Tax News & Views 'No, You're Out of Order!' Roundup

August 31, 2022

First Circuit win lets taxpayer sue IRS – Roger Russell, Accounting Today. “A three-judge panel of the U.S. Court of Appeals for the First Circuit ruled on Aug. 18, 2022, that cryptocurrency holder James Harper can take the Internal Revenue Service to federal court for gathering private financial information about his use of virtual currency from third-party exchanges without a lawful subpoena.”

What went down:

In August 2019, the IRS notified Harper that it possessed information about his virtual currency accounts and transactions and warned him that he could face civil or criminal enforcement actions for inaccurate reporting of the transactions. Since he believed that the IRS had acquired his personal financial records from a digital currency exchange via a third-party summons, Harper sued the IRS for injunctive relief and monetary damages, alleging that the third-party summons process violated his constitutional and statutory rights. The district court concluded that it lacked subject matter jurisdiction over the suit under Code Section 7421, the Anti-Injunction Act.

Worth noting:

The IRS has, until now, successfully prevented federal courts from asserting jurisdiction over a significant constitutional challenge to its data collection practices. 


Court Sides With IRS in Stock Ownership Dispute – Kristen Parillo, Tax Notes ($):

A technology pioneer’s botched sales of restricted stock shares to family members meant that he still owns the stock and that the IRS may seize it to satisfy his $18.3 million tax debt, according to a California federal court.

Because the stock sales were never effectuated, the family members have no grounds to oppose the IRS’s levy on the disputed shares, Judge William H. Orrick of the U.S. District Court for the Northern District of California held in an August 29 order in United States v. Shipley.


NC Justices Hear Conflicting Accounts Of Wayfair's Scope – Maria Koklanaris, Law360 Tax Authority ($):

The North Carolina Supreme Court heard conflicting arguments Tuesday as to whether the U.S. Supreme Court's landmark Wayfair decision means a Wisconsin commercial printing company had sufficient nexus with North Carolina to warrant the imposition of sales tax.

The state high court heard oral arguments in a case in which the printing company, Quad Graphics Inc., maintained that Wayfair does not control because the 2018 decision spoke only to personal nexus, or nexus between the taxpayer and the taxing state. Wayfair, in which the U.S. Supreme Court ruled that states may compel businesses with no physical presence in the state to collect and remit sales and use tax, did not speak to transactional nexus, the company's counsel, Michael Bowen, told the state justices. Transactional nexus is the nexus between the state and the transaction at issue, Bowen said, and North Carolina did not have transactional nexus with Quad.


Okla. High Court Pauses Row Over Pot Legalization Question – Sam Reisman, Law360 Tax Authority ($). “The Oklahoma Supreme Court on Tuesday hit pause on cannabis legalization advocates' efforts to compel state officials to include a legalization question on the ballot this November, saying there was still time for people to file objections to the proposed initiative.”


Peloton Wins Bid To Arbitrate Members' Sales Tax Claims – Gina Kim, Law360 Tax Authority ($). “A New York federal judge on Monday said customers suing Peloton over sales tax charges on its monthly subscription plans in four states that don't include such digital goods in their tax bases must arbitrate their claims after finding that the company had not waived its right to arbitration.”


Court Strikes Down State Law That Gave Millions in Tax Breaks to Casinos – Alison Burdo and Michelle Brunetti Post, (The Press of Atlantic City), ProPublica. “A Superior Court judge in New Jersey has thrown out a state law granting Atlantic City’s casinos tens of millions of dollars in tax breaks, saying that the measure was passed on dubious grounds and violated the state Constitution.”

Further down the article:

At issue in the court case were changes to a local taxing program known as PILOT, or payment in lieu of property taxes. Since 2016, instead of paying property taxes, each casino has paid a share of an industrywide assessment that was distributed to Atlantic City, its school district and the county to fund various operations. The number was calculated based on the prior year’s total gaming revenue. But last year, the industry pressed for and won a key legislative change to that formula, excluding online gaming — a fast-growing sector of its business — from the program. The alteration reduced the gaming companies’ total PILOT liability this year by $55 million — revenue cuts that disproportionately impacted Atlantic City, one of the state’s most distressed cities.


NM Couple Wins Tax Penalty Relief Due To COVID Hardship – Michael Nunes, Law360 Tax Authority ($). “A New Mexico couple who experienced financial hardship due to the COVID-19 pandemic do not have to pay a civil negligence penalty for filing their state income tax after the due date, the state's chief hearing officer said.”


Mississippi, in a Departure, to Tax Forgiven Student Debt - Angélica Serrano-Román, Bloomberg ($):

Several states are moving ahead to exempt residents from being taxed on forgiven student loan debt under President Joe Biden’s relief plan, while Mississippi has decided against the exemption.

