October 4, 2022
Transparency Groups, Tax Pros Differ on Impact of Ownership Reporting Rules - Joseph Boris, Thomson Reuters Checkpoint ($):
According to FinCEN, the compliance burden for businesses with simple structures would be about $85, with costs expected to vary by state. Most companies fall within this category—businesses with simple management and ownership structures with one or two beneficial owners, a Treasury official said. Echoing the CTA's language, the final regs include 23 exemptions from the reporting requirement, such as one for large operating companies with 20 or more full-time U.S. employees, over $5 million in sales, and a physical operating presence in the U.S.
But Daniel Price, formerly of the Small Business/Self-Employed unit in the IRS Chief Counsel's Office and now in private practice, questioned some of FinCEN's assertions. He was among the tax professionals who commented on the proposed regs, writing in a February 6 letter that the compliance cost estimates were too low and that most small businesses would be forced to pay the high cost of hiring a certified public accountant or lawyer to prepare their initial beneficial-ownership report.
"It appears that FinCEN is disconnected from the reality of compliance burdens," Price told Checkpoint. "Especially for initial reports, the burden is grossly underestimated.
These new rules will require existing LLCs and corporations to report their ultimate ownership to the Treasury. $85 is wildly optimistic for existing entities that will need to make their first filings under this rule in 2024. Such entities will need to verify the identity of their ownership and then complete new reports to file with the Financial Crimes Enforcement Network.
Court Pulls Up Cryptocurrency Staking Tax Refund Suit - Nathan Richman, Tax Notes ($):
Joshua and Jessica Jarrett sued for a tax refund in 2021, claiming that any staking rewards Joshua received for taking part in the proof-of-stake validation process on the Tezos blockchain shouldn’t have been taxable when he received them in 2019, but rather when he disposes of them.
When the IRS paid the refund that the Jarretts claimed, some in the cryptocurrency community assumed the news changed the law before cooler heads noted that the government wanted the case closed without making any sort of legal precedent anyone else could use — a move that the defense followed up on by moving to dismiss the Jarretts’ claim for mootness.
Supreme Court to Review Dual-Purpose Tax Communications Privilege - Mary Katherine Browne, Tax Notes ($):
The Supreme Court has agreed to hear a case brought by an unnamed law firm to determine whether communications involving both legal and tax return preparation advice are shielded from grand jury subpoenas under attorney-client privilege.
The Ninth Circuit affirmed the lower court’s decision in September 2021, holding that when dual-purpose communications exist between an attorney and a client, a primary-purpose test must be applied to determine whether those communications were shielded from subpoenas. Because the primary purpose of the communications at issue was to obtain tax advice rather than legal advice, the communications weren’t protected, the court held.
IRS Can Seize $1.4B In Property From Dead Software CEO - Anna Scott Farrell, Law360 Tax Authority ($):
A Texas federal judge approved what the IRS calls its largest immediate property seizure in history, a jeopardy collection of $1.4 billion against a deceased software CEO accused of unloading assets as the government closed in on him.
U.S. District Judge George Hanks Jr. on Friday rejected the late Robert Brockman's request to stop the jeopardy assessment and levy against him. The Internal Revenue Service's special levy, allowing it to immediately seize Brockman's property for fear it would quickly fall out of reach, was reasonable and supported by evidence of the CEO's scheming, which spanned a 70-page report detailing billions in unreported taxes, offshore dealings and encrypted emails, the judge said.
A "jeopardy assessment" is a drastic collection tool that the IRS can use when to thwart taxpayers attempting to hide assets. Now Mr. Brockman really can't take it with him.
Related: IRS Collection Issues.
U.K. Scraps Plan to Cut Income-Tax Rate for Top Earners - Paul Hannon, Max Colchester, and Anna Hirtenstein, Wall Street Journal. "U.K. Chancellor of the Exchequer Kwasi Kwarteng shelved an initiative to cut the top rate of income tax from 45% to 40%, more than a week after a broader fiscal plan to stoke growth through tax cuts and new spending forced an emergency intervention by the Bank of England to prevent a financial crisis."
