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Friday, February 8, 2008

New kicker screwup -- this one from Salem

Over the past couple of months, we've been bemoaning how weak the TurboTax tax return preparation program has been in handling last year's Oregon income tax rebate known as the "kicker." But it appears that Intuit, the maker of TurboTax, isn't the only one who let some people down. Even the Oregon Department of Revenue itself seems unable to get the "kicker" quite right.

The latest problem involves at least some of the reported 440 or so Oregonians who got their "kickers" late, based on their claim that their computerized tax return preparation software (including some others as well as TurboTax) erroneously donated their "kicker" check to the school fund without their knowledge. Many, if not most, taxpayers in this category have received, or are going to receive, their "kicker" checks in 2008. But at least one alert reader of this blog has received a "1099-G" form from the Oregon Department of Revenue that shows that he and his spouse were paid their "kicker" in 2007, which in their case isn't true.

It's more than a minor point. As noted here yesterday, if you itemized your deductions on your 2006 federal income tax return, chances are that you have to report your "kicker" as income on your federal tax return for the year in which you receive it. If you received it in 2007, you have to report it on your 2007 federal return, but if you didn't (or don't) receive it until 2008, it goes on your 2008 federal return, not 2007.

The 1099-G form that the reader received is the one that the state revenue folks are required to send to you and to the IRS (federal) if they issued you a tax refund. The whole point of it is to allow IRS computers and agents to make sure you report your state tax refund on your federal return if you are supposed to. And so if you get a 1099-G with "2007" written on it, the IRS will be looking for it (if they look at all) on your 2007 federal return. But if you didn't get your "kicker" until, say, January 2008, it doesn't belong on your 2007 return. As a "cash method taxpayer" (which almost all individuals are), you don't have income until you receive it.

In the case in question, the stub that the reader has off the "kicker" check itself shows that it was issued on January 23, 2008. And yet a 1099-G for 2007, which shows the "kicker" amount, has reportedly just now shown up in the taxpayer's mailbox. Sounds like a screwup to us.

Whatever you think about the wisdom of the "kicker" as a substantive policy matter, administratively it's a nightmare. The politicians who thought it up should be condemned. There are ways to credit taxes back to people besides issuing refund checks to them. Those other methods are much easier to administer. But they don't have the same political sex appeal, I guess, as checks. And so we shoulder on in the most inefficient way possible, all to pick up a few votes for some clowns running for re-election to the legislature. Such is what passes for governance these days.

And don't think we're through with this kind of foolishness. The feds are about to get into the act. Yesterday Congress passed a "kicker"-type federal tax refund that many people (but not all -- upper middle- and high-income folks are out of luck) will be receiving this spring. Will that federal refund have to be reported as income on your 2008 Oregon tax return? The jury is still out on that one -- it may depend on what happens in the regularly scheduled "special" session of the legislature, currently under way. In theory, though, since you will be deducting at least part of your federal taxes on your 2007 Oregon return, a rebate of federal taxes should be taxable in Oregon on your 2008 return, at least for some people.

One last note: Federal law requires that all 1099-G forms be in the mail by January 31. Like us, several readers of this blog didn't receive their 1099-G's from the State of Oregon until Wednesday of this week, which was February 6. Did the state itself miss the federal deadline? For shame.

UPDATE, 2/11, 1:12 a.m.: It turns out, everyone got a 1099-G showing the "kicker" -- even the folks who willfully donated theirs to charity. Ironically, if you donated, the 1099-G was probably appropriate, but if you didn't and got your check in 2008, it probably wasn't. More discussion here.

Comments (19)

Here's one for you. Got my 1099-g yesterday, on it the kicker check was twice the size of the actual check i got. What does that mean??

I thought that under the cash method you could have constructive receipt, such that the money is yours when it's made available without restriction. In that case, you could argue that the money was yours when the check was cut (in your emailer's case, presumably 1/23/2008). However, you could also argue that the money was yours, without restriction, when the kicker kicked, and the state started the process of paying back the money, because you were entitled to it and it was just a matter of time until it showed up in the mailbox.

Thanks for the reminder. I haven't received a 1099-G yet (2/8).

An aside: I see that this post is under "today's hottest links" on the OLive website (at least right now).

I completely forgot about this and did my taxes after I thought I got everything back. Then I received my 1099g yesterday (thursday Feb 7) - there is no way it was sent out by Jan 31.

(3) out of (4) of us here in the office filed our taxes before Wednesday, the day which we received our 1099-G. I think this delay in getting the 1099-G is going to become a much larger issue over the next few weeks.

The "rebate" check from the feds is actually an "advance on 2008 taxes and will be deducted from 2008 refunds or added to amounts owed" according to Henry Paulson. I wonder how many millions of people will get trapped by this until tax time next year and suddenly are trapped by underwithholding penalties *and* taxes they didn't expect to have to pay. Thankfully I'm not likely to get one of these Bush turds and so I won't have to worry about it along with the AMT and other delights of the tax code.

