Tax News & Views Budget Sonata Roundup

March 29, 2022

Treasury Greenbook proposes to raise taxes on corporations and wealthy - Michael Cohn, Accounting Today. 

For individuals, the proposals would increase the top marginal income tax rate for high earners, reform the taxation of capital income, and impose a minimum income tax on the wealthiest taxpayers.

For extremely wealthy taxpayers, a minimum income tax would require prepayment of taxes on unrealized capital gains, so liquid taxpayers would be taxed at a rate of at least 20% on their income including unrealized capital gains. 

Link to "Green Book" of Biden Budget proposals: General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals


But will the proposals go anywhere? It's uncertain at best:

President Biden releases Budget that mostly rehashes Tax Increases from Last Year - Jay Heflin, Eide Bailly.

Tax increases proposed by Biden are not expected to become law unless congressional Democrats create another budget reconciliation bill that can pass the Senate with only Democratic support. So far, they have had little success in using this process to pass legislation.

Democratic lawmakers spent most of last year trying to pass a budget reconciliation bill that failed to pass because Senator Joe Manchin (D-W.Va.) could not support it. The lack of that one vote meant the legislation could not pass the Senate.

Senate Democratic leaders will try to pass a slimmed-down version of the budget reconciliation bill (commonly known as the Build Back Better bill) next month. The legislation is expected to include fewer spending provisions, but it could include the tax increases that the House passed last year.

However, winning Manchin’s support for the legislation could force Senator Sinema to oppose it. She does not support tax rate increases and Manchin does. He has recently called for tax rate increases to be included in the legislation. If he succeeds in this endeavor, it is not clear how Sinema will respond.  If she opposes the bill, it will not pass the Senate.

But as uncertain as prospects are for the Biden tax proposals, they aren't meaningless. At the least, they set the terms for discussions of tax proposals for the rest of the year. They provide a list of options should Democrats solidify their control of Congress. And with both houses closely divided, an untimely death or corruption conviction could drastically improve the prospects for these proposals.

Jay Heflin's post summarizes other proposals in the wide-ranging budget proposal, among them: 

  • Increase the top marginal tax rate to 39.6%, from 37%. 
  • Tax capital income for high-income earners at ordinary rates. The proposal would apply to long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million ($500,000 for married filing separately) and indexed for inflation after 2023.
  • Treat transfers of appreciated property by gift or on death as realization events.
  • Raise the corporate income tax rate to 28 percent, effective for taxable years beginning after December 31, 2022.
  • Grant authority to the IRS for oversight of all paid preparers, which would be effective on the date of enactment.
  • Increase the IRS budget $14.1 billion, an 18% increase over last year’s total. 


Plans for Taxing the Wealthy and Corporations Growing Larger - Jonathan Curry, Tax Notes ($):

One of the most prominent of the administration’s new proposals is a tax on billionaires dubbed the “billionaire minimum income tax,” which bears the hallmarks of several similar proposals that have circulated among liberal members of Congress in recent years. Although Biden signaled openness to a special tax on billionaires late last year during negotiations over the Build Back Better Act, the new budget marks the first time the Biden administration has packaged a plan of its own on that front.

Biden’s version of a billionaire’s tax would ensure that households worth more than $100 million pay at least 20 percent on their total income, including unrealized gains. The majority of the revenue would come from billionaires though, according to the White House.

So $100 Million = Billion.


It's budget day, everyone - Bernie Becker, Politico:

Here’s how it would work: The top 0.01 percent of taxpayers would have to pay at least 20 percent in taxes — but not just on their ordinary income, of which many among the uber-rich can make a comparatively modest amount. Instead, the administration proposal would also combine in the unrealized gains of the very wealthy, like the swelling of their stock portfolios. (Ever heard of “buy, borrow, die,” for instance?)

