April 7, 2021
Arizona Bill Extends Individual Income Tax Filing, Payment Deadline - Tax Notes. "Arizona S.B. 1297 as signed into law automatically extends the 2020 individual income tax filing and payment deadline from April 15 to May 17 to conform to the extended federal due date; the extension does not apply to estimated payments, and penalties will not be assessed for payments made by the new date."
That leaves Hawaii as the only state with an income tax that has not delayed its return deadline to conform with federal changes. Hawaii plans to stick with its April 20 deadline.
House Tax-Writing Chief Outlines Policy Goals for Coming Weeks - Jay Heflin, Eide Bailly:
“[I]t is my intent that we will […] begin our work to remove hidden barriers to workforce participation caused by the inadequacy of our caring infrastructure,” Neal wrote to his fellow lawmakers on Monday.
This effort will seek to permanently extend the changes to the Child Tax Credit, Earned Income Tax Credit, and the Child and Dependent Care Tax Credit that were made in the American Rescue Plan, which was enacted into law in March.
Infrastructure Plan Notably Omits Depreciation and Amortization - Nathan Richman, Tax Notes ($):
The American Jobs Plan fact sheet, which the administration released on March 31, outlines President Biden’s infrastructure plan, including both taxes as a means of paying for the plan and tax incentives as elements of it. However, the terms “depreciation” and “cost recovery” don’t appear anywhere in the document.
Yellen Pushes for Global Minimum Tax Rate on Multinational Corporations - Richard Rubin and Kate Davidson, Wall Street Journal ($). "If the U.S. raises its tax rates and imposes higher burdens on U.S. companies’ foreign profits, a global minimum tax would help prevent companies based in other countries from having a significant potential advantage. That coordination and the ensuing tax revenue—not necessarily the aims of U.S.-based companies—rank high on the administration’s priorities."
Final Regs Allow Six Exceptions to Section 1446(f) Withholding - Carrie Brandon Elliot, Tax Notes. Did you know that if you buy a partnership interest from a foreign person, you may have to withhold part of your purchase price as federal taxes? "The section 1446(a) general rule imposes a withholding tax on partnerships that have effectively connected taxable income allocable under section 704 to a foreign partner. The withholding tax is equal to the applicable percentage of the partnership’s effectively connected taxable income that is allocable to foreign partners. Section 1446(e) defines foreign partner as any partner who is not a U.S. person."
Minnesota House DFL's Tax Bill Would Raise Taxes on Wealthy, Provide PPP Relief - Carolina Vargas, Tax Notes ($):
The Minnesota House Democratic-Farmer-Labor (DFL) party's tax bill, which is part of its budget package, would raise taxes on the wealthy, provide tax breaks and Paycheck Protection Program relief, and create a state and local tax deduction cap workaround for passthrough entities.
The tax bill, introduced April 5 by House DFL leaders as an amendment to H.F. 991, would establish a fifth-tier income tax rate of 11.15 percent on income over $1 million for married couples filing jointly, $750,000 for heads of household, and $500,000 for single filers.
The top tax rates of states bordering Minnesota: Iowa, 8.53% (slated to decline to 6.5%); Wisconsin, 7.65%; North Dakota, 2.9%; South Dakota, 0.0%
14.8% Individual Income Tax and 16.1% Corporate Income Tax Coming To New York City? - Jared Walczak, Tax Foundation. "If a tentative budget agreement goes through, New York taxes would go up $4.3 billion. For New York City residents, who face both city and state taxes, that yields a top marginal individual income tax rate of 14.776 percent, while most businesses in the city would face a top corporate rate of 16.1 percent (even more for the finance industry)."
IRS Starts Major Outreach to State-Legal Marijuana Businesses - Wolters Kluwer Tax & Accounting Blog. "Federal tax compliance is complicated for legal cannabis businesses because, regardless of state law, marijuana remains a Level 1 controlled substance under federal law. However, the IRS wants to be realistic about the changing legal landscape."
