Accounting Firms Scoop Up Virtual Land in the Metaverse – Mark Maurer, Wall Street Journal ($). “Accounting firms are following the example set by other companies to launch operations in the metaverse, a digital space where players simulate real-life activities from shopping to gaming to business consulting.”
Businesses across industries, including real estate, technology and cryptocurrency, have been purchasing digital land on platforms such as Decentraland and the Sandbox. Executives have started drafting business plans for operating in those virtual worlds, which are typically conceived by videogame developers.
Prager Metis International LLC, a New York-based accounting and advisory firm, on Friday said it opened a virtual three-story property on a site it bought for nearly $35,000 in late December. The firm, which operates 23 physical offices in the U.S., Europe and Asia, made its purchase on the Decentraland platform in partnership with Banquet LLC, a firm that funds and manages blockchain ventures.
U.S. Tax Return Forecasts Through 2028 See Tepid Gains Out West - Alex Tanzi, Bloomberg ($). “Projections from the Internal Revenue Service show fewer individual tax returns to be filed in the West over the next six years, offering a glimpse of future population trends.”
The statistical models anticipate declines in Alaska and Hawaii by 2028, and gains of less than 1% in Arizona, California, Nevada, Washington and Oregon. The largely internal tool, which helps the IRS with resource planning, also sees soft advances in Illinois, Michigan, and West Virginia in that time period.
The strongest increases are seen in states with some of the lowest unemployment rates , like Nebraska, Georgia and Oklahoma. The migration can be due in part to Americans moving to new cities in the remote-work era.
Manchin’s $1.8 trillion spending offer appears no longer to be on the table – Jeff Stein, Washington Post. “The week before Christmas, Sen. Joe Manchin III sent the White House a $1.8 trillion counteroffer to President Biden’s Build Back Better agenda that included substantial funds for climate, health-care and education initiatives. About four weeks later, the West Virginia Democrat has made clear that he does not currently support advancing even that offer following a breakdown in negotiations between Manchin and the White House right before Christmas, three people with knowledge of the matter said.”
Manchin said publicly this week that he was no longer involved in talks with the White House over the economic package. Privately, he has also made clear that he is not interested in approving legislation resembling Biden’s Build Back Better package and that Democrats should fundamentally rethink their approach. Senior Democrats say they do not believe Manchin would support his offer even if the White House tried adopting it in full — at least not at the moment — following the fallout in mid-December. The people spoke on the condition of anonymity to discuss private conversations.
In other words, the Senator was for his proposal before he was against it. Unfortunately, this sort of position switching is not uncommon in Washington.
Senate Democrats grow less confident in Manchin – Alexander Bolton, The Hill. “Senate Democrats are growing less and less confident about whether Sen. Joe Manchin (D-W.Va.) wants to strike a legislative deal with President Biden.”
The lack of negotiations with Manchin since Congress returned from the Christmas recess and Manchin’s definitive statements of opposition are raising serious doubts about whether he would be willing to support any version of the Build Back Better Act, which would provide new funding for healthcare, child care and host of other initiatives.
Manchin says he has tried to be as clear as possible about where he is, but fellow Senate Democratic colleagues feel confused about whether the West Virginia senator can be counted on to support some version of Biden’s sweeping agenda.
Democrats might be confused by Manchin, but Punchbowl News ($) appears to have a clearer picture for where he stands:
Sen. Joe Manchin (D-W.Va.): Well, the more things change, the more they stay the same. Our Manchin mantra is to believe what he says and don’t look for hidden meaning in his musings. When Manchin says he’s not interested in talking about the Build Back Better Act, that means he’s not interested in talking about BBB. When Manchin says he wants to keep the filibuster and isn't interested in altering the 60-vote threshold for cloture, well, we think he means it.
SALT change on ice in the Senate – Naomi Jagoda, The Hill. “A roll-back of the cap on the state and local tax (SALT) deduction is on ice, after Sen. Joe Manchin (D-W.Va.) raised broader objections to President Biden’s social spending and climate package. Democrats from blue states such as New York and New Jersey have been pushing to include a roll-back of the SALT deduction cap in the spending package, though lawmakers have yet to reach an agreement on what such a provision would look like."
