June 24, 2022
Appropriators’ Message to IRS: Do These Things, Get Paid - Doug Sword and Jonathan Curry, Tax Notes ($):
But Democratic appropriators are looking for something in return for the back-to-back generous IRS budgets.
For instance, in exchange for a $35 million, or 13 percent, increase in funding for business systems modernization, the committee “expects significant progress on IRS’s IT infrastructure.” The IRS’s aging computer systems have long been at the heart of its more public failings, particularly its backlog of paper returns and correspondence.
Seems fair. As Dr. Ray Stantz famously noted, "You don't know what it's like out there! I've worked in the private sector. They expect results."
Criticism Of IRS Audit Rates Harms Tax Admin., Rettig Says - David van den Berg, Law360 Tax Authority ($):
Rettig said the agency historically audits about 1% of earned income tax credit claims a year. He also said anyone looking at data objectively and "not with a narrative trying to take down the IRS or tax administration" would see the agency historically audits about 7% to 8% of taxpayers with incomes over $10 million. The agency generally has three years to start auditing a return once the return is filed.
Rettig's comments follow the IRS saying in May that it audited 5.8% of returns reporting $10 million or more in income for the 2017 tax year, compared with 21.5% of such returns for 2010. The agency said at the time that resource constraints hindered its ability to monitor the wealthy.
I'm not sure how this statement by the Commissioner helps explain things, though:
"So those of you who support the flag, if any of you can count the stitches in the flag, you wouldn't go anywhere near this topic," he said.
Court Orders IRS Officials’ Testimony Released in Tea Party Case - Fred Stokeld, Tax Notes ($):
The case centers around allegations made in 2013 that the IRS improperly held up applications for tax-exempt status submitted by Tea Party groups and other conservative organizations. The underlying issues in the lawsuit were settled in 2018, with most of the 100 claimants receiving payments of about $14,000 each.
However, the question whether the testimony of Lerner and Paz should stay sealed remained unresolved.
This might seem like a footnote to ancient history, but the Tea Party scandal is key to understanding the ongoing IRS budget problems. The "allegations" began when the IRS admitted to the targeting. The IRS Commissioner at the time, John Koskinen, handled poorly concerns from the GOP-controlled House of Representatives, who in turn expressed their unhappiness through funding cuts. The reduced funding and GOP treatment of the IRS as political opposition became a habit.
Reconciliation Likely to Include ACA Tax Subsidies, Hoyer Says - Benjamin Guggenheim, Tax Notes ($):
Any slimmed-down reconciliation bill is likely to include an extension of tax subsidies that have significantly lowered the costs of Affordable Care Act plans, according to House Majority Leader Steny H. Hoyer, D-Md.
During a June 23 call with reporters, Hoyer said he believes that Sen. Joe Manchin III, D-W.Va. — the decisive vote on any reconciliation legislation that is revived in the Senate — is in favor of extending the subsidies, if there is more means-testing for the program.
Hoyer proposes, Manchin disposes. Unless Senator Sinema does.
Pot Banking Measure Dropped From Manufacturing Bill Negotiations - Wesley Elmore, Tax Notes ($):
Punchbowl News reported June 23 that the top four congressional leaders in both chambers agreed to exclude the Secure and Fair Enforcement (SAFE) Banking Act of 2021 (H.R. 1996) from a conference agreement on the so-called China competition bill after the Republican leaders demanded its removal. Lawmakers hope to send a conference agreement to President Biden’s desk before the congressional August recess.
The decision comes despite broad support for the SAFE Banking Act from lawmakers of both parties and from banking groups and state officials across the country.
The exclusion of state-legal cannabis from the banking system greatly complicates tax compliance for the business, as most business tax remittances are supposed to be made electronically, or at least by check. It makes tax payment a circus of using bags of cash to buy jumbo debit cards or to make trips to IRS offices. Transporting large quantities of cash greatly increases theft risk as well.
IRS Launches Effort To Combat Emerging Compliance Issues - Theresa Schliep, Law360 Tax Authority. "The Joint Strategic Emerging Issues Team, or JSEIT, will gather agency players — such as the Large Business and International and Criminal Investigation divisions — to address growing tax compliance issues, the agency officials said at the New York University School of Professional Studies Tax Controversy Forum."
Colo. Tax Dept. Signals Leniency On New Motor Delivery Fee - Michael Nunes, Law360 Tax Authority ($). "Colorado will ease in a new fee on deliveries made via motor vehicles, the state Department of Revenue said Thursday, adding that it would be generous in granting penalty waivers as businesses adapt to the new rule."
