April 14, 2022
Rettig Warns Against New Info Reporting Rules Without Funding - Jonathan Curry, Tax Notes ($):
Efforts to mandate new information reporting requirements will fall flat if the IRS isn’t also given funding to develop technology to sift through the mounds of data, according to the IRS chief.
“We need funding for that; otherwise, you’re just building a bigger haystack to be out in the yard, and by themselves, those haystacks aren’t helpful,” IRS Commissioner Charles Rettig said during an April 13 interview with Tax Analysts President and CEO Cara Griffith.
While the Commissioner makes an good point here, the problem is larger than the IRS getting data it can't handle. He doesn't discuss the continuing expansion of the job of the taxing agency into non-tax areas of policy. To name just a few:
Whatever the merits of any of these policies individually, each new job assigned to the tax agency makes it just a little worse at its main job of administering the tax law. The current multi-million item backlog of unprocessed returns and paperwork and the inability of the IRS to answer its phones or process refunds reliably should make us pause before giving the IRS more to do.
The Commissioner isn't asking for less power, though. Just more money.
Important reminders for people filing their tax return at the last minute - IRS:
Taxpayers have until the April deadline to request an extension to file until October 17. This is not an extension of time to pay. Taxpayers must estimate their tax liability and pay as much as they can by April 18 to avoid possible penalties and interest. Taxpayers in Maine and Massachusetts have until April 19 to pay to file their returns due to the Patriots' Day holiday in those states.
To be clear: The deadline is not tomorrow, April 15. It's Monday, April 18. Calm down.
Ky. Passes Income Tax Bill, Overriding Governor's Veto - Michael Nunes, Law360 Tax Authority ($):
The state Senate, by a 28-8 vote, and the House of Representatives, by a 72-25 vote, overrode Democratic Gov. Andy Beshear's veto of H.B. 8. The law will reduce the state's 5% income tax if certain revenue targets are met as well, and extend the state's 6% sales tax to additional services. Beshear had vetoed the bill on Friday.
Kentucky joins many other states in enacting tax cuts this legislative season. The Kentucky bill is unusual in its expansion of the sales tax to more services - a move popular with policy wonks, but less so with the businesses whose services become subject to sales taxes.
Virginia Governor Signs SALT Cap Workaround Legislation - Benjamin Valdez, Tax Notes ($):
Virginia Gov. Glenn Youngkin (R) has approved legislation providing passthrough entities with a workaround to the federal cap on the state and local tax deduction.
Youngkin signed H.B. 1121 and S.B. 692 on April 11. The bills allow passthrough entities such as partnerships and S corporations to make an annual election to pay tax at the entity level at a rate of 5.75 percent for tax years beginning on or after January 1, 2021, but before January 1, 2026. Entity owners that make the election are allowed a refundable income tax credit in an amount equal to their pro rata share of the tax paid by the entity. If any amount of the credit exceeds the owner’s tax liability, the excess amounts are treated as overpayments and are refundable.
About half of the states have now passed such legislation, designed to bypass the $10,000 cap on individual itemized deductions for state and local taxes. They take advantage of IRS tax guidance that allows partnerships and S corporations to pay state taxes at the entity level and deduct them, even while crediting the taxes to the owners on their state tax returns - all outside of the $10,000 "SALT cap."
Related: Working Around the SALT Deduction Cap.
Texas Returns to Origin Sourcing: Refund Claims May be Due by May 15, 2022 - Iris Chung, Eide Bailly.
This is a significant decision because the Court affirms the Texas Franchise Tax origin sourcing apportionment rules that focus on the place where the taxpayer’s personnel or equipment is doing useful work for the customer.
Prior to this decision by the Court, taxpayers were left with uncertainty on how to apply an origin sourcing statute and a conflicting market sourcing regulation. After the lower court decision, Texas, in January 2021, amended apportionment regulation 34 TAC Sec. 3.591 to state that services were performed where “receipts-producing, end-product act or acts” occurred at the location of the customer in the state. The location of other acts would not be considered, even if they are essential to the performance of the receipts-producing acts.
As a result of this Court decision, multistate service providers performing services outside Texas for in-state customers could pursue potential refund claims. Alternatively, service providers performing services in Texas for customers outside Texas may face additional tax liabilities.
Taxpayers that are service providers conducting business in Texas can consider consulting with their tax advisor to aid in determining what implications this ruling has on current and prior year tax filings and the potential to file refund claims. The statute of limitations for the 2018 Report Year (2017 tax year) will close on May 15, 2022, for taxpayers that filed returns by the original due date. The Sirius XM decision may also have an impact on companies’ tax provisions.
The Eide Bailly SALT team can help.
New Jersey to Allow P.L. 86-272 Protection on Entity-by-Entity Basis - Benjamin Valdez, Tax Notes ($):
P.L. 86-272 generally prevents taxpayers from owing state income taxes on activities that are limited to the solicitation of sales of tangible personal property. Previous guidance issued by the division reiterated that “if one member in the combined group has nexus and sufficient activities in New Jersey to be taxed based on income, no member that has nexus with New Jersey may claim P.L. 86-272 protection." The new policy says that “protection for a member will be determined on an entity-by-entity basis."
Combined groups that filed unitary corporate tax returns for 2019, 2020, or 2021 based on prior guidance or tax return instructions can amend those returns to reflect the policy change, according to the division.
