Tax News & Views Keeps it Cool Roundup

June 22, 2022

Biden poised to announce a likely doomed gas tax holiday - Sara Ferris and Adam Cancryn, Politico.

Biden plans to ask lawmakers to pass a three-month pause on the federal 18-cent-per-gallon levy, casting the proposal as a temporary measure that would provide relief to Americans without harming the road-building projects the tax traditionally funds.


Biden’s gas tax holiday, however, has already been met with skepticism from senior Democrats in the House. Speaker Nancy Pelosi and others have questioned whether the policy will lead to savings at the pump, rather than excess profits for gas companies. Democrats chose not to include it in their own bill aimed at lowering gas prices last month.

It's not clear such a move will make a difference politically:

Gas-Tax Holidays Often Do Little to Ease Political Pressure - Jimmy Vielkind and Gabriel Rubin, Wall Street Journal:

Although consumers might doubt it, oil-market analysts and economists have consistently found that gasoline stations do pass on at least some of the savings. Robert Sinclair, a spokesman for AAA Northeast, said the average price of gas in Connecticut fell to $4.09 a gallon on April 2 from $4.29 on March 31.

The problem is that the small discount tends to get buried amid larger shifts in the underlying price of gasoline.


Congress likely to reject gas tax push - Rachel Frazin, The Hill. "But with skepticism spanning the ideological spectrum — from Speaker Nancy Pelosi (D-Calif.) to swing vote Sen. Joe Manchin (D-W.Va.) to much of the GOP — the idea is unlikely to make it across the finish line."


IRS makes more progress on tax return backlog - Michael Cohn, Accounting Today:

The IRS said Tuesday it is now on track to complete processing of originally filed Form 1040 (individual tax returns without errors) received in 2021 this week. Business paper returns filed in 2021 will follow shortly afterward. The IRS is continuing to work on the few remaining 2021 individual tax returns that have processing issues or need more information from the taxpayer.

Note that this is only error-free returns filed during 2021. It does not mean they are close to processing returns filed for 2021 in 2022. 

IRS Press release: IRS continues work on inventory of tax returns; original tax returns filed in 2021 to be completed this week


Iowa Cuts Bank Franchise Taxes, Adds Sales Tax Exemptions - Sanjay Talwani, Law360 Tax Authority:

S.F. 2367, signed Friday by Republican Gov. Kim Reynolds, reduces the franchise tax paid by financial institutions from 5% of net income to 4.7% in tax year 2023, with further reductions to 3.5% in tax year 2027. 

Under the legislation, the sales and use tax exemption for items and services used by makers of food products will expand, retroactively to 2019, to apply also if used by manufacturers of food ingredients. Refunds must be claimed by Oct. 1, 2022, and cannot exceed $100,000 for a calendar year.

The measure exempts menstrual and incontinence products from the sales and use tax starting in 2023. The bill also exempts from the tax prewritten software and related services sold to public utilities.

The franchise tax is a special version of the corporate income tax applied to banks, including S corporation banks. The franchise tax cut was left out of the initial round of tax cuts passed earlier this year in Iowa. 


Political Fight Brewing Over Savers Credit Refundability - Benjamin Guggenheim, Tax Notes ($). "Putting a refundable savers credit into new retirement legislation is a top priority for Senate Finance Committee Democrats, but some Republicans on the committee have indicated they may fight that effort."

The proposals would enhance the existing, but little-known Savers Credit, which provides an income tax credit for IRA contributions and 401(k) deferrals. It phases out at $68,000 AGI for joint filers and $34,000 for single filers. As it is non-refundable, and taxpayers at these levels pay little income tax anyway, it is of limited value.


SCOTUS Grant of Cert in FBAR Case Brings Feelings of Relief - Andrew Velarde, Tax Notes ($). "Taxpayers have consistently argued that a violation applies to the FBAR form, essentially capping penalties at $10,000 per year. The government argues that penalties can apply per account. In some cases, including Bittner's, the different interpretations can result in wildly different penalty caps for taxpayers who hold numerous offshore accounts."

Bittner is the taxpayer in the case the Supreme Court will hear. 

Related: Eide Bailly International Tax.

Is It One Penalty of $10,000 or Multiple Penalties of $10,000? - Russ Fox, Taxable Talk. "One reminder to everyone: If you have an FBAR filing requirement, just file the form (including all of your accounts) and you avoid all these penalties."

Supreme Court To Rule On IRS Penalty For Non-Willful Failure To Report Foreign Accounts - Robert Wood, Forbes. "If your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation—and each year you didn’t file is a separate violation. Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and five years of imprisonment."


Down market offers opportunity for tax-loss harvesting - Kay Bell, Don't Mess With Taxes. "You decided to take a loss on an asset, but you really like its longer-term outlook. You want to buy some of it back, or another asset that's essentially the same. Stop! Doing that will run you afoul of the wash sale rule."

Chief Counsel's Office Advises That Termination Fees Are Capital Losses Under Code Section 1234A - Parker Tax Pro Library. "The Office of Chief Counsel advised that a corporate taxpayer's payment of termination fees in connection with the termination of a merger agreement and an acquisition agreement gave rise to losses under Code Sec. 165 rather than business expenses under Code Sec. 162. Thus, the Chief Counsel's Office determined that Code Sec. 1234A applied to characterize the Code Sec. 165 losses that resulted from the terminations of the transactions as capital losses to the extent those losses were attributable to the termination of rights or obligations with respect to capital assets."

Lesson From The Tax Court: How To Tell When Land Is Held As A Capital Asset - Bryan Camp, TaxProf Blog. "No development happened.  For years he consistently reported holding the lots for investment.  But when he eventually sold them for a big loss he and his wife reported the loss as ordinary, claiming on that return that he held the land for development."

Bankruptcy Court Awards Damages for Automated IRS Notices - National Association of Tax Professionals Blog. "A West Virginia bankruptcy court has ordered the IRS to pay damages after the agency sent automated notices to taxpayers who’d had their tax debt discharged through bankruptcy."

Nurse's Comfortable and Professional Clothing Worn Outside the Operating Room Found to Be a Deductible Business Expense - Ed Zollars, Current Federal Tax Developments. "The Tax Court, in what is always going to be a very fact specific holding, found that these particular clothes met the requirements to qualify as a business expense"

For how the Tax Court looks at most business clothing expenses, here's an oldie: Dress for success, but don't look to the IRS for any fashion help.


The Year of State Tax Cuts: The Sequel - Richard Auxier, TaxVox. "Ten states cut income tax rates this year. That’s one more than did so in 2021. Idaho and Iowa reduced income tax rates in both years."

Carbon Taxes and the Future of Green Tax Reform - Alex Muresianu and Huaqun Li, Tax Policy Blog. "On paper, carbon taxes look fantastic, but they do have a few challenges in practice." The speed at which politicians are moving to suspend gas taxes hits at the challenges.


Is the air conditioner working? Then raise a frosty glass on National HVAC Tech Day to celebrate the modern miracle of indoor coolness.

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