Tax News & Views Can't Spell Omnibus Without an "i" Roundup

December 20, 2022

Lawmakers unveil government funding bill to stave off Friday shutdown - Caitlin Emma, Jordain Carney, Marianne Levine, and Sarah Ferris, Politico:

Leading lawmakers unveiled a $1.7 trillion year-end spending bill early Tuesday as they raced to pass the sprawling package by week’s end, with federal cash expiring at midnight on Friday.


Not included in the bill is billions of dollars in pandemic aid requested by Biden, an extension of the enhanced Child Tax Credit pushed for by Democrats, cannabis banking legislation and a popular tax provision that would have allowed businesses to immediately write off their research expenses, rather than over a period of five years.


Big Changes to 401(k) Retirement Plans Move Ahead in Congress - Anne Tergesen and Richard Rubin, Wall Street Journal:

The bill nearing approval raises the age people are required to start withdrawing money from tax-deferred retirement accounts to 75 from 72. It increases retirement savings contribution limits for older workers and provides an increased incentive to people with low and moderate incomes to save in retirement accounts. It also paves the way for more employers to offer emergency savings accounts inside 401(k) plans.


The bill would also allow people to roll up to $35,000 from 529 plan accounts into Roth IRAs. That would be available only for accounts in existence for at least 15 years and would be subject to Roth contribution limits. 


To encourage people with low and moderate incomes to save in retirement accounts, the measure restructures a tax credit available to certain workers. The government would put up to $1,000 annually into the retirement accounts of eligible workers starting in 2027, regardless of whether they have an income tax liability.


Retirement In, Child Credit and Business Tax Cuts Out of Omnibus - Doug Sword, Tax Notes ($).

The bipartisan retirement package known as SECURE 2.0 is apparently in the giant government funding package still being finalized December 19 while the child tax credit and a trio of business tax breaks didn’t make it into the bill."


Democrats had dangled pairing the child tax credit expansion with pro-business provisions on net interest and research and development expensing, as well as bonus depreciation, but Republicans weren’t buying. The child tax credit expansion, which would cost well over $100 billion (JCX-46-21) for each year it would be extended, was too expensive for them.


Both parties claim wins in massive omnibus spending bill - Lindsey McPherson and Aidan Quigley, Roll Call:

Leaders are hoping all 100 senators will agree to speed up the normal legislative clock, because under regular order, final passage wouldn’t occur until Friday, when the current continuing resolution runs out.


Sen. Mike Lee, R-Utah, complained on Twitter about the delayed release of the bill and hinted he may not consent to speed up passage.

Link to bill (SECURE ACT retirement portion begins on page 2046)


Omission of Gift Language Sinks $5.1 Million Easement Deduction - Kristen Parillo, Tax Notes ($):

The Tax Court upheld the IRS’s denial of a $5.1 million easement deduction claimed by a Virginia couple because they failed to substantiate that they received no goods or services in exchange for the donation.

Without having an explicit statement from the donee confirming no goods or services were provided, and with the deed lacking a merger or entire agreement clause, the couple failed to satisfy the contemporaneous written acknowledgment requirements of section 170(f)(8), the court concluded in a December 19 memorandum opinion in Brooks v. Commissioner.

Such an acknowledgement is required for all charitable donations, cash or non-cash, starting at $250. You need to have the acknowledgment in-hand when you file. As this case shows, you can't wait until audit to fix it. 

Deed Was Not a Proper Contemporary Written Acknowledgement, No Charitable Deduction Allowed - Ed Zollars, Current Federal Tax Developments. "While there are two other issues the IRS and the Tax Court find fault with for the taxpayer, note that the Court yet again states a failure to comply with the CWA provisions of IRC §170(f)(8) results by itself in an entire denial of the charitable contribution deduction."


Initial Corp. AMT Guidance Due By Year-End, Treasury Says - Kat Lucero, Law360 Tax Authority ($). "Treasury will also issue initial guidance on how companies can follow the new stock buyback levy, a nondeductible 1% excise tax on certain publicly traded companies' repurchase of corporate stock, Treasury said. By New Year's Day, the department will also release a set of frequently asked questions for consumers seeking to access a tax credit for making residential property more energy efficient."

Colo. Tax Dept. Seeks Input On State Income Tax Addback - Sanjay Talwani, Law360 Tax Authority ($). "Under the proposed rule, an addback would be capped at the amount required to reduce the federal deduction to the amount of the standard deduction allowed on the partnership's or corporation's federal tax return."

Link: Request for Public Input – State Income Tax Addback


US Chamber Says Regs May Block Credits For Brazil's Taxes - Matthew Guerry, Law360 Tax Authority ($). "The Chamber asked the U.S. Department of the Treasury in a letter dated Dec. 12 to withdraw or modify the arm's length requirement of the final foreign tax credit rules in light of the 'risk they pose to the commercial viability of U.S. foreign direct investment in Brazil, a major U.S. trading partner.'"

After years of fighting for them, Democrats may release Trump tax return information - Tobias Burns, The Hill. "The Ways and Means Committee announced a meeting for Tuesday afternoon on 'documents protected under Internal Revenue Code section 6103,' the rule under which Democrats were able to obtain Trump’s tax records from the Treasury for years 2015 to 2020."

Iowa Supreme Court Affirms County Valuations of Nationwide Buildings - Audrey Fick, Tax Notes ($). "Using a mass appraisal technique for its initial assessment, the Polk County assessor increased the value for 1100 Locust to $87.05 million and for 1200 Locust to $44.91 million for tax years 2017 and 2018. After Nationwide protested the valuations, the assessor performed an individualized cost analysis on both properties, and then deducted estimated physical depreciation to arrive at a depreciated value for each building. The Polk County Board of Review upheld the assessments from the mass appraisal technique, which were lower than the depreciated values arrived at using the individualized method."