The Internal Revenue Service announced today that more forms can now be amended electronically. These include people filing corrections to the Form 1040-NR, U.S. Nonresident Alien Income Tax Return and Forms 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico) and Forms 1040-PR, Self-Employment Tax Return – Puerto Rico."
Given the delays in processing paper returns, this is a good thing.
Taxpayer Advocate urges more tax e-filing options; IRS provides additional electronic 1040-X forms - Kay Bell, Don't Mess With Taxes. "'Some have no choice because they encounter e-filing barriers, such as when they are required to file a tax form or schedule the IRS cannot accept electronically,' said Collins in her report. That's creating an undue burden on those filers."
Supreme Court Agrees To Determine How Penalties Apply For FBAR Compliance - Amber Gray-Fenner, Forbes. "In March 2021, the Ninth Circuit decided in United States v. Boyd that the penalties for non-willful failure to file an FBAR applied per form. In November 2021 the Fifth Circuit issued a decision in United States v. Bittner in direct opposition to the Boyd ruling, deciding that the penalties for non-willful FBAR compliance applied per account, not per form."
For tax administrative procedure nerds only. Three posts on where tax regulations fit within the procedural constraints of federal administrative law:
It’s Time To Let Go: Treasury Regulations Are Not Interpretative Rules - Kristin Hickman, Procedurally Taxing.
Reply to Professor Hickman's Response to My PT Article - Jack Townsend, Federal Tax Procedure Blog.
It’s Time To Get Real: Treasury Regulations Can Certainly Be Interpretive Rules - Bryan Camp, Procedurally Taxing.
With a high-profile IRS loss on its rules requiring reporting of microcaptive transactions based on failure to properly follow notice and comment requirements, the issue of "tax exceptionalism" in administrative procedure law has heated up.
Beyer’s Steep Gun Tax Might Curb Some Very Lethal Weapons, But It Has Gaps - Robert McClelland, TaxVox. "But Beyer’s plan probably would not just raise prices on guns subject to the tax. It also would drive up prices on similar guns that would be exempt from the tax, including those already held in inventory by retailers and those owned by private citizens."
Ph.D Gets Schooled. A consultant with an A-list roster of clients used F-grade arguments on his own taxes, with predictable results. From a Tax Court opinion yesterday by judge Vasquez:
Petitioner has a doctorate in economics. During the years in issue he worked as an economist for various employers and clients. Petitioner's clients, for which he performed consulting work, included General Electric Capital Corp., Pfizer, Inc., WCI Financial Corp., NU Skin International, Inc., the Builders Association, Inc., National Economic Research Associates, Allegiance Group, and Atlantic Search Group, Inc. Those businesses compensated petitioner for his services and issued him Forms 1099–MISC, Miscellaneous Income. Petitioner's employers included Klein Management Systems, Software Guidance & Assistance, Inc., Trans Action Information, Aerotek, Inc., Network Integration, and Eliassen Group, LLC. Those businesses paid wages to petitioner and issued him Forms W–2, Wage and Tax Statement.
The consultant, who the court notes has a doctorate in economics, made the bold tax planning move of not filing tax returns. Not surprisingly, the IRS noticed. They noticed so much that they successfully prosecuted the consultant on criminal tax charges.
Undeterred, the taxpayer argued in Tax Court that he shouldn't have to pay the taxes. The Tax Court found him unpersuasive:
Section 1 imposes an income tax on taxable income, and section 63 defines taxable income as gross income minus deductions...
Petitioner's assertion to the contrary — i.e., that the payments made to him for his services are not taxable — is frivolous and characteristic of rhetoric that has been universally rejected by this and other courts. The Court need not address petitioner's assertions “with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Wnuck v. Commissioner, 136 T.C. 498 (2011).
Or, as another Tax Court judge recently put it, "Petitioner husband is a well-educated medical professional. Although he (like most people) would prefer not to pay income tax, it is obvious that the U.S. Government is funded principally by taxes levied on wages, salaries, and other forms of compensation. If these taxes were really unconstitutional, one might have expected some court to have perceived this deficiency during the last 100 years."
The Moral? No matter how fervently you believe you don't have to pay taxes, you are out of luck because the IRS, all the judges, and the federal marshals believe otherwise.
Woof. It's National Take Your Dog to Work Day, which is much easier now that remote work has caught on.
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.