Tax News & Views Rettig Replacement Roundup

May 2, 2022

Rettig: Replace Me With Someone Like Me – Tax Notes ($). “The next IRS commissioner should be someone with a deep background in the tax profession, IRS Commissioner Charles Rettig suggested.”

Acknowledging that he holds no sway over the process of selecting the agency’s next chief, Rettig told an April 29 audience at the American Bar Association Real Property, Trust and Estate Law Section conference in Dallas that he’s ‘certainly biased’ that the next nominee ‘should be somebody who understands our practice.’

Having a tax person serve as IRS commissioner has been rare in recent history, Rettig said, noting that Margaret Richardson, who served in that role from 1993 to 1997, was the last formally nominated IRS chief to come from the tax profession. For tax professionals, there’s ‘a pride factor for all of us to have a tax guy sitting in the seat,’ he said.


They’re Your IRS Records. Getting Them Means Giving Up Privacy – Laura Saunders, Wall Street Journal ($):

Tax Day 2022 has come and gone, but this year’s filing season brought an unpleasant surprise for many Americans that’s still here: People who want online access to their tax records at the Internal Revenue Service have to turn over sensitive personal information to an outside company to get them.


Conservation Tax-Break Deals Keep Flowing Despite IRS Crackdown – Richard Rubin, Wall Street Journal ($). “More than six years into an Internal Revenue Service clampdown on what the agency says are abuses of land-conservation tax incentives, the deals keep coming.”

IRS officials had hoped to shut down the most aggressive operations in a mini-industry built around tax breaks. Instead, they are in a protracted wrestling match with deal promoters. Government scrutiny pushed out some deal makers, but that ceded the market to others, who set aside reserves for legal expenses and risks and bet on beating the IRS through litigation.


Tax Breaks, Bragging Rights Drive Crypto and NFT Donations – Jeremy Olshan, Wall Street Journal. “A combination of generosity and tax-bill sticker shock is driving more wealthy crypto investors to donate bitcoin and NFTs to charities. The nonprofits aren’t always sure whether accepting these digital assets is worth the trouble.”

At the Oscars in late March, for instance, a Hollywood moment of silence for the people of Ukraine cut to an ad for that sent viewers to a site where they could donate crypto, buy nonfungible tokens, or use a plain old credit card. All proceeds were directed to support relief efforts by the Red Cross Red Crescent Movement.

There was a hitch, however. The Red Cross doesn’t accept crypto donations, so the contributions had to be converted to dollars first.

Charities largely want to tap into the nearly $2 trillion in wealth that crypto investors have amassed on the blockchain. But these types of donations pose a number of legal, technical and logistical challenges. This has many nonprofits treading carefully.


Manchin’s moves leave Democrats doubting their agenda will pass – Alexander Bolton, The Hill. “Sen. Joe Manchin’s (D-W.Va.) latest moves are fueling new doubts that he’ll agree to any sort of legislative package on President Biden’s agenda, deepening Democratic worries about what they’ll be able to deliver to voters by Election Day.”

Several Democratic senators say they are growing dispirited about the prospect of Manchin ever giving the greenlight to moving a budget reconciliation package, which would prevent Republicans from blocking Biden’s legislative agenda with a Senate filibuster.

Asked about how much confidence there is in Manchin coming on board with a reconciliation bill, one Democratic senator who requested anonymity to comment on the shrinking chances said there’s 'less every day.'  

The reconciliation bill is the legislative vehicle to enact tax increases. If reconciliation is dead, there is likely no other path to increase taxes this year. 

Housing investments at risk as Build Back Better withers – Aris Folley, The Hill. “The path forward for the critical housing investments Democrats sought to protect in the Build Back Better Act (BBB) is getting murky, as uncertainty hangs over the party’s chances of passing its partisan package amid resistance from Sen. Joe Manchin (D-W.Va.).”

Democrats garnered a wave of headlines last year after unveiling proposals for $300 billion in historic affordable housing investments seen by advocates as potentially transformative in combating the housing crisis, including boosting funding for rental assistance and public housing construction. 

But as intraparty disagreements arose over the size of the plan, an essential component of President Biden’s agenda, the price tag for housing investments began to fall sharply, just as in other areas of the far-reaching package. Funding set aside for housing was cut by almost half in the House-passed version of the climate and social spending plan last year. 

