February 16, 2022
IRS Announces Filing Relief for Schedules K-2 and K-3 - Kristen Parillo, Tax Notes ($):
The IRS will provide filing relief for domestic passthrough entities caught off guard by new international reporting requirements.
“The IRS intends to provide certain additional transition relief for this year from the Schedule K-2 and K-3 reporting for certain domestic partnerships and S corporations with no foreign activities, foreign partners, or shareholders, and without knowledge of partner or shareholder need for information on items of international relevance,” the agency said in a February 15 statement.
“For 2021, these qualifying domestic partnerships and S corporations will not have to file the new schedules,” the statement continued. “We are taking this step in response to feedback we received from the tax community and our stakeholders. The IRS will provide full details of this relief soon.”
The IRS has updated its filing season page to include the statement.
While the IRS has yet to outline the precise scope of the relief, it is an important IRS concession to practitioners and taxpayers. A Tax Notes article (not paywalled) earlier this week reported practitioner objections to the form, which is designed to gather information to enable partners to properly compute foreign tax credits and other international items.
With the recent revelation that the IRS has a backlog of 24 million unprocessed returns going into this year - several times more than it had admitted - practitioners have deep concerns about this year's filing season. The need to spend time gathering information that will affect a small minority of partners was unpopular - especially because IRS programming issues would delay the ability to fully e-file the returns until after the due date. Many tax prep software vendors also have yet to fully update their products for the new forms.
IRS Offers Some Domestic Partnerships More Reporting Relief - David van den Berg, Law360 Tax Authority ($). "Schedules K-2 and K-3 are new for the 2021 tax year. In 2020, the IRS and the U.S. Department of the Treasury proposed the new schedules. Agency officials have said the new schedules would help it better target audits."
IRS to Issue K-2/K-3 Filing Relief for 2021 Filings - Ed Zollars, Current Federal Tax Developments. "Obviously details will matter and the statement seems to imply full compliance will be required for 2022 returns."
California S.B. 113, signed into law as Chapter 3, lifts restrictions on the use of net operating loss deductions and business tax credits — enacted by 2020 legislation which suspended the use of NOLs for businesses with more than $1 million in income and limited tax credits to $5 million for each taxpayer for tax years 2020-2022 in response to COVID-19 — one year early; creates a tax cut for restaurants and venues by conforming state tax policy to exclude from taxable income grants provided under the federal Restaurant Revitalization Fund and the Shuttered Venue Operators Grant program; exempts from taxable income electricity, gas, water, and other utility payment assistance provided to qualified residents under the California Arrearage Payment Program and the California Water and Wastewater Arrearage Payment Program; and modifies the state’s passthrough entity workaround to the federal $10,000 cap on the state and local tax deduction — established by 2021 legislation which allows qualified passthrough entities taxed as partnerships and S corporations to elect to pay a 9.3 percent state tax on their owners’ income at the entity level and claim an equivalent tax credit against their state personal income tax — to allow disregarded limited liability companies that are owned by individuals, as well as passthrough entities that have a partnership as one of its owners, to claim the credit.
The full text of S.B. 113 is included.
Mich. Senate OKs Slashing Corp., Personal Income Tax Rates - Paul Williams, Law360 Tax Authority ($). "The state Senate approved S.B. 768 by a 22-16 vote along party lines. The bill would reduce the state's corporate income tax rate from 6% to 3.9% and its personal income tax rate from 4.25% to 3.9%, effective for tax years starting on or after Jan. 1, 2022. The measure will next move to the House of Representatives, which is also controlled by Republicans."
Why Trump’s accounting firm ditched him - Amber Phillips, Washington Post ($):
It’s bad news for his company. Legal experts say this probably means that the very firm that prepares his documents has arrived at its own findings that are consistent with at least some of the allegations made against the Trump Organization by investigators. It’s pretty damning that Mazars now says its own work can’t be trusted.
“Accounting firms don’t make the decision to quit their clients lightly,” said Barbara McQuade, a former federal prosecutor who is with the University of Michigan Law School. “ … They are distancing themselves from the Trump Organization because they fear that wrongdoing is likely to be exposed.”
Mexican President Reveals Income of Reporter Critical of His Son - William Hoke, Tax Notes:
Mexico’s president has defended his release of the purported income of a journalist who reported on the lease by the president’s son of a Houston mansion owned by an executive of a major U.S. corporation.
The journalist, Carlos Loret, reported January 27 that José Ramón López Beltrán, the son of Mexican President Andrés Manuel López Obrador, in 2019 and 2020 had rented a house valued at approximately $1 million that was owned by Keith Schilling, who was then an executive of Baker Hughes Co. Loret’s report followed an investigation by Mexican-U.S. news website Latinus and advocacy group Mexicans Against Corruption and Impunity.
A sobering data point for those who think tax privacy isn't important. The IRS and Treasury still have yet to solve the massive and unprecedented data leak that allowed journalists at non-profit ProPublica to publish tax data of high-income U.S. individuals. The Mexican story shows that tax data can be used against journalists as well as by them.
