Renting Real Estate And Self-Employment Tax

 

I was looking at a tax return recently. There was an issue there that I did not immediately recognize.

Let’s go over it.

The client is a new venue for cocktail parties, formal dinners, corporate meetings, bridal showers, wedding rehearsals and receptions, and other such occasions.

The client will configure the space as you wish, but you will have to use a preselected list of caterers should you want food. There is a bar, but you will have to provide your own bartender. You can decorate, but there are strict rules on affixing decorations to walls, fixtures, and such. Nonroutine decorations must be approved in advance. You will have to bring your own sound system should you want music, as no system exists. The client will clean the space at the end of the event, but you must first remove all personal items from the property.

Somewhat specialized and not a business I would pursue, but I gave it no further thought.

The question came up: is this ordinary business income or rental income?

Another way to phrase the question is whether the income would or would not be subject to self-employment tax.

Let’s say you have a duplex. One would be hard pressed to think of a reasonable scenario where you would be paying self-employment tax, as rental income from real estate is generally excepted from self-employment income.

Let’s change the facts. You own a Hyatt Hotel. Yes, it is real estate. Yes, there is rental income. This income, however, will be subject to self-employment tax.

What is the difference? Well, the scale of the activity is one, obviously. Another is the provision of additional services. You may bring in a repairman if there were a problem at the duplex, but you are not going into the unit to wash dishes, vacuum carpets, change bed linens or provide fresh towels. There is a limit. On the other hand, who knows what concierge services at a high-end hotel might be able to provide or arrange.

We are on a spectrum, it appears. It would help to have some clarification on which services are innocuous and which are taunting the bull.

IRS Chief Counsel Advice 202151005 addressed the spectrum in the context of residential rental property.

First a warning. A CCA provides insight into IRS thinking on a topic, but that thinking is not considered precedent, nor does it constitute substantial authority in case of litigation. That is fine for us, as we have no intention of litigating anything or having a tax doctrine named after us.

Here is scenario one from the CCA:

·       You are not a real estate dealer.

·       You rent beachfront property via online marketplaces (think Airbnb).

·       You provide kitchen items, Wi-Fi, recreational equipment, prepaid ride-share vouchers to the business district and daily maid service.

Here is scenario two:

·       You are not a real estate dealer.

·       You rent out a bedroom and bathroom in your home via online marketplaces.

·       A renter has access to common areas only to enter and exit.

·       You clean the bedroom and bathroom after each renter’s stay.

I am not overwhelmed by either scenario. Scenario one offers a little more than scenario two, but neither is a stay at the Hotel Jerome.

Here is the CCA walkthrough:

·       Tax law considers rental income collected by a non-dealer to be non-self- employment income.

·       However, the law says nothing about providing services.

·       Allowable services include:

o   Those clearly required to maintain the property in condition for occupancy, and

o   Are a sufficiently insubstantial portion of the rent.

·       Nonallowable services include:

o   Those not clearly required to maintain the property in condition for occupancy, and

o   Are so substantial as to comprise a material portion of the rent.

The CCA considered scenario two to be fine.

COMMENT: I would think so. The services are minimal unless you consider ingress and egress to be substantial services.

The CCA considered scenario one not to be fine.

Why not?

·       The services are for the convenience of the occupants.

·       The services are beyond those necessary to maintain the space for occupancy.

·       The services are sufficient to constitute a material portion of the rent.       

I get the big picture: the closer you get to hotel accommodations the more likely you are to be subject to self-employment tax. I am instead having trouble with the smaller picture – the details a tax practitioner is looking for – and which signal one’s location on the spectrum.

·       Is the IRS saying that services beyond the mere availability of a bed and bathroom are the path to the dark side?

·       IRS Regulations refer to services customarily provided.

o   How is one to test customarily: with reference to nearby full-service hotels or only with other nearby online rentals?

o   In truth, did the IRS look at any nearby services in scenario one?

·       What does material portion mean?

o   Would the provision of services at a lower rent situs (say Athens, Georgia) result in a different answer from the provision of comparable services at a higher rent situs (say Aspen, Colorado)?

o   What about a different time of year? Can one provide more services during a peak rental period (say the NCAA Tournament) and not run afoul of the material portion requirement??

One wonders how much this CCA has reinforced online rental policies such as running-the-dishwasher and take-out-the-trash-when-you-leave. There is no question that I would advise an Airbnb client not to provide daily services, whatever they may be.

I also suspect why our client set up their venue the way they did.

