Tax News & Views Tax Misses the Omnibus Roundup

March 9, 2022

House To Vote On Spending Bill With $12.6B IRS Budget - Stephen Cooper, Law360 Tax Authority:

The bill would give the Internal Revenue Service a $675 million increase in funding over last year's budget, but would fall roughly $1 billion short of the amount sought by President Joe Biden and congressional Democrats. The funding level would hamper the agency's efforts to address ongoing problems with delays in tax return processing, providing taxpayer services, and modernizing outdated technology, Democrats said.

The IRS budget increase, which would be the largest funding boost for the agency since 2001, would make up the largest portion of the U.S. Department of the Treasury's $14.3 billion budget for fiscal 2022 included in the bill. Treasury's budget would be roughly $811 million above last year's funding level and would allow the department to boost spending on work by its inspector general offices for oversight of the IRS and other agencies.

A summary of the bill is here, and the 2741-page text is here. The bill does not appear to extend any expired tax provisions. There is no extension of the employee retention credit, and no reversal of the requirement to capitalize and amortize research expenses. It was released at 1:30 this morning Washington D.C. time, and a vote is planned early this afternoon, giving everyone plenty of time to read it through.


Congress races to advance $1.5T government funding deal - Jennifer Sholtes and Connor O'Brien, Politico. "The package was finalized too late to guarantee Congress can clear it before federal funding runs out at midnight on Friday. So leaders have prepared a four-day spending patch to move the deadline to Tuesday. While that temporary funding bill could also face Senate snags that risk a government shutdown, the stopgap is expected to be easier to pass in short order."


‘They went down hard’: IRS’ tax season woes rooted in pandemic, long funding slide - Aaron Lorenzo, Politico:

How we got here: At the onset of the pandemic in March 2020, the IRS temporarily shut down its offices and processing sites — causing disruptions in a workflow that has yet to return to normal.


Some 53,000 IRS employees are still on remote work — about two-thirds of the agency’s workforce, which an IRS spokesperson characterized as “a maximized telework posture.”

But privacy rules prevent remote processing of the millions of paper tax returns mailed to the IRS, as well as the examination of returns with discrepancies from IRS records, the issuance of refunds and dealing with other taxpayer mail. Some taxpayer advocates are urging a full return to offices for IRS employees, in part to address the backlog more efficiently.

With effective vaccinations and high-quality air filtration equipment available, "maximum telework posture" is hard to explain.


IRS to fast-track 10,000 hirings to address backlog - Paul Bonner, Journal of Accountancy:

National Treasury Employees Union (NTEU) National President Tony Reardon said in a statement that the NTEU was notified that the IRS has been granted direct-hire authority for roughly 10,000 entry-level positions in its submission-processing and accounts-management functions.


Hiring under the authority could be spread out over as much as the next 20 months, during which the IRS expects many retirements and other new openings, so it is not clear how much, if at all, the IRS workforce would grow. The direct-hire authority would last through Dec. 31, 2023, Reardon's statement said. The statement also said that the union supports the strategy "on a limited basis such as this to address the critical need to fill entry-level positions to help reduce the backlog."


Pascrell Presses Treasury to Tackle ‘Rampant Abuse’ of Trusts - Jonathan Curry, Tax Notes ($):

Pascrell requested that Treasury issue guidance that would “limit rampant abuse” of stepped-up basis by clarifying that the language in section 1014(b) doesn’t apply to the termination of a grantor trust. Guidance should come in the form of proposed regulations, using notice and comment rulemaking, to ensure they survive Administrative Procedure Act scrutiny, he added.


Pascrell’s ask “is not anything that mainstream estate planners ever thought you could do anyway,” Kaufman {Beth Shapiro Kaufman of Caplin & Drysdale] continued


Congressional Think Tank Documents Tax Provisions from the Prior Congress - Jay Heflin, Eide Bailly:

The congressional Joint Committee on Taxation (JCT) released its “Bluebook” on March 8th, which explains the tax provisions that were enacted during the 116th Congress (2019 thru 2020).  

The nearly 600-page document explains over 200 tax provisions, which includes tax measures in the Taxpayer First Act, the education-focused ‘‘FUTURE’’ Act, the Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act of 2021, to name a few.


Withholdings and Estimated Tax Payments for 2021-2022: How They Work and When to Pay Them - Laura Saunders and Richard Rubin, Wall Street Journal ($). "With some exceptions, tax underpayments incur penalties based on current interest rates. Recently this rate was 3%. To avoid these penalties, employees and many retirees typically have taxes withheld from paychecks or Social Security and pension payments over the course of the year."

Saving for retirement? IRA contributions for 2021 can be made until April 18 - IRS. "Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2021. For those 50 years of age or older at the end of 2021, the limit is increased to $7,000. Qualified contributions to one or more traditional IRAs may be deductible up to the contribution limit or 100% of the taxpayer's compensation, whichever is less. There is no longer a maximum age for making IRA contributions."


