April 26, 2021
IRS sees delays in tax refunds and quarterly payments – Michael Cohn, Accounting Today. “The Internal Revenue Service is holding up millions of tax refunds for manual processing and its systems were unable to process many of the quarterly payments that needed to be sent by April 15. The IRS is holding approximately 29 million tax refunds that need to be processed manually because of the complexities of some of the recent tax laws passed by Congress.”
The agency’s systems are also overwhelmed and were unable to process many of the delayed quarterly estimated tax payments that were due April 15, despite pleas from accountant groups like the American Institute of CPAs and the National Conference of CPA Practitioners to delay the payments until May 17 to match the extended filing date.
White House’s new $1.8 trillion ‘families plan’ reflects ambitions — and limits — of Biden presidency – Jeff Stein, Washington Post. “The “American Families Plan,” set to be released ahead of the president’s joint address to Congress on Wednesday, calls for devoting hundreds of billions of dollars to national child care, prekindergarten, paid family leave and tuition-free community college, among other domestic priorities. It will be at least partially funded by about a half-dozen tax hikes on high-income Americans and investors, proposed changes that are already provoking fierce opposition in Congress and on Wall Street.”
Potentially more contentious are the White House’s coming tax proposals — measures that aides have also cautioned had not yet been finalized. Biden and White House officials have been adamant that their tax hikes would not hit anyone earning under $400,000 per year. The key tax changes are expected to include increasing the top tax rate from 37 percent to 39.6 percent; taxing investment gains from capital income at ordinary wage rates for those earning more than $1 million; and imposing a higher tax on assets when they are transferred at death, among other provisions.
Top Combined Capital Gains Tax Rates Would Average 48 Percent Under Biden’s Tax Plan – Garrett Watson and Erica York, Tax Foundation. “President Joe Biden’s American Family Plan will likely include a large increase in the top federal tax rate on long-term capital gains and qualified dividends, from 23.8 percent today to 39.6 percent for higher earners. When including the net investment income tax, the top federal rate on capital gains would be 43.4 percent. Rates would be even higher in many U.S. states due to state and local capital gains taxes, leading to a combined average rate of 48 percent compared to about 29 percent under current law.”
Not rich? Good news: You’re probably getting a tax cut – Brian Faler, Politico. “New estimates by Congress’s official forecasters show Democrats’ tax cuts — included in their March stimulus package — will drive down tax rates on low- and middle-income people so much this year that those earning less than $75,000, on average, will owe nothing in federal income taxes. Those making between $75,000 and $100,000 will pay a scant 1.8 percent average tax rate this year, the nonpartisan Joint Committee on Taxation predicts."
SALT Cap Repeal Would Overwhelmingly Benefit High Income Households – Howard Gleckman, Tax Policy Center. “Households making $1 million or more a year would receive half the benefit of repealing the $10,000 federal cap on the state and local tax (SALT) deduction, according to new estimates by the Tax Policy Center. Seventy percent of the benefit would go to those making $500,000 or more. At the same time, 96 percent of middle-income households, those making between about $52,000 and $93,000 annually, would get no tax reduction at all. The 4 percent that would benefit would receive an average tax cut of about $400. By contrast, 93 percent of those making $1 million or more would get a tax cut, averaging about $48,000.”
Biden’s 1970s-Era Taxes on Rich Collide With GOP and SALT Rebels – Laura Davison, Bloomberg. “President Joe Biden is poised to unveil a plan that would raise taxes on the income, investments and estates of the wealthiest Americans to levels not seen in more than four decades, a move that will trigger intense debate in Congress about whether and how to address income inequality […] To pay for a bill that could top $1 trillion, Americans earning over $400,000 will face higher marginal income tax rates. Those taking in $1 million or more will get hit with a levy of up to 43.4% on their capital gains. The last time rates got close to that, Jimmy Carter was president.”
Bipartisan Group Backs Gas-Tax Increase as Option to Fund Infrastructure – Andrew Duehren, Wall Street Journal. “A bipartisan group of House lawmakers endorsed a report that includes raising the gasoline tax as a possible way to pay for infrastructure spending, lending support to a measure that both Republican and Democratic proposals have avoided in the debate about how to cover the cost of an infrastructure package […] The White House has repeatedly said it is opposed to raising user fees like the gas tax to pay for infrastructure, arguing that it would disproportionately affect lower-income Americans."
The White House has proposed raising the corporate tax rate from 21% to 28% and increasing taxes on U.S. companies’ foreign earnings. That plan has drawn opposition from Republicans and some Democrats.
SBA offers targeted advances to small businesses and tries again on shuttered venue program – Michael Cohn, Accounting Today. “The Small Business Administration debuted a new program to help small businesses weather the COVID-19 pandemic and prepared to retry a launch of its Shuttered Venue Operators Grant program."
The SBA opened a new round of Economic Injury Disaster Loan assistance, known as 'Supplemental Targeted Advances,' on Thursday to provide $5 billion in extra help to a million small businesses and nonprofits that have been the most severely affected by the economic impact of the pandemic. The Supplemental Targeted Advance program is a new SBA relief program that offers an extra $5,000 that doesn’t need to be repaid by hard-hit businesses. It was included as part of the American Rescue Plan Act that President Biden signed into law last month.
