May 5, 2022
Inflation, Child Tax Credit Rollback Endanger Business Tax Breaks - Doug Sword, Tax Notes ($):
Democratic lawmakers, including “quite a few” in the Senate, are reluctant to push for tax provisions benefiting corporations in a year when expansions to the child and earned income tax credits expired, according to majority tax counsels.
Democrats are also hesitant to roll back research and development amortization or section 163(j) business interest deduction limits, or to forestall the phaseout of bonus depreciation while Republicans are “blasting us over inflation” along with criticizing Treasury’s negotiations on new international tax conventions, said Andrew Grossman, majority chief tax counsel for the House Ways and Means Committee.
The 2017 TCJA provided for five-year amortization of research expenses, in place of immediate deductions, as a revenue raiser to offset other tax cuts. Many of us doubted whether that would be allowed to take effect for 2022. Now here we are in 2022, and amortization remains in place.
Bipartisan heat ramps up over stalled research tax break - Laura Weiss, Roll Call:
Dozens of House members sent a letter to party leaders calling for “immediate action” to restore a more generous tax break for companies’ research and development spending, as senators prepared to weigh in with their own show of support Wednesday.
The bipartisan letter led by Reps. John B. Larson, D-Conn., and Ron Estes, R-Kan., and signed by 67 other lawmakers argues that reviving businesses’ ability to fully and immediately deduct research and development costs is a matter of global competitiveness, particularly as the U.S. tries to compete economically with China’s growth, according to a copy of the letter obtained by CQ Roll Call.
Senate Tax Panel examines Tax-Exempts’ Role in Politics - Jay Heflin, Eide Bailly.
A Senate Finance Subcommittee held a hearing on May 4th about the IRS’s inability to enforce disclosure laws on tax-exempt organizations, which allowed these groups to illegally partake in political discourse and garner larger donations.
One of today’s witnesses, Philip Hackney, an Associate Professor of Law University of Pittsburgh School of Law who recently worked in the Office of the Chief Counsel at the IRS in Washington D.C., told the Subcommittee that the IRS does not have the resources, human or capital, needed to enforce the current tax law. Also, the IRS places low budget priority on the exempt organization sector likely because it delivers little in tax revenue.
Trump Inaugural Committee Settles Tax Law Violation Allegations - Fred Stokeld, Tax Notes. "The District alleged that the inaugural committee made 'exorbitant and unlawful' payments to Trump International Hotel to rent space for inauguration activities."
IRS Staying On Top Of Expedited Letter Rulings, Official Says - Joshua Rosenberg, Law360 Tax Authority ($):
The Internal Revenue Service is keeping up with its ambitious commitment to process some private letter ruling requests within an expedited 12-week period, having neither missed that deadline nor turned away applicants so far, an agency official said Wednesday.
The IRS has been diligently handling requests for expedited processing and hasn't fallen behind schedule, Kelly Madigan, senior counsel at the IRS' Office of the Chief Counsel, said at an online conference hosted by the D.C. Bar. The agency began allowing fast-track processing of private letter ruling requests under an 18-month pilot program unveiled in January and is set to release its first such ruling shortly, Madigan said.
While private rulings require user IRS fees that start at $12,600 for missed deadline waivers and go up from there, it's easier to swallow if you know you can get reasonably fast turnaround.
Biden’s NII Tax Plan Continues Pattern of Political Compromise - Jonathan Curry, Tax Notes ($):
That’s because active business income is carved out of the NII tax, and while Biden has proposed nixing that carveout, one of his campaign pledges has forced him to propose replacing one carveout with another, albeit much smaller, one.
The NII tax is a 3.8 percent tax on most types of investment income, applying to interest, dividends, capital gains, rental and royalty income, and passive business income. The tax applies only to taxpayers earning above a specified threshold: individuals with modified adjusted gross income of $200,000, or $250,000 for married couples filing jointly — amounts that aren’t adjusted for inflation.
Individuals and businesses alike are required to pay taxes as income is earned or received throughout the year, either through withholding or estimated tax payments. That's why those who are self-employed or in the gig economy usually need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.
If a taxpayer doesn't pay enough tax through withholding and estimated tax payments, they may be charged a penalty.
The penalty is really a non-deductible interest charge for not paying on time. The current rate for individuals is 4%.
Self-employed people and gig workers who also receive salaries and wages from an employer can generally avoid having to pay estimated tax by asking their employer to withhold more tax from their paycheck. This usually requires the filing of a new Form W-4, Employee's Withholding Certificate, with the employer. A special line on Form W-4 allows a taxpayer to enter an additional amount to be withheld.
