Tax Update Blog

Tax News & Views Peace, Love, and Reconciliation Roundup

July 7, 2022 | Blog
By Joe Kristan, CPA

Climate and Tax Text Not Done, but Drug Pricing Is, Senate Dems Say - Doug Sword, Tax Notes ($):

This marks the first section of a slimmed-down reconciliation bill to garner the support of 50 Senate Democrats, including West Virginia Sen. Joe Manchin III. A source familiar with the negotiations cautioned that the other components of the package — a climate and a tax section — are still being negotiated.

...

The tax section may be particularly tricky. House Democrats’ original version of Build Back Better was mostly a rollback of the Tax Cuts and Jobs Act’s rates for corporations and high-income households. Manchin has said he also supports a rollback of the TCJA. But House Democrats revamped their tax plans at the insistence of Sen. Kyrsten Sinema, D-Ariz., replacing the TCJA rollback with a corporate minimum book tax, a surcharge on high-income households, and an excise tax on corporate stock buybacks. It remains unclear if there is a tax package that can win both Manchin’s and Sinema’s support.

The same issues that blocked Build Back Better months ago still lurk. 

Democrats take step toward reviving reconciliation - Elizabeth Crisp and Kelsey Carolan, The Hill. "Majority Leader Charles Schumer (D-N.Y.) on Wednesday took a step toward a potential deal to revive the 'Build Back Better' bill, submitting text to the Senate parliamentarian of legislation that would allow the government to negotiate prescription drug prices for Medicare."

For chips and budget packages, Democrats face choices - Peter Cohn, Roll Call:

And there’s a real chance the big reconciliation deal that key players are working toward doesn’t come together. That means no major clean energy package, and no new suite of tax increases aimed at wealthier households and corporations. Instead, an even skinnier option that’s been discussed would incorporate the prescription drug pricing deal struck last week — if it survives the parliamentarian’s scrubbing — and a permanent extension of expanded health insurance subsidies that are set to lapse after this year.

That would be a major win for Democrats in and of itself: enacting long-sought changes to drug costs that Democrats have billed as an inflation-fighter, and avoiding notices of health insurance rate hikes going out before the midterms. 

 

The little-noticed crypto law that can turn ordinary investors into felons - Lynnley Browning, Accounting Today:

Starting in 2024, recipients must report the sender’s name, address and Social Security number within 15 days. Civil penalties for those who accidentally overlook the requirement can hit $3 million. Those who intentionally disregard the requirement can be charged with a felony and face up to five years in prison and higher civil penalties. Corporate violators face fines of up to $100,000 per transaction. 

Not just wealth advisors appear unaware of the requirement and its potential impact on clients. Neither do many entrepreneurs who own small businesses that take payment in bitcoin, ethereum or other digital currencies, or who trade crypto assets frequently.

Related: The Infrastructure Act and Cryptocurrency Transactions.

 

Arizona Allows Partnerships, S Corporations to Be Taxed at Entity Level - Tax Notes ($). "Arizona H.B. 2871, signed into law June 28 as Chapter 321, allows a partner or shareholder of a business treated as a partnership or S corporation for federal income tax purposes to be taxed at the entity level at the same rate imposed on other individual income taxpayers, applicable to the entire portion of its taxable income that is attributable to its resident partners or shareholders and the portion of its taxable income sourced to Arizona and attributable to its nonresident partners or shareholders for that tax year, beginning from and after December 31, 2021."

NC Clarifies Franchise Tax Base's Foreign Attribute Accounting - Zak Kostro, Law360 Tax Authority ($). "The bill also clarifies that a corporation may not artificially reduce its franchise tax base by making a no-interest loan to an affiliate..."

Arkansas Governor to Seek Tax Cuts in Special Session - Lauren Loricchio, Tax Notes ($). "Sen. Jonathan Dismang (R), chair of the Joint Budget Committee, told Tax Notes that lawmakers have reached an agreement with the governor on accelerating the implementation of tax cuts that were enacted in December 2021."

 

Vanguard to Pay $6 Million to Investors Hit With Big Tax Bills - Caitlin McCabe and Jason Zweig, Wall Street Journal. "Massachusetts securities regulators on Wednesday reached a $6.25 million settlement with Vanguard Marketing Corp., a subsidiary of Vanguard, following an investigation launched this year into changes the Malvern, Pa.-based financial giant made to its target-date funds."

 

Comey, McCabe faced rare, intensive tax audits by IRS under Trump appointee: report - Zach Schonfeld, The Hill:

The IRS conducted purportedly random, intensive audits of two former top FBI officials who drew the ire of former President Trump, The New York Times reported on Wednesday.

...

The Times reported that the odds of being selected for the specific audit were tiny, with the IRS having targeted about 1 in every 30,600 tax returns for the intensive scrutiny in 2017.

The IRS denies that there was any bad intent behind the audits. Even so, such "National Research Program" exams are time consuming and expensive for taxpayers who face them, whether they are random or not. There should be some compensation for them, beyond whatever comfort taxpayers derive from helping to improve IRS exam processes. 

 

Here’s How to Handle Some Common Payroll and Tax Mistakes - Kelly Phillips Erb, Bloomberg. "It’s critical to pay attention to your withholding during the year—doing a withholding check-up now is a good idea. Don’t just look at the numbers when you’re checking your withholding. Make sure—especially in a more remote and hybrid world—that you account for geography."

Annual Patient-Centered Outcomes Research (PCOR) Fee Due Soon - Jennifer McGarry, Eide Bailly. "Insurance companies and self-insured employers must submit Form 720 and payment by Monday, August 1, 2022"

IRS approves some fake charities. What's a donor to do now? - Kay Bell, Don't Mess With Taxes. "There is Charity Navigator, as well as Candid, which is the combined effort of GuideStar and Foundation Center. There's also the Better Business Bureau's Wise Giving Alliance and Charity Watch. All of these charity oversight groups are themselves nonprofits."

