IRS Posts FAQs on Filing Relief for Schedules K-2 and K-3 – Kristen Parillo, Tax Notes ($). “The IRS has posted FAQs detailing the scope of filing relief for domestic passthrough entities subject to new international reporting requirements.”
The guidance follows the IRS’s February 15 announcement that it is providing transition relief on schedules K-2 and K-3 because of feedback it received from the tax community.
The announcement comes after several weeks of confusion and frustration over updated instructions for schedules K-2 and K-3 that the IRS posted January 18 for filers of Form 1065, 'U.S. Return of Partnership Income'; Form 1120-S, “U.S. Income Tax Return for an S Corporation”; and Form 8865, “Return of U.S. Persons With Respect to Certain Foreign Partnerships.”
The FAQ is here.
IRS Clarifies Reporting Relief For Some Partnerships - Emlyn Cameron, Law360 ($). “The Internal Revenue Service on Wednesday clarified Schedule K-2 and K-3 reporting relief for certain partnerships, adding details on the requirements for a partnership to be eligible for a filing exemption for the new schedules for 2021.”
In an updated FAQ, the IRS said partnerships with direct partners that are foreign estates and trusts, as well as foreign corporations, individuals or partnerships, would not qualify for the relief. The FAQ also specified that disqualifying foreign activity includes having foreign taxes paid or accrued, or assets that generate foreign source income.
IRS Provides More Detail On Partnership Foreign-Income Rules - Michael Rapoport. Bloomberg ($). “The IRS provided more detail Wednesday about new filing requirements for partnerships’ foreign income, attempting to clarify and provide relief in an area that’s prompted tax preparers to harshly criticize the agency.”
The IRS move to back off is ‘a welcome change, although more relief needs to be done,’ said Jerry Musi, national financial service tax industry leader for RSM US LLP.
Celia Lau, a CPA and partner at Navolio & Tallman LLP in Walnut Creek, Calif., said based on her firm’s internal training, it would have taken at least 2-3 hours of work per entity to classify and report everything for partnerships with no foreign connections.
Preparers’ time ‘would be better spent continuing to advise our clients on matters that have an impact on them,’ she said.
Here's how long it will take to get your tax refund in 2022 – Aimee Picchi, CBS News:
[M]ost Americans should get their refunds within 21 days of filing, according to the IRS. And some taxpayers are already reporting receiving their refunds, according to posts on social media.
But there are some caveats about the 21-day window to get a refund. Claiming the Earned Income Tax Credit or the Child Tax Credit will slow down your tax return due to regulations designed to deter fraud, but that means people who claim those credits and filed their returns on January 24 or close to that date may not receive their refund until early March, the IRS said.
And other issues can slow down your refund, such as errors like math problems or incorrectly stating how much you received from the advanced Child Tax Credit payments. In those cases, your tax return could get flagged, leading to delays of weeks or even months.
The IRS on Monday said tax returns with errors involving the third stimulus check, which are missing information or which have suspected fraud or theft could take up to 90 to 120 days to resolve.
The IRS Is In The Headlines. That Is Not A Good Thing – Howard Gleckman, Tax Policy Center. “Remember the old marketing cliche: ‘I don’t care what you say about me as long as you spell my name right.’ In the Internet age, it seems to apply more than ever—at least for many politicians, athletes, and celebrities. But not for the Internal Revenue Service.”
[T]he IRS itself has been warning that this filing season may be the worst in memory. Its message to taxpayers: File electronically, request direct deposit of your refunds, and don’t make any errors. If you do all those things, you should get a refund within three weeks. If not, all bets are off.
