May 12, 2022
Colorado Lawmakers Pass Bill to Make SALT Cap Workaround Retroactive - Benjamin Valdez, Tax Notes ($):
Passthroughs making a retroactive election under S.B. 124 would be required to do so after September 1, 2023, but before July 1, 2024, in a composite amended tax return filed on behalf of the entity and all owners.
Colo. Lawmakers Approve Retroactive SALT Cap Workaround - Sanjay Talwani, Law360 Tax Authority.
The House approved S.B. 124 by a 62-3 vote Tuesday, and then the Senate concurred with House amendments by a 35-0 vote. If signed by Democratic Gov. Jared Polis, the measure will apply the state's SALT Parity Act, enacted last year, to tax years starting in 2018 and later.
The workaround allows pass-through entities to pay state income tax at the entity level and claim the unlimited SALT deduction, avoiding the $10,000 cap enacted in the Tax Cuts and Jobs Act of 2017.
The bipartisan votes for the bill indicate it will pass. Even so, Colorado taxpayers owning partnerships and S corporations shouldn't expect to get refunds of 2018 taxes. As we mentioned yesterday, the tax law rules for timing deductions likely delay the deduction until the "all events" and "economic performance" tests are met for accrual taxpayers. Cash basis taxpayers generally only get deductions in the year a tax is paid. As this bill would not allow taxpayers to make the retroactive election until September of 2023, that is likely the earliest time a federal deduction will be available for the pass-through entity.
New York Seeks Limits to Online Sellers' Protection Under P.L. 86-272 - Paul Jones, Tax Notes ($):
New York has proposed regulations establishing that specific online activities could forfeit out-of-state sellers' ability to claim P.L. 86-272 protection from the state's tax on business income.
That shift would create New York income tax liability for the first time for many remote businesses that have avoided paying the tax on their income by limiting their in-state activities to soliciting orders for sales of physical goods. It also could portend the adoption of similar regulations by other states treating sellers' online activity as negating P.L. 86-272's protection against state income taxes.
The Multistate Tax Commission telegraphed such state moves with its taxpayer-unfriendly reinterpretation of state law tax limits.
Related: Is it War?
Issues To Watch As NY Biz Tax Reform Rules Take Shape - Paul Williams, Law360 Tax Authority ($). "Several tax professionals have taken umbrage with that draft rule, which would largely adopt the Multistate Tax Commission's interpretation of the Interstate Income Tax of 1959, commonly known as P.L. 86-272, for determining how to apply the law in the internet age. P.L. 86-272 insulates businesses from a state's tax on net income if their only connection to that state is soliciting sales of tangible personal property."
Pass-thru Taxation could top To-Do List next Congress if other Taxes don’t Intrude - Jay Heflin, Eide Bailly:
The taxation of pass-thru entities could receive a lot of attention in the next Congress if lawmakers can clear the current slate of tax issues before year’s end, according to sources close to the subject.
Lawmakers are currently embroiled in discussions over whether to reverse the amortization of R&D outlays and allow them to be expensed. They are also focused on returning the Section 163(j) interest deduction back to its pre-2022 form.
Both changes enjoy broad, bipartisan support, but there is a hiccup. A large group of lawmakers oppose extending business tax relief before expanding the Child Tax Credit for families. They have vowed to oppose any bill that includes business tax relief if assistance for families is also not included.
Senate Democrats’ imaginary majority - Burgess Everett, Politico. "Every day, it seems, brings another reminder of the severe limitations of Democrats’ illusory majority in a 50-50 Senate...Not to mention that the party’s signature climate and tax reform bill hasn’t moved an inch in months after Sen. Joe Manchin (D-W.Va.) tanked the last iteration — still-rising inflation isn’t helping its revival."
TIGTA Reports IRS Destroyed an Estimated 30 Million Information Returns - Ed Zollars, Current Federal Tax Developments. "Certainly, it seems the IRS may have difficulty justifying imposing penalties related to 2020 electronically filed information returns when it appears that had the forms been filed on paper the issues never would have been brought to light due to IRS actions."
A Look at Not-So-Special Districts Like Disney’s Reedy Creek - Kelly Phillips Erb, Bloomberg. "It feels special—not only because it has “special” in the name but also because it’s associated with a company that has long promoted itself as magical. But the truth is that the underlying laws that allow for Reedy Creek’s existence are really very ordinary: there are more than 1,800 special districts in Florida alone."
Biden administration reups Child Tax Credit portal - Toby Eckert, Politico. "An online portal designed to help very low-income people get the expanded Child Tax Credit reopened Wednesday, according to the nonprofit group that designed it in cooperation with the Biden administration... The portal, GetCTC, had been taken offline earlier this year due to concerns it could cause confusion during the tax filing season."
Most states now collect fees on energy-efficient autos - Kay Bell, Don't Mess With Taxes. "If you decide to go electric or some other energy-efficient option with your next auto, enjoy the refueling savings. But also find out whether you'll owe more to your state when license and renew your tags each year."
