June 2, 2022
AICPA Bugs IRS and Treasury for Research Amortization Regs - Nathan Richman, Tax Notes ($):
Taxpayers need regulations clarifying the new amortization requirement of the Tax Cuts and Jobs Act, but they shouldn’t be forced into a broad full-absorption regime for it, according to the American Institute of CPAs.
“Congress gave no indication that a switch to mandatory amortization should be subjected to a full-absorption regime such as the uniform capitalization regime under section 263A,” the AICPA wrote in its May 26 letter to the IRS and Treasury.
Better still would be repeal of the requirement to amortize research costs over five years. The requirement was enacted as a revenue offset to tax cuts in the Tax Cuts and Jobs Act of 2017, starting in 2022. While there is support in Congress for repeal of the amortization requirement, action before December appears unlikely.
The Internal Revenue Service today began its "Dirty Dozen" list for 2022, which includes potentially abusive arrangements that taxpayers should avoid.
The potentially abusive arrangements in this series focus on four transactions that are wrongfully promoted and will likely attract additional agency compliance efforts in the future. Those four abusive transactions involve charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance, and monetized installment sales.
What is a "monetized installment sale?
These transactions involve the inappropriate use of the installment sale rules under section 453 by a seller who, in the year of a sale of property, effectively receives the sales proceeds through purported loans. In a typical transaction, the seller enters into a contract to sell appreciated property to a buyer for cash and then purports to sell the same property to an intermediary in return for an installment note. The intermediary then purports to sell the property to the buyer and receives the cash purchase price. Through a series of related steps, the seller receives an amount equivalent to the sales price, less various transactional fees, in the form of a purported loan that is nonrecourse and unsecured.
Be careful out there. Tax plans that sound too good to be true generally are.
IRS Begins Summer Call Center Hiring Bonanza - Jonathan Curry, Tax Notes ($):
From June 1 through the end of August, the IRS will hold both virtual and in-person recruiting events to fill the contact representative positions in cities across the nation. During the in-person events, job seekers may receive tentative job offers on the spot, according to a June 1 announcement (IR-2022-114).
The additional hires would help address a critical need for the IRS. Levels of taxpayer phone service dropped to historic lows over the past year as the agency grappled with an enormous paper backlog and unprecedented demands for taxpayer assistance, including a fivefold increase in call volume.
It's good that the IRS may finally start answering phone calls. Unfortunately, the calls will mostly be answered by rookies for awhile.
Colorado Tax Credit Extension Bills Sent to Governor - Emily Hollingsworth, Tax Notes ($):
H.B. 1149, which was sent to Gov. Jared Polis (D) May 31, would extend until 2024 the advanced industry investment tax credit for an additional five years and increase the maximum credit for eligible investments from $50,000 to $100,000.
Lawmakers also approved H.B. 1418, which would allow taxpayers operating in industries affected by the COVID-19 pandemic to make a one-time application to the Colorado Economic Development Commission to carry forward for five years some unused credits that are scheduled to expire between 2021 and 2025. H.B. 1418 was sent to Polis May 25. The carryforward allowance would apply to job growth incentive tax credits and unused enterprise zone tax credits but wouldn’t apply to the credit for enterprise zone contributions.
Vermont Governor Signs Bill to Overhaul Corporate Minimum Tax - Benjamin Valdez, Tax Notes ($).
Vermont will transition to a single-sales-factor apportionment method for corporate tax and overhaul the corporate minimum tax under a bill signed into law by Gov. Phil Scott (R).
S. 53, signed May 31, will switch the state from a three-factor formula for determining taxable corporate income that includes a company’s payroll, property, and sales to a sales-only factor, and will repeal the throwback rule for corporations — which requires a business that sells into a state where it has no nexus to count those sales as Vermont sales for apportionment purposes.
The provisions are effective for 2023.
Vt. Will Change Corp. Income Tax Rates - Jacqueline McCool, Law360 Tax Authority ($) "S.B. 53, which Republican Gov. Phil Scott signed Tuesday, will adjust the corporate business tax rate, lowering the minimum for C corporations with gross receipts up to $1 million and raising the minimum rate for C corporations with a gross income over $1 million. The highest minimum rate will be $100,000 and will apply to C corporations with Vermont gross receipts over $300 million."
