Tax News & Views Credit Cutoff, Crypto, and California Roundup

August 3, 2021

Senate Infrastructure Bill Would End Worker Retention Credits - Stephen Cooper, Law360 Tax Authority ($).

The Infrastructure Investment and Jobs Act, or H.R. 3684, a $1.2 trillion bipartisan spending bill unveiled Sunday afternoon by Senate Majority Leader Chuck Schumer, D-N.Y., includes a provision to end the employee retention credit on Sept. 30 of this year rather than Jan. 1, 2022.

The measure has been the subject of stop-and-start negotiations between a bipartisan group of senate lawmakers, led by Sens. Rob Portman, R-Ohio, and Kyrsten Sinema, D-Ariz., and President Joe Biden. The plan includes $550 billion earmarked for new investments in public transit, bridges, water infrastructure and high-speed internet.

Schumer said he expects the Senate will vote on amendments offered by both Democrats and Republicans, but he expects to pass the legislation before adjourning the Senate for its annual August recess.

Our Jay Heflin notes that the House is currently scheduled to return on Sept 20, 10 days before the bill kills the credit, and it is unclear when the House will vote on the infrastructure bill. 


Early End to ERTC Would Raise Surprising $8.2 Billion - Doug Sword, Tax Notes ($).

The third-biggest revenue raiser for the package, though, would be eliminating the ERTC on October 1, three months early. The credit has been a staple of the government’s COVID-19 response.

In an August 2 estimate, the Joint Committee on Taxation said that provision would provide $8.2 billion. In March the program was extended six months through the end of the year by the American Rescue Plan Act of 2021 (P.L. 117-2) at a projected cost of $10.2 billion, making the $8.2 billion savings by ending the program early unexpected.


California Governor Signs Budget Trailer Bill Containing “SALT Cap Workaround” and Other Provisions - John Gupta, Iris Chung, and Kaceelyn Pouttu, Eide Bailly:

The Act’s SALT Cap Workaround structure permits certain entities taxed as S Corporations and partnerships to elect to have their income taxed at the entity level rather than at the individual level. By shifting the tax situs from the owner to the entity level, the federal limitation on deducting SALT taxes can be avoided.

To effectuate this result, the Act allows each eligible pass-through entity to make an annual irrevocable election to pay tax at the entity level based upon a 9.3% rate. The pass-through’s owners will receive a ratable and nonrefundable California income tax credit in the amount of tax paid by the entity on the owner’s share of income.

If the taxpayer is unable to utilize all the credit in the applicable year, it may be carried forward for five years. The new election is applicable for tax years beginning on or after January 1, 2021, requiring the election be made and tax paid on or before the deadline for filing the passthrough entity return, not including extensions.

But it has its limits: "The election is available to entities taxed for federal income tax purposes as S Corporations and partnerships with some exceptions. The election is not permitted for any entity that has a partnership as an owner, is a publicly traded partnership or is required or authorized to be included in a combined report between unitary corporate affiliates."

Mass. Lawmakers Delay Charitable Deduction, Undoing Veto - Abraham Gross, Law360 Tax Authority ($). "In a series of votes Thursday, the state House of Representatives and Senate rejected Republican Gov. Charlie Baker's veto of a one-year delay to the reinstatement of the state's charitable contributions deduction. The Legislature also rejected Baker's request for a full credit against a pass-through member's share of an entity-level tax instead of a 90% credit."

Senate poised to deliver infrastructure win for Biden’s agenda - Laura Litvan and Steven Dennis, Accounting Today:

The bill will be paid for largely by the equivalent of raiding the federal budget couch cushions for cash. Democrats were unwilling to cut much spending elsewhere, while Republicans early on declared a “red line” against Biden’s plans to raise taxes on corporations and the wealthy. Biden in turn nixed early talk of raising the gas tax or imposing a tax on electric vehicles.

Infrastructure Bill’s Crypto Reporting Crackdown Spooks Industry - Frederic Lee and Kristen Parillo, Tax Notes ($):

The bill seeks to amend federal law on digital asset information reporting by expanding reporting requirements for brokers, including the requirement that businesses report all virtual currency transactions exceeding $10,000.

Alexandra Medina of the Blockchain Advocacy Coalition said that hastily written policy tends to have unintended consequences and require revision, and the draft bill’s language follows that trend and creates more confusion than clarity. “We have already lost half our market share of blockchain and crypto businesses since 2012; this would accelerate the trend,” she said.

If the bill passes as written, companies and service providers in the decentralized finance industry would leave the United States, Medina said. The legislation would likely have a net negative impact on tax collection, she added. “The crypto market is extremely global.”

 Legislate in haste, repent at leisure.

Wyden wants tweaks to infrastructure bill’s cryptocurrency rules - Laura Weiss, Roll Call. "Wyden supports reporting rules for cryptocurrency exchanges, which is what the provisions aim to do, according to an aide. His concern is that the language lacks clarity and could mean that developers of blockchain technologies such as wallets, which allow users to manage different crypto transactions, have to provide information to the IRS, which could pose technological challenges and cause unintended consequences."

