Tax News & Views Infrastructure Chess Roundup

July 20, 2021

Biden's Capital Gains Tax Hike Could Take Hit In Senate - Alan K. Ota, Law360 Tax Authority:

Sen. Joe Manchin, D-W.Va., a key swing vote, has launched a push to ensure the capital gains rate doesn't exceed 28%, matching a standard set by the 1986 Tax Reform Act, which was replaced by a 20% rate under the 1997 Taxpayer Relief Act. Intraparty disputes over the rate likely will come to a head as Democrats try to move the budget resolution through the Senate this month and prepare for a September showdown on the reconciliation bill.

"I think it should be 28," Manchin told Law360. "In the 20s is the right place to be. It's for us to be competitive."

Counting the Net Investment Income Tax, that results in a 31.8% top marginal rate on capital gains, which would be the highest capital gain rate since 1980. The individual capital gain rate has never exceeded 35%.


Bipartisan Bill Pay-Fors Settled, Vote Looms, Senator Says - Doug Sword and Frederic Lee, Tax Notes ($):

The Senate is headed for a July 21 vote on a bipartisan infrastructure bill calling for $579 billion in new funding for highways, rail, broadband, and the like, despite Republican complaints that the bill isn’t ready and the process is being rushed.

The sources of funding for that new spending have been “pretty much agreed to” by the White House and a bipartisan group of senators, Sen. Jon TesterD-Mont., a key Democratic negotiator of the package, said July 19. The overall price tag of the bill will be $1.2 trillion, but that includes infrastructure spending that was already planned and paid for.

"Pretty much" might be doing a lot of work here; the article notes that "besides the five GOP senators in the bipartisan group, another five Republicans would have to support the legislation."

Senior House Dem trashes Senate's bipartisan infrastructure talks - Heather Caygle, Sarah Ferris, and Nicholas Wu, Politico. "The 'whole thing falling apart is probably the best thing,' DeFazio said on the call of the Senate talks, which have President Joe Biden’s endorsement."

Lawmakers Spar Over Infrastructure Package as Deadline Nears - Kristina Peterson, Andrew Restuccia, and Andrew Duehren, Wall Street Journal ($). "Over the weekend, the group agreed to remove a source of revenue disliked by Republicans that would strengthen the Internal Revenue Service’s collection of unpaid taxes. That left lawmakers racing to find another way to offset the bill’s cost and complete its text."

Schumer sets vote on infrastructure, but GOP wants to see a bill - Jessica Wehrman and Lindsey McPherson, Roll Call. "Senate leadership has not gamed out what they’ll do if the motion to proceed to the vehicle for the bipartisan bill is not agreed to on Wednesday, according to Senate Majority Whip Richard J. Durbin, D-Ill. 'That hasn’t been discussed,' he said."

Top Democrat offers bill to overhaul tax break for business owners - Naomi Jagoda, The Hill. The bill relates to the 20% "Qualified Business Income" deduction under Sec. 199A. From the article:

Owners of service businesses, such as law and accounting firms, face restrictions on the deduction that apply for 2021 to single filers with income of above $164,900 and married couples with income above $329,800. 


Wyden’s bill would phase out the deduction for households with income above $400,000 and would remove industry-related rules about eligibility. It would also streamline how the deduction amount is calculated.

As congressional negotiators try to finance their infrastructure plans, Sec. 199A could be a tempting target.


IRS opens tax pro accounts - Michael Cohn, Accounting Today. "The accounts can be used for submitting a power of attorney request and a tax authorization request. The IRS plans to expand the features available to tax professionals through the Tax Pro Accounts in the future, but the initial offering debuted Sunday and can be found here."

IRS Opens Up Website to Allow for Electronic Signing and Submission of Powers of Attorney - Ed Zollars, Current Federal Tax Developments. "However, the IRM notes that “[t]he Tax Pro Account application does not have the [specific capabilities] that the forms allow, as detailed below.”[4] That is, only a very limited set of authorizations can be handled via this system.  In fact, advisers will note that the system, at least at the beginning, is very limited in the situations in which it can be used, and it will require the adviser’s client to access the system as well as this system has both the professional and the client electronically sign the form."


SALT Cap Workaround in Massachusetts Budget Not Yet Settled - Carolina Vargas, Tax Notes. "The budget as approved by the legislature and sent to Baker included a provision that would allow passthrough entities to file and pay taxes at the entity level. Eligible passthroughs would pay a 5 percent excise tax on their Massachusetts income, for which passthrough owners could claim a refundable credit equal to 90 percent of each member's share of the taxes paid...But Baker sent that section of the budget back to lawmakers with a recommendation that the provision be amended to allow a credit equal to 100 percent of each member's share." 

Iowa Updates Guidance on Conformity With IRC - Iowa Department of Revenue, via Tax Notes. "The Iowa Department of Revenue updated previously issued guidance on the state's conformity with federal tax law, clarifying that although Iowa does not conform with all provisions of the federal Consolidated Appropriations Act, 2021 (P.L. 116-260), Iowa and federal income tax treatment of forgiven Paycheck Protection Program loans and related expenses are now the same in light of recently enacted state legislation."


IRS Fraud Office Expanding Its View - Nathan Richman, Tax Notes ($). "During the COVID-19 pandemic, service providers looked to gig economy platforms to continue their businesses or start new ones, according to OFE Director Damon Rowe. That boom hasn’t been confined to the United States, and the OFE’s emerging threat mitigation team has seen that provision of services cross borders, with provider and recipient in different countries, he said July 16 during a web conference hosted by the University of San Diego School of Law and RJS Law Tax Controversy Institute."


