November 21, 2022
Race for Ways and Means Chair Looks Like a ‘Nail Biter’ - Samantha Handler, Bloomberg ($):
The GOP race to lead the House Ways and Means Committee is wide open as the three Republicans make their final pitches to members on why they should lead the tax-writing panel.
The contest between Reps. Vern Buchanan (R-Fla.), Jason Smith (R-Mo.), and Adrian Smith (R-Neb.) is close, according to interviews with more than a dozen lawmakers, staffers and lobbyists. The three members are running to replace the retiring top Republican on the committee, Rep. Kevin Brady (R-Texas). Those watching the race say it is up in the air, with the candidates mostly running on personality differences rather than policy priorities.
The House Ways and Means Committee is where tax legislation begins (unless leadership takes the helm). No matter who wins the chair, he will be a Republican who will push to extend the 2017 tax cuts, question whether the IRS deserves the $80 billion in extra funding, and explore how the investigative group ProPublica got its hands on private taxpayer information.
Speaking of the $80 billion going to the IRS:
Ultra-Rich Tax Cheats Face New $80 Billion Threat From the IRS - Ben Steverman, Bloomberg ($):
For the first time in years, rich Americans who cheat on their taxes face a growing threat from the Internal Revenue Service.
And, despite the Republican Party’s best efforts to invoke the tax bogeyman in this month’s midterm elections, it’s a menace that’s unlikely to go away.
The funding won't go away because Democrats run the Senate and they are highly unlikely to repeal something that they supported in the prior Congress. So, yes, the House (run by Republicans) could pass a bill that repeals the funding. But for it to become law the piece of legislation must pass both chambers, and this bill will likely be a non-starter in the Senate.
Battered Mutual Funds Saddle Investors With Big Capital Gains - Suzanne Woolley, Bloomberg ($):
Owning a mutual fund that’s down 20% or 30% is bad enough. Now, holders of many money-losing investments will be asked to pay capital gains taxes too.
The gains come from managers buying and selling securities inside the portfolio over the past year. If they sold a stock they’d owned for a long time, they may have a big gain on it — even if that stock, and the broader fund, are down this year.
IRS Data Shows Uptick in Reporting of Crypto Transactions – Lauren Loricchio, Tax Notes ($). “The number of individual income tax returns that were checked ‘yes’ in response to a question about cryptocurrency transactions jumped by roughly 150 percent in tax year 2020 over the previous year, according to new IRS data.”
New Sign-In Requirement for ‘E-Postcard’ Filers Has Multiple Uses – Fred Stokeld, Tax Notes ($). “Small tax-exempt organizations that create an account with ID.me to use the Form 990-N electronic filing system can then use that same account across the IRS and with other government agencies, an official said November 18.”
States Seek IRS Liaison For Sharing Of Charities' Tax Info – Kat Lucero, Law360 Tax Authority ($):
An IRS liaison is necessary to help state regulators access nonprofits' federal tax information following the release of final rules that broaden the agency's authority to share that data with states, an official from the New York attorney general's office said Friday.
Since the Internal Revenue Service's surprise release of the long-awaited guidance in August, a group of state agencies that regulate nonprofits has been actively urging the IRS to continue working with them as they implement the rules, said Yael Fuchs, co-chief of the New York attorney general's Charities Bureau Enforcement Section, at a virtual conference hosted by the TEGE Exempt Organizations Council.
Taylor Swift Ticket Resellers Will Have to Pay Taxes on Profits - Claire Ballentine, Bloomberg ($):
For those who were lucky enough to snap up Taylor Swift concert tickets and are planning to resell at a profit, the tax man is coming.
In the aftermath of the mad rush for seats at the singer’s upcoming tour, resale sites are offering secondhand tickets for wild prices, in some cases tens of thousands of dollars. But those sellers might not realize that any money they make is subject to federal taxes.
It’s in part because of a change to tax reporting requirements this year and a wonky form called the 1099-K. Essentially, these are transaction records from third-party payment networks like PayPal, Venmo or StubHub. In the past, you would only receive such a form — which then has to be included when filing your annual taxes — if you received more than $20,000 in a calendar year from a third-party network. Starting in tax year 2022, that figure will drop to $600.
Um, I’m not accountant, but I think this sort of exchange was always a taxable event. The 1099 rules are simply documenting it.
Covid State Aid Limits Unenforceably Vague, Sixth Cir. Says – Perry Cooper, Bloomberg ($). “The federal government’s limits on how the states may use $195 billion in Covid pandemic aid are too vague to be enforced, a federal appeals court ruled Friday.”
‘Clarity is demanded whenever Congress legislates through the spending power,’ the US Court of Appeals for the Sixth Circuit ruled in an opinion Judge John K. Bush. ‘Yet clarity is just what the Offset Provision lacks.’
Further down the article:
[T]he court found Tennessee provided additional evidence that Treasury’s later rule implementing the offset provision burdened the state with compliance costs to ensure that its tax cuts don’t violate the provision. ‘Far from mooting the compliance-costs theory of injury, the Rule in fact exacerbated the harm with its more detailed explanation of the measures required to comply with the Offset Provision,’ the court said.
Trustee in Bankruptcy Can’t Avoid Tax Lien to Benefit Estate - Aysha Bagchi, Bloomberg ($). “The Ninth Circuit ruled that a trustee in bankruptcy proceedings isn’t allowed to avoid a tax lien for the benefit of the bankruptcy estate, overturning a lower court’s decision.”