The IRS Changes An In - Person Visit Policy

 

This afternoon I was reading the following:

As part of a larger transformation effort, the Internal Revenue Service today announced a major policy change that will end most unannounced visits to taxpayers by agency revenue officers to reduce public confusion and enhance overall safety measures for taxpayers and employees.”

One can spend a lifetime and never interact with a Revenue Officer. We are more familiar with Revenue Agents, who examine or audit tax returns and filings. Revenue Officers, on the other hand, are more specialized: they collect money.

I deal with ROs often enough, but – then again – consider what I do. I rarely meet with one in person, though. The last time I met an RO was one late afternoon at northern Galactic Command. I was the only person in the office, until I realized that I was not. I encountered someone who claimed to be an RO, which I immediately and expressly disbelieved. He presented identification, which gave me pause. He then asked about a specific client, giving me grounds to believe him. The IRS could not contact a taxpayer, so the next step was to contact the last preparer associated with that taxpayer.

I was – BTW – not amused.

I wonder if the above IRS policy change has something to do with an event that occurred recently in Marion, Ohio. The following is cited from a recent House Judiciary Committee letter to IRS Commissioner Danny Werfel:

On April 25, 2023, an IRS agent—who identified himself as 'Bill Haus' with the IRS’s Criminal Division—visited the home of a taxpayer in Marion, Ohio. Agent 'Haus' informed the taxpayer he was at her home to discuss issues concerning an estate for which the taxpayer was the fiduciary. After Agent 'Haus' shared details about the estate only the IRS would know, the taxpayer let him in. Agent 'Haus' told the taxpayer that she did not properly complete the filings for the estate and that she owed the IRS 'a substantial amount.' Prior to the visit, however, the taxpayer had not received any notice from the IRS of an outstanding balance on the estate.
 
"During the visit, the taxpayer told Agent 'Haus' that the estate was resolved in January 2023, and provided him with proof that she had paid all taxes for the decedent's estate. At this point, Agent 'Haus' revealed that the true purpose of his visit was not due to any issue with the decedent’s estate, but rather because the decedent allegedly had several delinquent tax return filings. Agent 'Haus' provided several documents to the taxpayer for her to fill out, which included sensitive information about the decedent.
 
"The taxpayer called her attorney who immediately and repeatedly asked Agent 'Haus' to leave the taxpayer's home. Agent 'Haus' responded aggressively, insisting: 'I am an IRS agent, I can be at and go into anyone's house at any time I want to be.' Before finally leaving the taxpayer’s property, Agent 'Haus' said he would mail paperwork to the taxpayer, and threatened that she had one week to satisfy the remaining balance or he would freeze all her assets and put a lean [sic] on her house.
 
"On May 4, 2023, the taxpayer spoke with the supervisor of Agent 'Haus,' who clarified nothing was owed on the estate. The supervisor even admitted to the taxpayer that 'things never should have gotten this far.' On May 5, 2023, however, the taxpayer received a letter from the IRS— the first and only written notice the taxpayer received of the decedent’s delinquent tax filings—addressed to the decedent, which stated the decedent was delinquent on several 1040 filings. On May 15, 2023, the taxpayer spoke again with supervisor of Agent 'Haus,' who told the taxpayer to disregard the May 5 letter because nothing was due. On May 30, 2023, the taxpayer received a letter from the IRS that the case had been closed.”

Yeah, someone needs to be fired.

The IRS did point out the following in today’s release:

For IRS revenue officers, these unannounced visits to homes and businesses presented risks.

No doubt, especially for those who think they can go into “anyone’s house at any time.”

What will the IRS do instead?

In place of the unannounced visits, revenue officers will instead make contact with taxpayers through an appointment letter, known as a 725-B, and schedule a follow-up meeting. This will help taxpayers feel more prepared when it is time to meet.

Taxpayers whose cases are assigned to a revenue officer will now be able to schedule face-to-face meetings at a set place and time, with the necessary information and documents in hand to reach resolution of their cases more quickly and eliminate the burden of multiple future meetings.

There will be situations where the IRS simply must appear in person, of course:

The IRS noted there will still be extremely limited situations where unannounced visits will occur. These rare instances include service of summonses and subpoenas; and also sensitive enforcement activities involving seizure of assets, especially those at risk of being placed beyond the reach of the government.

These situations should be a fraction of the number under the previous policy, however.

Deducting State And Local Taxes On Your Individual Return

You probably already know about the change in the tax law for deducting state and local taxes on your personal return.