What is Superfund? How to prepare and comply - Thomson Reuters Tax & Accounting. "After more than 25 years, excise taxes on a specified list of chemicals and imported hazardous substances in the U.S. have been reinstated through the passing of the Infrastructure Investment and Jobs Act signed into law on November 15, 2021."
5 Facts Retailers Must Know About Compliance - Lee Breslouer, TaxJar. "Shipping costs are taxable in some states, but not in others. About half the states in the US (including Pennsylvania and Texas) say that if you charge for shipping as part of an order, it’s taxable, whether it’s listed as part of the item price or listed separately. The other half (like California and Colorado) say shipping charges are not taxable if you show the charge separately from the item’s price. They are taxable if you include the charge as part of the item price."
Is now the time to give up your US citizenship? - 1040Abroad. "By way of background, those who are covered expatriates when renouncing US citizenship are subject to an exit tax – a deemed disposition of all of your assets, with potentially taxes to pay on that phantom capital gain."
Expatriation and Tax Compliance – IRS Fails to Process the Tax Return - Virginia La Torre Jeker, Virginia - US Tax Talk. "Unprocessed returns may not be reflected on the taxpayer’s tax transcript, despite the fact that the taxpayer has in fact filed the return. This poses a conundrum for the taxpayer who wishes to expatriate and wants to make sure he has been tax compliant for purposes of the CE test. Does a filed but unprocessed tax return satisfy the so-called “tax compliance” requirement to avoid CE status?"
Related: Eide Bailly Global Mobility Services.
The Mess Following IRS Mistakenly Sending Determination to Taxpayer’s Former Attorney: Missed Deadlines and Damages For Wrongful Disclosure - Leslie Book, Procedurally Taxing. "When the IRS releases a taxpayer’s confidential tax return information to an unauthorized person that taxpayer has a private right of action against the United States for damages. The case of Castillo v US concerns a taxpayer who sought damages after she claimed, and the government admitted, that Appeals improperly sent a CDP notice of determination to an attorney who no longer was authorized to represent her. The IRS’s failure to send the collection determination to the taxpayer’s subsequently hired and authorized new representative led to the taxpayer’s failure to timely challenge the underlying liability in Tax Court, which led to collection action, including a levy on bank accounts and a prohibition on the issuance or renewal of her passport."
Ninth Circuit Reverses Tax Court on Meaning of ‘Filed’ Return - Kristen Parillo, Tax Notes ($):
Representatives of Seaview, a partnership formed in 2001 by billionaire businessman Robert Kotick and his father, Charles Kotick, an attorney who died in 2005, thought they had timely filed the partnership’s 2001 tax return with the IRS service center in Ogden, Utah, in July 2002. They discovered otherwise when the IRS opened a partnership audit in 2005 and sent a letter stating that the agency had no record of receiving Seaview’s 2001 return. In response, Seaview’s accountant faxed a signed copy of the return to the agent. Another signed copy was mailed to the IRS in 2007 by a Seaview attorney.
Seaview asserted in its Tax Court petition that the IRS’s October 2010 adjustment and assessments were time-barred because they occurred well after the three-year limitations period under section 6229 had expired. The Tax Court disagreed, holding that Seaview never filed its 2001 return for limitations purposes because it didn’t meticulously comply with reg. section 1.6031(a)-1(e)(1), which states that the designated place for filing is the “service center prescribed in the relevant IRS revenue procedure, publication, form, or instructions to the form.”
Congratulations to the taxpayers. But...
1. If the taxpayers had e-filed the partnership return, there never would have been an issue as to the filing date.
2. If the taxpayers had filed the return "certified mail, return receipt requested," there never would have been an issue as to the filing date. Certified mail charges were under $2.50 in 2002. I suspect the cost of audit defense and litigation through Tax Court and on to the Ninth Circuit from 2002 to 2022 have exceeded $2.50, even taking inflation into account.
E-file if you can. If you must paper-file, spring for the Certified Mail charges.
CEOs who take risks with sports may do the same with taxes - Michael Cohn, Accounting Today:
The study, from researchers at the University of Hong Kong, the University of California Irvine, the National University of Singapore, and the University of Nottingham Ningbo, examined the tax strategies of corporate chiefs whose reported hobbies included risky sports such as car racing and windsurfing, in contrast with those whose sports hobbies were less risky such as playing golf or simply watching football games.
The paper, which appears in the spring issue of the Journal of the American Taxation Association, published by the AAA, suggests that the riskier a CEO’s hobbies are, the more risk they’re comfortable with exposing their company to when it comes to the corporate tax strategy. CEO sports hobbies could become a possible tool for auditors interested in assessing corporate tax risk or even for integrated reporting.
In case anybody is hiring an eight-figure CFO, I enjoy chess, reading, and long walks.
Low mileage. Today is "National Odometer Day." There's nothing like the thrill of watching that mechanical meter turn over, rewarding you for your disciplined auto maintenance regime.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.