Tax News & Views Next Move to Pass BBB Roundup

April 11, 2022

The new White House rule: Do not talk about Joe Manchin – Adam Cancryn and Eugene Daniels, Politico. “The fate of President Joe Biden’s domestic agenda may hinge on his administration’s ability to do one simple thing: Shut up.”

Four months after Biden’s Build Back Better plan collapsed amid a bitter back-and-forth with Sen. Joe Manchin (D-W.Va.), the White House is taking a final shot at resuscitating its social spending bill — and this time it’s vowing a sharply different approach to the negotiations.

Top Biden officials are keeping their ambitions vague. They’re steering clear of firm deadlines. Most importantly, they’re trying as hard as possible to just not talk about it at all.

‘I would quite explicitly not comment on the conversations that are happening,’ Brian Deese, Biden’s National Economic Council director, told reporters at a recent event hosted by the Christian Science Monitor. ‘I don’t think that has served anyone particularly well.’

The fact that they are talking about not talking about it is hysterical. 


Democrats face tough climb on winning Senate approval of legal marijuana – Aris Folley and Karl Evers-Hillstrom, The Hill. “Senate Majority Leader Charles Schumer (D-N.Y.) is facing significant obstacles in his legislative push to legalize marijuana, with resistance from Republicans and members of his own party threatening chances of passage in the upper chamber.”

Schumer has said that his aim is to bring a comprehensive marijuana reform bill forward later this month, weeks after the House passed a bill that would remove marijuana from the federal controlled substances list.

‘We hope to do that towards the end of April,’ Schumer said in remarks last week, noting discussions with Sens. Cory Booker (D-N.J.), Mark Warner (D-Va.) and Ron Wyden (D-Ore.), who are involved in the push. He also added that he has been reaching out to ‘a few Republicans to see what they want.’


Identity Authentication Headaches Continue for the IRS – Maria Sapirie, Tax Notes ($). “Three years before the IRS’s recent troubles over its foray into facial recognition technology to verify the identity of public users of its online services, the agency introduced new and more extensive requirements for verifying the identity of tax professionals over the phone.”

Those procedures frustrated practitioners, who wanted assurance that their personal information — such as Social Security numbers and birth dates — wouldn’t end up in their clients’ files and potentially be subject to disclosure. The IRS didn’t assuage their concerns, so several tax professionals sued under the Freedom of Information Act to find out what a redacted portion of the Internal Revenue Manual says is done with practitioner information collected on phone calls.


Proposed SECURE Act Regs Include an Unwelcome Wrinkle – Chandra Wallace, Tax Notes ($). “New required minimum distribution regulations provide clarity in several respects but include a convoluted application of the 10-year timing rule that surprised and dismayed some planners.”

Tax lawyers are still digesting the nearly 300-page package of proposed regulations (REG-105954-20), released February 23, under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was approved in December 2019 as part of the Further Consolidated Appropriations Act, 2020.

But some are already hoping the regulations’ interpretation of the SECURE Act’s new 10-year rule won’t make the final cut, according to Christopher J. Denicolo of Gassman, Crotty & Denicolo PA on an April 8 webcast sponsored by Leimberg Information Services Inc.

‘I’m squeezing my rabbit’s foot and have my fingers crossed that the final regs do not have that new provision,’ Denicolo said.


Companies worried about accounting and taxes for crypto – Michael Cohn, Accounting Today. “Businesses that have been investing in cryptocurrency like Bitcoin and Ethereum are dealing with uncertainty as the Securities and Exchange Commission and the Internal Revenue Service, as well as government agencies abroad, are going to expect them to account for their holdings and pay taxes.”