[A]lthough Manchin has said little publicly about the SALT issue, there are moderate and progressive senators who have raised concerns that changes to the cap will benefit the wealthy, making it unclear what type of provision on the topic can get consensus among Democrats.
Ben Ritz, director of the Center for Funding America's Future at the Progressive Policy Institute, said that an agreement on changes to the SALT deduction cap is only likely to come after Democrats reach a bigger agreement with Manchin on the spending package.
‘SALT’s going to be one of the last things they figure out,’ he said.
SALT Cap Limbo Threatens Suburban Swing District Democrats – Mike Dorning, Laura Davison and Gregory Korte, Bloomberg ($). “Democrats risk losing their edge in key suburban districts amid a congressional stalemate over President Joe Biden’s economic agenda that threatens plans to expand a tax break for well-off homeowners.”
Many voters in affluent suburbs across the country from New Jersey to Washington state abandoned the Republican party in the 2018 congressional elections, helping to swing the House into Democratic control one year after the GOP set a $10,000 limit on the long-standing federal deduction for state and local taxes, or SALT.
Those same districts are once again up for grabs as Democrats wrangle over the details of the tax and spending package, including the fate of SALT relief. Uncertainty over when -- or if -- a package containing SALT could pass threatens to jeopardize Democrats’ chances of maintaining their slim congressional majorities.
Pelosi Opens Door to Virus Aid in Spending Plan as Omicron Rages - Daniel Flatley, Bloomberg ($). “House Speaker Nancy Pelosi said there’s an ‘opportunity’ to add federal coronavirus relief aid to a package of legislation funding the government as a February deadline looms.”
‘It is clear from the opportunity that is there and the challenge that is there,’ Pelosi said in an interview on CBS’s ‘Face the Nation,’ noting that President Joe Biden’s administration ‘has not made a formal request for more funding.’
Additional funds to help mitigate the effects of the pandemic could be added to a bill that’s needed to fund the government after a stopgap spending measure runs out Feb. 18, she said.
What is not clear is the fate of the expanded Child Tax Credit that expired last year.
Pelosi said it’s unlikely that the spending bill would include an extension of the child tax credit, which expired in December, since the appropriations bill would require 60 votes in the Senate, unlike the president’s Build Back Better plan, which is being considered under a reconciliation process that requires only a simple majority to pass.
'The Child Tax Credit, we have to have that fight, that discussion, in the Build Back Better legislation,' she said. 'In order to pass the Build Back Better, it’s under reconciliation, we only need 51 votes. The bill that is the appropriations bill requires 60 votes in the Senate. So we have to do what’s possible there.'
The scuttlebutt around Washington had been that if the Child Tax Credit got a ride on the funding bill then other expired tax positions would also tag along. That does not seem to be happening.
TRYING SOMETHING NEW – Bernie Becker, Politico Pro. “Rep. Ro Khanna (D-Calif.) has a new idea for helping smaller local retailers — a tax break to help them offset a portion of the sales taxes owed to state and local governments.”
The 5 percent tax credit would go to businesses that earn no more than $2 million in revenue each year and make at least half of their sales at physical locations, though that requirement would be relaxed for the time being because of the pandemic. The legislation, which could be introduced as soon as today… Khanna has already discussed his idea with Democrats on the tax-writing House Ways and Means Committee and added that he knows that the bill’s best chance is as part of a larger package.
Reality check: This bill would likely have to be paired with other tax proposals to pass, which would be a heavy lift. Passage would likely require Republican support, and they haven't been into supporting Democratic-sponsored bills for quite a while.
Biden Says His Economic Plan Working After Record Job Gain - Jenny Leonard, Bloomberg ($). “President Joe Biden said his economic plan is working after a report showed the U.S. economy added a record 6.4 million jobs in 2021 -- rebounding strongly from unprecedented losses in 2020 caused by the pandemic. ‘That’s the most jobs in any calendar year by any president in history,’ Biden said Friday at the White House after the release of Labor Department data. ‘America is back to work.’”
The president sought to counter polls showing voters are dissatisfied with his handling of the economy, largely the result of spiking inflation. Biden also disputed assertions from GOP lawmakers who say he’s not doing enough to address inflation, outlining steps the administration is taking to ease kinks in global supply chains.
