March 31, 2022
Top Democrats Want Revenue Vehicle Free of Added Tax Provisions - Doug Sword, Tax Notes ($):
A feeding frenzy may be in store for one of the last revenue vehicles before the November elections, but some leading Democrats say they have no appetite to weigh down the America COMPETES Act of 2022 (H.R. 4521) with tax legislation.
Senate and House members, along with tax professionals, have been making noise about turning the America COMPETES Act’s rejuvenation of America’s semiconductor industry into a home for a 25 percent investment tax credit for chip plants and equipment, restoration of full expensing for research and development expenses, relaxing Form 1099-K reporting requirements for gig workers, tax extenders, or other tax measures.
If the tax provisions can't ride along on the COMPETES trade bill, our Jay Heflin says that unless Congress agrees on a slimmed-down budget reconciliation in April, the next likely vehicle for the tax provisions will be a year end bill extending various expired tax breaks.
Taxpayer Advocate Urges Rapid IRS Uptake of Paper-Scanning Tech - Jonathan Curry, Tax Notes ($):
The IRS could have avoided its ongoing mail backlog crisis if the agency’s system for processing paper tax returns wasn’t so archaic, according to National Taxpayer Advocate Erin M. Collins.
“Nowhere is the IRS’s antiquated technology more apparent than in the processing of paper tax returns,” Collins said in a taxpayer advocate directive (TAD) dated March 29. As of March 18, the IRS’s backlog stood at 14.7 million individual and business tax returns, according to her memo.
For now, though, e-file, unless you are fine with your return languishing unprocessed in a mail bin indefinitely.
House Committee Approves Chamber Vote to Decriminalize, Tax Cannabis - Jay Heflin, Eide Bailly. "History is expected to repeat itself in that the legislation will advance from the House but not pass the Senate. The only difference might be that the bill receives a vote in the Senate. However, it is not expected to pass even though the upper chamber unanimously passed legislation last week to expand scientific and medical research on marijuana and its compounds."
Congress gives IRA perks to high earners in tax bill - Tobias Burns, The Hill:
The Secure 2.0 Act, which is not yet slated for a vote in the Senate, pushes back the age at which the government can start taxing retirement accounts from 72 to 75, providing high income earners an extra three years to defer tax payments and enjoy tax-free growth.
The House-passed bill counts money collected by the government through taxes on Roth retirement accounts earlier to make up for the lost revenue on traditional accounts in the 10-year budget window.
Retirement savings bill passes House as Senate deliberates - Laura Weiss, Roll Call:
Edits to the bill ahead of Tuesday’s vote included the addition of changes to the “saver’s credit,” which offers tax credits to lower earners who stow money in retirement savings accounts. Under current law, the benefit is worth up to 50 percent, 20 percent or 10 percent of contributions to plans, depending on income.
The provision added to the Neal-Brady bill would set the benefit at 50 percent of contributions, phasing the resulting payout down based on income — a more gradual reduction in the benefit than current law. Eligibility for the credit would begin at lower income thresholds than current law, but allow bigger benefits for savers with the lowest income.
The Savers Credit changes would not be effective until 2027.
Most eligible people already received the full amount of their credit in advance and don't need to include any information about this payment when they file their 2021 tax return. This includes the additional payments – called "Plus-Up" Payments – the IRS issued to individuals who initially received a third-round Economic Impact Payment based on information on their 2019 tax return and were later eligible for a larger amount based on information on their 2020 tax return.
Individuals may securely access their IRS Online Account to view the total amount of the third-round Economic Impact Payment issued to them. This information became available on January 15, 2022, under the Tax Records page in Online Account. For married individuals filing a joint return, each spouse will need to log into their own Online Account or review their own Letter 6475 for their portion of their joint total payment.
An online IRS account is a good thing to have, but if you haven't set one up, it takes a little time and patience.
Kentucky personal income tax cut remains but rebates likely done in new GOP bill - Austin Horn, Lexington Herald Leader. "Kentucky’s personal income tax rate is likely to soon decrease after the passage of House Bill 8 in the Senate. Less than two hours after the bill passed out of committee Tuesday, the Senate voted 27-8, with all Democrats voting no and only one Republican Senator passing on the measure."
