As IRS audits waned, big businesses racked up unapproved tax breaks – Douglas MacMillan and Kevin Schaul, Washington Post. “Federal audits of corporate tax returns have plunged in recent years, letting big companies claim elaborate tax breaks with less government scrutiny, according to a Washington Post analysis of company filings. Accounting rules permit businesses to claim tax breaks even if they are likely to be overturned by tax authorities, legal experts said. In the past, the Internal Revenue Service audited virtually every tax return filed by large corporations and rejected tax breaks it deemed inappropriate, data show.”
But during the Obama administration, congressional Republicans moved to slash the IRS budget, shrinking the agency’s staff and straining its ability to conduct audits. As a result, the federal government now examines just half of all large company tax returns, despite businesses claiming increasing tax benefits over this period that they say could be overturned by authorities, according to regulatory filings, interviews with tax policy experts and data from the IRS and financial researcher Calcbench.
Senate Infrastructure Bill Drops IRS Funding, Raising Pressure for New Revenue – Sarah Chaney Cambon and Kristina Peterson, Wall Street Journal. “Lawmakers have dropped plans to help fund a roughly $1 trillion infrastructure package by boosting tax-collecting enforcement at the Internal Revenue Service, according to a key negotiator, adding new difficulties to funding the bipartisan measure ahead of a looming deadline for agreement."
Republican opposition is a main reason that financing for more IRS enforcement is no longer a part of the infrastructure proposal, said Sen. Rob Portman (R., Ohio) on CNN Sunday. He cited pushback from some lawmakers who warn of intrusive government overreach. That has cast new uncertainty over the plan days ahead of a midweek vote planned by Senate Democratic leaders.
It remains to be seen if the Senate can even produce a bill before they vote on it:
Schumer tees-up Biden’s plans for action next week with outcomes largely unknown – Jay Heflin, Eide Bailly. “Senate Majority Leader Chuck Schumer (D-NY) announced that [this] week his chamber would move forward on the bipartisan infrastructure deal and the $3.5 trillion budget proposal, but it is not clear how these measures will fare.”
How these proposals fare in the House is a total crapshoot:
Progressives have warned that they will oppose the infrastructure proposal if there is no guarantee that the budget resolution will pass.
‘We will tank the bipartisan infrastructure bill unless we will also pass the [budget] reconciliation bill,’ said Rep. Alexandria Ocasio-Cortez (D-NY), according to Politico.
Meanwhile, moderate House Democrats are vowing to oppose the budget measure because it spends and taxes too much.
‘Given red-hot inflationary pressures, and our strong desire to keep the House blue, a gargantuan $3.5 trillion package, with massive new taxes, is a non-starter for many of us, and I predict it would go down in a blaze of glory,’ an unidentified House moderate Democrat told Punchbowl News.
Tech, fossil fuel industries can use accounting to cut book tax – Bloomberg ($):
President Joe Biden’s broad tax-and-spending proposals include a plan to introduce a 15% minimum book tax on the earnings giant corporations publicly report on their financial statements. But there are some maneuvers available for companies to cut their book tax, like using accounting methods to maximize foreign tax credits or using goodwill. For software companies and banks, they can pay more stock and deferred compensation to drive down their book tax, which can be a huge expense for companies like Microsoft and Salesforce.com.
Still working remotely? Your 2021 taxes may be more complicated than your 2020 return – Sarah O’Brien, CNBC. “If you’re among the workers who plan to continue working remotely, you may want to evaluate your 2021 tax situation. While many states offered a pandemic-related reprieve that generally resulted in no tax filing obligation for remote workers who worked temporarily in their state, the leniency was for 2020 returns. And as the nation emerges from the pandemic, that compliance break will be going away.”
‘As emergency orders are lifted, the guidance is changing,’ said Eileen Sherr, director for tax policy and advocacy with the American Institute of CPAs. ‘Some states are lifting them now.’
Different states have different approaches for when they expect you to report income earned there, and the rules don’t necessarily mean you’ll be paying more overall in taxes because most states provide a tax credit to eliminate double taxation (although that isn’t always the case).
Are State Tax Cuts a Sign of Federal Aid Excess or Success? – Richard Auxier, Tax Policy Center. “Does the rob-state-Peter-to-pay-infrastructure-Paul idea have merit? Here’s what we know.”
