Tax News & Views Let the Fun Begin Roundup

August 27, 2021

Pelosi pledges coordination with Senate on $3.5T budget package – Lindsey McPherson, Roll Call. “Speaker Nancy Pelosi said Wednesday that House committees, working with the Senate, are ‘coming to closure on some of the particulars’ of a $3.5 trillion reconciliation package with the expectation that all panels involved will report out their pieces of the legislation within three weeks."

‘Some committees will be marking up before Sept. 15, but everyone by Sept. 15,’ the California Democrat said at her weekly press conference. ‘We write a bill with the Senate because it's no use our doing a bill that is not going to pass the Senate.’

The House panel in charge of taxes is the Ways and Means Committee. The tentative schedule is for the Committee hold public meetings about the legislation on September 9th, 10th, 13th and 14th. During these meetings, lawmakers will debate and offer amendments to the bill. (Specifics on the legislation are not expected to be made public until just before these meetings begin.)

There is a very good chance that whatever passes out of the House Ways and Means Committee will be included in the final package. In the Senate, the tax-writing panel is the Finance Committee. It is not clear if the Senate Finance Committee will hold public meetings on this legislation.

House Democrats are looking at a hefty $3.5 trillion price tag, which would be matched with tax increases. From the article:

Pelosi specifically mentioned Ways and Means Chairman Richard E. Neal, D-Mass., working with the Senate ‘and others,’ whom she declined to name. 

‘Members are making their views known on what the pay-fors can be,’ she said. ‘Some are new. Some are pretty standard fare, but it’s just a question of how much.’

Neal said this week that he intends to pay for all of the package and that he’s in regular communication with Senate Finance Chair Ron Wyden, D-Ore., as they put together a wide array of potential revenue-raisers. ‘We made an agreement not to surprise each other,’ Neal said. 

The odds are extremely low that Congress passes a bill including $3.5 trillion in tax increases. That is pure happy talk.

But don't take my word for it:

Tax Clash Tests Democratic Unity on Biden’s Economic Agenda – Laura Davison and Jarrell Dillard, Bloomberg ($). “Moderate and progressive Democrats are on a collision course over how to pay for President Joe Biden’s economic agenda, a disagreement that has the potential to stall the legislation or sink it entirely. Biden has proposed an ambitious set of tax increases on wealthy households and corporations to pay for trillions of dollars in new spending. Congressional Democrats have set in motion a $3.5 trillion legislative vehicle to vastly expand the government’s role in health care, climate change, child care and education."

Taxes are emerging as a particularly contentious issue as lawmakers keep an eye on next year’s midterm elections, when Democrats’ razor-thin majorities are at risk. Moderates want a smaller overall package of tax increases and are hesitating on some of Biden’s plans. Progressives view a total rewrite of the tax code as a moral imperative in order to fund social programs and climate measures as well as address a widening wealth gap.

BGOV OnPoint: Democrats Eye Paths on State, Local Tax Deductions – Naoreen Chowdhury, Bloomberg ($). “More than 20 House Democrats are threatening to vote against President Joe Biden’s $3.5 trillion economic plan if the $10,000 cap on the deduction for state and local taxes isn’t addressed. Districts where taxpayers experienced the biggest reductions to their write-offs — such as in California and New York — are largely represented by Democrats, who are at odds over a full restoration of the SALT deduction.”

Some say it would disproportionately benefit the wealthy, while others say the cap — part of Republicans’ 2017 tax overhaul (Public Law 115-97) — unfairly targeted their constituents. Republicans are also generally opposed to lifting the cap because they say it would reward government spending in Democratic states.

The $1 million question of higher capital gains taxes under Biden, answered – Lynnley Browning, Accounting Today. “When the Treasury Department first explained in late spring how a proposed higher tax on investment profits would work if approved by Congress, it left some financial advisors and tax experts scratching their heads. A new capital gains rate, nearly double the existing 23.8%, would kick in on profits and qualified dividends banked by earners making at least $1 million a year, the government agency said."

"Just what kind of earners? Confusingly, Treasury only partially answered the question last May in its Green Book, an official document detailing the spending and tax increases outlined in the Biden administration’s proposed $6 trillion federal budget."

The all-important question Treasury didn’t directly address or explain: Would the proposed $1 million threshold for adjusted gross income (AGI) apply to single and married filers equally? Treasury made clear that it applied to married couples, but what about individuals, like unmarried working professionals and divorced small business owners? Turns out the answer to the high-stakes question is yes. While the highest rate would apply to married couples with more than $1 million in income, that threshold would be the same for individuals, giving some single filers a juicy tax break. 'That’s correct,' Treasury spokesperson Alexandra LaManna wrote to Financial Planning in an emailed response to the query.

Hmmm, what if you're married filing separately?

Ex-Democratic senator launches effort to advocate against capital gains proposal – Naomi Jagoda, The Hill. “Former Sen. Heidi Heitkamp (D-N.D.) is leading a new effort to push back against proposals to tax capital gains at death, as the Biden administration and Democratic lawmakers seek to make such a change to help pay for their spending priorities."

