Tax News & Views Squares up ERC Mills Roundup

September 21, 2022

Concerns Mount Over Aggressive Employee Retention Credit Firms - Lauren Loricchio, Tax Notes ($):

Edward Karl of the American Society of CPAs told Tax Notes that his organization has heard from members with clients that didn’t qualify for the ERC but that are nonetheless being courted by firms promoting its availability.

“It’s putting the CPAs or other practitioners in a difficult situation because they may have told their clients they didn’t qualify, and then these companies come along and say, ‘Oh yeah, you don’t have anything to lose; we’ll just take a percentage of whatever we can get you,’ and then they’re using very different interpretations of the rules than we think are appropriate,” Karl said.

A $2 trillion fraud with employee retention credits puts financial advisors on edge - Lynnley Browning, Accounting Today:

Larry Pon was driving home from the gym following a workout in Redwood City, California, when the too-good-to-be-true barrage began. He was glued to a local sports radio station, digesting the latest baseball disaster for the San Francisco Giants. But over the course of an hour, he heard four different commercials from four different companies advertising a lucrative tax break for small business owners.

That Sept. 18 wasn't the first time Pon, a certified public accountant, had heard aggressive pitches on the airwaves for the employee retention credit, a multibillion-dollar federal program that's part of roughly $1.7 trillion in pandemic relief for small businesses since 2020. But lately, the come-ons for the ERC seemed increasingly brazen. 

If it's on sports radio, it must be true. Well, no. The last time tax was a big deal on sports radio ads, and late night TV, it involved "pennies on the dollar" tax settlement schemes. Remember TaxMasters? That era went badly for many unfortunate tax settlement customers. It will also go badly for taxpayers who use ERC mills when the government wants its money back.

To find out if you really qualify for the ERC, contact an Eide Bailly professional.


Wyden to Expand Scrutiny of Private Placement Life Insurance - Chandra Wallace, Tax Notes ($):

These arrangements leverage rules created to allow middle-income households to use life insurance as a vehicle to save and to accumulate an investment return on those savings... PPLI arrangements make the most of these rules, allowing investors to put millions of dollars into life insurance “separate accounts” attached to a minimal death benefit on the insured, to invest those funds in hedge funds and other investments not normally available to average retail investors, and to accumulate income on those investments tax free. When the insureds die, the whole appreciated account passes to the designated beneficiaries also tax free.


An analysis of securities filings through August 31 for 183 PPLI separate accounts promoted by Lombard shows that just under 70 percent were held through trusts and LLCs formed in Alaska and South Dakota — states that feature very low insurance premium taxes and increased confidentiality regarding beneficial ownership.

Related: Eide Bailly Wealth Transition Services.


Labor Rules Key To Unlocking 'Bonus' Clean Energy Credits - Kat Lucero, Law360 Tax Authority ($):

To claim the bonus rate — 30% for the investment credit or 1.5 cents per kilowatt-hour for the production credit — projects must meet both the prevailing wage and apprenticeship requirements.


Meeting the labor requirements, however, can be challenging for project owners and contractors that aren't accustomed to them. For example, finding apprentices in a DOL-approved program can be difficult during a tight labor market. It can also be challenging to find them in rural areas and other regions of the country that don't have a strong labor union presence.

U.S. Tax Provisions Driving the Fight Against Climate Change - David Stewart and Lauren Collins, Tax Notes Opinions. "Important differences— there's new labor requirements that are in there, and that is novel to this area of the tax code. Another big difference as compared to Build Back Better is some of the monetization techniques such as the direct pay and the transferability."


Making Biz Tax Extenders Permanent Would Cost $600 Billion - Doug Sword, Tax Notes ($):

The Committee for a Responsible Federal Budget said September 20 that the 10-year cost of making permanent the three biggest tax breaks sought by business groups would be $605 billion, an estimate that led a Ways and Means Democrat to suggest that his party’s response would likely be to seek an extension of the child tax credit.

Bringing back the up-to-$3,600-per-child tax credit for one year would cost $185 billion, according to a 2021 estimate, and making it permanent would be well over $1 trillion for 10 years. The credit, which returned to $2,000 per child in 2022, is scheduled to drop to $1,000 in 2026.

Link: CRFB report.


Florida Governor Proposes $1.1 Billion in Tax Relief - Emily Hollingsworth, Tax Notes ($).

  • household items under $25, such as laundry detergent, trash bags, toilet paper, and hand soap ($112.3 million in estimated savings);

  • children’s books for children under 17 ($16.8 million in estimated savings);

  • children’s athletic equipment, such as soccer balls, some roller skates, and footballs ($33 million in estimated savings);

  • children’s toys for children from ages 2-12 ($116 million in estimated savings); and

  • pet food for household pets ($160 million in estimated savings).

Good politics, perhaps. Good tax policy? 


Hurricane Fiona victims in Puerto Rico qualify for tax relief; Oct. 17 deadline, other dates extended to Feb. 15 - IRS:

This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until February 15, 2023, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief.

The February 15, 2023, deadline also applies to quarterly estimated income tax payments due on January 17, 2023, and the quarterly payroll and excise tax returns normally due on October 31, 2022 and January 31, 2023. Businesses with an original or extended due date also have the additional time including, among others, calendar-year corporations whose 2021 extensions run out on October 17, 2022. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on November 15, 2022.

