December 8, 2021
Manchin renews criticism of Democrats’ $2 trillion economic package, raising fresh obstacles to passage - Tony Romm, Washington Post ($):
Sen. Joe Manchin III (D-W.Va.) on Tuesday sounded a slew of alarms about his own party’s $2 trillion tax-and-spending package, raising fresh questions about Democrats’ ambitious attempts to adopt the final piece of President Biden’s economic agenda before Christmas.
For Manchin, the package still may be too large in size and scope, it may not be financed it full, it might intensify a recent uptick in prices and it could inflict other harm on the economy. The concerns prompted the pivotal moderate lawmaker to reiterate his call from September to pause the process — though Manchin declined to say if he actually supports or opposes the bill.
Punchbowl News discusses some of the challenges of passing a bill this year: "The Senate parliamentarian has yet to finish the 'Byrd Bath' for the legislation, particularly the most important titles, those covering the Finance and HELP committees. There are ongoing intra-party disputes over Medicare expansion, the state and local tax deduction (SALT) and immigration. And Sen. Joe Manchin (D-W.Va.) doesn’t sound sold on either the size or content of the package. Without his vote, Schumer can’t go anywhere except back to Brooklyn to celebrate the holiday season with his family."
If the bill lingers into 2022, new problems arise with 2021 effective dates changing the tax law even as 2021 return preparation gets underway.
Manchin repeats call for ‘strategic pause’ in big spending package - Lindsey McPherson, Roll Call:
While Manchin did not detail any new concerns about the bill during the event, he repeated his frustration with the approach the House took in cutting down the package from more than $3.5 trillion to $2.2 trillion. Instead of cutting programs altogether, the House mostly changed the duration of how long they would fund them, with the aspiration they’ll extend most of the programs in the future.
“Do they not intend for those programs to last the full 10 years? Well if you intend for that to happen, what’s the real cost?” Manchin said, expressing his concerns. “Because we’re either going to debt finance it if we’re not going to pay for it or come back and change the tax code again to try to get the revenue. Something’s got to happen.”
Manchin warns about inflation as Democrats pursue Biden spending bill - Jordain Carney, The Hill. "Manchin has voiced opposition to including paid leave in the bill, got an energy provision meant to incentivize companies to transition to clean energy dropped from the plan and has pushed back over a methane emission fee and an electric vehicle tax credit that would be larger for union-made vehicles."
Sen. Joe Manchin Holds Back Support for Social-Spending Bill - Eliza Collins, Wall Street Journal ($). "Even if it passes the Senate, the legislation is expected to be different than the House-approved version and would need to be sent back to the House for final passage before Mr. Biden can sign it into law."
Treasury officials raised concerns about new minimum tax on corporations, key to Biden spending plan - Jeff Stein, Washington Post ($):
Officials in the Treasury Department’s Office of Tax Policy raised concerns internally in recent weeks that the new 15 percent minimum tax could lead to unintended consequences — such as limiting clean energy investment — and prove difficult to implement while making the tax code less efficient, the people said.
Accountants have also raised concerns that the change will lead companies to alter what they report to their shareholders in an attempt to evade the new tax. More than 260 accounting and tax academics have written to congressional leaders warning them of the “politicization” of the accounting process, which could lead to less-transparent information for financial markets.
Elon Musk on Biden's infrastructure plan: 'just can this whole bill' - Joseph Guzman, The Hill. "'Honestly, I would just can this whole bill. Don’t pass it. That’s my recommendation,' Musk said. "
FinCEN Issues Proposed Beneficial Ownership Reporting Rules - Amanda Athanasiou and Michael Smith, Tax Notes ($):
Treasury’s Financial Crimes Enforcement Network has released highly anticipated proposed regulations on beneficial ownership information reporting under the Corporate Transparency Act (CTA), providing key details on reporting requirements, deadlines, and exemptions.
The proposed regulations describe beneficial owners as individuals who directly or indirectly exercise substantial control over a reporting company or who own or control at least 25 percent of the entity’s ownership interest. The rules specify definitions for substantial control — which include acting as a senior officer and having substantial influence over key matters of import to the reporting company — as well as for ownership interest. Five categories of individuals — minors, agents and nominees, non-senior officer employees of reporting companies, individuals whose sole interest in a reporting company is through inheritance, and reporting company creditors — are exempted from the beneficial owner definition.
This reporting requirement was passed in January with little fanfare. Failure to file the required reports could trigger criminal penalties and fines of $10,000. The Financial Crimes Enforcement Network (FinCEN) has not been shy about imposing $10,000 penalties for failure to file "FBAR" reports of foreign financial accounts.
The proposed regulations include 23 exemptions from filing. Among them are "large operating companies" and, thankfully, "accounting firms." A large operating company is defined as one that
(1) “Employs more than 20 employees on a full-time basis in the United States”; (2) “filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate,” including the receipts or sales of other entities owned by the entity and through which the entity operates; and (3) “has an operating presence at a physical office within the United States.”