Last month, President Biden signed an executive order on “ensuring responsible development of digital assets,” which includes cryptocurrency and other assets such as nonfungible tokens, or NFTs, Last week, the SEC issued a Staff Accounting Bulletin on accounting for the obligations to safeguard crypto assets that an entity such as a crypto exchange holds for users…

The IRS, meanwhile, has been focusing more on cryptocurrency as a means of tax avoidance, requiring taxpayers in recent years to answer a question at the top of the tax form asking if at any time during the previous year they received, sold, exchanged or otherwise disposed of virtual currency. More recently, the Treasury Department issued a Greenbook spelling out the tax-related aspects of the Biden administration’s fiscal year 2023 budget request with a number of tax proposals related to digital assets and cryptocurrency…

Tax Your Crypto and NFTs? Yes, the IRS Wants Its Cut (Video) - Macarena Carrizosa, Bloomberg ($):

Cryptocurrency and NFTs continue to rise in popularity in the U.S., but many people are still confused about how they are taxed. In this video, Lisa Zarlenga, a partner at Steptoe & Johnson who specializes in tax policy and cryptocurrency, lays out the types of taxes crypto owners must pay: income tax and capital gains tax, and provides examples of how different crypto transactions are taxed.


Judge Kills Motion to Keep Out Tax Info in Murder-for-Hire Case – Mary Katherine Browne, Tax Notes ($). “A federal district court denied a defendant’s motion to exclude evidence on his failure to pay tax on money he received for being involved in a conspiracy to kill a whistleblower threatening his boss’s money laundering scheme and hiring of undocumented workers.”

In an April 7 order in United States v. Perez-Bravo, Magistrate Judge Benjamin W. Cheesebro of the U.S. District Court for the Southern District of Georgia shut down Higinio Perez-Bravo’s motion in limine to preclude the government from presenting evidence on his unlawful residency status and alleged nonpayment of income taxes. 

Perez-Bravo stands accused of receiving $20,000 to be involved in a conspiracy to kill Eliud Montoya to prevent him from providing testimony and procuring records to help an Equal Employment Opportunity Commission investigation. Perez-Bravo’s alleged role in the conspiracy was providing surveillance of the victim and transportation to the hit man. Montoya was murdered in August 2017.


Judge Forbids Treasury From Recouping Covid Relief From States - Laurel Calkins, Bloomberg ($). “A federal judge permanently blocked the U.S. Treasury Department from trying to recover any pandemic relief funds from Texas, Louisiana or Mississippi if those states use the aid to offset state tax revenue shortfalls.”

The states challenged a provision in the Biden administration’s American Rescue Plan Act they claimed bars using the funds to fill budget gaps -- if the Treasury Department believes state lawmakers intentionally lowered certain state taxes during the pandemic.

U.S. District Judge Matthew Kacsmaryk, a Donald Trump appointee in Amarillo, Texas, said these strings created a ‘gun to the head’ choice for states that couldn’t afford to refuse billions in aid at a time of skyrocketing expenses and sinking tax revenues.


Taxpayers Can’t Hide Flawed Refund Claim Behind Preparer’s Fraud – Nathan Richman, Tax Notes ($). “A couple’s complaints about a fraudulent tax return preparer and negative tax consequences weren’t enough to get them into court without first paying the IRS’s assessments.”

Because they hadn’t fully paid the tax assessments, the court didn’t have jurisdiction to entertain any of the plaintiffs’ claims related to their tax issues, Judge George Caram Steeh of the U.S. District Court for the Eastern District of Michigan concluded April 7 in Mitchell v. United States.

Austin and Lucinda Mitchell want the IRS to back off its claims that they owe over $50,000 in unpaid taxes and interest as well as $35,000 in frivolous return penalties. They claimed that their tax return preparer, Damian Jackson, filed tax returns in their name, seeking nearly $1 million in excessive refunds, without first showing them the documents.


5th Circ. Cuts $2.2M Order For Fraudulent Tax Returns to $134K – Joshua Rosenberg, Law360 ($). “Reversing a lower court's determination, the Fifth Circuit reduced the amount of money a Texas-based tax preparer owes the federal government in restitution from $2.2 million to some $134,000 on Friday.”

Chupee Ernest Joe, who pled guilty to aiding and assisting in the preparation of fraudulent tax returns between 2013 and 2016, is responsible for furnishing approximately $134,000 to the federal government in restitution, the Fifth Circuit said in its opinion.

