May 26, 2022
Programming note: Eide Bailly offices are closed Friday, May 27, and Monday, May 30, for the Memorial Day holiday, so there will be no Roundups. Regular programming resumes Tuesday, May 31.
Republicans Pile on Push for IRS to Adopt Tax Return Bar Codes - Jonathan Curry, Tax Notes ($):
Requiring the IRS to mandate 2D bar codes on electronically prepared paper-filed tax returns could pay for itself, according to several Republican members of the Senate Finance Committee.
National Taxpayer Advocate Erin Collins issued a taxpayer advocate directive in late March instructing the IRS to immediately take steps to implement a pair of paper-processing tools: optical character recognition scanning machines to automatically scan paper returns, and 2D bar codes. More than half of all paper returns processed over the past two years were submitted after first being prepared electronically with tax return software, she noted.
The article notes that states have used bar codes for tax return paper processing for almost two decades.
Minnesota Legislative Session Ends Without Tax Cut Package - Paul Jones, Tax Notes. "House Democratic leadership had urged Gov. Tim Walz (DFL) to call a special session to address the unfinished spending bills, but after a May 23 meeting between the governor and legislative leaders, it isn't clear if any special session will be forthcoming. One obstacle is that the same disputes that prevented consensus on key spending legislation at the end of the session don’t appear easy to resolve."
WASHINGTON — The Internal Revenue Service made an important enhancement to the Where's My Refund? online tool this week, introducing a new feature that allows taxpayers to check the status of their current tax year and two previous years' refunds.
Taxpayers can select any of the three most recent tax years to check their refund status. They'll need their Social Security number or ITIN, filing status and expected refund amount from the original filed tax return for the tax year they're checking.
Previously, Where's My Refund? only displayed the status of the most recently filed tax return within the past two tax years. Information available to those calling the refund hotline will be limited to the 2021 tax return.
The website is a better bet than the refund hotline.
IRS Updates “Where’s My Refund” Tool - Amber Gray-Fenner, Forbes. "For example, a taxpayer who has filed their TY2021 tax return can check the status of their refund within 24 hours of e-filing or within four weeks of mailing their return.."
2022 federal individual income tax receipts likely largest on record - Jay Heflin, Eide Bailly:
Federal individual income tax receipts for the 2022 tax year are expected to be the highest on record when compared to GDP, according to the Congressional Budget Office, Congress’s official bookkeeper.
“CBO expects individual income tax receipts to rise by 28 percent in 2022, to $2.6 trillion. At 10.6 percent of GDP, that total is expected to be the highest amount of individual income tax receipts recorded since 1913,” the organization stated in its annual report “Budget and Economic Outlook: 2022 thru 2023.”
In 2021, receipts from individual income taxes totaled $2.0 trillion, or 9.1 percent of GDP, the CBO reports. The year 2021 was also considered a banner year for revenue generation by the federal government.
The CBO attributes the revenue increase to a booming economic recovery from the pandemic and tax collections – but states it can’t explain why collections were better than in previous years.
Labor Taxation Rebounded in Most OECD Countries in 2021 - Sarah Paez, Tax Notes:
"Taxing Wages 2022," published May 24, shows that in 24 out of the 38 OECD countries, the tax wedge increased between 2020 and 2021 for single workers earning the average wage, largely as a result of countries scaling back COVID-19 economic and tax relief measures. The tax wedge is defined as the sum of personal income tax and social security contributions that employers and employees pay, minus cash benefits received, as a proportion of total employer labor costs.
Finland saw the largest increase in its average tax wedge for a single worker earning the average wage between 2020 and 2021, at 1.33 percentage points, according to the report, followed by the United States (1.2 percentage points) and Israel (1.02 percentage points).
Iowa Legislature adjourns session marked by major tax cuts and roadblocks on education - Stephen Gruber-Miller and Ian Richardson, Des Moines Register. "The session had stretched more than a month past its target end date, even though Republican legislators acted quickly early in the session, sending Reynolds their top priority — tax cuts — in time for her to sign a 3.9% flat tax into law hours before her nationally televised March 1 response to President Joe Biden’s first State of the Union Address."
The Federal Budget Outlook, Booming Revenues, And Another Try At A State Tax Cut - Renu Zaretsky, Daily Deduction. "Thanks largely to booming economy, a big increase in tax revenues, and the end of pandemic relief, the federal budget deficit will fall to about $1 trillion, down from $2.8 trillion in 2021, according to the Congressional Budget Office’s annual Budget and Economic Outlook out yesterday. But the relief will be temporary, with deficits rising again by 2024 and through the rest of the 10-year budget window."
Lessons You Can Learn as IRS Asserts Chrisley Doesn’t Know Best - Kelly Phillips Erb, Bloomberg. "The federal trial against reality television stars Todd and Julie Chrisley kicked off in Atlanta, Ga., last week. Todd Chrisley, known for his blunt, 'tell it like it is' parenting style on USA Network’s 'Chrisley Knows Best,' allegedly wasn’t so straightforward with his finances."
