Programming Note: Eide Bailly offices are closed December 24 and December 27 for the holiday break, so Tax News & Views will be off as well, absent big breaking tax news. We will return December 28.
IRS issues information letters to Advance Child Tax Credit recipients and recipients of the third round of Economic Impact Payments; taxpayers should hold onto letters to help the 2022 Filing Season experience - IRS:
To help taxpayers reconcile and receive all of the Child Tax Credits to which they are entitled, the IRS will send Letter 6419, 2021 advance CTC, starting late December 2021 and continuing into January. The letter will include the total amount of advance Child Tax Credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.
Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.
That's a nice way of saying that you might have to repay credits if your income was high enough to disqualify you. Watch for the letter and keep it with your other tax information; your preparer will need it.
IRS Describes Letters to Be Sent to Taxpayers Documenting Amounts Paid for Third Economic Impact Payments and 2021 Advance Payment of Child Tax Credit - Ed Zollars, Current Federal Tax Developments. "In News Release IR-2021-255 the IRS gave information on the letters that will be sent to taxpayers documenting the amounts of the Advance Child Tax Credit and third round of Economic Impact Payments that will provide information necessary to complete the taxpayers’ 2021 individual income tax returns."
A Look Ahead: John Doe Summonses to Increase in Crypto Crackdowns - Mary Katherine Browne, Tax Notes ($):
The IRS increased its use of the summonses in 2021 to compel the production of information from popular cryptocurrency exchanges. In April and May federal courts authorized the issuance of John Doe summonses on Circle and Kraken. Both summonses sought information about U.S. taxpayers who conducted transactions worth at least $20,000 in any year from 2016 to 2020.
De Lon Harris, commissioner of examinations in the IRS Small Business/Self-Employed Division, recently touted nonfiler virtual currency as one of the agency’s top priorities for civil enforcement. “Virtual currency is an area that we know we need to have coverage in,” he said. “It is an area that is growing . . . and an area we plan on devoting resources to.”
Don't assume cryptocurrency is a magical way to hide from the tax man.
Related: New Tax Guidance Issued on Cryptocurrency Transactions 2019/10
Budget bill delay, changes offer potential tax increase reprieve - Laura Weiss, Roll Call:
While it would be manageable to have tax increases take effect in the 2022 tax year if the bill becomes law in January, retroactive hikes would get more difficult as the year wears on and especially if it slips into the spring, according to tax experts.
Some the biggest revenue generators in the current budget bill would kick in on Jan. 1, 2022. The JCT estimates the surcharges on income above $10 million annually would generate $228 billion over a decade, and the pass-through business income tax would raise $252 billion. A separate 1 percent excise tax on corporate stock buybacks is expected to bring in $124 billion.
Other tax provisions that would also take effect at the beginning of the year under the current text include the application of “wash sale” rules, which block investors from dumping and repurchasing assets for tax benefits to cryptocurrency trades; limits on the amount of foreign taxes that offset what multinationals owe in the U.S., which would largely impact oil and gas companies; and some changes to tax provisions meant to stop multinationals from offshoring profits.
Biden setbacks rattle Democrats facing tough elections - Julia Manchester, The Hill:
Polling paints a mixed picture of the public’s attitudes on Build Back Better. A Morning Consult/Politico poll released earlier this month found that 47 percent of voters said they supported the bill, while 40 percent said they opposed it. However, the same poll found that respondents supported a number of measures inside the bill, like the child tax credit and expanded health care access.
And despite Manchin’s declaration on Sunday, Democrats insist that Build Back Better is in no way dead.
Europe Moves Ahead on Minimum Corporate Tax as U.S. Stalls - Paul Hannon and Richard Rubin, Wall Street Journal ($):
The plan to impose a tax of at least 15% on the profits of large, international companies was agreed by 136 countries in early October and approved by President Biden and the other leaders of the Group of 20 leading economies later that month.
While the EU’s announcement is another step closer to a global minimum tax rate, the U.S. effort to implement the October agreement is now stalled, and its prospects are uncertain going into 2022.
The tax increase on U.S.-based multinational corporations is wrapped inside broader legislation to address climate change, child care and poverty. Hopes for passage of the legislation suffered a serious blow Sunday when Sen. Joe Manchin (D., W.Va.) said he would oppose the centerpiece of President Biden’s economic agenda as currently written.
The article notes that the tax increases were not on Manchin's list of grievances with the Build Back Better.