It used to be that you could itemize and deduct your state and local income taxes, as well as the real estate taxes on your house, without limitation.  Mind you, other restrictions may have kicked-in (such as the alternative minimum tax), but chances are you received some tax benefit from the deduction.

Then the Tax Cuts and Jobs Act put a $10,000 limit on the state income/local income/property tax itemized deduction.

Say for example that the taxes on your house are $5 grand and your state income taxes are $8 grand. The total is $13 grand, but the most you can deduct is $10 grand. The last $3 grand is wasted.

This is probably not problem if you live in Nevada, Texas or Florida, but it is likely a big problem if you live in California, New York, New Jersey or Connecticut.

There have been efforts in the House of Representatives to address this matter. One bill would temporarily raise the cap to $20,000 for married taxpayers before repealing the cap altogether for two years, for example.

The tax dollars involved are staggering. Even raising the top federal to 39.6% (where it was before the tax law change) to offset some of the bill’s cost still reduces federal tax receipts by over $500 billion over the next decade.

There are also political issues: The Urban-Brookings Tax Policy Center ranked the 435 Congressional districts on the percentage of households claiming the SALT (that is, state and local tax) deduction in 2016. Nineteen of the top 20 districts are controlled by Democrats. You can pretty much guess how this will split down party lines.

Then the you have the class issues: approximately two-thirds of the benefit from repealing the SALT cap would go to households with annual incomes over $200,000. Granted, these are the people who pay the taxes to begin with, but the point nonetheless makes for a tough sell.

And irrespective of what the House does, the Senate has already said they will not consider any such bill.

Let’s go over what wiggle room remains in this area. For purposes of our discussion, let’s separate state and local property taxes from state and local income taxes.

Property Taxes

The important thing to remember about the $10,000 limitation is that it addresses your personal taxes, such as your primary residence, your vacation home, property taxes on your car and so on.

Distinguish that from business-related property taxes.

If you are self-employed, have rental real estate, a farm or so on, those property taxes are considered related to that business activity. So what? That means they attach to that activity and are included wherever that activity is reported on your tax return. Rental real estate, for example, is reported on Schedule E. The real estate taxes are reported with the rental activity on Schedule E, not as itemized deductions on Schedule A. The $10,000 cap applies only to the taxes reported as itemized deductions on your Schedule A.

Let me immediately cut off a planning “idea.” Forget having the business/rental/farm pay the taxes on your residence. This will not work. Why? Because those taxes do not belong to the business/rental/farm, and merely paying them from the business/rental/farm bank account does not make them a business/rental/farm expense.

         

State and Local Income Taxes

State and local income taxes do not follow the property tax rule. Let’s say you have a rental in Connecticut. You pay income taxes to Connecticut. Reasoning from the property tax rule, you anticipate that the Connecticut income taxes would be reported along with the real estate taxes when you report the rental activity on your Schedule E.

You would be wrong.

Why?

Whereas the income taxes are imposed on a Connecticut activity, they are assessed on you as an individual. Connecticut does not see that rental activity as an “tax entity” separate from you. No, it sees you. With that as context, state and local income tax on activities reported on your individual tax return are assessed on you personally. This makes them personal income taxes, and personal income taxes are deducted as itemized deductions on Schedule A.

It gets more complicated when the income is reported on a Schedule K-1 from a “passthrough” entity. The classic passthrough entities include a partnership, LLC or S corporation. The point of the passthrough is that the entity (generally) does not pay tax itself. Rather, it “passes through” its income to its owners, who include those numbers with their personal income on their individual income tax returns.

What do you think: are state and local income taxes paid by the passthrough entity personal taxes to you (meaning itemized deductions) or do they attach to the activity and reported with the activity (meaning not itemized deductions)?

Unfortunately, we are back (in most cases) to the general rule: the taxes are assessed on you, making the taxes personal and therefore deductible only as an itemized deduction.

This creates a most unfavorable difference between a corporation that pays its own tax (referred to as a “C” corporation) and one that passes through its income to its shareholders (referred to as an “S” corporation).

The C corporation will be able to deduct its state and local income taxes until the cows come home, but the S corporation will be limited to $10,000 per shareholder.

Depending on the size of the numbers, that might be sufficient grounds to revoke an S corporation election and instead file and pay taxes as a C corporation.

Is it fair? As we have noted before on this blog, what does fair have to do with it?