IRS News Release: Spearphishing Scams Target Tax Professionals (IRC §7206) – IRS:
Tax professionals warned of new email scams that attempt to steal their tax software preparation credentials, the IRS announced. The latest phishing email uses the IRS logo and a variety of subject lines such as ‘Action Required: Your account has now been put on hold,’ the IRS stated. Similar bogus emails that claim to be from a ‘tax preparation application provider.’ One such variation offers an ‘unusual activity report’ and a solution link for the recipient to restore their account, the IRS added. Tax professionals who get a scam email should save the email as a file and then send it as an attachment to phishing@irs.gov, the IRS requested. Additionally, they should also notify the Treasury Inspector General for Tax Administration at www.tigta.gov to report the IRS impersonation scam.
'Gas Tax' re-enters the congressional lexicon:
Some Lawmakers Want to Halt Gas Tax Amid High Inflation. Others See a Gimmick – Andrew Duehren and Richard Rubin, Wall Street Journal ($). “A push by some Senate Democrats to suspend the federal gasoline tax is running into opposition from both Republicans and other Democrats, presenting a challenge to the nascent attempt to reduce rising pump prices that have worried the White House.”
Sponsored by several Senate Democrats who face competitive re-election races this fall, the legislation would halt the tax of roughly 18 cents a gallon for the rest of the year. The highest rate of inflation in decades poses a political problem for Democrats trying to hold their control of the 50-50 Senate, and supporters see the measure as a quick way to try to reduce costs faced by many Americans.
Democrats could cut the gas tax but raise taxes elsewhere:
Senate Democrats plot March legislative push on inflation - Lindsey McPherson and Laura Weiss, Roll Call. “Senate Democrats plan to bring legislation to the floor in March designed to cut costs for Americans as rampant inflation drives up gasoline, food and other prices.”
So taxpayers would pay less at the pump and more elsewhere. How does giving with one hand while taking away with the other help?
The bill would direct the Treasury Department to transfer revenue from its general fund into the Highway Trust Fund and Leaking Underground Storage Tank Trust Fund to cover lost tax dollars.
[Sen.] Stabenow said if senators don’t like that approach they could come up with [other] revenue offsets.
Rising Prices Fuel Discussions on Future of the Federal Gas Tax - Kelly Phillips Erb, Bloomberg ($):
The price of gas isn’t the only thing that’s going up. Americans are feeling the impact of record inflation, which is reportedly costing the average household an additional $276 per month. Everything, it seems, from food to furniture, is costing us more.
To stop some of the bleeding, Sens. Mark Kelly (D-Ariz.) and Maggie Hassan (D-N.H.) introduced legislation for a federal gas tax holiday—a temporary suspension of the federal tax through Jan. 1, 2023. The proposal was met with skepticism, with Senate Minority Whip John Thune (R-S.D.) suggesting that Republicans aren’t likely to support it.
Lower-Prices Message Isn’t Build Back Better Surrender, Dems Say – Doug Sword and Benjamin Guffenheim, Tax Notes ($). “There are 118 tax provisions in Democrats’ signature reconciliation bill, but the only tax they’re talking about lately is the one charged at the gas pump. And the proposal to suspend the 18.4-cent-per-gallon federal gas tax — the Gas Prices Relief Act of 2022 (S. 3609) — isn’t even part of the Build Back Better Act (H.R. 5376).”
Finance Chair Ron Wyden, D-Ore., said there was no effort to pivot away from Build Back Better, which Schumer said Democrats continue to discuss among themselves.
The next round of efforts to pass Build Back Better is likely to center on the energy section of the Finance Committee’s draft, Wyden said. While the $325 billion in energy tax provisions will reward producers for cutting carbon emissions, those tax savings will help reduce energy costs for consumers, he said.
‘And that’s very much consistent with this focus right now, today, on inflation,’ he added.
Dems aren't just hawking a gas tax cut:
Vulnerable Senate Dems try to run as tax-cutters – Burgess Everett and Marianne Levine, Politico. “Vulnerable Senate Democrats are attempting a bold strategy: Running for reelection as the real tax-cutters in Congress, even if it pits them against some of their caucus colleagues.”
