October 18, 2022
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Tax Drafters Brace for Climate Bill Technical Corrections - Chandra Wallace, Tax Notes ($):
Every tax bill requires technical corrections at some point, but the Inflation Reduction Act may be more challenging than usual for the government and legislative staffers who need to sort out potential problems.
Aruna Kalyanam, Treasury deputy assistant secretary for tax and budget, said there also may be “consequences intended and unintended that perhaps were not fully studied” or understood that will be the subject of discussions in the guidance process.
The reconciliation process used more and more for large tax bills bypasses the normal committee hearing process. This makes it more likely that drafting errors and unintended results end up being signed into law.
JCT Plans Explainer Of Inflation Reduction Act For Early 2023 - Stephen Cooper, Law360 Tax Authority ($). "Jared Hermann, JCT legislation counsel, said the "best case scenario" for the committee would be to combine the explanation of the law's tax provisions in a single volume that also includes all the tax legislation enacted in the full two years of the 117th Congress... He explained that the JCT might include footnotes in the Bluebook of where technical corrections could be made by the Senate Finance Committee or the House Ways and Means Committee.
Maryland Judge Tosses State's Digital Ad Tax - Sanjay Talwani and Maria Koklanaris, Law360 Tax Authority ($):
After a two-hour hearing, Anne Arundel County Circuit Judge Alison Asti granted summary judgment from the bench in favor of Verizon and Comcast subsidiaries that sought to invalidate the tax, saying it violated ITFA , the commerce clause of the Constitution and the First Amendment.
Judge Asti said the law clearly targeted out-of-state companies, "particularly in the manner in which the tax is calculated, which has nothing to do with even advertising, just gross revenue," and violated the commerce clause. She agreed with the telecom companies that even when the case was viewed in the light most favorable to the state, the law violated ITFA because advertising, namely nondigital advertising, is not taxed in any way in the state.
Judge Strikes Down Maryland Digital Ad Tax - Andrea Muse, Tax Notes ($). "Anne Arundel County Circuit Court Judge Alison Asti held during an October 17 motions hearing in Comcast v. Comptroller that the state’s tax violates the Internet Tax Freedom Act, the federal commerce clause, and the First Amendment. Asti said that she was ruling from the bench in the interest of time and brevity and asked plaintiffs’ counsel to submit a more specific proposed order by October 21."
Maryland judge strikes down nation's first digital ad tax - Brian Witte, AP, via Washington Post. "The nation’s first tax on digital advertising was struck down as unconstitutional by a Maryland judge on Monday. It’s a law that attorneys for Big Tech have contended unfairly targets companies like Facebook, Google and Amazon in a separate federal case against the same law."
Illinois Department of Revenue Announces Extended Income Tax Filing Due Date for Corporations - Illinois Department of Revenue. "The Illinois Department of Revenue (IDOR) announced that corporations filing for the tax year ending on December 31, 2021, will have one extra month beyond the extended federal filing deadline to file their Illinois corporate income tax returns. Currently, the extended due date for calendar-year 2021 Form IL-1120 returns is October 17, 2022. The new extended due date is November 15, 2022."
Energy Credit Guidance Is Top Priority at Treasury - Chandra Wallace, Tax Notes ($):
The agency is working on all three guidance projects now, according to Tom West, Treasury deputy assistant secretary for business tax, speaking October 15 at the American Bar Association Section of Taxation meeting. But the law directs the secretary to issue guidance by December 31 for energy provisions, so those will take priority, he said.
“Guidance is needed on many of the green energy provisions to allow projects to get started, to allow consumers to understand what [will be] available to them in the next year,” West said. To help get that done, Treasury issued six notices and a fact sheet requesting public comment on the energy provisions, and will probably issue a few more soon, he said. Comments on the first six notices are due November 4.
IRS Issues Applicable Federal Rates (AFR) for November 2022 - Bailey Finney, Eide Bailly. "These rates are used for various tax purposes, including minimum rates for loans... The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during November 2022 is 2.97%"
U.K. Treasury Chief Jeremy Hunt Reverses Nearly All Tax Plans to Reassure Markets - Max Colchester and Paul Hannon, Wall Street Journal. "New U.K. Treasury Chief Jeremy Hunt said Monday he was reversing nearly all the government’s proposed tax cuts and would pare back an energy price-cap subsidy as he moves to reassure markets about the stability of the nation’s finances."
IRS Looking to Block Line Jumping for Phone Calls - Nathan Richman, Tax Notes ($):
“Just this week, there was an internal announcement — but I’ve been authorized to talk about it externally — [of] a practitioner priority hotline enhancement which is an effort to deal with robocalls into the IRS, and specifically the autodialer programs,” Timothy McCormally of the IRS Office of Professional Responsibility said October 14 at the American Bar Association Section of Taxation meeting.
The IRS plans to use an AI tool to sort out those autodialed calls and prevent line-cutting through technology, McCormally said.
Poor IRS response time to practitioner calls has made it difficult and time-consuming for tax pros to solve taxpayer problems with IRS personnel. Some have used robocalls and third-party calling services to try to increase the odds of getting through, creating a phone call arms race of sorts.
Former Officials: Success of IRS Funding Boost at ‘Serious Risk’ - Jonathan Curry, Tax Notes ($):
Four former IRS commissioners joined former National Taxpayer Advocate Nina Olson in urging President Biden to nominate — and Congress to swiftly confirm — a successor to IRS Commissioner Charles Rettig.