We ran into a comparable situation a few years ago with an S corporation client. It had three shareholders, and their individual state and local tax deduction was routinely disallowed by the alternative minimum tax.  This meant that there was zero tax benefit to any state and local taxes paid, and the company varied between being routinely profitable and routinely very profitable. The SALT tax deduction was a big deal.

We contacted Georgia, as the client had sizeable jobs in Georgia, and we asked whether they could – for Georgia purposes – file as a C corporation even though they filed their federal return as an S corporation. Georgia was taken aback, as we were the first or among the first to present them with this issue.

Why did we do this?

Because a C corporation pays its own tax, meaning that the Georgia taxes could be deducted on the federal S corporation return. We could sidestep that nasty itemized deduction issue, at least with Georgia.

Might the IRS have challenged our treatment of the Georgia taxes?

Sure, they can challenge anything. It was our professional opinion, however, that we had a very strong argument. Who knows: maybe CTG would even appear in the tax literature and seminar circuit.  While flattering, this would have been a bad result for us, as the client would not have appreciated visible tax controversy. We would have won the battle and lost the war.

However, the technique is out there and other states are paying attention, given the new $10,000 itemized deduction limitation. Connecticut, for example, has recently allowed its passthroughs to use a variation of the technique we used with Georgia.

I suspect many more states will wind up doing the same.

When Do You Become A Landlord?

There is a requisite to being an NFL player – current or retired.

You must have played in the NFL.

There is a tax spiff on this point when you decide to landlord.

When does your rental start?

Probably when you place it in service, that is, when you have a tenant and begin receiving rent.

Can it start before then? Say that you are having trouble getting a tenant. Can you can say that you started renting before you have a tenant?

It probably can happen, but you had better line-up your facts in case of challenge.

I am looking at a case where the IRS assessed the following tax:

                 2004             $ 78,292

                     2005             $144,053     

                     2006             $218,228

                     2007             $143,729

                     2008             $252,777

                     2009             $309,060

Numbers like that will attract attention, the kind that can result in a challenge.

There is a doctor who now lives in Florida but used to live in Rhode Island. In 2004 he and his wife bought a mansion in Newport. The house was derelict, having been vacant for four decades.

It was uninhabitable, so the first thing they did was bring in a contractor.

It was a historic property, so there were also some tax credits in there.

Restoration started in 2002.

The work went into 2008.

That is a lot of restoration.

The family moved to Florida in 2005.

I suppose that answers the issue of whether this was ever a principal residence. It could not be if one could not live in it.

In 2006 they met a rental agent who specialized in luxury properties.

They got a temporary certificate of occupancy in 2007 and a final certificate in 2008.

Seems that one could argue that it was available for rent in 2007.

By 2007 the agent was hopeful she could attract a renter. She held up actively marketing it, however, as renovations were unfinished.

Sure enough, one of her clients expressed an interest in 2008.

The debt on this fiasco was ballooning, so the doctor and his wife decided to dump the house. The ante was upped when the bank increased their monthly payment in 2008 from $25 grand to $39 grand a month.

Count me out on ever renting this place.

In July, 2009 they sold the house.

They filed their 2009 tax return and reported a capital loss of a gazillion dollars.

Tax advisors are not overly fond of capital loses, as the only thing they can offset – with one exception – is capital gains. If you have no capital gains, then the loss just sits there – unused and gathering dust.

The doctor and his wife met a tax advisor who said that he could help: just treat the house as business property and the loss would be deductible. The good kind of loss – the kind you can actually lose.

They amended their 2009 return and reported a $8-plus million business loss.

Now they had a 2009 net operating loss. They carried the loss backward and forward. There were tax refunds and jollity aplenty.

However, numbers like that attract IRS attention, especially when you amend a return.

The IRS did not believe they had business property. If it was not business, then the initial reporting as capital loss was correct. The IRS wanted its money back.

Don’t think so, replied the doctor and his wife.

Off to Tax Court they went.

At issue was whether the house ever shifted to rental status, as that is the trigger for it to be business property.

There was one key – and punishing – fact: they never rented the house.

Here is the Court:

While we have no doubt that petitioners devoted a great deal of time, effort and expense to the renovation of Wrentham House Mansion, the record overwhelmingly confirms that Wrentham House Mansion was never held out for rent or rented after the restoration was complete. Quite simply, the rental activity with respect to Wrentham House Mansion never commenced in any meaningful or substantive way.”

Perhaps the doctor and his wife would have held on – at least long enough to rent for a while – if the monthly payment had not skyrocketed. They were pushed into a corner.

