April 27, 2022
Proposed Regs Add Guardrails to Estate Tax Anti-Clawback Rules - Jonathan Curry, Tax Notes ($). When the 2017 Tax Cuts and Jobs Act temporarily increased the lifetime estate and gift tax exemption - currently $12,060,000 - taxpayers worried that they might face gift tax once the exemption returned to the pre-TCJA levels. In November 2019, the Treasury issued regulations that said there would be no such "clawback" when the exemption goes down. But the IRS said it would keep taxpayers from abusing the higher exemption. Yesterday the Treasury issued proposed anti-abuse regulations. From the Tax Notes article:
“The purpose of the special rule is to ensure that bona fide inter vivos transfers of property are consistently treated as a transfer of property by gift for both gift and estate tax purposes,” the proposed regs state. However, for testamentary transfers that are includable in the gross estate at death, the proposed regs create an exception from that special rule so that such property is subject to the basic exclusion amount in effect at the time of the donor’s death instead of the amount in effect at the time of the gift.
The proposed regs also address deathbed planning through an 18-month rule, providing that even if a taxpayer gives up any retained interests or powers within 18 months of his death, that property would still be subject to the exception from the special rule.
Related: Change May Be on the Horizon for Estate and Gift Tax Exemptions.
IRS Proposes Exception To Estate Tax Exemption Rule - Theresa Schliep, Law360 Tax Authority ($). "Some includible transfers would be eligible for the special rule, according to the IRS. Such transfers would fall under the rule if their taxable amount doesn't exceed 5% of the whole transfer, the proposed rules said."
Ga. To Adopt Flat Tax With Shrinking Rate If Triggers Met - Sanjay Talwani, Law360 Tax Authority ($):
Under the law, current personal income tax rates, which range from 1% to 5.75%, will be replaced with a flat rate of 5.49% in tax year 2024 if the state reaches certain fiscal goals. Thereafter, the rate would continue to drop by 0.1 percentage points each year, if the goals are met, through 2029, when it would reach 4.99%.
To get there, the state must satisfy three tests each year: The governor's revenue estimate for the following year must be 3% higher than the estimate for the current year, actual revenue must be higher than each of the previous five years, and the state's Revenue Shortfall Reserve must be larger than the decrease in revenue expected from the following year's cut.
States Inaugurate a Flat Tax Revolution - Jared Walczak, Tax Policy Blog.
In more than a century of state income taxes, only four states have ever transitioned from a graduated-rate income tax to a flat tax. Another four may adopt legislation doing so this year, and a planned transition in a fifth state can now go forward under a recent court decision. In what is already a year of significant bipartisan focus on tax relief, 2022 is also launching something of a flat tax revolution.
Iowa is phasing in a 3.9 percent flat individual income tax by 2026, going from a graduated-rate tax that not long ago topped out at 8.98 percent. Mississippi will have a flat tax as of next year, with a 4 percent rate by 2026. Georgia’s income tax is now scheduled to convert to a flat rate of 5.49 percent, eventually phasing down to 4.99 percent. A court cleared the way for the implementation of Arizona’s transition to a 2.5 percent flat tax, which should happen, pending revenue availability, in 2024. And a flat tax remains an active consideration in Oklahoma as well.
Manchin stirs the pot while other Dems try to resuscitate their party-line vision - Marianne LeVine, Anthony Adragna, and Josh Siegel, Politico:
The West Virginia Democrat reiterated Tuesday, the day after he and Sen. Lisa Murkowski (R-Alaska) organized a meeting with several fellow Democrats and one GOP colleague on energy and climate, that he sees a party-line bill this year as a way to reform the tax code. Manchin’s remarks followed a Tuesday morning meeting with Majority Leader Chuck Schumer to discuss strategies for combating rising inflation.
Manchin also wants to increase the corporate tax rate to 25 percent and the capital gains tax rate to 28 percent. His fellow centrist Sen. Kyrsten Sinema (D-Ariz.), however, has previously resisted tax rate increases and steered her attention toward creation of new levies focused on upper-income earners.
Dems offer reality check on Manchin, Build Back Better - Jordain Carney, The Hill:
To pass a bill under reconciliation, Democrats would need total unity from all 50 members of their Senate caucus and nearly every House Democrat.
That will be difficult. Manchin’s stance on increasing the corporate tax rate is at odds with Sen. Kyrsten Sinema (D-Ariz.), another moderate, who has said she won’t raise taxes if it harms the economy
Will Congress Finally Reform Opportunity Zones? - Marie Sapirie, Tax Notes. "The reporting requirements for QOFs would be bolstered by a $500-per-day penalty for failure to file a complete and correct Form 8996. Failure by an investor to file a complete and correct Form 8997 would result in a $5,000 penalty, unless the failure is corrected before 60 days after the filing date. Failures attributable to intentional disregard would carry a $2,500 penalty. All the penalties would be indexed for inflation."