Crypto Industry Says Tax-Reporting Plan Hits Wrong Players - Allyson Versrille, Bloomberg ($). "The cryptocurrency industry is warning that proposed reporting requirements included in the bipartisan infrastructure deal are so broad that they could penalize some participants for failing to give the Internal Revenue Service information they don’t have."

Tax Information Reporting Is Coming for Cryptocurrencies - Marie Sapirie, Tax Notes Opinions:

In addition to the new reporting requirement, section 6050I(d) would be changed to treat digital assets as cash. That would require anyone engaged in a trade or business that receives more than $10,000 in digital assets in the course of the trade or business in one transaction or multiple related transactions to file Form 8300, "Report of Cash Payments Over $10,000 Received in a Trade or Business.

The changes would be in effect for returns and statements required to be filed after December 31, 2023. That gives a little bit of breathing room to the IRS and Treasury to develop regulations and other guidance that could provide some relief, or at least more certainty, to taxpayers and individuals required to submit reports.

Three Tax-Free Crypto Transfers - Robert Wood, Forbes. "Selling crypto can obviously trigger taxes, but even buying something using crypto—a house, a car, a new suit of clothes—can trigger taxes."

Related: Bitcoin — What Should You Know.


Advance Child Tax Credits Hurtling Toward 2022 ‘Train Wreck’ - Jonathan Curry, Tax Notes. "The chief challenge ahead for tax return preparers is that they will have to reconcile the advance payments their clients receive with what is reported on their 2021 tax returns next spring, and some taxpayers may be surprised — and unhappy — to hear that they have to pay some of those credits back."

Democrats scramble for cash to cover Biden’s $3.5T plan - Jennifer Scholtes and Brian Faler, Politico. "The majority party has said the still-forthcoming bill will be “fully paid for.” But it won’t be easy to raise enough money to offset as much as$3.5 trillion in spending — a sum so massive it would eclipse the total GDP of Spain, Australia and Switzerland combined."

The article lists a number of tax hikes, including limits on "Mega" Individual Retirement Account, worsening the "GILTI" tax on multinationals, and rate increases.

It's a foregone conclusion that Democrats will propose undoing Republicans’ cut to the corporate tax rate — the question is by how much. It's a quick and easy way to raise a lot of money: Each percentage point increase generates roughly $100 billion.

Biden wants to raise it to 28 percent, from the current 21 percent, but that’s probably too high for most Democrats. A more likely outcome would be a boost to a rate in the mid-twenties, which even Sen. Joe Manchin (D-W.V.) has said he supports.

Capital gain rate increases are in play as well: "Some Democrats want to hike capital gains taxes, though that will be more controversial, particularly when it comes to a proposal to end a longstanding provision in the code that allows people to pass assets on to heirs free of capital gains taxes when they die. Democrats are already getting an earful from farmers, small businesses and others."


2d Circuit Holds that A U.S. Person Who Is Both Owner and Beneficiary of Foreign Trust Is Liable for Separate Penalties for Failure to Report in Both Categories - Jack Townsend, Federal Tax Crimes. "A prominent topic on this blog has been the FBAR reporting obligation that, as relevant to tax, assists in U.S. tax compliance with respect to foreign financial accounts.  A similar problem exists for foreign trusts with U.S. owners and beneficiaries and, not surprisingly, there are obligations for the U.S. owners and beneficiaries to report information to the IRS useful for tax compliance."

FedEx, Others Must Give IRS Panama Offshore Account Info - Amy Lee Rosen, Law360 Tax Authority ($). "A federal judge will allow the IRS to obtain from couriers and financial institutions, including FedEx and Bank of America, records of individuals who may have used Panamanian offshore service providers to hide assets, the U.S. Justice Department said Thursday."

Offshore secrecy isn't that much these days.

Related: Offshore Voluntary Disclosure


Recovering Costs in Tax Litigation - Roger McEowen, Agricultural Law and Taxation Blog. "Indeed, the present statutory construct allows the IRS to continue to assert positions with little basis in law when the amount in controversy is less than the anticipated attorney fees without much risk of being challenged in court."

Back Off, IRS!—Accounts Holding Advance Child Tax Credit Payments Immune from Levy? - Zachary Montgomery, Freeman Law. "When Advance Child Tax Credit funds are levied inadvertently, employees must release the levy on the Advance Child Tax Credit funds. If payments are monthly, additional levies should not be issued on the account until the conclusion of monthly payments at the end of 2021, unless it is known that the account holds more than the eligible maximum advanced CTC."

Related: What is the Difference between a Tax Lien and a Tax Levy? 

The Bipartisan Infrastructure Plan Avoids Tax Increases, Undermines User-Pay Principle, and Misses Chance to Modernize Obsolete Programs - Scott Hodge, Tax Policy Blog. "While much of the other offsets in the package are from reasonable asset sales and user fees, the bipartisan plan undermines the long-standing user-pays principle that has traditionally funded roads and highway spending. Doing so makes spending on roads and highways no different than any other federal transfer program."


Smile! The American Dental Association was founded on this date in 1859 in Niagara Falls, New York. 

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