March 4, 2022
IRS rushes to hire 10,000 workers but giant backlog expected to persist through 2022 - Jacob Bogage and Lisa Rein, Washington Post ($).
The agency will accelerate recruiting in the coming weeks for 80 distinct positions, from entry-level clerical workers to advanced engineers and tax attorneys, one person familiar with the plan said. Among the recruiting targets are high-skill technology professionals to modernize its outdated infrastructure, according to those familiar with the plan, who spoke on the condition of anonymity because the details have not been publicly released.
The agency plans to use money from its existing budget, a large share of it from coronavirus stimulus funding, to pay for the new hires, to be made over the next two years. The number of new jobs would represent a 14 percent increase in the IRS workforce.
But no matter how many new hires they throw at the 24-million return backlog, the article says the IRS does not expect to catch up before the end of this year. If they say December 2022, we should round up to 2023.
Bipartisan retirement bill could hitch a ride on omnibus - Laura Weiss, Roll Call:
Neal and Brady’s latest measure would require most employers with 401(k)-type plans to automatically enroll employees unless they opt out, sweeten tax credits for startup firms that offer workplace savings plans, promote a benefit for low-income savers, allow more catch-up contributions for people in their 60s to put more into tax-beneficial savings accounts, and loosen rules to allow more annuity options.
It would also raise the minimum age when account holders must begin taking money out of their retirement plans from 72 to 75, acknowledging that Americans are living and working longer.
Also: "The appropriations bill, which lawmakers are working to pass before a March 11 government funding deadline, 'would be plan A' for passing the retirement legislation, Ways and Means’ top Republican, Rep. Kevin Brady of Texas, said in a brief interview."
Biz Interest Deduction, R&D Fix Still In Limbo, Hill Aides Say - Stephen Cooper, Law360 Tax Authority ($). "Companies looking for Congress to renew expired tax breaks for business interest expenses and research costs might have to wait for a year-end tax extenders bill, aides to the Senate and House tax writing panels said at a conference Thursday."
IRS update regarding recent electronic filing challenges in connection with Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations - IRS:
The IRS is aware of a third-party software issue affecting qualifying farmers and fishermen attempting to electronically file Forms 7203.
Due to these challenges, the Treasury Department and the IRS intend to issue a notice providing penalty relief for qualifying farmers and fishermen filing Forms 7203 if they electronically file their 2021 tax return and pay in full any tax due by April 18, 2022, or by April 19, 2022, for those qualifying farmers and fishermen who live in Maine or Massachusetts.
This is the second time in the last four years that the IRS has had two waive the special March 1 farmer filing date because of preparer software glitches. I say "filing date" rather than deadline because the real deadline is April 15; farmers who file by March 1 just don't have to make estimated tax payments. March 1 filing is unrealistic in the modern age, especially as farmers have the option to make all estimated payments at once in January and file under the normal deadlines. It should go away.
Taxpayer Advocate Urges IRS to Be Gentle in Restarting Notices - Jonathan Curry, Tax Notes ($):
The IRS has indicated that those automated letters will be put on hold until the backlog is cleared, presumably later this year. But if the IRS repeats its approach from two years ago and begins reissuing those letters all at once, that will create backlogs elsewhere, according to National Taxpayer Advocate Erin Collins.
In 2020, the IRS also suspended most of its taxpayer correspondence, as well as the issuance of statutory notices of deficiency, in response to the COVID-19 pandemic. But once those letters resumed, they all went out at once, which inundated the Tax Court and created a backlog there, Collins said March 3 during a webinar hosted by the American Institute of CPAs.
How about simply waiving most paperwork-date penalties arising in 2020 and 2021?
Biden Climate-Change Plans Gain Momentum as Democrats Retool Agenda - Richard Rubin and Andrew Duehren, Wall Street Journal ($):
The climate-focused tax incentives, worth more than $300 billion over a decade, enjoy broad consensus among Democrats, including Mr. Manchin, though details remain to be ironed out. Many Democrats see fighting climate change as a singularly important and time-sensitive policy endeavor, making them willing to sacrifice other party goals in talks with Mr. Manchin.
There are likely enough tax increases to fund climate programs and deficit-reduction that are broadly acceptable to all Senate Democrats, including Ms. Sinema, whose objection to tax-rate increases has shaped the proposals. Democrats crafted a series of tax increases, including a corporate minimum tax and a surtax on very-high earners, last year with her support.
Digging into BBB politics - Punchbowl News:
There’s been renewed movement – however tentative – among Democrats for some kind of deal that can meet Sen. Joe Manchin’s (D-W.Va.) approval.
Manchin laid out a potential framework in an interview with Politico on Wednesday. It would include cutting prescription drug costs and “tax reform.” That means reversing some of the 2017 GOP tax cuts. Whatever revenue savings come from that effort would be split between deficit reduction and “climate and social programs,” as long as they’re paid for. That’s a key for the West Virginia Democrat.
All of this, as we noted, is very preliminary, and there will have to be a lot of conversations between Democrats in both chambers if they want to try to do this again. Manchin and Sen. Kyrsten Sinema (D-Ariz.) would again be the focus of everything and everyone in the Senate. Success will hinge on how far they’re prepared to go.
So perhaps the Biden tax plan really is just resting.
Manchin, Sinema Must Agree on Tax Revenues, W&M Counsel Says - Doug Sword, Tax Notes ($):
Biden proposes, Sinema disposes.
Even though it’s been more than three months since the House passed the Build Back Better Act (H.R. 5376) with Sinema’s changes, it’s still unclear whether Manchin will go along with the switches, according to Andrew Grossman, Democratic chief tax counsel for the Ways and Means Committee.