Using an electronic payment option available on IRS.gov/payment is the easiest way for individuals, small businesses, self-employed individuals and gig workers to pay federal taxes. It's fast, easy and secure.
Colo. To Repeal Several Rarely Used Tax Breaks - Michael Nunes, Law360 Tax Authority ($): "H.B. 1025, which Democratic Gov. Jared Polis signed into law Monday, will take effect in tax year 2023. It repeals an insurance premium tax exemption for educational and scientific institutions, an income tax credit for investments made in the plastic recycling industry and other tax breaks, and it ends a tax credit for contributions of agricultural products or livestock to charitable organizations."
California OTA Upholds Late Penalties for LLC Tax Filing Blunder - Amy Hodges, Tax Notes ($). "The OTA said that Almark had not claimed “what specific improper advice was provided to appellant by the former tax professional,” nor had the company claimed that the professional 'was competent in California law or that [Almark] provided its tax preparer with a full disclosure of the relevant facts and documents.'"
Intuit agrees to $141 million settlement over ‘deceptive’ TurboTax ads - Jacob Bogage, Washington Post ($). "Intuit will pay restitution to nearly 4.4 million customers who used the “TurboTax Free Edition” product for tax years 2016 through 2018 and were instructed to pay to file their taxes, even though they qualified for the IRS Free File program offered through TurboTax, according to the settlement."
Steps to Take Now as Scammers Keep Targeting Tax Professionals - Kelly Phillips Erb, Bloomberg:
“I have already applied for an extension,” she advised, but had uploaded her tax documents for 2021. The file was encrypted, so she noted the password, adding, “Thank you for taking me on and working with me this tax season! Have a good weekend!”
I received that email—or variations on it—about six times. This version was signed “Christen Jones.”
“Christen” is clearly a scammer.
A look at some tax breaks educators can claim beyond Teacher Appreciation Day and Week - Kay Bell, Don't Mess With Taxes. "Student loan interest deduction: If you do have student loan, regardless of whether you're a teacher or in some other field, you might be able to claim some of the interest you pay each year as a tax deduction. It's part of the group of write-offs still referred to (at least by me) as above-the-line deductions that are available without itemizing. If you meet the income guidelines, you can claim up to $2,500 of that interest on your tax return."
Common Errors With the IRS Statute of Limitations - Robert Wood, Tax Notes ($). "Getting money back from the IRS is hard. If you pay estimated taxes or have tax withholding on your paycheck but fail to file a return, you generally have only two years (not three) to try to get it back."
Should the United States Terminate Its Tax Treaty With Russia? Robert Goulder, David Morse, and Martin Sullivan, Tax Notes Opinions. "If you look at it, you're looking first at the idea that you're signaling the rest of the world. You're telling them we do not accept this, even if we have a preexisting agreement."
Joe Manchin Just Made A Great Argument In Support of A Carbon Tax - Howard Gleckman, TaxVox. "Then, there is the curious mix of tax policy itself. Today, it has created a bizarre race to the bottom, where government subsidizes oil and gas production, then subsidizes alternative energy so it can compete with fossil fuels. But imagine an alternative world where government ends all these tax subsidies and instead uses a carbon tax to properly price fossil fuels. It could lower the budget deficit, help limit the damage of climate change, and--properly designed--rebate at least some dollars to households."
Fugitive Deported to the United States for Sentencing After More Than 21 Years - US Department of Justice (defendant name omitted):
A former California man made a court appearance earlier this week after being apprehended and deported from Costa Rica, so that he could be sentenced by a federal judge on his U.S. conviction for tax crimes.
In December 2000, Defendant, formerly of San Diego, and two co-conspirators were found guilty at trial of conspiring to defraud the IRS and tax evasion. According to evidence presented at trial, Defendant was the President, Chief Operating Officer and co-owner of Continental Wireless Cable Inc., a telemarketing company that sold more than $30 million in purported partnership interests in wireless cable systems before being shut down by the Securities and Exchange Commission. Defendant and his co-conspirators took steps to evade paying taxes on profits earned by Continental Wireless Cable Inc., causing a tax loss to the IRS of more than $1 million in taxes.
Following Defendant’s trial conviction in 2000, the district court ordered him and his co-defendants to appear for sentencing in March 2001. Instead, Defendant fled the United States and did not return for the sentencing hearing.
21 years is a long run.
Far out. Today is not only the well-known Cinco De Mayo, it is also National Astronaut Day. "National Astronaut Day is celebrated on May 5 since 2016 to commemorate the first time an American, Alan Shepard, went to space."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.