Tax News & Views Retirement Developments Roundup

March 14, 2022

New Tax Rules Force Faster Payouts for Some IRA Holders – Laura Saunders, Wall Street Journal ($). “It used to be that Americans with tax-favored retirement plans focused mainly on how to get money into them. Now, savers are more and more concerned with how much must be withdrawn, and when—including at death or after.”

Now there’s new guidance from the Internal Revenue Service on required withdrawals for heirs of these accounts. The proposed regulations, issued in late February, would speed up required payouts and add paperwork for many heirs of traditional IRAs but not for heirs of Roth IRAs. They also won’t affect most spouses who inherit retirement accounts.

The new IRS rules fill in details of the Secure Act, a law Congress passed in 2019 that revised rules for retirement plans. One of its changes greatly sped up required withdrawals for many retirement-plan heirs, enraging IRA owners who had made estate plans based on prior law. The faster money has to come out of retirement accounts, the less tax-deferred growth there is.

IRS Proposal May Create Legal Friction For Retirement Plans - David van den Berg, Law360 ($),Recently proposed Internal Revenue Service rules could disturb the operation of some nonprofit and governmental workers' retirement plans by requiring minimum distribution payments that run counter to the terms of plans formed between employees, investment firms and insurers.”

Recently proposed Internal Revenue Service rules could disturb the operation of some nonprofit and governmental workers' retirement plans by requiring minimum distribution payments that run counter to the terms of plans formed between employees, investment firms and insurers.

Practitioners who spoke with Law360 said the proposal to mandate required minimum distributions from all 403(b) plans would shift the burden for the distributions away from individual plan holders. The changes could pose administrative difficulties for the parties involved, including forcing employers to make payments out of plans they don't currently have a legal ability to require.

Individual Can Roll Over Deceased Spouse's IRA – Tax Notes:

The IRS ruled that an individual could roll over a distribution from their deceased spouse’s IRA, which was paid into an estate, and place it into one or more Roth IRAs in their name and that they would not be required to include that distribution in gross income in the year of distribution.


What Can the IRS Do Instead of Facial Recognition? – Marie Sapirie, Tax Notes ($). “Last week’s article discussed why the IRS should increase transparency in its development, acquisition, and use of technology that affects taxpayers. (Prior analysis: Tax Notes Federal, Mar. 7, 2022, p. 1330.) This week we’ll look at what the IRS can do for identity verification to better respect taxpayers’ privacy interests than it did with its implementation of the facial recognition system last year.”

Congress may leave the IRS no choice but to abandon its plans to use facial recognition. Lawmakers were a little late to the table, having largely ignored the major change in practice when it was rolled out during last summer’s implementation of the advance child tax credit portals. But the multiple recent letters from both Democratic and Republican senators and House members to the IRS on the topic indicated that there is little support in Congress for the agency’s use of facial recognition technology.

It would be better to establish a principle of meaningful, pre-implementation disclosure at the IRS for any planned technology that could affect taxpayers’ substantive rights or privacy interests. A public process would benefit both the IRS and taxpayers. For the agency it would offer protection from exactly the kind of publicity it has experienced recently, and for taxpayers it would provide an important bulwark for privacy interests.


Courts Threaten to Undercut IRS Efforts to Go After Tax Shelters – Richard Rubin, Wall Street Journal ($). “A court ruling has weakened one of the Internal Revenue Service’s most powerful tools for policing tax shelters, making it harder for the agency to find people engaging in questionable practices.”

The latest decision—which came this month in a case involving Michigan business owners and life-insurance products—could slow the government’s ability to require taxpayers to disclose their participation in aggressive tax shelters, tax lawyers said. It continues a yearslong trend in which courts are requiring that the IRS and Treasury Department follow detailed regulatory procedures that the government and academic experts had long assumed didn’t apply to the tax system.

The ruling from the Sixth U.S. Circuit Court of Appeals in Cincinnati applies only in a handful of states, but it provides a road map for taxpayers to challenge the IRS in the absence of further action by the Biden administration or Congress.

The court in the case in question found a flaw in a 2007 notice from the IRS. That announcement warned participants in certain transactions involving cash-value life insurance that purported to give tax advantages to business owners and required them to notify the government of the deals on their tax returns. The IRS uses such disclosures to attack a list of transactions or products that it sees taxpayers using and that it deems particularly abusive; they are often deals that can be replicated and promoted by some accountants and financial advisers.


Church That Serves Cannabis During Services Is Denied Exemption – Tax Notes ($):

The IRS denied a church's application for tax-exempt status because a substantial activity of the church is consuming cannabis during worship services, an illegal activity that serves a substantial non-exempt purpose. 

Cannabis Bill Roundup: Del. Legalization Bill Fails – Sam Reisman, Law360 ($). “Delaware lawmakers nixed a proposal to legalize adult-use cannabis despite notching majority support in the House of Representatives, while a member of Congress pitched a new bill on Capitol Hill to broaden veterans' access to medical cannabis use. Here are the major legislative moves in cannabis reform from the past week.”

