August 22, 2022
President Biden Makes The Inflation Reduction Act Law- Eide Bailly. "The legislation includes tax increases that are projected to fall on large corporations and taxpayers earning at least $200,000 per year, according to the Joint Committee on Taxation, which determines the revenue impact of tax legislation for Capitol Hill."
What $80 Billion More for the IRS Means for Your Taxes - Laura Saunders, Wall Street Journal:
It will take time for the IRS to staff up, especially in a tight labor market. By one estimate, new agents aren’t fully productive for three to five years.
The Treasury Department has pledged to use the new funding to focus on tax underpayments by higher-income people. Their returns are often more complex than lower earners’ returns, and the IRS needs to devise new audit methods.
The article also notes that the Inflation Reduction Act "doesn't directly address the crushing IRS backlog."
Enormous Opportunity — and Risk — Await Next IRS Commissioner - Jonathan Curry, Tax Notes ($):
In May, [IRS Commissioner Charles] Rettig suggested — before the IRS was given an enormous pot of money to work with — that the next commissioner should be someone like him: a person from the tax community who knows the tax code and its effects on taxpayers.
A key qualification the next commissioner should have is experience reengineering an outdated organization, ideally a large financial institution, to make it more efficient and customer-service-oriented.
“Then, maybe 30th down the line of qualifications, I would put ‘knowledge of taxes,’” added [Jeffrey] Trinca, a former Senate tax staffer and chief of staff of the commission that developed the report underpinning the 1998 IRS restructuring bill.
New Climate Law Expands Ways To Monetize Energy Credits - Kat Lucero, Law360 Tax Authority ($):
The Inflation Reduction Act created a new "direct pay" mechanism that could fundamentally change the ability of tax-exempt entities, such as local and state-owned power utilities, to directly receive the refundable tax credits on eligible projects from the federal government.
Companies with limited tax liability under the act also can elect to use direct pay, but that option applies only to new credits tied to the production of newer clean energy technologies.
IRS issues immediate guidance for EV credits under Inflation Reduction Act - Mark Friedlich, Accounting Today. "Some industry experts are concerned that the new EV credit rules under the Inflation Reduction Act will hurt EV sales, primarily because of the new manufacturing and battery parts location and income requirements. The Alliance for Automotive Innovation, which represents automakers producing nearly all of the cars and light trucks sold in the U.S., has stated that 70% of electric vehicles currently sold in the U.S. would be ineligible for the tax credits."
Green Safe Harbor Leasing - Lee Sheppard, Tax Notes ($):
The neighbor’s Range Rover has been replaced with a top-model Tesla.
Yup, fossil fuels are on the neighbor’s hit list now, along with capitalism. You tried to explain to your covetous spouse and bedazzled daughter that the neighbor’s glamorous car runs on coal.
More to the point: "If credits are readily transferable, why would anyone need a tax equity partnership? Are IRS guidelines even relevant any longer in the face of transferability?"
Hot deals: A consumer’s guide to the new climate law - Corbin Hiar and Benjamin Storrow, Politico. "Among the barriers consumers could face in accessing the benefits are the sometimes sizable personal investments needed to qualify for the federal tax credits and the need for states — including those led by Republican governors — to administer some direct subsidy programs. Then there is the complexity of qualifying for the benefits, some of which need to be sorted out by the Internal Revenue Service, the Environmental Protection Agency, the Department of Energy or other government bodies."
The IRS could be on the verge of changing the way Americans file their taxes - Tobias Burns, The Hill.
Return-free filing is used by many countries with advanced economies in the Organization for Economic Cooperation and Development. It essentially means that the government would do your taxes for you, withholding what’s owed and then doing its own accounting without requiring forms to be sent in by taxpayers.
But experts say that all the tax credits in the U.S. tax code make self-reporting helpful — if not necessary — from an administrative point of view.
Return-free income taxes are the wave of the future, and always will be.
Observations on the Inflation Reduction Act of 2022 - Annette Nellen, 21st Century Taxation. "There is a lot from the House-passed BBB and President Biden's FY 2023 Greenbook that did not make it into the IRA. In fact, nothing from the President's FY 2023 Greenbook made it but a few items from the FY 2022 Greenbook did (such as a version of the 15% corporate AMT and some of the energy credits). Notable items missing from the IRA include EITC and Child Tax Credit expansion that we had for 2021 from ARPA, increasing the SALT cap to $80,000 and extending it past its 12/31/25 expiration, making more income of high-income individuals subject to the NIIT, and a surcharge on individuals, estates and trusts with AGI above $10 million."
Not so simple as just giving the IRS more money - Tyler Cowen, Marginal Revolution. "The advocates for additional funding should better understand why not everyone in America is thrilled with the agency’s new budget boost. It’s not just a bunch of kooks who fear 'an army' of weapon-toting IRS agents, or rich people who feel they shouldn’t have to pay their fair share. It’s normal people who think it’s a bad idea to reward an agency that seems so dysfunctional."
U.S. Court Upholds Government Win in Foreign Trust Penalties Case - Kiarra Strocko, Tax Notes ($):
A U.S. district court has barred the owner and beneficiary of a foreign trust from introducing additional arguments in an appeal against $3.2 million in penalties assessed for failing to timely report distributions.
Wilson, who created a $9.2 million overseas trust to which he was the sole owner and beneficiary, failed to timely file his Form 3520, “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,” and the trust failed to timely file Form 3520-A, "Annual Information Return of Foreign Trust With a U.S. Owner," for 2007. The IRS imposed $3.2 million in penalties, which represented 35 percent of the distributions from the trust during the relevant period. Although Wilson paid the penalties, he claimed a refund on the basis that he should have received a 5 percent penalty as the trust owner.
