May 9, 2022
Meme-Stock Frenzy Fuels Record Tax Haul With No Bounce for Biden - Laura Davison, Bloomberg ($). “The surge in individual stock trading by Americans last year contributed to a record tax haul for the federal government this spring -- shrinking the budget deficit and surprising Wall Street, but likely leaving President Joe Biden in no stronger shape as he battles for his fiscal agenda in Congress.”
Tax collections since the start of the fiscal year in October are running at a record high -- up some 43% over the same period in 2019, the most recent comparison not disturbed by the pandemic, Treasury Department data through Thursday show.
Surging wages and corporate profits are behind much of the increase, testament to the powerful economic recovery that Biden and congressional Democrats are struggling to convince voters is under way. But another factor was the capital gains notched by Americans turning to securities trading during the pandemic. Individual taxes from small business proceeds or the sale of stock and other assets are nearly triple the 2019 levels.
Automatic Tax Filing: Simulating a Pre-Populated Form 1040 - Lucas Goodman, Katherine Lim, Bruce Sacerdote & Andrew Whitten, National Bureau of Economic Research:
Each year Americans spend over two billion hours and $30 billion preparing individual tax returns, and these filing costs are regressive. To lower and redistribute the filing burden, some commentators have proposed having the IRS pre-populate tax returns for individuals. We evaluate this hypothetical policy using a large, nationally representative sample of returns filed for the tax year 2019. Our baseline results indicate that between 62 and 73 million returns (41 to 48 percent of all returns) could be accurately pre-populated using only current-year information returns and the prior-year return.
Proposed IRS Rule Could Penalize Some Heirs of Retirement Accounts – Leonard Sloane, Wall Street Journal ($). “Proposed new regulations from the Internal Revenue Service for inherited retirement accounts would require many heirs to make minimum annual withdrawals from the accounts—leaving less room for the savings to grow tax-deferred over the years.”
The new rules would provide guidance to the Secure Act of 2019, which made several changes to laws governing retirement accounts.
For traditional individual retirement accounts, the proposed rules—which would apply to accounts inherited after 2019—would affect heirs known as designated beneficiaries. That category includes most beneficiaries other than spouses, such as children over 21 years old and grandchildren.
Senate Democrats shop revamped child care reconciliation proposal – Eleanor Mueller, Politico Pro ($). “Senate Democrats have overhauled their child care proposal in hopes of winning over the likes of Sen. Joe Manchin and securing its inclusion in a future reconciliation package, a Senate Democratic aide said Sunday.”
Senate HELP Chair Patty Murray (D-Wash.) is in the process of pitching the new language to the rest of her party — along with Sen. Tim Kaine (D-Va.), a recent recruit to the cause, the aide said.
‘The child care sector is on the brink of collapse and we have to act now to save it,’ Murray said in a statement. ‘I'm fighting to get this done, because the painful reality is that this crisis will only get worse unless we deliver strong, sustained child care funding through reconciliation.’
Democrats are looking to spend roughly $200 billion on child-care programs. This bill would also include tax increases. Washington insiders currently think the odds for passage are quite low.
Cannabis crime wave boosts banking prospects on Capitol Hill – Natalie Fertig, Politico Pro ($). “Exact numbers are difficult to pin down, but in Washington state alone officials say there were more than 50 armed robberies of cannabis stores in the first two months of 2022 — a greater number than in all of 2020 or 2021.”
‘The time for congressional dithering on this issue needs to end, because people are dying,’ Washington State Treasurer Mike Pellicciotti told POLITICO recently. ‘Robbers go where the cash is.’
Now, this wave of robberies and deaths may shift the outlook on Capitol Hill for legislation that would make it easier for cannabis companies to open bank accounts and apply for small business loans. Sen. Patty Murray (D-Wash.) — the third-ranking Senate Democrat — recently stated that cannabis banking is a top priority for her in negotiations over a China competition bill. The American Bankers Association and all 50 state banking associations cited public safety concerns in a recent letter to Senate leaders urging its inclusion.
Same bill, different topic:
Lighthizer lobbying to defend China tariffs – Gavin Bade, Politico Pro ($). “Donald Trump’s former trade chief Robert Lighthizer has joined forces with the Biden administration to persuade GOP senators to oppose legislation that would roll back Trump-era tariffs on China — and they’re having some success.”
