Tax News & Views Bracket Pay Raise Roundup

October 21, 2022

Higher IRS Tax Brackets Mean Paychecks Might Look Bigger in 2023 - Paulina Cachero, Bloomberg ($):

The Internal Revenue Service has raised tax brackets and the standard deduction by about 7% for 2023 as the soaring cost of food, energy and housing continues to batter Americans.

That’s the largest increase to the standard deduction since the tax system was first indexed to inflation in 1985, and will reduce the amount of income subject to taxes for most people…

As a result, employees can expect to see less tax withheld from paychecks as soon as January. 

Prior Eide Bailly coverage on IRS’s bracket adjustment is here.

Millions of Americans just got a tax 'cut.' Will it save them money? – Lynnley Browning, Accounting Today. “Substantial inflation adjustments by the Internal Revenue Service on Tuesday mean that taxpayers whose income today barely puts them in a given bracket will slip down a bracket to a lower rate in 2023. Some who stay in the same bracket will also pay lower tax bills. Both groups could owe the Treasury Department thousands of dollars less come filing season next April.”

‘In general, it means people will see savings,’ said Tim Steffen, the director of tax planning at Baird's private wealth management group in Milwaukee. The extra money could go toward retirement nest eggs — if, financial advisors say, higher consumer prices don't stick around and siphon it away. 

Seems like a good time to examine withholding:

Adjust tax withholding now to pay the proper amount of tax – IRS:

The Internal Revenue Service today urged taxpayers to check their tax withholding while there's time left in 2022 to benefit from any necessary changes.

An adjustment made now will help people avoid a big surprise, such as a big refund or a balance due, at tax time in 2023.


IRS Warns Taxpayers on False Employee Retention Credit Claims - Kelly Phillips Erb, Bloomberg ($):

All of this free money has proved to be a temptation. This summer, the Treasury Inspector General for Tax Administration reported concerns, including that ‘the IRS does not have processes to verify a recovery startup business or effective controls to deny the Employee Retention Credit for non-recovery startup businesses.’ By March 10, 2022, the IRS had identified 11,096 suspicious returns claiming more than $2 trillion in credits.

More Eide Bailly coverage of the ERC snafu is here.

IRS criminal investigators probe COVID fraud – Michael Cohn, Accounting Today:

The Internal Revenue Service's Criminal Investigation unit has been working with the Justice Department to uncover billions of dollars in fraud related to pandemic relief programs.

The division, also known as IRS-CI, said Thursday it has conducted 840 tax and money-laundering investigations tied to COVID-19 fraud, totaling more than $3.1 billion, through Sept. 30. The Department of Justice has also been working to investigate and prosecute pandemic relief fraud and on Tuesday announced new criminal charges, convictions and sentences related to COVID fraud and misuse of CARES Act funds. 

The IRS-CI investigations include a wide array of criminal activity, including fraudulently obtained loans, credits and payments as well as tax credits.

IRS Teams Collaborating to Thwart Emerging Cybercrimes and Fraud – Nathan Richman, Tax Notes ($):

The IRS Criminal Investigation division plans to open its Advanced Collaboration Data Center (ACDC) to fuel criminal tax cyber investigations in fiscal 2023, according to a division official.

The ACDC is one of CI Chief Jim Lee’s first initiatives and is meant to take the sophisticated collaboration techniques the division used in high-profile cyber investigations, like the Silk Road takedown, onto a national stage.

CI plans to open the ACDC in Northern Virginia during fiscal 2023, Kareem Carter of CI said October 20 at a virtual conference sponsored by Freeman Law.


IRS Housing Tax Credit Final Rules to Boost Investor Interest – Erin Slowey, Bloomberg ($):

Investors are expected to infuse money in more affordable housing projects with a wider range of renter incomes after IRS tax credit final rules addressed a key industry concern.

Banks, corporate institutions, and insurance companies in the past two years decreased investment in affordable housing projects that allowed for a wider range of tenant incomes. Investors were deterred by proposed rules which posed a high risk of the low-income housing tax credit being recaptured on the entire project if one unit went out of compliance.