And it remains to be seen whether the same scope of housing investments will be in any other effort the party makes this year at a package passed via budget reconciliation, a complicated procedure that will allow Democrats to bypass a GOP filibuster in the evenly split Senate.


Inflation and Tax: An Overview – Martin Sullivan, Tax Notes ($):

The rapid and unexpected onset of inflation after decades of price stability is an unwelcome development with immediate and widespread implications for the U.S. economy and politics. The effect of inflation on tax, and the effect of tax policies on inflation — issues so long absent from discussions of fiscal policy — will move to center stage. Proposals to curb inflation and its effects get priority. Like it or not, other long-standing priorities like job creation, fighting poverty, and promoting renewable energy must make way.


This won't play well on Capitol Hill: 

Exxon, Chevron Ramp Up Stock Buybacks as Energy Prices Surge - Kevin Crowley, Bloomberg ($). “Exxon Mobil Corp. and Chevron Corp. pledged to ramp up shareholder returns as crude oil and natural gas prices surged to multi-year highs following Russia’s invasion of Ukraine.”

Despite pleas from politicians to ease the burden on consumers, the biggest U.S. oil explorers are focused on rewarding investors while keeping drilling budgets in check. Exxon tripled its share- buyback program to $30 billion and Chevron said it will repurchase a record $10 billion of stock before the end of this year.

Big Oil is among the biggest corporate winners from Russia’s increasing isolation nine weeks into an invasion that helped push crude to a 14-year high. While four of the five supermajors are incurring multi-billion dollar writedowns as they exit Russia, those paper losses have been outweighed by blossoming cash flows.

Get ready for retribution in the form of legislation being introduced that increase taxes on oil companies (which will likely never get enacted).


Musk and Manchin Seen as Wrecking EV Tax Credit Prospects – Doug Sword, Tax Notes ($). “The House Ways and Means Committee’s top proponent of renewing the electric vehicle tax credit blamed both Tesla’s Elon Musk and Sen. Joe Manchin III, D-W.Va., for the tax break’s dwindling hopes.”

‘He’s killing us,’ committee member Daniel T. Kildee, D-Mich., said of Musk, the world’s richest person, who holds the twin titles at the automaker of ‘technoking of Tesla’ and CEO. Musk is in ill favor with congressional Democrats as both poster child for billionaires who pay little or no taxes and as the proposed buyer of Twitter.

‘It’s an issue, and that’s why we have to point out this is really not for him,’ Kildee said April 28, referring to the proposed $12,500 credit for the purchase of new electric vehicles. It isn’t geared toward Tesla, but rather is largely aimed at ‘getting to scale with the big three manufacturers’ — General Motors, Ford, and Chrysler, he said…

Kildee also pointed to fresh criticisms April 28 of the plug-in credit from Manchin, who has said the union-made component of the credit was unfair.

At a hearing of the Senate Appropriations Transportation, Housing and Urban Development, and Related Agencies Subcommittee April 28, Manchin said it is ‘absolutely ludicrous’ to be discussing large tax credits for plug-ins when ‘there’s a waiting list for EVs right now with the fuel price at’ $4 per gallon.

Manchin opposes electric vehicles made in union shops getting a larger tax credit than electric vehicles produced in non-union shops. 


Musk’s 2020 Texas Move May Yield Big Tax Savings on Tesla Sale – Laura Davison, Bloomberg ($). “Elon Musk’s relocation from California to Texas has already helped save the world’s richest person a fortune in taxes. Now, after selling more than $8.5 billion of stock to help him buy Twitter Inc., it could help reduce another possibly hefty tax bill for the Tesla Inc. chief.”

Musk potentially owes as much as $2 billion in federal capital gains levies if virtually all of the value of the sale represents an appreciation in value, according to calculations by Bloomberg. He would save as much as $1.1 billion on state taxes on that basis, thanks to his new home of Texas, which doesn’t tax income. The billionaire says he made the move in 2020.

It’s not clear how much Musk actually will face in federal taxes. Capital gain levies are only applied to the difference between the initial investment and the sale price, not the entire amount of the sale.

