February 2, 2022
Five ways to fix the IRS, starting with a halt to most audits - Nina Olson, Washington Post ($). Ms. Olson retired in 2019 after serving 18 years as IRS Taxpayer Advocate:
The IRS ended the year with 11.9 million unprocessed returns, according to the NTA. The number of in-process returns still waiting for an employee to take action on them remains unknown.
The IRS commissioner recently stated the IRS is trying to hire 5,000 customer service employees, but only 179 positions have been filled so far. These hires require months of training, so they will not be fully available for the filing season. On the other hand, the IRS hired many new auditors and collection employees and is already sending them out on cases in the field.
These employees would be better used to review returns that have been flagged and are waiting on a decision whether they should be audited or continue being processed. They can also verify identities, withholdings and other potential choke points in the filing pipeline.
Ben Ray Luján is in the hospital. Why this matters for Senate Democrats - Punchbowl News:
We’ll say this first – we‘ve covered Sen. Ben Ray Luján (D-N.M.) since his days in the House leadership, both as assistant speaker and running the DCCC. We truly hope that BRL recovers from this medical emergency. Luján underwent brain surgery to relieve swelling following the stroke and remains hospitalized. Although he’s only 49, strokes are extraordinarily scary, and we wish him nothing but the best.
We have no idea how long Luján will be sidelined during his recovery. There’s no timetable for his return at this point. On two previous occasions where senators suffered strokes – former Sens. Mark Kirk (R-Ill.) and Tim Johnson (D-S.D.) – it took them months to return to the Capitol. And however long Luján remains absent, the Senate Democratic leadership is going to be in a jam.
Democratic leadership has been unable to advance the "Build Back Better" reconciliation, and its tax increases, with its 50-vote working majority (the Vice-President breaks ties) in the 100-seat Senate. Being short one member doesn't help. "The Build Back Better Act’s much hoped-for resurrection is over for now."
Democratic divisions fester over ‘Build Back Better’ - Lindsey McPherson and Laura Weiss, Roll Call:
Also: "Talks on a particular and controversial piece of the bill — lifting the $10,000 limit on deducting state and local taxes, known as the "SALT" cap — have disintegrated."
Sen. Joe Manchin III said Tuesday he views the bill in its current form as “dead” and wants to tackle other legislative goals first, indicating Democrats aren’t any closer to a deal with the West Virginia centrist on spending provisions than they were weeks ago.
Manchin offered two broad areas he’ll expect to be in any bill: a “fair and equitable” tax code that makes sure “everybody pay their fair share and especially the wealthy,” and provisions that address drug costs.
Manchin Calls Build Back Better ‘Dead,’ Schumer Vows to Advance - Doug Sword, Tax Notes ($):
Sen. Joe Manchin III, D-W.Va., prompted some of the day’s biggest political tweets after he told reporters, “It’s dead,” when asked about his party’s Build Back Better Act (H.R. 5376). Within the hour, however, Manchin clarified that he was referring to the “big package” that he torpedoed December 19, 2021, when he said on Fox News Sunday that he couldn’t support the roughly $2 trillion bill.
Manchin noted that there is talk, but nothing in writing, about what might go into a new package. He added, though, that there are “no organized conversations going on.”
Manchin on BBB: ‘It’s dead’ - Rachael Bade, Garrett Ross, and Eli Okun, Politico:
Just after 1 p.m., the senator was asked to clarify if he truly meant that BBB is “dead.” He said: “If we’re talking about the whole big package, that’s gone.” Would he mind a smaller version? “We’ll see what people come up with. I don’t know.”
House Panel advances Competition Bill with Tax Credit to Chamber's floor - Jay Heflin, Eide Bailly:
The bill makes permanent the health coverage tax credit and increases the amount of the qualified health insurance premiums covered by the credit from 72.5% to 80%. The increase in the credit would take effect after December 31, 2021.
Currently, it is not clear if the health care tax provision will be in the final package. The House provision is not in the Senate bill. The tax measure would stand a better chance of being included in the final draft if it was in both the House and Senate bills.
Calif. Single-Payer Health Care Tax Package Dead For Now - Maria Koklanaris, Law360 Tax Authority ($).
