Tax News & Views If it Walks Like a Leak Roundup

ProPublica Tax Data Leak Sparks Governmentwide Probe - William Hoffman and Jonathan Curry, Tax Notes ($).

“We have turned it over to the appropriate investigators, external and internal,” IRS Commissioner Charles Rettig told members of the Senate Finance Committee June 8 as they reacted to investigative journalism nonprofit ProPublica’s report, “The Secret IRS Files.”

The report claims to be based on the leak of more than 15 years of IRS data about thousands of the top 0.001 percent of income earners.

Also: "Finance Committee Chair Ron Wyden, D-Ore., condemned ProPublica’s 'massive, unauthorized' disclosure of taxpayer records, then noted that the report’s conclusions support his contention that the rich are not paying their fair share."

IRS Is Investigating Release of Tax Information of Wealthy Americans - Richard Rubin, Wall Street Journal ($). "The ProPublica article said the news organization didn’t know the identity of its source and described the information it received as IRS data on thousands of people covering more than 15 years. It isn’t certain that the information—a highly unusual airing of private tax data—came directly from within the IRS or whether the agency was hacked in some way."

ProPublica Publishes Series Based on IRS Data Trove Produced by Anonymous Source - Jack Townsend, Federal Tax Crimes:

IRS information is generally secret and cannot be shared or access within the IRS except for legitimate purposes and without the IRS also except for very circumscribed purposes stated in § 6103.  More importantly for present purposes,  § 7213, here, makes it a felony “willfully to disclose” such information.  Subsection (a)(2) applies to government employees or former employees.  Subsection (a)(2) applies to state employees.  Thus, the person disclosing the information to ProPublica clearly is at risk of prosecution.

If the IRS can't identify who has access to this information and figure out who disclosed it, their information controls are in tatters.

Report on leaked IRS data dominates congressional hearing to fund the tax agency - Jay Heflin, Eide Bailly:

The sole witness at today's hearing was IRS Commissioner Charles Rettig, who was undeterred in his funding request despite the ProPublica report. He seeks an increase in staff as his agency has been “outgunned” when it comes to keeping partnerships compliant with the tax law.

Some US billionaires had years where they paid no taxes: report - Naomi Jagoda, The Hill. "They include Amazon founder Jeff Bezos, Tesla founder Elon Musk, former New York City Mayor Michael Bloomberg and billionaire investors Carl Ichan and George Soros, ProPublica reported."

Wyden renews wealth tax push after billionaires’ returns leak - Lindsey McPherson, Roll Call. "But Finance ranking member Michael D. Crapo, R-Idaho, focused more on the leak of the tax returns, saying it adds to his concerns that the administration’s proposal to require banks to report more taxpayer financial information to the IRS could compromise Americans’ privacy."

Taxing Consumption Progressively Is a Better Way to Tax the Wealthy - Erica York and Garrett Watson, Tax Policy Blog. "A new report from ProPublica argues that wealthy taxpayers face low effective tax rates as a portion of their wealth and mentions taxing unrealized capital gains or imposing a wealth tax. However, a better approach to raising the tax burden on the wealthy would be to pursue progressive consumption taxes as they have fewer administrative and economic costs."

Democratic, GOP House Members Pitch New Infrastructure Plan - Billy House, Bloomberg:

The plan by the Problem Solvers Caucus emerged hours after Biden ended that separate line of negotiation, with GOP Senator Shelley Moore Capito of West Virginia.

...

The group has not provided details about how their plan would be paid for, and was described by the aide as working on a series of potential funding measures with partners in the Senate.

A White House official said Biden and Capito had called off their talks after the Republican and her allies refused to agree to higher new spending in the plan or detail ways to finance it. Republicans have rejected Biden’s proposal to raise taxes on corporations and high-income Americans.

Colorado Lawmakers Approve SALT Cap Workaround for Passthroughs - Carolina Vargas, Tax Notes ($). "H.B. 1327 would allow passthrough entities like S corporations and partnerships to elect to pay their state income taxes at the entity level instead of the individual level, providing a workaround to the $10,000 SALT deduction cap created by the Tax Cuts and Jobs Act"

This requires other changes:

Credits allowed to the electing passthroughs could only be claimed by the entities and could not be passed through or claimed by any owner, according to the bill. Entities could carry forward any excess credits, net operating losses, or other modifications but could only use them in a year in which the passthrough elects to be taxed at the entity level. The bill would also allow passthrough entities to claim credit for taxes paid to other states on income not attributable to Colorado.