It’s possible he could avoid any tax liability if he is selling shares he acquired at a price point higher than Tesla is currently trading. If he does owe, he also may be able to lower the amount he must pay the IRS by offsetting some of the taxes with losses in other portions of his portfolio, or from other tax breaks.


Deadline Nears to Lock In Comments on Proposed SECURE Act Regs – Tax Notes ($):

Required Minimum Distributions — Comments and discussion topic outlines are due by May 25 on proposed regs (REG-105954-20) on required minimum distributions from qualified plans; section 403(b) annuity contracts, custodial accounts, and retirement income accounts; IRAs and annuities; and eligible deferred compensation plans under section 457.

The proposed regs address the required minimum distributions for plans qualified under section 401(a) and are being updated to reflect the amendments made to section 401(a)(9) by the Setting Every Community Up for Retirement Enhancement Act of 2019, which was approved in December 2019 as part of the Further Consolidated Appropriations Act, 2020.


New Hampshire Examines Income Shifting to Tax Havens – Michael Bologna, Bloomberg ($). “The most consequential but overlooked tax legislation coming out of a state capitol this year might be New Hampshire’s decision to study a new corporate income tax filing protocol designed to crack down on income shifting to tax havens.”

The legislature opened a potential Pandora’s box for large corporations by forming a commission to study replacing the Granite State’s 'water’s edge' method for reporting and apportioning income under its business profits tax with “worldwide combined reporting” for unitary businesses. The enacting legislation, H.B. 102, passed without much fanfare and was signed by Gov. Chris Sununu (R) on April 11.


Colo. Lawmakers OK Expanding Housing Tax Credit - Sanjay Talwani, Law360 ($). “Colorado would replace and expand an income tax credit for contributions toward housing for people experiencing homelessness, under legislation approved Friday by the state Senate.”

The Senate unanimously approved H.B. 1083, sponsored by Rep. Kerry Tipper, D-Lakewood, Rep. Janice Rich, R-Grand Junction, Sen. Faith Winter, D-Westminster, and Sen. Cleave Simpson, R-Alamosa. If enacted, the bill would repeal a tax credit program managed within the state's enterprise zone program and replace it with one administered by the state Division of Housing. That change would make the credit available for contributions to organizations and projects benefiting housing efforts across the state.


A 4% Tax Rate and Beaches Lure Big-Shot Lawyers to Puerto Rico - Jef Feeley, Bloomberg ($). “Veteran plaintiff lawyer Mikal Watts is beginning to learn the meaning of taking it easy.”

After 28 years of grinding away on multi-billion dollar mass personal-injury suits, most recently from an office in San Antonio, Texas, Watts decided to make a change. He’s still trying cases, but now he gets a big tax break while working from the back deck of his new home looking out onto the Atlantic Ocean near sunny San Juan, Puerto Rico.

The tax incentive is a controversial policy, one that has created bitter resentment among many on the crisis-ravaged island. But Watts isn’t thinking much about that right now. He’s soaking up the sun and staring out at the blue waters as he sips a vodka tonic at a ritzy outdoor restaurant.

‘If I can practice law from anywhere, why not do it from a beautiful beach?’ says Watts. ‘Living here is like a working vacation.’


Delaware Defends Right to Shield Microcaptive Info From IRS – Chandra Wallace, Tax Notes ($). “The Delaware Department of Insurance (DDOI) urged the Third Circuit not to apply a ‘silent’ threshold test for reverse preemption of an IRS summons enforcement action, a threshold that the lower court found the Delaware confidentiality statute doesn’t meet.”

In its April 28 reply brief in United States v. Delaware Department of Insurance, appellant DDOI argued that the IRS had ‘critically and fatally’ conceded that a three-part test for reverse preemption was applicable, and the DDOI doubled down on its assertion that this test was met.

The lower court’s application of a threshold requirement effectively added ‘a silent fourth part’ to the test, according to the DDOI, and that addition conflicts with applicable Supreme Court and Third Circuit precedent.


Bed Bath & Beyond Denied Refund of California Franchise Taxes – Perry Cooper, Bloomberg ($). “Bed Bath & Beyond Inc. has failed to convince the California Office of Tax Appeals that it is entitled to a refund of over $1 million in taxes paid over three years.”