Tax holidays that slash government revenue aren’t universally popular in the party right now. But Sen. Raphael Warnock (D-Ga.) is still pressing a proposal to suspend the state sales tax on essential goods, and other Democrats are mulling a new push to bring down drug prices, particularly insulin. The topic dominated Senate Democrats’ Tuesday lunch, suggesting a larger political move is underfoot as the caucus dodges harder GOP hits on rising inflation.
The move toward slashing taxes — typically a mainstay of Republicans — comes at a pivotal point for Democrats’ fragile majorities, particularly in the Senate. The party has failed to pass both a landmark $1.7 trillion spending bill that would have offered broader tax reform and a voting and elections package they believe would have made them more competitive in this year’s midterms.
And that leaves Democrats racing to cobble together an agenda that convinces voters that the party is responding to their biggest concern: rising costs.
Education Department suspends seizure of tax refunds, Social Security for overdue student loans until November - Greg Iacurci, CNBC:
- The Treasury Offset Program lets the federal government seize payments like tax refunds and partial Social Security checks to satisfy delinquent debt, such as student loans and child support.
- A federal pause on student-loan collections prevents this until after May 1. The Education Department said it will suspend offset for an additional six months, which would be Nov. 1.
- That means tax benefits enhanced by the American Rescue Plan, like the earned income, child and Recovery Rebate tax credits, won’t be seized.
Halliburton Loses $84 Million New Mexico Fracking Tax Appeal - Aysha Bagchi, Bloomberg ($). “Halliburton Energy Services Inc. has lost its appeal over $84 million in New Mexico taxes tied to its fracking sales.”
The case concerned a New Mexico tax assessment on a portion of the energy giant’s sales related to fracking in the Permian Basin—a region that stretches into southeastern New Mexico. New Mexico’s Administrative Hearings Office upheld the tax assessment in 2019.
Halliburton argued on appeal that it was entitled to a deduction that New Mexico provides for certain receipts from selling chemicals or reagents. But the New Mexico Court of Appeals ruled Tuesday that receipts tied to providing fracking didn’t amount to a sale of chemicals for purposes of the tax deduction.
Whirlpool $45 Million Foreign Tax Appeal ‘Meritless,’ IRS Says – Jeffery Leon, Bloomberg ($). “Whirlpool’s challenge to a ruling that it must pay tax on $45 million made by a Luxembourg subsidiary is “meritless” and doesn’t warrant a rehearing, the IRS said.”
In a brief filed Tuesday to the U.S. Court of Appeals for the Sixth Circuit, the IRS argued the appliance manufacturer implemented a “tax-avoidance scheme” so it wouldn’t have to pay foreign and U.S. taxes on sales income earned abroad, by reorganizing appliance sales from Mexico to Luxembourg.
Yellen-White House Split Slows Arrival of Crypto Strategy – Saleha Mohsin, Jennifer Jacobs and Jennifer Epstein, Bloomberg ($). “President Joe Biden’s cryptocurrency policy rollout was delayed by a dispute between White House officials and Treasury Secretary Janet Yellen over the scope of a pending executive order that could include a digital dollar, according to people familiar with the matter.”
The order, intended to set a government-wide strategy for digital assets, was expected to be signed at the start of the year but the squabble between Yellen’s staff and officials on the National Economic Council slowed its progress, the people said, speaking on the condition of anonymity. Senior administration officials have now completed a draft version that is ready for Biden’s consideration, though further action could be delayed because of the Ukraine crisis.
Yellen views the plan for an executive order as unnecessary, particularly any mention of a central bank issued digital dollar, according to two of the people. The Treasury chief and her team say that the Federal Reserve, which released a report last month, are still working on the topic and should be allowed room to develop its thinking. Her team has also expressed to the White House that Treasury and federal regulators, including the Securities and Exchange Commission, have been making progress on providing industry with more clarity on U.S. rules around virtual currencies.
