Tax News & Views Close-Up Roundup

August 19, 2022

New IRS Compliance Campaign Targets Partnership Distributions – Kristen Parillo, Tax Notes ($):

The IRS is taking a closer look at distributions that exceed a partner’s outside basis as part of its wider compliance initiative involving partnerships and passthrough entities.

The new campaign, posted August 17 on the IRS website, provides few details other than noting that partners must have sufficient outside basis under section 731(a) to claim nonrecognition treatment when receiving liquidating or nonliquidating distributions.

The document is here.  


Yellen: These are the 4 top priorities for the nearly $80 billion in IRS funding – Kate Dore, CNBC:

1. Clear the backlog

2. Improve customer service

3. Overhaul the agency’s technology systems

4. Hire IRS employees to replace retiring workers

Auditing taxpayers earning less that $400,000 a year is not on the list. However, as this blog as pointed out before, how does the IRS know who earns more than $400,000 a year without auditing them? Osmosis?

What $80 Billion More for the IRS Means for Your Taxes – Laura Saunders, Wall Street Journal ($):

An ‘audit’ isn’t always an audit

Many filers think any contact with the IRS is an audit, but it’s not. In a true audit, the agency examines a taxpayer’s records and requires proof of income, deductions or credits on the return.

What isn’t an audit? Among other things, a letter saying a filer omitted income paid by a bank or employer, or a 'math-error notice' that assesses tax for a mistake detected by an IRS computer. Still, these issues can be scary and require a taxpayer response.

With better IRS systems and the end of the backlog, it should be easier to resolve these issues, but taxpayers who encounter them shouldn’t think they’re evidence of rising audit rates.

A taxpayer earning less than $400,000 a year could get a notice from the IRS stating that they owe more money - not from being audited, but from a math error. The taxpayer paying the bill might view this as a distinction without a difference.


More Money for I.R.S. Spurs Conspiracy Theories of ‘Shadow Army’ – Alan Rappeport and Tiffany Hsu, New York Times ($):

The I.R.S. is beefing up its staff to keep pace with the growth in taxpayers and to replace departing employees… And despite claims on social media that the I.R.S. hires will be heavily armed, a Treasury official said that just 1 percent of the new employees would be agents working in jobs that require carrying guns.

Still, the I.R.S. recently altered a job posting for criminal investigators amid the backlash, deleting that one of the role’s major duties was to ‘be willing to use deadly force, if necessary.’  The amended ad now lists ‘Be legally allowed to carry a firearm’ as a key requirement.

The article links to the IRS pages that include the “deadly force” wording and the “legally allowed” verbiage. The links are here and here, respectively.


Why Buying an Electric Car Just Became More Complicated – Jim Tankersley, New York Times ($). “The new climate, tax and health law signed by President Biden extends a credit for electric vehicle buyers. But there are new strings attached that kick in at different times.”


IRS increases what teachers can deduct for classroom expenses – Zach Schonfeld, The Hill. “As the school year begins, the IRS is telling educators that they can deduct up to $300 of out-of-pocket classroom expenses, the first increase in two decades.”

How many school teachers likely spend more than $300 a year on school supplies? Plenty. 


IRS Requests Input for Appeals Video Conference Guidance Update – Bloomberg ($). “The IRS Independent Office of Appeals has invited public input on best practices for conducting video conferences with taxpayers and tax professionals with pending Appeals cases, according to a Thursday news release.”

The release is here.


IRS Revising Excise Tax Return Instructions – Fred Stokeld, Tax Notes ($):

The IRS is updating instructions to its private foundation excise tax return to address issues raised by taxpayers using the revised form.

The instructions to Form 4720, 'Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code,' are being revised 'to address some of the issues that have unfortunately caused a little bit of confusion for some filers,' Elaine Leichter of the IRS Tax-Exempt and Government Entities Division said August 16.


Tax Pros Suggest Revisiting Accounting Method Change Procedures – Nathan Richman, Tax Notes ($). “The broad procedural rules for making tax accounting method changes might not need annual revisions but some periodic amendments could be useful, tax professionals told Tax Notes.”


