Tax Update Blog

Tax News & Views Onward! Roundup

August 5, 2022 | Blog
By Jay Heflin

Senate Drops Carried Interest Curbs to Secure Sinema's Vote – Brett Ferguson, Tax Notes ($):

A provision to make it more difficult to claim reduced tax rates on carried interest income has been dropped from the Senate's reconciliation bill at the request of Arizona Democrat Sen. Kyrsten Sinema.

Sinema, a centrist whose vote is needed for the Senate to secure the 51 votes required to advance the sweeping tax, climate, and prescription drug bill (H.R. 5376), objected to extending the holding period on investments eligible for carried interest treatment to 5 years, instead of the current 3 years.

Instead, Senate Majority Leader Charles E. Schumer, D-N.Y., agreed to swap the provision out in favor of an excise tax on stock buybacks that would raise $73 billion.

Punchbowl News states the quiet part out loud: “Somewhere– well, pretty much everywhere – fund managers are probably getting ready to cut checks to Sinema’s 2024 re-election bid.”

 

Quick catch-up:

Democrats want to pass a health, drug, climate, tax bill that can pass both chambers with only their support. But passage in the Senate requires the support from all Democrats. Senator Krysten Sinema (D-Ariz.) has been on the fence about the bill for quite some time. But after changes to the bill, it now appears that she supports it. 

Manu Raju, CNN. “NEWS: Sinema says she will ‘move forward.’"

The Senator's statement:

Image

Possibility on reversing course: This is a reconciliation bill. And provisions in the bill must comply with strict, sometime arcane, rules that the parliamentarian must approve.  The Senator's support for the bill is contingent on the parliamentarian okaying the legislation.

Democrats, Sinema reach deal on Inflation Reduction Act, after key changes to tax policies – Tony Romm, Washington Post. “From here, Sinema said she would await a final review from the chamber’s parliamentarian — a critical step in the process that allows Democrats to move their spending bill — at which point she would ‘move forward’ on the measure known as the Inflation Reduction Act of 2022."

If the parliamentarian throws out a few key provisions, does Sinema return to "no"?

Democrats Agree on Revised Tax Bill With Stock Buyback Levy - Erik Wasson, Bloomberg ($):

The stock buyback provision was on the table during months of talks between Schumer and Manchin but was dropped in favor of the 15% minimum tax on large companies. Manchin has repeatedly said that the bill does not have any new tax increases and only aims to stop tax avoidance. The new stock buyback tax goes counter to that approach.

Get ready to hear 'we’re not raising taxes, we’re closing loopholes’ a lot.

 

Regarding the corporate min tax and stock buyback levy:

Sen. Kyrsten Sinema Wins Tax Changes to Democrats’ Climate Bill – Andrew Duehren, Wall Street Journal ($):

Under the changes negotiated with Ms. Sinema, Democrats will pare back elements of a 15% minimum tax on large, profitable corporations and drop a proposed tax increase on carried-interest income, according to people familiar with the agreement. Democrats will add a 1% tax on stock buybacks to the legislation, as the party aims to still reduce the deficit by about $300 billion in the legislation, according to these people….

Manufacturers had raised concerns that the original corporate minimum tax proposal would negatively affect their businesses by deferring or denying the benefit of accelerated depreciation.

The changed deal would preserve the benefit of accelerated depreciation for at least some manufacturers, according to people familiar with the deal.

Legislative details are not expected to be made public until Saturday. But sometimes things get leaked. 

Data dump: Senate Finance Chairman Ron Wyden (D-Ore.) released data showing that in 2019 between 100 to 125 corporations posted financial statement income of greater than $1 billion but had an effective tax rate of less than 5 percent.

“These companies had an average financial statement income of $8.9 billion and paid an average effective tax rate of 1.1 percent,” the committee stated.

In case you're wondering, Wyden supports the passage of the book tax.

FASB not so much:

The New Deciders on Corporate Taxes - Andrew Ross Sorkin, Vivian Giang, Stephen Gandel, Lauren Hirsch, Ephrat Livni and David F. Gallagher, New York Times.

The Senate could vote as soon as this week on a climate and tax bill that, if passed, would hand a good deal of power to an obscure group of accountants in Norwalk, Conn…

F.A.S.B.’s chair has previously opposed a minimum corporate tax. Last year, Jones said in a speech that he was against basing a minimum corporate tax on book income. He said the group’s role was to set accounting rules that best convey the health of a company. Using book income to determine tax payments would inject public policy into financial accounting, Jones said, making it hard for his organization to do its job. ‘It would be an additional pressure, there’s no doubt, on our mission and what we do,’ he said.

The F.A.S.B. is the Financial Accounting Standards Board, which sets the accounting rules for financial statements. They don't do tax policy, which can attract special interests, which can attract attention. Who needs that?

 

IRS Chief Praises Agency Funding Boost in Reconciliation Bill – Naomi Jagoda, Bloomberg ($). “IRS Commissioner Chuck Rettig on Thursday expressed support for the funding boost to the agency included in Democrats’ reconciliation package, saying the increased funds would be “transformative” for the agency and taxpayers.”

