June 30, 2022
Democrats Weigh Paring Biden Tax Hike to Win Over Manchin - Laura Davison, Erik Wasson, and Ari Natter, Bloomberg ($):
The Finance Committee is also considering a change to the 15% domestic minimum tax on financial profits, also known as the book tax, that would exclude a business’s deductions for the investments they make when calculating the tax, the people said. This would mean many companies would face lower IRS bills from the book tax.
Business groups are also pushing Democrats to exclude income from pass-through businesses, such as partnerships or LLCs, from being subject to a surtax for high earners. The House legislation calls for a 5% levy on incomes above $10 million and an additional 3% on incomes above $25 million. The current top tax rate for that income is 37%.
Democrats forge ahead on drug pricing, eyeing wider deal with Manchin - Tony Romm, Washington Post. "
Democratic leaders have finalized a revised proposal to lower prescription drug prices for seniors, part of a broader scramble to satisfy Sen. Joe Manchin (D-W.Va.) and resurrect a long-stalled economic package that they hope to advance as soon as this summer.
Still, Democrats cannot proceed without Manchin’s vote, a reality that already has forced them to sacrifice some of their most prized proposals — including those to provide free prekindergarten, lower the cost of child care, offer cheaper elder care, authorize national paid family and medical leave, and invest heavily in housing. They are now exploring a far smaller package, one that largely focuses on lowering drug costs, investing in green energy and making some changes to the tax code that can help reduce the deficit.
Punchbowl News curbs our enthusiasm: "Again, let’s say this up front – there’s no agreement yet. We’re still skeptical, after months and months and months of covering this, that a deal comes together. Yet Schumer and Manchin keep talking, and there’s definitely some forward momentum. So there’s a chance it could happen."
With Vermont Senator Leahy on the shelf for hip surgery after a fall at home, any reconciliation bill will be delayed until his return to work.
IRS Needs Funding to Make ‘Critically Important’ 1099 Portal Work - Jonathan Curry, Tax Notes ($):
The success of the project so far, along with other recent successes by the IRS, shows that the beleaguered agency can pull off needed modernization under the right circumstances, and it should assure lawmakers that more funding wouldn’t be squandered, the Electronic Tax Administration Advisory Committee (ETAAC) wrote in its annual report to Congress, released June 29.
A properly functioning portal for filing Forms 1099 is urgently needed because the IRS will soon be inundated with a flood of information returns thanks to the new legislatively mandated $600 filing threshold for Form 1099-K that went into effect this year, plus new reporting requirements for digital assets that kick in next year, the advisory group wrote.
Extension Through May 1, 2023, for Filing Short-Year Composite Returns - Iowa Department of Revenue. "The Director finds that good cause exists to extend the filing deadline for composite returns for pass-through entities with a short tax year beginning and ending in calendar year 2022 because the composite return form is currently unavailable. Therefore, pass-through entities with a short tax year beginning and ending in calendar year 2022 that are required to file a composite return under Iowa Code section 422.16B are hereby granted an extension through May 1, 2023, to file their 2022 composite returns without incurring a penalty for failure to timely file."
Iowa pass-through entities with non-Iowa owners are required to file composite returns on behalf of individual owners beginning in 2022, though non-residents may opt out by filing a "Nonresident Member Composite Agreement" with the entity.
IRS implements new fingerprinting process for e-file - Michael Cohn, Accounting Today. This is for preparers, not for taxpayers: "The IRS has struggled to control identity theft and data breaches within its user self-service tools like Get Transcript, and tax professionals have increasingly found themselves targeted by cybercriminals with phishing schemes in an effort to get access to sensitive client information. The fingerprinting process is one way the IRS has tried to improve its authentication procedures, while hoping to avoid the kinds of controversies over biometric identification methods that erupted earlier this year after it began rolling out selfie technology for accessing online taxpayer accounts."
Understanding Some Common Letters and Notices From the IRS - Kelly Phillips Erb, Bloomberg. "Notice CP2000 advises taxpayers of a proposed change in tax. Typically, a CP2000 shows up when income reported from third-party sources, like your financial institution or employer, does not match what you entered on your tax return. This could be because of a difference in numbers—you claimed $50 in interest while your Form 1099-INT reported $500—or an omission, like the Form 1099-NEC that the IRS received but which you might have forgotten about."