‘Given this ambiguous language in the plea agreement, Joe's argument is reasonable that he believed he was agreeing to restitution resulting from his criminal conduct as reflected in the [presentence report], i.e., $134,063,’ the appellate court said.


Mass. Justices Urged To Nix Nonresident Capital Gains Tax – Asha Glover, Law360 ($). “The Massachusetts Department of Revenue lacks the statutory authority to tax capital gains realized by an out-of-state corporation, the company told the state's highest court.”

VAS Holdings & Investments told the Supreme Judicial Court in a supplemental brief Wednesday that the tax commissioner cannot tax the capital gain realized by the corporation because there is no statute that supports the investee apportionment methodology used to calculate the company's corporate excise tax assessment.

VAS, known as VASHI, said it was issued two assessments — one for corporate excise taxes and one for nonresident composite taxes under state statutes.


Illinois Legislators Pass $46.5 Billion Budget With Tax Relief - Shruti Date Singh, Bloomberg ($). “Illinois lawmakers passed a $46.5 billion budget for the year that starts July 1, a spending plan that includes tax relief on groceries, fuel and property while bolstering the state’s rainy-day fund.”

The final votes from the House of Representatives and Senate to pass the fiscal 2023 budget came overnight as the legislature’s spring session came to a close. The agreement includes about $1.83 billion in tax relief and puts $1 billion into the state’s nearly empty rainy-day fund. It will now head to Governor J.B. Pritzker, a billionaire Democrat who’s seeking a second term in November, for his signature.

‘Short and long-term debt reduction and a balanced budget for the fourth year in row. We’ve achieved our state’s strongest fiscal position in generations,’ Pritzker said on Saturday after the passage. ‘Just a few years ago some people said what we’ve achieved was impossible.’


Newsom Wants Quick Help for Californians Facing High Gas Prices – Laura Mahoney, Bloomberg ($). “California Gov. Gavin Newsom is asking lawmakers to accelerate his plans for a package of tax cuts, refunds, and subsidies to give consumers and businesses relief from high gas prices.”

The Democratic governor released more details of his relief proposal Friday along with a request for lawmakers to take action before May 15—when he must release his revised budget plan for the next fiscal year—rather than waiting to include it in an overall spending plan that would take effect July 1.

The package includes $400 refunds to personal car and truck owners, with a maximum of $800 for up to two cars, an idea Newsom first floated in March. Newsom’s new proposed legislation doesn’t specify a dollar amount, to leave room for negotiations with lawmakers, but the governor still wants the refunds to be $400 per car, spokesman H.D. Palmer said.


Hybrid Work Poses Credit Risk to Cities Looking to Issue Debt - Skylar Woodhouse, Bloomberg ($). “Remote working may be a boon for many Americans. But it could lead to higher borrowing costs for some cities tapping the municipal-bond market.”

Fitch Ratings, earlier this week, affirmed its negative rating of Kansas City, Missouri, flagging remote work as a credit risk. The city anticipates a slow recovery in earnings taxes -- which is its largest source of general fund revenue -- because of increased remote work, Fitch noted.

While cities have been receiving Federal aid to stay afloat, many could risk a downgrade if they burn through pandemic stimulus money without finding other means to fund deficits, Bloomberg Intelligence strategist Eric Kazatsky said in an interview. And those that face a downgrade may have to issue bonds with higher yields to compensate the increased credit risk. This makes it more expensive to issue bonds and makes refunding less optimal, said Eric Friedland, director of municipal research for Lord Abbett & Co.


New York Tax Break Bills Ready for Governor Hochul’s Signature - Keshia Clukey, Bloomberg ($). “Legislation offering tax breaks for New York homeowners, drivers, and cannabis businesses is headed to the desk of Governor Kathy Hochul as part of a $220 billion budget deal struck on Thursday.”

The spending plan includes a six-month fuel-tax suspension, a $2.2 billion homeowner tax rebate, and a decision to speed up a scheduled reduction in personal income tax rates. It also allows cannabis operations to start qualifying for tax deductions and businesses already licensed to sell liquor to sell take-out booze to customers who also buy food.

