September 7, 2021
Colorado Residents Will Receive Tax Rate Cut, Rebates - Carolina Vargas, Tax Notes ($).
Colorado Gov. Jared Polis (D) announced an income tax cut for next year because state revenue growth exceeded limits established by the state’s Taxpayer’s Bill of Rights.
According to a September 2 release from Polis, the individual income tax rate will be lowered from 4.55 percent to 4.5 percent next year because of a large revenue surplus in fiscal 2021.
Working Around the SALT Deduction Cap - Adam Sweet, Eide Bailly. "As there is no SALT deduction limit at the entity level, the taxpayer can effectively claim a full federal income tax deduction for their individual state income taxes. Some states accomplish this via an income tax credit for all (or most of) the entity level tax paid while others permit the income taxed at the entity level to be excluded from an individual’s state taxable income."
Progressives’ Tax-the-Rich Dreams Fade as Democrats Struggle for Votes - Richard Rubin, Wall Street Journal ($):
There is a strong intraparty consensus to reverse some of the 2017 cuts. The corporate tax rate is likely to jump to 25% from 21%, fitting the preferences of Sens. Joe Manchin (D., W.Va.) and Mark Warner (D., Va.). That is below the 28% Mr. Biden proposed and the 35% that existed before 2017. Democrats also plan to return to the top individual tax rate to 39.6% from 37%. The Biden plan would start that top bracket at $452,700 in taxable income for individuals and $509,300 for married couples.
The tax provision generating the most Democratic angst is capital gains. To progressives, it is their clearest chance to push back against wealth inequality they have spent years decrying.
Buy, Borrow, Die: Negative Basis at Death - Lee Sheppard, Tax Notes ($):
There’s no popular demand for taxing capital gains at death either. Demand stops at the exit from the faculty lounge. And the faculty tend to be ill-equipped to answer technical questions about their policy proposals. Doesn’t matter that Haig and Simons thought it was income, or how some Scandinavian government treats it. The proposal has to fit into our layered, convoluted system. Once taxing capital gains at death is explained to them, politicians and voters alike want no part of it. The word on Capitol Hill is that this proposal is dead in the water. There’s trouble when a proposal generates its own opposition lobby.
Bottom line: Taxing all gains at death is terrible policy. Taxing gains to the extent of debt exceeding the decedent’s basis in transferred property is a desirable policy because it would reach the problem of decedent enjoyment of gains without tax during lifetime. It’d be a more politically palatable approach to the fairness problem — the average congressional representative cannot argue in favor of packing on the debt. Moreover, some view taxation of gain attributable to debt in excess of basis as achievable even without a statutory change.
Senate Democrats’ tax options include big farm gains exemption - Laura Weiss and Paul Krawzak, Roll Call:
Senate Finance Committee Democrats are considering new taxes on executive pay, stock buybacks, billionaires’ unrealized stock gains and plastic packaging materials among other options as the panel looks to cover costs of their planned $3.5 trillion budget reconciliation package.
The latest list of possible offsets from the panel led by Sen. Ron Wyden of Oregon includes several policies pushed by progressives for taxing corporations and bigger carve-outs from higher taxes on assets that gain value, which could be a positive step for moderates. Options also include fees on carbon and plastic resins and several Wyden-proposed policies for taxing investment gains, according to a document circulating on and off Capitol Hill.
There's a big load trying to take off on a short runway. Expect a longer runway.
Five tax issues to watch as Democrats craft $3.5T bill - Naomi Jagoda, The Hill. "Democrats are expected to include some type of change to the $10,000 cap on the state and local tax (SALT) deduction that Republicans enacted as part of their 2017 tax law. But it remains to be seen exactly how lawmakers plan to roll back the cap."
Lobbyist Registrations Hit High Mark as Reconciliation Nears - Doug Sword, Tax Notes ($). "This year is more about a partisan Congress picking winners and losers by revamping the tax code — a move that has boosted the number of new lobbying registrations by more than 1,000 above the average for the typical first eight months of a year, according to an analysis by Tax Notes."
Yellen Touts OECD Tax Deal Amid U.S. Global TCJA Reform Push - Stephanie Soong Johnston, Tax Notes ($). "In a series of tweets posted September 3, Yellen touted the OECD agreement, which would modernize the international corporate tax system for the digital age and ensure global minimum corporate taxation, a key priority for the Biden administration."
The Latest IRS Headache for Taxpayers: 11 Million ‘Math Error’ Notices - Laura Saunders, Wall Street Journal ($):
The explosion of IRS bills to taxpayers fall into a category known as “math-error” notices, and the IRS sent out more than 11 million of them from Jan. 1 to mid-August.