Passthrough entity owners that take the election would be required to add back to their federal taxable income on their state return amounts equal to the IRC section 199A deduction, “except to the extent the deduction is otherwise disallowed under Section 265 of the Internal Revenue Code,” according to the bill. 

Taxpayers need to run numbers to determine whether the results with the deduction for taxes paid to Colorado on the entity return exceed the lost Colorado Sec. 199A benefits and credits for taxes paid to other states on individual returns.

Biden’s Capital-Gains Tax Proposal Puts Estate Planners to Work - Richard Rubin and Rachel Louise Ensign, Wall Street Journal ($):

Estate planners for the wealthiest Americans are combing through the Biden administration’s proposed tax increases, hunting for ways to sidestep the potential hit from higher taxes on investment income and new capital-gains taxes at death.

The result, so far, is early strategizing about making gifts this year before some changes would take effect. That approach is mixed with acceptance that Congress will pass some significant tax increases and tempered by hope that it won’t.

Related: Potential Significant Changes to Estate Plan & Gift Tax Rules May Be on the Horizon.

Democrats struggle with plan to tax dynastic wealth - Brian Faler, Politico. "A bid by Democrats to go after dynastic wealth would also hit some people who'd never be confused for the jet set, and that is causing major headaches for lawmakers."

A Business Consisting of Issuing Money Orders and Providing Payment Processing Is Not a Bank Under IRC §581 - Ed Zollars, Current Federal Tax Developments. "Nearly five years later, the case is back before the Fifth Circuit Court of Appeals, as the Tax Court determined yet again that MoneyGram was not a bank under IRC §581, so was not able to write off losses from mortgage backed securities as an ordinary rather than capital loss.  As a C corporation, capital losses can only be deducted against capital gains.  This time, the Fifth Circuit sustained the decision of the Tax Court, finding that MoneyGram was not a bank."

Advance Child Tax Credit letter going to 36 million; money to follow starting in July - Kay Bell, Don't Mess With Taxes. "A letter from the Internal Revenue Service can be scary. But for 36 million families who soon will find such correspondence in their mail boxes, the news could be good. Very good."

ABA Tax Meeting Reminds Taxpayers They Can Claim Disaster Loss in Previous Tax Year - Wolters Kluwer Tax & Accounting. "Why would a taxpayer elect to deduct disaster losses in the previous year? Often because the taxpayer hopes to receive a refund in the disaster year thanks to the reduction of tax liability in the previous year."

Passport Revocation Challenges—Shitrit v. Commissioner - Zachary Montgomery, Freeman Law. "According to Section 7345—a provision enacted by the Fixing America’s Surface Transportation Act (the 'FAST Act')[1]—if the Secretary of Treasury receives certification by the Commissioner of the Internal Revenue Service that an individual taxpayer has a seriously delinquent tax debt, the Secretary of Treasury shall transmit such certification to the Secretary of State for action with respect to the denial, revocation, or limitation of the individual’s passport."

Related: Considering Foreign Operations? You Need a Global Mobility Program.

Tax Maximizers: Good Greed and Bad Greed - Pierre Lemieux, Econlog. "Tax competition pushing national states to levy lower taxes is apparently a 'race to the bottom.' Like when your private suppliers compete to offer you a lower price?"

Social Security Reform Should Eliminate Poverty Among the Elderly and Disabled - C Eugene Steuerle and Karen Smith, TaxVox. "We find that the additional cost of a minimum benefit is sufficiently moderate that any of these proposals could reduce poverty, be solvent, and still provide significantly higher real benefits across the board for future generations."

Interview: Is A Moon Tax Out of This World? - David Stewart and Kevin Brown, Tax Notes Opinions. "I think that the first time that we try this — if we try this — we should make it simple and easy to administer, collect, and report. That's why I landed on using an excise tax on use of the lunar surface."

If it walks like a duck... Today is National Donald Duck Day. While Donald is a minor Disney celebrity in the U.S., he is a big deal in Finland. For purposes of Tax News & Views, his wealthy uncle is perhaps more timely.