1.3 million people must file 2017 returns by May 17, 2021, or lose their part of $1.3 billion in tax refunds forever - Kay Bell, Don't Mess With Taxes. "f you're one of those non-filers, you need to file that 2017 return and claim your refund by May 17"
Is unemployment income subject to kiddie tax? - National Association of Tax Professionals Blog. "Unemployment compensation is considered unearned income. A child who receives unemployment compensation may be subject to the kiddie tax, and as a result, may pay substantially higher tax than an adult receiving the same compensation."
Do Platform Workers Need New Tax Rules After Information Reporting? - Marie Sapirie, Tax Notes Opinions. "The IRS maintains that platform work is essentially an internet-fueled spin on the well-established concept of self-employed workers running small businesses."
Should All Families Receive the Child Tax Credit? - Renu Zaretsky, TaxVox. "Elaine and others, including our TPC colleagues Len Burman and Gene Steuerle, have a better idea. Give the same credit to everybody, regardless of income. But treat the CTC like a cash benefit—and tax it. That is an easy way to make the credit progressive and may also maintain support for a generous benefit by even high-income households."
Fashion Designer Strikes Out Big with the IRS - Amie Kuntz, Living the Tax Life. "Apparently twisted shoulder straps caused quite the ordeal on one occasion."
Ex-Ballard Spahr Partner's Energy Credits Nixed By Tax Court - Theresa Schliep, Law360 Tax Authority.
Sometimes an investment seems so far-fetched that it looks like a parody of a tax shelter. Yet the prospect of tax savings can lead investors to resolutely ignore seemingly obvious warning signs on the road to deductions. A Tax Court opinion released yesterday is an example.
The case involved a tax shelter involving focusing lenses to be put on a tower in Utah to generate electricity. From Judge Lauber's opinion (names changed, emphasis added."):
By 2015, however—the year following the last tax year at issue — only one of the 19 [*6] towers had been equipped with a full array of lenses. Some lenses were broken; thousands of others sat untouched in a warehouse. Mr. Founder's project never got past the R&D stage. Although his equipment was capable of generating small amounts of electricity in tests, it never came close to commercial production.
Despite these failures, Mr. Founder's project generated tens of millions of dollars in revenue. This revenue came not from producing solar power but from selling lenses to investors seeking tax benefits. Mr. Founder established for each lens a purchase price that vastly exceeded its modest production cost. Investors made a downpayment equal to one-third of the purchase price; the balance would be due if and only if the lenses were actually used to produce electricity.
After devising this plan, Mr. Founder directed Mr. Marketer to circulate marketing materials to prospective investors. Referring to the plastic lenses as solar-energy “systems,” Mr. Marketer explained: “Your objective in purchasing your systems is to zero out your taxes.” To help prospective investors understand how to “zero out” their taxes, Mr. Marketer supplied a law firm memorandum outlining the tax benefits that can be derived from energy credits and depreciation deductions.
Remarkable. No marketable production. Unused plastic lenses gathering dust in a warehouse. But "tens of millions in revenue" from selling tax savings wrapped in dusty lenses.
Things went about the way you might expect, starting with an injunction against the promotion of the scheme and receivership. That didn't deter the investors, though, who still wanted their deductions, and one of the investors, who we will call "Mr. Investor," took it to Tax Court. Judge Lauber wasn't having it:
Despite his concerns Mr. Investor continued to purchase lenses because “it was a way that * * * [he] could use a tax liability” to his advantage. To be conducting a trade or business “the taxpayer's primary purpose for engaging in the activity must be for income or profit.” We find that Mr. Investor's primary purpose in purchasing lenses was to benefit from tax savings, not to derive profit from the conduct of a genuine business enterprise."
The opinion said that the fate of deductions for 200 or so other investors hinged on the outcome of this case. A sad fate, it turns out.
The moral? When "your objective in purchasing your systems is to zero out your taxes," you might want to reconsider your purchase.
Cite: T.C. Memo. 2021-41
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.