Tax News & Views Old Tech and Tea Roundup

Billions of Dollars Later, IRS Lumbers Under Beatles-Era Tech - David Hood, Naomi Jagoda, and Jasmine Ye Han, Bloomberg.

Reliance on legacy systems increases the risk of future IT failures. But it also hinders the IRS on a daily basis, contributing to two of the agency’s biggest current customer service problems: a backlog of millions of unprocessed tax returns and the agency’s inability to keep up with a flood of phone calls from the public and their frustrated tax professionals.

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Employees who process paper tax returns need to manually input data into a system built in the 1960s, known as the Individual Master File, that holds taxpayer data. A government watchdog said last fall that the IRS system, one of the oldest still in use by the federal government, relies on an “archaic” assembly language code that is difficult to write and maintain.

Taxpayers should open and carefully read any mail from the IRS - IRS. Some of the advice they give is sound:

If a taxpayer receives an IRS letter or notice, they should:

• Not ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. The notice or letter will explain the reason for the contact and gives instructions on what to do.
• Not panic. The IRS and its authorized private collection agencies generally contact taxpayers by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.

But this advice isn't necessarily sound: 

• Pay amount due. Taxpayers should pay as much as they can, even if they can't pay the full amount. People can pay online or apply online for a payment agreement, including installment agreements, or an Offer in Compromise. The agency offers several payment options.

Many, maybe most, IRS notices I see are wrong. Others are half-right. A common sort of notice tells taxpayers that they failed to include on a tax return capital gain transactions from a broker. Usually the IRS is right about the omission. But then the notice proposes a tax assessment tax based on the gross sales price, rather than the net gain, grossly overstating the amount the taxpayer should pay. 

So I would add one more thing you should always do with an IRS notice: send it to your tax pro right away, and pay nothing until you find out whether you really owe.

Senate Support Grows for Quick Passage of Pot Banking Bill - Wesley Elmore, Tax Notes ($).

The third-ranking Senate Democrat has thrown her support behind including cannabis banking provisions in the wide-ranging trade and manufacturing bill under conference by the House and Senate rather than waiting to address the issue as part of a broader marijuana legalization bill.

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“One of my top priorities in this negotiation is making sure this bill will include the SAFE Banking Act,” Murray said at a news conference at a Salal Credit Union branch in Tukwila, Washington. Murray is a cosponsor of the SAFE Banking Act in the Senate.

Cannabis entrepreneurs are largely shut out of the banking system, which can turn ordinary transactions like paying payroll taxes into cloak-and-dagger trips downtown with bags of cash.

Tax Pros Showing Problem Clients The Door In Seller's Market - Joshua Rosenberg, Law360 Tax Authority:

In response to the industry's labor shortage, firms are raising prices, becoming more reliant on technology and outsourcing certain services in a bid to improve their efficiency, Art Kuesel, who consults for public accounting firms through Kuesel Consulting, told Law360.

They're also culling clients who don't contribute all that much to the firm's bottom line — for instance, those who solicit services for one-off items such as filing a tax return, he said. With firms' resources increasingly stretched thin, their decisions to part ways with headache clients was "more no-brainer this year than I've ever seen before," he said.

Tax season is hell. We should all be able to e-file for free. - Michelle Singletary, Washington Post ($):

 And no, that wasn’t my typo for the word increased. The note to taxpayers misspelled increased. I’m assuming someone was so rushed to type the notification that they inevitably introduced an error, providing a metaphor for the way we taxpayers feel — overwhelmed, frustrated and mad as hell.

Florida Senate Passes Bill to Eliminate Disney’s Special Tax District - Robbie Whelan and Arian Campo-Flores, Wall Street Journal ($). "The GOP-led House will likely vote to approve the measure Thursday. Republican Gov. Ron DeSantis, who called for lawmakers to consider such a bill in a special session he convened this week, has made clear he would sign it."

Explained: DeSantis’s effort to end Disney’s self-government power - Kelsey Carolan, The Hill. "But dissolving RCID might not be so easy. According to a state statute, once the Senate and House pass the bill with the governor’s signature, a majority of the district homeowners would have to vote in favor of dissolving the district, and since most people who live in RCID are employed by Disney, that scenario seems unlikely."

Fla. GOP's Move Against Disney Could Cost Counties Billions - Carolina Bolado, Law360 Tax Authority ($)

The Florida Legislature's move Wednesday toward Gov. Ron DeSantis' goal to strip Walt Disney World of the special taxing district it enjoys for its Orlando theme parks and resorts could upset a 55-year equilibrium between the company and local governments and potentially saddle two counties with up to $2 billion in debt, experts told Law360.