BREAKING: Supreme Court Won't Hear Whirlpool Tax Challenge – Dylan Moroses, Law360 Tax Authority ($):
The U.S. Supreme Court won't hear Whirlpool's challenge to a Sixth Circuit ruling that the company owes taxes on about $45 million of foreign income, according to an order list from the top court published Monday.
The denial of certiorari lets stand the appeals court's ruling that the IRS can tax income earned by Whirlpool's Luxembourg affiliate. A split three-judge panel in December found the unit's sales income — which stemmed from appliances manufactured by Whirlpool's Mexican affiliate — constituted foreign base company sales income, or FBCSI, under Internal Revenue Code Section 954(d)(2). The appeals court affirmed a May 2020 decision bythe U.S. Tax Court.
Wayfair Ripples, Remote Work, Pass-Throughs Top State Tax Worries - Angélica Serrano-Román and Kathy Larsen, Bloomberg ($). “The headwinds and difficult circumstances states are expected to encounter during the next few years are big, broad, and mostly out of their control—the end of federal Covid and infrastructure funding largesse, persistent global inflation, and recession fears gnawing on everybody’s psyches and balance sheets.”
Still, some balance sheets are looking pretty black:
California Personal Income-Tax Revenue Soars 700% Over Estimates - Jennah Haque, Bloomberg ($). “California collected 698.6% more in personal income-tax revenue last month than it expected, according to a bulletin from the California Department of Finance.”
Their Budgets Flush, Many States Are Sending Checks to Residents – Ann Carrns, New York Times ($):
Millions of Americans received stimulus checks from the federal government during the depths of the pandemic. This year, many states have a budget surplus and are using some of it to help taxpayers deal with high inflation.
As many as 20 states — depending on who’s counting — are offering one-time rebates or expanded tax credits. That’s up from just a handful last year, said Richard Auxier, a senior policy associate with the Tax Policy Center.
Democratic Gains Embolden State Lawmakers Eyeing Climate Action - Zach Bright, Bloomberg ($):
Newly elected Democratic lawmakers are planning bolder climate action in states where their party wrested legislative majorities and governors’ mansions from Republicans.
Further down the article:
With divided government at the helm in Congress expected to bring new climate action to a halt, states will ‘play a crucial role’ and ‘will once again be relied upon to keep climate and environmental action moving forward,’ the National Caucus of Environmental Legislators said in an analysis.
Taxes will be a part of this discussion.
Nebraska Inheritance Taxes Apply to Farmland Deeded Before Death - Aysha Bagchi, Bloomberg ($):
Nebraska state inheritance taxes apply to farmland two parents deeded to their daughter decades before their deaths, even as the parents continued to control, get income from, and pay taxes on the property.
Treasury Proposes New Rule Tackling Foreign Tax Credit Concerns - Michael Rapoport, Bloomberg ($):
The Treasury Department proposed long-awaited new measures aimed at reassuring companies that some foreign taxes they pay are still eligible for the US foreign tax credit—a status the companies have feared might be in jeopardy.
The measures, in a new rule (RIN 1545-BQ46) Treasury issued Friday, would give companies a way to make sure their foreign royalty withholding taxes can continue to qualify for the credit. The rule would also make clear that a country’s restrictions on whether taxpayers can recover their costs don’t necessarily prevent their taxes there from being eligible for the credit.
The document is here.
From the “Inside D.C. Baseball” file (not talking about the Nats):
Year-End Tax Policy Priority: Expand the Child Tax Credit for the 19 Million Children Who Receive Less Than the Full Credit - Chuck Marr, Kris Cox, Sarah Calame, Stephanie Hingtgen, George Fenton, and Arloc Sherman, Center on Budget and Policy Priorities:
Policymakers should prioritize expanding the Child Tax Credit for children who receive a partial credit or none at all because their families’ incomes are too low. These families face the greatest challenges in making ends meet and coping with recent high inflation.
For those wanting to expense R&D costs and wondering why Congress won’t allow it, look no further than the Child Tax Credit (CTC). Modifications to CTC have been linked to R&D expensing for months and it does not appear that this bond will be broken in the lame duck.
The problem with coupling these two provisions together is that the political parties disagree on modifying the CTC. There is, however, bipartisan support for R&D expensing – but much of that support is contingent upon expanding and extending the CTC to what it was in 2021.
Support from both parties is needed to pass both measures and right now that level of cooperation is lacking. Most observers don't think there will be a year-end tax bill (outside retirement) until this disagreement is resolved.
The argument over CTC v. R&D has ricocheted off congressional walls for months as lawmakers have bickered over whether or not the CTC needs fixing. Last week, the Biden Administration weighed-in on the subject and made it abundantly clear that the two provisions should remain coupled:
[T]he President strongly believes that any bill that cuts taxes for a big corporation must also cut taxes for working families, working American families, and working American families with children. And so as the President said following the election, he is proud of how the child tax credit expansion he signed into law helped cut child poverty nearly in half in 2021. Both Democrats and Republicans have put forth tax relief ideas for families with children, including the families who are struggling the most.
And the President believes that these are the kinds of policies we should be prioritizing.
Would President Biden sign a bill into law that expenses R&D costs, but does not modify the CTC? Probably, but it’s a tough call.
Happy National Stuffing Day! That’s right. Thanksgiving is just a few days away, but that doesn’t mean a person can’t enjoy some pre-Turkey Day stuffing.
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.