Programming note: Eide Bailly offices will be closed Friday, December 23 and Monday, December 26. Regular programming resumes on Tuesday. If significant tax legislative news happens, we may post an update. Otherwise, best Holiday Wishes to all.
Senate nears agreement on omnibus - Punchbowl News:
Breaking overnight: At around 2 a.m., Senate Majority Leader Chuck Schumer went to the floor and said Republicans and Democrats are on the brink of an agreement that would allow the Senate to finish work on the $1.66 trillion omnibus spending bill quickly. He scheduled a nomination vote for 8 a.m. in a bid to put the finishing touches on the potential deal.
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When many of you went to bed last night, the headlines indicated that the entire omnibus was falling apart because of a disagreement over Title 42 immigration policy. Yet if there’s one thing to know about these kinds of negotiations, it’s that the rhetoric often gets most inflammatory right before there’s a big breakthrough.
Schumer: Senate closing in on omnibus amendments deal - Aidan Quigley and Laura Weiss, Roll Call:
Another bipartisan effort centered on scaling back a new requirement for the 2022 tax year that online payment platforms and gig-working sites like eBay Inc., Uber Technologies Inc. and Venmo would have to report to the IRS when transactions total more than $600.
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West Virginia Sens. Joe Manchin III, a Democrat, and Republican Shelley Moore Capito offered separate amendments to delay the effective date of the change — to 2023 in Capito’s case, and 2024 in Manchin’s. Separately, Bill Hagerty, R-Tenn., filed an amendment to scrap the new lower threshold entirely.
We may know more by end of the day today. Or not. (Update: not).
Amendment To Omnibus Bill Proposes Raising Limit For Issuing Form 1099-K - Amber Grey-Fenner, Forbes. "Senators Bill Hagerty (R-TN) and Joe Manchin (D-WV) are planning to introduce an amendment to the omnibus spending bill that would increase the reporting threshold for Form 1099-K from $600 per year to $10,000 per year." UPDATE: The amendment failed to make it into the final bill, which passed the Senate this afternoon.
How Trump paid $0 in income tax in 2020 - Tobias Burns, The Hill:
Despite pulling in nearly $11 million in interest from investments in addition to his nearly $400,000 salary, Trump did not pay income taxes because he also reported a $16 million loss from his real estate businesses. That loss put the former president almost $5 million in the red for 2020.
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This pattern of high investment returns offset by high business losses continues throughout the tax returns that the House Ways and Means Committee obtained and released as part of larger reports on the IRS’s presidential audit system this week.
That would not work as well after 2020. The 2017 Tax Cuts and Jobs Act, signed into law by President Trump - five years ago today, incidentally - limits the amount of business losses that can offset non-business income to $500,000. This figure is indexed for inflation from 2018; the 2022 limit is $540,000 on a joint return.
The effective date of this limit was delayed to 2021 by a Trump-signed Covid relief bill, which apparently worked out well for the 2020 Trump 1040.
Losses subject to the Sec. 461(l) limits become net operating losses that carry forward to subsequent tax years. These can then offset non-business income, but they can only reduce taxable income by 80% in any given year.
JCT: Audit of Trump Returns Relied on Accuracy of Paid Preparers - Mary Katherine Browne, Tax Notes ($):
Among the report’s findings are that the IRS performed limited-scope examinations of Trump’s returns during the years at issue and that it didn’t bring in specialists to help with the exams. According to the report, the IRS justified those decisions by explaining that “the taxpayer hires a professional accounting firm and counsel to prepare and file his tax returns, and those parties perform the necessary activities to ensure the taxpayer properly reports all income and deduction items correctly.”
In response, the JCT said it was “not comfortable with any reliance on professional tax preparation to ensure accuracy.”
Interesting. They also should take that approach when auditing my clients.
Parts Of Trump's Returns Warranted Exam By IRS, JCT Finds - Asha Glover, Law360 Tax Authority ($):
Former President Donald Trump's tax returns contained several issues that warranted examination by the IRS, including whether partnership agreements he entered into supported unreimbursed expense deductions totaling $27 million, according to the Joint Committee on Taxation report on Trump's returns made public by House Democrats.