New York, Pennsylvania, Kentucky, Virginia, Hawaii, and Idaho are the latest states to exempt their residents that qualify under Biden’s plan from state income tax. Others—Arkansas, California, Massachusetts, and South Carolina—are still reviewing whether debt forgiveness will be subject to taxation.

The canceled debt will be subject to income taxes in Mississippi, the state Department of Revenue confirmed.


IRS Seeks Input On Energy-Efficient Building Deduction Form – Emlyn Cameron, Law360 Tax Authority ($):

The Internal Revenue Service asked for comments Tuesday on a form to be used for claiming deductions on certain energy-efficient buildings.

The IRS said it wanted input on Form 7205, through which deductions for energy-efficient commercial properties will be claimed, as well as notices governing how to certify that a given building qualifies. The agency said the notices, Notice 2006-52 and Notice 2008-40, told software developers how to certify that their programs can be used to determine energy use and told building owners how to certify that their properties are eligible under Internal Revenue Code Section 179D.


IRS Funding Could Revive Flagging Whistleblower Program – David van den Berg, Law360 Tax Authority ($):

Increased funding for the IRS under the recently enacted tax and climate law could be a shot in the arm to the agency's whistleblower program, which is languishing under increased caseloads and insufficient staffing.

Further down the article:

As yet, there are no announced plans for how the funds will be used, but they could be a boon to the agency's whistleblower program. The IRS Whistleblower Office's two most recent annual reports show the time it takes to pay whistleblower awards has increased since 2019, and the dollar amounts of awards issued have fallen. The office also saw a slight drop in its workforce from fiscal 2020 to fiscal 2021, the reports show.

Whistleblower practitioners told Law360 increased funding could add personnel to the Whistleblower Office's ranks and increase the efficiency of its operations. Further, they said, the funding boost could allow the agency to work more cases resulting from whistleblower tips than resource limits have allowed previously.

The word “could” appears six times in these excerpts, including the headline. It seems to be a definite maybe that the funds will go toward whistleblowers.


Trump: Releasing My Tax Returns Right Now Would Subvert My Rights – Mary Katherine Browne, Tax Notes ($). “Former President Trump accuses the House Ways and Means Committee of sidestepping valid arguments that he would face irreparable harm if the D.C. Circuit grants the panel’s motion to immediately turn over his tax returns.”

How we got here:

The Ways and Means Committee’s battle for Trump’s tax returns has continued for more than three years. Committee Chair Richard E. Neal, D-Mass., requested the returns in April 2019, but then-Treasury Secretary Steven Mnuchin refused to comply with the subpoena, arguing that the request was disingenuous in its purpose.

Trump filed cross-claims in August 2021 against the request, arguing that separation of powers still applied and that Congress sought the returns for political reasons.

D.C. District Court Judge Trevor N. McFadden dismissed the cross-claims and counterclaims in December 2021. Trump appealed, and arguments were heard in March.

The D.C. Circuit unanimously affirmed McFadden’s decision August 9, saying the burden placed on a sitting president wasn’t substantial enough to violate separation of powers.


Companies Consider Purchases Ahead of Bonus Depreciation Drop – Erin Slowey, Bloomberg ($):

The bonus depreciation set in the 2017 tax law will start to be phased out in 2023, and companies that are capital intensive are re-evaluating their purchasing plans.

Some companies will take advantage of an immediate write-off of costs associated with the purchase of capital goods, while others won’t change their buying decisions.

Further down the article:

The Tax Foundation found making 100% bonus depreciation permanent would increase economic output by .04%, the capital stock by 0.7%, and employment by 73,000 full-time equivalent jobs, in a study released Tuesday.

The Tax Foundation study is here.


Tax Deal's Shaky Future Leaves Many Nations At Crossroads – Kevin Pinner, Law360 Tax Authority ($):

Ten months after most countries signed on to a massive revamp of the global tax system, stalled adoption of the agreement in the U.S. and Europe has left stakeholders, especially developing countries, questioning how to proceed.

Translating complex ambitions into domestic laws has proven difficult in the U.S., where a recently passed corporate minimum tax bears little resemblance to what was agreed to in Pillar Two of the tax plan led by the Organization for Economic Cooperation and Development. In the European Union, one country has the power to block tax changes agreed to by the other 26, as Hungary did in June with the 15% global minimum tax.


Hat Trick alert:

It’s National Trail Mix Day and National Eat Outside Day! Two celebrations that go great together! And if you celebrate them in the Palmetto State, you can accomplish a Hat Trick because it is also National South Carolina Day

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