Programming note: I will be presenting a webinar at noon Central Time today, "Tax Planning Tips: Key Business & Individual Considerations." You may register here.
Yellen Directs IRS To Submit Spending Plan In Six Months - David van den Berg, Law360 Tax Authority ($):
Treasury Secretary Janet Yellen directed the Internal Revenue Service on Wednesday to send her a plan in six months for how it plans to spend the nearly $80 billion boost provided by the new tax, climate and health care law.
Yellen, in a memo to Internal Revenue Commissioner Chuck Rettig, said the plan for spending the money provided under the Inflation Reduction Act should include details on how money will be spent over a decade on technology, workers and service improvement. The plan must include metrics for focus areas and goals the agency will strive to reach, she said.
Yellen Doubles Down on ‘Operational Plan’ for IRS Spending - Jonathan Curry, Tax Notes ($):
The IRS’s daunting paper processing problem and its associated spillover effects in areas like abysmal levels of phone service have continued into the second half of the year, despite the agency’s emergency efforts like forming a surge team of reassigned employees to help process paper, or going on a hiring spree this summer. Nearly 100 lawmakers sent an August 15 letter to the IRS demanding a status update on the agency's efforts to work through the backlog, as well as clear expectations of where it expects to be by the end of this year.
Rettig has pledged that the IRS’s paper inventory backlog would be at a healthy level by the end of 2022, but a mid-June report from National Taxpayer Advocate Erin Collins cast doubt on the feasibility of that claim.
IRS Is Hiring New Employees, Not Raising an Army - Kelly Phillips Erb, Bloomberg:
The IRS has received a green light for additional funding: The Inflation Reduction Act—now signed into law—includes roughly $80 billion for the IRS to be phased in over 10 years. A Treasury Department report from May 2021 estimated that level of additional funding would allow the agency to hire roughly 87,000 new employees by 2031. New workers include those in many departments, such as customer service and IT, to be hired over the next decade.
It didn’t take long for that news to turn into a “new army of 87,000 IRS agents” following tweets such as this one from House Minority Leader Kevin McCarthy (R-Calif.).
How to Think About IRS Tax Enforcement Provisions in the Inflation Reduction Act - Alex Muresianu, Tax Policy Blog:
The IRS funding increase should raise additional revenue and help shrink the tax gap, while imposing some additional compliance costs along the way. The package has some win-win propositions, such as investment in informational technology, that should reduce the tax gap and reduce compliance costs for taxpayers at the same time.
However, the biggest win-win from the perspective of reducing both the tax gap and taxpayer compliance costs is simplification. A simpler tax code is both easier for taxpayers to follow and the IRS to enforce. And unfortunately, the bill does not take significant steps towards simplification—instead, it adds several credits along with a complicated new corporate book minimum tax.
IRS becomes GOP boogeyman ahead of midterms - Emily Brooks, The Hill. "The GOP is warning that the $80 billion funding boost to the IRS included in Democrats’ tax, climate and health care package, which President Biden signed into law on Tuesday, will target middle-class Americans with an 'army' of new enforcement agents."
Bill-Funded Study Could Inch IRS Closer to Direct Free Filing - Lauren Loricchio, Tax Notes ($):
But Nina Olson of the Center for Taxpayer Rights told Tax Notes this is an important step.
'It’s important to get [the IRS] to articulate what their objections are if they’ve got objections. It might be that in doing the study, they no longer have objections,' said Olson, who served as national taxpayer advocate from 2001 to 2019 and is a member of Tax Analysts’ board of directors. 'The IRS is now the outlier among all OECD countries — it’s the only one that doesn’t have a government-prepared direct e-filing portal.'
Feds Spell Out EV Tax Breaks Under Inflation Reduction Act - Kat Lucero, Law360 Tax Authority ($):
The U.S. Treasury Department also published initial information on how consumers can claim the credit of up to $7,500 after their purchase of a qualified vehicle. Individuals who entered into a contract before Aug. 16 but don't take possession of the car until that date can claim the credit "based on rules that were in effect before the Inflation Reduction Act's enactment," Treasury said.
The federal government's guidance comes amid controversy over the effectiveness of the credit and potential trade implications. Auto groups representing foreign carmakers with U.S. operations, as well as trading partners such as the European Union and South Korea, have raised concerns over the North American requirements, especially the condition that by 2024, a vehicle's battery should be sourced either from North America or from a country that has a free trade agreement with the U.S.
Several carmakers, including Kia and Porsche, have had cars suddenly cut out of the electric vehicle credit by the new tax law.
Treasury, IRS issue initial guidance on new EV tax credits - Kay Bell, Don't Mess With Taxes. "You'll need to identify the manufacture location for a specific vehicle by finding its vehicle identification number (VIN) of the vehicle on the VIN Decoder website that's part of the National Highway Traffic Safety Administration (NHTSA)."
