Tax News & Views Caution on CTC Payments Roundup

June 21, 2021

Tax Pros Caution Some Clients on Taking Monthly Child Tax Credit – Allyson Versprille, Bloomberg ($). “Some tax professionals are urging clients to consider opting out of receiving new monthly payments of the child tax credit because they could end up having to pay back that money next filing season.”

The changes to the credit have been touted by President Joe Biden’s administration and others as a way to reduce child poverty and help families that are struggling to make ends meet. But some tax professionals are concerned about clients having to pay money back next filing season, due to changing circumstances with their jobs and salaries. Phyllis Jo Kubey, an enrolled agent in New York City, said she is urging clients who are eligible for the payments to opt out. She said she’d only consider advising clients otherwise if they’re experiencing financial hardship and really need the money now.


A Millennial Economist Helps Power a Tax Evasion ‘Brain Trust’ – Alan Rappeport, New York Times ($). “As the Biden administration hunts for revenue to pay for trillions of dollars in infrastructure, education, child care and other investments, it has focused on a seemingly simple strategy: Mobilize the Internal Revenue Service to crack down on tax cheats. Shrinking the $7 trillion so-called tax gap has long been an aspiration for policymakers and scholars, but it is taking on new urgency as the Biden administration looks to win bipartisan support for its infrastructure proposal.”

With Republicans opposed to raising taxes, tracking down uncollected revenue could be crucial to paying for the president’s ambitious and expensive plans and to ensuring that the rich pay their fair share.

The number crunching behind this work is taking place at the Treasury Department, where Secretary Janet L. Yellen has created a team to tackle the issue and staffed the agency with economists and others who have spent years studying how the government can hunt down money that it is owed but fails to collect. The group, known internally as the 'compliance brain trust,' includes four members of Treasury’s career staff along with Kimberly A. Clausing, deputy assistant secretary for tax analysis, and Natasha Sarin, a 32-year-old Harvard-trained economist who has written extensively on closing the gap.

Eyeing One Big Economic Bill, Democrats Face Myriad Challenges –Emily Cochrane, New York Times ($). “The far-reaching economic package Democrats are assembling as a companion to whatever emerges from bipartisan infrastructure talks is itself a precarious proposition, facing steep obstacles because of its sheer size and scope in a party whose congressional majorities have little room for dissent."

The contours, which Senate Democrats have just started to sketch out, reflect a deep desire to deliver on ambitious campaign promises... But the package, which Democrats said this week could cost up to $6 trillion, faces major challenges, including resistance among moderates wary of so much federal spending. Senate rules also strictly limit what Democrats can accomplish if they want to steer clear of a filibuster using the fast-track budget reconciliation process, which would be its only path through a Senate divided 50 to 50.

Biden’s Agenda Depends on Navigating Congressional Thicket – Steven Dennis, Bloomberg ($). “President Joe Biden’s plan for trillions of dollars in proposed spending and tax increases is entering a procedural and political thicket in Congress that’s likely to take at least until September to clear. If all goes according to plan for Biden and Senate Majority Leader Chuck Schumer, the Senate would pass a bipartisan infrastructure deal next month as well as a budget blueprint that sets up a vote later on a far larger bill with trillions in social spending paid for in large part by tax hikes on the wealthy and corporations. The budget bill could be passed with only Democratic votes in the Senate.”

But progressive Democrats in the House and Senate say they may not back an infrastructure package that includes concessions to Republicans without a guarantee that their priorities -- on climate, health care and social welfare -- will be accommodated in follow-up budget legislation. At the same time, moderate Democrats like Senator Joe Manchin of West Virginia are so far refusing to commit to supporting a massive spending bill that would be passed on a party-line vote.

If the Senate passes the package, the House would then become critically important as a backstop for liberals. Representative Alexandria Ocasio-Cortez of New York said recently the House could hold up final passage of a bipartisan infrastructure package until a larger Democratic plan passes the Senate, and vote on both at approximately the same time. A similar tactic was used by Speaker Nancy Pelosi to pass the Senate version of the Affordable Care Act and an accompanying reconciliation package on the same day in March 2010.

