February 28, 2022
CPAs Press for Delay on Filing Schedules K-2 and K-3 - Kristen Parillo, Tax Notes ($):
CPA groups across the country are urging Treasury and the IRS to delay implementation of international reporting requirements for passthroughs until e-filing is ready and uncertainty over filing obligations is resolved.
That schedules K-2 and K-3 can’t be e-filed and the tax community is still confused about which entities must complete them “nearly preclude complete and accurate returns for the 2022 filing season on which our tax system relies and on which the Schedules are predicated in the goal to standardize international tax reporting,” the American Institute of CPAs said in a February 24 letter to Treasury and the IRS.
The letter reiterated Lewis’s call to delay implementation until 2023, as well as suspend any assessment of penalties against partnerships and S corporations for a failure to file, or failure to timely provide, schedules K-2 and K-3 for the 2021 tax year.
Biz Group Urges Treasury To Scrap Foreign Tax Credit Rules - Natalie Olivo, Law360 Tax Authority ($):
According to ACT, the final regulations affect ordinary business transactions in several ways, including when a U.S. company's foreign affiliate pays a royalty to use intellectual property held in the U.S. The foreign country may impose a withholding tax on the royalty based on where the payor is located — an approach that departs from U.S. principles, which tax royalties based on where the right to use the IP is located.
Accordingly, it appears that the foreign country's withholding tax on the royalty wouldn't be creditable in the U.S., even if the IP were used exclusively within that country, according to ACT's letter.
Related: Tax Reform: What Does It Mean for My International Business.
Iowa Lawmakers OK Flat Income Tax, Retirement Changes - Asha Glover, Law360 Tax Authority ($):
The bill would reduce the state's individual income tax rates annually for tax years 2023 through 2025. Under current law, Iowa's top individual income tax rate is 8.53% for 2022 and will be 6.5% beginning Jan. 1, 2023. The bill would reduce the top tax rate to 6% for fiscal year 2023, 5.7% for fiscal year 2024, 4.82% for tax year 2025 and 3.9% for tax year 2026 and beyond.
The bill also exempts retirement income from Iowa tax, along with certain cash land rents for retired farmers.
Takeaways from a civil discourse on Iowa’s state tax-cut proposals - Joe Gardyasz, Des Moines Business Record:
One of Walczak’s biggest takeaways: States are experiencing a trend of high growth, which they are concluding isn’t dependent upon the past two years of federal stimulus payments that have flowed to the states.
“We have to be very careful with one-time spikes, because you can’t do long-term tax relief with one-time money,” he said. “The first step is to tease out, what’s the bump, and what’s sustainable?
“Every state has been doing this, and what’s incredible is that basically every state has come to the same conclusion. Red, blue or purple, it doesn’t matter, we’re seeing very long-term revenue growth the last couple of years prior to the pandemic, and the pandemic put a very short damper on that — we basically returned to that trajectory.
Minnesota DOR Provides Guidance on Taxability of COVID-19 Relief Funds - Minnesota Department of Revenue, via Tax Notes. "The Minnesota Department of Revenue posted guidance for tax professionals on the taxability of COVID-19 relief funds, providing a chart with common federal programs — including economic impact payments, forgiven Payroll Protection Program loans, Small Business Administration loan payments made under the CARES Act (P.L. 116-136), Restaurant Revitalization Fund grants, and child care stabilization grants — how they are treated for tax purposes, and if they are included in state household income and adjusted gross income; additional information and instructions can be found on the DOR’s website."
Getting Ready for a Tough Tax Season - Laura Saunders, Wall Street Journal ($):
Q (True or false): I have until the mid-April filing deadline in 2022 to make my 2021 charitable contributions, just as I do for 2021 traditional and Roth IRA contributions.
A: False. Under current law, the deadline for making tax-deductible donations for last year was Dec. 31, 2021. Some advocates want to extend the deadline to the April due date, but Congress hasn’t done so.
Expense Method Depreciation and Leasing - A Potential Trap - Roger McEowen, Agricultural Law and Taxation Blog. "The rule makes it difficult for farm landlords to claim expense method depreciation with respect to many real estate improvements, particularly those that don’t require repairs and maintenance in the first 12-month period of the lease."
"Expense method depreciation" = Sec. 179 deductions.
Navigating IRS’s Guidance on Short-Term Rental Taxes - Eric McLimore and Eric Mann, Bloomberg. "To attract more tenants, many owners of rental properties are offering additional amenities and services. However, according to IRS Chief Counsel Advice Memorandum, CCA 202151005, providing “extra” amenities and services to the tenants could subject rental income to self-employment taxes."
Proposed Regulations Issued on SECURE Act Changes - Ed Zollars, Current Federal Tax Developments. "In the case of an inherited plan interest or IRA where the original beneficiary had not reached his/her required beginning date before passing away, the non-eligible designated beneficiary must take all funds from the account by the end of the 10th year following the year the original account interest holder passed away."