Phrased another way, Grossman said the question would be “if Senator Sinema is stuck on her prior objections” that led to House Democrats changing their revenue provisions in the days leading up to their November 19, 2021, passage of the reconciliation bill.
IRS’s Listed Transaction Notice Violated APA, Says Sixth Circuit - Kristen Parillo, Tax Notes ($):
The Sixth Circuit has reversed a district court holding that Congress excused the IRS from Administrative Procedure Act (APA) rulemaking when it issued a listed transaction notice in 2007 without a formal comment period.
The district court had rejected Mann Construction’s claim that Notice 2007-83, 2007-45 IRB 960, is invalid under the APA because the IRS issued it without providing notice or an opportunity for comment. The October 2007 notice designated cash value life insurance trusts as listed transactions requiring disclosure by transaction participants.
Sixth Circuit Invalidates Notice Identifying Listed Transaction Requiring Reporting and Potential Penalties - Jack Townsend, Federal Tax Procedure. "Moreover, there is a practical issue here that courts really don’t seem to care about. Rules requiring reporting of abusive tax transactions require for maximum effect that the IRS notify taxpayers promptly in order for the possible application of penalties to discourage taxpayer behavior. Imposing a notice-and-comment requirement would take away the salutary effect of prompt notice to slow down raids on the Treasury."
IRS Is Audited Over Its Safeguards Against Favored Treatment of Big Business - Joe Palazzolo and Richard Rubin, Wall Street Journal ($):
The U.S. Treasury Inspector General for Tax Administration, or Tigta, has reached out to people inside and outside the IRS for information since starting work on the audit late last year, according to a person familiar with the inquiry. Among the lines of inquiry is how the IRS handles conflicts of interest and the revolving door between the accounting industry and IRS, the person said.
Tigta has requested information about whistleblower cases that died within the IRS or have sat inside the agency for years, the person said. The office also has expressed an interest in the IRS’s use of tools created by Congress to combat abusive tax practices, such as a federal law intended to dissuade companies from engaging in transactions that have no economic purpose other than to minimize their tax bills, the person said.
TIGTA releases its audit reports to the public. This one will be interesting.
Fearing filing season chaos, IRS hits pause on web tool for Child Tax Credit - Brian Faler, Politico. "The administration has reluctantly concluded that it cannot allow them to use the portal to claim billions in child payments now being distributed by the IRS because it will cause too many problems with tax-filing season... Instead, the administration says it will reopen the portal after the filing season ends on April 18, a top official said."
New York Tribunal Says Siblings Received Distributions, Not Loans - Andrea Muse, Tax Notes ($). "Financial records of the corporation originally listed the disbursements to the siblings as 'drawings,' but the corporation’s accountant testified they were reclassified as “shareholder loans” after he told the siblings that they did not have sufficient basis in the company when the disbursements were originally made to otherwise withdraw the money."
Legislature may cover Iowans on waitlist for solar tax credits - James Q. Lynch, The Gazette. "House File 2395 would not extend or renew the tax credit, but would cover those credits homeowners applied for before the credit expired."
Virginia Enacts Bills Extending Tax Incentives - Benjamin Valdez, Tax Notes ($). "Virginia Gov. Glenn Youngkin (R) has approved several bills extending tax incentives that were set to expire this year, including a tax credit program for businesses that relocate to or expand in the state."
Iowa Governor Signs Tax Reform into Law - Kristine Tidgren, Ag Docket. "The new tax law will reduce individual and corporate income tax rates, provide exemptions from Iowa tax for certain forms of retirement income--including retired farmer rental income--and scale back certain tax credits. These changes have different effective dates, but most changes will begin phasing in during the 2023 tax year. This post summarizes key provisions of the new law."
Don't miss these 13 tax breaks that many filers overlook - Kay Bell, Don't Mess With Taxes. "5. Retirement savings credit: If you can put some money into an IRA, traditional or Roth version, or a workplace or self-employment retirement plan, you also might be able to get a bonus tax break. The Saver's Credit is available to lower- and middle-income earners who contribute to retirement savings. It's worth up to $1,000. And because it's such a great tax advantage, I've got to keep repeating myself. That amount, since it's a tax credit, means a dollar-for-dollar reduction of any tax you owe."
How Should the Seller of an NFT Report It for Tax Purposes? - Julian Fortuna, Bloomberg. "Because NFTs are intangible assets, the difference between the costs of creating the NFT and the amount received by the creator should be taxed as ordinary income at graduated rates up to 37% federal, plus applicable state income taxes. Sales tax withholding could also apply."
Missouri’s Tax Competitiveness - Jared Walczak, Tax Policy Blog. "Missouri offers particularly attractive tax rates to data centers, shared services centers, and labor-intensive manufacturers, as well as newly established technology centers, due to certain aspects of the state’s tax structure. While most other firms experience more middle-of-the-pack burdens, Missouri is notable for avoiding disproportionately high taxes on any of the industries we studied. No mature firm is ranked worse than 34th, and no new operation worse than 27th. Consequently, the state ranks 10th overall for new operations and 18th for mature firms."
Is Ending the Grocery Tax on States’ Tax Cut Shopping List? - Richard Auxier, TaxVox. "In fact, eight of the 13 states that tax groceries are considering cuts. Alabama, Kansas, Missouri, Oklahoma, Utah, and Virginia are debating full repeal, while Illinois might suspend its tax for one year and Mississippi could lower its tax rate."
Naked Owners Lose Wrongful Levy Appeal - Matthew Hutchens, Procedurally Taxing. "A naked owner owns the property, but they do not have the full rights to use the property."
Experts agree that retaining some apparel can prevent appeal loss.
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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.