Tax News & Views Lame Information and Lame Duck Roundup

November 16, 2022

Officials Warn of Staggering Surge in 1099 Volume - Jonathan Curry, Tax Notes ($):

If the IRS is having a hard time making sense of all the data it gets from information returns now, that task is about to get a whole lot more challenging, a pair of government watchdogs warned.

That will partly be because of the Form 1099-K reporting requirements that kick in January 1, 2023, which will require “third-party settlement organizations” like UberEtsy, Venmo, PayPal, and others to report accounts with $600 or more of transactions, a drop from the earlier $20,000 threshold, observed National Taxpayer Advocate Erin Collins. But looming over that reporting regime is another coming one: virtual currency transactions.

As the IRS recently destroyed millions of unprocessed information returns, coping with the new ones poses a challenge.


Former IRS Commissioners: Audit Smarter, Not Harder - Tim Shaw, Thomson Reuters Checkpoint:

At a virtual event hosted by the Urban-Brookings Tax Policy Center (TPC) November 14 on how the appropriation should be put to best use, the trio of past IRS leaders agreed that the money should be put towards investments in technology that provide tools and information to reduce the chance of a no-change audit. The no-change rate, as the name implies, refers to the percentage of audits that result in the IRS not making an adjustment to taxpayer liability.

"The IRS today is stuck with older methods of doing compliance with which results in a large, significant fraction of audits that don't need to be done and which does not make use of a lot of data that it already has that it could use," said Charles Rossotti, who served as commissioner from 1997-2002. "Of course, you do need audits, but just increasing auditing is not going to solve the problem."


Tax Breaks for Retirement, Corporate Research on Congress’s Lame-Duck Agenda - Richard Rubin, Wall Street Journal:

Lobbyists and congressional aides expect any potential tax bill to be attached to a government-spending agreement. That, however, may not materialize if Congress decides to pass a temporary extension and resume spending debates next year.

Members from both parties have shown interest in moving a retirement-savings bill that passed the House in March. It has drawn wide support in the Senate. The legislation would raise the minimum age when people must start taking distributions from tax-deferred retirement accounts to 75 from 72, increase contribution limits for older workers and encourage smaller employers to create retirement plans and auto-enroll employees. It would also enhance a savings tax credit for lower-income workers.

Senate Tax Chief Sees Retirement Legislation Passing in the Lame Duck - Jay Heflin, Eide Bailly:

[Senate Finance Chairman] Wyden said the outcome for passing a year-end tax bill relies on discussions around expanding and extending the Child Tax Credit (CTC). The tax provision has been tied for months to allowing R&D costs to be expensed.

“The whole issue of the Child Tax Credit is front and center in that discussion,” he said.

The debate centers on the fact that 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. 

As Lame Duck Starts, Democrats Want Extra for TCJA Pay-Fors - Doug Sword, Tax Notes ($):

Democrats are insisting on pairing the R&D fix with an extension of the expanded child tax credit, which [Senate Finance Committee member Ben] Cardin acknowledged would be a deficit raiser.


Republicans like Sen. Jerry Moran of Kansas have called Democrats’ insistence on pairing the two provisions a nonstarter. The up-to-$3,600-per-child benefit that was part of the American Rescue Plan Act of 2021 is fully refundable and doesn’t include a work requirement — another feature Republicans object to.


Wyden Wants Child Tax Credit, R&D Tax Breaks In Funding Bill - Asha Glover, Law360 Tax Authority ($). "Senate Finance Committee Chair Ron Wyden wants Congress' year-end funding package to include provisions that would extend child tax credit changes and expired tax breaks for research and development costs, he told reporters Tuesday... 'I'm going to say I'm for both of these early in the package,' Wyden said. 'I'm for the research and development tax credit and I'm for the child tax credit.'"

Democrats mull debt limit options as lame-duck window narrows - Laura Weiss and Aidan Quigley, Roll Call. "If Senate Republicans aren’t interested in talks, Democrats’ only option would be moving on their own. They’d need at least 10 GOP votes in the Senate to overcome a filibuster, even if they tuck it into a broader package."

White House's hopes for a lame-duck debt ceiling deal are fading fast - Ben White and Adam Cancryn, Politico. "Senior administration officials see little chance of attracting any Republican votes for a bipartisan debt limit hike during the short session. And they don’t believe they have the 50 Democratic Senate votes needed to slam through a hike using the budget reconciliation process that would allow them to avoid a Republican filibuster."


States Tackling Credits For Pass-Throughs' Out-Of-State Taxes - Maria Koklanaris, Law360 Tax Authority ($):

Jennifer Stosberg, legal division counsel at the MTC, said 31 states have said whether they will allow credits if a pass-through entity pays a pass-through entity tax in another state. She spoke at the MTC's uniformity committee meeting during the commission's fall meeting, held in Little Rock, Arkansas, and online.


Sixteen states, meanwhile, have said if they will allow resident credits if a pass-through entity pays tax for a pass-through entity owner on a composite return in another state, Stosberg said. Seven states have said whether they will allow resident credits if a pass-through entity pays tax for a pass-through entity owner through nonresident withholding in another state.