IRS revises further Frequently Asked Questions and Answers for 2021 Recovery Rebate Credit - IRS:
These FAQs (FS-2022-27 PDF) updated Questions 1, 5, 8 and 9 in Topic F: Receiving the Credit on a 2021 Tax Return.
Individuals who did not qualify for, or did not receive, the full amount of the third Economic Impact Payment may be eligible to claim the 2021 Recovery Rebate Credit based on their 2021 tax year information. Individuals may have received their third Economic Impact Payment through initial and "plus-up" payments in 2021.
Good thing there is plenty of time left in filing season to apply these updates.
From Refunds to Extensions, Your Last-Minute Tax Day Reminders - Kelly Phillips Erb, Bloomberg. "Tax Day is April 18 this year for most taxpayers, thanks to the Emancipation Day public holiday in the District of Columbia. By law, when April 16 falls during a weekend, Emancipation Day is celebrated on the nearest weekday—not necessarily the following weekday. In 2022, that’s Monday, April 18. Taxpayers in Maine or Massachusetts have even more time to get their returns to the IRS. Taxpayers in those states have until April 19, 2022, to file, due to the Patriots’ Day holiday."
A quick estimated tax Q&A in advance of the April 18 deadline - Kay Bell, Don't Mess With Taxes. "But withholding doesn't apply to all earnings. Some salaried workers have side jobs. Others do various gig jobs to make a living. Still others are their own bosses full-time. Each of these freelancing or contract jobs mean we get paid without handing over any to the federal government."
Bozo Tax Tip #2: Anger Your Tax Professional! Russ Fox, Taxable Talk. "I enjoy what I do, but I do not enjoy (and have never enjoyed) dealing with misanthropes. Given the high demand, your tax professional almost certainly feels the same way. Every year, tax professionals send letters to clients who are about to become former clients because they’re either no longer a fit for them or the tax professional cannot make a profit from them (because they require too much time or will not pay what the tax professional believes to be a fair price). I’ve sent these in the past, but I never enjoy doing that. I’m vowing to send some at year-end unless conditions radically change."
IRS Fact Sheet Discusses Crowdfunding Tax Treatment and Recordkeeping - Parker Tax Pro Library. "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. However, the IRS notes, contributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts and thus may be taxable."
Opportunity Zone Funds with wrong paperwork to get IRS letters - Jeff Stimpson, Accounting Today. "Entities that want to maintain their certification as a QOF may need to file an amended return or an administrative adjustment request. Those that do nothing may have the IRS refer their tax account for examination. Investors who made an election to defer tax on eligible gains invested in that entity may also be subject to exam."
The Surprising Regressivity of Grocery Tax Exemptions - Jared Walczak, Tax Policy Blog. "It is commonly assumed that the exemption of groceries from state sales tax bases has a progressive effect, with a distribution of benefits which favors low- and middle-income taxpayers. It is primarily upon this basis that lawmakers in most states have carved groceries out of the sales tax base. The assumption is simple and, on the surface, reasonable—and it is wrong."
Not Enough Americans Pay Income Tax. Should They? Robert Goulder and Joseph Thorndike, Tax Notes Opinions. "Lastly, just because these people don't pay tax in a given year doesn't mean they didn't pay tax the previous year, or that they won't pay tax in the next year. People move in and out of non-payer status. If you don't have skin in the game now, you might have had it yesterday, and you might have it tomorrow."
Belgrade construction company co-owner admits failing to pay $2.8 million in employee, employer taxes - US Department of Justice.
MISSOULA — The co-owner of H & H Earthworks, Inc., a Belgrade-based construction company that does commercial site-development work in four states, admitted to failing to pay the IRS approximately $2.8 million in employee and employer taxes, and instead, spent some of the money on personal expenses, including recreational and motorsport vehicles, U.S. Attorney Leif M. Johnson said today.
Defendant, 42, of Bozeman, pleaded guilty on April 8 to one count of failure to truthfully account for and pay over withholding and F.I.C.A. taxes, a felony, and one count of failure to file employer’s quarterly return and pay tax, a misdemeanor, during an arraignment and plea change hearing. Defendant faces a maximum of five years in prison, a $250,000 fine and three years of supervised release on the felony charge. Defendant was charged in a 34-count information.
For approximately five years, beginning in March 2014 through 2019, Defendant had Earthworks pay hundreds of thousands of dollars of expenditures for her personal benefit while, at the same time, it failed to pay over to the IRS payroll tax required to be withheld from Earthworks’ employees’ paychecks. Defendant spent more than $100,000 to purchase and maintain personal motorsport vehicles, including dirt bikes and snowmobiles, $90,000 to a real estate title company in Bozeman, at least $50,000 on personal home renovations and $20,000 for a motorhome.
Stiffing the IRS on payroll taxes is a bad idea that is almost certain to catch up with you as employees start filing their own returns to claim the withholding you didn't pay over. The agency has no sense of humor about it at all, and as this case shows, they don't mind turning it into a criminal issue.
Go for it! Today is National Reach as High as You Can Day. "National Reach As High As You Can Day, observed every year on April 14, encourages all of mankind to push our limits and venture out of our comfort zones." So, not the same as "hands up."
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