Ink Is Finally Dry on Charlie Sheen’s Agreement With IRS – Erin McManus, Tax Notes ($):

Actor Charlie Sheen is now on the same playing field as any taxpayer in a similar financial situation, which wasn’t the case when he had his first hearing, according to his counsel, Steven L. Jager. 

Jager of Fineman West & Co. and Laura Mullin of the IRS Office of Chief Counsel signed two stipulated decisions, according to an August 17 status report, agreeing to a $3.3 million offer in compromise and putting an end to Sheen’s Tax Court cases, both titled Sheen v. Commissioner


Trump Challenges Order Giving House Panel Access To Tax Returns - Zoe Tillman, Bloomberg ($):

Former president Donald Trump on Thursday asked the full federal appeals court in Washington to reconsider an order that cleared the way for a House committee to get his tax returns from the Treasury Department.


Tax Court Applies New, Unspecified Method for Medtronic Remand – Alexander Peter and Amanda Athanasiou, Tax Notes ($):

Following a second trial, the U.S. Tax Court sought middle ground between Medtronic and the IRS by applying a new, unspecified method proposed by Medtronic — with adjustments.

In its August 18 decision in Medtronic v. Commissioner, T.C. Memo. 2022-84, the Tax Court held that only a new, unspecified method could adequately calculate the appropriate section 482 royalty rate. This results in a largely 2-1 profit split between Medtronic and its Puerto Rican subsidiary, Medtronic Puerto Rico Operations Co. (MPROC).


First Circuit Vacates Dismissal of Crypto Data Seizure Suit – Tax Notes ($). “The First Circuit vacated a lower court decision that dismissed an individual’s suit for damages and relief against the IRS for violating his constitutional rights and section 7609 by obtaining information on his cryptocurrency transactions, finding that the suit was not barred by the Anti-Injunction Act.”


Winegrower Tax Data Would Be Public Again Under California Bill – Laura Mahoney, Bloomberg ($):

California would publicly release confidential information from winegrower tax returns upon request under a bill lawmakers sent to Gov. Gavin Newsom Thursday.

The Wine Institute backs the bill to restore the flow of taxpayer data the State Board of Equalization released in error for more than 80 years until 2019, when tax agency staff realized the disclosures went beyond what the law allowed. The institute and the subscription-based Gomberg Fredrikson Report used the data to analyze the California wine market.


Ark. ALJ Says Biz Sought Sales Tax Refund Too Late – Michael Nunes, Law360 Tax Authority ($):

An Arkansas business was properly denied a sales tax refund as the request was not filed within the three-year statute of limitations, a state administrative law judge said.

The judge, in a decision Wednesday, agreed with the state Department of Finance and Administration that the sales tax refund request should be denied as it was filed more than three years after the tax was paid.


Mont. County Properly Valued 1-Acre Homesite, Tax Board Says – Michael Nunes, Law360 Tax Authority ($). “A Montana property owner was unable to further reduce the value of his property because the property's defects had already been taken into consideration by a local tax board, the state's tax board determined.”


FDA Ban on Flavored Cigars Could Cost $836 Million in Annual Excise Tax Revenue – Adam Hoffer, Tax Foundation. “The FDA’s proposal to ban flavored cigars would be a disruptive force in the cigar market and would carry significant revenue implications for many state governments. Flavored cigars make up between one-third and one-half of all cigar sales. We estimate that the aggregate effect of a ban on flavored cigar sales in the U.S. would be a decline of $836 million in excise tax revenue annually. This estimate does not include lost revenues from state sales taxes or import and customs duties.”

FDA Ban on Flavored Cigars Could Cost $836 Million in Annual Excise Cigar Tax Revenue See FDA ban flavored cigars


US Could Lose Billions to Others’ Minimum Taxes: JCT Chief - Isabel Gottlieb, Bloomberg ($):

The US could lose tens of billions in tax revenue each year to other countries enacting domestic minimum taxes as part of the global tax agreement, the Joint Committee on Taxation’s top official said.