California Assembly member Ash Kalra, D-San Jose, said Monday that the single-payer bill, A.B. 1400, did not have enough votes to pass, so he removed it from the floor. He said he would bring it up again but did not specify when.
The end of A.B. 1400, at least for now, also means the end of ACA 11, the proposed constitutional amendment that would have been the funding mechanism. The amendment called for a tax package to fund single-payer that included a 2.3% tax on business gross receipts, a 1.25% payroll tax on businesses with at least 50 employees and an increased personal income tax rate, in the form of a progressive surcharge, for earners who make $149,000 and up. In addition, there would have been another payroll tax of 1% on employers who have employees making at least $49,900 a year.
The now-dead plan would have increased California's top marginal rate on wage income to 18.5%. The 2.3% gross receipts tax would be more than three times the highest gross receipts tax in any state.
Ex-CEO's $1.4B Jeopardy Assessment Appropriate, US Says - Matthey Guerry, Law360 Tax Authority($):
Robert T. Brockman employed complex means of concealing the ownership of his assets, the government told a judge for the U.S. District Court of Texas, and has sold, transferred and made plans to move his property in an attempt to put it beyond the government's reach. In a response to a complaint Brockman filed seeking to abate the assessment, the government pointed to the October 2020 sale of a Houston property he previously transferred to his wife as proof, saying the $1.375 million transaction occurred shortly after he was indicted in a separate matter.
Brockman, formerly the CEO of Reynolds & Reynolds, is alleged in that matter to have hidden $2 billion in assets from the Internal Revenue Service using offshore entities in what officials say is the largest case of tax fraud ever brought against a single person. The same judge is overseeing both cases.
A jeopardy assessment has nothing to do with a game show. It is an extreme IRS tool " initiated when collection of the tax is in danger and the tax is due, but there is not a voluntarily filed return or an IRC 6020(b) return has been prepared by the Service." I don't know if there is a scoreboard for such things, but it's likely that there has never been a $1.4 billion jeopardy assessment.
Jeopardy Champ Amy Schneider Faces Big Taxes On 40 Wins - Robert Wood, Forbes. "All winnings on game shows are ordinary income, taxed up to 37% by the IRS. Most states have state income tax too, and since Ms. Schneider lives in California, she will pay up to 13.3% to the Golden State too. Even worse, since the federal tax law put a $10,000 cap on deducting state and local taxes starting in 2018—it used to be unlimited—paying tax in high-tax states even worse now, a kind of double whammy."
State Legislatures Take Up Tax Reform in 2022 - Jared Walczak, Tax Policy Blog:
Individual income tax rate reductions are the most common proposal. At present, 11 states have legislation worth watching that would cut individual income tax rates: Colorado, Idaho, Indiana, Iowa, Michigan, Mississippi, Missouri, Nebraska, New York, South Carolina, and Utah. Additionally, eight states—with significant overlap—have noteworthy proposals to cut corporate income taxes: Arizona, Colorado, Idaho, Indiana, Iowa, Michigan, Missouri, and Utah. Both lists are likely to grow as sessions continue.
Meanwhile, five states—Connecticut, New Mexico, Tennessee, West Virginia, and Washington—have legislation or governor’s proposals to cut sales tax rates.
Under Pressure From Congress IRS Offers Taxpayers Limited Relief, Advocacy Coalition Pushes Back - Amber Gray-Fenner, Forbes. The piece quotes a coalition of tax pros: "The IRS should temporarily suspend all automated compliance actions as they did with the onset of the COVID pandemic. Furthermore, we believe that if all the recommendations made by this coalition are implemented, it will go a long way to help taxpayers, tax practitioners and the IRS better navigate through this difficult tax season. Simply put, more is needed to offer meaningful relief to individuals and small businesses, and we urge the IRS to implement all of our recommendations."
IRS backs down on ID.me facial recognition requirement - Kay Bell, Don't Mess With Taxes. "The major objection to the ID.me process was aimed at the company's facial identity verification requirement. In order to create an ID.me account, which then is or will be used to sign on to IRS and other government online options, applications must take a selfie and submit it to the company."