Deductible Start-Up Costs and Web-Based Businesses - Roger McEowen, Agricultural Law and Taxation Blog. "It’s costly to start a business – especially a farming or ranching business.  From a tax standpoint are the start-up costs deductible?  As with many tax questions, that answer is that it 'depends.'  One item that the answer depends upon is when the business begins.  That’s a key determination in properly deducting business-related expenses. "

Leave U.S., Pay IRS Taxes Forever - Robert Wood, Forbes. "Reports say there’s been a big uptick in interest in leaving America with the overruling of Roe v. Wade, gun violence, political turmoil and more... Yet it is surprising how many people get confused about U.S. taxes, and think that leaving the U.S. to live abroad means no longer paying taxes here—especially if you are paying taxes somewhere else. However, the mere fact that you live abroad—even forever—does not mean that you ever avoid U.S. taxes or the annual slog to file IRS returns."

Tax Pros Report Increase In Erroneous IRS Notices Saying Taxes Haven’t Been Paid - Amber Gray-Fenner, Forbes. "CP-14 notices are issued when a taxpayer has an unpaid balance due. In early June tax professionals on social media started reporting problems with electronic payments made by the taxpayer listed as the spouse on jointly filed returns. Specifically, CP-14 notices were being issued for accounts where an electronic payment was made by a spouse using IRS Direct Pay and the payment was not applied to the balance due on the jointly filed return."

The Cross-Border Tax Peaks and Valleys of Working From Anywhere - Sarah Shannonhouse and Eileen Sherr, Bloomberg. "In addition to withholding taxes, employers also focus on a broad array of other state and local tax issues. Absent any special waiver, a remote employee can create nexus for various taxes, including income taxes, gross receipts taxes, sales taxes, and local business taxes."

Related: Telecommuting Workers in Refuge States Complicate State Taxes.

 

A Closer Look at Low-Income Taxpayer Clinics - David Stewart and Robert Wunderle, Tax Notes Opinions. "Across the United States, there are just over 130 low-income taxpayer clinics. These clinics, also known as LITCs, help low-income taxpayers resolve tax disputes with the IRS at little to no cost. But these clinics sometimes offer more than just tax resolution services to the community. They also act as taxpayer rights advocates, tax filing aids, and even financial literacy educators."

Oklahoma Becomes First State in Nation to Make Full Expensing Permanent - Janelle Fritts, Tax Policy Blog. "Oklahoma’s new statute retains the definitions used in Section 168 and Section 179 of the Internal Revenue Code (I.R.C.), but the language specifies that businesses will permanently be able to deduct 100 percent of qualified property in the year costs are incurred or the property is placed in service, even if the federal government allows the expensing percentages to be reduced or even phased out entirely."

What Do The Political Parties Think About A Gas Tax Holiday? It Depends On Who Proposes It - Howard Gleckman, TaxVox. "There are exceptions to the hyper-partisanship. Some national Democrats opposed Biden’s proposed holiday, which helps explain why the idea may already have sunk to the bottom of the policy lagoon."

 

Ex-Chicago Alderman Gets 4 Months For Fraud, False Taxes - Celeste Bott, Law360 Tax Authority ($):

An Illinois federal judge on Wednesday sentenced an attorney who is a former Chicago alderman and scion of the famed Daley political family to four months in prison for falsifying tax returns and lying to officials with the Federal Deposit Insurance Corp.

...

An Illinois federal jury convicted the former alderman in February, finding that he told the FDIC and its agent in 2018 that he owed only either $100,000 or $110,000 to the now-shuttered bank when he actually owed $269,000 and that he lied about the money going toward home improvements when he knew it was actually used as his buy-in at the law firm. The jury also convicted the former alderman of filing tax returns reflecting falsely the amount of mortgage interest payments he made between 2013 and 2017.

He is the grandson of Richard J. Daley, the legendary Chicago Mayor, and the nephew of the more recent Mayor Daley.

 

Jumbo IRA? The first sentence of a Tax Court opinion issued yesterday got my attention: 

This case involves a determination by the Internal Revenue Service (IRS or respondent) that petitioner in 2004 made an excess contribution of $25,132,892 to his individual retirement account (IRA). 

Considering that the maximum allowable contribution to an IRA in 2004 was $3,000, that seems like a serious miscalculation. It turns out to be a little more complicated. 

The taxpayer was the president of a manufacturing company, where he was a participant in an Employee Stock Ownership Plan, or ESOP. He also participated in three supplemental, or "non-qualified," employer plans. after a 2004 corporate reorganization, his interests in all four plans were paid out, totaling about $26 million. The whole amount was rolled into his IRA.

You may already have spotted the problem. Out of the four plans, only the ESOP portion qualified for a rollover to an IRA. The IRS determined that only $830,392 of the $26 million was rollover-eligible. That meant the remainder was an excess contribution, subject to a 6% excise tax under Code Section 4973. The taxpayer said that he got a 1099-R with a code "G" for the whole amount, saying it all qualified for a rollover. The IRS says it never received such a 1099 - not that an incorrect 1099-R would change the result.

Unfortunately for the taxpayer, Tax Court Judge Lauber agreed with the IRS determination, rejecting procedural arguments that the IRS could not collect the excise tax.

The Moral? Not everything you get when you leave a job necessarily can go into your IRA. 

 

So much to celebrate. Today, World Chocolate Day, also is International Peace and Love Day. This can't be a coincidence. 


Stay informed!


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.