'Staking' Row Puts IRS On Hot Seat For Lack Of Guidance - Joshua Rosenberg, Law360 ($). “The Internal Revenue Service hasn't offered specific guidance regarding whether cryptocurrency staking constitutes taxable income upon receipt, leaving those engaged in the activity, which implicates substantial sums of potential government revenue, unsure about their tax obligations.”
The lack of guidance on staking has come to a head in the case of Joshua Jarrett, a cryptocurrency investor from Tennessee who acquired digital tokens through staking. Staking is one of the consensus mechanisms that blockchains can employ to verify transactions. Jarrett has argued in federal court that the IRS doesn't have the right to tax the tokens he's staked until he's disposed of them.
Put another way, his position is that the act of staking, by itself, is not a taxable event.
Crypto, Fintech Firms Join to Meet Anti-Money Laundering Rule – Yueqi Yang and Olga Kharif, Bloomberg ($). “Coinbase Global Inc., Gemini Trust Co. and Robinhood Markets Inc. are among firms helping to build a platform to comply with a U.S. money-laundering rule as crypto and financial-technology companies seek to satisfy existing requirements and head off stricter oversight.”
A group of 18 companies is setting up the platform to help meet conditions of the U.S. Treasury Department’s “travel rule,” which requires financial firms to pass on information including customer names, account numbers and transaction dates of fund transfers. The coalition has held talks with U.S. and global regulators about their plan, said Elena Hughes, chief compliance officer of crypto platform Gemini.
‘We believe that the solution will allow for top-tier compliance for the travel rule, and we are looking to get buy-in from our regulatory authorities,’ Hughes said in an interview.
Colorado to Take Crypto for Tax, Other Payments This Summer – Laura Mahoney, Bloomberg ($). “Colorado will begin accepting cryptocurrency for state tax payments by this summer, Gov. Jared Polis said Wednesday.”
‘We will be accepting crypto for paying state taxes and other transactions with the state by the end of summer,’ the Democratic governor told CoinDesk. Colorado would be the first state to accept such payments.
Treasury Defends State Tax Cut Ban as ‘Commonplace’ Funding Curb – Jeffery Leon, Bloomberg ($). “A congressional ban on using state pandemic aid funds to cut taxes is a “commonplace” restriction on federal funding that is permitted under the U.S. Constitution, a federal government lawyer argued before the Eighth Circuit.”
Missouri is one of more than a dozen states challenging a provision in the March 2021 pandemic aid law (Pub. L. No. 117-2) prohibiting states from using federal funds to 'directly or indirectly' offset net revenue losses from tax changes. Missouri has received $2.7 billion in federal funds.
Missouri argues that the funding restriction unconstitutionally infringes on its sovereign right to set tax policy. During Tuesday’s argument, Justice Department attorney Daniel Winik said that Missouri is free to cut taxes, but can’t use federal aid to do it.
NYC’s Adams Offers $98.5 Billion Budget to Jumpstart Economy – Laura Nahmias and Martin Z. Braun, Bloomberg ($). “New York Mayor Eric Adams proposed a $98.5 billion budget Wednesday, pledging to restrain spending in a city awash with extraordinary federal aid and better-than-expected property-tax revenues.”
In his first spending plan since taking office in January, Adams pledged to prize efficiency and restrain ballooning police costs, telling New Yorkers that ‘we are not spending our money. We are spending your money.’
‘Fiscal discipline will be a hallmark of my administration,’ he said, warning that Covid stimulus funds would soon disappear.
N.Y., N.J. Pinch Business With Slow Payback of Billions in Loans - Elise Young, Bloomberg ($). “New York, New Jersey and several other U.S. states are delaying repayment of $40 billion in federal pandemic unemployment loans, saddling businesses with higher payroll costs instead.”
Ten states that took advances from the federal government when Covid-related job losses soared, including California and Illinois, are now piling up interest of $327.8 million and counting. The delays are burdening businesses and employees with greater unemployment costs that will continue long after the pandemic is over.
