August 9, 2022
What The IRS Funding In The Inflation Reduction Act Means For Taxpayers - Marie Sapirie, Forbes:
There is almost $80 billion in appropriations for the IRS to put toward taxpayer services and enforcement specified in the bill, nearly all of which would be available until 2031.
To contextualize the proposed appropriations amount, the IRS had actual expenditures of $13.7 billion in fiscal 2021. That included supplemental funding so that the agency could handle COVID-19-related expenses.
IRS Hiring Assistance Dropped From Inflation Reduction Act - Jonathan Curry, Tax Notes ($). "The Senate stripped language out of the Inflation Reduction Act of 2022 (H.R. 5376) before it passed August 7 that would have provided the IRS with blanket direct-hire authority and streamlined critical pay authority for a combined 500 positions. The latter would’ve enabled the IRS to offer select prospective hires up to the vice president’s salary — around $235,000 per year — and would’ve accelerated the hiring process for those positions. Under that provision, 200 of the positions would’ve expired after 10 years, while the rest would’ve been permanent."
Inflation Reduction Act Will Restore IRS Staffing To 1995 Level By 2026 - Peter Reilly, Forbes. "I do have to disagree with Adam's comment that honest tax returns are bullet proof on audit. It is probably true for the majority of people, but if you have complex affairs there will always be things that can be viewed differently. And dealing with an audit can be quite burdensome. That's why you want to get an Enrolled Agent to help you out or maybe even a CPA."
Automakers Say Retooled EV Credits Spell New Troubles - Linda Chiem, Law360 Tax Authority ($):
Yet the legislation includes tough requirements concerning where battery materials are sourced and where EVs are ultimately assembled. Starting in 2024, the $7,500 tax credit would only apply to vehicles made with parts and components sourced from North America or from countries with which the U.S. has a free trade agreement. Currently, most EV battery-making minerals and materials, such as lithium, cobalt and nickel, are sourced from China.
According to the Alliance for Automotive Innovation, there are 72 EV models that are currently available for purchase in the U.S., including battery, plug-in hybrid and fuel-cell electric vehicles. But 70% of those would immediately become ineligible when the Inflation Reduction Act passes, and none of them would qualify for the full credit when additional sourcing requirements go into effect, the group said.
If the fate of the Earth depends on more electric cars, maybe component sourcing should be a secondary concern.
Almost None of Today's Electric Vehicles Qualify For New Tax Credit - Rebekah Barton, TaxBuzz. "This is due to the fact that the vast majority -- over 75%, in fact -- of today's electric vehicle models run on lithium-ion batteries that are manufactured in China."
Key Parts of Build Back Better Act Revived as the 2022 Inflation Reduction Act - Parker Tax Pro Library. "The 2022 IRA contains numerous energy-related incentives aimed at cutting pollution and creating jobs. It also includes several revenue-raising provisions such as a corporate minimum tax, increased funding for IRS enforcement, and the narrowing of the carried interest loophole. H.R. 5376."
Minn. Says Federal COVID Funds Taxable As State Income - Sanjay Talwani, Law360 Tax Authority ($). "The Minnesota Department of Revenue said income from grants or forgivable loans from federal COVID-19 programs, which is excluded from federal income taxation, remains subject to state income tax. That includes income from Targeted Economic Injury Disaster Loan Advances, Small Business Administration forgivable loan assistance and the Shuttered Venue Operators Grant."
Alaska High Court Rules Combined Reporting Statute Constitutional - Andrea Muse, Tax Notes ($). "Regarding the dormant commerce clause, the court found that the statute was not facially discriminatory because filing a return is not a significant burden that constitutes discrimination against foreign commerce and the company’s tax liability depends on applying the apportionment formula."
Agricultural Business Ruling Could Yield Research Credits - Erin McManus, Tax Notes ($): "Boswell operates its farming business in the central California valley, where it grew cotton, tomatoes, alfalfa hay, and safflower among other crops during the 2014 tax year and conducted research to improve the quality or yield on test plots. It claimed $1.74 million in qualified research expenditures. The IRS disallowed all but $117,722 of those expenses."
Related: Research & Development Tax Incentives.
Situational Awareness: Accurate Financial Recordkeeping and Business Deductions - Benjamin Alari and Kathrin Gardhouse, Tax Notes. "But what if the Third Circuit accepts the taxpayers’ position regarding the maintenance of sound financial records? In this event, a different story emerges. Scenario testing reveals that there would be a highly significant improvement (from an 81 percent chance of the appeal failing to a 77 percent chance of its success) if the taxpayers prevail in their position that the financial records were adequately maintained."
Good records often win the battle.
IRS.gov – How Usable Is It? (Part One) - Erin Collins, NTA Blog. "Based on my experience and others I’ve talked to, the IRS.gov search engine rarely returns valuable results. As a result, the shortcomings of IRS.gov cause many users to turn to a commercial search engine after the IRS.gov search engine proves to be less than useful, which is disconcerting."