Under the agreement, more than 130 countries agreed to a two-pillar plan to change the way multinationals are taxed. Pillar Two of the plan would ensure multinationals pay at least a 15% tax rate on their profits in each jurisdiction where they operate.

'In the short run, it looks like if the rest of the world goes to Pillar Two, we have chosen not to—that potentially, the Treasury loses over the next couple of years' because of other countries imposing qualified domestic minimum top-up taxes, said Thomas Barthold, the JCT’s chief of staff. He was speaking Wednesday at an event hosted by the Tax and Transfer Policy Institute at Australian National University’s Crawford School of Public Policy.

The Global Minimum Tax Lives On – Kimberly Clausing, Foreign Affairs:

Last year, more than 135 countries signed an agreement to transform international taxation by requiring profitable companies to pay at least 15 percent in corporate tax, regardless of where they reported their profits…

Unfortunately, …it was not included in the Inflation Reduction Act… The Inflation Reduction Act did include a corporate alternative minimum tax, but that should not be confused with adopting a global minimum tax: it does not tax the foreign income of U.S. multinational companies on a country-by-country basis, so companies will still have an incentive to operate in countries with rock-bottom tax rates.

All is not lost, however. The agreement has an enforcement provision—'the undertaxed profits rule'—that provides a strong incentive for countries to implement the minimum tax. Simply put, countries that enact the agreement’s provisions will be able to tax multinational companies based in countries that do not adopt the provisions, but the resulting revenue will go to adopting governments, not nonadopting governments. This provides a strong incentive for countries—including the United States—to eventually follow through on their pledge to abide by the agreement.

The “Unfortunately” part might have been a clue that Clausing is a former Deputy Assistant Secretary at the Treasury Department for the Biden Administration. She led the Office of Tax Analysis at Treasury. 

Others are not keen on the tax:

Developing Countries, Businesses Critical of OECD Tax Pact – Hamza Ali and Isabel Gottlieb, Bloomberg ($). “A US business group on Thursday highlighted numerous concerns with the global tax rules being negotiated at the OECD, a day after developing countries warned that the rules could hold minimal benefits for them.”


From the “Sour Grapes” file:

Trump Organization CFO Allen Weisselberg Pleads Guilty in Tax Evasion Case – Associated Press:

A top executive at former President Donald Trump’s family business pleaded guilty Thursday to evading taxes in a deal with prosecutors that could make him a star witness against the company at a trial this fall.

Trump Organization CFO Allen Weisselberg pleaded guilty to all 15 of the charges he faced in the case.

In a low, somewhat hoarse voice, he admitted taking in over $1.7 million worth of untaxed perks — including school tuition for his grandchildren, free rent for a Manhattan apartment and lease payments for a luxury car — and explicitly keeping some of the plums off the books.

Here comes the grapes:

Trump’s Ex-Fixer Critical of Weisselberg Plea as Too Lenient - Erik Larson, Bloomberg ($):

Michael Cohen, who was sentenced to three years in prison for violating campaign-finance laws for former President Donald Trump as well as bank and tax fraud, criticized New York prosecutors for their leniency with a former colleague at the Trump Organization .

Allen Weisselberg, the longtime chief financial officer at Trump’s company, pleaded guilty to 15 counts related to a yearslong scheme to avoid paying taxes by taking compensation in perks like cars and an apartment. He agreed to the plea on the understanding he’d serve a five-month jail term, which could be cut shorter with good behavior.

‘It is counter productive to permit an individual who committed years and years of tax fraud, failed to cooperate or provide any testimony to authorities, lied about information to the SDNY to obtain immunity, burdened the system with a not guilty plea as well as multiple motions for dismissal to receive the benefit of a five-month plea deal,’ Cohen said in an interview. ‘Just another example of disproportionate sentencing.’


Happy International Bow Day! Are they accessories or essentials? Sure, a bow on the back of a dress might be viewed as an accessory, but a tux sans bow-tie is a leisure suit!

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