October 10, 2022
IRS Previews Upcoming Final Required Minimum Distribution Regs - Caitlin Mullaney, Tax Notes ($):
In Notice 2022-53, 2022-44 IRB 1, Treasury and the IRS say they intend to issue final regs implementing the RMD rule changes under section 401(a)(9) that will apply no earlier than the 2023 distribution year. The changes were enacted by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
The proposed regs (REG-105954-20), issued in February, include a retroactive applicability for RMDs from qualified plans beginning in 2022 and instructed taxpayers to apply existing regulations with good-faith interpretation of SECURE Act amendments for determining RMDs for 2021.
When the SECURE act was passed, it included a rule requiring beneficiaries of inherited IRAs (other than spouses) to pull all of the funds out of the IRA within 10 years. Many professionals understood that to mean the only requirement was to have the funds out within 10 years, even if the funds were left in the IRA for 9 years and 364 days.
The first round of proposed surprised professionals by requiring annual distributions over the 10 year period after many taxpayers had already gone a year or two without taking the required distributions - leaving them open to harsh penalties. The new proposed regulations remove the threat of these penalties.
Letter Rulings Not Needed for Some S Corp Election Requests - Tax Notes ($):
The six areas for which issues are resolvable without a letter ruling are: the one class of stock requirement and governing provisions, including “principal purpose” conditions; disproportionate distributions; some inadvertent errors or omissions on Form 2553 or Form 8869; missing administrative acceptance letters for an S election or QSub election; federal income tax return filings inconsistent with an S election or a QSub election; and potential retroactive corrections of nonidentical governing provisions. The guidance details the areas in which a letter ruling will not ordinarily be issued, thus amplifying and modifying Rev. Proc. 2022-3. Appendices to the revenue procedure provide a sample corporate governing provision statement and a sample shareholder statement.
This will likely make M&A transactions with S corporations simpler, allowing a selling corporations to clean up their S corporation status - for example, when S corporation acceptances received long ago have been lost.
Link: Rev. Proc. 2022-19.
IRS Provides Relief Procedures for S Elections, Also Provides Will Not Issue Private Lettering Rulings Generally in Areas Covered by the Relief - Ed Zollars, Current Federal Tax Developments. "With regard to a missing administrative acceptance letter for an S election or an administrative acceptance letter for a QSub election, as appropriate, a replacement letter may be requested"
While October 17 is the last day for most people to file a Form 1040 to avoid the late filing penalty, those who still need to file should do so as soon as possible. If they have their information ready, there's no need to wait.
However, some taxpayers may have additional time. They include:
- Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.
- The IRS calls special attention to people hit by recent national disasters, including Hurricane Ian. Taxpayers with an IRS address of record in areas covered by Federal Emergency Management Agency disaster declarations in Missouri, Kentucky, the island of St. Croix in the U.S. Virgin Islands and members of the Tribal Nation of the Salt River Pima Maricopa Indian Community have until November 15, 2022, to file various individual and business tax returns. Taxpayers in Florida, Puerto Rico, North Carolina, South Carolina, parts of Alaska and Hinds County, Mississippi, have until February 15, 2023. This list continues to be updated regularly; potentially affected taxpayers by recent storms should visit the disaster relief page on IRS.gov for the latest information.
South Dakota Court Rules Against Bank in Deduction Dispute - Andrea Muse, Tax Notes ($). "A financial institution improperly calculated its federal income tax deduction for purposes of South Dakota’s bank franchise tax by not taking into account credits that reduced the federal tax owed by the bank’s consolidated group, the state supreme court has held."
3 Takeaways From Biden's Cannabis Reform Announcement - Sam Reisman, Law360 Tax Authority ($):
That would make the exercise mostly pointless tax-wise.
There is a possibility that the review concludes with marijuana being moved to Schedule II — the same tier for cocaine, fentanyl and methamphetamine, as well as for prescription medications like Adderall and Ritalin.