Bipartisan Infrastructure Talks Collide With Democrats’ Goal to Tax the Rich – Jonathan Weisman, New York Times. “In most years, the notion that Congress could pass a $1.2 trillion plan to fix the nation’s bridges, highways, tunnels and rail lines without raising taxes would be a politician’s dream, a vision of endless ribbon-cuttings with no angry cries of ‘tax and spend.’ But that pitch, by a group of senators negotiating a bipartisan infrastructure deal, is receiving a hostile reception from many Democrats who favor a package five times as large, to be paid for in part with at least $2.5 trillion in new taxes. It is not just a much larger economic package they want; they also see a rare opportunity to harness the political popularity of infrastructure spending to achieve their long-held policy goal of raising taxes on the rich.”

Democrats have turned solidly against gas tax – Hanna Trudo, The Hill. “Democrats have turned solidly against the gas tax as lawmakers look for ways to pay for a new infrastructure measure to remake the nation’s roads and bridges."

The tax has long been seen as a regressive measure that hits the poor and middle class, as well as people in rural parts of the country, disproportionately. But it is also something that Democratic presidents have embraced over the years, from former President Carter, who in 1977 supported raising the tax by 5 cents a year for 10 years, to former President Clinton, who with Vice President Al Gore backed the last hike in 1993.

New Infrastructure Plan Could Quell Muni Demand, Barclays Says – Parker Purifoy, Bloomberg ($). “A bipartisan U.S. infrastructure plan that doesn’t include higher taxes for individuals and corporations could squelch the intense demand for municipal bonds seen this year from investors looking to shield some of their income, according to Barclays Plc.”

Biden will craft R&D tax incentives with congressional input -  Doug Connolly, MNE Tax. “Strengthening tax incentives for research and development (R&D) is a high priority for President Biden, and his Administration is interested in working with Congress to determine the best way to do that, according to comments from US Treasury Secretary Janet Yellen during a June 16 Senate Finance hearing. The President’s budget set aside money for enhanced R&D tax incentives but did not include details of any R&D-related changes in its tax proposals, leaving an open question of what exactly the Administration planned."

Senator Todd Young (R-IN) asked Yellen in the hearing whether the Administration would seek to eliminate a provision that takes effect next year that would require amortizing R&D expenses over five years, rather than allowing immediate expensing as under current law… Yellen answered that promoting innovation is a ‘critical priority’ for Biden and that the Administration is looking at ways to do that. She added that allowing continued immediate expensing of R&D ‘could be one very effective way to bring that about.’ However, Yellen said there are other possible approaches. For instance, ‘there could also be more generous R&D tax credits.’


Congress barrels toward debt cliff – Jordain Carney, The Hill. “Congress is barreling toward a fight as soon as next month over raising the debt ceiling, creating a huge challenge for President Biden and Democratic leaders in Congress. Under a 2019 deal during the Trump administration, Congress agreed to let the government borrow through July 31. The Treasury Department at that point can take what’s known as extraordinary measures to keep the government solvent, but it’s unclear how long it will be able to do this. In the Senate, raising the debt ceiling is subject to the filibuster, meaning Democrats will need GOP support. But GOP senators say they don’t expect their caucus to provide the 10 votes needed to hike the borrowing limit, which would set up a high-profile financial showdown with dramatic implications for the world’s economy.”

The debt ceiling will automatically kick back in Aug. 1. It’s not an ideal time for Congress, given that it comes amid the summer recess season when lawmakers are itching to get out of town if they haven’t dispersed from Washington already. 


Donor Lacks Standing to Sue Over Management of Donor-Advised Fund – Tax Notes ($):

A U.S. magistrate judge dismissed for lack of standing an individual’s complaint alleging that the sponsor of a donor-advised fund mismanaged his donation, finding that by contributing to the fund irrevocably in exchange for an immediate tax deduction, he relinquished control of his assets and did not suffer a concrete injury.


Robust Tax Collections Squelch State Moves for Big Tax Hikes - Sam McQuillan, Bloomberg ($). “A handful of states that had been mulling big tax increases have mostly ditched them amid the unexpected influx of post-pandemic tax cash and federal aid. Total state taxes were up over 81% through April compared with a year earlier, according to data collected by the Urban-Brookings Tax Policy Center. Thanks to the rebounding economy and the $350 billion sent to them in the latest federal Covid-19 relief law, lawmakers in some states that had been eyeing big tax hikes—once feared as necessary—have cast them aside.”