A Delaware bill to tax and regulate the sale of adult-use cannabis fell two votes short of passage in the state House of Representatives on Thursday. H.B. 305, or the Delaware Marijuana Control Act, won majority support from the chamber with a 23-14 vote, with four abstentions, but required a three-fifths supermajority.


Ex-Latham Partner Tapped to Lead DOJ Covid-19 Fraud Enforcement – Ben Penn, Bloomberg ($). “The Justice Department has elevated Kevin Chambers, an associate deputy attorney general, to direct pandemic-related fraud enforcement.”

Chambers, a former Latham & Watkins partner, will be the top prosecutor overseeing a range of ongoing cases and new strike teams aimed at combating scams aimed at the trillions of federal dollars spent in response to the coronavirus pandemic, the department said Thursday.


Senator Backs Tax Penalties for Russian Oligarchs, Companies – Laura Davison, Bloomberg ($). “Senate Finance Chairman Ron Wyden proposes blocking tax breaks to sanctioned Russian oligarchs and to U.S. companies that pay taxes to Moscow as Congress seeks new ways to punish President Vladimir Putin and his allies for the invasion of Ukraine.”

‘Foreign Russian oligarchs and companies supporting Putin shouldn’t be getting tax breaks in the United States,’ Wyden said in a statement.

Wyden said the U.S. tax code should deny any tax breaks that businesses pay in Russia. That would alter a key feature in the tax code that allows global companies to lower their U.S. tax bill based on the levies they pay to foreign governments.

Here is the committee announcement on this issue: 

Wyden Outlines New Tax Policies to Hold Russia Accountable for Ukraine Invasion – Senate Finance Committee:

Senate Finance Committee Chair Ron Wyden, D-Ore., today released the following statement outlining tax policies he is developing to hold Russia accountable for its invasion of Ukraine:

'The Biden administration has taken strong steps to swiftly implement sanctions against Russia, but we must do more to impose a severe economic cost on Vladimir Putin and those providing him with resources to continue this unprovoked and increasingly brutal assault on Ukraine. We need a comprehensive response that turns up the financial pressure from every angle.' 


AbbVie Pressed by Senator on How U.S. Humira Sales Limit Taxes - David Voreacos, Bloomberg ($). “AbbVie Inc., maker of the blockbuster rheumatoid arthritis medication Humira, is using units in Bermuda and Puerto Rico to shrink its tax bill even though the company generates most of its sales in the U.S., Senate Finance Committee Chairman Ron Wyden said.”

Wyden demanded Friday that the Illinois-based drugmaker explain the tax implications of having the Bermuda unit hold its intellectual property for Humira, the world’s best-selling drug . While components are made through a Puerto Rico branch, no manufacturing, packaging or distribution of Humira takes place in Bermuda, Wyden said in a letter to AbbVie.

‘The lack of transparency into this arrangement raises important questions related to where income associated with the U.S. Humira net revenues is being recognized for tax purposes,’ Wyden wrote in a four-page letter to Scott Reents, a tax and treasury vice president at AbbVie.


Better Back Better 2.0?

POLITICO Playbook: Something unusual is happening between Biden and Congress – Rachel Bade, Politico:

Leaders are eyeing the work period between the return from [Easter] break and Memorial Day as the sweet spot to finally pass a reconciliation bill. No, it won’t look anything like Build Back Better — a phrase you don’t hear Democrats utter anymore. But they are still hoping to unify progressives and moderates like Sen. JOE MANCHIN (D-W.Va.) behind a package that addresses prescription drug costs, tax reforms and climate change — and perhaps an Obamacare fix.


States Urge Sixth Circuit to Block Disputed ARPA Provision – Amy Hodges, Tax Notes ($). “A provision of the American Rescue Plan Act that restricts states from using the act’s aid to fund tax cuts violates the spending clause and the 10th Amendment, Kentucky and Tennessee attorneys general told the Sixth Circuit.”

In a March 10 brief in Kentucky v. Yellen, Kentucky Attorney General Daniel Cameron (R) and Tennessee Attorney General Herbert H. Slatery III (R) urged the appellate court to uphold a federal district court’s permanent injunction that blocks the Treasury Department from enforcing the provision against the two states, asserting that the 'opaque restriction' violates the spending clause and the 10th Amendment of the Constitution. The federal government filed its notice of appeal on November 22, 2021.

Cash-rich states create ‘competitive environment’ with flurry of tax cuts – Kate Dore, CNBC:

  • There’s been a wave of state tax cuts spurred by budget surpluses, and more breaks may be on the way, according to policy experts.
  • Some 29 states and the District of Columbia enacted “significant” reductions in 2021, according to the Tax Policy Center.
  • While the savings may be welcome amid rising inflation, some policy experts worry about future revenue volatility.


Taxing the Digital Economy? It’s Not Personal, It’s Business – Michael Bologna, Bloomberg ($). “The U.S. economy is becoming increasingly digital and this week California, Louisiana, and Maryland asserted some muscle to tax their fair share of it.”