EU pushes on with global minimum tax rate despite US stalemate - Bjarke Smith-Meyer, Aaron Lorenzo, and Mark Scott, Politico. "Failure to get the bill through Capitol Hill could spell disaster for the global agreement, which is designed to obliterate tax havens and ensure multinational firms pay their fair dues. The efforts are expected to become law in more than 130 countries by 2024."
IRS Targets Participants in Malta Pension Plan Transactions - Matthew Roberts, Freeman Law. "And for those taxpayers who engaged in the Maltese pension plan scheme, not all is lost. By acting quickly, such taxpayers may be able to enter into certain IRS amnesty programs that can potentially alleviate civil penalties and criminal exposure. But, the key here is to act quickly as many of the IRS’s programs require you enter into them prior to the IRS receiving specific information about you from another source."
Malta Pension Plan – IRS Knocks It Out.. and Yes, “I Told You So…..” - Virginia La Torre Jeker Virginia - US Tax Talk:
The targeted “pensions” had no limitation based on earnings from employment or self-employment, and individuals were making contributions to these “pension” plan schemes in forms other than cash (e.g., securities, crypto, shares in start-ups). Some US tax advisors were recommending use of these schemes. I, along with other more circumspect tax professionals would not work with such plans and cautioned against their use because in our view it was doubtful that these personal retirement schemes would be treated as “pension funds” in substance, for purposes of applying the Treaty. And, yes, we were right ….
Don't try to best the IRS in feats of strength.
A Holiday Tradition: Tax Extenders Slated to Expire at End of 2021 - Alex Muresianu, Erica York, and William McBride, Tax Policy Blog:
Even so, some of the 30 tax extenders could make a comeback early next year. Congress often retroactively revives these expired tax breaks, most recently in 2019, but ought to resolve the status of tax extenders once and for all and provide taxpayers with a stable, certain tax code. Permanent solutions for each expiring provision would ensure taxpayers no longer have to predict what tax code they will face.
I have some real problems with you people who pass "temporary" tax provisions intended to last forever.
Remember Required Minimum Distributions and Your Year-End Planning - Mac Stevens and Ava Archibald, Eide Bailly:
Individuals who reached age 70-1/2 in 2019 (their 70th birthday was June 30, 2019, or earlier) did not have an RMD due for 2020 but will need to take one by December 31, 2021.
An IRA trustee or plan administrator is responsible for reporting the RMD amount to the IRA owner. An IRA owner or trustee calculates the RMD separately for each IRA. However, owners can choose to withdraw the total amount of RMDs for the year from one or more of the IRAs. On the other hand, RMDs from employer retirement plans must be taken separately from each plan. Not taking an RMD, or not taking the full amount, can result in a 50% excise tax on the amount not distributed.
Understanding Stock Options—Even When You’re Not a Billionaire - Kelly Phillips Erb, Bloomberg:
Exercising your options does, however, result in tax consequences. When you exercise an NSO, the difference between the stock price and the grant price—the taxable spread—will be reported on your federal Form W-2 as compensation and taxed as ordinary income. For most taxpayers, the boost is not significant—exercising my handful of Gap stock options didn’t knock me into a higher tax bracket. However, in Musk’s case, these dollars would put him in the top tax bracket—that’s 37% in 2021 for federal purposes—state taxes may also apply.
When you exercise your options, your cost basis for your stock shares will be equal to the stock price on the exercise date. And when you sell your shares, the usual capital gains rules kick in—you’ll recognize a capital gain or loss equal to the value on the date of the sale less your cost basis.
The employer gets a tax deduction for the amount the employee includes in income. Some activists say this deduction unfairly allows profitable corporations to avoid taxes. As Kelly explains, it shifts taxability to the employee. Employee taxes, including payroll taxes, are around 40%, compared to the 21% corporate rate, so the IRS comes out ahead.
Hurricane Ida tax relief extended to February 15 for part or all of six qualifying states - IRS. "Victims of Hurricane Ida in six states now have until February 15, 2022, extended from January 3, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. The updated relief covers the entire states of Louisiana and Mississippi, as well as parts of New York, New Jersey, Connecticut and Pennsylvania. The current list of eligible localities is always available on the Around the Nation section of the disaster relief page on IRS.gov."
Feb. 15, 2022, is new disaster tax deadline for Hurricane Ida victims in 6 states - Kay Bell, Don't Mess With Taxes:
The updated relief postpones various tax filing and payment deadlines that occurred starting on dates that vary by state. They are —
Aug. 26, 2021, for Louisiana,
Aug. 28, 2021, for Mississippi,
Aug. 31, 2021, for Pennsylvania, and
Sept. 1, 2021, for New York, New Jersey and Connecticut.
