Tax News & Views State Taxes and Be Nice Roundup

October 5, 2022

Tyreek Hill’s Tax Liability with Every NFL Franchise - Jared Walczak, Tax Policy Blog:

When NFL star wide receiver Tyreek Hill weighed offers from the New York Jets (who play in New Jersey) and the Miami Dolphins, no doubt there was a lot on his mind. But one consideration towered over the rest, at least according to Hill himself: signing with the Jets “was very close to happening,” but “those state taxes man. I had to make a grown-up decision.”

He’s not wrong. Playing for Miami will save him an estimated $2.7 million in state and local taxes this season alone.

Even for those of us who are more into tax policy than the NFL, it's a great read. The author goes to the trouble of determining Mr. Hill's tax hypothetical tax liability for each NFL team, highlighting a competitive advantage for the teams in Texas, Florida, Nevada, Tennessee, and Washington. It's a useful counterpoint to arguments that state tax policy doesn't affect location decisions. It's also a reminder that state taxes are in important part of tax planning for any business. Eide Bailly's State and Local Tax team can help!


Research Credit Refund Requirements Get a Refresh From IRS - Mary Katherine Browne, Tax Notes ($):

In an October 4 update of its FAQ webpage, the IRS threatened refund rejection if a taxpayer’s section 41 research credit claim on an amended return fails to include the five items specified in a previous memorandum.


information on a later date if the return is selected for an examination.

The five items needed when applying for research credit refunds, according to the IRS’s January 3 memorandum, are:

  • all the business components that form the factual basis for the section 41 research credit for the claim year;

  • all research activities performed by business components;

  • all individuals who performed each research activity by business component;

  • all the information each individual sought to discover by business component; and

  • total qualified employee wage expenses, supply expenses, and contract research expenses.

Related: Research & Development Tax Incentives.


Audit Flags Issues With IRS Database Security - Lauren Loricchio, Tax Notes ($):

In an audit released October 4, the Treasury Inspector General for Tax Administration raised concerns with the way the IRS is scanning and patching databases that store taxpayer data and personally identifiable information.

Because IRS databases contain sensitive information, the report explains that vulnerability scanning of the databases is “required and necessary to determine if vulnerabilities exist on the system.”

Another TIGTA report just released discussing IRS mainframe systems includes this: "The IRS disagreed with the recommendation to consider phasing out its use of an unsupported and outdated platform. The IRS stated that it plans to continue exploring feasible solutions for modernizing critical business systems that run on this platform."


8th Circ. Tosses Order Nixing Non-Native Contract Work Tax - Joyce Hanson, Law360 Tax Authority ($). "A three-judge panel from the appellate court found for the second time that the South Dakota state government can impose a 2% excise tax totaling $384,436 on the contracting work performed for the tribe by nonmember Henry Carlson Co., which began a $24 million renovation and expansion project in 2016 at the reservation's Royal River Casino and Hotel in the city of Flandreau. While the tax under South Dakota law is levied upon the contractor, the contractor may pass along the tax to its customers, in this case is the tribe, the panel noted."

California Governor Approves Union Dues Tax Credit - Paul Jones, Tax Notes ($). "The credit will be equal to the greater of the dues a union member paid in a year multiplied by an adjustment factor, or a capped amount of a union member's dues, with the maximum dollar amount of the cap not to exceed $100 adjusted for inflation."

Since the state is picking up the tab, no California union member is likely to see dues less than $100. 


An open door for new tax legislation in December - Roger Russell, Accounting Today:

The resolution enables Congress to avoid a shutdown, but an end-of-year package could be costly, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

"It's become routine for Congress to wait until the very last minute before an urgent deadline to spring into action," she stated. "This will make the eighth time out of the last 10 years in which lawmakers have waited until the very last week of the fiscal year to pass a stopgap measure to avoid a full or partial government shutdown."

And there is no guarantee that any significant tax legislation, including restoring current deductions for research expenses, can pass in a lame-duck session.


