December 21, 2021
K Street in a holding pattern after Manchin throttles reconciliation bill - Caitlin Oprysko, Politico:
Virgil Miller, a lobbyist at Akin Gump Strauss Hauer & Feld who previously worked on the Hill for now-White House aide Cedric Richmond, said in an interview that, “I think it would be a little naive to think that it is over,” adding that “this still is the president's number one priority at the end of the day.”
—“Don't throw away — don't ball up your one-pagers or your talking points,” is the message that Chay English, a Democratic lobbyist at BGR Group, said he’s giving clients. “No potential pay-for, potential policy is off the table until a bill is signed into law,” he argued. “We're prepared for ongoing conversations and ongoing negotiations and protecting the interests and priorities of our clients, and advancing them as well.”
Manchin’s private offer to Biden included pre-K, climate money, Obamacare — but excluded child benefit - Jeff Stein and Tyler Pager, Washington Post ($):
Manchin’s private proposal to the White House — the details of which have not been previously reported — was made just days before a spectacular public collapse in negotiations between the White House and the senator, marked by bitter and personal recriminations that left the status of the talks unclear.
Note that none of Senator Manchin's objections noted here relate to tax provisions. If a compromise is found, it's likely to include the house-passed tax increases, including the expansion of the net investment income tax to non-passive business income, the foreign activity tax increases, and the surtaxes on high-income taxpayers.
Despite Manchin’s support for hundreds of billions in climate-related spending, these negotiations could still prove fraught. Manchin continues to have major disagreements about the substance of the new climate policies pushed by Democrats. Manchin reiterated some of these concerns in his statement Sunday, arguing the bill could increase U.S. dependence on foreign supply chains by transitioning the United States off fossil fuels too quickly. On Monday, he also reiterated concerns that the bill would subsidize electric cars for too many affluent families.
Schumer Vows Vote On BBB Act After Manchin Defection - Joshua Rosenberg, Law360 Tax Authority ($). "The plan's tax hikes on high-income individuals include a 5% tax on taxpayers with modified adjusted gross income in excess of $10 million and an additional tax of 3% on income higher than $25 million. The bill also includes a one-year extension of the expanded child tax credit for families earning up to $150,000 per year."
Democrats assess landscape after Manchin’s ‘Build Back Better’ bombshell - Lindsey McPherson, Roll Call:
Manchin’s desire to have both spending and revenue measures in the package cover the full 10-year budget window means the package Democrats have drafted will have to be completely rewritten to accommodate his concerns.
Some Democrats seem ready to do that.
State of Play: Manchin’s opposition to Reconciliation Bill puts in Question Congress passing It - Jay Heflin, Eide Bailly. "Manchin has been adamant that the reconciliation bill should not add to the deficit or debt. He is also a proponent of deficit reduction. There is the possibility that the tax increases in the House-passed bill remain in the final piece of legislation even if the overall price of the bill decreases, thereby allowing the excess revenue raised to be used for deficit reduction."
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas - Daniel Bunn, Tax Policy Blog. "As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act (BBBA) in the United States means new uncertainties for a global agreement and for taxpayers."
1% Buyback Tax Could Lead to Higher Dividend Payouts - Thornton Matheson, TaxVox. "Corporations can distribute earnings to shareholders as either dividends or share repurchases. Repurchases face a lower tax burden than dividends because they allow for greater deferral of capital gains. While dividends go to all shareholders, who are taxable on their full amount, share repurchases distribute earnings only to investors who sell their shares, who then pay capital gains tax on any profits from the sale. With a repurchase, other shareholders can avoid near-term taxation by simply not tendering their shares."
Manchin Doubles Down On "No" - John Buhl, Daily Deduction. "With BBB on ice until the new year, the American Rescue Plan’s expanded child tax credit (CTC) will expire. The immediate problem: What happens to the monthly payments that end this month? White House Press Secretary Jen Psaki said the White House has talked to Treasury about doubling February’s CTC payments to offset any missed January checks. But that still would require Congress to authorize continued advanced payments."
For Illinois and Tennessee tornado victims, IRS extends 2021 tax-filing deadline, other deadlines to May 16 - IRS. "Following last week's emergency declarations issued by the Federal Emergency Management Agency (FEMA), the IRS is providing this relief to taxpayers affected by storms, tornadoes and flooding that took place starting on December 10 in parts of Illinois and Tennessee. Currently, relief is available to affected taxpayers who live or have a business in Bond, Cass, Coles, Effingham, Fayette, Jersey, Macoupin, Madison, Montgomery, Morgan, Moultrie, Pike and Shelby counties in Illinois and Cheatham, Decatur, Dickson, Dyer, Gibson, Lake, Obion, Stewart, and Weakley counties in Tennessee. But the IRS will provide the same relief to any other localities designated by FEMA in these or neighboring states. The current list of eligible localities is always available on the disaster relief page on IRS.gov, including numerous counties in Kentucky announced last week."
Michigan Enacts SALT Cap Workaround For Pass-Throughs - Paul Williams, Law360 Tax Authority ($). "Democratic Gov. Gretchen Whitmer signed H.B. 5376, allowing S corporations and partnerships to elect to be taxed at the entity level while providing members with a credit for their share of the tax as a workaround to the SALT cap. The bill takes immediate effect and will apply to tax years beginning on and after Jan. 1, 2021."
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.
Taxpayer data still at risk at IRS: TIGTA - Daniel Hood, Accounting Today:
The 92-page report from the Treasury Inspector General for Tax Administration, which is based on an annual audit mandated by the IRS Restructuring and Reform Act of 1998, also reiterated the importance of modernizing the agency’s IT infrastructure, and boosting its protections against cyber-attacks and identity thieves.
