May 18, 2021
Justices Revive Challenge To IRS Microcaptive Reporting Rule - Joshua Rosenberg, Law360 Tax Authority ($):
Under microcaptive insurance transactions, companies set up small, in-house insurers that are taxed only on investment income, excluding payments received under the insurance contract from taxable income. IRS Notice 2016-66 labeled microcaptive insurance arrangements as potentially abusive and said they must be reported to the agency under the threat of penalties.
CIC Services, a tax advisory group, claimed that the notice was a violation of the Administrative Procedure Act because it did not go through the notice-and-comment procedures required by that law and that the AIA should not apply because it was challenging the IRS notice's reporting requirements, not the collection of tax.
This doesn't make microcaptive transactions work. Its importance is that it holds the IRS to notice and comment requirements before issuing rules.
Supreme Court’s CIC Services Opinion Clarifies Scope of AIA - Kristen Parillo, TaxNotes ($):
According to Monte A. Jackel, of counsel to Leo Berwick, the Court’s CIC Services opinion “is very narrowly targeted, and it does not look like taxpayers or their advisers will have any materially greater pre-enforcement rights than what they had before this case today.”
The opinion “seems to put in jeopardy any tax reporting regime where either there is no separate tax or tax penalty resulting from the failure to comply, or where the tax reporting penalty is separate from the underlying tax and the reporting obligation and the taxpayer’s tax liability are objectively separate,” Jackel said.
That puts in potential jeopardy all the IRS notices adding various items as reportable transactions or transactions of interest, such as the separate reporting penalty for the failure to comply with the IRS notice on syndicated conservation easement transactions, Jackel said.
Link to Supreme Court Opinion: CIC Services, LLC v. IRS.
Procedurally Taxing provides some commentary on the Supreme Court's decision. In Supreme Court Reverses the Sixth Circuit in CIC Services – Viewpoint, Bryan Camp says:
The bigger picture here is the Court is revisiting what it thinks should be the proper relationship of courts and the IRS. This decision allows courts to give greater and closer supervision of how the IRS administers the tax system. It has the potential to greatly slow down the IRS’s ability to detect tax cheats, such as the micro-captive insurance arrangements that CIC was promoting. That will lead to significant losses in tax revenue while companies like CIC will continue to be able to create and promote new ways for wealthy taxpayers to avoid paying taxes.
But there are two silver linings. First, the decision might spur Congress to actually revise the Anti-Injunction Act to bring it into the 21st Century. Congress wrote the AIA in 1867, after all and the basic operative language is unchanged. For example, there was no third party reporting in 1867 the way there is now. Second, even without the AIA, this ruling does not mean that courts will suddenly stop all third-party information reporting.
Leslie Book provides Further Initial Thoughts on CIC Services:
While Bryan and I differ in our takes on the case, like Bryan I also think a fitting outcome would be for Congress to take a fresh look at the AIA and perhaps allow parties the opportunity to challenge tax rules or regulations in preenforcement proceedings (to that end see my post Is It Time To Reconsider When IRS Guidance Is Subject to Court Review? )
Related: Recent Developments in Micro-Captive Insurance—A Reportable Transaction.
Biden, Harris release 2020 tax returns - Ben Leonard, Aaron Lorenzo, and Christopher Cadelago, Politico.com. "Biden and first lady Jill Biden reported $607,336 in adjusted gross income and more than $157,000 in federal tax paid — an effective federal tax rate of 25.9 percent. Harris and second gentleman Doug Emhoff reported nearly $1.7 million in adjusted gross income, with $621,893 in federal tax paid — an effective federal tax rate of 36.7 percent."
For both couples, the non-politician had the highest 2020 earnings. It's hard to hold down a job on the campaign trail.
Biden, Harris release 2020 tax returns - Naomi Jagoda and Brett Samuels, The Hill. "Much of the Bidens’ income in 2020 came from Giacoppa Corp., an entity Jill Biden uses for book payments and speaking engagements, as well as from pensions and annuities."
Bidens’ Tax Returns Show Income of $607,336 in 2020 - Richard Rubin, Wall Street Journal ($). "After Mr. Biden left the vice presidency in 2017, the couple routed their speech and writing income through S corporations. That move meant that the couple avoided Medicare taxes totaling 3.8% on much of their income, saving them as much as $500,000 in 2017 and 2018."
Tax Analysts collection of presidential returns.
IRS, Treasury Announce Families of 88% of Children in the U.S. to Automatically Receive Monthly Payment of Refundable Child Tax Credit - IRS. "The Internal Revenue Service and the U.S. Department of the Treasury announced today that the first monthly payment of the expanded and newly-advanceable Child Tax Credit (CTC) from the American Rescue Plan will be made on July 15. Roughly 39 million households—covering 88% of children in the United States—are slated to begin receiving monthly payments without any further action required."
