March 22, 2022
IRS Modernization Has Means, But Not Funding, Rettig Says - Jonathan Curry, Tax Notes ($):
“We have the ability to move relatively quick, if we have the funding to do so,” Rettig said in March 21 remarks to the Tax Executives Institute conference in Washington, noting that the IRS has about 7,000 in-house IT employees and roughly 6,000 contracted IT employees. So far, though, the IRS hasn’t been given the kind of long-term, stable funding it needs to make the leap into the 21st century, he said.
The IRS’s budget has lurched from one year to the next, usually bumping along through a series of continuing resolutions before a budget is approved months after the start of a fiscal year, Rettig said.
139 IRS Workers AWOL For At Least 25 Weeks, TIGTA Says - Joshua Rosenberg, Law360 Tax Authority ($). "In all, there were almost 11,000 IRS workers who were AWOL during the same time period. The IRS failed to document conduct issues for 8,787 of them, according to TIGTA."
Court Tosses IRS Microcaptive Reporting Requirements - Theresa Schliep, Law360 Tax Authority ($):
A Tennessee federal judge set aside an IRS notice requiring the disclosure of microcaptive insurance arrangements, saying Monday that the agency hadn't justified its decision to flag the transactions as potentially abusive and shirked its public feedback obligations.
The IRS' loss in the CIC case follows the Sixth Circuit's decision in Mann Construction Inc., in which the appeals court voided a similar notice setting up reporting requirements for potentially abusive benefit trust arrangements. The IRS has used such notices to require taxpayers to report some transactions, called listed transactions and transactions of interest, or be faced with penalties.
To be sure, it doesn't mean the arrangements actually work, but it may help taxpayers avoid some penalties that they might otherwise face.
Court Vacates IRS Microcaptive Notice - Kristen Parillo, Tax Notes ($). "The district court clearly reached the only reasonable result regarding the IRS's failure to use notice and comment rulemaking procedures, given the Sixth Circuit's reasoning in Mann Construction,' Kristin Hickman of the University of Minnesota Law School told Tax Notes."
Oh Mann: The Sixth Circuit Holds IRS Notice Issued in Violation of the APA; District Court in CIC Services Finds Case is Binding Precedent - Jack Townsend, Procedurally Taxing. "The case is significant; it is a forceful repudiation of the IRS’s penchant for sidestepping the normal regulatory process and yet another circuit court opinion that views IRS action through the same administrative law prism that applies to other agencies."
Idaho To Require Single Sales Factor For Biz Income - Asha Glover, Law360 Tax Authority ($):
Idaho will tax multistate business income using a single sales factor and market-based sourcing under a bill signed by the governor.
Republican Gov. Brad Little signed H.B. 563 into law Wednesday. The measure replaces the state's cost-of-performance method for taxing multistate income for sales other than tangible property with a market-based sourcing method that assigns the sales revenue to the location receiving or benefiting from the services. The state already applies market-based sourcing to the sale of tangible personal property.
An Impasse Hits Businesses, A New Law Empowers Taxpaying Voters - Renu Zaretsky, Daily Deduction. "State lawmakers failed to reach a deal last week to avoid an automatic increase in unemployment insurance taxes. Minnesota will use the added revenues to repay federal aid for jobless benefits and replenish its unemployment insurance trust fund."
Money received through ‘crowdfunding’ may be taxable; taxpayers should understand their obligations and the benefits of good recordkeeping - IRS (my emphasis).
If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer's gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized.
If crowdfunding contributions are made as a result of the contributors' detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized. Contributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts. Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee's gross income.
What if you crowdfund what you owe to IRS?
Targeting tax credits, and Russia - Bernie Becker, Politico:
Koch Industries pushed back on the statement from Schumer and Wyden — arguing, among other things, that the Russian government could take over and take advantage of its facilities in the country if Koch pulled out. (One Koch company has about 600 employees in Russia working in glass manufacturing, as The Hill’s Jordain Carney noted.)
In any event, the original statement marked the second time in about a week that Wyden proposed targeting foreign tax credits as a potential further method for sanctioning Russia. So what kind of chances might that have?
The FTC Regs and Transfer Pricing: Picking the Wrong Fight - Ryan Finley, Tax Notes: "Rebranded the 'attribution requirement' by the final regulations, the controversial provisions prevent the creditability of foreign tax measures that do not conform to what Treasury and the IRS consider to be the international norms applicable to the taxing jurisdiction. As is evident from its initial name and the explanation provided in the preamble to the final regulations, the primary targets of the attribution requirement that now appears in reg. section 1.901-2(b)(5) were extraterritorial taxes such as digital services taxes and diverted profits taxes that flout traditional taxable nexus standards."
Multinationals Fret Over Foreign Tax Credits as U.S. Tightens Rules - Richard Rubin, Wall Street Journal ($). "Tax lawyers expect operations in certain regions, like Latin America, to take the hardest hit, because they are outside the U.S. tax treaty network and impose taxes that can be structured somewhat differently from U.S. income taxes. Brazil, an emerging consumer market that has been attractive to U.S. companies, could be particularly affected because its tax system differs from many others."
