Tax News & Views Hits the Hurdles Roundup

November 30, 2022

Omnibus or CR? Tax Title Hangs in the Balance - Doug Sword, Tax Notes ($):

The fate of some corporate and family tax provisions likely rests on whether a fractious Congress can negotiate an omnibus spending bill before year-end, or whether lawmakers will have to settle for a bare-bones continuing resolution (CR).


Democrats have linked extending the expanded child tax credit, which reverted to $2,000 per child at the beginning of 2021, to their support for the restoration of any of the corporate tax breaks that were tightened to help pay for the Tax Cuts and Jobs Act. That includes section 174 R&D expensing, net interest expensing, and bonus depreciation. Other family-related provisions, like enhancing the child and dependent care tax credit, and business tax provisions, like reforming rules for Opportunity Zones, also have their devotees.

Omnibus bills, which can run upwards of 1,000 pages, have been the traditional vehicle for the annual tax extender packages; much shorter CRs lack the heft to take on a tax title.

Just like we learned in Civics class.


IRS announces undrepayment, overpayment rates for 2023 First QuarterBailey Finney, Eide Bailly:

The IRS has announced (Rev. Rul. 2022-23) the interest rates for taxpayer underpayments and overpayments for the first quarter of 2023:

• 7% for overpayments [6% in the case of a corporation];
• an additional 4.5% for the portion of a corporate overpayment exceeding $10,000;
• 7% for underpayments; and
• 9% for large corporate underpayments. 

The individual rates for the first quarter of 2022 were at 3%.


Treasury Issues Guidance on Inflation Reduction Act’s Labor Standards - Jay Heflin, Eide Bailly:

The Treasury Department on November 29th released initial guidance on labor standards that were included in the Inflation Reduction Act. These standards are what taxpayers must meet to fully qualify for tax incentives that are included in the legislation.

Many of the tax credits in the Inflation Reduction Act are tiered on meeting “prevailing wage” rules and “apprenticeship requirements.”

Today’s guidance provides the specifics needed so developers and investors can comply with the rules to take full advantage of the tax credits.


IRS Outlines Wage, Apprenticeship Rules for Clean Energy Credits - Caitlin Mullaney, Tax Notes ($). "Notice 2022-61 provides that companies can satisfy the prevailing wage rate requirements by ensuring that all laborers and mechanics who work on a project meet the necessary rates and by keeping proper records of payment of wages. Treasury and the IRS say companies should consult Labor Department resources for appropriate rates."

Biden's clean-energy czar faces his toughest task yet - Maxine Joselow, Washington Post:

The climate law offers tax credits of up to $7,500 for people who purchase new electric vehicles. But the credit only applies to cars with a sticker price below $55,000. For trucks and SUVs, the price must be less than $80,000.

This requirement could be ripe for abuse: When the Canadian government imposed a price cap of $45,000 Canadian dollars on EVs for its tax credit program, Tesla began selling a version of the Model 3 that cost $44,999 Canadian dollars but could only travel 93 miles on a single charge. After buying the car and claiming a tax credit of $5,000 Canadian dollars, consumers could pay an additional fee of nearly $12,000 Canadian dollars to unlock the rest of the battery capacity.

'Made in America' fight clouds EV gains - Arianna Skibell, Politico. "European leaders say the 'made in America' requirement is protectionist and ultimately harms Europe’s domestic clean energy industries. French President Emmanuel Macron is slated to arrive in Washington this week in hopes of persuading Biden to take European concerns seriously and avoid a trade war."

What to Know About Federal Tax Incentives for Pre-Owned Clean Energy Vehicles - Jenny McGarry, Eide Bailly. "Both the Pre-Owned Clean Vehicle Credit and Clean Vehicle Credit have sales price and taxpayer income limitations although the thresholds for pre-owned clean vehicles are lower. Unlike the new vehicle credit, the credit for pre-owned vehicles does not have manufacturing or component requirements; however, it does restrict the purchaser and where a qualifying vehicle can be purchased."


Senate Rejects Bid to Protect Exempt Orgs Opposing Gay Marriage - Fred Stokeld, Tax Notes ($). "But senators supporting the Respect for Marriage Act denied that it would threaten organizations’ exempt status. They argued that the substitute amendment to the bill includes strong religious liberty protections."


Second defendant in alleged vast connected federal tax evasion network dies - Kay Bell, Don't Mess With Taxes. "Carlos Kepke, a Houston-based tax attorney who was indicted on charges that he helped hide $225 million from the IRS, died over the weekend. He was 83 and his lawyers had previously raised his age and health issues in pre-trial proceedings."

Carlos Kepke, Indicted Tax Lawyer Allegedly Enabling Large Tax Evasion Offshore Schemes, Dies Just Before Start of Criminal Trial - Jack Townsend, Federal Tax Crimes. "Readers interested in viewing the docket entries for the Kepke criminal prosecution may do so free at CourtListener, here. Those who are teaching or are students of tax crimes subjects might want to review some of the pleadings leading up to the now discontinued prosecution. Both sides presented outstanding documents in a well-funded case.  So there are some good examples of what a major criminal trial is like."


Appeals courts decide IRS can force U.S. taxpayers to share tax information with foreign governments - National Association of Tax Professionals. "Two recent federal appeals court decisions should serve as a reminder to U.S. taxpayers that, under the terms of many tax treaties, the IRS can force them to disclose their tax and banking information so that it can be shared with foreign tax authorities. These decisions also highlight the need to report the same information in the U.S. and abroad because foreign authorities may have access to a taxpayer’s U.S. tax and banking records."