Last-minute tips for those facing Dec. 31 retirement plan RMDs - Kay Bell, Don't Mess With Taxes. "Whichever septuagenarian group you're in, you most likely* must withdraw a certain amount of your tax-deferred savings by year's end or face a severe penalty. That added cost is a steep 50 percent of the RMD amount you failed to withdraw. (*And more on those who aren't most likely in a minute.)"

Buying a Used EV? IRS Clarifies How You Can Get a Tax Credit - Josh Lowenthal, Bloomberg. " For a vehicle to qualify for the new credit, it must be a model that’s at least two years old, measured from the calendar year of which the vehicle is being placed into service. Additionally, the vehicle must have been bought new by a person other than the individual claiming the credit, comply with technical requirements for a new vehicle in Section 30D, and weigh less than 14,000 pounds."

Quantum Computing Can Revolutionize Tax Administration - Carrie Brandon Elliot, Tax Notes Opinions. "Qubits allow all information combinations to exist simultaneously in more than one place, in a phenomenon known as superposition. This allows quantum computers to calculate a multitude of equations or possibilities concurrently, a task done step by step by regular computers."

On Remand from Eighth Circuit, Mayo Clinic Wins $11 Million UBIT Refund - Parker Tax Pro Library. "The district court held that during the years at issue, Mayo was organized and operated exclusively for an educational purpose and had no noneducational purpose that was substantial. The district court held that, therefore, Mayo was entitled to a refund of the UBIT it paid for the years at issue."


EO Tax Journal Editor Proposes Elimination Of All Charitable Deductions - Peter Reilly, Forbes. "The reality is that organizations that deserve exemption (real charities helping the poor and needy) usually don’t have much income to report so exemption from tax provides no benefit."

Changing Trends in R&D Investment Show the Importance of Business R&D - William McBride, Alex Muresianu, and Garrett Watson, Tax Policy Blog. "However, the TCJA unfortunately also included a delayed tax increase on R&D beginning in 2022, requiring companies to amortize their R&D expenses over five years instead of deducting them immediately, which was the norm for several decades. Effectively, this is a tax penalty on R&D investment because deductions in the future are worth less than deductions today due to both the time value of money and inflation."

Related: Understanding How R&D Capitalizaiton Works.


CAMT, Double-Counting, and Treasury's Unwelcome Mr. Fix-It Role - Alex Parker, Things of Caesar. "Just how many problems are in the Inflation Reduction Act? The American Institute of Certified Public Accountants sent Treasury a letter in October outlining 40 potential issues in income definition for the 15% corporate alternative minimum tax. The CAMT uses adjusted financial statements as a tax base, meant to capture companies which manage to report low taxable income to the Internal Revenue Service while reporting high profits to shareholders."

The IRS Versus The Clumsy Taxpayer - William Baldwin, Forbes. "But the IRS had a trump card up its sleeve. In addition to the FBAR regime, it imposes on U.S. taxpayers with foreign mutual funds a punitive “passive foreign investment company” tax. A taxpayer can sidestep this burden by filing the right forms, but it was too late for Collins to take that route. The IRS hit him up for $81,000 in PFIC duties. He paid."

U.S. Expat Tax Deadlines for 2023: What You Need To Know - Kasia Strzelczyk, 1040Abroad. "Residents of the United States are required to file a Federal Tax Return by April 18, 2023. One perk of being a US expat is that you’re given an extended deadline to file your tax return. That means that all US citizens living abroad will be granted an automatic two-month extension to June 15, 2023."

Related: Eide Bailly Global Mobility Services


Be Careful What You Ask For - Keith Fogg, Procedurally Taxing. "In Showalter v Commissioner, T.C. Memo 2022-114, the pro se petitioner went to the Tax Court to contest the deficiency resulting from the IRS preparing a substitute return (SFR) following his failure to fulfill his return filing obligation.  He found out that going to Tax Court is not a one way street when the Chief Counsel attorneys uncovered income the IRS had not found in computing his tax liability using the substitute for return procedures."


Operator of San Gabriel Valley employment staffing company pleads guilty to criminal charge for failing to pay over payroll taxes to IRS - IRS (Defendant name omitted):

In total, B&S accrued approximately $2,791,783 in unpaid employment taxes during this 2½-year period. Defendant has agreed to pay this amount in restitution to the IRS.

Defendant further admitted that from 2017 to 2019, to frustrate IRS collection actions against him regarding his personal income taxes – and to conceal the true extent of how much money he made – he did not pay himself a salary from B&S. Instead, Defendant caused weekly checks to be issued from B&S's corporate bank account to a business named "Advanced Business Konsulting," and deposited these checks into an account held in the same name and which he controlled.

You know the Konsulting is Advanced when it's spelled with a "K."

In addition, Defendant used B&S funds for the down payment and monthly mortgage payments on his purchase of a home, but kept the property titled in the name of another person to conceal Defendant's ownership of the property. Defendant also directed payments from the corporate bank accounts of B&S to pay for personal expenses, including a portion of his daughter's college tuition, and funding for Defendant's other business interests, including a failed construction business and a failed restaurant.

All that cash coming out of paychecks as withholding can be tempting to employers, but it's not their money, and it can't be "borrowed" for other things. As this case shows, it often becomes a criminal issue, rather than just a (often impossible) problem of paying it back.


Details matter, as the $5 million lost charitable deduction case above shows. Maybe that's why today is Dot Your I's Day. You can't be too careful. 

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