Tax News & Views Shape Up! Roundup

February 11, 2022

Republicans Urge IRS to Provide Maximum Taxpayer Support During Difficult Filing Season – Senate Finance Committee Republicans:

Senate Republicans, led by Finance Committee Ranking Member Mike Crapo (R-Idaho), are urging the Internal Revenue Service (IRS) to do everything it can to support taxpayers during the current tax filing season.  In a letter to Treasury Secretary Janet Yellen and IRS Commissioner Chuck Rettig, the senators press the agency to provide taxpayers with targeted, temporary relief during what is widely believed to be one of the most challenging and frustrating filing seasons in recent memory for both taxpayers and the IRS.   

The wording in the letter is quite direct:

We are also alarmed by reports from taxpayers who cannot resolve their tax problems because the IRS is unresponsive.

This situation is untenable.  

When our constituents cannot get help from those tasked to administer our tax laws, it diminishes the integrity of our voluntary tax system.

While recognizing the challenges the IRS currently operates under, we find the current situation at the IRS alarming.

One recommendation to address the problem: “Delay the collection process for filers until the IRS opens and processes any mail that may include an abatement request.”

What are lawmakers doing about this problem? Holding hearings. Yep. That'll do it...

Hearing Announced: - Patrick Ambrosio, Bloomberg ($):

The Finance panel announced a Feb. 17 hearing focused on filing season and customer service challenges at the IRS. The virtual hearing is scheduled to include testimony from National Taxpayer Advocate Erin Collins and representatives from the Government Accountability Office and American Institute of CPAs.

The House already held its hearing

A Quick Update on Returns and Refunds During Tax Season - Kelly Phillips Erb, Bloomberg ($):

Next week, hopeful taxpayers will begin checking bank accounts for tax refunds. Tax season opened Jan. 24, and the IRS says most taxpayers who file a tax return with no issues should expect a refund within 21 days if they file electronically and choose direct deposit.


IRS, Urged by Watchdog, Does More on Opportunity Zone Compliance - Kaustuv Basu, Bloomberg ($). “The IRS plans to notify 5,141 opportunity zone investors about any deferred capital gains that they might have improperly gained.”

That action comes in response to a report released Thursday by a Treasury watchdog that found the Internal Revenue Service didn’t require an investor’s taxpayer identification number to ensure that they were complying with requirements.

The report is here.

Watchdog Urges IRS to Halt Austin Processing Center Closure – Naomi Jagoda, Bloomberg ($). “The IRS should postpone the closure of its tax processing center in Austin, Texas, until the agency addresses the backlog of tax returns and hiring shortages, the Treasury Inspector General for Tax Administration said in a report released Thursday.”

‘We remain concerned as to any plans the IRS may have to ultimately close the Austin Tax Processing Center,’ TIGTA said in the report. ‘The IRS estimates a five-year net savings of $94 million will be achieved by closing the Center. This seems relatively insignificant when considering an annual budget of around $12 billion and the additional burden that will be placed on taxpayers resulting from continued and new backlogs of work that will result from moving return processing including international return processing to remaining end-state sites.’


Senators’ Deadline for Inventory Relief Coming Up Fast – Nathan Richman, Tax Notes ($). “Several Democratic senators have asked the IRS to publish a relief notice for taxpayers with pandemic-induced inventory troubles, especially auto dealers, within days.”

‘Affected small businesses need to know at the earliest possible date whether relief will be granted. The taxpayers’ returns must include complex and time-consuming [last-in, first-out inventory] calculations. Therefore, we respectfully urge you to provide a response, including the required Sec. 473 determinations in the Federal Register, no later than February 15, 2022,’ 19 senators, led by Finance Committee member Sherrod Brown, D-Ohio, and including Angus S. King Jr., I-Maine, wrote in a February 4 letter.


Omnibus Framework Marks Start of Tax Extenders Push – Doug Sword, Tax Notes ($). “The annual effort to cram the previous year’s expired tax breaks into a must-pass spending bill is made more complicated by many of those tax provisions being featured in the stalled Build Back Better Act (H.R. 5376). The announcement February 9 that Republicans and Democrats had reached a ‘framework’ to negotiate a belated omnibus spending bill for fiscal 2022 likely marks the beginning of talks on what to do about 41 tax provisions that expired in 2021.”