In addition, the Internal Revenue Service should have examined whether loans made to the former president's children were actually loans or disguised gifts that could trigger the gift tax, according to the JCT's report, which the House Ways and Means Committee voted to make public late Tuesday. The agency should have also examined whether costs of goods sold deductions by DJT Holdings, one of Trump's businesses, of about $126.5 million taken over five years were appropriate, since it isn't clear based on available information, the JCT said.
The report also said that "management fees" paid by Trump-controlled pass-through entities should have been examined more closely.
Link: Joint Committee on Taxation Report.
Donald Trump Reported Little or No Income-Tax Liability for Several Years, Records Show - Richard Rubin, Wall Street Journal. "The Trumps paid some form of federal taxes every year, but they reported income-tax liability of $750 or less in three of the six years, documents released by the House Ways and Means Committee showed. The couple’s adjusted gross income totaled negative $53.2 million during that period."
Trump’s Taxes: Red Flags, Big Losses and a Windfall From His Father - Russ Buettner, Susanne Craig and Mike McIntire, New York Times. "The committee also questioned whether Mr. Trump had charged expenses from his personal life and hobbies as business expenses, mentioning travel on his aircraft in particular. The Times’s 2020 investigation found that he had frequently written off questionable expenses, including more than $70,000 paid to style his hair during his years on 'The Apprentice.”'"
Woodlands Preservation Emerges as Issue in President Trump’s Personal Income Tax Filings - Peter Grant and Joe Palazzolo, Wall Street Journal. "Mr. Trump took the $21.1 million deduction in exchange for promising to maintain most of the woodland—called a conservation easement—at his Seven Springs estate, which he purchased in 1995 for $7.5 million. A taxpayer can take this deduction if he or she prevents future development on the property by donating it to a land trust. The size of the deduction is typically measured by determining how much the value of the land declined as a result of the restrictions."
Minnesota Tax Court Sides With State in Corporate Income Tax Row - Perry Cooper, Bloomberg ($):
A company owes $433,000 in income tax to Minnesota on a nonresident’s gain from the sale of her 80% stock ownership interest, the state tax court ruled.
Cities Management Inc. asked the court to consider Kim Carlson’s gain from selling her stock in the company as non-business income. Minnesota Tax Court Chief Judge Jane N. Bowman adopted the state’s argument instead, ruling that the gain should be considered income of a unitary business and apportioned to Minnesota.
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The tax court upheld the assessment, citing a state Supreme Court ruling that income generated from the sale of the partial interest in a company is business income subject to apportionment.
Final S Corporation Schedules K-2 and K-3 Instructions Issued for 2022 Returns - Ed Zollars, Current Federal Tax Developments:
Several professional tax software publishers have added the option to check a box that tells the software that the entity has only United States operations. When the box is checked the software uses the information entered on the forms to complete the rest of the Form 1120-S to populate Parts II and III of Schedules K-2 and K-3 based on the normal allocation information for profits and losses for the return, as well as the average book value for assets reported on the corporation’s depreciation schedule.
For many simple S corporations, this procedure will produce either a correct Schedule K-2 and K-3, or a starting point for quickly creating proper Schedules K-2 and K-3 for the corporation. In that case, taking the additional steps to meet the requirements to meet either exceptions may consume far more professional time than simply preparing these forms for filing with the Form 1120-S and providing the appropriate Schedule K-3 to each shareholder.
Nine Grinchy Tax Myths About Gifts This Holiday Season - Kelly Phillips Erb, Bloomberg. "4. You have to pay income tax on gifts that you receive. Gifts may carry income tax consequences, but you don’t pay income tax simply on receipt. However, the underlying tax characteristics of the gifted asset—such as the basis in gifted stock—could result in tax consequences down the road."
There's still [a little] time to bunch tax-deductible expenses - Kay Bell, Don't Mess With Taxes. "This potential tax saving technique means you accumulate itemized tax claims into one year to make the most of them. Basically, you pay two years' worth of deductions in a single tax year."
