Tax News & Views Congress Returns Roundup

September 8, 2020

Lawmakers Tackle Spending Deadline, Look to Revive Coronavirus Aid Talks - Kristina Peterson and Natalie Andrews, Wall Street Journal ($). "Both congressional leaders and White House officials have sounded increasingly pessimistic notes about the chances of a relief deal coming together in the weeks before the election, when mounting political pressure makes it hardest to compromise. Talks between the White House and Democrats broke down last month."

Lawmakers to Explore Cost of Inaction on COVID-19 Relief - Frederic Lee, Tax Notes ($). "One area of agreement, however, is on the need to expand the Paycheck Protection Program. Mnuchin told a congressional committee on September 1 that if members of Congress couldn’t come to an agreement on a coronavirus relief package, they should try to pass a stand-alone PPP bill."


IRS Employees Told They Can’t Opt Out of Payroll Tax Deferral - William Hoffman, Tax Notes ($). "The National Finance Center, an agency of the Department of Agriculture that provides financial and administrative services to federal agencies, has said it plans to participate in the payroll tax deferral program. However, deferral has been a non-starter for most private employers."

Problems with Payroll Deferral for Employees - Annette Nellen, 21st Century Taxation. "What should employees do if their employer, such as the federal government, requires the deferral and they don't want it and can't opt out?"

Trump's Payroll Tax deferral - What Should Employers Do? Michael Gilmer, Davis Brown Tax Law Blog. "The guidance left many unanswered questions, particularly regarding the logistics of how to implement the payroll deferral and how to repay the deferred taxes in the event they are not forgiven by Congress." 

Biden-Harris’s High Hopes for Taxing Wealth Transfers - Benjamin Wills and Jed Bodger, Tax Notes ($):

One Biden-Harris tax proposal is the elimination of the section 1014 basis step-up for transfers at death. Under current law, when a person dies and leaves property to a beneficiary, the basis of that property is increased to its FMV...The question for the Biden-Harris team is when the realization event should occur, which many believe should be at death."

The possibiity of new views of tax policy makes it urgent for taxpayers with significant estates to review their estate planning. Such taxpayers would be wise to have contingency plans to activate if needed after the election.

Related: Estate and Gift Tax—Are You Prepared for Changes? 


Lesson From The Tax Court: Form Over Substance Gives Taxpayers A Double Tax Benefit - Bryan Camp, TaxProf Blog:

Donations of appreciated stock to a charity is an exception to this general rule of no double tax benefit. Such donations generate two tax benefits because Congress allows taxpayers to use the fair market value of the donated stock as the amount of their charitable donation. See Treas.Reg. 1.170A-1(c)(1), interpreting §170(e)(1). Thus, the first tax benefit is that taxpayers do not have to pay tax on the economic gain represented by the unrealized appreciation. The second is that taxpayers can then use those same untaxed dollars to shelter other dollars of income from taxation via the deduction permitted by §170.

Taxpayers get this double tax benefit because Congress allows form to prevail over substance. That is, a taxpayer could always choose to sell appreciated stock, pay tax on the realized gain, and then donate that gain to charity, taking a deduction therefore. That strategy would certainly result in one tax benefit, the deduction. However, if the taxpayer simply donates the stock---and lets the charity sell it---the taxpayer now gets a second tax benefit of escaping taxation on the appreciation while also now getting the same deduction benefit.

If you are charitably-inclined, appreciated property donations are more tax-efficient than cash donations. As this article notes, the formalities are crucial.

Tax Court Denies IRS Attempt to Argue Contribution of Stock Was a Disguised Taxable Redemption Followed by a Cash Contribution - Ed Zollars, Current Federal Tax Developments.


6 unemployment tax Q&A for COVID-tinged Labor Day 2020 - Kay Bell, Don't Mess With Taxes:

Q1. Do I have to report unemployment benefits on my federal income tax return? 

A1: Yes, any unemployment compensation received during the year must be reported on your federal tax return.

Plan accordingly.

12 Fun Facts About Labor Day History And Taxes - Kelly Phillips Erb, Forbes. "The first Labor Day holiday was celebrated on Tuesday, September 5, 1882, in New York City."


Tax Considerations for Derecho Damage - Kristine Tidgren, Ag Docket:

If the property is damaged, but not totally destroyed, the amount of a casualty loss is equal to:

- The lesser of (1) the property's adjusted basis or (2) its decline in value, which is the fair market of value of the property after the disaster subtracted from its fair market value before the disaster  


- Expected insurance or reimbursement received

Related: Deadline Relief for Iowa Derecho Now Covers 11 Counties

Sales Tax Issues when Rebuilding After the Iowa Derecho - Cody Edwards, Dickinson Law. "Thus, assuming the Iowa derecho is classified as an uncontrolled disaster or casualty, most services used to rebuild and repair the structures damaged by the storm should be exempt from sales tax."


When Buying Muni Bonds, Investors Should Look Beyond Their Own States - Derek Horstmeyer, Wall Steet Journal ($). "Investors might be surprised to learn there can be large differences in munis, both in their coupon rates and in the returns of the mutual funds that invest in them. Currently, average returns for muni funds in some states can differ by as much as a full point, which over time can add up to a tidy sum."

Related: Financial Planning: Helping You See the Big Picture


Flawed Federal Taxation of Recreational Marijuana - Ulrik Boesen, Tax Policy Blog. "In addition, de-scheduling would grant marijuana companies access to regular banking services and end the unfair tax treatment under IRC § 280E. 280E was enacted in 1982 to deny the deduction of business expenses for illicit operators selling drugs on Schedules I and II of the Controlled Substances Act. Combined, these factors could drive down prices—according to one estimate, federal legalization could drive prices down to between $5 and $18 per ounce from approximately $250 per ounce today."

House Plans Vote on Marijuana Decriminalization, Excise Tax Bill - Wesley Elmore, Tax Notes ($):

Removing marijuana from the Controlled Substances Act would effectively make state-legal cannabis businesses eligible to deduct their business expenses. Section 280E prohibits sellers of drugs classified under schedules I and II of the Controlled Substances Act from claiming such deductions, so cannabis businesses currently face a higher effective tax rate than similarly situated businesses.

The article reports that while there is support in both major parties, the Senate is "unlikely" to take up the bill if it passes the House.


Deducting Business Interest - Roger McEowen, Agricultural Law and Taxation Blog. "The rules surrounding the limitation on deducting business interest have changed significantly for tax years beginning after 2017." 

These rules get much stricter in 2022. Many businesses have yet to grapple with how these rules will affect debt-heavy capital structures.


NonSequitur Show - Object Lesson In Business Formation - Peter Reilly, Forbes. "A small, but passionate, YouTube community has become absorbed in what appears to be a very small stakes business lawsuit. The passion provides fuel for litigation costs that are out of proportion to the amount of money involved in the underlying dispute. I write about it here because of the insight it gives into the economy of YouTubers and also the lessons it gives about entity formation and how some people don’t understand the simplest tax concepts."

At Least The IRS Could Find 95% of the Returns… - Russ Fox, Taxable Talk. "Two items crossed my in-box within a few minutes of each other this morning. The first was a blog post from the National Taxpayer Advocate requesting that Congress give multi-year funding for modernizing IRS computer systems. The second was a TIGTA report noting the IRS couldn’t find about 5% of tax returns requested."

With Kentucky Derby Bets, IRS Wins Too - Robert W. Wood, Forbes. "It is important to keep an accurate diary or similar record of your gambling winnings and losses."

Today in history: The first episode of Star Trek aired in the U.S. September 8, 1966.

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