By law, if the Walt Disney Co.'s Reedy Creek Improvement District is dissolved, Orange and Osceola counties would have to pick up the district's $1.1 billion in bond debt and take on the work that the district currently handles for the 39-square-mile tract of land, such as road maintenance, water treatment, power generation, drainage, zoning, and fire and police services.

The IRS Waiting Game Is Disrupting the Lives of Taxpayers - Kelly Phillips Erb, Bloomberg. "Taxpayers have become increasingly frustrated by not only the length of time to get refunds, but also the related lack of information. It’s not unusual for me to get an email with some variation of “Will I ever hear from the IRS?” in the subject line. And I rarely have an answer that will help them—even a recommendation to check with the National Taxpayer Advocate may not result in action, since, absent financial hardship, they refer taxpayers back to the IRS."

5 tax moves to make if you missed Tax Day - Kay Bell, Don't Mess With Taxes. "If you didn't file because you couldn't pay your full 2020 tax bill, pay what you can. Again, as soon as possible. Like now. Any amount will help reduce the associated penalties and interest."

Why Quarterly Tax Payments Matter for the Self-Employed - Spencer Wilson, TaxBuzz. "The easiest way to stay up-to-date and prepared for submitting quarterly estimated taxes is to keep track of your income, as well as your expenses, on a monthly basis and to set aside a percentage of your revenue as it’s received into a dedicated tax account."

IRS Issues Applicable Federal Rates (AFR) for May 2022 - Bailey Finney, Eide Bailly. "The IRS has released (Rev. Rul. 2022-9) the Applicable Federal Rates under Sec. 1274(d) of the Internal Revenue Code for May 2022."

Retired Pilot Taxable on Value of Standby Tickets Used by Relatives That Were Neither His Spouse Nor Dependent Children - Ed Zollars, Current Federal Tax Developments. "Most likely the taxpayers were operating under the misconception discussed at the beginning of this article. Since the value of the tickets used by their relatives were not paid out by the airline in cash to the taxpayers, the taxpayers believed that such items could not be taxable to them. Unfortunately, that’s not the way the underlying law works, something it appears from reading the case that the taxpayers never really grasped."

Federal Circuit Courts Split on Validity of Conservation Easement Regulation - Wolters Kluwer Tax & Accounting. "The Eleventh Circuit’s Hewitt decision invalidating the extinguishment proceeds regulation only impacts taxpayers in the Alabama, Florida, and Georgia. Taxpayers elsewhere must continue to follow the regulation because the Sixth Circuit’s opinion upheld the underlying Tax Court case validating the rule for all taxpayers."

Part II: Biden Proposal Changes the Taxation Game for Gifts and Inheritances – Americans Abroad Hit Hard - Virginia La Torre Jeker, Virginia - US Tax Talk. "For Americans abroad the impact of the Green Book proposal is at least four-fold: First, Americans abroad may be subject to a taxable gain recognition event for US purposes, and no income recognition event in the country where they live. This would be similar to the effect of the Subpart F, GILTI, Transition Tax and 877A Exit Tax rules, all of which create 'pretend' income requiring the payment of tax even though no actual income has been received by the taxpayer."

Vetoes In Mich., Tax Cuts Elsewhere: SALT In Review - David Brunori, Law360 Tax Authority ($). "Nebraska will soon be joining the tax-cutting party, as L.B. 873 will cut the state's top individual income tax rate and the corporate income tax rate. The bill passed unanimously in the unicameral Legislature, and Republican Gov. Pete Ricketts signed it on Wednesday."

Missouri Tax Reform Could Give State Competitive Edge - Janelle Cammenga, Tax Policy Blog. "Missouri already ties with Oklahoma for the second-lowest corporate income tax rate in the nation at 4 percent—trailing only North Carolina’s 2.5 percent—but further reductions or a total corporate income tax elimination would truly make the state stand out."

Software Developer’s Earnings Aren’t Exempt, Says Tax Court - Kristen Parillo, Tax Notes ($). "The Tax Court rejected a Texas man’s argument that software developers’ salaries aren’t taxable, but it chose not to sanction him because he doesn’t have a history of making frivolous tax arguments."

The Judge was unimpressed by the taxpayer's case. From the opinion (taxpayer name omitted, my emphasis):

Taxpayer accordingly bears the burden to prove by a preponderance of the evidence that the Commissioner erred in his determinations. Taxpayer attempts to do so by invoking a raft of meritless arguments directed to the nature of the income tax and its purported limited applicability to most types of earnings (including those of software developers like Taxpayer). To know these arguments is to reject them.

The moral? Software developers can be amazing, but they are also taxable. Also, trying a routinely-rejected argument one more time usually doesn't go well. 

No sugar, please. It's National Tea Day!