November 9, 2021
IRS Admits Failure in Meeting Quick Refund Timeline - Andrew Velarde, Tax Notes ($):
As taxpayers continue to file claims for quick refunds for net operating loss carrybacks, the IRS has been unable to process some in a timely fashion in what it labels a systemic issue.
“It really is a resource limitation. . . . Not all of [the quick refunds] are meeting the goal right now,” said Nicole Flax, commissioner of the IRS Large Business and International Division, noting that all paper processing goes through the Wage and Investment Division. “It is a big area of focus . . . in trying to ensure we are as current as possible. We know that for some taxpayers it is quite a pain point because they need their money. Wage [and Investment Division] is working as quickly as they can to try to move things.”
Net operating loss carrybacks are available for tax years beginning before January 1, 2021. The "quick refund" is designed to shortcut the refund claim process. It's not surprising that paper refunds are processed slowly; even electronic refunds face unusual delays right now.
Infrastructure bill includes some tax provisions - Michael Cohn, Accounting Today:
However, there are several tax provisions in the bipartisan infrastructure bill, including one that ends the Employee Retention Credit for wages paid after Sept. 30, 2021, rather than the end of the year, as a way to help pay for the cost of the bill. There are exceptions for so-called “recovery startup businesses,” however, but those need to have started their businesses after Feb. 15, 2020, and their gross receipts can’t exceed $1 million.
Crypto Crackdown Survives in Infrastructure Bill - Mary Katherine Browne, Tax Notes ($). "Since cryptocurrency will be considered a security, it will be subject to the same reporting requirements as other specified securities such as stocks and bonds, which require a Form 1099-B filing to report their sale and basis."
Digital Asset Reporting in H.R. 3684 Infrastructure Legislation - Annette Nellen, 21st Century Taxation. "These changes are effective for statements required by be furnished after 12/31/23 so there is time for the IRS to issue proposed regulations and get public comment."
The wait continues on Build Back Better - Bernie Becker, Politico. "The question of when, how and/or if the House will pass the social spending framework will be front-and-center until at least next week. But for tax lobbyists, the focus has long since shifted over to the Senate."
One More Week to Get BBB Done? - Renu Zaretsky, Daily Deduction. "House Speaker Nancy Pelosi now plans for a House vote by November 15, but a handful of key issues remain unresolved, including the fate of the cap on the state and local tax (SALT) deduction. One big backer of a SALT cap repeal, Rep. Josh Gottheimer, says his group wants to see a CBO score of the bill before voting for it, though he expects it to align with Administration estimates. The Senate will almost certainly revise the House version of the social spending bill, which will require one more vote in the House. Lawmakers are not planning December vacations."
Qualified Small Business Stock — The IRS Gives And Congress Might Take Away - Daniel Mayo, Forbes:
The original 50% exclusion would survive.
The ability to exclude capital gain on the sale of qualified small business stock (QSBS) is one of the most powerful and exciting tax opportunities for business owners. It allows individuals to exclude from gross income the greater of $10 million or 10 times their initial investment in their company, with the potential to exclude up to $500 million of gain.
Currently, Congress is considering eliminating the 75% and 100% exclusion percentages for taxpayers making at least $400,000 per year. This is one of the proposals included in the recent iteration of the much-debated reconciliation bill.
Complexity of Biden's FTC Proposals Causes Concerns - Michael Smith, Tax Notes ($). "Critics are questioning the administrability of the foreign tax credit proposals in President Biden’s Build Back Better bill, citing increasingly stringent look-through rules, a complicated country-by-country multiple-basket overlay, and drastic changes to sourcing principles."
Independent analysis says budget bill could add $200B to deficits - Lindsey McPherson, Roll Call. "House Democrats’ budget reconciliation bill could increase federal deficits by roughly $200 billion over 10 years, falling short of lawmakers’ ambitions to fully pay for the climate and social spending package, a nonpartisan budget watchdog group said Monday."
But that's only by accepting Congressional math on the state and local tax deduction:
And the opponents of the SALT cap will really, truly let the cap suspension expire, right?
