) doing their taxes.
The national survey by the Pew Research Center, conducted April 4-7 among 1,003 adults, finds that the expectation of getting a refund is cited most often for why people like doing their taxes, but it is not the only factor.
When asked why they like doing their income taxes, 29% say that they are getting a refund, while 17% say they just don’t mind it or they are good at it; 13% say doing their taxes gives them a sense of control, while the same percentage cites a feeling of obligation – that it is their duty to pay their fair share.
Among those who dislike or hate doing their taxes, most cite the hassles of the process or the amount of time it takes: 31% say it is complicated, requires too much paperwork or they are afraid of making mistakes, while 24% say it is inconvenient and time-consuming. A much smaller share (12%) says they dislike doing their taxes because of how the government uses tax money. Just 5% of those who dislike or hate doing their income taxes say it is because they pay too much in taxes.
IRS Releases the Dirty Dozen Tax Scams for 2013
IRS Releases the Dirty Dozen Tax Scams for 2013
Source: Internal Revenue Service
The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.
The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.
Tax Freedom Day(R) 2013 is April 18, Five Days Later Than Last Year
Tax Freedom Day® 2013 is April 18, Five Days Later Than Last Year
Source: Tax Foundation
What is Tax Freedom Day?
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income. In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 29.4 percent, or 108 days, into the year.
Why is Tax Freedom Day later this year?
Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect. Finally, despite these tax increases, the economy is expected to continue its slow recovery, boosting profits, incomes, and tax revenues.
New From the GAO
New GAO Report
Source: Government Accountability Office
401(K) Plans: Labor and IRS Could Improve the Rollover Process for Participants. GAO-13-30, March 7.
http://www.gao.gov/products/GAO-13-30
Highlights – http://www.gao.gov/assets/660/652882.pdf
Subsidies vs. Nudges: Which Policies Increase Saving the Most?
Subsidies vs. Nudges: Which Policies Increase Saving the Most?
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
- To encourage retirement saving, policymakers use two types of tools: tax subsidies and automatic contributions.
- Both tools are effective at increasing retirement saving, but such increases could simply be offset by a reduction in a household’s non-retirement saving.
- A recent study, using Danish data, addresses this issue:
- A revision in the Danish tax subsidy led to a change in retirement saving, but it was almost fully offset by a change in non-retirement saving.
- In contrast, automatic contributions boosted retirement saving with only a small impact on non-retirement saving.
The Charitable Contribution Deduction: Section 170 Reorganized
The Charitable Contribution Deduction: Section 170 Reorganized
Source: Urban Institute
This paper attempts first to clarify tax rules concerning charitable contributions by reorganizing section 170 and simplifying the language, where possible, so that the operative rules will be clearer. In addition, a revision of the estate and gift tax provisions, intended to increase uniformity, is proposed. The possibility of further substantial simplification is explored in the section by section analysis which follows the proposed code revision. Whether or not the Code is actually revised in accordance with the proposed draft, having this tool available will help analyze the statute.
2012 IRS Data Book
Source: Internal Revenue Service
The Internal Revenue Service (IRS) has released the 2012 IRS Data Book, a snapshot of agency activities for fiscal year 2012—Oct. 1, 2011, to Sept. 30, 2012. In addition to information on taxes collected and returns processed, the report also includes information about enforcement, taxpayer assistance, and the IRS budget and workforce, among others.
How Would Reforming the Mortgage Interest Deduction Affect the Housing Market?
How Would Reforming the Mortgage Interest Deduction Affect the Housing Market?
Source: Urban Institute
Opponents of MID reform warn that reducing the deduction would undermine the value of owner-occupied homes and impede the recovery of the depressed housing market. The best available evidence predicts far less dire effects and suggests that some reforms could actually bolster the housing market recovery. However, the results are far from definitive. As debate continues, the Urban Institute plans to further explore behavioral and market changes, strengthening the evidence upon which policymakers can rely.
CRS — Guns, Excise Taxes, and Wildlife Restoration
Guns, Excise Taxes, and Wildlife Restoration (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
As a result of the recent debate over guns, gun rights, and gun-related violence, there has
been a marked increase in sales of many weapons as well as ammunition. Through an
excise tax on firearms and ammunition, such sales have a marked beneficial effect on
funding for state wildlife programs through the Wildlife Restoration Program (also known as
Pittman-Robertson or P-R). This report examines these taxes, their allocation, and their use. It
also examines the effects of sequestration of this account, pursuant to the Budget Control Act of
2011 (BCA, P.L. 112-25).
Implications of Lessons Learned From Tobacco Control for Tanning Bed Reform
Implications of Lessons Learned From Tobacco Control for Tanning Bed Reform
Source: Preventing Chronic Disease (CDC)
Tanning beds used according to the manufacturer’s instructions expose the user to health risks, including melanoma and other skin cancers. Applying the MPOWER model (monitor, protect, offer alternatives, warn, enforce, and raise taxes), which has been used in tobacco control, to tanning bed reform could reduce the number of people at risk of diseases associated with tanning bed use. Among the tactics available to government are restricting the use of tanning beds by people under age 18 and those with fair skin, increasing the price of tanning bed services through taxation, licensing tanning bed operators, and banning unsupervised tanning bed operations.
CRS — Medicare, Medicaid, and Other Health Provisions in the American Taxpayer Relief Act of 2012
Medicare, Medicaid, and Other Health Provisions in the American Taxpayer Relief Act of 2012 (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
Several policies that would have reduced spending and increased revenues were poised to take effect at the end of 2012; collectively, these were referred to by some as the “fiscal cliff.” Had these policies taken effect, CBO projected that the ensuing fiscal contraction would have resulted in a recession in 2013. On January 2, 2013, the President signed H.R. 8, the American Taxpayer Relief Act of 2012 (ATRA, P.L. 112-240), which prevented most—but not all—of the fiscal cliff policies from going into effect. This Act was passed by the Senate on January 1, 2013 by a vote of 89-8, and by the House later that day, 257-167. Title VI of the Act extends several expiring provisions in the Medicare and Medicaid programs and makes other changes in federally funded health programs.
Provisions in Title VI of ATRA that will result in higher physician fee schedule payments include the override of the sustainable growth rate (SGR) update mechanism of the Medicare physician fee schedule that would have reduced payments had it taken effect, and the extensions of the physician work geographic adjustment. Other provisions preserved some Medicare hospital payments by extending adjustments for low-volume hospitals and the Medicare-dependent hospital program. Sections that addressed Medicare managed care include the extension of the Medicare Advantage special needs plans and reasonable cost contracts. Medicare beneficiaries will continue to have access to the exceptions process for outpatient therapy limits and outreach and assistance programs for low-income beneficiaries. Other health programs extended by the ATRA include the qualifying individual program, the transitional medical assistance program, the Medicaid and the State Children’s Health Insurance Program (CHIP) express lane option, familyto-family health information centers, and special diabetes programs for Type I diabetes and for American Indians and Alaska Natives.
The Congressional Budget Office (CBO) estimates that the health provisions in H.R. 8 will result in a net increase in direct spending of $800 million over the ten-year period from FY2013 through FY2022. The physician payment override (“doc fix”) and the various health-related extensions cumulatively add an estimated $29.3 billion to direct spending. CBO estimates that the other health provisions cumulatively result in offsets of all but $800 million as a result of the direct effects of the provisions and the interactions between provisions. While some sections of ATRA make changes to federal health programs that result in savings to the federal budget, other sections addressing federal health care programs have little or no impact on direct spending in the federal budget.