But what about taxpayer pushback? What about the Internet Tax Freedom Act, which generally restricts state and local taxes on digital commerce? As Al Pacino once told Johnny Depp, ‘fuggetaboutit!’


Michigan Governor Whitmer Signals Veto of Gas Tax Suspension – Laura Mahoney, Bloomberg ($). “Michigan Gov. Gretchen Whitmer indicated Friday she will veto a bill Republicans said they are sending to her that would suspend the state’s 27-cent per gallon gasoline tax for six months.”

The Democrat said she supports relief proposals that focus most on ‘needs of people that are struggling to keep their head above water.’ She pointed to $400 auto insurance refunds being sent to Michigan car owners at her request, and her proposal to eliminate the retirement tax and increase the earned income tax credit that goes to low-income people.


Florida Sales Tax Holidays Set to Provide $658 Million in Relief – Michael Bologna, Bloomberg ($). “Florida will lead the nation in sales tax holidays under legislation that waives levies on an extensive menu of consumer products including diapers, fishing gear, power tools, backup generators, children’s books, and gasoline.”

The Florida House and Senate reached consensus Friday on an omnibus tax package, H.B. 7071, and scheduled the bill for final approval on Monday. In addition to the sales tax provisions, the bill brings Florida’s tax code into conformity with the Internal Revenue Code in effect on Jan. 1, 2022. A separate consensus bill boosts the rolls of business taxpayers required to file their returns electronically.


Relaunch of West Virginia Film Tax Credits Heads to Governor – Donna Borak, Bloomberg ($). “West Virginia lawmakers on Friday sent a bill to Gov. Jim Justice to restore and double the state’s annual film tax credit to $10 million starting this July.”

Under H.B. 2096, the program would provide filmmakers who spend at least $50,000 to make a movie, television show, or music video that portrays the state in a positive light to recoup up to 27% of their expenses.


Arizona Court Overturns Income Tax Hike on Wealthy for Education – Brenna Goth, Bloomberg ($). “An Arizona court on Friday struck down a voter-approved income tax increase on high earners in a win for Republican lawmakers.”

Maricopa County Superior Court Judge John Hannah dealt a serious blow to Prop. 208, which has been entangled in litigation since voters passed it in 2020. Republican legislators argued the measure—which imposed a 3.5% surcharge on taxable income above $250,000 for individuals and $500,000 for joint filers or heads of households to fund education—violates the state constitution.

Hannah ruled on the narrow question of whether the new school funding would exceed annual spending limits, which the Arizona Supreme Court said would make the measure invalid. The Superior Court ‘is obligated to strike down Proposition 208’ based on the state Supreme Court’s reasoning, Hannah wrote.


Regs Clarify Identity of Taxpayers Eligible for Foreign Tax Credits - Carrie Brandon Elliot, Tax Notes ($):

In this article, Elliot reviews the rules for identifying the taxpayer eligible for a foreign tax credit when more than one person may be liable for tax or obligated to pay it.


Switzerland Draft Decree to Implement Global Minimum Tax By 2024 – Hamza Ali, Bloomberg ($). “The Swiss government has published a draft decree that would implement a global minimum tax by January 1, 2024.”

More the 130 countries in October signed on to a two-pillar international agreement to change how multinationals are taxed. Pillar Two of this plan will create a 15% global minimum rate for any multinational that has over 750 million euros ($825 million) in revenue.

Since certain elements of the Pillar Two minimum tax rules are still being negotiated, the decree will act as a temporary ordinance that will be replaced by a permanent law once the rules are complete, the government said.


OECD releases detailed technical guidance on the Pillar Two model rules for 15% global minimum tax – OECD: "Today the OECD/G20 Inclusive Framework on BEPS released further technical guidance on the 15% global minimum tax agreed in October 2021 as part of the two-pillar solution to address the tax challenges arising from digitalisation of the economy. The Commentary published today elaborates on the application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed and released in December 2021. The GloBE Rules provide a co-ordinated system to ensure that Multinational Enterprises (MNEs) with revenues above EUR 750 million pay at least a minimum level of tax – 15% – on the income arising in each of the jurisdictions in which they operate."

The release of the Commentary to the GloBE Rules now provides MNEs and tax administrations with detailed and comprehensive technical guidance on the operation and intended outcomes under the rules and clarifies the meaning of certain terms. It also illustrates the application of the rules to various fact patterns. The Commentary is intended to promote a consistent and common interpretation of the GloBE Rules that will facilitate co-ordinated outcomes for both tax administrations and MNE Groups.

'The release of the Commentary today is a significant achievement which concludes many months of hard work by Inclusive Framework members in reaching a detailed agreement on the substantive provisions of the GloBE Rules,' said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. 'With the completion of the technical work on the Model Rules and Commentary, Inclusive Framework members now have all the tools they need to begin implementing the rules.'


It’s National Pi Day! Hold it! They spelled ‘pie’ wrong!?! Oh, they mean math pi. Not pie, pie. Bummer.

Expand Full Article

We're Here to Help

We are here to help
From business growth to compliance and digital optimization, Eide Bailly is here to help you thrive and embrace opportunity.
Speak to our specialists