In addition, penalties on payroll and excise tax deposits due after September 17, 2022 and before October 3, 2022, will be abated as long as the deposits are made by October 3, 2022.

Feb. 15, 2023, new tax deadline for hurricane-hit Puerto Rico - Kay Bell, Don't Mess With Taxes. "The Feb. 15 deadline for all Fiona affected Puerto Rican taxpayers puts them essentially on the same tax timeline as taxpayers in Hinds County, Mississippi. Those Magnolia State taxpayers got the extended February due date because of flooding that created a public water supply crisis in the county, home of the state capital of Jackson."


It’s Time to Panic! - Russ Fox, Taxable Talk. "If you file late, it’s as if you never filed your extension. So sit down and get everything done now!"

Taxpayers Must Act Quickly on Relief for Late Filing Penalties - Richard Gano, Bloomberg. "IRS Notice 2022-36 provides relief for certain taxpayers from 'certain failure to file penalties and certain international return (IIR) penalties' with respect to tax returns for taxable year 2019 and 2020. The relief aims to help taxpayers affected by the pandemic and allow the IRS to focus its resources on processing the backlog of returns and taxpayer correspondence in hopes of returning to normal operations for the 2023 filing season... The catch is that the forms must be filed by the date specified in the notice, and some must be filed by Sept. 30, 2022."

AICPA Adds Items to Its Request for Expansion of Notice 2022-36 Relief - Ed Zollars, Current Federal Tax Developments. "The letter also requests that relief for Forms 5471 and 5472 should be expanded to cover the forms when attached to any type of return, not just Forms 1120 or Form 1065."

Settlement Includable in Income; Agreement Failed to Specify if Personal Injuries Were Physical - Parker Tax Pro Library. "The Tax Court held that no part of a legal settlement received by a taxpayer from a company that he worked for was excludable from income because the agreement signed by the parties contained no terms indicating that the payment by the company was made on account of physical injuries or physical sickness."

Lesson From The Tax Court: Checks ... Still Matter - Bryan Camp, TaxProf Blog. "In that case the issue was the value of an investment account on the date of the decedent’s death.  On that date there were 10 checks totaling $436,000 that had been written on the account but had not cleared.  The Executor did not include that amount on the Form 706 because the recipients of the checks had deposited them before the decedent died.  Their accounts had been credited.  They had been paid.  Or so thought the Executor."


Tax Pros and their clients increasingly are identity-theft targets: 5 tips to avoid scams - Mark Friedlich, Wolters Kluwer Tax & Accounting. "Tax pros have been especially vulnerable to spear phishing from individuals posing as potential clients. Thieves might carry on an email conversation with their target for several days before sending the email containing a link or attachment. Meanwhile, the link or attachment may secretly download software onto tax pros' computers, giving the thieves remote access to their systems."

Complexities in Modified Energy Credits - Refueling Property As Example - Annette Nellen, 21st Century Taxation. "There are some changes that are complex to understand. For example, qualified alternative fuel vehicle refueling property will have to be located in eligible census tracts (see §30C(c)(3)). This requirement says property is only eligible if 'placed in service' in an eligible census tract. Usually 'placed in service' refers to depreciable property, but the description doesn't say this requirement is only for depreciable property so likely applies to all such refueling property."


A Tariff Is a Tax - David Henderson, Econlog. "When I did the research for this short piece, I was stunned by the fact that tariff rates on U.S. imports from China increased from 3.1 percent to 21 percent."

How the Section 232 Tariffs on Steel and Aluminum Harmed the Economy - Alex Durante, Tax Foundation. "The jobs 'saved' in the steel-producing industries from the tariffs came at a high cost to consumers, at roughly $650,000 per job saved according to the Peterson Institute for International Economics."


Two Retired Accountants Toured The U.S. In An RV And It Cost $209 Per Night - Peter Reilly, Forbes ($).  "To tell you the truth, I was kind of shocked by the more than $200 per night that it ended up costing us. Then I compare it to what that much travel would have cost with Road Scholar, and it is not so bad."

Leave it to two retired accountants to break out the cost by category and per day. 


Private Eye gets new 9-month assignment. From an IRS press release (Defendant name omitted):

Defendant, of Clarksville, Indiana, was sentenced to nine months in federal prison after pleading guilty to subscribing to a false federal income tax return.

According to court documents, Defendant operated a private investigation business in Clarksville. From 2015 to 2019, Defendant hid his income from the IRS by cashing 186 business income related checks, at a Clarksville check cashing business, rather than depositing the checks into a bank account. The check cashing business charged Defendant a fee of up to 10% to cash each check. During 2018 and 2019, Defendant cashed checks weekly that were typically over $25,000 and often over $50,000.

There was a significant discrepancy between the amount of the checks received and cashed by Defendant and what he reported as income on his federal income tax returns for 2015 through 2019.

Worst of all, he's out the 10% check cashing fee, and he still has to pay his taxes. 


Fore! Oops, wrong game. Today is Miniature Golf Day! "It was originally created in Victorian Scotland to allow women to play golf because, at the time, it was considered unladylike for women to raise a golf club above their shoulder level."

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