April 6, 2022
Georgia lawmakers pass new income tax cut on 2022 session’s final day - James Salzer, The Atlanta Journal-Constitution:
House and Senate leaders agreed to a measure late Monday that would gradually drop the state’s income tax rate from 5.75% to 4.99%.
Standard exemptions would rise gradually as well. The standard exemption would eventually go from $2,700 for single filers to $12,000. For married couples filing jointly, it would go from $7,400 to $24,000.
The 4.99% rate is scheduled to take effect in 2029. The first rate cut, to 5.49%, is effective in 2024.
Miss. Passes Flat Income Tax, Eyes Future Tax Repeal - Michael Nunes, Law360 Tax Authority ($):
Mississippi joins the list of states that have enacted substantial tax cuts this spring.
Republican Gov. Tate Reeves signed H.B. 531, which eliminates the state's current 4% tax bracket on income between $5,000 and $10,000 in 2023 and gradually reduces the top rate on income of more than $10,000 from 5% down to 4% by 2026. The report notes the Legislature's intent to explore eliminating the tax entirely for years after 2026.
Iowa Bill Seeks Franchise Tax Cuts, Food Exemption - Jaqueline McCool, Law360 Tax Authority ($):
H.F. 2583, introduced Monday by the Committee on Ways and Means, would lower the state franchise tax rate from 5% beginning in 2023 until it reaches 3.5% in 2027. The bill would also exempt food and food ingredients from state sales tax. Food and food ingredients are defined as food for human consumption by the bill.
The franchise tax, which is a special version of the corporate income tax for banks, was left out of the big Iowa tax reforms earlier this year. The bill is likely to pass this session.
Michigan Governor Vetoes Gas Tax Holiday - Carolina Vargas, Tax Notes ($). "Gov. Gretchen Whitmer (D) on April 1 vetoed H.B. 5570, which would have suspended Michigan’s 27.2-cent-per-gallon gasoline tax from April 1 through September 30 and required sellers to pass the fuel price reduction on to customers."
Sanders pushes for 95 percent tax on corporate ‘windfall’ profits - Aris Folley, The Hill. "The legislation introduced by Sanders would apply to companies’ profits that are in excess of their average profit level seen in the five years leading up to the pandemic, according to a a summary provided by his office."
Don't expect this to go very far.
IRS pilots program to digitize archived tax filings - Michael Cohn, Accounting Today:
Last week, National Taxpayer Advocate Erin Collins issued a directive urging the IRS to finally begin implementing widely used scanner technology such as barcoding and optical character recognition to help cut down on its huge paper backlog (see story). “In the year 2022, this doesn’t just seem crazy,” Collins wrote in a blog post. “It is crazy.”
The absence of such technology may be surprising for the IRS, but the agency is still using some legacy technology that dates back to the 1960s during the Kennedy administration.
For perspective, I work in an office that digitized our files 17 years ago, when we were a little one-office CPA firm.
Court Rejects Dividend Deduction Regs' Good-Cause Exception - Andrew Velarde, Tax Notes ($):
As part of a move to a participation exemption system, under section 245A, domestic corporations can deduct a dividend paid to U.S. shareholders from a controlled foreign corporation. Because this provision and the global intangible low-taxed income provision have different effective dates, the specter of nontaxation existed for CFCs with non-calendar years since taxpayers had a brief opportunity to take the deduction without the CFC earnings being subject to GILTI.
Seeing the potential for avoidance, Treasury issued temporary regs (T.D. 9865) on section 245A in June 2019. The regs, which were retroactively effective, were aimed at stopping tax planning and operate by deeming ineligible for the dividends received deduction some dividends, including the type of transaction LGI engaged in.
A U.S. district court in Colorado held that the IRS had to comply with normal regulation notice and comment procedures. An appeal is likely.
Related: Tax Reform: What Does It Mean for My International Business 2018/2
Link to opinion: USDC-CO, No. 20-cv-03501
Already Stalled In U.S., Global Minimum Tax Hits European Roadblock - Paul Hannon, Wall Street Journal ($):
The plan could greatly reduce the benefits of a number of U.S. tax incentives, such as research and energy credits.
A global deal to introduce a minimum tax rate on company profits is stalled in both the U.S. and the European Union after Poland on Tuesday vetoed an EU agreement to implement the measure at the end of 2023.
The deal to impose a 15% minimum tax on the profits of large corporations was agreed upon by 137 countries in 2021, paving the way for the most significant overhaul of international tax rules in a century.
Treasury stops sharing tax info with Russia - Brian Faler, Politico. "The two countries have a long-standing agreement to cooperate on tax-enforcement matters that allow the IRS, for example, to get information from its Russian counterparts about American taxpayers."
Tax Court Denies Itemized Deductions Over Unfiled Return - Emlyn Cameron, Law360 Tax Authority ($). "A California man can't take itemized deductions on his 2013 taxes because he didn't prove that he filed a tax return for that year, the U.S. Tax Court said Tuesday."
One more reason to file a return on time every year.
Link to opinion: T.C. Memo. 2022-29
Link to opinion: DCSD-NY No. 1:20-cr-00110
Why Timely and Accurate Filing of U.S. International Information Returns Is Critical - Lewis Greenwald and Eric Rietveld, Tax Notes ($): "However, far more important than those monetary penalties is that the statute of limitations never begins to run on a filed tax return if any of the required U.S. international information returns are not filed or are not substantially complete when filed."