A reassignment to Schedule II would also do little to help cannabis businesses' bottom lines. Section 280E, the clause of the federal tax code that bars cannabis companies from taking ordinary business deductions, applies equally to Schedule I and Schedule II traffickers. A Schedule II designation is also unlikely to make it easier for marijuana companies to access traditional financing and bank loans.
Biden Housing Supply Plan Focuses on LIHTC-Funded Projects - Alexander Rifaat, Tax Notes ($). "Additional guidance (Notice 2022-52) was also issued October 7 to extend the placed-in-service deadlines for projects receiving allocations in 2019, 2020, and 2021. The guidance is intended to allow affordable housing projects delayed by the effects of the pandemic to still qualify for the credit."
Feds Hit Liberty Global With $283M Tax Avoidance Suit - Dylan Moroses, Law360 Tax Authority ($):
The government claimed that Liberty Global, under the advice of Deloitte, engaged in a series of transactions dubbed Project Soy to attempt to avoid its full U.S. tax liability through the use of the dividends received deduction available under Internal Revenue Code Section 245A.
Liberty Global was advised that the transactions would allow the company to avoid U.S. tax on global intangible low-taxed income and U.S. capital gains taxes on billions of dollars from the transfer of interest in a Belgian affiliate considered a U.S.-controlled foreign corporation for tax purposes, the government said.
GOP Gains in Congress Would Challenge Biden’s IRS Expansion - Richard Rubin, Wall Street Journal:
On the stump, in campaign ads and in their policy outline, Republican candidates have railed against the $80 billion IRS expansion. Rep. Kevin McCarthy (R., Calif.), the House minority leader, said a new Republican majority’s first bill in January would aim to repeal it. President Biden could veto that measure. Democrats united around the $80 billion so the IRS could hire tens of thousands of workers, audit more high-income Americans, improve taxpayer service and implement better technology.
The tax agency’s near-term actions will matter, too. Treasury Secretary Janet Yellen decided to start spending the $80 billion with an early emphasis on taxpayer service and showing fast results for the public. The IRS is hiring 5,000 customer-service representatives and aiming for sharp reductions in telephone wait times during the 2023 tax-filing season. This past year, only about one in 10 callers reached an IRS worker.
Why defunding IRS auditors won’t be easy GOP promise to keep - Tobias Burns and Mike Lillis, The Hill:
House GOP Leader Kevin McCarthy (Calif.) says the first bill a new Republican majority will pass if it wins control of the House will be one repealing the new IRS agents.
Yet with President Biden still in office and Republicans at best having a slim majority in the Senate, such a House bill is unlikely to become law.
What Gets Removed if the Bill to Rescind Added IRS Funding Passes? - Marie Sapirie, Tax Notes Opinions. "The plan to starve the beast might not go quite as expected. The latest parry in the skirmish over the IRS’s expanded funding in the Inflation Reduction Act (IRA, P.L. 117-169) would rescind the bulk of the appropriated amounts. But a better approach would be for Congress to be more precise about what exactly it wants the IRS to do with added funds every time it doles them out, however much the agency ultimately receives. And recently Congress has at least made some efforts at insisting on transparency, even if they are tardy."
Newsom calls special session of Legislature to consider windfall tax on oil companies over high California gas prices - Camille Von Kaenel, Jeremy White, and Lara Korte, Politico. "A new tax would require a two-thirds vote from the Legislature. Republicans have already come out in opposition, calling instead for the state to cut the gas tax — an idea Newsom quickly rejected because there’s no guarantee the savings would be passed on to consumers."
Ethanol giant fighting to keep secret the reason Iowa agency thinks it should repay millions in tax credits - Tyler Jett, Des Moines Register. "Revenue Department director Kraig Paulson scheduled the hearing for lawyers representing the company, Poet, who have argued that documents submitted to the Department of Revenue are exempt from the state's open records laws. The South Dakota-based company submitted the documents to the agency as part of an ongoing appeal of the Department of Revenue's March 2021 decision that Poet improperly received tax credits."
