Tax News & Views Malta and Cookies Roundup

December 22, 2021

IRS Says Tax-Free Maltese Pensions Are Too Good to Be True - Laura Saunders, Wall Street Journal ($):

Officials of the U.S. and Malta have signed an agreement cracking down on Maltese pension maneuvers used by some wealthy Americans to avoid taxes, the Internal Revenue Service said Tuesday.

The IRS also said it was “actively examining” taxpayers who set up Maltese pensions.

A Wall Street Journal article in August reported on the offshore shelters, noting that promoters were saying taxpayers could dramatically lower U.S. taxes on the sale of highly appreciated assets such as stock, real estate or cryptocurrency. The promoters asserted that U.S. taxpayers aged 50 or older could avoid owing federal capital-gains tax of 23.8% by funding a Malta pension with such assets, selling them, and soon withdrawing large chunks of the money tax-free. 


U.S. Cracking Down on Maltese Pension Schemes - Michael Smith, Tax Notes ($):

The IRS has had the pension schemes on its radar and this year placed them on its "Dirty Dozen" list of abusive tax practices. The CAA describes a scheme in which U.S. taxpayers contribute assets — usually securities — to Malta-based pension funds tax-free under the Malta Retirement Pensions Act of 2011, “with no limitation based on earnings from employment or self-employment.” The taxpayers later sell the appreciated assets without calculating the U.S. tax due on the sales.

The CAA clarifies that a fund, scheme, or arrangement that “is allowed to accept contributions from a participant in a form other than cash or does not limit contributions by reference to earned income from personal services (including self-employment) of the participant or the participant's spouse” does not fall within the definition of a pension fund under the Malta-U.S. tax treaty. 

United States, Malta sign a competent authority arrangement (CAA) confirming pension fund meaning - IRS. - IRS. "The IRS put taxpayers on notice earlier this year that it was reviewing the use of Maltese personal retirement schemes. The IRS is actively examining taxpayers who have set up these arrangements and recognizes that other taxpayers may have filed tax returns claiming Treaty benefits as a result of their participation in these arrangements."


IRS Waives Reporting of Discharged Student Loans - Caitlin Mullaney, Tax Notes ($):

The IRS has ended some remaining uncertainty about reporting requirements for the discharge of student loan debt provided under a coronavirus pandemic response law.

Notice 2022-1, 2022-2 IRB 1, released December 21, instructs student loan servicers and lenders not to file information returns or furnish payee statements for the discharge of some student loans for 2021 through 2025 when the discharge is excluded from gross income under a provision enacted in the American Rescue Plan Act of 2021 (P.L. 117-2).


Lenders Instructed Not to Issue Forms 1099C for Student Loan Discharges Excluded from Income by ARPA Provision - Ed Zollars, Current Federal Tax Developments. "The Notice provides that the lender should not issue a Form 1099-C for this discharge, explaining it is likely to generate an erroneous notice from the IRS to the borrower."


Tax hikes still in the mix as Dems scramble to save spending bill - Bernie Becker, Politico:

This might be the best sign for them: Manchin (D-W.Va.) doesn’t seem to be having any second thoughts about hiking taxes on the rich and corporations by well over $1 trillion.


Senate Finance Chair Ron Wyden (D-Ore.), who has pushed a variety of big tax hikes this year, predicted Tuesday that finding enough revenues won't be a problem for Democrats, as long as they can get on common ground with Manchin on what kind of benefits to offer in the social spending and climate change package.

It wasn't Manchin who derailed broad tax hikes for individuals, corporations, and capital gains. It was Senator Kyrsten Sinema. Nobody seems to know whether she will continue to hold out against these rate hikes. If not, everything is back on the table.


A Look Ahead: Estate Planners’ Victory Dance Could Be Short-Lived - Jonathan Curry, Tax Notes ($). "Legislative changes may be unlikely, but for the Biden administration, which proposed a host of reforms earlier in the year, administrative changes may turn out to be the fallback plan."

