Tax News & Views Reconciliation Standoff Needs Coffee Roundup

Progressives not budging as infrastructure deadline looms - Lindsey McPherson and Jessica Wehrman, Roll Call:

The Congressional Progressive Caucus met over Zoom Tuesday afternoon after Speaker Nancy Pelosi, D-Calif., in a broader caucus meeting Monday night, abandoned her commitment to them that the House would not pass the infrastructure bill before the reconciliation package. The majority of the group left their meeting committed to voting against the infrastructure bill Thursday since the reconciliation package won’t be done by then, Congressional Progressive Caucus Chairwoman Pramila Jayapal said. 

“This isn't about trust. It's just about verifying,” the Washington Democrat told reporters. 

Jayapal said a majority of her 95-member caucus still plans to oppose the infrastructure bill and the number “might be growing.”

One faction won't vote for the infrastructure bill without the big reconciliation bill, and another won't vote for reconciliation unless it is scaled back. Without both factions, neither bill can pass.

Related: Pelosi de-links Biden economic agenda, making the fate of tax increases unclear

Democrats Move Off $3.5 Trillion Figure, Infrastructure Link - Doug Sword, Frederic Lee, Tax Notes ($).

Leading congressional Democrats complain that moderates have refused to counter the $3.5 trillion budget reconciliation bill with their own, lower top-line number, but now that higher figure, long at the center of the debate, appears headed for the legislative dustbin.

The response may be to fall back on the hoary practie of making provisions "temporary":

The cost of the package can also be cut by making new spending or tax cuts temporary. For instance, the cost of the reconciliation package would be perhaps $800 billion higher if the expansion of the child tax credit were proposed to be made permanent. Instead, the expanded credit expires after 2025, keeping costs down to $556 billion.

Few things last longer than temporary tax breaks.

Neal Says House Dems Back $2.9T Tax Plan, But Trouble Looms - Stephen Cooper, Law360 Tax Authority ($). "House Democrats broadly support a $2.9 trillion tax package that passed the House Ways and Means Committee, but tying it to an increase in the nation's debt limit would sink the measure, committee Chairman Richard Neal said Tuesday."

Negotiations between Biden, Democrats intensify as $4 trillion agenda hits stalemate - Tony Romm, Marianna Sotomayor, and Seung Min Kim, Washington Post ($). "To try to break the logjam, Biden huddled with the two centrists in a series of meetings at the White House on Tuesday. But their negotiations did not immediately appear to produce an agreement over the final size of the spending package, frustrating liberals who have pledged in the absence of a deal to scuttle a vote on the infrastructure package expected in the House later on Thursday."

TPC: The Ways & Means Reconciliation Bill Would Raise Taxes On High Income Households, Cut Taxes On Average For Nearly Everyone Else - Howard Gleckman, Tax Vox. "As a result of the individual income, payroll, and estate tax changes, only a handful of households making $500,000 or less would pay more in taxes in 2022 than under current law. However, including all major provisions, including corporate income and excise tax increases, about 58 percent of all households and nearly 80 percent of households making between $200,000 and $500,000 would pay more. About two-thirds of those making between $100,000 and $200,000 would face somewhat higher tax bills—about $650 on average."

History of Attempted Changes to Step-Up in Basis Shows Perilous Road Ahead - Garrett Watson, Tax Policy Blog. "This is not the first time Congress has considered changes to step-up in basis. The Tax Reform Act of 1976 imposed carryover basis for inherited assets—meaning, taxpayers inheriting assets with a capital gain would also inherit the asset’s original basis (as opposed to the stepped-up basis under current law). The tax would become due when the asset was sold, just like for any other capital gain. This change never took effect, however; by 1980, Congress retroactively repealed and replaced it with the rules that still exist today."

How would the US corporate tax burden compare with those of other developed nations? - Kyle Pomerleau, AEIdeas. "The Biden and House proposals would raise the statutory and effective tax rates to either the highest or nearly the highest in the OECD... Both proposals increase the tax burden on domestic corporate investment, reduce the incentive to invest in the United States, and increase the incentive to shift profits and high-return assets into low-tax jurisdictions."

US Foreign Tax Plans Could Reach Beyond Global Minimum - Natalie Olivo, Law360 Tax Authority ($). "A trio of proposals — one from the U.S. Treasury Department and two from Democratic lawmakers — would expand the 2017 federal tax overhaul's measure for global intangible low-taxed income to varying degrees, in part by increasing its rate. All three proposals would allow GILTI to coexist with a global minimum tax that's under negotiation at the Organization for Economic Cooperation and Development, but some elements of the U.S. proposals would go further and kick in sooner than the international levy."

Related: Five Reasons International Businesses Should Consider GILTI

Drought-stricken farmers and ranchers have more time to replace livestock - IRS:

Farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.