Much of the focus could be on both expired and expiring energy tax provisions, many of which are not only included in the Senate Finance Committee’s energy section of its Build Back Better draft but are expanded.

Senate Democrats interviewed February 10 continue to see the energy section as the most likely survivor of the Build Back Better effort, which Senate Finance Committee Chair Ron Wyden, D-Ore., says would overhaul a mishmash of more than 40 energy tax extenders into three silos of incentives.

Speaking of tax extenders:

Shift in tax treatment for R&D expenses a hit to innovation – Sharon Heck, Roll Call. “Innovation leadership in the United States is at serious risk with the 2022 shift in income tax treatment of research and development (R&D) expenses.”

For the first time in nearly 70 years, business cash flow is negatively affected by the inability to immediately write-off their R&D expenses in the year incurred. As of the new year, businesses must instead forgo the immediate write-off of their current year R&D investments. This tax change makes the U.S. a global outlier and puts a constraint on innovation and high-paying R&D jobs at a time when the U.S. needs to accelerate investment in R&D. Congress must move quickly to ensure that our tax code continues the long policy position of supporting U.S. innovation. 

According to estimates from the Joint Committee on Taxation, Congress’ nonpartisan tax scorekeeper, the amortization requirement in the 2017 tax overhaul law could cost businesses $29.1 billion in just the first nine months of 2022 alone. Unless reversed, one study concluded that estimated R&D spending will fall by $4.1 billion annually, costing more than 23,000 high-paying U.S. R&D jobs over a five-year period. 


Voices: Claiming the R&D tax credit (the right way) – Randy Crabtree, Accounting Today. “As of Jan. 10, taxpayers filing a valid R&D tax credit claim for refund under Section 41 of the Internal Revenue Code must provide, at minimum, five essential pieces of “contemporaneous documentation” including:”

1. All business components that form the factual basis of the R&D tax credit claim for the claim year;

2. All research activities performed by business component (i.e., this must include a description of what the taxpayer did, and how they did it, by business component);

3. All individuals who performed each research activity by business component. (i.e., this can be a list, table or narrative but must include the first and last name, and the title/position of the person or persons engaged in the R&D by business component);

4. All the information each individual sought to discover by business component. (i.e., this can be a list, table, or narrative providing the information each individual sought to discover); and,

5. The total qualified expenses of employee wage expenses, supply expenses, and contract research expenses. 


Manchin Backs Higher Tax on Wealthy, Corporations, Capital Gains – Steven Dennis, Bloomberg ($). “Senator Joe Manchin says he wants a tax bill that would raise taxes on the wealthy, corporations and capital gains.”

Manchin says he backs a 25% corporate tax rate, a 15% minimum rate, capital gains rate increase to 28%, elimination of carried interest

For those of you playing at home, Manchin's request runs counter to Sen. Kyrsten Sinema who has objected to rate increases, which prompted an education campaign aimed at changing her mind. Manchin's ask raises at least two questions:

1. Does Sinema now support rate increases?

2. If her position is unchanged, is Manchin trying a new way to kill BBB by adding rate increases to the bill and forcing Sinema to oppose it?

Manchin is also blaming inflation:

Manchin Blasts Inflation, Casts More Doubt on Biden Agenda – Steven Dennis and Erik Wasson, Bloomberg ($). “Senator Joe Manchin threw more cold water on President Joe Biden’s spending plans after inflation spiked to a 7.5% rate in January, the highest rate in four decades.”

Manchin for months has been raising alarms about the impact of federal spending on inflation and in December pulled the plug on negotiations over Biden’s economic plans, citing rising prices as among his concerns.

He’s also been urging the Federal Reserve to act more aggressively to stem inflation, which he said is 'causing real and severe economic pain that can no longer be ignored.'