Related: Eide Bailly International Business Services.
Cannabis industry goes all-in on banking push before midterms - Karl Evers-Hillstrom, The Hill.
In an in-person lobbying blitz last week, more than 20 chief executives of top cannabis companies urged lawmakers in both parties to pass the SAFE Banking Act, a bill to allow them to work with U.S. banks that the industry is confident will win enough GOP support to pass the Senate.
The inability to use banks forces cannabis taxpayers prevents taxpayers from using checks or electronic transfers for everyday transactions like payroll tax deposits, forcing them to run around town with large quantities of cash, which can be stolen.
Extending TCJA, Adding Biz Tax Breaks Likely for GOP Task Force - Doug Sword, Tax Notes ($). "While the proposals will let voters know what to expect if Republicans win control of the next Congress, no one expects them to both pass a GOP Congress and be signed into law by a Democratic president."
Who is in charge? Dealing with conflicting guidance - Annette Nellen, 21st Century Taxation. "And now in March 2022, text and footnote 1120 in the 116th Congress Bluebook states: 'The definition of qualified wages depends on the average number of full-time and full-time-equivalent employees of the eligible employer during 2019.' [emphasis added]"
Related: Benefit from the Employee Retention Credit.
10 Red Flags That Could Trigger an IRS Tax Audit in 2022 - Lori Ioannou, Wall Street Journal ($). "Proprietors and partners of small businesses also sometimes are tempted to declare artificially small salaries for themselves to lessen the tax impact on the company and themselves."
IRS Gives Crypto Tax Warning: Don’t Forget To Report - Robert Wood, Forbes. "The IRS says that all taxpayers filing Form 1040, Form 1040-SR or Form 1040-NR must check one box answering either “Yes” or “No” to the virtual currency question. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021. You can read the IRS reminder here."
Survey says most of us think our tax bills are too high - Kay Bell, Don't Mess With Taxes. "So it's no surprise that half of Americans who participated in a recent survey said they pay too much in taxes."
FDAP Income - Jason Freeman, Freeman Law. "The United States generally taxes nonresident aliens and foreign corporations on their U.S.-source income. A foreign taxpayer’s U.S.-source income falls into one of two general categories: (i) 'fixed or determinable annual or periodical gains, profits, and income' ('FDAP income') or (ii) income that is 'effectively connected' with the conduct of a U.S. trade or business ('ECI')."
How Tax Pros Can Protect Clients Against Scams During Tax Season - Clayton LiaBraaten, Bloomberg. "t’s no surprise that we’re seeing an influx of IRS scams. Scammers often capitalize on major holidays, times of crisis, and increases in travel to exploit their victims. There has been an annual spike in illicit voice, and now text, communications during tax season in the U.S. going back almost a decade. In 2020, nearly 60 million—one in five—Americans were defrauded of $60 billion to robocalling schemes."
An (In)Decent Proposal: Tie DST Rollback to Pillar 1 Scoping - Robert Goulder, Tax Notes Opinions. "Arguably, the greatest benefit of the OECD tax deal is that it significantly strengthens the overall stability of the international tax system by eliminating the dozens of digital services taxes the U.S. government finds problematic."
Windfall Profits Tax Wrong for American Energy - Alex Muresianu, Tax Policy Blog. "To show the problems with this tax, consider the most basic questions of investing: risk and reward. For an investor to make a risky investment, they need a higher expected reward. And energy is a high-risk sector. Even before the pandemic, energy was the most volatile sector of the stock market in the 2010s. And when the pandemic arrived, more than 100 oil companies went bankrupt and the major producers significantly rolled back their operations."
Petroleum Profit Tax Would Be Efficient and Progressive - Thornton Matheson, TaxVox. "Imposing a temporary surtax on profits when oil prices spike creates an asymmetry between the tax treatment of revenue and expenses. Oil companies deduct the cost of their substantial capital investment at the standard 21 percent corporate tax rate, but their income is sometimes taxed at steeply higher rates. This creates an investment disincentive that can lower production."
Utah Dentist Found Guilty of Tax Crimes - US Department of Justice (taxpayer name omitted). "From approximately 1998 through 2014, Taxpayer took numerous steps to evade approximately $1.8 million in back federal income taxes that he owed. He also obstructed the IRS’s efforts to collect these taxes, including by filing false liens against properties he owned and submitting to the IRS bogus 'bonds to discharge debt' that he claimed were from the account of the former Treasury Secretary."
Edward Brown Constitution Ranger - Part II - First Conviction And Ranger Handbook - Peter Reilly, Forbes. "For now it may be that Ed is a lone ranger. His overall narrative seems to be about elite bankers in Europe being in charge of everything. Right now his big concern is with the Southern border. All those people coming in and being flown places at night."
As Mr. Brown is scheduled to remain in federal prison until 2034 as a result of convictions relating to an armed holdout after being convicted of federal tax charges, the southern border will have to get by without him.
But not if you are on my tax team! Today is National Goof Off Day.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.