By the administration’s math, that proposal will bring in an extra $360 billion over 10 years. But more than that, it also underscores that a range of leading Democrats are trying to squeeze more taxes out of the holdings of the billionaire class, but still are striving to figure out how exactly to do so.


Manchin Pans Biden’s Proposed Tax on Unrealized Gains of Wealthy - Erik Wasson and Steven Dennis, Bloomberg ($). "President Joe Biden’s plan to tax unrealized capital gains ran into opposition from key Democratic Senator Joe Manchin, likely dooming it just hours after it was sent to Congress."

Biden’s 20% ‘Billionaire’ Tax Hits $100M Up Taxing Unrealized Gains - Robert Wood, Forbes. "Up until now, you can’t be taxed until you sell it. Now, that could change, for if the president has his way, there would be a new 20% minimum tax rate on U.S. households worth more than $100 million."


Biden's 2023 Budget Would Hike Taxes On Billionaires, Corps. - Stephen Cooper, Law360 Tax Authority:

Biden also proposed modifying taxes on estates and gifts, including limiting the exemption for generation-skipping transfer taxes and changing the rules for certain grantor trusts.

Proposed loophole-closing provisions in the budget include taxing fees earned by hedge fund managers as ordinary income rather than capital gains and repealing the deferral of gains from like-kind exchanges. The budget would also limit the use of the deduction for conservation easements by partnerships and require donor-advised funds to make mandatory payouts.


White House 'billionaire tax' shadows other more powerful tax changes - Tobias Burns, The Hill:

As the Biden administration touted its new proposal of a minimum income tax for households worth more than $100 million, estate lawyers Monday were paying attention to a more technical but also more powerful set of proposed revisions to estate and gift taxes that would go after inherited caches of wealth that have long stood beyond the reach of tax collectors.


Another powerful loophole the Treasury wants to plug has to do with money piles known as Grantor Retained Annuity Trusts (GRATs). These employ a similar tax-avoidance mechanism to the generation-skipping tax exemption by locking in low tax liabilities and then allowing for a rapid accumulation of nontaxable wealth.


Using Donor-Advised Funds to Avoid Payout Rules May Get Tougher - Fred Stokeld, Tax Notes ($):

A provision in President Biden’s fiscal 2023 tax proposals would make it harder for private foundations to use donor-advised funds (DAFs) to avoid payout requirements.

The provision says that for a private foundation’s distribution to a DAF to be a qualifying distribution, the DAF’s funds must be expended as a qualifying distribution by the end of the following tax year, according to the Treasury Department’s fiscal 2023 green book of tax proposals, released March 28.


Biden Takes New Approach on Related-Party Basis Shifting - Kristen Parillo, Tax Notes ($). "For distributions of partnership property that result in a step-up of the basis of the partnership’s non-distributed property, a matching rule would prohibit any partner in the distributing partnership that is related to the distributee partner from benefiting from the partnership’s basis step-up until the distributee partner disposes of the distributed property in a fully taxable transaction."

Treasury Proposal Would Require Disclosure Of Foreign Crypto - David van den Berg, Law360 Tax Authority. "The proposal outlined in Treasury's "Green Book" explanation of tax policies would impose a reporting mandate for foreign digital asset accounts under Internal Revenue Code Section 6038D(b). The mandate would apply to taxpayers who have more than $50,000 in cryptocurrency, financial accounts and other assets held overseas."


Wisconsin Commission: Out-of-State PTE Owes Withholding Tax - Amy Hodges, Tax Notes ($):

A three-member panel of the commission ruled March 16 in MacKinney Systems Inc. v. Department of Revenue that the state’s withholding tax applied to the Missouri-headquartered S corporation because it was a passthrough entity and it was doing business in Wisconsin by selling and delivering software licenses to  in-state customers.


The commission added that Wis. Stat. section 71.22(1r) defines “doing business in this state” to mean “regularly selling products or services of any kind or nature to customers in this state that receive the product or service in this state.”