IRS extends tax deadlines for Florida residents affected by Hurricane Ian - Natalie Prieb, The Hill. "The agency said in a press release that it has pushed all deadlines for affected taxpayers to file “various individual and business tax returns and make tax payments” after Sept. 23 to Feb. 15. Individual people and households impacted by the hurricane who have a residence or business anywhere in the state of Florida qualify for tax relief."
The Ian effect on taxes - Bernie Becker, Politico. "On the tax side, the IRS has given blanket extensions to people in the disaster zone, a common move the agency makes in these kind of situations — and one that will help taxpayers who filed an extension back in April and faced a new filing deadline in a couple weeks, and businesses who face a variety of due dates in the months to come."
South Dakota Governor Promises Repeal of Grocery Tax - Emily Hollingsworth, Tax Notes ($). "Noem, who is running for reelection, said in a September 28 release on her campaign website that the tax cut would be permanent and would 'put hundreds of dollars in the pockets of the average South Dakota family.'"
FOIA Requests Are Piling Up at the IRS - Lauren Loricchio, Tax Notes. "The IRS received 8,128 FOIA requests in fiscal 2019; 8,156 in fiscal 2020; and 7,700 in fiscal 2021. The number of FOIA requests processed declined from 8,006 in fiscal 2019 to 7,526 in fiscal 2021, according to the data. The number of requests pending at the end of each fiscal year went up — from 846 in fiscal 2019 to 1,388 in fiscal 2021."
CRS: Congress May Want to Reconsider Traditional Tax Extenders - Jeff Carlson, Thomson Reuters Checkpoint ($). "Provisions that are scheduled to expire at the end of 2022 include the temporary allowance of a 100% deduction for business meals and the 50% rate for the railroad track maintenance credit. A third provision, enacted in the American Rescue Plan Act, provides for a delay in designating multiemployer plans as endangered, critical, or critical and declining; the status can have implications for financing improvement and rehabilitation plans as well as excise taxes for plans that fail to meet minimum funding standards."
How to Identify the IRS’s Broad Penalty Relief Initiative and Other Helpful Tips for Understanding Tax Account Transcripts: Part Two - Erin Collins, NTA Blog. "Part I of this two-part blog discussed how to identify penalty relief associated with the IRS’s recently announced broad penalty relief initiative on IRS tax account transcripts and explained the many uses of the transcript transaction code (TC) 290. Part Two continues with more helpful tips I hope you will find useful when trying to understand IRS transcripts."
Related: Tax Debt Relief: A Case Study.
Tax Secrets of Health Savings Accounts - Laura Saunders, Wall Street Journal. "Sure, HSAs can be used for medical expenses. But they can also be great rainy-day funds, retirement accounts that outstrip IRAs and 401(k)s, and tax-free accounts for twenty-somethings still on their parents’ health insurance."
Will Employees’ Participation in Our Company’s Health FSA Prevent Their Spouses or Adult Children From Contributing to an HSA? Thomson Reuters Tax & Accounting. "Some health FSA designs can preserve HSA eligibility—for example, arrangements that reimburse only dental, vision, or preventive care expenses. But employees’ participation in a typical general-purpose health FSA that reimburses any qualifying medical expense and is not limited to the expenses of the employee will prevent a spouse from contributing to an HSA."
4 tax moves to make this October - Kay Bell, Don't Mess With Taxes. "1. File your 2020 tax return. Are you one of the estimated, and record-breaking, 19 million taxpayers who asked the Internal Revenue Service for an extension to file your 2021 tax return? Your procrastinating time is running out. The deadline is Monday, Oct. 17. Yes, that's a couple of days later, since the normal Oct. 15 filing extension due day this year is on Saturday."
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas - Roger McEowen, Agricultural Law and Taxation Blog. "The extended replacement period allows taxpayers additional time to replace the involuntarily converted livestock with like-kind replacement animals without triggering gain on the sale. Significant parts of the Midwest and Great Plains in 2022 have experienced severe drought with many cattle being sold as a result. That makes the tax rules surrounding distress sales of livestock critical to understand."