‘I think it’s wrong as a matter of economics, looking at middle class families, but I also think that for the Democratic Party, this is a path that should not be walked politically,’ Heitkamp said in a phone interview with The Hill.

Heitkamp, who served in the Senate from 2013-2019, is chair of a new nonprofit called Save America’s Family Enterprises (SAFE), which is launching a six-figure ad campaign.


Sen. Toomey Calls For Public Input On Crypto Legislation – Elise Hansen, Law360 ($). “U.S. Sen. Pat Toomey, the top Republican on the Senate Banking Committee, on Thursday issued a call for public input on potential legislation to clarify ‘ambiguity’ in the legal framework for digital assets. Sen. Toomey of Pennsylvania solicited ‘ideas and legislative proposals’ that would support the burgeoning cryptocurrency industry and clearly delineate how existing laws apply to cryptocurrencies. In particular, proposals may address how securities and tax laws apply to cryptocurrencies or tackle questions such as privacy and consumer protection, the announcement said.”

‘Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay,’ Toomey said in the announcement. ‘Our laws and regulations must adapt to these developments.’


‘New’ Research Incentive Turns on Rolling Back a Trump Tax Tweak – Michael Rapoport, Bloomberg ($). “The search for new tax incentives for research and development might lead back to the one that companies benefit from now but are set to lose soon under the 2017 tax law… Tax professionals and corporate advocates say staying with the current approach would be much better for companies tax-wise than the new method, and encourage more R&D spending. But the clock is ticking: The new approach takes effect Jan. 1 unless a move is enacted to roll it back."

Currently, companies can record their R&D costs the same year they’re incurred and thus deduct them on their tax returns immediately—an approach in effect since 1954. But the 2017 tax overhaul enacted under then-President Donald Trump changed that: Starting in 2022, companies must amortize the recognition of those costs over five years, or 15 years for foreign R&D.


Would Extending More Generous Tax Credits Increase The Number Of Non-Income Tax Payers? – Howard Gleckman, Tax Policy Center. “We know the pandemic and the policy response to it dramatically increased the number of households that did not pay federal individual income tax in 2020 and will do so again this year. The bump was transitory, caused by a troubled 2020 economy and enactment of massive but temporary tax cuts. But what would happen to the number of non-payers if Congress extends one set of tax changes—the more generous refundable tax credits for low- and moderate-income households first approved by Congress earlier this year?"

A new TPC estimate finds that continuing those generous tax benefits would have a noticeable, but relatively modest, impact on the number of federal income tax payers.  If the credits are continued, 45 percent of households would not pay federal income tax in 2022, compared to a bit less than 42 percent if the higher credits are allowed to expire. 


Accountants Press Congress for Clarification on Retention Credit – William Hoffman, Tax Notes ($). “Congress should clarify an IRS notice that excludes some family members employed in small businesses from calculations for the employee retention credit, according to the National Society of Accountants (NSA).”

‘The IRS’s guidance . . . would go against congressional intent and negatively impact small businesses,’ the NSA said in an August 26 letter to the chairs and ranking members of the Senate Finance and the House Ways and Means committees.

In Notice 2021-49, 2021-34 IRB 316, released earlier this month, the IRS said that compensation provided to a business owner’s ancestors and linear descendants — including siblings, spouses, parents, grandparents, and others — is disregarded when calculating the credit, regardless of their position in the company.


Is Biden's budget too much for the IRS? Not even close - Charles Rossotti (former IRS Commissioner), The Hill opinion piece. “Now that the Senate has approved Biden’s $3.5 trillion spending bill, the tough work of fleshing out the budget’s reconciliation instructions begins. A core part of that effort will be the president’s 10-year plan to fund the IRS. Far from growing the IRS to unprecedented size, it will only partially restore it to its historic capacity and is essential to improve service and shrink the massive and growing tax gap.

For nearly 40 years, Congress and Republican and Democratic administrations alike have starved the IRS. Incredibly, an IRS Funding Plan Analysis by Fred Forman of Shrink the Tax Gap shows the IRS budget today is only 49 percent the size it was relative to the economy in 1993. If the administration’s funding proposal is adopted, by the year 2031, it shows the IRS budget will still only be 75 percent of the proportion of the economy that it was 38 years ago.

IRS Pursues Promoters of Green Tax Breaks Worth Tens of Billions – David Boreacos, Bloomberg ($). “Jack Fisher has raised hundreds of millions of dollars pitching investors on real estate development projects that were never built. Fisher, an accountant-turned-developer, promoted projects such as the Preserve at Venice Harbor, near Hilton Head, S.C., where marketing illustrations showed houses on canals that evoked the famous Italian city. Instead of developing the land, he recruited investors to elaborate deals that provided them charitable tax deductions in return for donating easements for conservation. The Internal Revenue Service, however, suspects the deals may amount to tax fraud.”

Fisher is at the center of a criminal probe related to these syndicated conservation easements, according to people familiar with the details, who requested anonymity to discuss a confidential matter. The investigation has already led to tax conspiracy charges against three accountants who worked with him.