The flurry of tax breaks were made possible by higher-than-anticipated tax collections combined with more than $26 billion in pandemic recovery money from the federal government.


Zillow Loses Another Suit Over Tax Records in Louisiana – Perry Cooper, Bloomberg ($). “Zillow Group Inc. is entitled to property tax information from a Louisiana parish but not to get that data in its preferred format, a state appeals court ruled.”

The Louisiana Court of Appeal, First Circuit’s ruling Friday comes a week after the Third Circuit ruled against Zillow in a similar suit against another parish.

Brian A. Eddington, general counsel of the Louisiana Assessors’ Association in Baton Rouge, who represented both parish assessors, said the suits are part of Zillow’s nationwide strategy.

'The string of lawsuits Zillow has filed in Louisiana (and across the country) are simply an attempt to use the public records laws to minimize its cost of acquiring data and have public officials do their work for them,' he said in an email.


Oregon Lodge Denied Tax Break for Gradual Start-Up Year – Perry Cooper, Bloomberg ($). “The owner of a vacation rental isn’t entitled to claim depreciation for the 2018 tax year when he spent more time renovating the property than renting it, the Oregon Tax Court, Magistrate Division, ruled.”

Donald W. Godard spent most of 2018 renovating the 80-year-old Hansen Lodge in Seaside, Ore., and rented it just twice to family members. He didn’t begin advertising online or regularly hosting unrelated guests until 2019.

Magistrate Allison R. Boomer agreed with the Oregon Department of Revenue that the property wasn’t available to rent for most of 2018, so Godard’s expenditures for the year must be capitalized instead of deducted as regular business expenses.


Global Min. Tax Plan May Clash With Higher Domestic Rates – Natalie Olivo, Law360 ($). “Multinational corporations operating in countries with relatively high corporate tax rates may still face additional levies under an international minimum tax agreement, given how the new rules determine whether a company's effective rate is too low.”

Corporate groups may face these so-called top-up taxes if any of their affiliates are paying an effective tax rate, or ETR, below the 15% minimum that countries agreed to as part of the second so-called pillar of a global tax rewrite. The Pillar Two rules don't determine an ETR by simply looking at a jurisdiction's statutory corporate rate, but instead divide the total amount of taxes a company paid in that region by the total amount of profits it earned there.


Regs Clarify Disregarded Payments Involving Non-Branch Taxable Units – Carrie Brandon Elliot, Tax Notes ($):

In this article, Elliot reviews the rules for assigning disregarded payments to foreign tax credit limitation income categories when the payments are made or received by non-branch taxable units.


Tax Hiring Outlook 2022 – Tony Santiago, Tax Notes ($). “After the challenges of the 2020 COVID-19 pandemic, 2021 was a year of unexpectedly robust recovery. While we had anticipated that the lingering negative effects of 2020 would be minor, last year’s rebound surprised everyone."

That recovery — coupled with the white-hot market — is still at play and is likely to significantly affect your ability to both retain tax talent and recruit new employees. Thus, tax leaders must be prepared for both planned and unexpected turnover…

This is the first of a five-part series.

Here, we focus on laying the groundwork that tax leaders will need to educate senior human resources and financial leadership…

Limited labor pool and decreasing supply of U.S. tax professionals.

Increasing demand for U.S. tax talent.

Heightened pressure on racially diverse hiring.

Remote/hybrid/in-office work policy and vaccine-related influences.

Salary and title inflation.


Happy National Eight Track Tape Day! For those of you wondering what an “eight track tape” is, it’s the pre-cursor to cassette tapes and happened way before compact discs. Eight-tracks play the same music but were at least four-times larger than cassettes and took up a lot more space than compact discs. Eight-tracks also weren't the perfect way to listen to music. They would change tracks in the middle of songs, which basically ruined a lot of great music. Imagine the crescendo in Sinatra’s “My Way” being rudely interrupted by a “Ka-Chunk!!” as the song changed from one track to another. It happened.  

Why celebrate this day?  Because eight-tracks are a sign of the times for the 60s and 70s, which also weren't perfect.

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