Tax News & Views the Auditor Cometh Roundup

August 23, 2022

IRS’s $80 Billion Infusion Means More Audits in 2026 or 2027 – Laura Davison and David Ingold, Bloomberg ($). Don’t expect an immediate increase in audits. Hiring and training must happen first. 

Also, the agency has a slew of employees about to retire who need to be replaced and many of them aren't auditors.

Still, some hires will add to the roster:

The IRS hasn’t yet said how many positions it plans to add, but indications are expected in the coming months. Representative Bill Pascrell , a senior Democrat on the House Ways and Means Committee, has asked for details by the end of August about how the IRS plans to spend the money. More broadly, Treasury Secretary Janet Yellen has directed the agency to come up with a strategic plan by mid-February.

Even after the IRS gets new employees in the door, it takes time to get them trained to handle the complicated tax returns of high earners that Yellen says will be the focus of new audit teams. The IRS’s output may even diminish in the next few years as the agency taps its best employees to train newcomers, says [Mark] Everson [who served as IRS commissioner under President George W. Bush], now the vice chairman of tax advisory firm Alliantgroup.

Once the hiring and training is done, audits on taxpayers earning more than $400,000 a year are expected to increase. These types of auditors DO NOT carry guns, unless you’re a dangerous crook.

‘Enforcement is always seen as ‘the taxman is coming for you,’ but it doesn’t necessarily need to have a negative connotation,’ …says [JK Aier, a senior associate dean at the George Mason University School of Business]. ‘Enforcement is essentially making sure that whatever Congress has in terms of tax policy is being implemented with integrity and with some level of fairness across all taxpayers.’


Inflation Reduction Act Could Boost Tax Insurance Popularity – Daniel Tay, Law360 Tax Authority ($). “Concerns that the Inflation Reduction Act's funding boost to the Internal Revenue Service could lead to more audits may spur new interest in tax insurance, an increasingly popular product for mitigating the risk of challenges by taxing authorities.”


TIGTA: IRS Continues to Struggle With Collection Date Errors – Alexander Rifaat, Tax Notes ($):

Approximately 1 in 5 collection due process cases handled by the IRS Independent Office of Appeals has an incorrect collection statute expiration date (CSED), a new report says.

The Treasury Inspector General for Tax Administration found that the IRS was given either more or less time to collect delinquent taxes after an audit report identified CSED posting errors in 18 taxpayer cases from a sample of 91.


Union Asks IRS for Review of Security at Agency Facilities – Naomi Jagoda, Bloomberg ($). “The National Treasury Employees Union is asking the IRS to conduct a comprehensive assessment of security measures at agency facilities, in light of 'recent dangerous and false rhetoric' from politicians about the agency.”

‘NTEU and our members are increasingly worried about their safety, and we ask that you immediately take steps to enhance security at IRS facilities and take measures to minimize placing employees in settings where they are at risk,’ NTEU National President Tony Reardon said in a letter Saturday to IRS Commissioner Chuck Rettig.


FASB proposes tax credit investment standard – Michael Cohn, Accounting Today. “The Financial Accounting Standards Board released a proposed accounting standards update Monday that aims to improve the accounting and disclosures for investments in tax credit structures.”


Supporters of Premium Tax Credit Extension Still Hope for More – Caitlin Mullaney, Tax Notes ($). “A three-year extension of expanded Affordable Care Act premium tax credits recently signed into law is drawing praise, but supporters say that extending them further would have been even better.”

‘It would have been better if it had been for a longer duration or even permanent,’ Sarah Lueck of the Center on Budget and Policy Priorities told Tax Notes.

Says every proponent of every tax extender.


A Tax Credit Was Meant to Help Marginalized Workers Get Permanent Jobs. Instead It’s Subsidizing Temp Work. – Emily Corwin, ProPublica:

When Congress passed the Work Opportunity Tax Credit to encourage businesses to hire and retain marginalized workers, lawmakers made it clear that the credit should be used for permanent employment…

ProPublica analyzed data from nine states’ WOTC applications and found that nearly a quarter of the jobs certified for the tax credit between 2018 and 2020 were with temp agencies. The numbers become even more striking when the analysis is limited to one eligible group — workers with felony records. Thirteen of the top 14 employers certified to get credits for those workers were temp agencies.

In addition, some of the credit’s biggest beneficiaries are temp agencies with long records of labor violations.


Trump Urges DC Circ. To Void House Financial Doc Subpoena – Theresa Schliep, Law360 Tax Authority ($). “The D.C. Circuit should completely void a House subpoena seeking former President Donald Trump's financial documents, he told the appeals court Monday, arguing its earlier decision partially approving of the subpoena ‘tilts the institutional balance of power in Congress' favor.’”