New IRS Shutdown Plan: Don’t Shut Down - Doug Sword and Jonathan Curry, Tax Notes ($):

But not the IRS. In a newly published revised plan, the IRS said it would maintain “normal operations” and keep all 83,092 of its employees on the payroll. That’s a jarring assertion from an agency whose plan one year ago was to furlough 61 percent of its workforce in the event of a shutdown.

The IRS described its new plans in a five-page report.

But even five pages was too long, according to Robert Kerr of Kerr Consulting LLC, a former employee in the IRS National Office. “Really, all it needed to say was, ‘We have Inflation Reduction Act money out the wazoo, and we don’t need your stinking appropriations,’” he mused.


IRS funding features in campaign ads, reports Punchbowl News:

Since Aug. 1, Republican candidates and groupshave spent more than $12 million on roughly 24,000 airings of ads warning of a massive influx of IRS agents, according to an AdImpact analysis. The spots are targeting vulnerable Senate Democratic incumbents in Arizona, Nevada, Georgia and New Hampshire, as well as toss-up House races from Michigan to Kansas.

These ads feature the sober, measured, and serious discussion of policy issues we've come to expect from campaign ads nowadays.


Wyden Sets Expectations for IRS’s $80 Billion Spending Spree - Jonathan Curry, Tax Notes ($):

While Republicans urge the IRS to pause or outright abort enforcement initiatives funded by the additional allocations it received under the Inflation Reduction Act (P.L. 117-169), Senate Finance Committee Chair Ron Wyden, D-Ore., wants to see the IRS kick its enforcement efforts up a notch.

In an October 4 letter, Wyden urged Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig to address the “alarmingly permissive environment for offshore tax evasion and money laundering” that has developed since the Foreign Account Tax Compliance Act was enacted in 2010.

This doesn't sound like someone interested in lifting the compliance burdens and banking hassles that plague Americans abroad as a result of FATCA and other reporting requirements. 

Related: Eide Bailly Global Mobility Services


IRS Appeals Makes Key Revisions to Initial Contact Letters - Chandra Wallace, Tax Notes ($). "Letters will include not only contact information for the Appeals officer assigned to the matter but also the name and phone number of that officer’s manager. The Appeals officer will remain the primary contact point, according to the announcement, but including the manager’s contact information from the beginning of the process 'will ensure an appeal stays on track in the rare instance additional help is needed.'"


U.S. Electric-Vehicle Tax Breaks Rile Asian, European Allies - Yuka Hayashi, Wall Street Journal.

The European Union, Japan and South Korea say provisions in the U.S. legislation to promote clean energy, signed by President Biden in August, discriminate against their auto makers and might violate World Trade Organization rules that bar treating imported products differently from domestic ones.

To qualify for up to $7,500 in tax credit, vehicles must go through their final assembly in North America, a requirement that disqualifies most electric vehicles from non-U.S. car makers. That is because they are currently mostly assembled overseas, unlike many of their popular gasoline-powered models built at their North American plants.

If the whole planet is at risk, perhaps where the planet-saving cars are built is a secondary issue.


IRS awards $41 million in grants to 348 VITA/TCE programs - Kay Bell, Don't Mess With Taxes. "Don't look now, but tax filing season is just three months away. The Internal Revenue Service is working on getting ready, both staff and system wide, for the influx of 2022 tax returns in 2023. The agency also is counting on its usual cadre of volunteers to help filers meet their tax obligations. To do that, the IRS has awarded $41 million in grants to 348 groups that support Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs."

IRS Grant of Refund Moots Case Attempting to Force a Court to Rule on Tax Status of Staking - Ed Zollars, Current Federal Tax Developments. "Of course, the goal of this case was not simply to get a refund for the Jarretts for taxes imposed on staking rewards for a single year, but to obtain a court decision other taxpayers could point to holding that such rewards aren’t taxable income. "

Hurricane Ian: IRS Extends Deadline for All Floridians to February 15 - Russ Fox, Taxable Talk. "This includes the individual and C-Corporation extended deadline of October 17th, the trust/estate (Form 1041) extension deadline of September 30th, payroll tax deadlines of October 31st and December 31st, and the January 17, 2023 Estimated Payment deadline."

