June 1, 2021
President Biden’s first budget includes $3.6 trillion in revenue increases over ten years - Jay Heflin, Eide Bailly. The Biden administration issued details of its tax proposals. Most provisions would take effect in 2022, except one key one:
Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with adjusted gross income of more than $1 million. “This proposal would be effective for gains required to be recognized after the date of announcement,” according to the Green Book. The proposal was announced on April 28, 2021.
Other provisions include increases in individual and corporate rates. Also: "While some of these proposals can be concerning, it is important to note that the president’s budget is not a bill. Congress is also not bound to include any of these provisions in legislation. Budgets are a statement about a president’s legislative priorities. They are aspirational documents, and the one that was released today is just that."
Stepped-Up Basis Repeal Gets Tamer Treatment - Jonathan Curry, Tax Notes ($).
The green book expands upon the provision in the American Families Plan to effectively end stepped-up basis above a $1 million income threshold, clarifying that in addition to death, gifts as well as transfers to or distributions from a trust or other non-corporate entity would also be treated as realization events.
However, [Austin Bramwell of Milbank LLP] said that the broad application of the 90-year rule is “radical change in business taxation” that upends long-standing congressional policy of making it easy to do business as a partnership. “Normally, such a dramatic change in business taxation would merit its own separate proposal rather than a single sentence,” he said, adding that he “wonders whether Treasury’s partnership tax left hand knows what its individual tax right hand was up to.”
The proposal to tax gains in trusts and partnerships every 90 years would start the clock in 1940, making 2030 a big planning year for legacy trusts and long-time partnerships.
Biden tax plan forecast to bring in $3.6T in a decade - Laura Davison, Allyson Versprille, and Michael Rapoport, Accounting Today. "The document spans the gamut of Biden proposals, including a global minimum corporate tax, an increase in the levy on capital gains at death and closing the carried interest tax break for fund managers, all of which Biden has already outlined in his funding proposals for his longer-term spending plans."
Effective Date of Biden Like-Kind Proposal Raises Concerns - Kristen Parillo, Tax Notes ($):
“Any gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return) during a taxable year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange,” the green book says.
The cap would be effective for exchanges completed in tax years beginning after December 31, 2021.
First Biden Budget Retains Trump-Era Business Tax Break - Richard Rubin, Wall Street Journal. "Owners of closely held businesses would still get a 20% tax deduction under President Biden’s tax plan, leaving high-income people who run construction companies and manufacturing firms benefiting—for now—from a provision that Republicans created in 2017 over Democratic opposition."
Treasury details Biden's tax proposals - Maomi Jagoda, The Hill:
The release of the “Greenbook” of revenue proposals coincides with the unveiling of Biden’s $6 trillion budget proposal for fiscal 2022.
It fleshes out tax proposals that are part of Biden’s $4 trillion economic plan and includes information both about proposals to raise taxes on the wealthy and corporations, as well as proposals to expand tax credits that would reduce federal revenue.
Biden Backs Up Campaign Promises With Call for $2.4T in New Taxes - Jad Chanseddine and Doug Sword, Tax Notes ($). "The Biden proposal would also reverse a tax break for the owners of partnerships, S corporations, and sole proprietorships that Democrats agreed to in the March 2020 legislation, but have since rued. The 2017 tax law imposed a limitation of $500,000 in excess business losses that joint filers could take on their taxes each year. The March 2020 law removed that cap."
Biden's first federal budget covers campaign & tax promises - Kay Bell, Don't Mess With Taxes. "The 37 percent ordinary income tax rate for 2021 applies to taxable income that exceeds $523,600 for single filers and more than $628,300 for married couples filing jointly. Under the Biden proposal, the new 39.6 percent rate would take effect in 2022 on taxable income that is more than $452,700 for single filers and tops $509,300 jointly filing married couples."