Preparers face new IRS filing requirements as S-corp deadline approaches - National Association of Tax Professionals:

With the March 15 filing deadline for S corporation returns fast approaching, preparers should be aware of the new IRS forms and schedules that may impact the returns they are filing for 2021. The two most significant changes are the IRS’s addition of a new Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, and Schedules K-2 and K-3 for partnerships and S corporations reporting items of international tax relevance from their operations.

Form 7203 is new for 2021 and replaces the three-part “Worksheet for Figuring a Shareholder’s Stock and Debt Basis” that was previously included in the instructions for Schedule K-1 (Form 1120-S).

Expect more partnership and S corporation returns to be extended.


Child Tax Credit online portal is offline until after Tax Day - Kay Bell, Don't Mess With Taxes. "The only way for taxpayers who aren't legally required to file a tax return to get the rest of their CTC amounts is to, you got it, file a 2021 tax return."

Many Low-Income Families May Not Get the Full Child Tax Credit Because They Won’t File A Tax Return - Elaine Maag and Michael Karpman, TaxVox. "In the Urban survey, about one in seven adults with children under 18 who did not receive advance CTC payments in 2021 reported they were not planning to file a tax return this year. The share rises to almost one in four for those families with income below twice the federal poverty level, or about $22,000 for a family of three. Those who fail to file will forfeit their entire 2021 credit of up to $3,000 per child ages 6 to 17 and $3,600 per child under age 6."

Understanding Critical Elements of Nonresident Withholding Form 1042-S - Deborah Pflieger and Tara Ferris, Bloomberg. "Non-U.S. persons and nonresident aliens—NRAs—are subject to U.S. tax on income they earn in the U.S., also known as U.S. source fixed or determinable, annual, or periodical (FDAP) income. U.S. source FDAP income includes interest paid by U.S. borrowers, dividends paid by U.S. corporations, rent paid for the use of U.S. real property, royalties, licensing fees paid for use inside the U.S. of a non-U.S. person’s intangible property, and payments for services rendered in the U.S. U.S. source income paid to a non-U.S. person is generally subject to 30% withholding and 1042-S reporting."

Governor Reynolds Signs Iowa House File 2317 Into Law - David Rep, Iowa Tax Cafe. "Beginning in 2023, Iowa will no longer tax 401(k)s, pensions and IRAs owned by disabled Iowans or those 55 years of age or older. Good planning suggests that if any qualifying individual had plans to take a discretionary distribution from a retirement plan this year (other than a required minimum distribution), waiting until January 1, 2023, or later would make a lot of sense."


The IRS International Forms Debacle- Eide Bailly Tax News & Views. "I hope the IRS starts over and simplifies the forms for next year. It would be a good start to break out the few items purely-domestic partnerships need to disclose on their own form, or on the K-1 itself.  The K-2/K-3 forms could then be reserved for partnerships that really do have international issues. An extra grace period for compliance and an exclusion or simplified versions for small U.S. - only filers would also help. An IRS that could handle the information they already have would help even more."

Georgia Income Tax Reform Would Improve Standing Among Neighbors, Country - Janelle Cammenga, Tax Policy Blog. "While HB 1437 was previously a placeholder bill, the sponsors have now shared their plan to consolidate Georgia’s six individual income tax brackets into one and bring down the rate from 5.75 percent to 5.25 percent, effective in tax year 2024. The bill would also eliminate the standard deduction for all taxpayers, instead increasing the personal exemption from $2,700 to $12,000 for single filers, and from $3,700 to $24,000 for those married filing jointly."

Inflation, Tax, and the COVID-19 Economy - David Stewart and Martin Sullivan, Tax Notes Opinions. "Trying to put it in plain human terms, again, this is an average, obviously there's a lot of variation around that average, but if you were walking around saying, "Oh, I need about $3,000 in my account. That's the buffer I like to have." Then all of a sudden you have $11,000, something's going on."


Main Line Businessman Sentenced to Over Six Years for $21 Million Bank Fraud, Tax Evasion - IRS (taxpayer name omitted):

The scheme worked as follows: Defendant and co-conspirator RR submitted approximately 35 financing applications to a finance company, purportedly for premium finance loans to purchase insurance, but in reality the loans were not for that purpose. Another co-conspirator inside the finance company, ND, waived the loan verification procedures and approved the loans, in exchange for compensation from the defendant. RR and ND have pled guilty as a result of their participation in this scheme and are awaiting sentencing. Defendant used the proceeds of this fraudulent scheme as capital for his businesses as well as to support his luxurious lifestyle, including payments for a Mercedes Benz S-Class, country club dues, vacations, as well as towards the purchase of a $1 million mansion on the Main Line.

The tax fraud charges arose from Defendant’s failure to report over $370,000 worth of income on the tax form 1040 that he filed for tax year 2016, and his failure to report over $1.7 million in income for tax year 2017 (for which he never filed a return), resulting in a total tax loss to the government of approximately $750,000 for both years. 

The Justice Department press releases on fraud cases often highlight the luxury goods purchased by tax fraudsters. Unexplained luxury is something that can draw IRS suspicion, or at least tip off whistleblowers. Still, it would be fun to read that the fraudster bought a used F-150 and put the remaining fraud proceeds in a certificate of deposit. 


No one can eat just one. It's National Meatball Day!

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