According to the National Association of State Budget Officials (NASBO), states are on track to spend 3 percent more in fiscal year 2021 compared to one year earlier but 2 percent lower than their pre-pandemic projections. That is, while many states will spend more this year, they are still digging out of the fiscal hole caused by the pandemic. The federal assistance—the ARP plus the CARES Act and the COVID-19 Economic Relief Bill—was meant to help close that gap.
And, so far, it’s succeeding. NASBO reports only 12 states made mid-year budget reductions in fiscal year 2021 (for most states, this was July 2020 to June 2021). By comparison, the vast majority of states made mid-year budget cuts in the aftermath of the Great Recession: 41 states in fiscal year 2009 and 39 in fiscal year 2010.
New York State Tax Revenue Exceeds Estimate By Almost $5 Billion – Martin Braun, Bloomberg ($). “New York State collected $4.8 billion more in taxes in the first three months of the fiscal year than projected in the budget enacted in April, giving the state an opportunity to boost reserves and use cash instead of debt for infrastructure projects, state Comptroller Thomas DiNapoli said.”
Sales Tax Rate Changes Multiply as States, Cities Chase Revenue – Tripp Baltz and Michael Bologna, Bloomberg ($). “Tax authorities have implemented 640 changes in sales and use tax rates since July 1, 2020. The number demonstrates the ever-increasing complexity of the U.S. state and local sales and use tax system as governments pursue tools to close the estimated $1 billion annual tax gap, according to a report released this week by the tax compliance firm Sovos.”
Here is a link to the report.
Idaho Tax Commission Announces Sending of Individual Income Tax Rebates Starting Aug. 2 – Blomberg ($). “The Idaho State Tax Commission July 15 announced that starting Aug. 2, the commission is sending tax rebates to people who were full-year residents of Idaho for 2019 and 2020 and filed individual income tax returns for those years, including those who filed grocery credit refund returns. Taxpayers can visit the commission’s Tab Rebate FAQs webpage for more information. [Idaho State Tax Comm’n, Tax rebates Are Coming!, 07/15/21]”
Film, TV Studios Are Offered Incentives From States After Pandemic Shutdowns – Ryan Nguyen, Wall Street Journal ($). “More than a dozen states—including the home of Hollywood—are bolstering or considering expanding tax credits and incentive programs for movie and television production, hoping shoots can re-energize their economies. Meanwhile mega productions from WarnerMedia, Apple Inc. and Netflix Inc. NFLX -0.15%have been filming in states that recently expanded their incentive programs, such as Oklahoma, Montana, Oregon and Kentucky.”
The Budgetary Effects of the Employee Retention Tax Credit During the Coronavirus Pandemic - Phillip L. Swagel, Congressional Budget Office:
Recent information from Internal Revenue Service (IRS) administrative records indicates that as of July 15, 2021, the IRS has processed employers’ claims for this credit totaling $10.5 billion in the second, third, and fourth quarters of 2020 and $7.9 billion in the first quarter of 2021. The actual budgetary cost of the provisions that provided this credit remains uncertain, however, and, similar to what was reported by the Government Accountability Office in March 2021, the ‘IRS continues to process a paper return backlog, which makes the data … incomplete, particularly for small employers.’ In addition, taxpayers may still file additional claims and update the amounts on prior claims.
Media Companies Win Another Round in Fight for PPP Loan Data – Sam McQuillan, Bloomberg ($). “A federal court has ordered the disclosure of tax identification numbers and loan-status information for businesses receiving federal loans during the pandemic, in compliance with inquiries from several news organizations. More: The ruling Thursday by the U.S. District Court for the District of Columbia marks a second win for the companies in their quest to obtain federal Paycheck Protection Program and Economic Injury Disaster Loan data. The same court in November ordered the U.S. Small Business Administration to release names, addresses, and loan amounts.”
Woke Wealth Taxation – Lee Sheppard, Tax Notes ($). "This article looks at a Biden administration tax proposal that comes straight out of the faculty lounge. The administration proposes to treat death or a gift as a capital gain realization event. Death as a realization event — and its kissing cousin, carryover basis — has been proposed before. But treating a gift as a realization event would be new. In academic circles, taxing gains at death has long been regarded as desirable tax policy, despite the technical problems. (Prior analysis: Tax Notes Federal, Jan. 11, 2021, p. 269; and Tax Notes, Mar. 13, 2017, p. 1437.)"