What Inflation Will Do to Your 2022 Taxes – Laura Saunders, Wall Street Journal ($). “Inflation is back, at least for now, and that matters for your taxes.”
In November, inflation rose 6.8% from a year earlier, nearly a four-decade high as measured by the Labor Department’s consumer price index. For new cars (up 11%) and fast-food restaurants (up 7.9%), the jump in prices was the largest on record.
It’s unclear whether inflation will continue or cool. But Americans can be certain that the higher inflation is, the more uneven its impact will be on taxes owed to Uncle Sam.
‘Because of differences in inflation adjustments, some taxpayers will feel inflation’s impact more than others,’ says Kyle Pomerleau, a senior fellow at the American Enterprise Institute.
Taxpayers Allowed to Keep Funds Received from IRS Error in Determining Excludable 2020 Unemployment Compensation – Ed Zollars, Current Federal Tax Developments. “The IRS updated the 2020 unemployment compensation exclusion FAQ to allow certain taxpayers to keep an erroneous reduction of their federal taxes when the IRS corrected their 2020 Form 1040 to compute the excludable unemployment compensation following changes made in the American Rescue Plan Act. The issue affects certain married taxpayers filing joint returns in non-community property states who received unemployment compensation in 2020.”
Most advisers are aware the IRS faced a number of challenges beginning in 2020 that carried into 2021. The enactment of the American Rescue Plan Act which made certain retroactive changes to the law that applied to 2020 didn’t help, especially not coming just over two months after Congress made a number of late year changes to 2020 tax law at the very end of 2020.
The IRS has now disclosed one particular error the agency made trying to deal with the American Rescue Plan Act’s changes to the taxation of unemployment compensation. The error resulted in the IRS computing an erroneously low total federal tax for certain taxpayers on their 2020 income tax return. The agency has now announced those taxpayers will not be required to amend their 2020 tax return or pay the additional tax that they should have paid.
Tax-Free Unemployment - Patrick Ambrosio, Bloomberg ($). “The IRS on Friday clarified what married couples who don’t live in a state that splits assets evenly between the two should do if they believe they received too much money from the IRS for unemployment insurance received during the pandemic.”
The IRS, in an updated 'frequently asked questions' document, said joint filers in that situation won’t need to pay the money back or file an amended return.
The document is here.
IRS Progress Report - Patrick Ambrosio, Bloomberg ($). “The IRS has paid $1.5 trillion to taxpayers through stimulus payments, the child tax credit and tax refunds since the pandemic began, the agency said in a progress update for fiscal 2021.”
IRS Commissioner Chuck Rettig said in a statement that improvements included letting tax professionals obtain electronic signatures from taxpayers and electronically submit authorization forms.
The report is here.
Crypto Firms Brace for New Rules Forcing Broad Reporting to IRS - Allyson Versprille, Bloomberg ($). “The Biden administration is poised to specify which cryptocurrency firms will be forced to report reams of customer data to the Internal Revenue Service , said people familiar with the matter.”
The Treasury Department is planning to issue preliminary guidance this month clarifying who will be considered a crypto broker under legislation that Congress passed last year, said the people who asked not to be named before a public announcement. The initial move would later be followed by a more formal rule proposal, the people said. Treasury officials declined to comment.
IRS Summonses for Third-Party Bank Records Can’t Be Quashed – Tax Notes ($):
A taxpayer’s wife and lawyers were not legally entitled to notice of IRS summonses seeking their financial records “in aid of” collecting taxpayer’s debt, the Sixth Circuit ruled.
In an effort to collect more than $2 million in unpaid tax debt owed by Remo Polselli, the IRS issued administrative summonses to three banks under section 7609 seeking financial records to locate funds and other assets potentially belonging to or being concealed by him. Collection of that information without notice to the third parties not only was lawful but also could not be challenged in court, according to a January 7 opinion in Polselli v. IRS.
Pharmacist’s Tax Convictions Stand Despite No Warrant Hearing - Bernie Pazanowski, Bloomberg ($). “A pharmacist isn’t entitled to an evidentiary hearing to challenge the warrant issued to search his home for evidence of a tax evasion scheme because no recklessness of truth was shown, the Third Circuit said Friday.”