GOP-led House advances plan to overhaul Kentucky's tax system, phase out income tax - Bruce Schreiner, Associated Press vis courier-journal.com:
Under the bill, the state’s 5% personal income tax rate would be lowered incrementally over a period of years with the goal of eventually eliminating it. The measure calls for the rate to be cut to 4% next year. After that, future income tax rate cuts would hinge on the state meeting revenue targets.
To broaden the tax base, the proposal would extend the sales tax to a number of services.
South Carolina DOR to End Temporary Nexus, Withholding Relief - Benjamin Valdez, Tax Notes:
The draft revenue ruling, proposed March 29, announces the expiration of a May 2020 information letter (Information Letter 20-11), which said the DOR wouldn’t use temporary changes in an employee’s work location during the pandemic to impose an income tax withholding requirement. The expiration would be effective June 30; public comments on the ruling are due by April 19.
With the expiration of COVID relief, more employers and employees will have to deal with the tax consequences of out-of-state remote work.
Poland, Estonia To Veto EU Minimum Tax, Diplomats Say - Kevin Pinner and Matt Thompson, Law360 Tax Authority ($):
Poland and Estonia will veto a European law meant to enact an internationally agreed global minimum tax orchestrated by the OECD if finance ministers meet again to discuss the matter next week, two European diplomats told Law360 on Wednesday.
The OECD's plan for a 15% corporate tax would allow countries and territories where businesses are headquartered to collect payments ensuring their subsidiaries pay the minimum in foreign jurisdictions. The minimum tax is part of a so-called two-pillar plan developed by the Paris-based organization of mostly rich nations that includes reallocating some taxing rights on multinational corporations to governments based on where customers pay taxes.
The minimum tax is controversial because of the way it might devalue tax incentives like research credits. The Biden administration supports the global agreement, but a path to congressional approval is rocky.
Simplified home office tax deduction pays off for some small businesses - Kay Bell, Don't Mess With Taxes. "Instead of filling out the 44-line Form 8829 to claim your home-office deduction, you can use the significantly streamlined worksheet on page C-12 of the Schedule C instructions."
The First Place to Start Investing – Retirement Accounts - FinPowered Female. "It’s not sexy, it’s not a fancy option that gets you all excited. Most investing isn’t."
Proposed Minimum Tax on Billionaire Capital Gains Takes Tax Code in Wrong Direction - Garrett Watson and Erica York, Tax Policy Blog. "Under the new proposal, households with net wealth over $100 million would be required to pay a minimum effective tax rate of 20 percent on an expanded measure of income that includes unrealized capital gains. Households would calculate their effective tax rate for the minimum tax, and if it fell below 20 percent, would owe additional taxes to bring their effective rate to 20 percent. In other words, households would owe taxes on capital gains each year, even if the underlying asset had not been sold, and amounts paid would be treated as prepayments of future capital gains tax liability."
Once I’ve met nexus in a state, will I always have to file? - Sarah Craig, TaxJar. "The answer to this question depends on whether or not you have a valid sales tax permit in the state. If so, you’ll likely be filing sales tax returns whether you have taxable sales to report or not. "
Related: Identifying Your Sales Tax Risks.
Navigating the Branch Profits Tax - Jason Freeman, Freeman Law. "In effect, the branch profits tax treats the U.S. branch of a foreign corporation as if it were a subsidiary—at least for purposes of taxing the repatriation of profits. This puts the earnings and profits of a foreign corporation’s branch that are deemed to be repatriated to its home office on equal footing with the earnings and profits of a U.S. subsidiary that are paid out as a dividend to its foreign parent. By treating a branch’s profits as though they were remitted to the foreign corporation, the branch profits tax effectively eliminates the advantage of operating as a U.S. branch rather than a subsidiary with respect to the repatriation of profits."
Think of a "branch" as an operating division, rather than a separate corporation.
U.S. /Canadian Treaty Relief From Double Taxation - Oliver Wagner, Tax Connections. "You are a dual U.S./Canada citizen. You live in Canada. The U.S. will tax you since you are a U.S. citizen. And you will be taxed by Canada since you are a Canadian tax resident."
