Tax News & Views Reconciliation with Fries Roundup

July 13, 2022

White House eyes oil and gas projects to woo Manchin on climate bill - Jeff Stein and Anna Phillips, Washington Post ($). "Climate bill" refers to the budget reconciliation bill formerly known as Build Back Better. From the article:

Despite violating the president’s climate pledges, officials have opened the door to these proposals as they wait to see if their approval could help finally secure Senate Energy and Natural Resources Committee Chairman Joe Manchin III’s (D-W.Va.) vote for a historic climate package stuck in Congress. Complicating their calculus is that White House aides do not even know if approving them — or Manchin’s other preferred energy projects, such as a pipeline in West Virginia — would bring the elusive senator on board.


But as they weigh this trade-off, Biden officials are wary of approving these projects only to then lose Manchin’s vote on the climate and energy deal anyway. Manchin is known for refusing to be pinned down, leaving administration officials wondering what he wants, and he has used his power in an evenly divided Senate to block his party’s goals. Negotiations between Biden and the West Virginia senator have repeatedly broken down over the past year.

Punchbowl News reports in its morning news roundup that Northeastern Democrats will vote against reconciliation without SALT:

Reps. Josh Gottheimer (D-N.J.) and Tom Suozzi (D-N.Y.) both told us that they’ll oppose Build Back Manchin – this name is catching on, by the way – if it includes major changes to the tax code but doesn’t lift the SALT cap. Remember: the 2017 GOP tax bill limited the SALT deduction to $10,000. Northeastern Democrats, who represent some of the highest tax areas in America, feel the cap is punitive.


There’s no sign that the Senate is considering lifting the SALT cap. It’s an extraordinarily expensive proposal with a very limited constituency in the Capitol. Some Democrats suggest an $80,000 cap on SALT deductions, which is what the House has previously supported.

It's not clear that house Democrats really will block a reconciliation bill without changes to the $10,000 cap for state and local tax deductions. Still, this illustrates how difficult it will be to advance a party-line reconciliation with tax increases in a nearly evenly-divided Congress. 

New Dem Recon Bill Leaves Republicans Unsure on Arguments - Doug Sword, Tax Notes ($):

Republicans appeared to be caught flat-footed July 6 when Senate Democrats began the resurrection of their reconciliation bill with news that the caucus had agreed on drug pricing proposals that would lower costs by $288 billion over 10 years.

That was followed by confirmation July 7 that talks between Senate Majority Leader Charles E. SchumerD-N.Y., and Sen. Joe Manchin IIID-W.Va., had resulted in a second agreement, this one to widen the application of the 3.8 percent net investment income tax to more income from passthrough businesses.

Senate GOP pitches options for stalled competition bill - Lindsey McPherson and Laura Weiss, Roll Call. "Although the path forward for the innovation bill is unclear, Democrats are not letting that dissuade them from pursuing a reconciliation bill that is broadly focused on lowering prescription drug costs, raising taxes on wealthy individuals and corporations and transitioning to clean energy."


Democrats put IRS in spotlight after audits - Tobias Burns, The Hill:

Former FBI Director James Comey and Deputy Director Andrew McCabe were audited following their dismissals as part of the National Research Program (NRP), an IRS program in which taxpayers receive line-by-line scrutiny of their tax returns and have to engage in intensive back-and-forth with the IRS. 

Speculation is growing on Capitol Hill that these audits were administered as punishment for disloyalty to former President Trump.

IRS Commissioner Rettig denies targeting the former officials. 


Pa. To Cut Corp. Tax Rate, Make Other Tax Changes- Jacqueline McCool, Law360 Tax Authority ($):

H.B. 1342, which Wolf signed Friday, will reduce the corporate net income tax rate to 4.99% by 2031 from the current 9.99%. The law will reduce the rate to 8.99% in the 2023 tax year, 8.49% in 2024 and 7.99% in 2025, according to the bill. For each year until 2031, the rate will be reduced by half a percentage point, according to the bill's fiscal note


The law makes additional changes to the state's corporate tax structure, with changes to market sourcing and economic nexus rules. It changes the sourcing of intangible property to a market-based approach instead of a cost-of-performance approach, the fiscal note said. The state also codified its corporate tax bulletin that implemented the Wayfair v. South Dakota  decision under the bill, creating a nexus in Pennsylvania for corporations with more than $500,000 in remote sales in the state annually.

Related: A Sales Tax Reform Game Changer: How Wayfair Changed the Sales Tax Reform Landscape.


Special virtual sessions coming up for those interested in compliance positions; IRS hiring 470 revenue agents - IRS.

Known officially as Internal Revenue Agents, these positions are at grades 5-12 in the federal civil service system with a base pay ranging from $31,083 to $68,299. 

New hires will join the agency's Small Business Self Employed (SB/SE) division, where they will combine talents in accounting and tax law to examine and determine the correct tax liability for a variety of both individual and business taxpayers, including sole proprietorships, small corporations, partnerships, and fiduciaries. They will also be responsible for identifying potential fraud, tax schemes and abusive tax shelters.

$31,083 will get the best and the brightest coming from law and accounting programs, if you are hiring in 1985.  