Trump’s Attempts to Reverse Return Ruling Are Futile, W&M Says – Mary Katherine Browne, Tax Notes ($):

The House Ways and Means Committee has reiterated its request for the immediate issuance of former President Trump’s tax returns, stating that his opposition is ‘premised on mischaracterization’ and that there is ‘no reasonable prospect’ for rehearing or Supreme Court review. 

‘There are compelling reasons to issue the mandate now, subject to a possible delay of ten days to allow for Supreme Court action, rather than to withhold issuance of the mandate until after disposition of the rehearing petition or a certiorari petition (if filed),’ the committee stated in an August 22 reply filing in Committee on Ways and Means v. Treasury.

Asking the D.C. Circuit to dismiss Trump’s cross-motion to extend a stay order to keep Treasury from handing over his tax returns, the House told the court its motion wasn’t improper, there was a compelling interest in its having the documents to complete its legislative work, and continuing to withhold the mandate for a rehearing or certiorari is unwarranted.


Appellate Court Won’t Quash IRS Summons in Indian Treaty Case – Andrew Velarde, Tax Notes ($). “A U.S. appellate court has refused to quash a third-party bank summons issued by the IRS at the request of foreign tax authorities against a taxpayer who had alleged political harassment by the Indian government.”


IRS Improperly Denied Multimillion-Dollar Easement Tax Break - Aysha Bagchi, Bloomberg ($). “A $17.5 million tax deduction tied to a conservation land deal was too large, but it was also inappropriately denied in full based on an invalid regulation, a federal appeals court ruled Monday.”


Corporation Cannot Challenge Penalties Against Partnership – Tax Notes:

The Tax Court, granting the IRS summary judgment, held that a corporation was precluded from challenging under section 6751 penalties arising out of a now-final partnership proceeding because compliance with the statute must be raised in a partnership-level proceeding rather than a partner’s subsequent collection proceeding.


Medtronic II’s Unspecified Method Begs Specific Questions – Alexander Peter, Tax Notes ($). “The use of a new, unspecified method in Medtronic II has observers puzzled about whether the court applied the right transfer pricing solution to the profit allocation issue of the case.”


No Stay for Delaware During Microcaptive Inquiry Appeal – Nathan Richman, Tax Notes ($). “A federal magistrate judge recommended against staying the district court’s decision enforcing a summons for information on microcaptive insurance arrangements while the case is at the Third Circuit.”


Ariz. Justices Explain Why Flat Tax Plan Shielded From Voters – Jaqueline McCool, Law360 Tax Authority ($). “A flat tax measure signed by the Arizona governor in 2021 is not subject to a voter referendum because it supports and maintains an existing state department, the state Supreme Court said in an order expanding on a previous ruling.”


Missouri Governor Calls Special Session on Tax Cuts, Ag Credits - Angélica Serrano-Román, Bloomberg ($):

Missouri lawmakers will consider a proposal to provide permanent income tax relief and extend agricultural tax credits after Gov. Mike Parson called a special session Monday.

Under the package, the top personal income tax rate would drop to 4.8% from 5.3%. The current standard individual deduction would increase by $2,000, and the standard deduction for married people filing jointly would increase by $4,000.

'Every Missourian will earn their first $16,000 tax free and married joint filers will earn their first $32,000 tax free, resulting in significant savings for millions of Missourians,' the Republican governor said in a statement.


New York enhances SALT cap workaround for pass-throughs – Michael Cohn, Accounting Today. “New York State is expanding a tax break that allows smaller companies to circumvent the $10,000 limit on state and local tax deductions from the 2017 Tax Cuts and Jobs Act, similar to a workaround also being permitted in some other high-tax states.”


Tech Layoffs Hit California Revenue With 12% July Shortfall - Romy Varghese, Bloomberg ($). “California collected 12% less in revenue than it expected in July, indicating that state coffers are taking a hit from a slowing economy and a cooldown in the once-booming technology industry.”


Business Calls for Focus on Ending Digital Taxes in Global Deal – Isabel Gottlieb and Colin Wilhelm, Bloomberg ($):

The global tax deal’s promise to withdraw digital taxes is a major draw for companies, and should be a priority in the negotiations, businesses told the OECD.

But those same businesses remain skeptical that the current proposed framework will reduce complexity enough to be worthwhile, the Business Roundtable, a U.S. advocacy organization, warned in a letter to the OECD.


Patent Box Regimes in Europe – Daniel Bunn, Tax Foundation. “Patent box regimes (also referred to as intellectual property, or IP, regimes) provide lower effective tax rates on income derived from IP. Most commonly, eligible types of IP are patents and software copyrights. Depending on the patent box regime, income derived from IP can include royalties, licensing fees, gains on the sale of IP, sales of goods and services incorporating IP, and patent infringement damage awards.”

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Happy National Ride the Wind Day! Or ‘Take Off” as Bob and Doug McKenzie would say (which doesn't refer to flight). 

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