'It’s beyond time for the Federal Reserve to tackle this issue head on, and Congress and the Administration must proceed with caution before adding more fuel to an economy already on fire,' the West Virginia Democrat said Thursday in a statement.

Meanwhile, BBB has gone nowhere since Manchin killed it late last year:

The Democratic balancing act as they eye the resurrection of Build Back Better: 'Timing. Is. Everything.' – Phil Mattingly, CNN:

There is no clear timeline for its passage. There are no official negotiations under way. Sen. Joe Manchin, a West Virginia Democrat who imploded the effort in December, still refers to the package -- repeatedly -- as ‘dead.’

Dems face a sobering possibility: Build Back ... never – Burgess Everett, Politico. “Build Back Never? The thought has crossed Democrats’ minds.”

President Joe Biden’s $1.7 trillion social and climate spending plan is dead as written, rejected by Sen. Joe Manchin (D-W.Va.). The Senate is moving onto a host of other issues that will take up the rest of the winter and possibly some of the spring. And some Democrats concede there’s a small but distinct possibility they could have to shelve the whole endeavor indefinitely.


Calling All Senators: Input Wanted on Marijuana Reform Bill – Wesley Elmore, Tax Notes ($). “Top Senate Democrats are calling on their colleagues to participate in the drafting process for long-awaited legislation to decriminalize marijuana and impose an excise tax on cannabis products.”

Senate Majority Leader Charles E. Schumer, D-N.Y.; Senate Finance Committee Chair Ron Wyden, D-Ore.; and Sen. Cory A. Booker, D-N.J., plan to finalize their comprehensive marijuana reform bill soon. Schumer reportedly said at a February 4 press conference in New York that he hopes to formally introduce the bill in April.

But first, the drafters want recommendations from the rest of the Senate.


Senators Announce Bill to Reinstate Employee Retention Credit – Tax Notes ($):

The Employee Retention Tax Credit Reinstatement Act would continue the employee retention credit for the fourth quarter of 2021, a credit that ‘gave businesses a lifeline that they could use to keep their employees on payroll,’ Senate Finance Committee members Maggie Hassan, D-N.H., and Tim Scott, R-S.C., said in a February 10 release.


State Auditors Also Bear Heavy Loads This Tax Season (Podcast) - David Schultz, Bloomberg ($):

The Biden administration made headlines last year with its plan to provide $80 billion to the IRS to bolster audit and enforcement activities, and tackle the so called “tax gap”—the difference between the amount taxpayers owe and how much they actually pay. It’s estimated at $600 billion annually.


California Tells Company to Speed Up Posting Installment Income – Laura Mahoney, Bloomberg ($). “A North Carolina-based garage door company should have accelerated three installment payments from selling the company into the year the sale took place when it filed its final California tax return, the state Office of Tax Appeals said.”

A three-judge panel rejected arguments from Amarr Co. and a shareholder group that because it continued to do business in California as a C corporation, rather than the previous S corporation before the sale, it could recognize $33 million in installment payments in future years, rather than in 2013 when the sale took place. The S corporation ceased to exist upon the sale and Amarr must recognize the unreported income from the installment sales in its final tax year, the panel said in an opinion published Monday.


Kansas Lawmakers Back Tax Breaks for $4 Billion Mystery Investor – Michael Bologna, Bloomberg ($). “Hoping to land a mysterious $4 billion corporate investment and 4,000 new jobs, the Kansas Legislature has hastily approved an ambitious economic development bill designed to attract large capital investments and phase out corporate income taxes."

The Senate voted 31-9 on Wednesday to approve S.B. 347, creating the Attracting Powerful Economic Expansion Program. The measure won support in the House on Tuesday by a vote of 80-41. The bill now heads to Gov. Laura Kelly (D), who has been leaning on the Legislature to quickly approve a tax incentive package to attract an unnamed business promising to make the biggest private sector investment in state history.


Iowa Bill Would Raise Sales Tax, Lower Income Tax - Jaqueline McCool, Law360 ($). “Iowa would increase its sales and use tax rate to 7% and annually decrease its income tax rate under a bill introduced in the state Senate.”