Fla. Couple Owes Penalty On Distribution, Tax Court Rules - Anna Farrell, Law 360 Tax Authority ($). "The couple said they should not have to pay the $9,000 penalty because they did not remember receiving the Form 1099-R for the unreported retirement distribution."

EV buyers prefer rebates to tax credit; switch could save Uncle Sam money, too - Kay Bell, Don't Mess With Taxes. "Current federal tax law requires an EV buyer to pay full price for the vehicle. Then when buyers file their tax returns with the Internal Revenue Service for the year in which they purchased and put the EV into use, they can claim a federal tax credit."

Wayfair’s Impact Four Years Later, and What’s Still to Come - Scott Peterson, Bloomberg. "Since the Wayfair decision in June 2018, most states have adopted new rules defining nexus—or what establishes a sales and use tax obligation. Today, 45 states, parts of Alaska, and Washington, D.C., have adopted Wayfair laws requiring remote sellers to collect and pay sales tax based on transactions that take place in their jurisdictions."

Tax Reform Options to Improve Wisconsin’s Competitiveness - Katherine Loughead, Tax Policy Blog. "Given that Wisconsin is projected to close out the FY 2021-23 biennium with a budget surplus of $3.8 billion, and given that the state is projecting continued revenue growth above the current baseline, Wisconsin has plenty of extra revenue to return to taxpayers in the form of permanent rate reductions and other structural improvements."

Lesson From The Tax Court: TP Did Not File Return By Giving Copy To IRS Employee - Bryan Camp, TaxProf Blog. "Often taxpayers provide a copy of their return to an IRS employee during audit.  Generally that does not work because particular IRS employees are not identified in either statutes or regulations as authorized to accept and process tax returns."


Checks Cashed After Death Must Be Included in Estate, Court Says - Mary Katherine Browne, Tax Notes ($). "In a July 12 memorandum opinion in DeMuth v. Commissioner, Judge Courtney Dunbar Jones found that seven of 10 checks that were cashed by recipients after William E. DeMuth Jr.’s death should have been included in his gross estate. She upheld the IRS’s concession not to include the remaining checks."

From Tax Court Judge Jones' opinion:

In January 2007, decedent executed a power of attorney (POA) appointing his son, Donald DeMuth, as his agent. Pursuant to the POA, Donald DeMuth was authorized to give gifts to decedent's issue in amounts not exceeding the annual exclusion from the federal gift tax.3 From 2007 through 2014, Donald DeMuth gave annual gifts to his brothers and other family members in accordance with the POA.


In the summer of 2015, decedent's health began to fail. By early September of that year, decedent was in an end-stage medical condition, and he passed away on September 11. On September 6, prior to decedent's death, Donald DeMuth wrote eleven checks, totaling $464,000, from decedent's investment account... 

Of these eleven checks, however, only check No. 1216 was paid by Mighty Oak before decedent's passing. While checks Nos. 1215, 1219, and 1221 were deposited by the respective payees on September 11, seemingly before decedent's death, those checks were not paid by Mighty Oak until September 14 — three days after he passed away. Thus, ten of [*3] the eleven checks (totaling $436,000) were not paid by Mighty Oak until after decedent's death. 

The opinion says the gifts were not complete under Pennsylvania law until the issuer could no longer stop payment on the checks. The IRS conceded that three of the eleven checks were completed gifts, but the remaining checks, totallng $366,000, were includible in the decedent's taxable estate.

The moral? Gifting can be tricky. When it absolutely, positively has to be a completed gift in a hurry, consider cashier's checks or wire transfers.

Related: Potential Significant Changes to Estate Plan & Gift Tax Rules May Be on the Horizon


IRS Secret Shelter Shoppers. A Bloomberg report, The Sting That Snagged the Tax Lawyer to a Pair of Billionaires (Neil Weinberg and David Voreacos, $), covers how an undercover IRS agent posing as a potential offshore tax shelter customer helped break open tax cases against two billionaires and the lawyer who put their offshore shelter structures together:

By 2017, the IRS had expanded its probe to include Brockman and launched its second undercover operation targeting Kepke (the attorney). Two agents were involved, including one who posed as a Pennsylvania auto broker who said his grandmother intended to leave him a farm. He wanted to protect it from creditors and his future wife.

Kepke replied that some of his clients’ wives had no idea how much money they had offshore, the affidavit says. The lawyer also indicated that he’d once favored setting up entities in Bermuda but no longer did so because it had “become a sieve to the US Internal Revenue Service.” He recommended Belize.

The secret shelter shoppers acted on tips provided by whistleblowers - a finance officer for one of the billionaires who was directed to move some of the funds offshore, and a divorce investigator for the ex-wife of one of the billionaires, according to the report. 

One of the billionaires is Robert Brockman, who was recently ruled competent to stand trial, despite claims of dementia. 

The moral? There is a lot to unpack here. First, we will note that the defendants claim innocence and are not proven guilty. That said, the case so far illustrates the risks taxpayers run if they do try to use sophisticated tax evasion schemes. They require a lot of people to be involved - those offshore funds don't move themselves. They require lawyers. They require helpful enablers. Any of these can lead the IRS to the scheme. And considering the availability of cash whistleblower awards, they may have plenty of incentive to make a call to the IRS. 


Supersize it! Today is National French Fry Day. Coincidentally, it is also Beef Tallow Day, if you want your fries old-school

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