Where will Dems cut their wish list to satisfy Manchin? -Erik Wasson and Laura Davison, Accounting Today. Tax Increases are listed among the "best chance" items, including a corporate minimum tax and foreign activity tax increases, a stock redemption excise tax, and extending the net investment income tax to non-passive business income.

Collins open to negotiating overhaul of child tax credit set to expire - Joseph Choi, The Hill. "Sen. Susan Collins (R-Maine) said on Tuesday she is open to discussing proposals to overhaul an expanded child tax credit included in President Biden's American Rescue Plan that is set to expire in the next few days."

Manchin Long Raised Concerns About ‘Build Back Better.’ Can Democrats Address Them Now? - Andrew Duehren, Wall Street Journal ($). "Nick Casey, a friend of Mr. Manchin and a former chair of the West Virginia Democratic Party, said he expects that negotiations would ultimately pick back up."


Criminals have stolen nearly $100 billion in Covid relief funds, Secret Service says - Eamon Javers and Scott Zamost, CNBC:

The stolen funds were diverted by fraudsters from the Small Business Administration’s Paycheck Protection Program, the Economic Injury Disaster Loan program and a another program set up to dole out unemployment assistance funds nationwide. 

More than $2.3 billion in stolen funds have been recovered so far, resulting in the arrest of more than 100 suspects who span the spectrum from individuals to organized groups, according to the agency. 
To put that in perspective, the Build Back Better proposal to apply the 3.8% Net Investment Income Tax to active business income is projected to raise $183.6 billion over 10 years.


South Carolina Again Extends Tax Relief for Businesses With Remote Workers - South Carolina Department of Revenue via Tax Notes. "On May 15, 2020 the Department issued SC Information Letter #20-11 to announce temporary relief regarding a business's establishment of nexus (income and sales) solely because an employee is temporarily working in a different work location due to COVID-19 and provided guidance with respect to employer withholding requirements for these employees... The Department is announcing that the relief set forth in SC Information Letter #20-11 will be extended through March 31, 2022."

Related: Telecommuting Workers in Refuge States Complicate State Taxes.

Michigan Governor Approves SALT Cap Workaround Bill - Carolina Vargas, Tax Notes ($) "The election is available for tax years beginning on or after January 1, 2021, and entities that take the election will be locked into doing so for the following two tax years. At that time, a passthrough would be required to make another election. The bill will also require taxpayers to file a return and pay an estimated tax quarterly if their expected tax liability is $800 or more."

May 16, 2022, is new Tax Day for Illinois & Tennessee tornado victims - Kay Bell, Don't Mess With Taxes. "The filing extension also means that affected taxpayers now have until May 16 make quarterly estimated income tax payments that, for other filers, are due next Jan. 18 and April 18."

IRS Issues Standard Mileage Rates for 2022 - Bailey Finney, Eide Bailly. 58.5 cents per mile, up 2.5 cents from 2021.

Trump's tax law hits four-year anniversary in a safer spot - Naomi Jagoda, The Hill. "House Speaker Nancy Pelosi (D-Calif.) called it “the worst bill in the history of the United States Congress” several weeks before the 2017 tax law was enacted. Four years later, Democrats are struggling to undo major portions of the law, and it increasingly looks like the Trump bill will be lasting."

The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold? - Roger McEowen, Agricultural Law and Taxation Blog. "A relevant factor is whether the land has been for personal purposes, such as a garden to grow produce for the taxpayer’s consumption.  Also, if the land is landscaped, that fact supports inclusion with the personal residence.  On the other hand, if the land is used in the taxpayer’s farming business (or contains outbuildings used in the farming business) or otherwise to produce income, inclusion with the residence is not supported."