The IRA’s Green Energy Tax Credits Lose Their Punch Because They Try To Do Too Much - Howard Gleckman, TaxVox. "The EV credit may be the most extreme example of how these labor, commercial, and environmental goals can conflict. The Alliance for Automotive Innovation estimates that 70 percent of EVs made today will not qualify for the credit because they fail to meet these requirements. And these conditions inevitably will raise the price of any EVs that do qualify."
Shareholder Status Will Shape Impact Of Stock Buyback Tax - David van den Berg, Law360 Tax Authority:
The law adjusts stock repurchase amounts by the fair market value of any stock a company issues in a taxable year. That includes the value of stock a company provides to workers or to employees at an affiliate, regardless of whether the stock was issued in response to exercising a purchase option.
One of the primary behavioral effects of the excise tax will be encouraging companies to issue new shares in stock-based compensation in amounts up to, but maybe not over, the amount of shares they want to buy back in a given year, [McDermott Will & Emery LLP attorney Jeffrey] Maydew said.
The buyback tax applies only to public companies.
Inflation Reduction Act Raises Pillar 2 Hopes and Concerns - Alexander Rifaat, Tax Notes ($):
On the surface, pillar 2 of the OECD global tax agreement reached last year, which stipulates a minimum corporate income tax of 15 percent on multinational companies earning more than €750 million in annual revenue, looks similar to the corporate AMT instituted as part of the recently signed reconciliation bill.
However, there are key differences in the two proposals that generate more questions than answers and could ultimately leave American multinationals exposed in the not-so-distant future.
Using financial statement income as a tax base may be unwise in any case, but if that's what they wanted to do, it's not clear why they didn't just use the OECD template.
In-Depth Report: Key Tax Provisions of the Inflation Reduction Act. - Parker Tax Pro Library. "The Act amends Code Sec. 461(l) to extend by two years the limitation on deductions by non-corporate taxpayers of excess farm losses and excess business losses."
Square Pegs and Round Holes: Tornado Cash, Anti-Money Laundering, and Crypto - Russ Fox, Taxable Talk. "That’s the problem cryptocurrency advocates face: the real world is intruding, and anti-money laundering laws are part of the real world. Here, cryptocurrency is a square peg and the round holes are the anti-money laundering laws."
Commenting on Forms - Keith Fogg, Procedurally Taxing. "The Tax Clinic advocated for making form 8822 (the IRS change of address form) into an online form that taxpayers could submit without ever leaving the IRS website. This echoes PT’s Nina Olson’s first wish in her IRS Wishlist for 2021. "
DOJ, IRS Target YouTube Star, Others Involved With Crypto Broker SFOX - Rebekah Barton, TaxBuzz. "An official memorandum from U.S. Deputy Assistant Attorney General David A. Hubbert shares additional information about the case that is being built, including the fact that 'Agent Lee has conducted an investigation and identified specific individuals who held accounts with sFOX and may have failed to comply with their tax reporting requirements under the internal revenue laws.'"
Tax Planning – Ownership of Foreign Real Property - Virgina La Torre Jeker, Virginia - US Tax Talk. "Corporate entities set up for the purpose of owning foreign real estate run the risk of being classified as a 'Controlled Foreign Corporation' (CFC) or a 'Passive Foreign Investment Company' (PFIC). The tax rules governing these entities are generally known as 'anti-deferral' tax regimes and were enacted to prevent US taxpayers from using foreign corporations to defer income taxes. Once a corporation is classified as either a CFC or a PFIC, very onerous tax consequences will follow, including very complex reporting obligations."
Government Files FBAR Collection Suit for FBAR Willful Penalties Aggregating $23,102,381 - Jack Townsend, Federal Tax Crimes. "The complaint is here. The complaint requests (¶ 55, p. 8) judgment for $23,102,381 in willful FBAR penalties, $2,631,772.60 in accrued and assessed late payment penalties, and $877,257.53 of interest, plus costs of collection, pursuant to 31 U.S.C. § 3717, as of August 11, 2022. The United States is entitled to recover $26,611,411.13, plus interest, penalties, and costs accruing from August 11, 2022."
Navigating the Schedule K-2, K-3 Landscape – Don’t Overlook Penalty Relief - Bob Heroux, Thomson Reuters Tax & Accounting. "Although providing some additional certainty, the new schedules have created substantial compliance burdens for entities required to comply with new reporting requirements, in particular those with substantial international activities. Acknowledging these additional burdens, in Notice 2021-39, the IRS issued transition relief for tax years that begin in 2021 for Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865."
For more information on IRS penalty abatement, register for the Eide Bailly webinar IRS Trouble: International Penalty Abatement scheduled for August 25.