When Can Business Deductions First Be Claimed? - Roger McEowen, Agricultural Law and Taxation Blog. "To have deductible business expenses, there must be a business. When did the business begin? That’s a key determination in properly deducting business-related expenses."
What You Need to Know About Owning a Second Home - Jon Osborn, TaxBuzz. "With the summer vacation season approaching, it is important that you have a firm grasp of how rental income is (or is not) taxed, what write-offs are available to you, and how your personal use of the property will impact your ability to get tax benefits from your property."
Supreme Court Boechler Decision Cuts Some Slack In Tax Court Deadline - Peter Reilly, Forbes. "Cases where people are fighting about the deadline are a major source for Reilly's Seventeenth Law of Tax Planning - Don't cut your deadlines close and use the US Mail with proof of mailing."
IRS employee misconduct cited in accessing taxpayer accounts - Kay Bell, Don't Mess With Taxes. "Notably, over the last 10 fiscal years, more than a quarter of the tax agency's internal taxpayer data breach instances involved employees intentionally snooping on filers' information."
Oklahoma Should Prioritize Pro-Growth Relief, Not Gimmicky Rebate Checks - Jared Walczak, Tax Policy Blog. "Franchise tax repeal could be fully funded for three years for the cost of sending out a single round of checks. And not only would the elimination of this antiquated tax get rid of a disincentive to investment in Oklahoma, but equally if not more importantly, it would eliminate significant compliance costs that are pure deadweight loss."
Solicitor General Wants US Supreme Court to Decide Whether the FBAR “Nonwillful” Penalty is “Per Form” or “Per Account” - Virginia La Torre Jeker, Virginia - US Tax Talk. "My earlier blog posts discussed the split in the circuit courts whether the FBAR $10,000 civil nonwillful penalty is to be applied on a 'per account' basis rather than 'per form'"
Related: Offshore Voluntary Disclosure.
Lack of Gift Agreement Dooms Woman’s Charitable Deductions - Mary Katherine Browne, Tax Notes ($): "The Tax Court has upheld the denial of a woman’s deductions for donating Native American artifacts because she failed to provide documentation showing that she didn’t receive goods or services in exchange for the donation."
This sad case shows how easy it is to foot-fault your way out of a big charitable deduction. Tax Court Judge Greaves sets the stage (my emphasis):
Petitioner and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. On or around December 19, 2014, petitioner donated approximately 120 items from this collection (donation) to the Wheelwright Museum of the American Indian (Wheelwright Museum). In connection with the donation the Wheelwright Museum and petitioner executed a “Deed of Gift” (deed) dated December 19, 2014, that consisted of five pages...
The second page of the deed was titled “Conditions Governing Gifts to the Wheelwright Museum of the American Indian” and specified conditions governing gifts to the museum. One of these conditions stipulated in relevant part that “the donation is unconditional and irrevocable; that all rights, titles and interests held by the donor in the property are included in the donation, unless otherwise stated in the Gift Agreement.” The final three pages of the deed listed items of donated property. Despite “the Gift Agreement” reference on the second page of the deed, no such agreement was included with the deed, and the Wheelwright Museum did not provide petitioner with any further written documentation concerning the donation.
This turns out to be a big deal. Judge Greaves explains why:
Such deductions are allowable only if the taxpayer satisfies specific statutory and regulatory substantiation requirements. For any contribution of $250 or more, section 170(f)(8)(A) requires that the taxpayer obtain from the donee organization, and maintain in his files, a “contemporaneous written acknowledgement” (CWA). The CWA must include (i) the amount of cash and a description (but not value) of any property other than cash contributed; (ii) whether the donee organization provided any goods or services in consideration, in whole or in part, for any such property; and (iii) a description and good faith estimate of the value of any such goods or services.
The IRS said the deduction paperwork fell short:
The parties do not dispute that petitioner received the deed from the Wheelwright Museum before filing her return; however, respondent contends that the deed does not comply with section 170(f)(8)(B) on the grounds that it did not specify whether the Wheelwright Museum provided any goods or services in return for the donation or state that it represented the entire agreement between the museum and petitioner.
Judge Greaves reviewed the paperwork and agreed with the IRS that it fell short, so no deduction was allowed. A harsh result. A footnote says "The fact that the parties now agree that the Wheelwright Museum did not provide any consideration as part of the donation is of no consequence."
The Moral? When making a charitable donation, paperwork is everything. You need to have the receipt with the magic words "no goods or services were provided" in hand when you file. If you have to ask the charity for the receipt when the IRS examiner shows up, it's too late.
Link to opinion: T.C. Memo. 2022-53.
Sometimes the calories just are worth it. It's National Blueberry Cheesecake Day!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.