Two members of a three-judge panel rejected the company’s argument that receipts from its treasury function may be included in the sales factor of its apportionment formula. All three judges agreed with the company that its vendor allowances may be included in the sales factor, but found the company didn’t provide enough evidence to entitle it to a refund for those amounts.

The state Franchise Tax Board partially denied BBB’s claims for refunds of $363,301 for tax year 2009, $319,624 for 2010, and $512,758 for 2011. The company appealed, arguing receipts from its treasury function—which manages its excess cash and investments—and allowances it negotiates with vendors should be included in its sales factor denominator for gross receipts.


Senate passes ‘step-down’ approach to eliminate food sales tax – Chuck Samples, KVOE. “The Kansas Senate is on board with eliminating the state’s 6.5-percent sales tax on food. It just isn’t on the same timetable as what Governor Laura Kelly wants.”

On Wednesday, the Senate voted 39-0 to use a ‘step-down’ approach through 2025. The Republican plan is set to drop the tax to 4 percent next year and 2 percent in 2024.

17th District Senator Jeff Longbine of Emporia voted for the bill. This now moves to the House for consideration.


Texas Supreme Court Passes On Register-Tape Maker Tax Break Case – Perry Cooper, Bloomberg ($). “The Texas Supreme Court won’t take up a petition challenging a cash register tape producer’s right to claim a sales tax exemption on purchases of electricity.”

The Texas Court of Appeals, Seventh District, ruled in January that RTU Inc. is entitled to a refund of $68,179 for sales taxes paid between 2007 and 2011 on electricity needed to operate a facility in Houston, finding that it qualifies for a tax break provided to manufacturers under the Texas Tax Code.


Global Tax Deal's Extractives Exemption Prompts Dissention – Kevin Pinner, Law360 ($). “A business lobby and a think tank representing developing countries differed on how much they thought fossil fuel companies should be exempted from international tax reforms, according to recent comments to the Organization for Economic Cooperation and Development.”

The U.S. Council for International Business told the OECD on Thursday that it would prefer to exclude all oil, gas and mineral resource companies, while the South Center, in its letter to the organization shared with Law360 on Friday, favored a much narrower exemption. Both groups were responding to the OECD's comment period on the extractives industry exclusion from multilateral corporate tax reforms aimed at creating a new taxing right based on customer location, rather than legal residency.


Crypto Framework Needs Tweaks for Startups, Business Group Says - Shaun Courtney, Bloomberg ($). “A draft OECD crypto-asset reporting proposal should strive for regulatory parity for the cryptocurrency industry with traditional finance institutions, according to the Chamber of Digital Commerce.”

The proposal should also allow a carve-out for startups to ease into what could amount to be onerous reporting requirements, the Chamber said in an interview.

‘We support effective tax transparency, especially in reporting, for an industry that has risks around emerging technologies. And we want to mitigate those risks. We just want parity and regulation that minimizes the burden on some of these companies, especially startups,’ said Cody Carbone, policy director for the U.S-based Chamber of Digital Commerce.

The Chamber represents businesses including startups, software companies, financial institutions, law firms, and others in the digital asset and blockchain technology ecosystem.

Governments, OECD Eye Blockchain Potential for Tax Collection - James Munson, Bloomberg ($). “Tax authorities looking to reap the potential of blockchain platforms to manage increasingly large and complex amounts of data are looking at how to use the technology to collect sales, withholding, and property taxes.”

The popularization of blockchain has already seen cryptocurrencies like Bitcoin shake up mainstream finance and change how multinationals manage critical information like supply chain data. Tax officials are seizing a chance to streamline their own operations in way that could one day lead to a whole-sale overhaul of how entire bureaucracies operate, tax professionals say.

‘With blockchain, it’s an opportunity like the internet in the 1990s,’ said Alfredo Collosa, a tax consultant and tutor with the Inter-American Center of Tax Administration.


Regs Clarify Accrual Method for Claiming Foreign Tax Credits – Carrie Brandon Elliot, Tax Notes ($):

In this article, Elliot reviews the section 905 rules for accrual method taxpayers claiming foreign tax credits.


It’s National Life Insurance Day! There is no better metaphor for paying it forward!

From National Day Calendar:

The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759.

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