Tax News & Views Lame Duck Giant Steps Roundup

Expanded Child Tax Credit Could Derail Lame-Duck Tax Bill - Chandra Wallace, Tax Notes ($):

“To the extent that the price of entry, the cover charge of doing something at year-end, is a significant child tax credit piece, that’s going to be a significant political hurdle,” Rohit Kumar of PwC said September 22 during a webcast hosted by the Urban-Brookings Tax Policy Center.

If, as seems most likely in Kumar’s view, Republicans win control of the House in November, it is possible that Democrats’ commitment to the credit could scuttle any lame-duck tax bill, even one that includes two popular measures with significant bipartisan support: retirement security and full research and development expensing.

Expired and expiring tax provisions that may affect 2022 federal income tax returns - Wolters Kluwer Tax & Accounting. "One of the most dramatic changes that occurs for the 2022 tax year without any legislative change is the deduction of research and experimentation (R&E) expenses."

House GOP Unveils Tax and Other Proposals for 2023 - Doug Sword, Tax Notes ($). "Extending individual income tax rates, bonus depreciation, the 20 percent qualified business income deduction, and a $2,000 child tax credit are key features in the newly released House Republican 'Commitment to America' agenda."

Out-of-State Businesses Tax Plan Indefinitely Halted in Oregon - Michael Bologna, Bloomberg ($):

An Oregon Department of Revenue initiative expanding the reach of the corporate income tax to potentially thousands of out-of-state businesses based on their internet activities is on ice following objections from business taxpayers, the agency said Thursday.

The department, in a recent letter to members of a rules committee, said its project to adopt a disputed interpretation of Public Law 86-272 is “on hold,” but the agency may “resume work at some future time.” Oregon was one of several states considering adoption of a 2021 statement by the Multistate Tax Commission that contends remote businesses interacting with customers through a website or app are engaging in a business activity within the customer’s state, and would likely lose protection from state taxation.

The Multistate Tax Commission, a compact of state revenue administrators, has long sought to narrow the PL 82-272 restrictions on income taxation of nonresidents. Expect more battles as states try to take advantage of the commission's controversial interpretation of the scope of state taxing authority. 

Related: Is it War? 

Colorado Now Accepts Cryptocurrency for Tax Payments - Emily Hollingsworth, Tax Notes ($). "DOR spokesman Daniel Carr told Tax Notes September 21 that the DOR can accept bitcoin, bitcoin cash, ethereum, and litecoin for tax payments through its vendor relationship with PayPal’s Cryptocurrencies Hub. He added that Coloradans can use cryptocurrency for all state tax payments, including for individual income, business income, sales and use, withholding, severance, marijuana, and excise fuel taxes."

A peculiar feature of such payments is that they will themselves be taxable events under IRS guidance. The tax law treats crypocurrency as property, rather than cash, so using it in a transaction is a taxable asset sale. 

Related: New Tax Guidance Issued on Cryptocurrency Transactions.

Pittsburgh ‘Jock Tax’ Violates State Constitution, Court Rules - Aysha Bagchi, Bloomberg ($). "The fee at issue—a Non-Resident Sports Facility Usage Fee—charged non-Pittsburgh residents who used the city’s sports venues 3% of the income they earned in Pittsburgh. Players from Major League Baseball, the National Hockey League, and the National Football League sued the city, alleging the fee violated both the Pennsylvania Constitution and the US Constitution."

Missouri Special Session Tax Cut Legislation Passes Senate - Paul Jones, Tax Notes ($).  "Special session bill number S.B. 3, referred to as SS/SCS/SB 3 & 5, contains a compromise tax cut proposal that would reduce the state’s top income tax rate — which is 5.3 percent for the current year — to 4.95 percent in 2023. If state revenues meet or surpass specified thresholds, another cut to the top rate would be triggered, reducing it to 4.8 percent by as early as 2024. The bill also sets up future reductions to the top rate, allowing it to be reduced by 0.1 percentage point each year in which specified state revenue thresholds are met, until the rate is 4.5 percent, potentially as early as 2027."