2022 May Bring Big Tax Change for People with Internet-Based “Side Hustles” - Wolters Kluwer Tax & Accounting. "A third-party settlement organization (TPSO) has always had to file information returns with the IRS to report some payments to payees. However, before 2020, the information reporting requirement did not apply until the TPSO made more than 200 payments to the payee that totaled more than $20,000 during the year. But beginning in 2022, a TPSO must file an information return when its payments to a participating payee exceed $600, regardless of the number of payments. And that threshold applies to the TPSO’s total payments to the payee for the year, not to individual payments."
The World of NFTs: Taxation and Compliance - David Stewart, Carrie Brandon Elliot, and Max Dilendorf, Tax Notes Opinions. "Well, the IRS, they see each cryptocurrency as a property. NFT is not a legal term or tax term. It's a digital token and according to the tax rules like, 'Hey, if you are trading one type of cryptocurrency for another, every time you complete the transaction, you either have a gain or a loss.' If you're trading NFTs, which are digital tokens, then every time you have a taxable transaction to report."
Low Income Housing Tax Credit - Another Win For The Aggregators - Peter Reilly, Forbes. "The Section 42 low-income housing tax credit (LIHTC) is the major way that the federal government promotes the creation and preservation of affordable housing. Every year each state gets credits based on population which are allocated by the state's designated agency. Projects typically have investor limited partners (sometimes just one). They are designed so that the lion's share of the credit goes to the investor LP. There may also be losses."
The IRS is Not Ready for Ready Return And Won’t Be Without Drastic Changes to the Income Tax Law - Jim Maule, Mauled Again. "Of course, Ready Return could work for an income tax system that is as simple as something like the real property tax. The real property tax has only two variables, namely value and rate, though complicating exemptions have crept into most real property tax systems. Supporters of Ready Return, who justify their position on the need to help taxpayers deal with an increasingly complicated federal income tax system, would gather more support if instead of offering the unworkable Ready Return band-aid, they pushed for the sort of simplification of the federal income tax that would make Ready Return work as simply as do real property tax systems. But that would require jettisoning all of the provisions that are in the income tax law because Congress trusts the IRS more than it trusts the appropriate agency to implement its policy decisions."
Simplifying Income Tax Reporting for Americans Abroad - Edward Zelinsky, Tax Notes. "A particularly telling argument advanced by critics of citizenship-based taxation is that for many expatriates, compliance with U.S. income tax law is too complex and expensive. This critique carries particular force for expatriates of modest means."
Related: Eide Bailly Global Mobility Services. https://www.eidebailly.com/services/tax/international-tax/global-mobility-services
Tax Time Guide: Important considerations before filing a 2021 tax return - IRS. "While taxpayers should not file late, they also should not file prematurely. People who file before they receive all the proper tax reporting documents risk making a mistake that may lead to processing delays."
Pope Blesses Oft-Maligned Italian Tax Collectors - William Hoke, Tax Notes. "While Pope Francis extolled tax collectors’ role in combating tax evasion, the Vatican has not always played a positive role in that regard. In the decades following the founding of the Vatican Bank in 1942, wealthy Italians often used it to avoid taxes and bypass currency regulations."
Does the World Need Tax-Advantaged Art Freeports? - Renu Zaretsky, TaxVox:
Professor and Chair of International Studies at the University of San Francisco John Zarobell explains freeports date back to the 1800s. They gave importers a way to store unsold goods and defer taxes until the product was shipped to a buyer.
Today, there are about 3,500 freeports in the world, usually near shipping ports or airports, that exist beyond any government’s tax jurisdiction. In theory, their purpose is to spur manufacturing, trade, and investment. That’s why the United Kingdom plans eight new freeports in the wake of the coronavirus pandemic and Brexit. And it’s why the US established equivalent foreign-trade zones (FTZs) in 1934, in response to the Great Depression.
But in recent years, freeports in places such as Switzerland, Luxembourg, Singapore, Hong Kong, and Delaware have become dedicated to warehousing high-value art.
I may not know art, but I know people will do weird things with their art to avoid taxes.
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.