‘What a device to soak the rich — or prevent your children from becoming rich,’ said [political strategist Dick] Morris, accusing the administration of wanting to convert the capital gains tax to an inheritance tax. He analogized the Levellers, a mid-19th-century British political group that advocated taking from the rich. Then again, maybe he sees an opportunity. Frank Luntz, the strategist who successfully dubbed the estate tax the ‘death tax,’ may have become wealthy enough to become subject to it.
Pillar One’s Reallocation of Taxing Rights: Has Anyone Consulted the U.S. Trade Representative? – Jefferson VanderWolk, Bloomberg ($). “Specifically, the agreement is that Pillar One will apply to multinational enterprises having annual turnover (i.e., gross revenue) of at least 20 billion euros ($23.8 billion) globally and a profit margin of at least 10% (presumably calculated on the basis of net profit before tax over gross revenue). A portion of the global profits of an in-scope MNE, in the range of 20-30% of their profit in excess of 10%, will be allocated for tax purposes among the countries from which the MNE derives at least 1 million euros ($1.19 million) in sales revenue (or, in the case of countries with GDP of less than 40 billion euros ($47.5 billion), at least 250,000 euros ($297,000) in sales revenue). The allocated amounts are designated ‘Amount A.’"
The more interesting question is whether the new nexus and Amount A reallocation rules of Pillar One will be acceptable to the USTR. The fact that the new rules are seen as a replacement for DSTs [digital services taxes] and other relevant similar measures suggests that the reallocation of taxing rights under Pillar One might have a similar effect to those unilateral measures. Looking at the USTR’s reasons for finding that DSTs constitute a Section 301 violation, one finds a significant degree of applicability to the new nexus and profit allocation system of Pillar One.
Pushing Pillar 1 Past Congress – Mindy Herzfeld, Tax Notes ($). “Chances of U.S. implementation of pillar 1 — which would require reallocating the global tax bases of many large, profitable U.S. companies — have always been murkier, a fact recognized by the country’s negotiating partners. While a global minimum tax can be passed through the reconciliation process, which requires only a simple majority vote in both the House and Senate, it’s generally assumed that because pillar 1 involves a treaty override and would itself require a treaty to implement, it must be passed by a two-thirds Senate vote. Getting 17 Republicans to support a treaty measure that disproportionately penalizes U.S. companies will be a stretch… But Treasury apparently thinks there may be a workaround to the 67-vote requirement: Counselor to the Treasury assistant secretary for tax policy Rebecca Kysar, building on work by Yale law professor Oona Hathaway, laid out a path in 2013 (“On the Constitutionality of Tax Treaties,” 38 Yale J. Int’l L. 1 (2013)).”
Global Tax Pact Leaves Questions Over Industry Carve-Outs – Michael Rapoport, Bloomberg ($). “A deal announced earlier this month to overhaul global tax laws has promised to exempt financial firms and oil and gas companies from new rules, but a lack of details on the scope of those carve-outs and how they would work could create challenges in reaching a final agreement later this year.”
Places With Low Corporate Tax Rates and an Incredible Quality of Life – Ken Boyd, Bloomberg ($). “A global corporate tax agreement that may bring an end to corporate tax havens appears to be within reach. However, if you are merely a human—and not a multinational enterprise—looking for a location to base your business, there are places to which you can personally locate and enjoy both a low corporate tax rate and a high quality of life.”
Yellen 'not certain' Amazon would pay under global tax agreement – Tech Explore:
US Treasury Secretary Janet Yellen said Thursday she is 'not certain' if Amazon will have to pay up under a worldwide minimum tax she is encouraging countries, including her own, to adopt.
The landmark deal implementing a minimum corporate rate of 15 percent is supposed to help put an end to top multinationals shopping for countries with low corporate taxes in which to book their profits instead of paying where they conduct their business.
Democrats seek to tackle climate change with import tax – Naomi Jagoda and Zack Budryk, The Hill. “Democrats are eyeing a tax on imports from countries that don’t have strong policies aimed at combating climate change, seeking to include such a tax in a wide-ranging spending package that could pass without Republican votes. A senior Democratic aide said that the $3.5 trillion budget deal key Senate Democrats reached Tuesday would propose “polluter import fees” but did not include any further specifics.”
On this day in 1799 the Rosetta Stone was likely found. A bit odd to “find” a technology software company that teaches people how to speak different languages hundreds of years before that technology was developed, but whatever. It’s on the Internet so it has to be true.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.