April 21, 2021
Biden’s Big Agenda Relies on a Shrunken, Strained Agency: The IRS - Richard Rubin, Wall Street Journal ($):
It implemented a major tax law after 2017, then implemented more changes during the pandemic with employees working from home. It churned out hundreds of millions of stimulus checks last spring, faster than in 2008, then beat that pace in the second and third rounds.
In other ways the IRS seems hopelessly broken. Taxpayers wait longer to get phone calls answered—or never get them answered at all. Paper tax returns and other correspondence piled up in trailers last year, and the agency is still working through the backlog. The IRS erroneously sent hundreds of thousands of warning notices to people whose returns were caught up in those delays.
When you make the tax agency a super-agency with responsibilities in all sorts of different policy areas, don't be surprised if it gets less good at collecting taxes.
Taxpayers may file a 2020 superseding return changing their joint filing election to receive the third economic impact payment - National Taxpayer Advocate Blog:
In my April 29, 2020, blog, I called attention to superseding returns — returns filed after an original return but before the due date of the original return. Returns are typically due on April 15, but taxpayers can submit a Form 4868, Application for Automatic Extension of Time to File, until October 15. Taxpayers can use superseding returns to correct an error or change a tax election as a substitute for the original filed return. For example, taxpayers might elect to have an overpayment shown on an original return applied to the tax owed the following year. By filing a second (superseding) return, taxpayers can change that election and receive the refund in the current year instead.
Superseding returns can be very handy. This is especially true when you are dealing with partnership returns, which generally can no longer be amended. The extra time that extensions provide to catch errors can make them worthwhile, even if you don't "need" one.
Calif. Senate Approves PPP Tax Conformity - Maria Koklanaris, Law360 Tax Authority. "The state Senate voted 37-0 Monday for an amended version of A.B. 80, which would allow nonpublicly traded businesses that lost at least 25% of their revenue as a result of the coronavirus pandemic to fully deduct forgivable PPP loan expenses."
Florida Governor Signs Economic Nexus Bill - Lauren Loricchio, Tax Notes. "With the bill, Florida joins the majority of states with a sales tax that have adopted collection requirements for out-of-state sellers in the wake of the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. Legislators in Missouri are still working out a compromise on legislation to address the issue."
Iowa Senate introduces tax administration bill as part of modernization plan - Mary Stroka, The Center Square:
Businesses that are pass-through entities would have to file composite returns on behalf of all their partners, shareholders (if S corporation) or beneficiaries of estates or trusts who are not residents of the state or have commercial domiciles in the state. The income or franchise tax rate would be the maximum state income or franchise tax applicable and would be due on the same date as the pass-through entity’s annual return.
The changes for pass-through entities would apply beginning in January 2022.
The bill is SSB 1268. Its introduction late in the session makes passage unlikely this year, but it may signal important changes in Iowa's income tax next session.
UPDATE: a lobbyist tells me that the Iowa Department of Revenue is pushing to have this enacted this session. Amazing things can happen in a hurry when the legislators want to go home.
An Eye for Moving Abroad? Bye-Bye USA, Hello Tax Complications! - Virginia La Torre Jeker, Bloomberg Tax. "Remember, U.S. tax follows you wherever you go. Don’t leave home without understanding it."
Woman Agrees She Owes $3.3M In FBAR Penalties - David Hansen, Law360 Tax Authority $). "The number of these accounts varied between 46 and 75 and their annual aggregate balances ranged between $1.6 million and $4.3 million."
Related: Offshore Voluntary Disclosure.
Houston Tax Attorney Indicted for Conspiracy and for Aiding and Assisting - Jack Townsend, Federal Tax Crimes. "A thought experiment. With the substantial whistleblower awards in § 7623(b), those having some information about Kepke's practice could have profited handsomely if they could put some of the pieces together and delivered them to the Whistleblower Office without violating the attorney-client privilege. With the crime-fraud exception, that might be easier even for some of the players in the adventure."
Claiming payroll credits – employee retention and paid leave - National Association of Tax Professionals. "In order to apply these credits and benefits to your clients’ returns though, you need to know how they work."
Related: Resources to Help You with the Employee Retention Credit (webinar).
Cannabis: More Popular, More Mainstream - Mark Friedlich, Wolters Kluwer Tax & Accounting Blog. "Most industry experts and others believe that until there is banking reform and cannabis is removed from the federal Controlled Substances Act, the industry will continue to be significantly challenged."
Marginal vs. Effective Tax Rates - How Do They Differ? - Spencer Wison, TaxBuzz. "The higher your marginal tax rate is, the more valuable a tax deduction or credit becomes."
Don't make any of these dozen tax-filing mistakes - Kay Bell, Don't Mess With Taxes. "4. Using the wrong filing status: Dependents also affect your filing status. So does divorce. Or marriage. All these life changes mean that every year, some taxpayers choose the wrong filing status."
One I was on the phone with a client whose return I had been filing for some years when he casually mentioned his wife. Having prepared his returns as "single" all along, I congratulated him and asked when he was married. "Oh, three years ago." The conversation took an abrupt turn to amending returns.
Let's say 'goodbye' to the April 15 due date - Annette Nellen, The Hill:
This is how elimination of a filing due date can work: A digital file is created once your paycheck is auto-deposited to your bank account. At the time any income is transferred to you, it should feed into your “tax cloud,” which is a secure repository that you control. You select the software that uses this data daily or weekly to compute your federal and state income tax liabilities at that point in time.
The software would ask you for your marital status, age of your children, bank account and other information needed to calculate your income tax obligation and make necessary transfers to or from your bank account. This system would also pick up your mortgage payments, charitable contributions and similar tax items because digital records exist for them. If you own a business, your accounting software can be configured to also feed regularly into your tax cloud repository.
This is the type of tax thinking we need. The April 15 due date maybe made some sense when it was enacted more than 60 years ago, when the Internal Revenue Code fit nicely in one volume.
I think a lot of this is possible, except for maybe the last sentence. While real-time business payments might work in a value added tax (VAT) system, I don't think can be done with an income tax -- at least not one anywhere near as complex as what we have now.
Forget that Boston Harbor thing. Today is National Tea Day!
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.