The final rules released Oct. 7 give investors and developers more flexibility with properties and relaxed the compliance restrictions.


What Is the Clean Vehicle Credit and How Does it Impact Electric-Car Buyers? – Eide Bailly:

The Inflation Reduction Act of 2022 significantly modified the tax credit available for the purchase of new electric vehicles (IRC section 30D). Now known as the Clean Vehicle Credit (formerly the Plug-In Electric Drive Vehicle Credit), the credit provides incentives for taxpayers purchasing certain electric vehicles assembled in the United States.


FedEx Drivers’ Tax Withholding Case Tossed by Federal Court - Robert Iafolla, Bloomberg ($):

FedEx delivery drivers lack standing to litigate in federal court a wage-and-hour lawsuit alleging tax withholdings taken from their paychecks were stolen rather than paid to tax authorities.

The US Court of Appeals for the First Circuit held Thursday that the drivers can’t recover wages withheld for taxes because both Massachusetts and federal law make clear that those funds belong to the government and not to workers. The drivers failed to allege any other concrete injury that would give them standing, the court said.


Don’t Bother With Whirlpool, Government Tells Supreme Court – Andrew Velarde, Tax Notes ($):

The government is urging the Supreme Court not to review Whirlpool’s Mexican branch subpart F income dispute, arguing that the statute is clear and self-executing and there aren't broader ramifications.

The government filed its respondent brief in opposition to a petition for a writ of certiorari to the Supreme Court in Whirlpool Financial Corp. v. Commissioner on October 19.

‘Petitioners concede . . . that the decision below does not conflict with that of any other court of appeals. Nor does it conflict with this Court’s precedent because petitioners’ cited cases involved meaningfully distinct statutory schemes. And resolving the question presented lacks practical importance because the Treasury Department’s former regulations would dictate the same result as the statutory text, and the revisions that were made to the regulations in 2008 removed any potential doubt about that result,’ the government argues.


Barrett denies emergency bid to block Biden’s student debt forgiveness plan – John Kruzel, The Hill. “Justice Amy Coney Barrett on Thursday denied an emergency bid by a group of Wisconsin taxpayers to block the Biden administration’s student loan forgiveness program.”


IRS Recovers Contested Refund Based on Invalid Research Credits – Mary Katherine Browne, Tax Notes ($). “A couple isn’t entitled to a $671,071 refund because the S corporation of which the husband was a shareholder was ineligible for a $1.3 million research credit claimed on its 2013 tax return, according to a district court.”


Inconsistent State Rules Muddy Apportionment, Panelists Say – Sanjay Talwani, Law360 Tax Authority ($):

Inconsistent state apportionment rules and states' interests in sourcing income to their jurisdictions are leading to some extreme results, a panel of tax practitioners said Thursday.

Apportionment across states theoretically should total 100%, but that is not often the case, according to panelists at the Paul J. Hartman State and Local Tax Forum, held in Nashville, Tennessee, and online. What was referred to as "extreme apportionment" was described by one panelist as ‘the really, really alarming results that often happen when multiple states take conflicting positions or various positions and catch taxpayers crossways.’


State Guidance On Marketplace Laws Lacking, Tax Pros Say – Paul Williams, Law360 Tax Authority ($). "Many states have yet to provide guidance to flesh out the application of their marketplace facilitator laws, which has created some uncertainty over tax collection responsibilities and could lead to litigation over the laws' gray areas, tax professionals said."


DeSantis announces executive order to extend property tax deadlines after Hurricane Ian – Adam Barnes, The Hill:

Florida Gov. Ron DeSantis (R) announced on Tuesday an executive order to provide some tax relief for residents in counties severely impacted by Hurricane Ian. 

DeSantis said at a news conference the order will extend property tax deadlines in the 26 counties designated for damage by the Federal Emergency Management Agency (FEMA) and will include real property, personal and commercial businesses that were destroyed or were made uninhabitable by hurricane damage. 

The Republican governor added that he does not have the authority to eliminate property taxes, and the order will serve as a delay to give time for the members of the state legislatures to come back for a special session.  


