Programming Note: Eide Bailly is closed tomorrow and Friday for Thanksgiving break. Tax News & Views returns Monday.
Accountants press IRS for faster refunds and responses - Michael Cohn, Accounting Today:
The National Society of Accountants has sent a letter to Internal Revenue Service commissioner Charles Rettig and leaders of Congress’s main tax committees asking the IRS to speed up the refunds for 2019 and 2020 tax returns and communicate better.
The NSA pointed out that the IRS is continuing to lag in its processing and issuing of refunds for 2019 and 2020 returns and it called for more transparency and improved communication from the IRS to alleviate the growing frustrations and fears among tax and accounting professionals about the 2022 tax filing season.
2019. That doesn't inspire much hope that taxpayers still waiting on 2020 refunds will get them soon.
JCT Math Error Fix Flips Reconciliation Bill Narrative - Jonathan Curry, Tax Notes ($). "Revised distributional tables (JCX-47R-21) released November 23 by the Joint Committee on Taxation fix a miscalculation in its earlier analysis (JCX-47-21) that had shown that taxpayers with income in excess of $1 million would see their average tax rate fall by 1.7 percentage points in 2022 under the House-passed Build Back Better Act (H.R. 5376). In fact, their average tax rate would rise by 3.2 percentage points that year, the JCT’s revision shows."
More from Politico Pro's Morning Tax:
But there’s also some interesting stuff going on underneath those numbers — including the fact that JCT still believes that the government would collect almost $47 billion less from households making at least $1 million next year.
One big factor is that people making more than $5 million a year would face a far different tax situation, because of a surtax that tops out at 8 percent on income north of $10 million [actually, 5 percent starting at $10 million, 8% starting at $25 million - ed.].
Meanwhile, many seven-figure earners making under that amount could even face a tax cut under the House bill, because of a proposed increase in the cap on state and local tax deductions that could easily get clipped in the Senate.
Tax credit for other dependents can help families with older kids, aging parents - Kay Bell, Don't Mess With Taxes:
To claim the Credit for Other Dependents, you and your family members must meet certain conditions. These include:
- dependent children age 17 or older, such as youngsters who are in college;
- children with an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number, which is required to claim the Child Tax Credit;
- dependent who is a U.S. citizen, U.S. national or U.S. resident alien, and
- adult dependents, such as relatives or others who aren't related to you, but who depend on you for most of their support.
Note that last group of potential tax dependents, the adults you can claim in connection with the Credit for Other Dependents.
NRA Acknowledges New Findings of Excessive Benefits Paid to CEO Wayne LaPierre - Mark Maremont, Wall Street Journal ($).
Federal tax laws prohibit nonprofits from providing benefits to an insider in excess of the value of services provided. Under Internal Revenue Service rules, the insider is supposed to repay the nonprofit and pay a special excise tax to the IRS.
In the new filing, the NRA said it expects to receive $44,000 plus interest in reimbursement from Mr. LaPierre for six private jet flights, which occurred in 2013 and 2014, and said the excise tax on that would be about $11,000
An Eide Bailly article for tax-exempt organizations explains how excess officer benefits can cause problems:
The inurement doctrine prohibits benefits to insiders of the organization in excess of consideration received. The consequence of private inurement is loss of exempt status. However, to limit the impact of loss of exempt status to extreme situations, the IRS has implemented intermediate sanction provisions which impose an excise tax on the insider who benefited from the transaction. These sanctions are applied in situations where “excess benefits” are received and can be applied in addition to loss of exempt status or in place of loss of exempt status. Primary examples of inurement or excess benefits occur in the context of excessive compensation, non-fair market value transactions or transactions with taxable entities owned by insiders.
Related: How to Protect your Tax-Exempt Status.
New Schedules K-2 and K-3: What Partnerships and S Corporations Can Expect in the First Year of Reporting - CCH Wolters Kluwer Tax & Accounting:
Partnerships, S corporations, and U.S. persons with interests in foreign partnerships may have to file Schedules K-2 and K-3 with the returns they file in 2022 for tax years beginning in 2021. Specifically:
- S corporations with “items of international tax relevance” must file Schedule K-2, Shareholders’ Distributive Share Items—International; and Schedule K-3, Shareholder’s Share of Income, Deductions, Credits, etc.—International.
- Partnerships with “items of international tax relevance” must file Schedule K-2, Partners’ Distributive Share Items—International; and Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc.—International.
These forms will probably do a better job of disclosing international information for K-1 recipients than the old format, but they will come as a surprise to many taxpayers and preparers.
