September 21, 2021
IRS sent thousands of premature tax collection notices during pandemic - Michael Cohn, Accounting Today:
A report released Monday by the Treasury Inspector General for Tax Administration found the IRS issued 89,338 premature notices and demands to 87,542 individual taxpayers about their 2019 tax returns before the COVID-19 filing date extension of July 15, 2020.
However, the taxes weren’t actually due yet. “The notices showed that balances were owed even though the taxes were not actually due because of the filing extension,” said the report.
The number of tax pros who got irate calls from clients blaming them for the wrong notices is not available.
It’s Deja Vu All Over Again: IRS *Again* Mailing Erroneous CP259F Notices - Russ Fox, Taxable Talk:
As I said last year, this faux pas is another reason why using certified mail is essential when sending anything to a tax agency. With the volume of paper waiting to be processed, it’s inevitable that something is going to be lost. (Not to mention the report that the IRS “helpfully” destroyed 30 million documents in March 2021.) If you have your certified mail receipt that will hold up as proof of filing.
I am going to add some parting remarks to the IRS. As I just told a client, “This is incredibly stupid. The IRS was made aware of this issue last year and obviously did nothing. This will cause even more phone calls to the IRS (you currently have a 3% chance of reaching a human if you call the IRS), and more mail sitting in trailers. The IRS should have turned off the automatic generating of these notices.”
Maine Rejects Biz Owner's Bid For Out-Of-State Tax Credit - Jaqueline McCool, Law360 Tax Authority ($):
A Maine taxpayer cannot claim a credit for taxes paid in Connecticut by his pass-through business because the credit is limited to taxes on individuals, the state Board of Tax Appeals said in a ruling released Monday.
In the decision, the board said that the taxpayer had failed to prove he was entitled to the tax credit for his Maine income tax liability. The taxpayer had contended he was eligible for a personal income tax credit for entity-level taxes paid by his company in Connecticut because the income had directly flowed through to him, so it was effectively a tax on his personal income. The board concluded that although the company's income passed through to the taxpayer, the Maine tax credit statute is limited by its terms to taxes on individuals.
This illustrates a potential problem with the entity level taxes enacted as SALT cap workarounds in some states. While taxpayers paying entity level taxes gain a federal deduction, they may lose a larger home-state tax credit on their personal returns. The rules vary by state; Iowa, for example, allows the credit for taxes paid for other states for such entity level taxes. All this makes it important for pass-through taxpayers to work with their state tax pros heading into the next filing season.
Related: Working Around the SALT Deduction Cap. 2021/9
Dems fear Biden's domestic agenda could implode - Burgess Everett and Heather Caygle, Politico:
Democrats are broadly rejecting Manchin’s overtures to stall the social spending plan, arguing doing so is akin to killing the bill. If Democrats don’t keep positive momentum behind their effort to fight climate change, improve child care and raise taxes on the wealthy, they worry that the whole thing could fall apart.
“You can’t stop this process. If you stop it it won’t get started again,” said Sen. Ben Cardin (D-Md.). “You’ve really got to keep it moving, there’s no magic date, but as you get closer and closer to other deadlines, this one gets more difficult.”
‘The biggest mashup we’ve ever had’: Dems scramble on agenda - Nick Sobczyk, Politico:
House Budget Chair John Yarmuth (D-Ky.) said yesterday that the next two days of negotiations between the House and Senate will be critical to determining when a reconciliation package might move to the floor.
“We’ll know more after the next 48 hours as to timing because a lot of decisions are hopefully going to be made,” Yarmuth told reporters last night.
It leaves much of Biden’s domestic agenda — and potentially the biggest climate change bill in U.S. history — in flux with just days to iron out the bubbling policy dispute.
Senate Dems Weigh Advancing New Taxes Without Panel Vote - Alan Ota, Law360 Tax Authority ($). "Several senior Democrats said the Senate's reconciliation tax package would be developed in intraparty talks, possibly without a formal markup of some tax-related proposals by the Finance Committee. While the House prepares to try to advance the reconciliation bill and considers add-ons to the tax package approved by the Ways and Means Committee, they said senators would lay the groundwork to amend the bill when it comes over to the Senate."
NJ Dem Reps Say No SALT Cap Repeal, No Reconciliation - James Nani, Law360 Tax Authority ($). "A group of New Jersey congressional Democrats said Monday that they will vote against a proposed $3.5 trillion reconciliation bill unless the federal deduction for state and local taxes is fully restored."
Biden pushes back at Democrats on taxes - Naomi Jagoda, The Hill. "It remains to be seen whether the administration can get lawmakers to be more aggressive on tax increases and enforcement, given Democrats' narrow majorities in Congress."
Will Rogers Had It Right About Taxes - Robert Goulder, Tax Notes Opinions. "The situation causes me to recall the words of American humorist Will Rogers, who famously joked that he was not a member of an organized political party: He was a Democrat. The comment rings true today."
Democrats Want to Raise Taxes. Here’s Your To-Do List. - Laura Saunders, Wall street Journal ($):
Higher earners may want to pull some of next year’s income into this year to avoid higher rates proposed for 2022.