The district court therefore properly denied Rao Desu’s request for a hearing under Franks v. Delaware, the opinion by Judge David J. Porter said.
Desu and his associates were accused of skimming profits from their pharmacies and under-reporting their income to the Internal Revenue Service. But Desu said that the agent who applied for the warrant to search his house made material omissions and misstatements in the affidavit with reckless disregard for the truth and asked for a Franks hearing.
Governors in New York, Indiana, Vermont Pledge Tax Cuts – Michael Bologna, Bloomberg ($):
New York Gov. Kathy Hochul (D) proposed a faster phase-in of $1.2 billion in middle-class tax cuts during her first state of the state address Wednesday.
Vermont Gov. Phil Scott (R) promised to present a 'balanced and progressive tax relief package' benefiting retirees, middle-income families and young workers. He also called on lawmakers to eliminate taxes on military pensions during his state of the state address Wednesday.
Meanwhile, Indiana Gov. Eric Holcomb (R) said he hopes to cut business taxes, using dollars from the Hoosier State’s $3 billion budget surplus.
Watch for more tax cutting proposals next week when governors in Arizona, Colorado, Florida, Georgia, Idaho, Iowa, Kansas, Nebraska, South Dakota, Washington, and West Virginia deliver their state of the state addresses.
California Again Flush With Cash as Newsom Readies Budget - Romy Varghese, Bloomberg ($). “California Governor Gavin Newsom is set to unveil a budget that boasts another multi-billion dollar surplus as the world’s fifth-largest economy continues to benefit from top earners amassing even more wealth during the lopsided recovery from the pandemic.”
The first-term Democrat on Monday will release a spending plan for the fiscal year beginning in July that will show a sizable surplus coming on the heels of this year’s $75.7 billion windfall. The state’s nonpartisan fiscal adviser in November estimated it could be about $31 billion.
Poor Tax Design in Alaska Vapor Tax Proposal – Ulrik Boesen, Tax Foundation. “A proposal to introduce a wholesale tax on vapor products in Alaska could make switching from combustible tobacco products very expensive for smokers.”
If enacted, HB 110 (SB 45) would, among other things, impose a 75 percent wholesale tax on nicotine vapor products (including components)—a rate comparable to the rate on other tobacco products and cigarettes. Such a steep tax would markedly increase vapor products retail prices, which could limit the number of smokers that switch.
Court Tosses Philadelphia Taxpayer’s Claim of Double Taxation – Michael Bologna, Bloomberg ($). “The Commonwealth Court of Pennsylvania rejected a Philadelphia resident’s claim of double taxation, ruling she isn’t entitled to a refund under the Philadelphia Wage Tax for a portion of the city and state income taxes paid while working in another state.”
The appeals court panel Friday affirmed earlier determinations by the Philadelphia County Court of Common Pleas and the Philadelphia Tax Review Board denying Diane Zilka’s request for a refund under the city’s wage tax. The dispute involved state and city taxes paid between 2013 and 2016, while Zilka lived in Philadelphia but worked in Wilmington, Delaware.
Country-by-Country Reports Unveil Hidden Tax Havens – Martin Sullivan, Tax Notes ($). “Ten more jurisdictions with both low effective tax rates and high rates of profits can be added to the list of tax havens favored by U.S. multinationals.”
When making a list of tax havens favored by U.S. multinationals, the usual suspects are Ireland, Bermuda, Singapore, Switzerland, Luxembourg, Netherlands, Hong Kong, and the Cayman Islands. Year after year, data from the Commerce Department’s Bureau of Economic Analysis (BEA) have shown that these eight jurisdictions have low effective tax rates and high rates of profit. With relatively new data compiled by the IRS Statistics of Income division from country-by-country reports, the list of jurisdictions with both low effective tax rates and high rates of profit expands substantially to include 10 additional locations: Barbados, British Virgin Islands, Cyprus, Gibraltar, Guernsey, Isle of Man, Jersey, Malta, Mauritius, and Puerto Rico.
It’s National Clean Off Your Desk Day. And you can reward yourself for doing it because it is also National Bittersweet Chocolate Day!