When starting a business, owners should treat all eligible costs incurred before beginning to operate the business as capital expenditures that are part of their basis in the business. Generally, the business can recover costs for assets through depreciation deductions.
For costs paid or incurred after September 8, 2008, the business can deduct a limited amount of start-up and organizational costs. They can recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.
RMD **Reminder** and Effective Ways to Use Them - Brandon Caine and Robert Polans, Tax Warrior Chronicles. "As we approach the 2021 tax filing season, remember it is also Required Minimum Distribution (RMD) season. You generally have until December 31, 2021, to take your RMD out of tax-deferred retirement accounts to avoid costly penalties, unless this is your first RMD year, in which case you get a grace period until April 1, 2022."
Employee Savings Through 401Ks Get Triple Savings on Taxes - Gordon McNamee, TaxBuzz. "The most obvious advantage is that the income you invest in the account is pre-tax, which means that it has greater value to your savings than money you've earned that has already had taxes deducted. The second is that by virtue of investing pre-tax dollars, you lower your annual income and therefore may pay less in income tax. Finally, as your investments grow, they are not taxed in the same way that is true of regular savings accounts. "
The Taxation of NFTs - Jason Freeman, Freeman Law. "Before diving into the taxation of NFTs, a discussion on what NFTs are and why they have become so valuable is in order. In general, NFTs, or non-fungible tokens, are digital representations of texts, images, videos, or other content that are stored on a blockchain network like other cryptocurrencies. But unlike Bitcoin or Ethereum, NFTs are nonfungible digital assets, meaning they are unique and can’t be replaced with anything else. In this regard, NFTs are similar to unique trading cards or diamonds – if you exchanged them for another card or diamond, you would receive something completely different in return."
The taxation details of different business entities - National Association of Tax Professionals. "Partnership returns require a special expertise when it comes time to prepare, and Schedule B must be completed to identify the type of entity filing the partnership return."
Who Wants a Domestic FATCA? - Robert Goulder, Tax Notes Opinions:
FATCA is the scourge of the U.S. expat community. Recently, something resembling FATCA was almost imposed on U.S. citizens who don’t live overseas. A proposal from the Biden administration called for new bank reporting obligations on business or personal accounts with inflows or outflows of at least $600. That dollar threshold was so low that it would have reached most financial accounts in the country.
Some observers referred to the idea as a “domestic FATCA” regime, which certainly didn’t help its popularity. The justification behind the proposal was that it would help the IRS identify suspect accounts, to and from which large volumes of money flow.
As concerned citizens, we should have no patience for tax evasion, but there are lingering doubts regarding whether enhanced bank reporting is a suitable enforcement tool for those purposes.
Long Island Pain Management Doctor Pleads Guilty To Tax Evasion - US Department of Justice. A doctor has pleaded guilty to a tax evasion scheme that, as best I can figure, involved a "network" that included a set of pretend companies. The doctor's business would, it seems, write checks to the pretend companies and deduct them as business expenses. From the USDOJ press release (defendant name redacted):
From at least 2015 through 2017, TAXPAYER devised and perpetrated a scheme to evade a substantial portion of his personal income taxes. During that period, TAXPAYER owned two S-corporations through which he operated a medical practice, specializing in pain management, at locations located in Manhattan, Long Island, and Queens, New York. TAXPAYER issued hundreds of checks made payable to various companies and falsely purporting to be payments for business services. In fact, those companies had not performed any business services for TAXPAYER’s corporations. In exchange for the checks, TAXPAYER received sums of cash that were equal to the value of the checks minus a small fee. TAXPAYER falsely reported to the IRS that the checks were for legitimate business expenses and claimed deductions in the amount of the checks, thereby substantially understating his taxable income.
There may have been better ways to manage tax pain.
D.B. Cooper, call your office. Today is D.B. Cooper Day. For our younger readers, Wikipedia has the story:
D. B. Cooper is a media epithet used to refer to an unidentified man who hijacked a Boeing 727 aircraft in United States airspace between Portland and Seattle on the afternoon of November 24, 1971. He extorted $200,000 in ransom (equivalent to $1,278,000 in 2020) and parachuted to an uncertain fate over southwestern Washington. The man purchased his airline ticket using the alias Dan Cooper but, because of a news miscommunication, became known in popular lore as D. B. Cooper.
The FBI maintained an active investigation for 45 years after the hijacking. Despite a case file that grew to over 60 volumes over that period, no definitive conclusions were reached regarding Cooper's true identity or fate. The crime remains the only unsolved air piracy in commercial aviation history.
If you are out there, D.B., I'm sure you reported your earnings on your 1971 1040. The rest of you, have a great Thanksgiving!