Tax Update Blog

Tax News & Views is Essentially Caught Up Roundup

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By Joe Kristan, CPA

IRS reports progress in tax return backlog - Kay Bell, Don't Mess With Taxes:

Just about a month ago, the Internal Revenue Service reportedly had a backlog of more than 35 million individual and business returns that required manual processing. That was up from 29 million back in April.

Last week, however, the IRS said it's essentially caught up with early season individual filings.

"Essentially" is doing some heavy lifting here:

The IRS does not say how many of these error-ridden, review-required returns it's still working on. It did say, though, that, "As of July 17, 2021, we had 15.6 million unprocessed individual returns."

They must be the non-essential returns.

 

Republicans focus tax hike opposition on capital gains change - Naomi Jagoda, The Hill:

The GOP's growing focus on Biden’s stepped-up basis proposal comes after several Democrats involved in agriculture issues have also raised concerns about the impact of the proposal on family farms.

A group of 13 House Democrats from rural districts, including Rep. Cindy Axne (Iowa), wrote a letter in May to the party's leaders in the chamber urging them to include exemptions for family farms and small businesses in legislation based on Biden’s plans.

 

Like-Kind Exchange Proposal Seen as Unlikely to Pass - Kristen Parillo, Tax Notes ($):

Lawmakers appear to have no appetite for advancing the Biden administration’s proposal to cap like-kind exchange treatment, according to a practitioner.

“I’ve been party to a number of conversations with senior staff on the Hill, who for obvious reasons can’t be identified,” said Richard M. Lipton of Baker McKenzie. “But they have all indicated there is not substantial support in the Democratic caucus — I want to emphasize, in the Democratic caucus — to Biden’s proposals concerning [section] 1031. Needless to say, there is no support on the Republican side.”

The Biden plan would cap tax deferral for Sec. 1031 like-kind real estate exchanges at $500,000 gain for single filers or $1 million on joint returns.

Related: Information Released Detailing Tax Proposals in President Biden’s Budget.

 

In BBA Audit, Item Included in Imputed Adjustment Even If No Partner Would Have Paid Tax on the Item Had It Been Reported on the Original Return - Ed Zollars, Current Federal Tax Developments.

Under the "BBA" rules enacted in 2015, partnerships can be assesed tax on IRS exams, even though the partners themselves normally pay taxes on partnership income. This raises the stakes on partnership filings, making it more important to get them right the first time.

Related: What Exempt Organizations Need to Know About Partnership Audit Rules.

 

Lesson From The Tax Court: No Deduction For Under-The-Table Cash Payments - Bryan Camp, TaxProf Blog. "Mr. Nurumbi’s unrecorded cash payments to his workers may have helped them hide their income, but it also bit him on the butt when he tried to deduct the payments."

Retiree Must Pay Taxes on Garnished Income - Caitlin Mullaney, Tax Notes ($):

The Tax Court sided with the IRS in finding that the state debt repayment deductions from a retiree’s pension are taxable income.

In a June 10 bench opinion in Kissell v. Commissioner, Judge Joseph W. Nega found that Michael and Maddalena Kissell improperly excluded taxable pension deductions from their reported income in 2016 and 2017 joint tax filings, discarding their argument that only net income after deductions to repay a debt to the state should be taxable.

 An unhappy result for the taxpayers, but not a surprising one. If the taxpayers had withdrawn funds from their pension fund voluntarily to pay off their debt to the state, the result would be the same.

Is IRS Appeals Using the Taxpayer First Act to Restrict Taxpayer Access? - Caleb Smith, Procedurally Taxing. "I have mixed feelings on the TFA, writ large. I think it was enacted with the right intentions, but I think that it would have seriously benefited from more practitioner input at an earlier stage."

Mario Batali Sex Harassment Settlement: Tax On Victims, Tax Break To Batali - Robert Wood, Forbes. "The taxes at play in this situation may seem surprising, on both sides of the equation. The tax law passed in December 2017 prohibits tax deductions for hush money settlements in sexual harassment cases. Sometimes called a Weinstein tax, it prevents individuals and companies from writing off the settlements and related legal fees. But the law seems to say that plaintiffs too cannot deduct their legal fees. The Weinstein tax is supposed to punish the defendant, not the plaintiff."

Tax Professionals: Use Systemic Advocacy Management System (SAMS) - Russ Fox, Taxable Talk. "With the pandemic, the IRS has faced a lot of issues.  One that has faced my clients is the IRS ignoring responses to Automated Underreporting Unit (AUR) notices."

 

Illuminating the Hidden Costs of State Tax Incentives - Katherine Loughead, Tax Policy Blog. "Altogether, state and local governments give out an estimated $95 billion a year in business incentives. By way of comparison, state and local governments collected less than $66 billion in corporate income taxes in FY 2019."

Also: "One of the key concepts illustrated in our Location Matters study—an apples-to-apples comparison of the state tax costs of doing business in all 50 states and the District of Columbia—is the fact that incentive-heavy tax structures undermine tax equity, with tax breaks for new firms driving up the tax burdens established firms pay."

What Do State Budget Officials Think About Taxes In The COVID-19 Era? - Lucy Dadayan and Kim Reuben, TaxVox. "Most states responding to the survey expressed optimism about their budgets and economies in fiscal year 2022. The passage of the ARPA, which provides $195 billion in direct aid to states,  made state fiscal pictures even brighter. But many respondents remained concerned about the future."

 

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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.