Check Yourself - Alex Parker, Things of Caesar ($):

Rumors and speculation are swirling in tax circles that the U.S. Treasury Department may soon issue regulations changing the “check-the-box” rules, the Clinton-era entity classification regime often blamed for the rise of extravagant overseas tax avoidance structures. The move could be used to push the international tax regime, including the tax on global intangible low-taxed income, closer to the model promoted by the Organization for Economic Cooperation and Development for the 15% global minimum tax.

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If Treasury really does move forward with new check-the-box rules, it could be one of the department’s boldest moves in decades. And one of the riskiest.

Depending on how this might be done, this could be a tax planning nightmare.

U.K.’s Sweeping Tax Cuts Send Pound Tumbling, Bond Yields Higher - Max Cochester, Anna Hirtenstein, and David Luhnow, Wall Street Journal. "In one of the largest shifts in British economic policy in decades, U.K. Chancellor of the Exchequer Kwasi Kwarteng said the government would cut payroll taxes, freeze corporation tax, ditch a cap on banker bonuses and spend billions to subsidize energy bills over the next two years."

UK slashes personal, corporate taxes in bid to spur growth - Danica Kirka, Jill Lawless and Sylvia Hui, AP Via Washington Post. "But Treasury chief Kwasi Kwarteng offered few details on the cost of the program and its impact on the government’s own targets for reducing deficits and borrowing... He also said the government would cut the basic rate of income tax to 19% next year, from the current 20%. The top rate will drop to 40% from 45%. He also canceled a planned six percentage point increase in the corporate tax rate, leaving it at 19%."

Mini-budget 2022: Corporate Tax cuts to boost UK growth - Mark Pashley, Mercer & Hole. "The Annual Investment Allowance offering 100% tax relief for qualifying investments in plant and machinery, currently set at £1m, was due to fall to £200,000 from April 2023. However, it is now proposed that the allowance will remain at £1m and will become a permanent relief at that level."

Many Corporations Besides AMT Payers Could Face Compliance Costs - Andrew Velarde, Tax Notes ($):

But even companies not legally liable for the tax could incur significant compliance costs, said McLeish, who spoke on a September 22 webcast sponsored by Tax Analysts. To focus just on companies that have to pay the tax “misses the mark,” he added.

“There are potentially five or 10 times as many companies that will have to still develop and implement the systems and processes to gather the requisite data and apply the rules — once we know what the rules are — and undertake this annual analysis just to determine . . . if they’re in or they’re out,” McLeish said, adding that it isn’t clear whether taxpayers that are initially caught by the tax would remain so. “It is probably deceptively underinclusive to just say that this is only going to affect 150 companies because it's clearly not, and there’s potentially thousands of companies that are going to incur the . . . deadweight loss of spending just to substantiate they are not subject to the tax.”

Reminder: File 2019 and 2020 returns by Sept. 30 to get COVID penalty relief - IRS. "The relief, announced last month, applies to the failure-to-file penalty. The penalty is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36, posted on IRS.gov."

File 2019, 2020 tax returns by Sept. 30 to avoid IRS penalty - Kay Bell, Don't Mess With Taxes. "Note, too, that this special COVID-related penalty relief applies only to the failure to file, or late-filing, penalty. The failure-to-pay penalty and interest will still apply to unpaid tax. That amount is based on the return's original due date."

Squaring Off Between Carbon Taxes and Renewable Energy Incentives - Nana Ama Sarfo, Tax Notes. "The IRA is essentially a giant stimulus for clean energy technology and production in the United States. On the carbon capture side, the law dramatically increases the section 45Q tax credit for various forms of carbon capture, use, and sequestration projects. For example, the credit for carbon capture and storage from industrial and power generation facilities has increased from $50 per metric ton to $85. For direct air carbon capture and storage, the credit more than tripled, from $50 to $180 per metric ton."