It’s not that states like New Jersey don’t have the cash. An influx of stimulus funds and a surge in tax receipts as the economy rebounds are helping pad state budgets. Almost half of all U.S. states have expanded their taxable wage bases since 2020. Roughly $90 billion of states’ Covid aid remains unallocated as of November, according to the Center on Budget and Policy Priorities.
Unclear If New Yorkers Are Fleeing From Tax Hikes, Official Says - Paul Williams, Law360 ($). “It is too early to assess whether New York's tax increases on high-earners that were enacted last year are driving residents into tax-friendlier climates, the state's chief tax administrator said Wednesday, adding that personal income tax collections are strong.”
‘We haven't even been able to close out the tax year from 2020 and assess what the initial pandemic effects were,’ [Amanda] Hiller [New York State Department of Taxation and Finance's acting commissioner and general counsel] said during a virtual joint meeting of the state Assembly Ways and Means Committee and Senate Finance Committee. She noted that the state extended certain tax filing deadlines into 2022 due to Hurricane Ida.
Ky. Gov. Exempts Car Value Increases From Property Tax - Michael Nunes, Law360 ($). “Kentucky Gov. Andy Beshear issued an executive order Wednesday to exempt increases in motor vehicles' valuations since Jan. 1, 2021, from property tax.”
The change will affect 2022 and 2023 assessments. Over the past year, car values in the state increased by an estimated 40%, the governor's office said in a statement. Taxpayers who already paid this year's assessment are entitled to a refund for the overpayment, the order states.
Minn. House Bill Seeks To Cut Income Tax Rates - Sanjay Talwani, Law360 ($). “Minnesota's personal income tax rates would drop by one percentage point across all brackets under a bill introduced Tuesday in the state House.”
H.F. 3478, sponsored by Rep. Joe McDonald, R-Delano, would lower the personal tax rates for all four income brackets by one percentage point each. Under the bill, the highest tax rate would drop to 8.85%, while the other rates would drop to 6.85%, 5.8% and 4.35%.
U.S. Chamber’s Neil Bradley Raises Concern Over Global Tax Deal – Christopher Condon, Bloomberg. “Neil Bradley, chief policy officer for the U.S. Chamber of Commerce, said the group has grown increasingly concerned that a fledgling global tax deal may ‘fundamentally disadvantage U.S. companies.’”
Bradley’s remarks, in an interview Tuesday at Bloomberg News in Washington, cast doubt on Treasury Secretary Janet Yellen’s view that U.S. corporate leaders would eventually support the historic deal, and urge Congress to pass the legislation necessary to implement it.
Take Tax Action on Carbon to Meet 2050 Goals, Says OECD - Shaun Courtney, Bloomberg ($). “The Organization for Economic Cooperation and Development (OECD) is urging countries to take action on decarbonization and aims to advance dialogue, through an inclusive framework, toward tax policies that could aid global coordination on net-zero 2050 goals.”
‘Pledges are one thing, but we don’t really see at this point the full translation of these pledges into policy actions,’ said Kurt Van Dender, the head of the Tax and Environment Unit at the OECD’s Center for Tax Policy and Administration, at a Feb. 16 OECD Tax Day event. ‘Near-term policy actions remain insufficient, and they’re also not well coordinated across countries.’
Americans Abroad Protest Offshore Reporting Regs – Benjamin Guggenheim, Tax Notes ($). “Americans living overseas are unfairly targeted by a confusing array of tax reporting requirements, according to comments submitted to Treasury by American Citizens Abroad (ACA).”
In February 14 comments to Treasury’s Financial Crimes Enforcement Network for its review of Bank Secrecy Act regulations, ACA said the foreign bank account report and PATRIOT Act Customer Identification Program (CIP) regimes create a needlessly confusing array of reporting requirements for U.S. citizens in foreign countries.
While intended to combat international money laundering schemes and other financial crimes, the regulations frequently result in the assessment of hefty penalties for tax evasion against well-meaning American citizens, the nonprofit group said.
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