NCAA Athletes Will Need a New Playbook to Score on Tax Day - Sara Wake and Addison Fontein, Bloomberg:
For taxation purposes, a student athlete will likely qualify as a self-employed, independent contractor. Compensation earned by a self-employed individual is assessed an income tax in addition to self-employment taxes that amount to 15.3% comprised of Social Security and Medicare taxes. Commonly, 92.3% of a tax-filer’s net earnings from self-employment are subject to self-employment tax. Self-employed individuals are required to report their income if their net earnings exceed $400.
Monetary compensation received for NIL deals, including making appearances and social media partnerships, is not the only taxable income that college athletes are required to report. Also taxable are free cars, trips, athletic wear and even cryptocurrency...
We’re Under Attack! - Russ Fox, Taxable Talk. "The reason I bring this up is that tax professionals are targets. We have a ton of wonderful information that hackers want (lots and lots of personal information), and I’d prefer not to have to use my cyber insurance. If your IT person/department is not periodically checking your logs to see if you’re being targeted, you need to rectify that immediately. I didn’t know that hackers were targeting email servers, but they are. So be vigilant tax professionals: We’re under attack."
Have Your Clients Checked Their Beneficiary Designations Lately? - William Byrnes, TaxConnections. "Clients who participate in ERISA plans should be reminded that they’re required to complete their beneficiary designations in writing, using the procedures and forms established by the specific plan, in order for those designations to become effective. Often, survivors can be surprised by the beneficiary designated by the plan—and may even try to argue that the decedent’s will should govern who receives the account funds. Clients should remember that wills and state intestate laws do not govern who receives plan funds.:
When to Consider a Roth Conversion - FinPowered Female. "If you are in your 20’s or 30’s and you have since left a company or two and are wondering what to do with your Traditional 401K(s) then I think it may be beneficial to consider a Roth conversion."
Tax tradition return redux: Biden and Harris again release their tax returns - Kay Bell, Don't Mess With Taxes. "The joint return of Harris and Emhoff reported wage income of $445,449. That included her Harris vice presidential salary of $215,548. It also was a bit smaller than the usual $230,700 VP salary due to her taking office on Jan. 20. Harris also reported earning $452,664 from writing efforts on the memoir 'The Truths We Hold.'"
Will the IRS accept a durable power of attorney? - NATP Blog. "What sets a durable power of attorney apart from other types of powers of attorney is that it remains in effect and operative, or becomes effective, when the principal becomes incompetent or incapacitated to act for themselves. All 50 states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands recognize and have laws regarding durable powers of attorney."
Did You Receive an IRS Tax Lien Notice? Now What? - Jon Osborn, TaxBuzz. "Receiving a Tax Lien from the Internal Revenue Service means one of two things: Either somebody at the agency made a really big mistake (it happens), or you received notice of a tax bill and didn’t submit payment. Either way, the issue needs to be addressed, or else the next step could be significantly worse."
What Happens After Boechler – Part 2: The IRS Argues the Floodgates Will Open if the Tax Court Follows Boechler in Interpreting IRC 6213(a) - Keith Fogg, Procedurally Taxing. " Carl Smith has been reviewing all orders of dismissal for the last four months for late filing under all jurisdictions, and he estimates he has seen only about 30 orders where taxpayers have tried to provide a good excuse for late filing."
Michigan Real Estate Developer Pleads Guilty to Tax Evasion - US Department of Justice:
A Michigan man pleaded guilty yesterday to tax evasion arising from his near decade-long effort to prevent the IRS from collecting taxes he and his businesses owed.
According to court documents, Defendant, 61, of Okemos and East Lansing, was an attorney and former CPA who operated Terra Management Company, Strathmore Development Company Michigan LLC and Terra Holdings LLC, all of which were involved in real estate development and property management in the East Lansing area. As part of his guilty plea, Defendant admitted he did not pay over to the IRS employment taxes withheld from the wages of the companies’ employees. When the IRS sought to collect the unpaid taxes, Defendant made false statements to the agency about his and his companies’ assets and income, concealed his vacation house on Lake Michigan and purchased real property in nominee names instead of his own. Defendant also falsely told IRS employees he could not afford to pay his tax debts, when in reality he was contemporaneously using business bank accounts to pay paid for personal expenses such as mortgage payments on two houses and a condominium, college tuition for his children, personal credit card bills, life insurance premiums, car payments for himself and one of his children, and expenses associated with boats he owned.
An "attorney and former CPA." While these are fine credentials, they aren't superpowers, and that's what he would have needed for this to work.
Best friends. Today is International Guide Dog Day! "References to guide dogs date back to at least the 16th century..."
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.