$380 Million Gymnastics Abuse Settlement, Before Taxes? - Robert Wood, Forbes. "Can the IRS tax this? The fact that the tax rules are shades of grey adds angst to the victim’s experience. If you’ve been through an ordeal, you do not want to pay taxes, but you also don’t want to worry about claims by the IRS or state tax authorities several years later. How lawsuit settlements are taxed is surprisingly complex. Under the tax code, compensatory damages for personal physical injuries or physical sickness are tax free. In contrast, damages for emotional injuries are fully taxable. Yet if you have emotional injuries triggered by physical injuries, damages for emotional injuries are also tax-free. It’s confusing, making taxing emotional distress and physical sickness a kind of chicken and egg issue."

District Court Latest to Find Mailbox Rule Supplanted By Regulations - Leslie Book, Procedurally Taxing. "The case is yet another reminder that if one is snail mailing something important to the IRS, it is worth the extra time and money to mail it in a way that eliminates any risk of non-delivery." That means certified mail. Spend a few extra pennies, and save your receipt.

Top 12 Tax Developments of 2021 - Parker Tax Pro Library. "The biggest piece of legislation enacted in 2021 was the American Rescue Plan (ARP) Act of 2021 (P.L. 117-2), which was signed into law on March 11. For individuals, the ARP provided a third round of economic impact payments of $1,400 per individual, subject to phaseouts at adjusted gross incomes over $75,000 ($150,000 for joint filers and $112,500 for heads of household). The ARP also made major changes to the child tax credit (CTC), the earned income tax credit (EITC), the premium tax credit (PTC), and the child and dependent care tax credit (CDCTC)."


Hill Democrats Shift From Raising To Cutting Taxes On The Merely Rich - Howard Gleckman, TaxVox. "The House dumped the individual income tax rate hike in favor of an income tax surcharge on those making $10 million or more. It dropped the capital gains tax increases entirely. And then it added a provision to raise the state and local tax (SALT) deduction cap from $10,000 to $80,000. That piece largely would benefit those making between about $365,000 and $870,000—those in the highest 95th to 99th income percentiles. The top 1 percent also would be big winners. But the very rich, the top 0.1 percent, would get a—for them—very modest benefit."

What Do Global Minimum Tax Rules Mean for Corporate Tax Policies? - Daniel Bunn, Tax Foundation. "The global minimum tax rules do not require any changes in domestic tax law. The approach is voluntary, but if enough countries do enact the rules, then even countries that do not adopt them should evaluate their tax policies with an eye toward simplification, revenue-neutral reforms, and policies that support investment which would not be eroded by the minimum tax."


It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns - Jim Maule, Mauled, Again. "But this time, according to a recent Department of Justice news release, it wasn’t a tax return preparer who rigged up a tax fraud scheme. It was a mortgage underwriter who in 2015 and 2016, along with several others, told their clients that they could pay off their mortgage loans by filing forms with the IRS claiming that substantial amounts of taxes had been withheld when, in fact, that was not the case."

Former funeral home executive sentenced to more than two years in prison for embezzlement and tax fraud - IRS {taxpayer name omitted): " From January 2009 through around April 2012, Taxpayer abused his position as the Vice President and Chief Operations Officer of Caring Funeral to steal money from Caring Funeral's bank accounts. Taxpayer embezzled money in several ways, including by diverting checks written by third parties to Caring Funeral into his personal bank account and using his business partner's signature stamp to cash and deposit checks for his personal use. Taxpayer used the money he stole to fund a lavish lifestyle including paying for a house, gambling, traveling, and dining out."

Millionaire Donkey Breeder Can Deduct Losses, Tax Court Says - Theresa Scliep, Law360 Tax Authority ($). "A millionaire investment manager turned donkey breeder can deduct losses from the activity, partly because his tepid feelings for the animals prove it wasn't a passion project but was intended to make money, the U.S. Tax Court said Tuesday."


Cookies! Today is National Cookie Exchange Day! I would like to think this is in honor of that august institution, the National Cookie Exchange, but no. "December 22 is National Cookie Exchange Day and the glorious occasion when festively-decorated cookie tins and boxes appear at cookie exchange parties." Remember that cookies don't qualify as like-kind exchange property under Sec. 1031, unless they qualify as real estate under local law.

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