The Office of the U.S. Trade Representative has been pushing senators in recent days to oppose language in the China economic competitiveness legislation that would direct the agency to temporarily cut tariffs on more than 2,200 imports from China, allow new companies to apply for exemptions, and offer refunds to those whose tariff exemptions expired.
The tariff language is expected to be one of the major points of contention in the conference committee negotiations over the bill, which will start May 12 and are expected to stretch all summer.
Again, same bill:
In Ohio, Biden pushes bipartisan bill as way to curb inflation – Kate Ackley and Niels Lesniewski, Roll Call. “President Joe Biden touted bipartisan efforts to move an innovation bill on Capitol Hill during a stop Friday in Ohio, a state with competitive House races and a pivotal, multimillion-dollar Senate race this fall.”
Flanked by the state’s two senators, Democrat Sherrod Brown and Republican Rob Portman, Biden told local officials and business leaders that measures such as the innovation bill would address inflation and supply-chain problems by encouraging more U.S. manufacturing.
GOP support is needed for this bill, so tax increases will not be included in it. Tax cuts, however, are very much at the table. Some lawmakers want to allow R&D expensing (instead of amortization). It is currently unclear if tax provisions will get a ride on this piece of legislation.
Speaking of R&D expensing:
Checking for research opposition – Bernie Becker, Politico Pro ($). “Chances are that Congress will bring back immediate expensing for research at some point in the near future. But business advocates and key supporters on the Hill — who include some Democrats in potentially tough races this fall — want that to happen on the soonest possible vehicle, and that could easily be this bipartisan China competition legislation currently being hammered out.”
All of which is a long way of saying — keep an eye on the opposition from progressives and key Democrats to attaching the research provision to that broader competitions bill. Those skeptics have noted, among other things, that it’s off-key for Democrats to spend tens of billions on corporate tax cuts when they can’t keep the expanded Child Tax Credit on the books for more than a year.
Crypto Investing in 401(k)s Draws Political Lines in Congress – Austin Ramsey, Bloomberg ($). “U.S. lawmakers are drawing battle lines in the fight over cryptocurrency assets in 401(k) retirement plans.”
Sen. Tommy Tuberville (R-Ala.) has introduced a measure that would prohibit the U.S. Labor Department from limiting the kinds of products workplace retirement savers can invest in through self-directed brokerage accounts. Sen. Elizabeth Warren (D-Mass.), meanwhile, is admonishing Fidelity Investments Inc. for its decision last week to launch a new 401(k) cryptocurrency product.
Expert Analysis: Crypto Investors May Face Increasing State FCA Tax Liability - Jason Downs, Harold Hancock and Russell Sullivan, Law360 ($). “As the public's exposure to digital assets increases, everyone from institutional investors to individual enthusiasts and curious dabblers alike will be wise to consider the accompanying increased legal exposure.”
One example of an emerging area of law surrounding digital assets relates to various state False Claims Acts.
Several states authorize False Claims Act suits based on tax claims. Specifically, Delaware, Florida, Illinois, Indiana, Nevada, New York, Rhode Island and Washington, D.C., authorize FCA suits based on tax liability from failure to report income.
Minnesota Lawmakers Hashing Out Compromise Tax-Cutting Plan – Michael Bologna, Bloomberg ($). "Minnesota lawmakers must go into a conference committee process to hammer out a final agreement on tax cuts after the House and Senate passed vastly different omnibus tax proposals.”
The conference will have to strike a balance between a menu of cuts and credits benefiting working families passed by the Democrat-controlled House, and a plan by the Republican-controlled Senate that focuses on expansive cuts to the income tax. The committee will have to move quickly to reach a deal ahead of the state Legislature’s scheduled adjournment date of May 23. No schedule has been published for the conference committee.
The competing tax bills have very different price tags.
House Tax Committee Chair Rep. Paul Marquart (D) pegged his plan, H.F. 3669, at $3.25 billion over two years. The bill passed the House by a vote of 69-62 on Wednesday. The Senate bill, S.F. 3692, cuts taxes more than $3 billion during Fiscal Year 2023 and about $2.5 billion annually in subsequent years. The Senate proposal passed the chamber April 7 by a vote of 42-24.