IRS Wins Lien Priority Fight with Bank - Keith Fogg, Procedurally Taxing. "The lien issue that causes the bank to lose here regularly causes the IRS to lose.  If the IRS fails to refile its lien as the time for refiling expires, the IRS loses its priority and other creditors move up in priority in the same fashion that the IRS has done here."

Lesson From The Tax Court: For Whom The Bankruptcy Tolls - Bryan Camp, TaxProf Blog:

Bankruptcy can have significant benefits for taxpayers.  First, it can stop IRS collection action.  Second, it can shake off a tax liability sooner than the 10 year time period Congress gives the IRS to collect.  Third, it can be a pre-payment forum, an alternative to the Tax Court, where the taxpayer can contest an unassessed liability.

Along with benefits, however, come costs.  The biggest cost is tolling.  Bankruptcy tolls various time periods for the IRS to assess or collect.  

Related: Can I file Bankruptcy to Eliminate My Tax Debt?


IRS plans to hire thousands of auditors by September - Kay Bell, Don't Mess With Taxes. "SB/SE will add about 2,000 new workers, including 1,300 field revenue agents, before the IRS' fiscal year ends, said De Lon Harris, SB/SE co-commissioner. Another 400 tax compliance officers will be available for in person audits, formerly called office audits, and more than 500 automated collection (ACS) phone representatives will be hired. The division expects to use the new personnel to increase compliance in the fuel tax, syndicated conservation easements, and employment taxes areas."

Revisiting From 1099-K and its interaction with other 1099s - Jason Dinesen. "The first thing to know here is that you do not issue a 1099-K yourself. This is a form you receive. Or as it relates to your contractor, it’s a form THEY will receive."

Tax Developments in the Courts – The “Tax Home”; Sale of the Home; and Gambling Deductions - Roger McEowen, Agricultural Law and Taxation Blog. "An individual’s 'tax home' is the geographical area where the person earns the majority of their income.  The location of the permanent residence doesn’t matter for this purpose."

Inconsistent Tax Treatment Causes Draconian Results for Low- and Middle-Income Purchasers of Marketplace Health Insurance - National Taxpayer Advocate Blog. "The ACA provides subsidies to low- and middle-income taxpayers to help them purchase health insurance. However, a series of recent cases in the United States Tax Court have highlighted an inequitable provision of the ACA, surprising workers with huge tax bills when they withdraw money from retirement savings or become disabled."


Tax and Biden's Build Back Better - What's Included and What is Missing? - Annette Nellen, 21st Century Taxation:

 I think it is also interesting what is not there such as:

  • Limiting the QBI Section 199A deduction for individuals with income above $400,000.  I guess this is because 199A automatically goes away after 2025 so why waste political capital trying to reduce it for less than 1% of individuals.
  • Capping the benefit of itemized deductions at 28%.
  • No change to the estate tax exemption or tax rate. Again, this is likely because we automatically revert to the lower exemption and higher rate after 2025 (one of a few built-in tax increases in the Tax Cuts and Jobs Act, the temporary 199A).


Are State Tax Cuts a Sign of Federal Aid Excess or Success? - Richard Auxier, TaxVox. "According to the National Association of State Budget Officers (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."

How Biden’s Business Tax Proposals Would Impact Taxpayers Across States - Alex Durante and William McBride, Tax Notes. "Based on individual tax return data from the IRS at the congressional district level, the Tax Foundation’s new Interactive Tax Map shows how individuals across the country would be impacted by the tax increases."

Biden’s ‘Double Death Tax’ - Ryan Ellis, Capital Matters:

Under the administration’s plan, the year someone died, all of their unrealized capital gains (gains on unsold real estate, family farms and businesses, stocks and other investments, artwork, collectibles, etc.) would be subject to taxation as if the assets in question had been sold that year. The first $1 million of unrealized gains ($2 million in the case of a married couple) would be exempt from the new tax. In addition, up to a certain point ($500,000 for a married couple, half that for others), gains derived from the sale of a primary residence would be exempted. Finally, the administration has said in the vaguest terms that “going concerns” in family farms and businesses would be exempt, but no one knows how that would work or believes it’s anything more than politically expedient hand-waving.

At Least I’m Not Classified as “Dead” - Russ Fox, Taxable Talk:

One woman in New Jersey is classified as “deceased” according to this report in the New York Post.  It’s going on seven years of bureaucratic futility in rising like a Phoenix to life.  Of course, she is really breathing and this is something that should just have gotten fixed immediately.  And yes, she still must pay taxes even though she’s “deceased.”

IRS and Prince’s Estate Settle Some Tax Court Issues - Kristen Parillo, Tax Notes ($):

Nine of those 14 property interests were held directly by Prince and reported on Schedule A of his estate tax return as having a total FMV of $15.7 million. The IRS had put that figure at $21.4 million. The parties now agree that the total FMV is $17.7 million.

But the estate and the IRS remain far apart on other valuation issues:

The agency contended that the singer left an estate with a taxable value of $163 million, not the $82 million his estate reported on Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” in July 2017.

Comerica [serving as executor] argued that the IRS overstated the FMV of Prince’s real estate interests in undeveloped land, an industrial building, and residential lots. The petition also criticized the IRS’s appraisals of Prince’s interests in Paisley Park and NPG Records, as well as its FMV of Prince’s personal property, writer’s share of music compositions, and rights of publicity.

The crushing defeat of the IRS valuation of Michael Jackson's estate may be helpful to the Prince estate.

Related: Want To Know Why A Wealth Tax Won’t Work? Remember The Time Michael Jackson’s Estate Landed in Tax Court


Your move. Today is International Chess Day. A glorious day. If you are playing online at work, don't make it too obvious.

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