9th Circ. Says Pilot Can't Claim Foreign Income Exclusion - David Hansen, Law360 Tax Authority ($). "The Tax Court ruled in November 2020 that while [the pilot] spent personal time in Thailand with his wife, his gateway travel airport and home base were in California, which made him ineligible for the exclusion."
Insurer Wants to Pull Easement Promoters’ Malpractice Policies - Kristen Parillo, Tax Notes ($). "An insurance company is asking a Georgia federal court to rescind legal malpractice policies it issued to a law firm whose attorneys allegedly failed to disclose their involvement in promoting syndicated easement deals."
$8.5 Million IRS Penalty Upheld Over Timeshare Donation Tax Shelter - Robert Wood, Forbes. "The fallout from tax shelters can be severe, and not just for the promoters. The victims often have their deductions disallowed, and penalties added that can be large. In the case of charitable contributions, there are some fixed rules. If you make a property contribution worth $250 or more, you must also retain a statement by the charity describing the property and its value. If your noncash contributions for the year total over $500, you must complete IRS Form 8283, Noncash Charitable Contributions, and attach it to your return. See Form 8283, Noncash Charitable Contributions."
IRS Releases 2021 Form 2441 and Instructions for Reporting Child and Dependent Care Expenses - Thomson Reuters Tax & Accounting. "The IRS has released Form 2441 (Child and Dependent Care Expenses) and its accompanying instructions for the 2021 tax year. Taxpayers file Form 2441 with Form 1040 to determine the amount of their available dependent care tax credit (DCTC), and DCAP participants must file it with Form 1040 to support the income exclusion for their DCAP reimbursements... The 2021 form has been revised to include an attestation of eligibility for the refundable DCTC; the phaseout schedule for qualified expenses incurred and paid in 2021 that are considered in determining the 2021 credit; separate reporting of the credit for 2020 expenses paid in 2021; and separate lines for refundable and nonrefundable credit amounts."
IRS Correspondence Exams: Doing Less with Less - Caleb Smith, Procedurally Taxing. "But what I found more important, and more eye-opening, are the numbers that the TIGTA report lays out. The numbers show just how much less the IRS is working with (in terms of employees) and just how much less the IRS is bringing in (in terms of tax assessments). But they also suggest that the IRS is doing “less with less” at least in part because of inefficient resource allocations."
TPC’s 2021 Lump Of Coal Award For The Worst Tax Policy Ideas Of The Year - Howard Gleckman, TaxVox. " And the winner is, of course, the stalled Build Back Better Bill. It is a case study of dysfunctional government. Republicans opposed the president’s social spending, climate, and tax bill even before they knew what was in it. Democrats spent six months publicly squabbling among themselves over the elements of the package. Progressives insisted on big new programs that never could pass. And moderates opposed various versions but often sent inconsistent messages about alternatives. Democrats burned most of 2021 on the bill. Will they build back anything in 2022?"
Dual-Residency Issues – Vacation Homes - Tax Warrior Chronicles. "With more employees working remotely, it can be an escape to enjoy working from anywhere. If not home, maybe a vacation home? However, many may not realize if they stay in another state for a long period, they could be considered residents of both that state and their home or “domicile” state, resulting in double taxation of all of their taxable income for the year."
Related: Telecommuting Workers in Refuge States Complicate State Taxes 2020/11
Removing Inflation Distortions From The Tax Base - The 1984 Solution - Peter Reilly, Forbes:
One of the things that is disturbing about inflation is that it distorts income measurement. Someone who bought shares of stock in 1965 for $1,000 and sold them in 1982 for $3,000 did not break even in constant dollars, but would be taxed on a gain of $2,000. Believe it or not, but this problem has been thoroughly addressed. And you can read all about it in Tax Reform For Fairness, Simplicity, And Economic Growth - The Treasury Report to the President - Volume 1 and Volume 2.
But this is perhaps the best part:
Congress in 1986 was like Isildur having the power to destroy the one ring and refusing to do so.
I think reading morning Tax Roundups to the end counts as a feat of strength. Today marks Festivus, the made-up holiday celebrated in a 1997 Seinfeld episode featuring the Airing of Grievances and Feats of Strength. If you have had enough with grievances for the year, it is also National Christmas Movie Marathon Day. Keep it, or leave it alone, then.