Still, no rent = no business = no business loss.

The best they could do was a capital loss.

What is the one exception to a capital loss I alluded to earlier?

You can deduct $3,000 a year against non-capital-gain property.

Which is no solace when you have an $8-plus million capital loss.

The case is Keefe v Commissioner for the homegamers.

National Taxpayer Advocate's June 30, 2015 Report To Congress

Twice a year the National Taxpayer Advocate submits a report to Congress. The Advocate is required to submit these without prior review by the Commissioner of the Internal Revenue Service, the Secretary of the Treasury or the Office of Management and Budget. A report was issued June 30, and it identified the objectives of the Advocate’s office for the upcoming fiscal year.

The National Taxpayer Advocate is Nina E. Olson. We have spoken of her before, and I am a fan.  

The following caught my eye:

The most serious problem facing U.S. taxpayers is the declining quality of service provided to them by the IRS when they seek to comply with their tax filing and payment obligations."

Given that this is a co-equal reason for the IRS to exist (the other being to collect revenue), this is a rather serious charge.

Consider the following:

·         The IRS hung up on approximately 8.8 million taxpayers during this year’s filing season. The IRS dryly refers to these as “courtesy disconnects,” ostensibly as proof that they too have read Orwell’s 1984.

o   This number was up from 544,000 hang-ups during the 2014 filing season.

·         Only 37% of people using toll-free lines were able to speak with a human being.

o   Down from 71% last year.

·          The IRS has announced that it will no longer answer any tax law questions at all.

·         The IRS will eliminate tax preparation altogether.

o   It used to maintain approximately 400 walk-in sites and helped taxpayers prepare around 500,000 tax returns annually.

·         The IRS answered only 17% of the calls from people whose account was blocked on suspicion of identity theft.

·         Don’t expect that hiring a tax professional will resolve the logjam. Professionals were able get through less than 50% of the time.

From the perspective of a practicing tax CPA, I found interacting with the IRS this filing season to be unpleasant, if not futile. I find myself with divided opinions: many of the examiners and officers I have met and worked with over the years are responsible and likeable enough. Gather them together however and you have an organization that has lost the trust and confidence of a sizeable number of taxpaying citizens.

Ms. Olson does point out that the IRS has been charged with additional tasks in recent years, such as pursuing foreign assets (FATCA) and "assisting" the American public with their health insurance (ObamaCare). There has simultaneously been a reduction in agency funding.The GAO has reported that IRS funding declined approximately $900 million since fiscal year 2010, for example, resulting in the elimination of approximately 10,000 full-time equivalent positions.

Let’s be frank: under this Congress there will not be – nor should there be – additional funding for an agency that has been weaponized for political purposes. Paul Caron, a Pepperdine tax law professor, maintains a count and compendium of IRS misbehavior at TaxProfBlog  (http://taxprof.typepad.com/taxprof_blog/irs-scandal). He is perilously close to 800 days and will likely exceed that count by the time you read this. If smoke indicates fire, then someone must have burned down the warehouse district to generate that much smoke.

Is there a solution? Yes, but it will probably have to wait until November, 2016. But you already knew that.

Ohio Reforms Its Local Income Taxation

I remember having to quickly ramp-up on local taxes after moving to Cincinnati. I grew up in Florida, which has no state or local individual income taxes. We moved here from Georgia, which has a state but no local income taxes. I did not realize at the time that I was moving to a region which has approximately 80% or more of all the local income taxes in the nation – Ohio, Indiana, Pennsylvania and Kentucky.

The Kentucky local individual taxes are – for the most part – occupational taxes. If you do not work in one of those counties or cities, you generally do not have to worry about it. I live in Kentucky, for example, but I pay no Kentucky local income taxes. I do not work in Kentucky.

Indiana has county taxes, but they are filed with the state individual income tax return. Think of it as a “piggy-back” tax.

Ohio had to be different. For one thing, Ohio cities tax their residents, meaning that – if you live within the city – you have yet one more tax return to file. It doesn’t matter whether you work there (in contrast to Kentucky), and in many cases you have to file a return whether you owe tax or not. You might not owe tax, for example, if the city allows (at least some) credit for the local taxes paid to the city where you work (for example, if you live in a suburb but work downtown).

Add to this that each city has local autonomy to determine its taxable base, within the limits of Ohio law. One city could tax supplemental retirement benefits (SERPs), while another would not. One city could allow you to carry over a net operating loss (NOL) to future years, while another city would not.  Even if the city allowed an NOL, your city might allow a carryover of five years, while another would allow only three.