Can I Deduct Cryptocurrency Losses? - Andrew Mirisis, Freeman Law. "If a customer of a bankrupt crypto entity does not want to wait for the bankruptcy proceedings and the final distribution to creditors, the customer can sell its credit claims to distressed asset traders, usually at a steep discount. A customer that chooses to sell its credit claims to a distressed asset trader may recover less than if the customer waits for the bankruptcy proceedings to conclude; however, it has the advantage of quickly liquidating the claim, crystallizing (i.e., realizing) the customer’s loss for tax deduction purposes, and avoids the uncertainty of a potential recovery in the bankruptcy proceedings."


Tax Court Issues Another 17-0 Ruling Regarding The Jurisdictional Nature Of Filing A Tax Court Petition - Keith Fogg, Procedurally Taxing. "Today the Tax Court ruled in Hallmark v. Commissioner, 159 T.C. No. 6 (2022) that the time period for filing a petition in a deficiency case is jurisdictional.  The Court relies heavily on history and on 7459.  We will write more as we digest the full opinion but once again the Court does not find Supreme Court case law regarding jurisdiction, including the recent decision in Boechler, to deter it from the conclusion that the time period for filing a petition is jurisdictional.  The decision will no doubt set off litigation in the circuit courts around the country and may lead again to a decision by the Supreme Court which last time reversed the 17-0 decision of the Tax Court in Guralnik v. Commissioner with a 9-0 decision in Boechler."


States Should Make Full Expensing Permanent to Help Curb Inflation - Jared Walczak, Tax POlicy Blog. "By denying a full deduction for the costs of capital investment, the tax code yields taxable income in excess of actual income on a cash-flow basis."

Cut the Earned Income Tax Credit - Chris Edwards, Cato at Liberty. "To the extent that the EITC boosts labor supply, it pushes down market wages. This effect is usually overlooked by EITC supporters. People complain that some employers, such as fast‐food restaurants, pay low wages, but the EITC puts downward pressure on those wages. To an extent, the EITC is a business subsidy helping employers pay low wages."


Tripping over all the hurdles. Taxpayers looking to deduct losses coming from a partnership or S corporation have to clear three hurdles:

- They have to have enough basis in the activity to cover the loss.

- The basis has to be "at-risk."

- The loss has to be non-passive

A Tax Court opinion issued yesterday showed a taxpayer crashing into all three hurdles:

 Petitioners formed Magnet on February 8, 2007, and they provided no evidence showing their basis for 2013 or 2014. Because there is no evidence of petitioners' adjusted bases, they are not entitled to deduct losses from Magnet for 2013 and 2014...

Petitioners failed to show that any amounts in respect of their rental real estate activities were at risk...

We conclude that neither petitioner met the requirements for a real estate professional, nor have they shown they materially participated in their rental real estate activities.

The Tax Court opinion covered in some detail the taxpayer's argument that their real estate losses were non-passive. The tax law generally treats real estate losses as passive. An exception applies for real estate professionals who clear two more high hurdles: 

- They spend at least 750 hours on real estate activities, and

- They spend more time in real estate than in any other activity. 

These rules eliminate most people with non-real estate day jobs. Tax Court Judge Wells found the taxpayer evidence of time spent wanting: 

Petitioners contend that they both spent more than one-half of the personal services they performed in a trade or business in a real property trades or business. We disagree. Both petitioners had full-time jobs unrelated to real estate. The evidence does not support the conclusion that half of their time was spent performing services in real property trades or businesses.

Decision for IRS.

The Moral? Keep basis records. Make sure your basis is at risk. Log your time. 


Miami business owner pleads guilty to payroll tax crime - IRS (Defendant name removed).

According to court documents, Defendant owned and operated two car rental companies, Rent Max Miami Inc. and Rent Max North Inc., both of which had locations throughout Florida. As the sole owner and chief executive officer of Rent Max Miami and as the co-owner and president of Rent Max North, Defendant knew he was responsible for collecting, accounting for, and paying over payroll taxes withheld from his employees' wages to the IRS. Between 2011 and 2016, however, he withheld from his employees but failed to pay approximately $850,000 in employment taxes owed to the IRS. Instead, he caused Rent Max Miami to spend corporate funds to pay discretionary expenses, including a $50,000 cashier's check to himself, $45,000 in cashier's checks payable to his wife, and expenses related to a 55-foot yacht.

It works, until it doesn't. 


Convicted Mayor's Appeal 'All Foam & No Beer,' 1st Circ. Says - Chris Villani, Law360 Tax Authority ($):

The First Circuit on Monday upheld a former Massachusetts mayor's convictions for shaking down marijuana shops that hoped to open in his city and separately stealing money from investors, rejecting the politician's claim that his trial had been tainted by irrelevant evidence.


Following the verdict, Correia argued that he had been the victim of spillover prejudice as the government levied multiple, sweeping claims: that he had forced pot shop owners to fork over six-figure bribes in order to open and, prior to becoming mayor, that he had fleeced investors in a smartphone app called SnoOwl that he created and also lied on his taxes.

The perils of public service. 


Kanye West Admits He Owes the IRS $50 Million - Rebekah Barton, TaxBuzz. "He went on to note that he owes 'about $50 million' and that he is 'obviously not the most financially literate person on the planet.'"


Stay away from me. It's National Personal Space Day!

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