Global Tax Plan Talks Don’t Breach Human Rights, OECD Says - Stephanie Soong Johnston, Tax Notes. "According to the U.N. experts’ letter, many low- and middle-income countries have said the two-pillar plan, to which 137 jurisdictions in the inclusive framework agreed in October 2021, doesn’t respond to their needs. Those countries have also said the plan, particularly pillar 2, will hamper their efforts to raise public revenues, the experts added."
Proposed menthol ban highlights debate over ‘sin tax’ revenue - Lauren Clason, Roll Call. "A federal ban on menthol cigarettes could cost $6.6 billion in revenue at the federal and state levels, according to the Tax Foundation. Total federal tobacco tax revenue totaled $12.1 billion in 2021."
5 tax moves to make in June 2022 - Kay Bell, Don't Mess With Taxes ($). "2. Pay your estimated taxes. June 15 also is another Tax Day for millions of folks who get income that isn't subject to withholding taxes. This mid-June deadline is for the second payment due on such income received in April and May."
Some States Are Offering Sales Tax Holidays for Shoppers in 2022 - Kelly Phillips Erb, Bloomberg. "Last year, sales tax holidays cost states and local governments more than $550 million in lost revenue—that’s according to an Institute on Taxation and Economic Policy (ITEP) survey of cost estimates from state tax expenditure reports, fiscal notes, revenue departments, and academic studies. Those numbers are up from an estimated $300 million in 2020."
Examining Florida’s Removal of Disney’s Special Tax District - David Stewart and Benjamin Valdez, Tax Notes Opinions. "I wouldn't say typical in the sense that states are just handing out special districts to any large company that wants to move to the state. But I would say that they're certainly a lot more common. There's a lot more of them than people might realize, especially now that this one has been in the limelight."
Cryptocurrency as Compensation: A Tax Primer - Daniel Morgan, Bloomberg. "The price volatility of cryptocurrency can produce a potentially painful tax result to an employee paid in cryptocurrency. If on day one, an employee receives a bonus of 100 digital tokens with a value of $10,000, but the tokens decline in value to $2,000 at the time the employee sells them, the employee will have ordinary income of $10,000 and a capital loss of $8,000, which would be subject to the annual limit on the deduction of capital losses."
US Residency “First Year Election” and FBAR – The Devil is in the Details - Virginia La Torre Jeker, Virginia - US Tax Blog. "In general, the First-Year Election is used by nonresident alien individuals who arrive in the US after the middle portion of the tax year and do not obtain a green card in that year. Since they do not obtain a green card that year, they will not qualify as a resident alien under the 'Green Card Test.'"
How Your Minor Child Can Contribute to a Roth IRA - FinPowered Female. "The earlier you are able to open up a Roth IRA and contribute to it, the more opportunity you are giving your assets to grow over time, build your wealth and never have to pay tax on those funds again. Sounds dreamy if you ask me."
Three Takeaways from the New Congressional Budget Office Outlook - Erica York and Garrett Watson, Tax Policy Blog: "In 2021, the federal government’s budget deficit totaled $2.8 trillion after surpassing $3.1 trillion in 2020. As pandemic-related relief programs wind down and revenues come in stronger than expected, the CBO projects the deficit will fall to $1 trillion in 2022. Over the next decade, however, federal deficits will rise again: while revenues remain above the historical average and relatively steady, the CBO projects spending will grow relative to the size of the economy."
New GAO Report Underscores Importance of Better Data To Study Race and Taxes - Aravind Boddupalli, TaxVox. "The IRS does not collect data on tax filers’ race and ethnicity, and other federal agencies do not routinely include these breakdowns in their tax analyses. But for years, scholarly books and papers have called attention to how the federal tax code and its administration might exacerbate long-standing racial disparities in housing, wealth, education, and employment."
See you later. Today is National Leave the Office Early Day, so...
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.