Aaron Judge Record Home Run Baseball Sells For $1.5 Million; IRS Collects - Robert Wood, Forbes. "Do taxes apply? You bet, the IRS gets a piece of just about everything. There was widespread tax chatter at the time the fan caught the ball that reporting the windfall to the IRS might not be required. A few months ago, some pegged the value at $700,000 or so, but no one was sure just how valuable it was."
5th Anniversary of Tax Cuts and Jobs Act - 12/22/22 - Annette Nellen, 21st Century Taxation. "The TCJA was primarily intended to make the corporate tax stem more internationally competitive by lowering the corporate rate (from a high of 35% to a flat 21%) and make the international system a semi-territorial one rather than worldwide. But, not all businesses operate as C corporations and the TCJA included the §199A qualified business income deduction to provide a rate reduction for business income of sole proprietors, partners and others, with a few exceptions. But that provision is only in the law through 2025 while the 21% corporate rate is permanent (pending any congressional action to change it)."
Social Security Benefits Paid to US and Non-US Individuals, Including Those Who Expatriated – How Are They Taxed? - Virginia La Torre Jeker, Virginia - US Tax Talk. "Generally, if the individual is a US person, he is subject to US income tax filing requirements and worldwide income is subject to US income tax, regardless of whether the individual lives in the US or in a foreign country. Depending on one’s income level, up to 85% of the Social Security benefits may be subject to tax."
Related: Eide Bailly Global Mobility Services.
TPC’s Annual Lump Of Coal Awards For The Worst Tax Ideas of 2022 - Howard Gleckman, TaxVox. "The Inflation Reduction Act also includes tens of billions of dollars in green energy subsidies, including generous tax breaks for buying electric vehicles. But only those built in the US or made from domestic materials. This is a problem for two reasons: Almost no EVs currently qualify for the subsidy. And US trading partners in Europe and Asia are furious about the idea, which they label flagrant protectionism. Biden promises to smooth over the dispute but it is not clear how."
Improved Tax Treatment of Saving Included in Year-End Federal Spending Deal - Erica York and Garrett Watson, Tax Policy Blog. "The changes within the retirement tax package share a common goal of improving incentives for households to save during a time when inflation is impacting their finances. The tax system currently encourages saving in a disjointed and complicated fashion, requiring households to understand the variety of rules and restrictions associated with different saving opportunities."
I Still Hate Flexible Spending Accounts - Alex Tabarrok, Marginal Revolution. "If I am going to be forced to pay taxes I’d like to hand over my cash standing like a man and not be given the option of crawling to recoup some bills the tax collector magnanimously throws on the floor."
I Want High-Income Earners to Stay - David Henderson, Econlog. "So said New York City Mayor Eric Adams last week in a rare moment of clarity."
Chicago woman sentenced to prison for fraud and tax crimes - IRS (Defendant Name Omitted):
A Chicago tax preparer was sentenced to seven years in prison today after her trial conviction for embezzling her deceased grandmother's pension checks and preparing false tax returns for clients.
According to court documents and evidence presented at trial, in 2016 and 2017 Defendant prepared and filed with the IRS approximately 22 false tax returns on behalf of clients. The returns reported fictitious wages and withholdings, as well as false medical, charitable, and employment related expenses. In addition to charging her clients a preparation fee, Defendant also demanded that some clients pay her as much as 50% of the resulting refund. In total, the 22 false returns sought more than $1 million in fraudulent refunds.
Defendant also was convicted of pension fraud. Defendant's grandmother died in 2009 after working for and earning a pension with American Can Co. After Defendant's grandmother died, the monthly pension checks continued to be delivered to the residence where Defendant resided. From January 2013 to December 2017, American Can Co. sent 33 pension checks, totaling $14,131, to the grandmother. Defendant deposited these checks into one of six bank accounts she controlled. On several occasions during this period, Defendant notarized and submitted to the pension plan administrator affidavits under her grandmother's name, fraudulently affirming the grandmother was still alive. In 2017, Defendant did not report to the IRS approximately $5,000 in income she received from the embezzled pension checks.
The biggest refund doesn't always indicate the best preparer.
I'll take one. Today is National Cookie Exchange Day! The name makes me imagine a bunch of floor traders bidding on cookie futures.
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