Superfund Chemical Excise Tax FAQ: What companies need to know - Thomson Reuters Tax & Accounting. "Under the new law, the excise tax applies to the use, sale, or import of 42 taxable 'chemicals' and 151 'hazardous substances.' The IRS has issued lists for both the chemicals and substances included (under Section 4661 and 4671 of the Internal Revenue Code, respectively), but has cautioned importers that items on the list could change as chemicals or substances are either added or removed from the list over time."
Related: Superfund Chemical Excise Tax Reinstated.
$51 Million of Payments Ruled Not to Be Deductible Alimony by Looking to State Law - Ed Zollars, Current Federal Tax Developments. "Even though the alimony deduction/taxation issue for divorced couples is no longer an issue in divorces finalized today, the issue of exactly what is federal income tax law alimony continues to be an issue for pre-2019 divorces. "
Alex Jones Has $49.3M Tax Write Off, But Plaintiffs Pay IRS Tax On Verdict - Robert Wood, Forbes. "Compensatory settlements by businesses are clearly deductible, and even punitive damages are too."
No, Trump Can’t Take Tax Breaks for Where His Ex-Wife Was Buried - Luke Lucas, Bloomberg. "Although the Trump National Golf Club Bedminster does now have a gravesite located on the property, it is still a golf club and not a cemetery company."
Georgia’s “Unborn Child” Deduction is Complicated and Ineffective - Richard Auxier, TaxVox. "But there are simple and proven policies available to Georgia policymakers if they want to help new and expectant parents."
We Tax Behavior, Not People - Arnold Kling, In My Tribe:
This is where economists differ from non-economists in how we think about taxation. Non-economists focus on who gets taxed. Is it the rich? The middle class? The poor?
Economists focus on what behavior gets taxed. We notice that means-tested benefits penalize low-income people who work, because they lose eligibility as they earn incomes. They also are penalized for getting married. We notice that the payroll tax penalizes employment. We notice that the corporate income tax and other forms of capital taxation penalize thrift. We notice that the income tax penalizes risk-taking in investment. If you want to see people punished for working, getting married, saving, and undertaking risky investments, then you should love our tax system.
Prince Harry (Part I) – Does US Citizenship Wait in the Royal Wings? What about the Impact on the Royal Family? - Virginia La Torre Jeker, Virginia - US Tax Talk. "The US has a very unique system of income taxation. If one is a US citizen, there is no escape since the income tax, assessed on one’s worldwide income, is based on one’s US citizenship rather than one’s residence. So Harry, if you become a US citizen, you will be subject to worldwide income tax regardless of where you are living in the world."
Related: Eide Bailly Global Mobility Services
Collins Reminds that Corrective Actions Alone do not Always Negate Willful FBAR Penalties - Matthew Roberts, Freeman Law. "However, tax professionals know better. Under Title 31, a taxpayer’s willful failure to file a timely and accurate FBAR can result in penalties of up to 50% of the foreign account balances, a penalty that can be applied over multiple years. And because federal courts and the IRS view certain reckless behavior as constituting 'willfulness,' the bar for willful FBAR penalties can be a seemingly low one."
Colombia’s New Leftist Government Targets Top 2% in Big Tax Plan - Kejal Vyas, Wall Street Journal ($). "The main target of the plan is Colombia’s top 2%—those making more than $2,300 monthly—who will see a bigger cut of their salaries going to the government, Finance Minister Jose Antonio Ocampo said at a news conference on his first day in office."
When cracking down on the "wealthy" means annual incomes starting at $27,600, you might want to reconsider whether excess wealth is really your problem.
Ireland facts of the day - Tyler Cowen, Marginal Revolution, quoting Financial Times. "The republic is enjoying a €8bn corporate tax windfall after bumper pandemic-enhanced revenues from tech and pharmaceutical companies. The tax take from companies attracted by Ireland’s 12.5 per cent corporate rate has soared since 2015 and leapt a further 30 per cent last year compared with 2020."
Defendant's death ends IRS' largest individual criminal tax fraud case - Kay Bell, Don't Mess With Taxes. "Brockman's death also means that another Texas billionaire, Robert F. Smith. Smith, won't have to testify in the criminal case. Smith was the founder of Vista Equity Partners, and his career in the investment field was launched in part by Brockman."
A former software company chief executive accused of a $2 billion tax fraud scheme, which prosecutors have said is the largest such case ever brought against an individual, has died at 81, according to a filing in Texas federal court.
Attorneys for Robert T. Brockman, the former CEO of Reynolds & Reynolds who's been embroiled in the multibillion-dollar fraud case as well as a jeopardy assessment dispute with the Internal Revenue Service, told the Texas federal court in the jeopardy case that he died Friday. The filing did not specify a cause of death. Despite misgivings from his attorneys, the court recently determined that Brockman was fit to stand trial in the fraud case, in which he's accused of using complicated offshore structures and other tactics to conceal his income.
Not fit for trial now.
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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.