What The New Monthly Child Tax Credits Mean For You And Your Family - Vanessa Romo, NPR. "In this case, eligible families qualify for up to $300 per month for each child under 6 years old and up to $250 for each child from 6 to 17. So a family with three children ages 5, 7 and 16 could see an extra $800 per month in their bank account through the latter half of the year. The credit goes away once a child reaches 18."
Iowa Senate passes bill cutting taxes, shifting mental health care funding to the state - Stephen Gruber-Miller, Des Moines Register. "The Iowa Senate passed the bill Monday on a vote of 29-15 with every Republican and Sens. Kevin Kinney, D-Oxford, and Tony Bisignano, D-Des Moines, voting yes and every other Democrat voting no. The measure now goes to the House, which is expected to pass it and send it to Gov. Kim Reynolds' desk."
The measure would speed up a series of income tax cuts, allowing them to take effect beginning in 2023. To do this, it would remove a pair of "triggers" requiring the state to meet certain revenue growth targets before the cuts could occur.
The measure would also phase out the state's inheritance tax by 2025, a compromise between the Senate's initial proposed three-year phaseout and the House's proposed 10-year phaseout.
The bill also conforms Iowa's treatment of PPP loans and related expenses to federal rules for fiscal year taxpayers. Iowa already conformed for calendar-year filers.
Link: SF 619.
Oklahoma Budget Plan Includes Lower Income Tax Rates - Carolina Vargas, Tax Notes. "Gov. Kevin Stitt (R) and the Legislature reached the $8.3 billion budget agreement May 13. The budget calls for reducing the top personal income tax rate to 4.75 percent from 5 percent and the corporate income tax rate to 4 percent from 6 percent, according to a release the same day. "
California Governor Unveils Further Details of Small Business Relief - Tax Notes. "California Gov. Gavin Newsom (D) has unveiled another provision of his $100 billion 'California Comeback Plan' that expands the state's COVID-19 small business grant program to $4 billion, provides a $6.2 billion tax cut for small businesses most affected by the pandemic, and allocates nearly $2.2 billion in grants and tax credits to attract businesses to California."
Convicted Former State Senator Facing Excess Benefit Excise Tax - Nathan Richman, Tax Notes ($), "A former Pennsylvania state senator convicted of tax, fraud, and conspiracy charges involving a charity his staff incorporated may now be liable for an excess benefit tax on money he extracted from that nonprofit."
It's too late for the former senator to get an Excess Benefit Analysis, but you still have time. https://www.eidebailly.com/services/tax/exempt-organization-tax/excess-benefit-analysis
IRS Issues Applicable Federal Rates (AFR) for June 20 - Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during June 2021 is 1.64%"
Democrats push tax hikes on wealthy over infrastructure ‘user fees’ - Lindsey McPherson, Roll Call. "Not all Democrats are ready to take user fees off the table, given Republican interest and the need to create sustainable revenue sources for struggling infrastructure-related trust funds."
Dispute Over Credit Union Acquisitions of Banks Heats Up - Fred Stokeld, Tax Notes ($). "The credit union and banking industries are intensifying their battles with each other over accusations that credit unions are abusing their tax-exempt status by acquiring banks."
5 tax tasks to complete now if you didn't file on Tax Day - Kay Bell, Don't Mess With Taxes. "Yes, the filing deadline is over. But getting your Form 1040 to the IRS as soon as you can will stop the charges for being late. Even if your return has errors, it's better to get something in to the IRS and then correct your mistakes by filing an amended return."
Plant, Cultivate, Harvest: 3 Keys to a Successful Family Farm Transition - Mike Schaefer, Ava Archibald and Travis VanDyke, Eide Bailly. "The first and second generation should have their wills updated in case of a premature death. And you, the owner, must make sure your wishes are communicated to family members... part of this step is determining how you’ll deal with farming vs. non-farming children."
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance - Roger McEowen, Agricultural Law and Taxation Blog. "The split-dollar technique is sometimes used by large estates in an attempt to minimize taxes at death, often in conjunction with an irrevocable life insurance trust (ILIT). It can also be used as a funding mechanism for a buy-sell agreement in a closely-held family business where the goal is to maintain family ownership of the business over multiple generations. But split-dollar arrangements are heavily regulated and specific rules must be followed precisely."
What Everyone Can Learn From How Porn Stars Do Their Taxes - Cherie DeVille, Alix Lynx, The Daily Beast. Perhaps not the names they've always used. Not entirely safe for work, you are warned. Not a conventional source for tax advice, but when they're right, they're right: "Keep Your Business and Personal Expenses Separate."
Celebrate! The day after the tax deadline is traditionally a day tax pros take a break, but everyone can celebrate National No Dirty Dishes 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.