Details on the IRS portion of the bill:

BGOV Bill Summary: Senate Democrats’ Reconciliation Package – Christina Banoub, Dan Lee, Lauren Turenchalk and Brittney Washington, Bloomberg ($):

The measure would appropriate the following amounts for the IRS in fiscal 2022:

  • $45.6 billion for tax enforcement activities, including legal and litigation support, criminal investigations, and digital asset monitoring and compliance activities.
  • $25.3 billion for operations support, including rent payments, other IRS-wide administration activities, research and statistics of income, and information technology development.
  • $4.75 billion for business systems modernization to provide a more personalized customer service.
  • $3.18 billion for taxpayer services, including pre-filing assistance and education, filing and account services, and taxpayer advocacy services.

Amounts would remain available through fiscal 2031. The IRS would be granted hiring flexibilities when using funds provided by the measure.

The measure would specify that the IRS funding boost isn’t intended to increase taxes on individuals making less than $400,000.

The I.R.S. says new funding won’t mean more audits for middle-income Americans – Alan Rappeport, New York Times. “Charles P. Rettig, the Internal Revenue Service commissioner, told Congress on Thursday that the tax collection agency would not increase audits of households earning less than $400,000 if it was given the additional $80 billion that lawmakers were considering in a proposed climate and tax legislation package.”

 

Surging EV Prices Imperil Reach of Senate Tax Credit - Keith Laing, Bloomberg ($):

Vehicle-price caps included in a push by US Senate Democrats to expand a popular consumer incentive for electric cars could put pressure on automakers to lower costs of upcoming plug-in models.

A breakthrough deal between Senators Chuck Schumer and Joe Manchin would allow carmakers to keep offering up to $7,500 in tax credits for the purchase of new “clean cars.” The problem comes with Congress’s plan to restrict eligibility for the credits to EVs priced no higher $55,000 for new cars and $80,000 for pickups and SUVs -- one way to ensure the benefit goes to consumers who need them most, instead of the wealthiest.

Limits that may have seemed more reasonable a year ago look tight now that inflation and supply-chain disruptions have already pushed average EV prices beyond the range. To get the maximum benefit, automakers are going to have to expedite plans to build cheaper models, industry watchers say.

 

Timing for Senate action:

Senate sets up first vote Saturday on Schumer-Manchin deal – Alexander Bolton, The Hill. “Senate Majority Leader Charles Schumer (D-N.Y.) announced that the Senate will begin consideration of a $740 billion budget reconciliation package that would reform the tax code and tackle climate change on Saturday afternoon, setting up a weekend of around-the-clock votes.”

‘For the information of Senators, the Senate will next convene on Saturday at noon. The next vote will be at 12:30 p.m. on Saturday, on a motion to discharge a nomination. We expect to vote on the motion to proceed to the reconciliation legislation on Saturday afternoon,’ Schumer announced on the floor.  

 

How things will play-out after the Senate starts debating the bill, according to Punchbowl News:

Once the Senate formally takes up the reconciliation package, a 20-hour clock begins, with the time equally split between the two sides. We don’t anticipate that Democrats will take up much of their 10 hours, but Republicans will use some or all of their allotment…

After the debate is done – presumably at some point late Saturday or more likely Sunday – the Senate will begin a vote-a-rama. Senators are allowed to offer unlimited amendments to the bill during this process. Some of these amendments may come from Democrats. Sen. Bernie Sanders (I-Vt.) – no fan of this legislation – has said he will try to improve the bill on the floor with his own amendments. Sanders is still expected to support the package even if his amendments fail.

However, the vast majority of the hundreds of expected amendments will come from Republicans. Not all of these amendments will get a vote, but several dozen could. The three vote-a-ramas held during this Congress have averaged roughly 40 votes each.

If everything goes according to Schumer’s plan, the Senate can move to passage of the reconciliation bill at some point Monday or Tuesday.

The House is expected to pass what ever the Senate approves.

 

Biden Touts Business Support for Reconciliation Bill – Alexander Rifaat, Tax Notes ($). “The Biden administration and Democrats have employed a full-court press to build support for the Inflation Reduction Act, citing several economists and former government officials who have come out publicly in favor of the bill.”

 

Regarding carried interest:

Sinema will work with lawmakers on carried interest for a different bill.

Senate Drops Carried Interest Curbs to Secure Sinema's Vote – Benjamin Guggenheim, Tax Notes ($). “Sinema said in a statement that she is open to working on changes to the treatment of carried interest in future legislation.”

‘Following this effort, I look forward to working with Senator [Mark] Warner [D-Va.] to enact carried interest tax reforms, protecting investments in America's economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.’

It's a big unknown on when this bill gets a shot at passing Congress.

 

IRS stuff unrelated to reconciliation:

Taxpayer Advocate Advances Push for IRS to Use Scanning Tech – Naomi Jagoda, Bloomberg ($). “National Taxpayer Advocate Erin Collins is furthering her push for the IRS to promptly implement scanning technology for paper-filed tax returns, appealing to IRS Commissioner Chuck Rettig the decision from deputy commissioners to partially modify and partially revoke her directive on the topic.”

