January 14, 2022
Justices Look Askance At Time Bar For Day-Late Tax Suit – Theresa Schliep, Law360 ($). “Multiple U.S. Supreme Court justices appeared skeptical of the government's arguments Wednesday that a tax code deadline barred a day-late challenge to an IRS levy, with one suggesting the government's case could be undermined because of many plausible statutory interpretations.”
Justice Brett Kavanaugh said during oral arguments the fact that a North Dakota law firm, Boechler PC, advanced reasonable arguments could in itself undermine the government's arguments to the contrary. The firm contended that the 30-day deadline under Internal Revenue Code Section 6330(d)(1) for bringing collection due process cases to the U.S. Tax Court is not jurisdictional.
Congress must clearly state that deadlines in federal law are jurisdictional for the courts to treat them as such, Justice Kavanaugh said, meaning Boechler's ability to plausibly argue that the 30-day time frame isn't a jurisdictional hurdle to clear could be enough to undo the government's case.
'The fact that there's a reasonable debate about how to read the [statute] — you can read it one way, you can read it the other — doesn't that just end it?' Justice Kavanaugh said to Jonathan C. Bond, assistant to the solicitor general at the U.S. Department of Justice.
IRS Issues Recovery Rebate Credit FAQs Ahead of Filing Season – David Jolly, Bloomberg ($). “The Internal Revenue Service on Thursday released frequently asked questions (FAQs) on the 2021 Recovery Rebate Credit ahead of tax filing season.”
Individuals who didn’t qualify for, or didn’t receive, the full amount of the third Economic Impact Payment may be eligible to claim the 2021 Recovery Rebate Credit based on their 2021 tax year information, the agency said.
Individuals may have received their third Economic Impact Payment through initial and “plus-up” payments in 2021.
The third Economic Impact Payments are different from the monthly advance Child Tax Credit payments that the IRS disbursed, it noted.
The FAQs are here.
A Surprising Look at What Income is Taxable—And What Isn’t - Kelly Phillips Erb, Bloomberg ($). “Twitter lit up recently over a post reminding taxpayers to declare income from illegal activities. Some users couldn’t believe that it was real. But the declaration—which is not new—can be found in IRS Publication 17, which notes that ‘Income from illegal activities, such as money from dealing illegal drugs, must be included in your income...’”
You’ll find the same language in IRS Publication 525.
The authority for the statement is found in tax code Section 61, which makes clear that 'gross income means all income from whatever source derived' unless it’s otherwise excluded. That’s a pretty high bar—and the starting point of our entire tax system.
Democrats Urge IRS to Rush Delayed Refunds for Low-Income People – Laura Davison, Bloomberg ($). “Two Democrats on the House Committee on Oversight and Government Reform are asking the Internal Revenue Service to prioritize processing tax refunds for low-income taxpayers as it works to clear a backlog of 6 million returns.”
‘Taxpayers need their refunds, they need open and honest communication from their government, and they need compassion in these extraordinary times,’ Representatives Gerald Connolly and Katie Porter, who lead the committee’s government operations panel said in a letter Thursday.
Adding another item to the IRS's already crowded to-do list may not be a wise move. Yesterday's Roundup has the details, and here is Exhibit A:
Poor IRS Phone Service Among Many Tax Season Hurdles (Podcast) - Kaustuv Basu, Bloomberg ($). “Tax preparers are bracing for another frustrating filing season as the IRS warns of unprecedented challenges driven by the pandemic and staffing shortages."
The IRS is facing some major issues ahead of the Jan. 24 launch of tax season. The agency entered the new year with millions of unprocessed paper tax returns and has long struggled to keep up with a deluge of phone calls from people and tax pros looking for assistance.
National Taxpayer Advocate Erin Collins recently described the agency’s telephone service as “the worst it has ever been.” The IRS only answered about 11% of the 282 million phone calls it received in fiscal 2021—and those who did get through spent more time than ever on hold.
Congress May Consider Pausing Automated IRS Notices – Benjamin Guggenheim, Tax Notes ($). “Congress appears open to putting a freeze on automated notices issued by the IRS, according to National Taxpayer Advocate Erin Collins.”
Speaking January 13 at a virtual seminar of the California Society of Enrolled Agents, Collins said the Taxpayer Advocate Service has been trying to persuade the IRS to temporarily stop issuing automated notices amid the processing backlog at the agency. And while the IRS has resisted that recommendation, Collins said, congressional lawmakers seem increasingly receptive to it because they’re hearing from their constituents about the challenges they’ve encountered with the IRS.
Lawmakers Report Surge in Requests for Help With Unresponsive IRS – Doug Sword, Tax Notes ($). “Taxpayers are turning more each year to House and Senate members for help with their problems with a struggling IRS.”