From the commission opinion: 

Doing business in this state includes "regularly selling products or services of any kind or nature to customers in this state that receive the product or service in this state. . . ." Petitioner has stipulated to receiving payments, annually totaling more than $100,000, for its software used in Wisconsin in each of the years at issue. The software licenses include both prewritten software and technical support, new releases, enhancements, and fixes to the software. Although the software and services are provided remotely, the Petitioner's customers in this state receive the product and any associated services in this state. This falls squarely under the definition of "doing business in this state."

The S corporation had no operations or employees in Wisconsin, but was still subject to withholding. The commission said that the provisions of federal law (PL 86-272) that protect out-of-state companies from income tax if they never enter a state physically do not enable S corporations to avoid resident withholding. This could be a big deal for S corporations and partnerships selling into Wisconsin. Still, it's uncertain whether courts ultimately will let Wisconsin withhold income tax that they can't legally assess to the owners under PL 86-272.


Miss. Lawmakers Approve Income Tax Cut - Michael Nunes, Law360 Tax Authority ($):

The Mississippi House and Senate have sent a plan to the governor's desk that would reduce the state's income tax in the near term and possibly eliminate it after several years if lawmakers see fit.

On Sunday, the conference report attached to income tax proposal H.B. 531 passed the House by a 93-23 vote and the Senate by a 39-10 vote. The adopted report would eliminate the state's 4% tax bracket in 2023 and gradually lower the 5% bracket, for income over $10,000, to a 4% tax by2026. The report notes the Legislature's intent to explore eliminating the tax entirely for years after 2026.

We'll see in 2026.


Sweden, Estonia To Drop Opposition To Min. Tax, Officials Say - Matt Thompson, Law360 Tax Authority ($):

The 15% minimum is part of a broader international deal agreed in principle at the Organization for Economic Cooperation and Development in Paris by nearly 140 jurisdictions. The minimum tax allows headquarter countries to top up the tax of companies that pay below the minimum rate where they have subsidiaries.


Tax Day Is Coming. Here’s How to Cope With the IRS. - Laura Saunders, Wall Street Journal ($). "Taxpayers whose 2020 returns haven’t yet been processed face a different issue. They can’t enter their 2020 adjusted gross income as required to e-file 2021 returns, so the IRS is advising these people to e-file and enter $0 for the prior year’s AGI."

RMD deadline for some older account owners is April 1. No fooling - Kay Bell, Don't Mess With Taxes. "SECURE specifically noted that if your 70th birthday was July 1, 2019, or later, you don't have to deal with RMDs until you turn 72. But that age change does not affect those who celebrated their 70½ birthday — and who doesn't have parties for half-year occasions? — in the first half of 2019 or earlier. They've been and must continue making RMDs."

Iowa Provides Penalty Relief for Farmers Who File by May 2 - Kristine Tidgren, Ag Docket. "On March 22, 2022, the Director of the Iowa Department of Revenue joined the IRS in granting estimated tax penalty relief to qualifying farmers who did not file their 2021 returns and pay their taxes by March 1, 2022."

Where to Get Help with Taxes as a Senior - Virginia Cooper, Living The Tax Life. "In addition to VITA, the IRS also offers Tax Counseling for the Elderly (TCE). The TCE program provides free tax help to anyone age 60 or older. TCE specializes in questions related to pensions, retirement, and other related questions which are specific to seniors. All TCE volunteers are certified through the IRS and are often retired individuals themselves - so they’ll be able to better understand your unique situation."

Law and Tech Modernization Needed to Get Tax Refunds To Taxpayers - Annette Nellen, 21st Century Taxation. "The law should be changed to allow the automatic return of withholdings to individuals after the IRS runs its check based on information reports it has for the person. Or send each a reminder 13 months in advance of the expiration of the statute of limitations to have the individual confirm their income. But the tech solution would be best as it allows for more improvements beyond the return of taxpayer money to the taxpayers."