Texas Votes to Drop Property Taxes for Disabled, Older Residents - Angélica Serrano-Román, Bloomberg ($). “Texans on Saturday overwhelmingly supported a constitutional amendment to reduce property taxes that disadvantaged residents pay to public schools.”
The state chose to cut property taxes that homeowners age 65 and older and disabled residents pay to public schools, the Texas Secretary of State reported in unofficial results late Saturday. The ballot also included an increase of the homestead exemption for school districts’ property taxes to $40,000 from $25,000, which passed by a similar wide margin.
The property tax reduction under Proposition 1 will take effect in 2023, while the homestead exemption increase under Proposition 2 takes effect this year.
Florida Gov. DeSantis Approves Sales Tax Holiday Bonanza – Michael Bologna and Jennifer Kay, Bloomberg ($). “Florida Gov. Ron DeSantis signed legislation sending $658 million back to taxpayers this year through an extensive list of sales tax holidays on dozens of consumer products from diapers to power tools.”
DeSantis, a first-term Republican, signed H.B. 7071, omnibus tax legislation that won wide support in the Legislature in March. A key feature is a one-month gasoline tax holiday slated for October, which will reduce the tax on motor fuel by 25 cents per gallon. During a bill-signing ceremony Friday, DeSantis called the total package ‘the largest tax relief in the history of the state of Florida.’
While the bill includes the largest number of sales tax holidays of any state in the country, it also brings Florida’s tax code into conformity with the Internal Revenue Code in effect Jan. 1, 2022.
California, New York Tax Regs Make Online Sellers Sweat – Michael Bologna, Bloomberg ($):
California and New York are taking tax positions killing a federal law that has largely shielded out-of-state retailers from state income taxes for more than 60 years. Meanwhile, the Supreme Court declined to intervene in a dispute over billboard taxes as an infringement on free speech. And, Colorado, Connecticut, and Florida took steps to cut taxes.
Thousands of LLCs May See Refunds With California Tax Settlement – Laura Mahoney, Bloomberg ($). “California has agreed to issue refunds to potentially thousands of limited liability companies that claim they paid a fee ruled unconstitutional in 2008, the state tax department said Friday.”
The payments would be part of a proposed settlement reached with companies in a class action challenging the fee, the Franchise Tax Board said in a formal notice. Companies that only had income from activities inside California, paid the fee, and have filed claims for refund could now be eligible.
IRS Offers Insight on Child Tax Credit for Puerto Rico Residents – Bloomberg ($):
The IRS issued guidance Friday for certain individuals in Puerto Rico on how to file and claim the Child Tax Credit payments.
Residents of Puerto Rico must file a federal tax return with the IRS to claim the credit through Form 1040-PR, ‘Planilla para la Declaración de la Contribución Federal sobre el Trabajo por Cuenta Propia,’ Form 1040-SS, ‘U.S. Self-Employment Tax Return,’ Form 1040, ‘U.S. Individual Income Tax Return,’ or Form 1040-SR, ‘U.S. Tax Return for Seniors,’ according to the IRS.
OECD Wants Input on Tax Deal’s Financial Services Carveout – Hamza Ali, Bloomberg ($). “The Organization for Economic Cooperation and Development is looking for feedback on what regulated financial services profits will be carved out of the global tax deal’s reallocation rules.”
Last year, 137 countries agreed on a two-pillar plan to overhaul global taxation, including a 15% global minimum tax and the reallocation of a portion of the world’s largest multinationals’ profits.
Friday’s draft asked for feedback on an exclusion for regulated financial services profits under Amount A. The OECD said countries had agreed to release the draft, but there was not yet consensus on its details.
The draft was in Friday's Roundup and a link to it is here.
Happy National Butterscotch Brownie Day! AKA: Blondies or Brookies. From National Day Calendar:
Recipes date back to the 19th century and are made up of flour, brown sugar, butter, eggs, baking powder, and vanilla. Walnuts, pecans, or butterscotch chips are sometimes added to the brownies.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.