There’s been no study, but it is ‘very logical’ to conclude that the IRS’s worst year in terms of answering telephone calls relates to the surge in taxpayers turning to their representatives for help, National Taxpayer Advocate Erin Collins told Tax Notes.
Referrals ballooned in 2020 as the COVID-19 pandemic led to IRS office closings around the country and surged again in 2021 as the agency’s struggles continued. During the three years before the pandemic, members of Congress asked the taxpayer advocate to assist with constituent problems 10,000 to 11,000 times a year. That figure jumped to about 35,000 in 2020. The 66,453 referrals from members of Congress in 2021 represent a sixfold jump from the pre-pandemic level.
‘Hey, we’re happy to help, but we’re struggling, too,’ Collins said, noting that while taxpayers are having a hard time getting through to the IRS, congressional offices also are having difficulty getting through to her hard-pressed staff.
The BBB is nowhere. We imagine much of February will be spent trying to revitalize it ahead of the State of the Union March 1.
Down but not out: Dems plot course for Child Tax Credit as payments end – Brian Faler, Politico. “They may have put it aside for now, but Democrats have not given up on trying to revive their expansion of the Child Tax Credit."
The main obstacle, of course, is Sen. Joe Manchin (D-W.Va.), who has infuriated colleagues with a series of objections to what some Democrats consider to be the most important achievement of the Biden administration.
Though lawmakers have now shifted their attention to voting rights, they say they’ll return to the child credit — and will likely face growing pressure to work out their differences after millions of Americans miss what Democrats had hoped would be the next round of monthly payments (the checks had been going out around the 15th of each month).
Democrats Explore Changes for Child Tax Credit to Win Manchin’s Favor – Andrew Duehren and Richard Rubin, Wall Street Journal ($):
Some Democrats have started exploring how to pare back their proposed expansion of the child tax credit in ways that are aimed at winning the critical support of Sen. Joe Manchin (D., W.Va.), according to people familiar with the matter.
Among the possibilities: Reducing the size of the credit’s expansion and limiting which Americans are eligible for it, according to the people.
Democrat Eyes SkyBridge, Others in Opportunity-Zone Probe - Laura Davison, Bloomberg ($). “Senate Finance Committee Chairman Ron Wyden is targeting Anthony Scaramucci’s hedge fund SkyBridge Capital , accounting firm Baker Tilly and others in an investigation into whether Opportunity Zones investments are benefitting low-income areas as intended.”
Wyden sent letters Thursday to several organizations that have invested in Opportunity Zones -- low-income areas where investors can qualify for large capital-gains tax breaks for providing funds for real estate and business. In addition to SkyBridge Capital and Baker Tilly, Wyden also sent to Cresset Partners , Hatteras Sky, PTM Partners , Related Group and Shopoff Realty Investments.
‘I have long been concerned that the Opportunity Zone program may permit wealthy investors another opportunity to avoid billions of dollars in taxes without meaningfully benefitting the distressed communities the program was intended to help,’ Wyden, an Oregon Democrat, said in the letter.
Here is the official release from the Committee:
Wyden Launches Investigation into Opportunity Zones – Senate Finance Committee. “Senate Finance Committee Chair Ron Wyden, D-Ore., today launched an investigation into the Opportunity Zone Program and whether it has delivered on Republican promises to create jobs and drive investment in low-income communities, rather than just create a loophole for wealthy investors to avoid paying taxes.”
In letters to SkyBridge Capital, Baker Tilly US, LLP, Cresset Partners, LLC, Hatteras Sky, PTM Partners, LLC, Related Group, Shopoff Realty Investments, Wyden wrote, “I have long been concerned that the Opportunity Zone program may permit wealthy investors another opportunity to avoid billions of dollars in taxes without meaningfully benefitting the distressed communities the program was intended to help.
List Of Expiring Federal Tax Provisions 2021-2031 – Joint Committee on Taxation:
The staff of the Joint Committee on Taxation has prepared a list of Federal tax provisions that expired in 2021 or are scheduled to expire in the future.
Post-Covid Considerations for REIT Transfer Pricing – Stephen Bertonaschi and Kenneth Bernice, Bloomberg ($):
As the world emerges from its pandemic haze, various sectors of the economy are recovering differently and at different paces. For managers of Real Estate Investment Trusts, or REITs, who likely encountered earnings volatility and concomitant unpredictability regarding valuations and cash flow—this recovery period presents some challenges and opportunities. Among those is the issue of REIT transfer pricing. One of many planning opportunities for management in the post-Covid era—when uncertainties remain—is to evaluate whether intercompany arrangements between the REIT and its taxable REIT subsidiaries, or TRS, meet the arm’s length standard outlined in Internal Revenue Code section 482.