The Ways and Means provision would raise the top rate on ordinary income like wages or bonuses to 39.6% from 37%. Like the increase in the capital-gains rate, the change would apply above $450,000 of taxable income for joint filers and $400,000 for single filers. These brackets also kick in well below the current top rate, which begins at about $628,000 for joint filers and $524,000 for single filers.
This is the opposite of normal year-end planning, which involves deferring income. It doesn't pay to defer income to a year where it will be taxed at a higher rate.
E-bike buyers would get new tax credit under budget plan as lawmakers seek ways to curb climate change- Ian Duncan, Washington Post ($). "The new tax credit would be worth up to $750, and couples who file jointly could claim it twice if purchasing two bikes. The credit would be tied to income and start to phase out for couples who make more than $150,000 a year. Another provision in the bill would provide an $81 monthly tax benefit to cover costs associated with commuting by bike, similar to what many employers offer for transit or parking."
IRS Gets Defensive Over Distribution of Audits - Nathan Richman, Tax Notes ($).
“Generally, we audit these taxpayers at a much higher rate than any other taxpayer segment,” Clifford Scherwinski of the IRS Large Business and International Division said September 20.
“For example, correspondence audits happen much sooner after filing and take much less time to complete. The audits of high-income taxpayers start later, take more time, and last longer,” Scherwinski said during a webcast sponsored by the Tax Executives Institute. For tax year 2015, the IRS audited 8.16 percent of taxpayers with income over $10 million and 2.53 percent of those with $1 million to $10 million of income, but less than 1 percent of taxpayers in other income categories were audited, he noted.
Related: IRS Dispute Resolution & Collections.
Former IRS execs say they know how to close Tax Gap - Kay Bell, Don't Mess With Taxes. "'The IRS's existing technology does not prevent more rapid progress in achieving two key goals: providing top-quality service and reducing the tax gap,' write Rossotti and Forman in the announcement of their electronic publication."
Tennessee Business Tax Expands its Reach - Neil Udulutch and Todd Folle, Eide Bailly. "The Tennessee business tax is an often overlooked and misunderstood tax that entities should carefully consider when doing business in Tennessee."
Ireland May Never OK Global Tax Deal, Finance Minister Says - Matt Thompson, Law360 Tax Authority ($):
The fundamental rewrite of the international tax code will include a global minimum tax rate as well as a reallocation of taxing rights to markets in which companies' customers are based rather than where they are managed from.
It is widely expected that the global minimum rate will be set at 15%, which is 2.5 percentage points above Ireland's 12.5% rate.
Three EU countries have declined to sign on to the OECD's deal: Ireland, Hungary and Estonia. A meeting of all 27 EU finance ministers and Gentiloni failed to break the impasse this month.
Related: The Impact of COVID-19 on International Tax 2020/4
Exit Strategy: Transitioning Your Business to a New Owner - Amber Ferrie and Chad Flanagan, Eide Bailly. "Even if a potential exit is years away, it's important to focus now on key business issues, develop a planning process for the future exit and coordinate services with a wealth management team."
Taxpayer's Reliance on Prior Settlement Found Reasonable Cause to Waive Substantial Understatement of Tax Accuracy-Related Penalty - Ed Zollars, Current Federal Tax Developments. "While the Fifth Circuit Court of Appeals upheld the Tax Court’s decision regarding the amount of tax owed by the taxpayer... the panel overruled the Tax Court on the issue of penalties and found that the taxpayer had a reasonable basis for a portion of his substantial understatement of tax on the return in question."
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud - Roger McEowen, Agricultural Law and Taxation Blog. "Once a lawsuit has been filed or is a substantial certainty to be filed with an anticipated adverse outcome for a client, it’s too late to start utilizing legal strategies to shelter assets from potential creditors. Civil and criminal liability is possible for all parties involved as well as malpractice liability for related ethical violations. A recent case illustrates the point."
The Good, the Bad, and the Ugly of the Ways and Means Plan - Alex Muresianu, Garrett Watson, William McBride and Erica York, Tax Policy Blog. An "ugly" example:
For every temporary tax credit that the bill eliminates or makes permanent, it creates at least four new credits (22 in total), while expanding existing (often temporary) ones. For example, it would expand the existing Low-Income Housing Tax Credit and create a separate credit directed at housing construction, even though credits are not the most efficient tax change for creating new housing. Similarly, while some energy credits are simpler than existing policy, the inclusion of prevailing wage and apprenticeship requirements is especially bureaucratic, and unrelated to the goal of reducing carbon emissions.
Effective Income Tax Rates Have Fallen for The Top One Percent Since World War II - Robert McClelland, TaxVox. "While average effective tax rates barely changed in the US from 1945 to 2015, the average tax rates of high-income households fell sharply—from about 50 percent to 25 percent for the highest income 0.01 percent and from about 40 percent to about 25 percent for the top 1 percent."
The end of the world war might be implicated.
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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.