Two of five function areas of the IRS’s Cybersecurity Framework were rated “not effective,” namely its ability to identify its cybersecurity risks, and its ability to detect cybersecurity incidents. In both areas, TIGTA said that the IRS had defined policies, procedures and strategies, but that they were not consistently implemented, leaving taxpayer information at risk.
From the TIGTA report:
Problems were also reported in the IRS’s handling of the privacy of taxpayer data, access controls, system environment security, information system boundary components, network monitoring and audit logs, disaster recovery, roles and responsibilities, and separation of duties, as well as security policies, procedures, and documentation.
Considering the massive leak of confidential taxpayer data to Propublica, there's no doubt that taxpayer data is vulnerable. If Bill Gates' tax return data isn't safe, yours isn't either.
2022 State Business Tax Climate Index: Bring Me the Usual Suspects! - Russ Fox, Taxable Talk. "Yes, taxes aren’t everything but they’re a huge reason why my business left the Golden State and moved to the Silver State."
Tax Court Judge Emphasizes Magnitude Of Losses In Denying Horse Breeding Deductions - Peter Reilly, Forbes. "Judge Lauber, in conservation easement cases, has demonstrated a gift for not ignoring the obvious. Factor 6 (History of Income or Loss) plays that role here. He notes that Bluestone's losses were large and sustained - $11.4 million between 1998 and 2013 without a single profitable year. Further they were unable to point to unexpected adverse events. Losses continued beyond 2013 with 2014-2017 also coming in over $3 million."
What You Can Do to Protect Yourself from the New Log4j Security Vulnerability Release - Michael Nougier, Eide Bailly. "When an attacker exploits this vulnerability, they can utilize publicly available websites that run Log4j to execute code on systems remotely."
10 financial holiday gifts, including some with tax advantages - Kay Bell, Don't Mess With Taxes. "Open a Roth IRA for a young worker. If you have a young friend or family member who worked this year, help him or her get started on those way down the road retirement. Open a Roth IRA in the young worker's name. The key things you need to know are how much money they made and, of course, their Social Security number. For 2021, you can contribute up to $6,000 or the maximum earned to an IRA, either Roth or traditional"
TIGTA Report on EITC Audit Procedures Suggests Room for Improvement in IRS Communication and Education Strategy - Anna Gooch, Procedurally Taxing. "The TIGTA report is just one example of where the IRS is failing to embrace its dual role as both revenue collector and benefits administrator, and outreach and education are just a small part of adopting that role."
Where a Trust is Set Up Matters - Tax Warrior Chronicles. "Investigate how each state taxes trusts. A few states do not have income taxes on non-grantor trusts – AK, FL, NV, SD, TX, WA, and WY. Other states might tax trusts differently depending on their income sources, on the residence of the beneficiary, on the residence of the trustee, or on the residence of the trust."
Mileage Rates for 2022 Released by IRS - Ed Zollars, Current Federal Tax Developments.
Proposed Regs Permanently Extend Form 1095 Deadline, Eliminate Transitional Relief - Parker Tax Pro Library. "Under the proposed regulations, Forms 1095-B will be timely furnished if furnished no later than 30 days after January 31 of the calendar year following the calendar year in which minimum essential coverage is provided."
Elon Musk Says He Will Pay More Than $11 Billion in Taxes This Year - Steven Russolillo, Wall Street Journal. Musk spoils another Propublica scoop.
Montana Federal Court Finds Tax Shelter Promoter Liable for Over $8 Million in Penalties for Timeshare Donation Scheme - U.S. Department of Justice (promoter name omitted):
According to court documents, Promoter formed Project Philanthropy Inc. dba Donate for Cause (DFC) as a non-profit organization in 2006, and that “DFC allowed timeshare owners who faced burdensome timeshare fees and expenses to donate their unwanted timeshares.” The court found that Promoter and others prepared appraisals for timeshares that were donated to DFC, and that Promoter promised potential customers generous tax savings from donations of their unwanted timeshares. In a March 2019 order, the court concluded that the Treasury Regulations disqualified Promoter and his appraisers from conducting timeshare appraisals for DFC because they “lacked sufficient independence[.]” The court further concluded that these “false appraisals resulted in tax avoidance” and that “Promoter knew, or had reason to know, that” “he made false statements.” The court’s 2019 ruling left open the amount of Promoter’s penalty, however.
This is one of my favorite retail tax shelter stories. The IRS sued to shut down DFC in 2015, noting some discrepancies between the appraised valuations used to deduct donations and the actually selling price of the donated time shares:
The IRS reviewed a sample of 1,557 appraisals that defendants prepared for timeshares that were subsequently sold on eBay in 2012. The average appraisal amount for these timeshares was $10,619, yet they only generated an average sales price of $429 when sold on eBay – only 4% of the appraised amount.
In 2011, Customer 1 conveyed the timeshare to Donate for a Cause. In 2012, Donate for a Cause used eBay’s charity platform to sell the timeshare to a third party for only $81. Resort Closings served as the closing agent, performed the transfer of ownership of the timeshare, and billed Customer 1 approximately $2,800 in fees.
In 2012, Promoter prepared an “Appraisal Form” and appraised the timeshare at $8,740, which is more than 107 times the amount for which Donate for a Cause sold the timeshare.
The Moral? If you donate property valued at over $5,000, you need an independent appraisal - and that requires an appraiser not affiliated with the charity. Also, if it sounds too good to be true, it probably is.
Today marks the Winter Solstice. "The first day of winter in the Northern Hemisphere is marked by the winter solstice, which occurs on Tuesday, December 21, 2021, at 10:59 A.M. EST." But if you are unimpressed, it is also Humbug Day. Bah.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.