I'm still trying to figure out what to do with the kicker. I know it is taxable as income to the feds; but I can't figure out whether it is an addition or subtraction from Oregon taxes. Turbo Tax isn't helping in this case. My total amount is the same as the Oregon 1099, but the 1099G shows the amount aggregated with my 2006 refund. I list them as two separate sources with different dates. I don't know how to keep Turbo Tax from consolidating them, if it matters. I'm already pissed at TT for this year as it literally ate my tax return following a large update (and I had backups and it ate those too, almost like a cross 6 raided drive search and destroy mission).

Not to be dense or anything, but what are you doing filing your taxes the first week of February when you don't have the documentation for all the items that will affect your tax liability? I can see not having all your medical receipts or something, but when you get a big fat check from the state do you not think of that when you were filling out your taxes? I guess I also don't see the importance of the 1099-G. You can figure out the number on that form without having the form itself.

Early in his career, Milton Friedman worked for the federal gov't and was recognized for coming up with the idea of employer withholding for taxes. He accurately reasoned that compliance would be greater and compliants would be fewer.

Viewed from a different perspective, one might posit that if people were to save all year from their own paychecks in order to pay the IRS, they would be a LOT more likely to pay attention to the cost of government.

If the kicker was mixed in with your annual tax refund, it is less likely that people would recognize where it came from (it might also spur them to think that their tax rate is lower than it is).

Whenever I read a story about how we could save money be rebating the kicker through tax credits, it is usually being pushed by someone who already holds a low opinion of the kicker.

The people I know (regardless of political party) loved the fact that the kicker check came out just before Christmas, and they'll certainly remember it for that reason.

That's why democrats are afraid to go after the personal income tax kicker right now. All they can hope for is to change the rules so that people won't stop noticing it long enough that they won't put up a fight when they eventually try take it away.

"The "rebate" check from the feds is actually an "advance on 2008 taxes and will be deducted from 2008 refunds or added to amounts owed" according to Henry Paulson."

What! Those bastards. So I need to up my withholding this year in order to pay back my Federal kicker check next year. And this is supposed to fool me into spending the money now only to feel the pain in April 2009. I take that back "bastards" is to polite a term.

Greg C

you could also argue that the money was yours, without restriction, when the kicker kicked, and the state started the process of paying back the money, because you were entitled to it and it was just a matter of time until it showed up in the mailbox.

That argument is a 100 percent loser.

Does anyone haev the text of the legislation? Rather than just reading what the media tells us it is. I looked on LOC, but maybe it's too early? I'm trying to find a cited source for the "advance on 2008's taxes."

Ok, I found this link.

The federal stimulus check appears to be a new credit against your 2008 tax, payable in advance, which to me on first reading means it would not reduce your refund below (or increase your 2008 tax above) what it otherwise would have been had the stimulus not been passed.

I know I'm going way past my expertise here, but why would the argument be a 100% loser? The kicker is just a cash refund of money that could have been applied to other or future tax liabilities, or donated to charity, no? And I thought that if a taxpayer elects to apply an overpayment to future tax liabilities, it's constructive receipt at the moment the taxpayer makes an election to credit the refund (when the taxes are filed). So why wouldn't there be constructive receipt here, once you file last year's taxes and elect what to do with any potential refund (i.e. "send me the kicker")?

Here another one that got caught by the late 1099-G. Filed the taxes Tuesday night, go the form in the mail Wednesday morning. Anyone know how many points filing a 1040x is going to add to my score the IRS will use to calculate if they audit me?

I think the point is, even if they applied for and got, their kicker back from being donated, they got "control" of the money in 2007 and donated it. So they get the 1099G, and would need to list it as a donation in their itemization.

Is the 1099G supposed to just list the kicker portion of your 2006 refund? I'm pretty sure my 1099G, that I just got, is about 2.5 times what I got. (Where is the rest of my kicker!)

So why wouldn't there be constructive receipt here, once you file last year's taxes and elect what to do with any potential refund (i.e. "send me the kicker")?

You seem to be misunderstanding the doctrine of constructive receipt. You have constructive receipt only when funds are put aside so that you can draw upon them at any time. Until you get the check, you haven't got access to the money.

If you affirmatively donate your kicker check, I suppose you have constructive receipt when your money is actually paid to the state school fund. But if you didn't affirmatively donate (and our reader did not -- that's why he eventually got his kicker), and the state doesn't get around to paying you until 2008, you had neither money nor access to the money in 2007.

Think of it this way: If my employer mistakenly refuses to cut me my December paycheck, but realizes her error when I point it out to her in December, and she pays me in January, when do I have the income for tax purposes? In January.

...about the wisdom of the "kicker" as a substantive policy matter, administratively it's a nightmare. The politicians who thought it up should be condemned.

That would be the branded Band of LIARS. Beyond 'condemned,' incarcerated.


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