The longer leaders in Washington dawdle, the more “essential improvements at the IRS are at serious risk of delay, if not failure,” Olson, along with former commissioners Fred T. Goldberg Jr., Charles O. Rossotti, Mark Everson, and John Koskinen wrote in a statement released October 17.
Passthrough Tax Elections May Benefit or Cost Partners, Panelists Say - Emily Hollingsworth, Tax Notes ($):
Smith and Griffith provided as an example a fictitious limited liability company based in Illinois, 90 percent of whose shares are held by an Indiana-resident partner and 10 percent by a Florida-resident partner. The LLC, which operates only in Illinois and whose customers all reside in that state, has a taxable income of $10 million and elected to use Illinois’s passthrough entity tax election, according to the presentation...While Illinois’s passthrough entity tax credit offsets the tax the Indiana partner would owe to Illinois, he would still owe $567,665 in taxes after the election, or an increase of $125,865, according to the practitioners, in part because the Indiana partner would be responsible for paying Indiana individual income taxes.
For simple LLC or partnership structures, the passthrough entity tax could be beneficial, Griffith said, but he added that complications arise when multiple states become involved.
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.
Bringing Home the (Canadian) Bacon: U.S. Tax and Canadian Retirement Plans - Marsha Laine Dungog, Jennifer Silvius, and Jonathan Garbutt, Tax Notes. "It is no secret that many U.S. executives and athletes have pursued more lucrative careers just across the border in Canada during the pandemic. Being employed in Canada means active participation in the robust Canadian retirement and savings environment that offers more opportunities for an individual to maximize retirement savings during the most profitable years of their career. However, the favorable tax treatment of Canadian retirement and savings plans do not extend beyond Canada’s borders."
Related: Eide Bailly Global Mobility Services.
Oct. 17 tax deadline is extended further for some filers - Kay Bell, Don't Mess With Taxes. "Some taxpayers have more time to file because their homes and/or businesses were hit by major natural disasters, including two deadly hurricanes this year."
Fake News, A Big Problem In Tax - Peter Reilly, Forbes. "Law professors Kathleen DeLaney Thomas and Erin Scharff have given us a great tour of tax misinformation in the digital age with Fake News and the Tax Law (available on SSRN), It has never been easier to get accurate tax information than it is now. Unfortunately misinformation is even easier."
Transfers of Crops to CRATs Are Not Deductible as Charitable Contributions - Parker Tax Pro Library. "The Tax Court held that the couple was not entitled to a charitable contribution deduction for the portions of crops transferred to the CRATs and the couple recognized ordinary income on the annuity distributions."
Worried About Layoffs? Understanding How The IRS Taxes Severance Pay Can Help - Robert Wood, Forbes. "With the prospect of a recession, people are worried about layoffs. You may get severance pay when you quit your job, or you are laid off or fired. You also might get severance if you sue and settle."
Gender-Neutral Text in Tax Laws - Annette Nellen, 21st Century Taxation. "It has always surprised me that there are so many uses of the terms 'he' and 'his'. For example, the deduction for medical expense under §213 is for 'the taxpayer, his spouse or a dependent.' That implies that taxpayers are male."
“The Dark Net? We OWN the Dark Net.” -Charles Rettig, IRS Commissioner, ABA Tax Section Meeting - Karen Lapekas, Procedurally Taxing. "Something was different about this speech though. The Commissioner called us out. He criticized us tax practitioners. Repeatedly. Why? Because as the media has excoriated the IRS’s recent $80 billion funding boost and spread fake news about 87,000 new gun-toting agents, we said nothing."
Changing Tax Policy Landscape Will Worsen U.S. Competitiveness - Daniel Bunn, Tax Foundation. "The International Tax Competitiveness Index evaluates the tax systems of the 38 countries in the Organisation for Economic Co-Operation and Development. In the 2022 version of the Index, the U.S. placed 22nd, just behind Japan (at 21st) and a few places ahead of the United Kingdom (at 26th)."
Comparing The Fiscal Costs Of Tax Breaks For Children Versus Businesses - Elaine Maag and Thornton Matheson, TaxVox. "As our colleague John Buhl noted, businesses would like to repeal—or at least roll back—the new requirement to capitalize research and development (R&D) expenditures, which could boost economic growth. Child advocates would like to see legislators instead invest in children by making the child tax credit (CTC) fully refundable. Plenty of research suggests the investment in children would pay off in better health and higher educational attainment."
Court Values Golf Course Conservation Easement at $7.8 Million - Mary Katherine Browne, Tax Notes. "In an October 17 memorandum opinion in Champions Retreat Golf Founders LLC v. Commissioner, Judge Cary Douglas Pugh held that Champions Retreat Golf Founders LLC was entitled to a $7.8 million deduction for the donation of a conservation easement on a golf course it claimed in its 2010 partnership return."
Bakersfield pain management doctor pleads guilty to tax evasion - IRS (defendant name omitted). "Between 2017-2019, Defendant provided checks to employees claiming to be reimbursements for employee expenses that were then included as deductions on the CVPM tax returns. Defendant claimed the reimbursements were for out-of-pocket costs incurred by employees for continuing medical education, meals, mileage, and travel expenses. In many cases, those expenses were never incurred by the employees. Defendant instead instructed those employees to cash the checks and provide cash back to Defendant, which he deposited into accounts controlled by him or his family members. Defendant then provided false documentation to his tax preparer to support the false deductions."
If you enlist your employees in your tax evasion scheme, you'd better be really, really nice to all of them, forever.
I've combined these all too often. Today is both National Necktie Day and National Mashed Potato Day.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.