Colorado Now Accepts Crypto for Tax Payments - Annette Nellen, 21st Century Taxation. "Per the website, PayPal is converting my crypto to dollars and remitting to the DOR. So, any broker reporting falls on PayPal. The taxpayer has a barter transaction per Notice 2014-21 and needs to calculate gain or loss using the value of the crypto used less their basis in that crypto."

Wildfire Settlements Are Now Tax Free In California & Taxed By IRS - Robert Wood, Forbes. "Most legal settlements are taxable, even for a devastating fire loss. That grim fact can be an unpleasant surprise to fire victims."


Use a Durable Power of Attorney to Authorize Representation Before the IRS - Erin Collins, NTA Blog. "When taxpayers are competent, they use a Form 2848, Power of Attorney and Declaration of Representative, for this purpose. However, an incompetent or incapacitated taxpayer is in no position to execute a Form 2848. Likewise, even a preexisting Form 2848 is usually voided if taxpayers become incompetent or incapacitated."

The Stain of Fraud and Amended Returns - Leslie Book, Procedurally Taxing. "Of course, even though an amended return cannot undo the fraud, a superseding return can.  A superseded return is one that is filed after the originally filed return but submitted before the due date, including extensions, assuming an extension was properly filed."


Taxpayers Who Lost Their Charitable Deduction Only Modestly Reduced Donations - Robert McClelland, TaxVox. "Starting in 2018, the Tax Cuts and Jobs Act of 2017 (TCJA) dramatically raised the standard deduction, reducing the number of filers who reported their charitable contributions on their individual income tax returns. But did households that lost the federal tax benefit reduce their donations to non-profits? A new Tax Policy Center analysis of state tax return data finds they did, but by much less than their federal filings alone suggest."

Section 199A and “Tax Parity” - Kyle Pomerleau, American Enterprise Institute. "Supporters of the deduction argue it is necessary to maintain 'tax parity' with corporations and that, without the deduction, pass-through businesses would be at a competitive disadvantage. Opponents argue that parity is not well-defined and that the deduction is unnecessary, complex, and non-neutral."


North Carolina man sentenced for conspiracy to defraud the United States and attempts to interfere with administration of Internal Revenue laws - IRS (all names omitted). There is a South Dakota connection:

Defendant was sentenced to three years on Count one, and 12 months and a day on Count two, in federal prison, to be served concurrently. Defendant was also sentenced to three years of supervised release on Count one and one year of supervised release on Count two, also to be served concurrently. A special assessment to the Federal Crime Victims Fund was ordered in the amount of $200.

Defendant was indicted by a federal grand jury in July of 2017. A jury trial in June of 2022 convicted Defendant on both Counts.

The conviction stemmed from incidents beginning in April of 2004 when South Dakota Man 1 and his son, South Dakota Man 2, created over 25 sham trusts to hide their income and assets from the Internal Revenue Service (IRS), thus evading the assessment and payment of federal income taxes. The South Dakotans used forms created by Defendant' co-defendant... The trusts were designed, in part, to make it difficult for the IRS to determine the Nelsons' federal income tax liability... 

The South Dakotans reside in Letcher, South Dakota. Defendant (and another taxpayer) acted as signors for South Dakota bank accounts associated with the South Dakotans' trusts and performed most of their actions on behalf of the South Dakotans' tax evasion in South Dakota.

The Moral? South Dakota trusts have a lot of attractions, but tax evasion isn't one of them.  


It shouldn't just be once a year. Today is National Be Nice Day. If you happen to be facing an IRS exam today, it can't hurt to point this out to the agent.

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