Related: Facing penalties? See if they can be reduced or removed before you pay.
Dotdash Meredith dumps tax incentives that required hiring and spending in Des Moines - Tyler Jett, Des Moines Register. "To receive the incentives, Meredith was required to add 41 employees by March 2021, paying each of the new workers at least $29.12 an hour. The company was required to keep those employees on the payroll through March 2023."
The casualties of California legalizing pot: Growers who went legal - Scott Wilson, Washington Post. "The once-mystical heart of the nation’s marijuana industry is dying, fast, strangled not by law enforcement but by the high taxes and baffling regulation that have crushed small farmerssince state voters approved legalization almost six years ago."
Regulation favors the big.
Federal FBAR suit seeks $26 million in penalties - Kay Bell, Don't Mess With Taxes. "It's not a crime to put your money into legitimate foreign financial institutions. However, if the amount meets a certain threshold, you are required to report that money to the U.S. government."
LLCs and Self-Employment Tax -Part One - Roger McEowen, Agricultural Law and Taxation Blog. "Whether a member of an LLC is a limited partner or not boils down to the particular provisions of a state’s LLC statute and whether there are sufficient factors under the state statute that distinguish an LLC from a limited partnership. That will be the case until IRS issues regulations dealing specifically with LLCs and similar entities."
Lesson From The Tax Court: State Law Label Did Not Control Federal Tax Consequences - Bryan Camp, TaxProf Blog. "While divorce is primarily a matter of state law, good family lawyers need to keep an eye out for the tax consequences of divorce."
Arkansas’s Rate Reduction Acceleration - Timothy Vermeer, Tax Policy Blog. "With passage of SB1 in the General Assembly’s third special session, Arkansas last week became the 13th state to authorize an individual income tax rate reduction this year. This round of Arkansas income tax cuts effectively accelerated reforms policymakers enacted eight months ago."
Rethinking Corporate Taxation Following Passage Of The Book Income Tax - Eugene Steuerle, TaxVox. "The pressures on financial and tax accounting have only just begun."
The Fear Over IRS Funding - Leslie Book, Procedurally Taxing. "There are serious issues surrounding how the IRS prioritizes and spends the significant increase in funding. We will consider some of those issues in the upcoming months and years."
Charlie Sheen Will Pay IRS $3.3 Million And Possible Share In Future Earnings - Peter Reilly, Forbes. "Many people have the impression that failure to send in the balance due with your return will result in 87,000 agents willing to use deadly force knocking on your door, but it really doesn't work that way."
Charlie Sheen Beats IRS, Slashes $7M Tax Bill To $3.3M - Robert Wood, Forbes. "Offers in compromise are tougher. You owe the IRS a million, but offer them less, will they take it? That’s what Sheen did. If the IRS figures it can collect the whole amount, it’s not easy to get an offer accepted. Sheen owed for 2015, 2017 and 2018, and offered $1,240,000, but later upped it to $3.1 million to cover all three years. He even put down $626,000 with the IRS as the required 20% down payment on the deal. But then the IRS said no, and didn’t even want to give back his $626k deposit."
Related: Tax Debt Relief: A Case Study.
Former Trump Organization CFO Pleads Guilty to Tax Fraud Scheme - Mary Katherine Browne, Tax Notes:
In July 2021 Weisselberg was indicted on 15 charges, all stemming from perks the Trump Organization provided to employees. Those benefits included the use of apartments and company-leased automobiles and private school tuition for Weisselberg’s grandchildren.
While there’s nothing inherently wrong with a company paying for employee perks, those benefits are compensation provided by the employer to the employee that must be reported for income and employment tax purposes.
Former HP Planning Manager Sentenced To Three Years In Prison In $5+ Million Wire Fraud Scheme - US Department of Justice [Defendant name omitted]:
Defendant, 30, of Fremont, pleaded guilty on March 23, 2022, to wire fraud, money laundering, and related tax charges. According to the plea agreement, Defendant was employed by HP, Inc. (HP) as an executive assistant and finance planning manager from approximately August 2017 until June of 2021. In these roles, Defendant was responsible for making payments to HP vendors and was issued multiple HP commercial credits cards to make the payments on HP’s behalf. Rather than make payments in accordance with the company’s policies, Defendant devised a fraudulent scheme whereby she sent approximately $4.8 million in unauthorized payments from her HP commercial credit cards to several Square, PayPal, and Stripe merchant accounts under her control.
Court documents provide several details of the scheme. For example, court documents describe how, as part of her employment with HP, Defendant was issued multiple American Express commercial credit cards that were intended only for business expenses. Defendant then set up bogus merchant accounts with PayPal, Stripe, and Square that she maintained under her control, but represented were for legitimate vendors. Defendant then unlawfully sent payments from the credit cards to the bogus accounts. To further her plan, Defendant uploaded falsified invoices to HP’s internal system and falsely represented to HP that the payments were made to legitimate vendors. She also made false representations to Square that the payments sent from the credit cards were sent to HP’s approved vendors for legitimate business transactions and falsely represented to her bank that the money from HP was for legitimate business transactions. In total, Defendant caused at least $4.8 million to be fraudulently from HP accounts to accounts she controlled and attempted to steal an additional approximately $330,000 from HP.
It's bad enough to commit massive fraud against your employer, but not paying taxes on it really takes the cake.
And remember, there is no Tax Fairy. It's National Tooth Fairy Day!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.