Determinative Factors: “Debt” v. “Equity” and Your Loan to a Foreign Corporation (Part II) - Virginia La Torre Jeker, Virginia - US Tax Talk. "The tax classification of an interest as 'debt' or 'equity' will be impacted by the intent of the parties at the outset as well as by their subsequent acts, and how that intent was manifested."
Did You Pay Your ‘Fair Share’ of Federal Income Tax This Year? - Kelly Phillips Erb, Bloomberg. "Taxpayers who do pay taxes are probably not paying as much as many might assume. The most recent complete data available from IRS indicates that taxpayers shelled out an average federal income tax of $15,204 in 2019, lower than in 2017 and 2018 and representing an average tax rate of just 14.1%. That amount was calculated from nearly 158 million tax returns filed—just over 104 million of those were taxable returns."
How the TCJA Affected the Housing Market - Robert McClelland and Livia Mucciolo, TaxVox. "When the Tax Cuts and Jobs Act (TCJA) was enacted, critics claimed that reducing the tax subsidy for mortgage interest would hurt home values. But new TPC research shows that the reduced deduction had very little effect on the size of new mortgages, suggesting that the changes in the TCJA have not substantively impacted the housing market the way some predicted."
Biden Budget Would Raise Income Tax Rates to Highest in Developed World - William McBride and Alex Durante, Tax Policy Blog: "The FY 2023 budget proposes several new tax increases on high-income individuals and businesses, which in combination with the BBBA would give the U.S. the highest top tax rates on individual and corporate income in the developed world. The largest proposed tax hike is an increase in the corporate tax rate from 21 percent to 28 percent, which the administration estimates would raise $1.3 trillion over 10 years. We estimated such a tax increase, which was proposed in last year’s budget, would raise $954 billion over 10 years and would shrink the economy by 0.7 percent and eliminate 145,000 jobs. Another proposal reprised from last year’s budget, taxing unrealized capital gains at death and raising the top tax rate on capital gains and dividends from 20 percent to 39.6 percent, would shrink the economy by about 0.3 percent and eliminate 27,000 jobs."
Tax Avoidance School Operators Owe $93K, 9th Circ. Told - Theresa Schliep, Law360 Tax Authority:
The operators of a business called Freedom Law School that teaches tax avoidance schemes, including that tax filing and record-keeping are optional, should be held liable for a $93,000 Internal Revenue Service bill, the U.S. government told the Ninth Circuit.
The appeals court should affirm a U.S. Tax Court decision holding April and Peymon Mottahedeh liable for taxes for 2001 through 2006, the government said in briefs filed Tuesday. They've used tax avoidance tactics espoused by Freedom Law School, which "teaches that a taxpayer can prevail against the IRS by violating the tax laws," to avoid their own liabilities, the briefs said.
The Tax Court opinion explains these, um, techniques:
The Mottahedehs applied the tax-evasion techniques advocated by the Freedom Law School to their own financial affairs (including the operation of the Freedom Law School and Peymon Mottahedeh's representation of taxpayers before the California Franchise Tax Board). They encouraged their customers to pay them in cash. They tried to avoid banks and other financial institutions. They did not generally keep financial records. They masked their ownership of two properties from the IRS through sham trust arrangements. They did not file federal-income-tax returns for the tax years 2001 through 2006.
Given the many years of apparently futile litigation, the value of these techniques may be in question.
Montgomery Tax Preparer Sentenced to 37 Months in Prison and Fined $100,000.00 for Filing False Returns - US Department of Justice (Preparer name omitted):
According to her plea agreement and other court records, Preparer operated a Montgomery tax preparation business under the name Magic Tax Service. In June of 2021, a grand jury returned an indictment against Preparer charging her with numerous counts of aiding and assisting in the filing of false returns for clients from 2015 through 2017. During her plea hearing on October 14, 2021, Preparer specifically admitted to assisting in filing false tax returns on at least two occasions. First, on February 15, 2016, Preparer aided a client in filing a tax return that falsely claimed business income in the amount of $2,150.00 while claiming expenses in the amount of $67,107.00. Preparer knew the client was not entitled to claim any business income or expenses and this deception resulted in a loss of $11,294.00 to the IRS. In addition, Preparer also admitted to aiding a client in filing an illegal tax return on January 16, 2018. In similar fashion, she claimed false business revenue and expenses for a client that resulted in a tax loss of $10,499.00.
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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.