Actually, the monetary penalties are pretty important too - typically starting at $10,000 for a foot-fault late-filing penalty.
State Passthrough Entity Taxes and Federal SALT Cap Considerations - Jeff Schuetz, Rhonda Sparlin, and Amie Kuntz, Bloomberg. "The state and local tax, or SALT, deduction limitation for individuals has caused many states to implement a workaround for their passthrough entities. Sixteen states have these programs effective for tax year 2021, six others are effective beginning in tax year 2022, and seven more states are considering the move. Although participation may be advantageous for many, several factors can determine if opting in is beneficial."
Married Couples May Save Thousands By Filing Form 1040 Separately For 2021 - Peter Reilly, Forbes. He quotes Iowa practitioner Lindsay Starrett: "Spouse 1 makes $160k, spouse 2 makes $65k. Three kids < 18, did not receive EIP3 for the family because 2021 filings were joint and over the filing limits. Did receive some ACTC. By filing MFS for 2021, I was able to have spouse 2 claim kids and EIP for themselves and each kiddo. They also received higher CTC on the return than they would have jointly. Spouse 1 did have income that was taxed at slightly higher brackets than would have been jointly, and did have to repay their half of ACTC with the return. Spouse 1 pays in with return, spouse 2 claimed refund. My tax savings on this particular client was about $7k – originally they owed $3.5k, and in the end will have overall refunds of about $3.5k."
Bozo Tax Tip #8: Nevada Corporations (or LLCs) - Russ Fox, Taxable Talk. "If the corporation (or LLC) operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation (or LLC) is a California corporation/LLC, a Delaware corporation/LLC, or a Nevada corporation/LLC."
IRS TACs open again on Saturday, April 9, to provide tax help, no appointments necessary - Kay Bell, Don't Mess With Taxes. "Some, however, might want to also mark April 9 on their calendars. It's the third Saturday in this filing season where certain Internal Revenue Service Taxpayer Assistance Centers will be open."
Who You Gonna Call: Tax Myth Busters - David Stewart, Jonathan Curry, and Caitlin Mullaney, Tax Notes Opinions. "Oh, but wait, Dave, it says right there in the IRS's instructions for the Form 1040 that our tax system is "voluntary." Hey, problem solved. Right?"
If You Hold Crypto For Someone Else, Can IRS Collect Taxes From You? - Robert Wood, Forbes. "If there are taxes to pay, and you are holding the crypto for the benefit of someone else, who has to pay the taxes? First, start with the proposition that federal income tax liability is generally allocated based on ownership under local law."
What Domestic Estate Planners Should Know About Brussels IV - Charles Rubin, Rubin on Tax. "U.S. citizens with property in an EU country (especially real property and other physical property, but not necessarily limited to that) may find that such property is subject to forced heirship that defeats the intent of the owner and may create U.S. transfer tax issues."
IRS Issues FBAR Reference Guide - Matthew Roberts, Freeman Law. "By statute and regulation, all U.S. persons must file an annual FBAR if they have a financial interest in or signature or other authority over any financial account(s) located outside the United States, provided the aggregate balance(s) of the account(s) exceed $10,000 at any time during the calendar year."
Tracking the Economic Impact of U.S. Tariffs and Retaliatory Actions - Erica York, Tax Policy Blog. "The Trump administration imposed and threatened several rounds of tariffs, and other countries responded to these measures. Using the Tax Foundation Taxes and Growth Model, we analyze the effects of imposed, threatened, and retaliatory tariffs on the United States economy. Tariffs damage economic well-being and lead to a net loss in production and jobs and lower levels of income. Tariffs also tend to be regressive, burdening lower-income consumers the most."
Hey Tax Filers: There’s (At Least) One Thing You Should Know… Renu Zaretsky, TaxVox. "To help clarify matters, I asked ten TPC experts for a postcard-sized answer to this library-sized question: 'What is the single most important thing an average filer should know about tax policy, and why?'"
I liked this from Richard Auxier:
“There is no average…. Whenever an average filer hears about how a tax bill will affect ‘them,’ or if this or that state is ‘high tax’ she needs to think about her income, work, family, and life situation,” because with tax policy and how it affects you, “it depends!”
Orange County house flipper found guilty of filing false federal tax returns that omitted more than 2 million dollars of income - IRS (Defendant name omitted):
According to evidence presented at his seven-day trial, Defendant, along with his business partners, was an established and successful property flipper of foreclosed homes in Orange County since the mid-1990s. During the tax years 2014 through 2016, Defendant and his partners flipped approximately 170 homes and defendant's portion of the profits was approximately $2.1 million.
Defendant and his business partners kept detailed records of their property flip activities, including the profits Defendant made on each property. But Defendant concealed this information from his income tax return preparers and did not tell them that he was involved in the property flipping business.
As a result of his omission of his property flipping income from his 2014, 2015, and 2016 individual income tax returns, Defendant underreported his federal income taxes by hundreds of thousands of dollars.
"Partners." Every "partner" becomes a potential informant, which may be why things ended up this way.
It should stick to your ribs, not your pan. It's National Teflon Day! "Many people prefer Teflon-coated products due to their ability to last over a long period. Its impact is a watershed in technology, making it worthy of celebration."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.