Related: Opportunities with the Section 45Q Carbon Oxide Sequestration Credit

How to Be IRS Commissioner, According to Those Who Had the Job - Kelly Phillips Erb, Bloomberg. "[Former IRS Commissioner Charles] Rossotti noted that the current administration staked a tremendous amount on getting additional funding to improve the IRS. It’s an excellent opportunity to improve the agency, but if the administration doesn’t get the nomination right, it could risk a massive setback. Without a leader, he said, it simply won’t work."

Harvard Professor's Conviction for Filing False Tax Returns and FBAR Violations Upheld - Parker Tax Pro Library. "A district court denied a motion for judgment of acquittal or alternatively, for a new trial, filed by a former Harvard chemistry professor who was convicted by a jury of making false statements to the U.S. government, filing false tax returns, and failing to file a Report of Foreign Bank and Financial Accounts (FBAR) in connection with his contractual relationship with a Chinese university and his participation in a Chinese talent recruitment plan."

Four Things to Know About the New Excise Tax on Stock Buybacks - Robert Goulder, Tax Notes Opinions. "What you do is you look at the last calendar year and you figure out how much money did the company spend on its buybacks. Then you deduct how many new shares of stock it issued to either the public or employees. This gives you a concept called its "net repurchases." You then multiply that times the excise tax rate, which I said is just 1 percent, and that gets you your tax liability."

What Can Happen if Your Streamlined Submission Goes Belly-Up? (Part I) - Virginia La Torre Jeker, Virginia - US Tax Talk. "The IRS Streamlined Procedure, whether the Streamlined Foreign Offshore Procedure (SFOP) or the Streamlined Domestic Offshore Procedure (SDOP) of 2014 is still available for taxpayers, but the Internal Revenue Service (IRS) is apparently closely policing those who enter the program. The IRS is now very carefully vetting the cases coming in. A hallmark of the Procedure is that the tax compliance failures must be the result of 'non-willful' conduct and very detailed factual statements (see FAQ 6) must be provided under penalty of perjury explaining the reasons for any compliance failures."

Related: Eide Bailly Offshore Voluntary Disclosure.

How The House Is About To Make Social Security’s Finances Worse - Eugene Steuerle, TaxVox. "The Social Security Fairness Act, with 301 cosponsors, would increase benefits for retirees who didn’t pay Social Security taxes for part of their working lives. They mostly are former government workers who participated in state and local pension plans."

GOP Calls Warnock’s Parsonage Benefit A Tax Dodge. It Used To Defend It. - Peter Reilly, Forbes. "When the 7th Circuit was considering the constitutionality of the income tax exclusion for cash housing allowances for clergy, 17 members of Congress — all Republicans — signed an amicus brief from the First Liberty Institute, defending the tax benefit. Thus it seems odd that the NRSC would characterize the 'parsonage exclusion' as a 'tax dodge' when it benefits a senator who is also the senior pastor of one of the most historically significant churches in the nation."

Georgia Pastor Sentenced For COVID-19 Relief Fraud - Lauren Castle, Law360 Tax Authority ($, Defendant name omitted):

A Georgia man with several careers, including as a pastor and tax preparer, was sentenced on Tuesday to over two years in prison, after pleading guilty to making false statements to receive COVID-19 relief loans and buying a Mercedes with the money.

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Defendant considered himself to be a pastor, mortician, restaurateur and tax preparer. In a sentencing memorandum and request for downward variance filed on Sept. 16, Defendant claimed that he applied for the loans as a way to obtain capital to grow his businesses.

Manna from heaven can have rough side effects.

It all goes together somehow. Today is the First Day of Autumn, National Apple Cider Vinegar Day, and National Great American Pot Pie Day. Or, if you prefer, John Coltrane's Birthday.