Revenue Proposals Ease Audit Regime, Target SECA and Capital Gains - Kelley Taylor, Tax Notes ($):
Released May 28, the green book of revenue proposals is predicated in part on the administration’s stated goal of increasing taxation of high-income earners. As a result, aside from increasing the top marginal income tax rate to 39.6 percent, the administration is proposing to retroactively eliminate preferential tax rates on long-term capital gains.
While those tax increases were expected, other proposals focusing on partnership audits and Self-Employment Contributions Act (SECA) taxes for limited liability companies were less anticipated.
SHIELD Details, GILTI Changes Headline Green Book Proposals - Andrew Velarde, Tax Notes ($). "The proposal would also completely repeal the subpart F high-tax exemption and, by extension, the cross-reference to the GILTI high-tax exclusion in the rules there."
Virginia info request has short deadline, $10K fine for failure to report - John Gupta, Iris Chung, and Ryan Russell, Eide Bailly. "A little-noticed bill enacted last month in Virginia could carry a nasty bite for business taxpayers - and time is already running short to avoid penalties."
Nebraska Enacts Corporate Income Tax Cut - Carolina Vargas, Tax Notes ($). "L.B. 432, signed by Ricketts May 26, will lower the corporate income tax rate on income over $100,000 from 7.81 percent to 7.5 percent for tax years beginning on or after January 1, 2022. It will further reduce the rate to 7.25 percent for tax years beginning on or after January 1, 2023. The first $100,000 of income will continue to be taxed at 5.58 percent."
Illinois Assembly Approves SALT Workarounds for Partnerships - Michael Bologna, Bloomberg Law ($). "The Legislature Sunday passed S.B. 2531, which allows partnerships and S corporations to pay their income tax at the entity-level at a rate of 4.95% and then claim a credit on their state return. The bill essentially permits such businesses to circumvent the $10,000 “SALT cap” added to the 2017 tax reform law because the cap doesn’t apply to business taxes."
South Carolina Adopts SALT Cap Workaround - Lauren Loricchio, Tax Notes ($). "S. 627 allows partnerships and S corporations to 'elect to have this income taxed at the entity level at the 3 percent flat rate,' according to the fiscal note."
Lawmakers end solar tax credits, leaving 760 Iowans out of the money - Perry Beeman, Iowa Capital Dispatch:
Polk County Supervisor Matt McCoy, a former Democratic state lawmaker, installed a $38,000 solar array at his south of Grand home in Des Moines and is among those who lost the credit...
Because applications far exceeded the state’s limit on spending on the credits, a long waiting list for the aid formed.
The state had set a limit of $5 million a year for credits. Advocates had asked lawmakers to double that to $10 million in future years. Instead, legislators let the program expire.
Funding Infrastructure: Reading the Map to Find Alternate Routes - Mindy Herzfeld, Tax Notes ($). "But those who fail to heed the lessons of history are doomed to repeat them, and it would be unfortunate for Congress to agree to major tax changes with the stated goal of cracking down on tax avoidance without considering the possible consequences."
Can the IRS Raise an Extra $700 Billion From High-Income Tax Evaders? Martin Sullivan, Tax Notes ($). "The bulk of the net $700 billion in revenue from increased compliance is an estimated $460 billion from additional information reporting. That estimate assumes a gradual increase in voluntary compliance that will eat into the considerable amount of estimated income and employment tax noncompliance of sole proprietorship, partnership, subchapter S, rental, and small subchapter C income."
Belief Amazon Was Not Required to Issue Form 1099-K Did Not Justify Leaving Income Off of the Taxpayer's Return - Ed Zollars, Current Federal Tax Developments. "By the time the trial began the taxpayer had discovered that he was in error, and Amazon was required to report the income—but he argued since he believed they were not required to issue the Form 1099 he had acted properly in not reporting the income."
So much to celebrate! The National Day Calendar lists 14 holidays celebrated today. I will pass on Wear a Dress Day, having not shaved my legs, and opt for World Milk Day instead.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.