Tax News & Views Lame Ducks and Vanilla Cupcakes Roundup

Child and Business Tax Provisions Good Bet for Lame Duck - Doug Sword, Tax Notes ($):

Ambiguous and uncertain election results could prove a catalyst for the two parties to reach agreements during a lame-duck session likely to feature a push for major tax provisions, federal tax professionals say.

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John Gimigliano of KPMG LLP sees the lame-duck session playing out as a tale of four tax credits. A lot of Democrats want to see an extension of the expanded child tax credit that was in place during 2021. Republicans want to first and foremost roll back the change to section 174. There is also support, though less, for rolling back the section 163(j) net interest deduction change and for postponing the 2023 start of the phaseout of bonus depreciation.

"The change to section 174" is the requirement that research expenditures be capitalized and amortized over four years, rather than expensed. This requirement is effective in 2022. Section 163(j) limits interest deductions to 30% of adjusted taxable income after depreciation, amortization, and depletion; prior to 2022, the limit applied to taxable income before those deductions.

One factor that comes into play: "While a 10-year extension of the child tax credit would cost more than $1 trillion, a Congressional Budget Office estimate put the cost of making permanent both bonus depreciation and full R&D expensing at $404 billion."

Any lame duck legislation won't be easy:

Results from Midterm Elections could be Death Knell for Year-End Tax Bill - Jay Heflin, Eide Bailly:

At issue is the argument over extending and expanding the Child Tax Credit (CTC) while also allowing Research and Development (R&D) costs to be expensed. These two tax provisions have been tethered together for months (meaning one will only become law if the other is also enacted) as support for them is largely split along partisan lines.

Democrats support expanding and extending the CTC to what it was in 2021, which Republicans oppose. Meanwhile, Republicans (and some Democrats) support allowing R&D expensing, but many of the liberal lawmakers will only support the measure if the CTC is expanded and extended. Both parties must support these measures for them to pass Congress and currently that level of backing does not exist.

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With control of Congress still up for grabs after Tuesday’s elections, Democrats are likely to feel emboldened and maintain their pre-election position on these tax measures. 

GOP Inches Closer to Expected Narrow House Majority; Senate Still a Toss Up - Eliza Collins, Wall Street Journal. "A Republican House majority would immediately try to repeal part of Democrats’ climate and tax law that boosted Internal Revenue Service funding, Mr. McCarthy said Tuesday." 

Mr. McCarthy is Kevin McCarthy, the likely House Speaker should the GOP end up in the majority. 

Voters Decide Tax Measures in Several States - Paul Jones, Tax Notes ($):

Voters in the 2022 midterm election weighed in on numerous state tax policies, including in California, where they rejected a Lyft-backed tax on the rich to fund electric vehicle adoption.

Separately, as of press time November 9, voters appeared to have approved a tax on millionaires in Massachusetts, although the margin was close, and measures in Colorado to reduce the state's income tax rate and limit deductions for higher earners. Vote counts also indicate that Arizonans potentially passed a constitutional amendment that would require that ballot measures to increase taxes be approved by a supermajority of voters. However, the final tally wasn't known.

Mass. Millionaires' Loss Is Attys' Gain As Tax Measure Passes - Chris Villani, Law360 Tax Authority ($):

The reaction from Massachusetts' high-earners began in the weeks leading up to Election Day, Sullivan & Worcester LLP tax attorney Daniel Ryan said.

"There had been a bit of a lull on the domicile front and, all of a sudden, within the last 30-to-60 days, we have been getting calls about people finally making the decision to leave [Massachusetts]," Ryan told Law360 in a recent interview.

Taxes aren't everything, but they are a thing. 

California voters reject tax on wealthy that would have promoted electric vehicles - Rachel Frazen, The Hill. "Under the proposal, residents who make more than $2 million each year would pay an additional 1.75 percent personal income tax on earnings above $2 million."

Easement Listing Notice Violated APA, Tax Court Holds - Kristen Parillo, Tax Notes ($):

The Tax Court has invalidated the IRS’s syndicated conservation easement listing notice, rejecting the agency’s argument that Congress excused it from complying with notice and comment rulemaking under the Administrative Procedure Act.

“Neither section 6011 nor 6707A says anything that would lead us to conclude that the IRS is exempt from the baseline procedures for rulemaking under the APA,” a majority of the Tax Court concluded in a November 9 reviewed opinion in Green Valley Investors LLC v. Commissioner.

The decision doesn't validate the conservation easement transactions covered by Notice 2017-10, which the Tax Court invalidated in the decision. It does invalidate penalties for not properly disclosing the transactions as "reportable transactions" because the IRS failed to follow proper administrative procedures before issuing the notice.

Related: IRS Offering Potential Settlement for Syndicated Conservation Easements.

Tax Court Strikes Down IRS Rules on Land-Conservation Deals - Richard Rubin, Wall Street Journal:

The result isn’t surprising, said Daniel Hemel, a law professor at New York University.