Taxpayer Using Swiss Accounts to Hide Income from His Wife and IRS Subject to Civil Fraud Penalty - Parker Tax Pro Library. "The Tax Court held that a taxpayer who funneled income into numbered foreign bank accounts and did not report investment income earned in the accounts or disclose the accounts on his tax returns, and expressly denied holding the accounts, was liable for the civil fraud penalty under Code Sec. 6663. The court found that the taxpayer's fraudulent intent was established based on the underreporting and concealment of his income, his false responses to IRS questions about the accounts, and his lack of cooperation and intentional keeping of inadequate records relating to the accounts."
Are Streamlined Audits Becoming More Common? The Streamlined Submission that went Belly-Up (Part II) - Virginia La Torre Jeker, US-Virginia Tax Talk. "Part I of this blog post here, discusses how the erosion of the “non-willful” concept is causing more and more taxpayers to fail to meet the standard, thus subjecting them to civil 'willful' FBAR penalties and rendering them ineligible for Streamlined relief. It walks through the details of the Streamlined procedures and explains what can happen if a streamlined submission is rejected by the IRS."
The Government Is Funded For Ten Weeks; Congress Will Be Back Soon - Renu Zaretsky, Daily Deduction. "Once Congress returns for a post-election session, it has a number of tax issues it could address. On the list: restoring key business tax breaks and a more generous Child Tax Credit that all expired this year. Separately, it also could pass a package of retirement savings incentives that have bipartisan support."
Focusing on Wealth Inequality Is Counterproductive - Alex Durante, Tax Policy Blog. "There are certainly things we can do to encourage lower- and middle-class households to save more and build wealth, but punitive tax increases on wealth shouldn’t be one of them. Simplifying and expanding our savings accounts and better tax treatment of savings more broadly would increase incentives to save. And there’s more to be done to improve tax and financial literacy across America. But the economic data suggests we should stop obsessing over the wealth gap and instead pursue policies that improve living standards for all Americans."
Congress Failed To Raise Taxes On Millionaires. Now States Are Trying. - Howard Gleckman, TaxVox. "The California initiative (Proposition 30) would impose a surtax of 1.75 percent on annual incomes in excess of $2 million, on top of the state’s top rate of 12.3 percent. It would raise between $3.5 billion and $5 billion annually, rising over time, according to a state estimate. About 80 percent of the money would be used to promote zero emission vehicles and the rest would fund efforts to prevent and control wildfires... But tax avoidance would reduce the potential revenue by as much as one-third, from $2.1 billion to $1.3 billion. A modest amount of this avoidance would result from people moving out of state. Most would come from plain vanilla tactics such as deferring income (by, say, delaying the sale of stock)."
Federal Court Orders West-Palm Beach Tax Preparer to Pay Contempt Sanction for Violating Permanent Injunction - US Department of Justice (preparer name omitted):
The United States sued the Preparer, doing business as Mobile Tax Express Services, in May 2021. The Government’s complaint alleged that Preparer prepared returns for customers that fraudulently understated the tax those customers owed and/or overstated the refund to which they were entitled. The complaint alleged, for example, that Preparer prepared returns with fabricated tax withholdings and bogus claims for unreimbursed employee business expenses like car mileage, tools, cell phone services and meals. In addition, the complaint alleged that Preparer routinely falsified home improvement expenses on his customers’ returns to claim residential energy credits his customers were not entitled to receive. With Preparer's consent, the court issued an injunction in September 2021 that permanently barred him from preparing tax returns for others.
You don't necessarily want to use the preparer that gets you the biggest refund.
UK Tribunal Says Marshmallows Not Candy For VAT Purposes - Matthew Guerry, Law360 Tax Authority ($). "A large type of marshmallow sold in the U.K. to be roasted over a fire is not considered a confectionery for value-added tax purposes, according to a decision by the country's First-tier Tribunal."
Imagine, calling a main dish "candy."
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.