Captive Insurance – Part One - Roger McEowen, Agricultural Law and Taxation Blog. "For premiums paid to be deductible, the captive must be respected as an insurance company for federal income tax purposes.  Otherwise, what is involved non-deductible self-insurance.  This means that qualified underwriting services must be used to determine the actual cost of similar coverage in the market or via an underwriting evaluation so that the policies are properly designed and the premiums are appropriate.  This is key to getting the desired tax treatment and withstanding an IRS attack."

Court Declares IRS Micro-Captive Notice 2016-66 Unlawful: What Taxpayers Should Do Now - Matthew Roberts, Freeman Law. "Moreover, taxpayers who have already paid civil penalties related to IRS notices—particularly those at issue in Mann Construction and CIC Services—should seek the advice of tax counsel to determine whether certain actions should be taken, such as the filing of a refund or protective refund claim.  Taxpayers in these circumstances should be aware that they may forever lose entitlement to a refund of the civil penalty if they fail to follow these procedures within prescribed deadlines."

Public Policy and Not in the Best Interest of the Government Offer in Compromise Rejections - Keith Fogg, Procedurally Taxing. "So, based on my limited experience representing taxpayers, the IRS does not play the public policy rejection card very often.  Whether it formally states this as a basis for rejection, I believe that a taxpayer’s behavior giving rise to the liability for which a compromise is sought does factor into the offer examiner’s and SO’s position in unstated ways.  In the O’Donnell case, however, we have an explicit statement from the IRS rejecting his offer because of his bad behavior, allowing us to look at the reasoning behind the public policy rejection as well as the level of scrutiny the Tax Court applies in reviewing that decision." 


Analyzing Recent Tax Trends Among EU Countries - Cristina Enache, Tax Policy Blog. "In recent years, EU countries have undertaken a series of tax reforms designed to maintain tax revenue levels while supporting investment and economic growth. In general, tax reforms focused on reducing individual and corporate income tax rates while increasing environmental or wealth taxes. However, as summarized here, not all tax reforms were created equal. Poorly designed fiscal policy and tax hikes might undermine the economic recovery."


Former Yale Med School Employee Pleads Guilty, Admits Stealing and Selling $40 Million in Electronics - U.S. Department of Justice (name omitted):

According to court documents and statements made in court, beginning in approximately 2008, Defendant was employed by the Yale University School of Medicine (“Yale Med”), Department of Emergency Medicine, and most recently served as the Director of Finance and Administration for the Department of Emergency Medicine. As part of her job responsibilities, Defendant had authority to make and authorize certain purchases for departmental needs as long as the purchase amount was below $10,000. Beginning at least as early as 2013, Defendant engaged in a scheme whereby she ordered, or caused others working for her to order, millions of dollars of electronic hardware from Yale vendors using Yale Med funds and arranged to ship the stolen hardware to an out-of-state business in exchange for money.

As part of the scheme, Defendant falsely represented on Yale internal forms and in electronic communications that the hardware was for specified Yale Med needs, such as particular medical studies, and she broke up the fraudulent purchases into orders below the $10,000 threshold that would require additional approval. The out-of-state business, which resold the electronic equipment to customers, paid Defendant by wiring funds into an account of a company in which she is a principal, Maziv Entertainment LLC.

You'll be shocked - shocked! to learn that these amounts were not reported on her 1040.


Tax Hiring Outlook 2022 - Tony Santiago, Tax Notes Special Reports. "If that’s not enough, the U.S. tax labor pool is shrinking as baby boomers retire. In fact, we predict that up to 50 percent of the combined years of experience across corporate in-house tax departments will exit the workforce within the next five to six years. Some of these departures were anticipated, but COVID-19 has further accelerated these retirement dates as part of the Great Resignation."

Hey, kids, tax work has a future. Choose your major wisely.


If you can't play, you can always listen. It's World Piano Day!

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