Recent Case Highlights Risk of Denial of Estate Tax Charitable Deduction – Richard Fox, Bloomberg ($):
The recent case of Moore v. Comm’r highlights the risk of the denial of an estate tax charitable deduction where the amount contributed to charity is either not ascertainable at the decedent’s death or is not required to be made under the applicable testamentary documents.
Net Operating Loss Provisions: State Treatment and the Economic Benefits – Timothy Vermeer, Tax Foundation:
Well-designed Net Operating Loss (NOL) provisions benefit the economy by smoothing business income, which mitigates entrepreneurial risk and helps firms survive economic downturns.
Forgoing tax revenue in the short term affords businesses the opportunity to prioritize human and physical capital investment.
Start-ups and industries with profits highly correlated to the business cycle are often harmed by weak NOL provisions.
NOL provisions promote tax neutrality by reducing additional tax burdens on businesses with highly cyclical income streams or higher exposure to economic downturns.
The federal government allows NOL provisions to be carried forward indefinitely, and to reduce tax liability by up to 80 percent in any given year. Many states either conform to this provision or provide uncapped 20-year carryforwards, but some are far stingier than the federal government. These states should improve their treatment of NOLs to match or exceed federal allowances.
9th Circ. Panel Asks If Tax Cut Limit Statute Is Ambiguous – Maria Koklanaris, Law360 ($). “A panel of Ninth Circuit judges questioned Thursday whether the American Rescue Plan Act's provision prohibiting states from using aid to pay for tax cuts is ambiguous and thus harmful to Arizona as the state claims.”
The three-judge panel heard oral arguments in the state's appeal of a district court's denial of Arizona's request to drop the so-called tax mandate from the most recent coronavirus pandemic aid package. The federal district court found in July that the state didn't demonstrate the provision was ambiguous or that the state has been harmed. Arizona appealed the next day.
Nebraska’s Governor Eyes $1.5 Billion Surplus for Tax Relief – Michael Bologna, Bloomberg ($). “Nebraska taxpayers could see a chunk of the state’s substantial budget surplus back in their wallets under proposals presented by Gov. Pete Ricketts cutting individual income and property taxes.”
Pointing to a projected $1.5 billion surplus in Nebraska’s Cash Reserve Fund by the end of fiscal year 2023, Ricketts offered three strategies for cutting taxes during his annual state of the state address Thursday. Ricketts, a second-term Republican, presented a plan to reduce the top individual rate from 6.84% to 5.85% over five years. Ricketts emphasized the change wouldn’t primarily benefit wealthy taxpayers.
La. Back Tax Agreement Rule For Remote Sellers Advances – Paul Williams, Law360 ($). “Remote sellers doing business in Louisiana would have the opportunity to enter into a voluntary disclosure agreement to abate penalties on back sales and use taxes under a draft regulation the state remote sellers commission advanced Thursday.”
The Louisiana Sales and Use Tax Commission for Remote Sellers approved a draft regulation for the program that would permit businesses that underpaid taxes to the commission or didn't register with the body to pay delinquent taxes and interest for a specified look-back period with reduced or limited penalties.
Big Swiss companies to pay minimum 15% tax rate from 2024 under OECD deal – Reuters. “Switzerland will implement from 2024 the minimum tax rate for large multinational companies agreed last year by the OECD and G20 member states, the finance ministry said on Thursday.”
A temporary ordinance will ensure the minimum tax rate of 15% for companies with turnover of more than 750 million euros ($860 million) comes into force on Jan. 1, 2024, Finance Minister Ueli Maurer said, adding a law would subsequently be enacted to amend the constitution.
He said around 200 Swiss companies and around 2,000 Swiss subsidiaries of foreign groups would be affected by the move, which he said provided legal certainty and ensured tax revenue remained in Switzerland.
EU Moves To Nix Bahamas, Others From Money Laundering List – Kevin Pinner, Law360 ($). “The European Commission approved removing the Bahamas, Botswana, Ghana, Iraq and Mauritius from a list of what the European Union considers high-risk third-party countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes.”
Those nations have established legal and regulatory frameworks to improve so-called strategic deficiencies in their AML/CFT regimes, according to the Financial Action Task Force, a 38-member intergovernmental money laundering and terrorist financing watchdog cited by the commission in a regulation issued Monday. If the European Council and European Parliament do not object within one month, the regulation will be published in the EU Official Journal and enter into force after 20 days.
Happy National Dress Up Your Pet Day! Putting a hat on your loyal pet will likely confuse him or her, but we already speak to them like they're people. Why not clothe them too?
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.