States Tout Sales Tax Surge From ‘Economic Presence’ Laws – Michael Bologna and Tripp Baltz, Bloomberg ($). “The numbers continue to show a revenue surge to 45 sales tax states from the Wayfair ruling. William Fox, the University of Tennessee economist who first highlighted the revenue threat from remote sellers 20 years ago, did some calculations based on patterns of collections from his own state following the court’s decision. Setting aside organic sales tax growth and tax base expansion, Fox said the states are seeing annual collections of at least $35 billion as a direct result of the laws they enacted following the Wayfair ruling. That number compares to Fox’s estimate of $10.8 billion in an academic paper published in 2000 in the National Tax Journal.”

What’s Your Plan? Avoiding Tax Pitfalls of a Remote Workforce – Jennifer Weidler Karpchuk and Katherine Noll, Bloomberg ($). “[Employers should be prepared to answer whether remote employees must work from their state of residence, whether the employee is permitted to move to other states, whether the employee can work from ‘anywhere,’ and how an employer knows where its employee is actually located. Why is a plan and information so important? A basic principle of state and local taxation is nexus. There must be a substantial connection between a taxpayer and the taxing state seeking to assert a tax obligation on the out-of-state taxpayer. Remote workers can create that substantial nexus by virtue of their physical presence, working from home (or elsewhere), within a taxing jurisdiction for as little as one day.”

For those states in which a company claims the protection of Public Law 86-272, the company should proceed with extreme caution. Public Law 86-272-protected companies need to be diligent in ensuring their remote workers do not engage in tasks on behalf of the company that go beyond the solicitation of orders. Otherwise, companies may be at risk for losing the valuable protection of Public Law 86-272, i.e., no income tax.

Wisconsin Republicans Ready to Enact $3.4 Billion in Tax Relief – Michael Bologna, Bloomberg ($). “A $3.4 billion Republican tax cut plan won approval in Wisconsin’s influential Joint Committee on Finance late Thursday, virtually assuring significant individual and corporate tax relief in the state’s 2021-23 biennial budget.”

Cryptoartists Also Need Creativity Figuring Out State Sales Tax – James Rice, Bloomberg ($). “The same blockchain technology that makes virtual currencies like bitcoin possible allows artists to distribute their artwork to fans and collectors digitally. And, like bitcoin enthusiasts, emerging cryptoartists and cryptoart marketplaces are finding themselves enmeshed in a difficult tax compliance environment. Where and when cryptoart might be subject to state sales and use tax is even murkier given the tax collection duties states began imposing on out-of-state vendors after the U.S. Supreme Court’s landmark South Dakota v. Wayfair decision in 2018.”


Ireland wants a ‘compromise’ on Biden’s 15% global tax plan – Silvia Amaro, CNBC. “Ireland, the European home of tech giants like Apple and Google, is looking to reach a compromise over global taxation that recognizes ‘the role of legitimate tax competition,’ the country’s finance minister told CNBC on Friday. Ireland is known for offering a low corporate tax rate, 12.5%, and a recent agreement among the seven most advanced economies potentially challenges that.”

Global minimum tax on corporations faces pushback – Michael Cohn, Accounting Today. “The Biden administration’s proposal to impose a global minimum tax on corporations has been provoking opposition in Congress, with Republicans advocating user fees instead to pay for infrastructure improvements.”

Even if Congress does manage to pass the minimum taxes proposed by the Biden administration and the G-7, many multinational corporations are likely to still find ways to skirt them, although if they win support among the larger G-20 group of countries, it will be harder to find tax havens, especially among countries involved in the Organization for Economic Cooperation and Development, which has already developed an action plan to combat base erosion and profit shifting, known as OECD BEPS, and called for country-by-country reporting of taxes.

Are Foreign SPACs PFICs, and Should Investors or the IRS Care? – Jeffrey Hochberg and Andrew Motten, Tax Notes ($). “In this report, Hochberg and Motten examine whether foreign special purpose acquisition companies (SPACs) will be treated as passive foreign investment companies, and they explore the tax consequences for investors in SPACs that are classified as PFICs.”


It’s National Daylight Appreciation Day that celebrates the summer solstice, which is the longest daylight day for the Northern Hemisphere. So, a 9pm Barbeque can totally happen today!

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