That compares with about 765,000 for the same period in pandemic-disrupted 2020 and about 2 million in 2019, according to National Taxpayer Advocate Erin Collins, who heads an independent unit within the IRS charged with safeguarding taxpayer rights. Ms. Collins is trying to help taxpayers who got these notices, and now several million filers will get more time to respond.
When the letters assess taxes due or reduce refunds, as millions do, they are treacherous for filers because the first notice is also the final notice--unlike with many IRS letters.
If you get an IRS notice, don't assume it's right, and don't ignore it. Send it to your tax pro right away.
Can the IRS be Honest About the Delays in Processing? - Russ Fox, Taxable Talk. "Bluntly, taxpayers should expect that it will take on average one year from the date they file their amended return for it to be processed."
A Labor Day salute to COVID-created new entrepreneurs - Kay Bell, Don't Mess With Taxes. "Another survey, this one by Digital.com, a Seattle-based review site focused on small businesses, found that of the respondents who had quit their jobs in the last six months, 32 percent said they had done so to start their own businesses."
Do Taxpayers Need to Amend Forms 941 or Forms 941-X That Are at Odds with Notice 2021-49? - Ed Zollars, Current Federal Tax Developments:
For those who aren’t up to speed on this issue, that Notice provided that controlling interest holders based on direct ownership of an interest of an employer who had any living relative in the following list would not be paid qualifying wages for the ERC by the controlled employer:
Brother or sister;
Ancestors (such as parents, grandparents, etc.); or
Lineal descendant (such as a child, grandchild, etc.).
Tax Foundation Comments on the Wyden, Warner, Brown Discussion Draft - William McBride, Daniel Bunn, and Cody Kallen, Tax Policy Blog. "While incomplete, the draft legislation from Senators Wyden, Brown, and Warner envisions significant changes to Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT). Overall, the draft has the potential to address certain defects with the GILTI regime, but also has the potential to exacerbate certain uncompetitive features."
When Does a Partnership Exist? - Roger McEowen, Agricultural Law and Taxation Blog. "Formality in business relationships can go along way to avoiding legal issues and costly court proceedings when expectations don’t work out as anticipated. Putting agreements in writing by professional legal counsel often outweighs the cost of not doing so."
Justices Urged To Review IRS Collectible Coin Seizure Case - Theresa Schliep, Law360 Tax Authority. "A woman whose collectible coins were seized by the Internal Revenue Service and converted to cash at face value has asked the U.S. Supreme Court to review the Eighth Circuit's decision to deny her a $95,000 award."
Here the government managed to shortchange itself and the taxpayer at the same time. Liquidating a coin collection at face value is like selling a shiny 1964 1/2 Mustang for scrap.
Reagan’s Tax Cut Just Turned 40 — and It’s Still the Most Important Tax Reform Since World War II - Joseph Thorndike, Tax Notes Opinions. - Joseph Thorndike, Tax Notes Opinions. "Lopping 20 points off the top rate was just one of the two transformative achievements embedded in ERTA. The other was tax system indexing. Before 1981, inflation would regularly push taxpayers into higher brackets, boosting revenue through a process known as “bracket creep.” It was a convenient way to raise more revenue — painful for hapless taxpayers but painless for the gutless lawmakers."
Watch out. The Department of Justice touts a new tax indictment (taxpayer name omitted):
For the tax years 2008 through 2010, Taxpayer evaded payment of more than $4.3 million in income taxes, not including penalties and interest, despite having earned approximately $20 million in taxable income. Taxpayer used approximately $1.5 million from his business bank accounts to buy approximately 40 rare and expensive watches; used at least $1.9 million from the business accounts to pay for home renovations; used company funds to pay at least $700,000 in personal credit card bills; transferred more than $700,000 from his business accounts to various casinos, where he converted the money to chips, gambled, and then redeemed chips for cash; and cashed approximately $160,000 in checks at check-cashing businesses to conceal the proceeds from the IRS. Taxpayer also filed a statement with the IRS in 2011, falsely claiming that he had no income for that year, when in fact he received more than $2.8 million in income.
40 Watches? Some people really hate to be late.
Hold my calls. Today is Telephone Tuesday. "September 7 is officially a day notorious for surprisingly, more phone calls than usual. Making itself heard just after Labor Day, Telephone Tuesday is a trendy holiday created based on a clear spike in telephone calls to businesses and organization. The high number of calls usually flood in partly due to unmanned telephones during the long weekend. Makes sense, right? Then comes the many schools which open after Labor Day weekend, blended with the holiday season fast approaching. In addition, it’s been uncovered that organized folks attempt to tackle their to do lists on this day too and so inbound calls rise up to 50% on the day."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.