Dem plan to suspend the gas tax faces bipartisan pushback - Jordain Carney, The Hill. "Sen. Joe Manchin (D-W.Va.) warned that suspending the gas tax 'just doesn't make sense' because it could negatively impact federal highway funds."
5 reasons your tax refund this year might be smaller - Kay Bell, Don't Mess With Taxes. "1. You got half your Child Tax Credit money last year. The Child Tax Credit (CTC) amount for 2021 was larger than in prior years, or than it will be in 2022 or beyond, unless Congress acts. It was $3,600 for each child younger than age 6 and $3,000 for children ages 6 to 17. But that increase over the usual $2,000 per child doesn't necessarily mean the tax credit will produce a larger refund at filing time."
Eight scary automated IRS notices that are being suspended — for now - Michelle Singletary, Washington Post ($). "Meanwhile, the AICPA has been pressing the IRS to extend holds on taxpayer accounts until a resolution is reached. This will prevent a notice from escalating to collection efforts while there are still a massive number of unprocessed returns that need to be cleared."
IRS introduces new form for 2022 tax season – how are tax professionals coping? - National Association of Tax Professionals. "Tax professionals may notice a surprising new form pop up this tax season when preparing S corporation shareholder returns. The IRS officially released Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, just before the beginning of the 2022 tax season, leaving little time for preparers to familiarize themselves with the instructions and the form itself."
Updated IRS FAQs Explain How to Claim 2021 Recovery Rebate Credits - Parker Tax Pro Library. " This third round of economic impact payments are authorized under Code Sec. 6428B and, unlike the 2020 recovery rebate credits and first two rounds of economic impact payments, require an additional "plus-up" payment, which is based on information (such as a recently filed 2020 tax return) that the IRS receives after making the initial payment to the eligible individual."
How to Handle 2021 Taxes as a Remote Worker - Bryan Cannon, Bloomberg. "Typically, the rule is that employees pay taxes based on the state where they reside. However, remote work has grown in popularity so much that states are starting to become concerned about the lost revenue that comes with employees leaving high-tax states in favor of low-tax states. Some are reevaluating the rules to see if they can recoup lost revenue."
Why QO Funds should stick to real property - Andrew Gradman. "To maximize the tax benefits of Qualified Opportunity Funds, some investors are shunning real estate and chasing service-oriented businesses."
Yes You Can Sell Property Under An IRS Lien - Amber Gray-Fenner, Forbes. "While many people believe that they can’t sell their home if it has an IRS lien on it, it turns out that is a myth."
Private Equity: Offshore Investments and Phantom Income - Jason Freeman, Freeman Law. "Subpart F rules treat a U.S. shareholder of a controlled foreign corporation (“CFC”) as though it received its pro-rata share of certain categories of the CFC’s current earnings and profits (“E&P”). That is, a U.S. shareholder is required to include in current income its pro-rata share of the CFC’s Subpart F income even if it is not distributed and received."
Proposal to Rid Ohio of Gross Receipt Taxes - Ulrik Boesen, Tax Policy Blog. "A group of lawmakers in Ohio have proposed to repeal the state’s gross receipt tax (GRT), also known as the commercial activity tax (CAT). House Bill 234 would phase out the tax over five years. Ohio’s CAT, implemented in 2005 as part of tax reform that lowered and consolidated business taxes, is one of only a few gross receipts taxes still levied in the country. These taxes are uniquely uncompetitive, discourage investment in the state, and drive inefficient business decisions divorced from economic merit. They were once common, but now largely have been repealed."
Should Congress Trade Temporary Assistance for Needy Families (TANF) For A Child Allowance? - Elaine Maag and Heather Hahn, TaxVox. "The Romney child allowance simplifies benefits for families with children. But at a potentially high cost for some of the most vulnerable families. The benefits in Romney's proposal aren't enough for families to live on. If Congress ever gives his plan serious consideration, they’ll have to decide whether making many families better off while making some very vulnerable families worse off is worth the trade-off. Or maybe they’ll find a way to pay for the benefit that doesn’t target the lowest income families."
When Fraudulent Tax Return Preparation Becomes a National Enterprise - Jim Maule, Mauled Again:
But unlike many situations in which a tax return preparer sets up shop in a particular locality and commits fraud when clients walk in the door or otherwise contact the preparer, this woman was part of a scheme in which she and others held seminars throughout the country in which they promoted the use of fraudulent schemes.
The details of those schemes had been set out in an earlier press release, in which the Department of Justice announced it had filed a complaint seeking a permanent injunction against the preparer and her tax preparation business. The complaint alleged that her scheme used a so-called “redemption theory,” in which individuals claim that the federal government keeps secret accounts for citizens that can be accessed by filing certain forms with the IRS. In this instance the preparer filed fraudulent IRS Forms 1099-A (Acquisition or Abandonment of Secured Property) and 8281 (Information Return for Publicly Offered Original Issue Discount Instruments) for her clients, with information that set up huge but false refunds totaling in the million. The “redemption theory” has been rejected multiple times by the IRS and by the courts.
It's amazing what people will believe if it promises them big government checks.
I come to ask a favor, so get on it. Today is Do a Grouch a Favor Day.
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.