To qualify for relief, farmers or ranchers must have sold livestock on account of drought conditions in an applicable region. This is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it. Notice 2021-55, posted today on IRS.gov, lists applicable regions in 36 states and one U.S. territory.

The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.

Advisers Push for State Guidance on SALT Cap Workaround - Amy Hamilton, Tax Notes ($): "The Maine Department of Revenue Services denied a resident individual’s claim for an income tax credit for tax paid to Connecticut at the entity level by the individual’s limited liability company; the resident appealed the denial. In March, the Maine Board of Tax Appeals upheld the denial of the claim in an administrative ruling that the resident was not entitled to a Maine individual income tax credit for entity-level tax paid to Connecticut."

The value of getting a federal deduction can be more than erased if the state tax ends up being paid twice. Pass-through entities and their owners need to consider this when considering the entity-level taxes enacted to avoid the $10,000 cap on state and local tax deductions for individuals.

Related: Working Around the SALT Deduction Cap

Prepare to Panic! - Russ Fox, Taxable Talk:

As I write this, it’s September 29th. Two weeks from Friday is October 15, 2021. That’s the deadline for individual taxpayers on extension to file their tax returns (except for those in disaster areas such as the hurricane that impacted New Jersey, New York, Pennsylvania, Louisiana, and Mississippi). If you have yet to send your paperwork to your tax professional it’s past the time to do so. Yes, it’s time to panic!

Don't worry, I'm fully prepared.

Ransomware Readiness: Preparation is Key - Michael Nouguier, Eide Bailly:

Phishing Prevention and Awareness: As part of user training, organizations should have ongoing phishing and social engineering campaigns set up to simulate phishing emails sent to staff and personnel. As time progresses, the campaigns need to become harder as the user becomes more educated. It was recently cited that 90% of cyberattacks are caused by human vulnerabilities, so testing and educating employees on phishing schemes has never been more important. An attack against your system can start out simply by an employee inadvertently giving out domain credentials or using weak passwords. Security best practices training should always cover email security and educate users not to open links or attachments from unknown sources and to be cautious of any attachments asking to enable macros.

Data Backup: Regular backups are an essential part of any business continuity plan. Should you be breached by ransomware, you can rest assured that your data can be restored with little disruption to your day-to-day operations. The key is automatic and continuous backups of your data, and all users should back up critical data on all devices.

Swiss banker wanted in U.S. tax evasion cases escapes IRS clutches - Kay Bell, Don't Mess With Taxes. "The good news for the U.S. tax agency is that it has made progress in finding hidden tax shelter funds. But now and again, one of the alleged bad guys gets away."

Yet Another Streamlined Filing Turns into a Criminal Indictment, Implicating Former CPA and Businessman - Jason Freeman, Freeman Law. "A recent IRS Criminal Investigation press release announced an indictment against a businessman charged with defrauding the United States by not disclosing offshore assets, failing to report income to the IRS, and submitting a false Streamlined Filing Compliance Procedure submission in an effort to avoid penalties and criminal prosecution.  The indictment alleges that the defendant, a businessman and purported CFO of a Russian natural gas company, hid some $93 million in offshore accounts."

Related: Offshore Voluntary Disclosure. 

IRS Hiring Wave Could Mean Exams by Less-Experienced Agents - Benjamin Guggenheim, Tax Notes ($). "Audit errors could be on the rise in the coming years if the IRS Large Business and International Division is given the money it needs to ramp up its hiring of new revenue agents."

That is a given, and it is why increased IRS hiring will not immediately create a gusher of exam revenue. Who is the IRS looking at?

Debra Estrem of Deloitte’s family wealth group said several flags can trigger either a global high-wealth exam or an exam under the agency's high-income initiative. Those flags include large Schedule C losses, realization events, news coverage about the taxpayer, a total positive income over $10 million, and evidence of state or foreign tax examination.

Estrem noted that the IRS has been particularly keen to investigate returns involving aircraft taxes, conservation easements, and hobby losses.

The IRS suspects "hobby losses," which are non-deductible, if a taxpayer never makes money. It especially is skeptical of losses in things a taxpayer might find fun, like horse or auto raising or small-scale farming.

Speaking of IRS exams, here's the sort of thing that can draw IRS attention:

In 2011 through 2014, the years at issue, [Taxpayer] owned an auto body shop, rental properties, a large home, and numerous trucks, automobiles, and utility vehicles. His ability to acquire these assets is a remarkable feat given that, according to his tax returns, he had taxable income of $114, $0, $0, and $0, respectively, during those years. Or he fraudulently underreported his income. The Commissioner established by clear and convincing evidence that he fraudulently underreported his income.

From Tax Court yesterday, T.C. Memo. 2021-114.