Even for a tax pro, it is a pain.

On December 19, 2014 the Governor signed a bill that promises to bring some standardization to the wild west of Ohio local income taxation. It is called the Ohio Municipal Income Tax Reform Act, and it will be effective for tax years beginning on and after January 1, 2016. The delay was intentional, as tax forms may need to be redesigned and instructions updated. A tax bill signed in December does not leave much time for that. 

Let’s go over the high points:

(1) The calculation of local taxable income will begin with federal adjusted gross income. The adjustments to federal AGI have been significantly standardized and include, for example, interest, dividends and capital gains.

NOTE: There are two cities in Ohio that start with Ohio adjusted gross income (from the Ohio state income tax return). Those two do not have to change to the new law. One of them is in Cincinnati and rhymes with Indian Hill. The effect for residents of Indian Hill is to tax their interest, dividends and capital gains. 

(2) Partnerships and LLCs will be taxed at the entity level only. Partners and members will subtract this income (as an adjustment under (1) above) when calculating their city tax.

That leaves Subchapter S shareholders to discuss.

(3) Subchapter S corporations will also be taxed at the entity level.

In addition, S shareholders may also continue to be taxed at the individual level if they live within 119 selected municipalities.

OBSERVATION: Obviously not as good as the rule for partnerships and LLCs. Why the difference? Who knows.          

(4) Losses from a passthrough entity (that is, a partnership, LLC, Subchapter S or (unlikely) a trust) may offset self-employment, rental, royalty and farming income. The reverse is also true.

(5) Net losses from (4) however cannot offset wages and salaries.

(6) Employee business expenses (that is, “Form 2106” expenses) will be deductible to the extent deducted for federal purposes.

(7) Ohio cities will have to limit their consideration of “domicile” to 25 common law-type tests. The cities are not permitted to add to these 25 tests.

NOTE: This is the “snowbird” test. I have had cities tell me they do not recognize snowbirds. A house there means you are taxed there, whether you spend much time at the house or not.

(8) An employee or sole proprietor is allowed to go into and out of a city for up to 20 days without triggering withholding for that city’s income tax.

NOTE: The previous threshold was 12 days. Notice that we are discussing withholding taxes only. A city may still contact a business for business income taxes if it spots business vans and work trucks stopping within the city.

(9) Pensions are not taxable.

NOTE: SERPs are considered to be wages, not pensions. SERPS are deferred compensation plans, usually funded exclusively by the employer. The tax reporting for a SERP is done on Form W-2 - the same reporting as one's wages or salary - so the cities take the position that SERPs are wages and not pension income.

(10)        Returns will be due (for a calendar year taxpayer) on April 15.

(11)        The returns will be automatically extended if a federal extension is requested.

(12)        Estimated individual income taxes will be required only if the estimated tax due is $200 or more.

(13)        Any tax due (before withholdings or estimates) of $10 or less will be reduced to zero.

NOTE: You still have to file the tax return, though.

(14)        Any interest due will charged at the federal rate plus 5% (Ohio’s rate is federal plus 3%).

(15)        Net operating losses are standardized.

a.     Beginning January 1, 2017 all cities will allow a uniform 5-year carryover (with a phase-in).

b.     Earlier NOLs will be permitted as allowed by pre-change city law.

c.      City NOLs will be calculated using federal limitations such as passive activity, basis or at-risk limitations.

NOTE: This is a subtle but very significant change – in favor of the cities.

(16)        Certain administrative changes, such as requiring the cities to send out an assessment notice -clearly marked “ASSESSMENT” – before they can change your numbers on the city return.

The Ohio Society of CPAs was an outspoken advocate of these changes. I am  sympathetic to arguments the cities raised, but I am nonetheless thankful for some standardization. I prepare or review local returns. I have to bill for this, as this is my profession. I have routinely seen business clients with multiple local returns where the cumulative tax is a fraction of the professional fee to prepare the returns. I submit that a tax is unfair when the preparation fee routinely exceeds any tax so raised. Call it Hamilton's razor if you wish. 

By the way, I would apply the same razor to federal and state taxes. A corollary to the razor would require Congress to reduce its revenue estimates from any proposed tax by the compliance costs (that is, the professional fees) of complying with said proposed tax. I suspect we wouldn't see as much nonsense as we presently have in the tax Code.