The group counts Democrats’ proposal to raise the current $10,000 cap on state and local tax deductions to $80,000 through 2030, with a brief snapback to $10,000 in 2031, as both an expenditure and an offset. The provision would cost $285 billion through 2025, when the current $10,000 cap is set to expire, and raise $300 billion after that, resulting in a net $15 billion in revenue, according to CRFB’s numbers.
Minimum Corporate Book Tax Raises Red Flags for Academics - Michael Smith, Tax Notes ($). "Hanlon said academic research has shown that when companies alter their tax bases and their financial accounting increasingly conforms with their taxable income, the results can be skewed, resulting in less accurate information regarding capital markets."
Pro-Growth Tax Reform for Oklahoma - Janelle Cammenga, Jared Walczak, and Timothy Vermeer, Tax Policy Blog. "Although the recent rate reductions are an important step forward, many elements of Oklahoma’s tax code remain an impediment to its competitive standing. Fortunately, Oklahoma finds itself in a good position: the state is in need of pro-growth tax reform at the very same time that it has a revenue buffer to help absorb transition costs from tax policy changes."
The post suggests reforms to Oklahoma's tax system, including:
Repeal the throwback rule. Oklahoma’s throwback rule punishes businesses that sell out of state, encouraging them to relocate to—or at least locate distribution facilities in—other states. With studies suggesting that, over time, tax avoidance strategies eliminate most or all revenue gains from throwback rules, repealing the throwback rule would be a sound investment in Oklahoma’s economy.
Shift to single sales factor apportionment. Many states have shifted from traditional three-factor apportionment. As long as Oklahoma retains its current apportionment formula, it will tax in-state investment more heavily than other states. In order to compete in the changing tax landscape, the state should consider following suit and adopting single sales factor apportionment.
IRS Automatic Notices Alienate Taxpayers - A New Scandal Looming? - Peter Reilly, Forbes. "Here is what I think happened. Blynn's timely response to CP 162 is still sitting in the IRS unopened mail pile. They have their programs in place to issue a collection notice two weeks after not receiving a response to the CP 162. They actually have a response, but the left hand doesn't know that the right hand is not keeping up."
Related: How to Address COVID-19-Related Tax Collection Issues.
Evergreen Post: IRS Sending Erroneous Balance Due Notices - Russ Fox, Taxable Talk:
This does bring up some standard rules about IRS notices:
Do not assume the notice is correct. Per IRS statistics, two-thirds of IRS notices are wrong in whole or in part.
If you use a tax professional, let him or her know immediately about the notice. IRS notices do not get better with age.
If you do need to respond, make sure you respond timely and use certified mail, return receipt requested. You want proof the IRS received the response.
Business Owner's Tax Background Supported Imposition of Fraud Penalty - Paerker Tax Pro Library. " In addition, the court found that the taxpayer's background as a tax return preparer and his specialized knowledge and experience on corporate and business taxation provided even stronger circumstantial evidence of fraud."
Should COVID Vaccine Makers Be Taxed For Profiting On Misery? - Joseph Thorndike, Forbes. "But is profiteering really the right word? And even if it is, should governments be trying to stop it? The answer to both questions is no."
Also: "There's something fundamentally different about profits made from the sale of lifesaving vaccines and profits made from the sale of deadly weapons."
'Accidental Americans' Want Expatriation Services Restored - Sara Paez, Tax Notes ($):
Plaintiffs in L’Association des Américains Accidentels v. U.S. Department of State argue that the suspension of expatriation services for U.S. citizens abroad impedes their ability to “escape the financial and bureaucratic horrors imposed by [the Foreign Account Tax Compliance Act] and related legislation” through renunciation of U.S. citizenship, according to the complaint filed by the group and nine individuals November 8 in the U.S. District Court for the District of Columbia.
Accidental Americans are those with negligible ties to the United States, including nationals residing overseas who are U.S. citizens because they were born on American soil or were born abroad to American parents, who are subject to the reporting requirements of FATCA.
FATCA doesn't just affect "FAT CAts," as its clever name would imply. Not even mostly.
Tear down this wall. Today is World Freedom Day, celebrated on the anniversary of the the fall of the Berlin Wall. May any walls holding you back tumble down too.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.