Not all states will allow credits. The MTC is still waiting to hear back from 14 states, Stosberg said.

The pass-through entity taxes are meant to bypass the $10,000 individual limit on deductions for state and local taxes. The entity pays state taxes on the income and, under IRS guidance, deducts the taxes. The income on the owner K-1s is reduced by the tax paid by the entity. 

A problem can arise when multiple states are involved. Normally taxpayers can get a credit - a dollar-for-dollar reduction in tax - on their home state returns for some or all income taxes paid to another state. This is more valuable than a deduction, the value of which the tax rate multiplied by the amount deducted. If a state fails to allow individuals a credit for entity-level tax payments, they may be worse off than they would be without the entity tax. 

Related: Working Around the SALT Deduction Cap.


Texas Appellate Court Upholds Sirius XM's Sourcing on Remand - Andrea Muse, Tax Notes ($). "After the Texas Supreme Court concluded that Sirius XM’s receipts are sourced based on the location of the company’s personnel or equipment performing the service, an appellate court ruled that there was sufficient evidence to show that the company properly apportioned its receipts."

Business incomes, partnerships rife with unpaid taxes, experts say - Tobias Burns, The Hill. "Former IRS Commissioner Charles Rossotti said Monday that personal business income presents a huge opportunity for the IRS to get some of the money it’s owed as it figures out how to spend its new big-ticket budget."

IRS Issues Applicable Federal Rates (AFR) for December 2022 -  Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during December 2022 is 3.29%"

The annual long-term rate, for loans over nine years, is 4.34% for December 2022. It was 1.9% for December 2021.


Did you miss out on COVID relief payments or Child Tax Credit? File now! - Kay Bell, Don't Mess With Taxes. "And you have until Thursday to do so. The IRS is keeping Free File operating through Nov. 17 so eligible nonfilers can e-file a Form 1040 to claim their eligible COVID benefits at, as the name says, no cost."

A Mutual Fund Tax Problem And How To Avoid It - William Baldwin, Forbes. "Sad truth: Active stock funds collectively underperform stock index funds. If you must try to beat the odds by owning an active stock fund, put it in your IRA."

2023 Contribution Limit for 401(k) Plans Increases to $22,500; IRA Limit Is $6,500 - Parker Tax Pro Library. "The IRS released the annual cost-of-living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for 2023. The 401(k) contribution limit increases to $22,500, up from $20,500 for 2022, and the annual IRA contribution deduction increases from $6,000 to $6,500."

Dennis Rodman Tax Case Is About Confidentiality - Robert Wood, Forbes. "Dennis Rodman kicked Mr. Amos in the groin as he stood courtside at a basketball game. Amos went to the hospital briefly, and Rodman paid him $200,000. But a key feature of the settlement agreement was confidentiality. Rodman paid $200,000 for a minor bump but strict confidentiality was the dominant reason for Rodman’s payment. Amos didn’t pay taxes, the IRS audited, and Amos went to Tax Court."

Should We Have a Robot Tax? Part 2 - David Stewart, Marie Sapirie, and Orly Mazur, Tax Notes Opinions. "One of the main concerns raised by a robot tax is that it would hinder innovations. We know robotics creates many benefits for society, and if we tax the robots, we're increasing the cost of robots, and this could reduce the incentive for companies to innovate and invest in robotics."


Ex-Trump Org. CFO Allen Weisselberg testifies against the company - Erin Durkin, The Hill:

Weisselberg, the former chief financial officer, testified that he received $1.76 million in untaxed, off-the-books perks from the company — confirming key elements of the Manhattan district attorney’s case against the Trump Organization.


Under questioning by prosecutors, he said he knew he owed taxes on the compensation, which included an apartment overlooking the Hudson River, leases for two Mercedes-Benz and private school tuition for his grandchildren. He said he knew that his tax forms were false because they underreported his income.

The article says that Mr. Weisselberg continues to receive his $640,000 salary from the Trump organization despite his tax evasion guilty plea - presumably with all perks properly reported on his W-2.


Jury convicts former Oregon securities broker of tax evasion - IRS [Defendant name omitted]:

According to court documents, Defendant owned and operated... a small, commission-based investment advisory business that served clients in the Portland and Salem, Oregon metropolitan areas. From 1996 to 2016, the investment firm was Defendant's only significant source of income.


Defendant was described as a prolific spender by personal assistants hired to pay his bills. He used the proceeds of his tax evasion to fund an extravagant lifestyle that included a $4.5 million home in Portland, a $1.3 million home on the Oregon coast, Rolls Royce and Bentley automobiles for everyday use, equestrian expenses like stabling and lessons, and an attempt to establish a world-class equestrian competition center and resort near Sheridan, Oregon. Defendant also bought a classic 1938 Rolls Royce touring car, spent $800,000 restoring it, and showed it in premier car shows in the U.S., Great Britain, and Europe.


How did this carefully-concealed evasion possibly come to the attention of the IRS? Could it have been hiring "personal assistants to pay his bills" who became potential informants? Could it have been the expensive home, the Rolls' and Bentleys, and the fancy horses? It remains a mystery. 


Chow Down. It's National Fast Food Day! It's also National Indiana Day, which may be a coincidence.


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