“What’s puzzling is why the IRS hasn’t dealt with the problem already,” he said, noting that the IRS could have republished the notice as a formal regulation. “The amount of effort it would have taken the agency to fix the problem early on is small in comparison to the amount of effort the agency will ultimately spend dealing with the mess.”

Understanding Clean Vehicle Credits for Electric Vehicles - Thomsen Reuters Tax & Accounting. "While these enhanced credits certainly incentivize the adoption of EVs and support domestic production, there are several limitations to be aware of from a taxpayer’s perspective. And while we won’t dive into it too much here, the requirements have become wildly more complicated for manufacturers."

How the Inflation Reduction Act Affects the Future of U.S.-EU Tax and Trade Cooperation - Sean Bray, Alex Muresianu, and Daniel Bunn. "All else equal, this discriminatory distinction will make cars that are eligible for the credit cheaper for American consumers than those made in Europe. This unfair competition is particularly damaging to European auto producers as the United States is the top destination for EU-built vehicles, according to the European Automobile Manufacturers’ Association. EU policymakers have such deep concerns about the impact on their economy that the EU and U.S. have started a joint task force to discuss European concerns and possible solutions."

Refundability and transferability of the clean energy tax credits in the Inflation Reduction Act - Shuting Pomerleau, Niskanen Center. "The IRA made it easier for companies with no tax liability to receive the benefit from the credit. In effect, companies’ tax liability can be negative, meaning that companies with no tax liability would get tax refunds. Moreover, companies interested in purchasing tax credits aren’t necessarily required to invest in a clean energy project. This enables mature and nascent clean technology developers to fully utilize the tax subsidies."

If You Use FTX (Cryptocurrency Exchange) - Russ Fox, Taxable Talk. " It appears that FTX could fail at any time.  There are a number of issues here, but one thing anyone who uses (or used) FTX should do immediately is download their transaction history.  You may need to use cryptocurrency tracking software and import it into the software via an ‘api.’  (If you use cryptocurrency tracking software, the instructions will be in the software.)  This is something you should do now!"

When Is Tax Day 2023? - Tanza Loudenback, Wall Street Journal. "Tax day customarily falls on April 15. But in 2023 that date falls on a Saturday and the following Monday is Emancipation Day, which is recognized as a holiday in Washington, D.C. As a result, tax day has been pushed back until the following Tuesday." That means April 18. 

IRS posts digital 'help wanted' sign for 700 more staff - Kay Bell, Don't Mess With Taxes. "Today, Uncle Sam's tax collector put out another "help wanted" sign. The IRS is seeking more than 700 additional new hires to help taxpayers at Taxpayer Assistance Centers (TACs) across the country."

Don’t Always Copy the Client and Other Email-Related Advice - Kelly Phillips Erb, Bloomberg. "My time is valuable, and so is yours. Show respect for others’ time by keeping your email brief and easy to read." Also: "Ditch the Disclaimer."

Actions taxpayers should take before Dec. 31, 2022 - National Association of Tax Professionals Blog. "From adjusting your withholding to making charitable contributions, there are actions you can take now that may reduce your tax bill."

What is a Closing Agreement and When Will One Be Entered Into by the IRS? - Virginia La Torre Jeker, Virginia - US Tax Talk. "Both taxpayers and the IRS benefit from a properly executed closing agreement. The taxpayer not only obtains certainty that the issues are finally and permanently concluded, the taxpayer also obtains guidance on how to properly comply with the tax laws going forward."

The IRS Assessed an FBAR Penalty Against Me: Now What? - Matthew Roberts, Freeman Law. "Prior to beginning a discussion of the FBAR collection procedures, it is important to remember that the IRS has six (6) years to make a timely FBAR assessment.  This six-year period begins on the date in which the FBAR should have been filed and runs regardless of whether an FBAR has been filed at all."

Related: Eide Bailly Penalty Help.

The Solicitor General Embraces Phantom Tax Regulations - Andy Grewal, Procedurally Taxing.  " Though in Whirlpool the Treasury had issued regulations relevant to the dispute, the court ignored them and decided the case based on its own beliefs of what the regulations should say (i.e., the court applied phantom regulations)."

Republican Donor Lane Grigsby Must Repay $576,756 Research Credit Refund - Peter Reilly, Forbes. "Leonard Lane Grigsby, reputed Louisiana Republican kingmaker, will have to repay a $576,756 refund that alliantgroup, currently under investigation, consulted on. Judge Brian Jackson of the US District Court for the Middle District of Louisiana issued the opinion requiring the repayment of the 2013 refund last month, It was a summary judgement."

Should We Have a Robot Tax? Part 1 - David Stewart, Marie Sapirie, and Ryan Abbot, Tax Notes Opinions. "An example I give in the tax context is, if my university manages to replace me with a robot, which they will when the student satisfaction scores come out the same, they don't have to make payroll taxes for me. Our tax policies are encouraging businesses to automate even when it might not be more efficient."

11th Circ. Affirms 9-Year Sentence For Harassing Tax Officials - Anna Scott Farrell, Law360 Tax Authority ($, defendant name omitted):

Why am I working then? Today is International Accounting Day! But it's also National Vanilla Cupcake Day, which helps.