Don’t overlook the employee retention credit – Randy Crabtree, Accounting Today. “The CARES Act included sweeping measures designed to incentivize companies — particularly small businesses — not to lay off workers. While the Paycheck Protection Program gets most of the attention, the Employee Retention Credit also provides employers with a generous tax credit for retaining workers. Why didn’t companies try to qualify for both programs during the darkest days of the pandemic? In most cases you couldn’t qualify for the ERC if you had already received a PPP loan. However, that restriction was removed when the Consolidated Appropriations Act was signed into law on Dec. 27, 2020.”
Safe Harbor Provided for Deducting Original PPP Loan Expenses – Kelley Taylor, Tax Notes ($). “Eligible taxpayers can officially deduct original Paycheck Protection Program loan expenses under an IRS revenue procedure providing a safe harbor to claim the expenses on the subsequent year’s tax return. In Rev. Proc. 2021-20, 2021-19 IRB 1, issued April 22, the IRS makes clear that under the Consolidated Appropriations Act, 2021 (P.L. 116-260), businesses that received first-round PPP loans can deduct original eligible expenses associated with those loans. Previous IRS guidance disallowed deductions for those expenses.”
Minn. House OKs PPP Cap, Expanded Combined Reporting – Daniel Tay, Law360 Tax Authority ($). “A Minnesota bill that would provide a capped tax exclusion for Paycheck Protection Program loans and expand the state's combined reporting regime to include foreign corporations with global intangible low-taxed income was narrowly approved by the state House of Representatives."
The House approved the bill by a 68-66 vote Thursday, largely along party lines; all Republicans and two representatives from the Democratic Farmer Labor party voted against the bill. Under the bill, Minnesota would offer taxpayers a deduction of up to $350,000 for expenses paid by each forgiven PPP loan they received, and a subtraction of up to $10,200 in unemployment benefits to match the tax break provided in the American Rescue Plan Act .”
Limited Liability Co. Ruled A Qualifying Opportunity Fund – Eli Flesch, Law360 Tax Authority ($). “A limited liability company should be treated as a qualified opportunity fund, the Internal Revenue Service ruled in a private letter ruling released Friday. In PLR-124804-20 (PLR 202116011), the IRS said the LLC should be treated as a qualifying fund under Section 1400Z of the Internal Revenue Code. The agency granted the LLC extra time so that it can be treated as a qualifying fund starting the month it was formed, said the ruling.”
Colo. Will Provide Matching Use Tax, Sales Tax Breaks – Jaqueline McCool, Law360 Tax Authority. “Colorado will provide matching use tax exemptions for certain items that currently only have sales tax exemptions to ensure such items are exempt from both sales and use tax, under a bill signed by the governor. H.B. 1177, which Democratic Gov. Jared Polis signed Thursday, will provide that certain items that currently only have sales tax exemptions in state law are also exempt from use tax. Ensuring that items have both exemptions is necessary because without a use tax exemption, an item with only a sales tax exemption could potentially become subject to use tax once sold in a tax-exempt transaction, according to the bill.”
Montana Lawmakers Pass Bill To Change Tax Apportionment – Jaqueline McCool, Law360 Tax Authority ($). “Montana would change from a three-factor apportionment formula to three-factor apportionment with a double-weighted sales factor for corporate income tax, under a bill passed by the state Legislature. The House of Representatives concurred in S.B. 376 by a 86-14 voteand returned the bill to the Senate on Thursday. The bill would change the state's corporate income apportionment formula to a three-factor apportionment with a double-weighted sales factor. Instead of placing equal one-third weight on property, payroll and receipts, the new bill would weigh property and payroll at one-fourth and receipts at one-half in the apportionment formula, according to the bill's fiscal note.”
Treasury Likely to Split Up Offshore Profit Rules, Official Says – Natalie Olivo, Law360 Tax Authority ($). “U.S. companies will likely have multiple rounds of guidance for repatriating offshore profits that have already been taxed at home, with the first package expected in the late summer or early fall, a U.S. Treasury Department official said Friday. The first portion of upcoming guidance for previously taxed earnings and profits, or PTEP — foreign income immediately taxed in the U.S. — is fairly far along, according to Jose Murillo, the Treasury deputy assistant secretary for international tax affairs in the Office of Tax Policy. Treasury is still refining some elements, including issues involving a U.S. company's basis in its foreign affiliate's stock, he said during a virtual panel at the annual conference of the International Fiscal Association's U.S. branch.”
IRS Releases Country-by-Country Filings: Insights on Tax Havens, Effective Tax Rate – Glenn DeSouza, Bloomberg ($). “The Internal Revenue Service released in March 2021 a databank on the Form 8975, Country-by-Country Report (CbCR) that has been filed by 1,641 U.S. corporations. The databank provides for the first time a full guide to where multinationals book profits and pay taxes.”
Lawmakers spar in Supreme Court case on nonprofit donor disclosure – Todd Ruger, Roll Call. “The Supreme Court hears arguments Monday in a pair of cases that members of Congress say could influence political discourse in the United States, warning that the justices either could stymie debates on controversial policies or bolster the influence of big money anonymous donors. The cases center on California’s requirement that nonprofits disclose a list of major donors of more than $5,000 to state regulators who seek to police charitable fraud. Nonprofits already must file that information with the Internal Revenue Service, which must keep it confidential.”
Fun Fact! McDonald's once tried to get kids to eat heathier food by creating broccoli-flavored bubble gum. Why have you seen it at its restaurants? The idea went over like a lead balloon as the company added so much sugar to the concoction that children were confused about what they were chewing.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.