IRS overlooked billions in taxes from S corp execs – Michael Cohn, Accounting Today. “The Internal Revenue Service has stepped up efforts to collect employment taxes from S corporation officers, but business owners are still getting away with avoiding billions of dollars in taxes.”

A new report, released Tuesday by the Treasury Inspector General for Tax Administration, found the IRS is selecting less than 1% of all S corporations for examination for compliance with payment of employment taxes. When the IRS does examine an S corp, nearly half of IRS revenue agents don’t evaluate compensation during the examination, even when there’s a sole proprietor who didn’t report officer’s compensation and may have taken tax-free distributions in lieu of compensation.

The report can be found here


Treasury Says Ky., Tenn. Lack Standing In Virus Law Tax Fight – Abraham Gross, Law360 ($). “Kentucky and Tennessee's challenge to a federal provision barring states from using pandemic aid to offset tax cuts should be dismissed for lack of standing like similar challenges, the U.S. Department of the Treasury told a federal court. Treasury asked the Kentucky federal court Wednesday to dismiss the states' suit seeking to block the department and its secretary, Janet Yellen, from enforcing a clawback provision in the American Rescue Plan Act. The department said the challenge suffers from defects similar to those that led courts to throw out challenges to the law by Missouri and Arizona."

‘In two of the three cases already decided, district courts in Missouri and Arizona dismissed nearly identical complaints for lack of standing,’ Treasury said, adding that the court should follow suit because Kentucky and Tennessee similarly lack standing.

Miss. Income Tax Repeal, Sales Tax Hike Plan Draws Pushback – Paul Williams, Law360 ($). “A proposal in Mississippi to repeal the state's personal income tax while raising the general sales tax rate would exacerbate racial inequality in the state's tax system by making it more regressive, a representative of a liberal organization said Thursday. During a hearing before a committee studying Mississippi's tax code, Kyra Roby, a policy analyst for One Voice, a nonprofit that advocates for marginalized and vulnerable communities, said eliminating the income tax would do away with the most progressive element of the state's tax system.”

Furniture Co. Tells SC Justices Membership Fees Don't Incur Tax – James Nani, Law360 ($). “A South Carolina furniture company is backing a book retailer's state Supreme Court challenge asking the justices to find sales and use tax doesn't apply to the sale and renewal of book club memberships because they're not tangible personal property. Warehouse Home Furnishings Distributors Inc., which does business as Farmers Home Furniture, asked the court Wednesday to consider its amicus brief and side with Books-A-Million Inc. in its challenge against the South Carolina Department of Revenue's sales and use tax assessment.”

Books-A-Million is challenging lower court rulings that found the department correctly assessed the company $242,000 in sales and use tax on book club membership sales and renewals, plus penalties and interest. The company told the court the tax doesn't apply to club membership and renewal fees because they're not tangible personal property.

Colo. Seeks Input On Special Apportionment Rules – Asha Glover, Law360 ($). “The Colorado Department of Revenue's Taxation Division is seeking comment on a proposed rule regarding the apportionment of income for electricity producers and proposed amended rules that add language to reflect the new rule's changes. The department asked for comments Wednesday on a new rule that would prescribe the inclusion of certain receipts of electricity producers from hedging transactions in the receipts factor. Two draft amended rules would add language explaining that hedging transactions are excluded from receipts in certain instances.”


Global minimum tax’s ‘GloBE’ maze – more than meets the eye! – Noopur Trivedi and Jitesh Golani, MNE Tax. “The past two months have witnessed historic international tax cooperation with 133 jurisdictions agreeing to implement the two-pillar solution set forth in the 1 July OECD/G20 Inclusive Framework statement. As the statement manifests, the tax world can expect the final global minimum tax under 'Pillar Two,' including the global anti-base erosion (GloBE) proposal, to be similar to the proposal in the OECD’s October 2020 blueprint.”

France Won't Pressure Ireland To Join Tax Deal, Macron Says – Matt Thompson and Todd Buell, Law360 ($). "French President Emmanuel Macron said Thursday that he won't put undue pressure on the Irish government to adopt the proposed global minimum tax rate agreed to by more than 130 countries through the Organization for Economic Cooperation and Development."

Speaking at a news conference alongside Irish Prime Minister Micheál Martin, the French president referred to Ireland's reluctance to adopt a 15% global minimum tax, telling assembled journalists that he doesn't believe in putting pressure on his friends.


Distilled Spirits Taxes in Europe – Thomas Locher, Tax Foundation. All European Union (EU) countries and the United Kingdom levy excise duties on distilled alcohol; excise tax is applied to the cost of goods on purchase. The standard size of a liquor bottle in Europe is 700ml (23.7 oz). Many spirits, such as vodka, gin, rum, and whiskey, contain alcohol content in the range of 40 percent. In the European countries covered, the average excise duty on a 700ml bottle of liquor containing 40 percent alcohol is €5.13 (US $5.85).”

EU excise duty on alcohol 2021 distilled spirits taxes in Europe. 2021 liquor taxes in Europe


It’s National Just Because Day! Yes. There is a day for doing what you want: just because. Mind you, unlawfulness does not fit within the parameters of "just because."

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