The Ways and Means Committee on Monday introduced S.F. 2206, which would increase the state sales tax rate from 6% to 7% from Jan. 1, 2023, through Dec. 31, 2050, and would also create an annual decrease to the state income tax rate. 


NYC Mayor Adams Backs Gov.'s Tax Abatement Revamp Plan – Paul Williams, Law360 ($). “New York City Mayor Eric Adams expressed support Wednesday for the governor's plan to revamp a lucrative, expiring tax abatement program for affordable housing in the city and vowed to pursue an overhaul of the city's property tax system.”

Adams, a Democrat, told state lawmakers that he favors Democratic Gov. Kathy Hochul's recommendation to let the 421-a tax abatement program expire in June and replace it with a different initiative that would require certain developments to offer more affordability to obtain property tax exemptions. Adams has no power over the program because it is derived from a state law, but he threw his support behind the proposal when questioned by lawmakers who are critical of the abatements.

‘I am a supporter of the governor's plan,’ Adams said during a virtual joint meeting of the state Assembly Ways and Means Committee and Senate Finance Committee on Hochul's proposed budget. He said New York City needs to strategically promote affordable housing developments, responding to a question from Sen. Julia Salazar, D-Brooklyn, asking for his stance on the replacement that Hochul proposed for 421-a.


Whitmer Proposes School Funding Boost, Bonuses and Tax Cuts – Associated Press, U.S. News and World Report. “With Michigan awash in surplus revenue and unprecedented federal aid, Gov. Gretchen Whitmer on Wednesday proposed a $74.1 billion budget that would significantly boost education spending, pay bonuses to frontline pandemic workers and cut taxes for retirees and low-income families.”

The election year plan, if approved by the Republican-controlled Legislature, would include a 5% increase in base aid for K-12 schools, universities and community colleges, and a 10% increase in revenue-sharing payments to municipalities. Road construction and other transportation spending would rise by $1 billion, or 20%, due to new federal infrastructure funding and a $280 million transfer of general funds.

FWIW: Companies in some states would rather use the surplus to create daycares so people can get back to work. Not sure if that will happen. 


Sources of Government Revenue in the OECD, 2022 – Daniel Bunn, Tax Foundation. “Developed countries raise tax revenue through a mix of individual income taxes, corporate income taxes, social insurance taxes, taxes on goods and services, and property taxes. The mix of tax policies can influence how distortionary or neutral a tax system is. Taxes on income can create more economic harm than taxes on consumption and property. However, the extent to which an individual country relies on any of these taxes can differ substantially.”

While tax revenues have taken a hit due to the pandemic, many OECD countries are already seeing a recovery not only in growth measures but also in tax revenues. As the recovery continues, governments should pay close attention to how they raise revenue and avoid policy changes that could stifle an economic recovery or prove to be a complex burden on individuals and companies.


Flexibility Is Key in Adopting Minimum Tax, Advocacy Group Says - Michael Rapoport, Bloomberg ($). “Companies need flexibility in adopting the new global minimum tax that the OECD tax agreement calls for, and shouldn’t just be forced to follow the organization’s model rules, an advocacy group said Thursday.”

In particular, countries should remain free to adopt a higher rate than the 15% minimum in the Organization for Economic Cooperation and Development’s agreement, which is too low to effectively deter profit shifting, according to a report from the BEPS Monitoring Group. The group is a network of international tax specialists set up by advocacy organizations like Oxfam and the Tax Justice Network.


Tech Group Urges U.S. Competitiveness Amid Global Tax Deal – Stephanie Soong Johnston, Tax Notes ($). “An IT trade group is pushing the Biden administration to boost U.S. competitiveness by focusing on administrability, certainty, and double taxation relief as countries hammer out technical details of a two-pillar global tax reform agreement.”

The Information Technology Industry Council (ITI) published an action plan February 10, setting out recommendations for U.S. lawmakers to promote U.S. economic growth and international leadership across several areas, including tax.


Happy Don’t Cry Over Spilled Milk Day! Today is for thinking positive. So look on the bright side of things. Don’t worry. Be happy!

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