Signature No Longer Required for Partnership Basis Election – Kristen Parillo, Tax Notes ($). “Treasury and the IRS have finalized taxpayer-friendly regulations that eliminate the requirement that an election statement to adjust the basis of partnership property be signed by one of the partners to be valid.”

Lack of Awareness and Confusion over Eligibility Prevented Some Families from Getting Child Tax Credit Payments – Michael Karpman and Elaine Maag, Urban Institute. “Data from the Urban Institute’s December 2021 Well-Being and Basic Needs Survey show that among adults with children who reported they did not get the payments, nearly one in three did not think their household was eligible. Nearly one in four reported they were unaware of the credit or how to claim it.  Other reasons adults gave for not getting the payments were that someone outside the household claimed the credit for the children who live with them, that they opted out of the advance payments, or that they tried to claim the credit but did not receive the payments.”

IRS to Expand Digital Asset Reporting on Form 1040 – Mary Katherine Browne, Tax Notes ($). “The IRS plans to revise its crypto question on individual tax returns, requiring taxpayers to report whether they received virtual currency as compensation, rewards, or awards.”

 

Booker Sees Potential for ‘SAFE Banking-Plus’ to Pass This Year – Wesley Elmore, Tax Notes ($):

Legislation combining a bipartisan cannabis banking bill with a small set of other marijuana reform measures has a chance of passing this year after the midterm elections, according to Sen. Cory A. Booker, D-N.J.

Speaking to streaming news network Cheddar News on August 3, Booker confirmed that there are ongoing conversations among lawmakers about moving a package that combines the Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1996) with provisions to provide Small Business Administration loans to small cannabis businesses and to expunge some low-level drug convictions.

 

State Tax Withholding Weakens as Inflation Hits US Wages - Donna Borak, Bloomberg ($). “The share of American workers’ wages going to state and local tax coffers through withholding and estimated tax payments began to soften this spring, in yet another sign of a slowing US economy.”

 

Minnesota DOR Issues Reminder to Save Back-to-School Shopping Receipts for Valuable Individual Income Tax Benefits – Bloomberg ($). “The Minnesota Department of Revenue Aug. 3 issued a reminder for parents and caregivers to save receipts on school supply purchases to claim valuable K-12 tax benefits when filing individual income taxes next year.”

 

Minnesota DOR Publishes Sales, Income, Withholding Tax Requirements for Taxpayers Participating in State Fair – Bloomberg ($). “The Minnesota Department of Revenue (DOR) Aug. 1 published a revised tax fact sheet on the state fair for individual income, corporate income, and sales and use tax purposes.”

 

New Mexico Floats Regulations Taxing Digital Advertising – Michael Bologna, Bloomberg ($). “New Mexico will publish guidance Aug. 9 saying its unique gross receipts tax applies to digital advertising.”

 

Expedia, Orbitz Want to End $1 Billion Tax Whistleblower Case – Michael Bologna, Bloomberg ($). “Expedia Inc., Orbitz, Hotels.com, and others have called on the Nevada Supreme Court to dismiss a tax whistleblower case that could sting the online travel companies for up to $1 billion in purportedly unpaid state and local lodging taxes.”

 

Colorado Governor Announces Mailing of Cash Back Income Tax Rebate Checks – Bloomberg ($). “The Colorado Governor Aug. 3 announced that Colorado Cash Back individual income tax rebate checks of $750 for individuals and $1,500 for joint filers are being mailed out and urged taxpayers to check their mail throughout the month of August for their tax rebates.”

 

Utah Tax Commission Denies Taxpayer’s Appeal of County’s Dismissal of Untimely Property Tax Exemption Request – Bloomberg ($). “The Utah State Tax Commission May 4 found Taxpayer didn’t qualify for a property tax exemption. Taxpayer, a property owner, filed with the commission an appeal against the county board of equalization’s decision dismissing Taxpayer’s late-filed request for the exemption. Taxpayer argued that the late-filed appeal should be allowed because it concerned a factual error and the county gave incorrect advice regarding the exemptions.”

 

From the ‘Maybe-you-threw-It-away-when-you-threw-Other-stuff-away” file: 

IRS Can’t Find Copy of Disputed Split-Dollar Trust Agreement – Erin McManus, Tax Notes ($):

A critical document has gone missing in the dispute between the IRS and the estate of J. Crew founder Arthur Cinader regarding the tax treatment of his estate planning transactions between 2001 and his death in 2017.

The IRS has admitted in Estate of Cinader v. Commissioner that it can’t locate a copy of the trust.

Travel back to May 13, 2022:

IRS blames old tech in destruction of information returns - Paul Bonner, Journal of Accountancy:

The IRS said Thursday that it destroyed approximately 30 million unprocessed information returns because its ‘antiquated technology’ forced it to dispose of the paper documents and vowed to process all such information returns that it received in 2021 and 2022.

Sure. Blame the robots.

 

This cannot be a coincidence. It’s National Work Like a Dog Day and International Beer Day. What better thing to reach for after a hard day’s work!


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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.