LA voters to decide on taxing expensive home sales to pay for homeless relief efforts - Kay Bell, Don't Mess With Taxes. "Los Angeles voters will decide in November on a higher tax rate on sales of high-value homes. The proposed 4 percent tax on the sale of homes valued $5 to $10 million and 5.5 percent on homes valued at more than $10 million would go toward affordable housing and homelessness prevention efforts."
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative - Roger McEowen, Agricultural Law and Taxation Blog. "For purposes of I.R.C. §355, a trade or business must have been actively conducted by the distributing parent corporation throughout the five-year period ending on the date of distribution."
Private Agencies No Longer Authorized To Collect IRS Debt For Certain Taxpayer Accounts - Amber Gray-Fenner, Forbes. "Ever since 2015, when the F.A.S.T. Act once again allowed the IRS to issue contracts to private collection agencies (PCAs) to help collect delinquent tax debts, the National Taxpayer Advocate (NTA) has been concerned about the effect of PCAs on economically vulnerable taxpayers with IRS debt."
R&D Credit Carryforward - Eide Bailly. "A carryforward credit applies a tax credit to a future tax year. It’s a provision within the tax code to allow businesses to take advantage of unused tax credits. There are many reasons why a tax credit could go unused, such as operating losses or that the IRS has a maximum limit on how much a business can claim per fiscal year."
Navigating the IRS appeals process during the pandemic and beyond - Wolters Kluwer Tax & Accounting. "The biggest challenge was the move to virtual meetings after the agency gave the order in March 2020 for employees to begin remote work wherever possible, something [IRS Independent Office of Appeals Chief Andy] Keyso noted caused a backlog of cases."
Related: IRS Exam Assistance.
Efforts to Improve Tax Treatment of Saving Gain Traction on Hill - Erica York and Garrett Watson, Tax Policy Blog. "Last week, the Senate Finance Committee approved the Enhancing American Retirement Now (EARN) Act, moving closer to a potential agreement to reform retirement savings this year. That is one of several proposals recently introduced—including the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (RISE & SHINE)—that would improve the tax treatment of saving for households. Senate and House versions of the reforms would change incentives to save, simplify the tax treatment of saving, and could potentially impact inflation."
Federal Jury Convicts Louisville Attorney of Tax Evasion - US Department of Justice (Defendant name removed):
According to court documents and evidence presented at trial, Defendant, 65, an attorney from Louisville, Kentucky, evaded the payment of federal income taxes, penalties, and interest due and owing by him to the United States, for the calendar years 2000, 2001, 2002, 2006, 2008, and 2011, totaling $1,124,620 by concealing assets in various ways. Among the methods Defendant used to conceal his assets from the United States Internal Revenue Service were storing personal income in a client escrow account, storing personal income in a nominee bank account, purchasing a home through a nominee as an alleged charitable donation, and by recycling cashier’s checks, which is the practice of engaging in a cycle of purchasing a cashier’s check, using a small portion of the check, and then purchasing another cashier’s check of lesser value. The evidence presented at trial showed that Defendant also intentionally provided false and misleading information regarding his assets and income to Internal Revenue Service civil collections personnel.
Don't do that.
Fifth Circuit Affirms Denial of Deduction for Airplane Donation - Tax Notes ($). "The Fifth Circuit affirmed a Tax Court decision denying an individual an income tax deduction he claimed for the donation of his interest in an airplane, finding that he had failed to provide a contemporaneous written acknowledgment that met the substantiation requirements of section 170(f)(12)(B)."
The Circuit Court opinion explains (footnotes omitted):
To claim a charitable contribution deduction, a taxpayer must substantiate the validity of the donation and its valuation. Where the contribution's value exceeds $5,000, the taxpayer must also provide a qualified appraisal. For a contribution of a qualified vehicle, including airplanes, whose value exceeds $500, the taxpayer must provide contemporaneous written acknowledgment from the donee organization of the contribution, including the name and taxpayer identification number of the donor. An acknowledgment is contemporaneous if it is provided by the donee organization within thirty days of the contribution. Further, the donee organization must provide the IRS with the information contained in the acknowledgement.
The court said the information submitted with the return fell short:
Congress specifically required the contemporaneous written acknowledgment include the taxpayer identification number, but that is lacking here.
The tax law has a number of ways to foot-fault out of a successful charitable deduction. Any contribution of $250 or more requires a receipt from the organization with certain information. Contributions of property require more information, and contributions of assets other than public securities over $5,000 require a qualified appraisal. And as the taxpayer here learned, vehicle contributions have their own special requirements.
Cite: CA-5, No. 21-60679
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