Maryland Digital Ad Tax Fight Raises State Sovereignty Issues – Michael Bologna, Bloomberg ($). “The legal fight over Maryland’s tax on digital advertising could result in a landmark US Supreme Court decision on the reach of the Internet Tax Freedom Act and other matters of state tax sovereignty, an attorney representing state revenue agencies said Thursday.”


NFTs Subject to Retroactive Taxation, Washington State Says – Michael Bologna, Bloomberg ($). “Washington state’s recent guidance on the tax treatment of nonfungible tokens, or NFTs, will be applied to transactions going back more than a decade, revenue agency officials said Thursday.”


Disney’s New York Royalty Payment Deductions Rejected on Appeal – Perry Cooper, Bloomberg ($). “Walt Disney Co. is on the hook for nearly $4 million in corporate franchise taxes because it improperly deducted royalty payments from related foreign entities, a New York appeals court affirmed Thursday.”


Truss Resigns as UK Premier After Tax-Cut Plan Backfires – Stuart Biggs, Alex Morales and Alex Wickham, Bloomberg ($):

Liz Truss quit as UK prime minister after a brief and chaotic tenure that saw her announce a massive package of tax cuts before unwinding most of it in the face of a market rout.

Truss, 47, said she was resigning after just 44 days in office, and is set to become the shortest-ruling prime minister in British history. The ruling Conservative Party aims to choose her successor by Oct. 28, and she will stay on as premier until then.

Further down the article:

The central mistake of Truss’s term was a massive £45 billion ($50 billion) package of tax cuts, amid the strongest inflation in four decades, that she drew up with [former Chancellor of the Exchequer Kwasi] Kwarteng and unveiled without any independent analysis of how it would be funded.


Treasury Says It’s Trying to Align Book Tax, Global Minimum Tax – Michael Rapaport, Bloomberg ($):

The Treasury Department is trying its best to coordinate the US’s new book-income minimum tax with the global minimum tax, but there may be only so much the US can do, a Treasury official said Thursday.

Guidance will be needed both in the US and on the international level to try to prevent unnecessary complexity between the two taxes, said Isaac Wood, an attorney-adviser in Treasury’s Office of Tax Policy. The US book-income tax and the global tax under the OECD’s 2021 tax agreement are both 15%, but they aren’t aligned with each other, and it isn’t clear how they will fit together. Many taxpayers may be subject to both taxes.


IRS Withdraws 2006 Proposed Rule on Previously Taxed Income – Michael Rapaport, Bloomberg ($):

The IRS on Thursday withdrew a proposed-but-never-finalized rule from 2006 on the exclusion from gross income of previously taxed earnings and profits.

The IRS and the Treasury Department are currently preparing new regulations on previously taxed earnings. The agency said (RIN 1545-AY54) that withdrawing the 2006 never-implemented proposed regulations, under Section 959, and related basis adjustments under Section 961, will help prevent possible abuse or misuse, such as inappropriate basis adjustments in certain stock acquisitions.

The new proposed rules on previously taxed income are expected to be issued in the first half of 2023, an IRS official said last week.


From the “Focus on the Shiny Object, not the Subpoena” file:

Companies push positive news when SEC disclosures are negative – Michael Cohn, Accounting Today ($):

Public companies that are forced to disclose bad news through required Securities and Exchange Commission filings are likely to issue press releases announcing unrelated news around the time of the filing to distract investors, according to a new study.

Caleb Rawson, an accounting researcher at the University of Arkansas, studied thousands of Form 8-K filings by public companies between 2005 and 2018 accompanied by press releases on the same day and found that compared to companies whose filings contained positive or neutral information, companies disclosing negative information were 7% more likely to concurrently issue a press release featuring positive, unrelated news.

My take: Between the federal government accusing a company of shoving millions into undisclosed, offshore accounts and a press release about employees from that company raising money for a good cause, I think the federal probe might be the attention grabber. 


It’s National Reptile Awareness Day! If that reptile is an alligator and near you, awareness is key.

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