Claimed Iowa research tax credits are at stake. The Iowa Department of Revenue reports that the company claimed $2.2 million in Iowa research credits in 2021, $2.8 million in 2020, and $4.4 million in 2019. These credits are payable in cash to taxpayers if they exceed Iowa taxes for the year. The refundability feature will be scaled back after 2022.
Related: Research & Development Tax Incentives.
Carolinas get tax relief, 2/15/2023 deadline in wake of Ian - Kay Bell, Don't Mess With Taxes. "Residents anywhere in either of the Carolinas, both of which sustained deleterious Ian effects, now have until Feb. 15, 2023, to file various federal individual and business tax returns and make tax payments. The tax relief is similar to that granted Ian victims in Florida."
While many states honor federal disaster declarations (California, for example), check with your state's department of revenue or your tax pro for specific state questions.
FINCEN Gives FBAR Filing Relief for Individuals Impacted by Hurricane Ian - Russ Fox, Taxable Talk. "This is good news for taxpayers who have far more important things on their mind than completing government paperwork."
Victims of Crypto and NFT Fraud Can Take Theft Loss Deductions - Steven Chung, Bloomberg. "While most crypto and NFT fraud victims will not get their investments back, they may be able to take advantage of tax benefits due to their losses. The most beneficial is the theft loss deduction, which can be used to offset ordinary income, although the Tax Cuts and Jobs Act has limited its use for personal losses."
Sole Shareholder Received Constructive Distributions from Fraudulent Transactions - Parker Tax Pro Library. "The Tax Court held that the sole shareholder of a C corporation, that purported to engage in sale-and-leaseback transactions involving a third party, received constructive distributions of payments made by the C corporation that ultimately ended up with the shareholder. Further, the court concluded that because the shareholder failed to show that the C corporation lacked sufficient earnings and profits, the constructive distributions constituted dividends within the meaning of Code Sec. 316(a) and were thus taxable as ordinary income."
Hunter Biden Potentially Facing Federal Charges For Tax, Gun Crimes - Rebekah Barton, TaxBuzz. "Federal agents have confirmed that they see chargeable offenses in the tax and gun-purchasing case against Biden, 52."
Clarifying Misconceptions Surrounding the Employee Retention Credit - Cody Edwards and Charles Telk, Dickinson Law. "Due to the potentially substantial dollar amount of the ERC, many fly-by-night operations have popped up to help clients obtain the ERC. While some of these operations are qualified to analyze and apply the law, many are not. If you choose to file for the ERC and engage a third-party to help, please ensure you are choosing an accountant or attorney who is qualified and will be there to represent you if the IRS questions your claim for the ERC."
The Tax Debate Is Just Beginning - John Buhl, TaxVox. "In some cases, Congress may actually intend to let a statute expire. More often, lawmakers phase in or phase out a tax proposal to make the budget math work in the 10-year window used by official scorekeepers. In either scenario, lobbyists descend on Capitol Hill around expiration time to tout an extension of their preferred tax subsidy."
Victor Man Pleads Guilty to Defrauding the IRS - US Department of Justice (defendant name omitted):
According to court documents, Defendant, age 59, admitted he conspired with one or more other persons to impede and obstruct the Internal Revenue Service in the assessment and collection of income taxes. Defendant admitted that from April 2017 to March 2019, through his business... Crop Depot, he engaged in conduct to help customers reduce income tax owed by accepting backdated checks, generating false expense invoices, and exchanging checks to give the appearance of an expense that was not in fact incurred by the customers.
Defendant is scheduled to be sentenced on February 3, 2023 and faces up to 5 years in prison. Defendant has agreed to pay restitution in the amount of $189,919. A federal district court judge will determine the sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
“This investigation is evidence to criminals that you cannot falsify figures on your own tax returns, let alone aid others with documents to bolster lies to the federal government on their tax returns,” said IRS Criminal Investigation Acting Special Agent in Charge Charles Miller.
Customer service is one thing. Helping customers cheat on taxes is another. It may be cold comfort that the IRS is likely to go after his customers - even less so if the customers turned him in.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.