Income Too High for a Roth IRA? Consider the Backdoor Roth - Fin Powered Female. "Utilizing the backdoor Roth IRA method is a unique way for individuals to add to a Roth IRA on an annual basis despite the fact that their income exceeds the income limitations."
Is the end near for sports stadium tax breaks? - Kay Bell, Don't Mess With Taxes. "Since 2000, subsidies for financing professional sports stadiums have cost taxpayers $4.3 billion, according to three members of Congress."
Lesson From The Tax Court: A New Twist On Travel Away From Home Deductions? - Bryan Camp, TaxProf Blog. "If I’m reading the opinion correctly, Judge Urda applied an overnight rule to hold that when Mr. Harwood chose to drive to and from his job site in the same day, he could not deduct the transportation costs."
Suspending the Gas Tax Is a Mistake - Alex Muresianu, Tax Policy Blog. "The federal gas tax has been set at 18.4 cents per gallon of gasoline since 1993, and it remains the primary funding source for highway construction. In the context of recent increases in gas prices (almost $1 per gallon in the past 12 months), the federal gas tax of 18.4 cents is relatively small. And in real terms, the gas tax has lost almost half its value since its last adjustment in 1993 because it is not indexed for inflation."
Scott’s “Skin In The Game” Plan Could Raise Taxes By $100 Billion in 2022, Mostly On Low- And Moderate-Income Households - Howard Gleckman, TaxVox. "A minimum income tax for all households would effectively eliminate the refundable portion of tax credits such as the Child Tax Credit and the Earned income Tax Credit. It would reduce the value of the standard deduction for millions of low- and middle-income households even though increasing that deduction was a key element of the GOP’s 2017 Tax Cuts and Jobs Act (TCJA)."
Superfund’s Future Lies in IRS Flexibility - Nana Ama Sarfo, Tax Notes Opinions. "But reinstating the taxes was one battle, and administering them is another. The responses the IRS has received so far strongly suggest that the success of the Superfund excise taxes will partially lie in the government’s ability to ease the transition for taxpayers so that Congress won’t again decide to let the taxes expire when they come up for renewal in 2031."
China Fines Social Media Influencer $9.8 Million for Tax Evasion - William Hoke, Tax Notes:
Tik-Tok fame isn't all it's cracked up to be, at least in China.
The fine assessed to Ping, who goes by the online name Donkey Sister Ping Rong, includes a 60 percent penalty and late payment fees, the tax agency said.
The assessment is the latest in a series of tax-related charges levied against media celebrities in China. In December 2021 the government fined the country's top social medial influencer, Huang Wei — better known by her internet name, Viya — CNY 1.34 billion for tax evasion. The previous month, it fined two other social media personalities a total of CNY 93.3 million after determining that they evaded their income tax liabilities by engaging in fictitious business deals to make it appear that individual income was the revenue of their sole proprietorships.
No Cents: Tax Court Upholds Penalties for Decimal Error - Mary Katherine Browne, Tax Notes ($). "When preparing the return themselves using popular preparation software, the couple entered $2,120,125 on the line for the deduction for mortgage interest instead of the $21,201.25 they actually paid. The overstated deduction resulted in a refund of all federal income tax withheld."
From the opinion (my emphasis):
According to petitioners, the penalty should not apply to any portion of the underpayment of tax. As they see, they had reasonable cause and acted in good faith with respect to the entire amount of the underpayment of tax that resulted from the mistaken entry. They ask the Court to recognize, as they point out that honest mistakes are sometimes made. As a general proposition of life, we agree with petitioners on the point, and we further agree with petitioners' suggestion that not every mistake made on a Federal income tax return should result in the imposition of an accuracy-related penalty. A person preparing a return might understandably get distracted while doing so and enter the wrong amount for an item, or if not distracted, when transferring numbers from one document to another, transpositions often occur. If a computer-based software program is being used in the process, the limitations and requirements of a software program might not be fully appreciated by the user. Any number of situations could cause an "honest" mistake to be made when amounts are incorrectly reported on a Federal income tax return. But petitioners' focus on the erroneous entry as the "mistake", and their explanation describing how the mistake occurred, misses the point. The mistaken entry is not the real problem. Their mistake was failing to review the return carefully enough to have recognized the erroneous entry before the return was filed. After all, it should go without saying, that a taxpayer's obligation to prepare and file a Federal income tax return includes the duty to review that return to ensure that the information reported or shown on the return is accurate before the return is filed.
The moral? Double check your return. Even when you really like how it came out.
Wake me when it's over. Today is National Public Sleeping Day! " Yes, if you feel like you’re going to nod off on that park bench or at the beach, no one will think poorly of you. It’s actually what we are all called to do today, so grab a pillow and be prepared for that magical moment when you can doze off in public."
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.