This definition means that many of the smallest businesses are subject to this new reporting requirement - precisely the businesses least likely to be aware of it. That appears to the idea: "FinCEN assumes that many of the reporting companies would be small businesses with simple ownership structures."
What are the reporting deadlines? From the preamble to the proposed regulations:
Under the proposed regulations, the time at which a required report is due would depend on: (1) When the reporting company was created or registered; and (2) whether the report is an initial report, an updated report providing new information, or a report correcting erroneous information in a previous report. Domestic reporting companies created, or foreign reporting companies registered to do business in the United States, before the effective date of the final regulations would have one year from the effective date of the final regulations to file their initial report with FinCEN. Domestic reporting companies created, or foreign reporting companies registered to do business in the U.S. for the first time, on or after the effective date of the final regulations would be required to file their initial report with FinCEN within 14 calendar days of the date on which they are created or registered, respectively.
Keep an eye on this; it will result in a compliance panic when the reporting deadlines approach. Comments are open until February 7, 2022.
US Treasury Proposes Rule To Crack Down On Shell Cos.- Al Barbarino, Law360 Tax Authority.
The U.S. Department of the Treasury's financial crimes unit rolled out a new rule proposal Tuesday that would establish a so-called beneficial ownership database to help prevent the illicit movement of funds through shell companies.
A beneficial owner is defined in the rule as any individual who meets at least one of two criteria: exercising "substantial control" over the reporting company, or owning or controlling at least 25% of the ownership interest of the company.
Delaware Consulting Business Fights Partnership Adjustments - Benjamin Guggenheim, Tax Notes ($):
The Tax Court petition served November 10 in Sirius Solutions GP LLC v. Commissionerargues that the business’s partners should be considered limited partners as described by section 1402(a)(13). The IRS said the partners don’t qualify as such and their distributive shares of the partnership’s ordinary business income cannot be excluded from their net earnings from self-employment.
This case bears watching. IRS 2021 draft Form 1065 instructions provide:
Generally, a limited partner's share of partnership income (loss) isn't included in net earnings (loss) from self-employment. Limited partners treat as self-employment earnings only guaranteed payments for services they actually rendered to, or on behalf of, the partnership to the extent that those payments are payment for those services.
However, whether a partner (including a member of an LLC treated as a partnership for federal income tax purposes) qualifies as a limited partner for purposes of self-employment tax depends upon whether the partner meets the definition of a limited partner under section 1402(a)(13); whether a partner is a limited partner under state limited partnership law is not determinative. Relevant to this determination is whether the partner merely invested in the partnership and is not actively participating in the partnership's business operations; a partner who is performing services for a partnership in their capacity as a partner and that is, based on the facts and circumstances, acting in the manner of a self-employed person is not a limited partner for self-employment tax purposes. See Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136 T.C. 137, 150 (2011).
The new Tax Court petition goes directly against these instructions, which signal an IRS effort to keep service partners from avoiding self-employment tax by claiming "limited status. Stay tuned.
7 ways to spend your end-of-year FSA funds - Kay Bell, Don't Mess With Taxes. "The Coronavirus Aid, Relief, and Economic Security, or CARES, Act that was enacted in March 2020 reversed the Affordable Care Act (ACT, or Obamacare to many) requirement of a physician's prescription for OTC treatments in order for them to qualify for FSA reimbursement."
Prince’s Estate Settles IRS Tax Case - Robert Wood, Forbes. - Robert Wood, Forbes. "Prince’s estate reported a taxable value of $82 million to the IRS. However, the IRS claimed that the estate’s taxable value was really a whopping $163 million."
Court Denies Estate's Deduction for Charitable Contribution of Farm Sale Proceeds - Parker Tax Publishing. "The Ninth Circuit affirmed a Tax Court decision denying an estate's charitable deduction for its transfer of proceeds from the sale of a family farm, which was held in a partnership, to an irrevocable trust, which then transferred the funds to a charitable trust. The Ninth Circuit held that the trustee of the irrevocable trust was not required to eventually transfer the farm's proceeds to the charitable trust upon the decedent's death and thus the IRS was correct in denying the deduction."
The IRS, Fraudulent Transfers, and Transferee Liability - Jason Freeman, Freeman Law. "Can you be held liable for a tax liability owed by another taxpayer? Yes, under certain circumstances. The IRS uses fraudulent transfer law and 'transferee' liability tools to collect unpaid taxes where a taxpayer has transferred property to a third party."
Today is Pretend to Be a Time Traveler Day. Sounds fun, but it probably won't work for filing a late tax return on time. Or for getting "Build Back Better" passed in time for year-end planning, for that matter.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.