Tax News & Views One Job Roundup

September 30, 2022

Senate Approves Stopgap Bill to Fund Government, Provide More Ukraine Aid – Katy Stech Ferek, Wall Street Journal ($):

The Senate approved legislation to keep the federal government operating until mid-December [Dec. 16] as well as fund new aid for Ukraine.

The legislation, which passed 72-25, would prevent a partial government shutdown after the current fiscal year expires Friday night.

Congress does a lot of things, but it only has one, real job: Fund the federal government. Recently, they have either missed this deadline or met it just before the buzzer buzzed. Unlike professional athletes, who seemingly do their one job with ease and grace, lawmakers toil and fumble their way to the finish line - showing every ounce of sweat and struggle as they do their one job. 

The House is very likely to approve the same legislation today and President Biden will sign the measure into law before midnight. If not, the federal government will suffer a partial shutdown. 

The passage of this bill means lawmakers will likely scamper out of Washington to turbo-charge their re-election bids. It also means that Congress will not pass a tax bill before the election. Lawmakers’ next opportunity to pass tax legislation will be after the elections, but it is unclear if that will happen. Providing storm relief or election reform could take priority post-election (granted, the 2022 election will be over by then but hard feeling about its results could prompt legislative action):

Punchbowl News ($):

Lawmakers are already talking about a fresh round of aid for Florida and Puerto Rico following the deadly hurricanes there, but that will have to wait until after the elections.

Further down the article:

The Senate’s bipartisan election reform bill continues to pick up sponsors from both sides of the aisle. Thirty-two senators are now sponsoring the bill, penned by Sens. Susan Collins (R-Maine) and Joe Manchin(D-W.Va.).


The current thinking is that retirement legislation has a better chance of passing Congress in the lame duck session than a tax extender bill:

Retirement Bill Negotiations Progressing, but Hurdles Remain – Doug Sword, Tax Notes ($):

A desire for further expansion of a proposed refundable savers tax credit and opposition to a conservation-easement-related pay-for are among the handful of issues remaining in retirement legislation negotiations, according to a key senator.

‘We’ve isolated half a dozen or so issues; I think they’re all resolvable,’ Senate Finance Committee member Benjamin L. Cardin, D-Md., said September 29.


Wyden Probe Shines Light On Private Placement Insurance – Kat Lucero, Law360 Tax Authority ($). “The top Senate tax writer's investigation into private placement life insurance is bringing scrutiny to a once-obscure estate planning tool for wealthy families that some tax and finance practitioners see as a potentially abusive method for tax evasion.”

Further down the article:

To address the potential abuse, lawmakers are considering legislative changes to ‘stepped-up basis’ rules that effectively lower the capital gains tax on assets passed on to heirs, as suggested in Wyden's letters of inquiry sent to three insurers in August and September.

Modifying step-up has been tried before and failed. A common concern with enacting such policy is that it will initially target "the rich" but as years pass its reach will broaden and affect everyone. There is a saying in Congress for this concern: "The camel's nose is under the tent." Meaning: Once the nose is under the tent eventually the entire camel will be under it. Translation: A law affecting the few will eventually affect all.


FinCEN Issues Final Rule for Beneficial Ownership Reporting to Support Law Enforcement Efforts, Counter Illicit Finance, and Increase Transparency – Treasury Department:

[T]he U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) took a historic step in support of U.S. government efforts to crack down on illicit finance and enhance transparency by issuing a final rule establishing a beneficial ownership information reporting requirement, pursuant to the bipartisan Corporate Transparency Act…

More from the press release:

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information. FinCEN is committed to implementing these statutory obligations in a robust manner while minimizing burdens on reporting companies.

The final rule is here.

The fact sheet is here.

Treasury Issues Final Rule on Disclosing Beneficial Owners - Michael Rapoport, Bloomberg ($):

Under the new rule…companies would have to disclose the identities of and other information about their ‘beneficial owners’—anyone who owns at least 25% of the company or exerts significant authority over it. The new disclosure requirements were mandated under the 2021 Corporate Transparency Act.

The companies would have to provide Treasury’s Financial Crimes Enforcement Network, or FinCEN, with the beneficial owners’ names, addresses, dates of birth, and ‘unique identifying numbers’ from an ID document like a passport or driver’s license.

That information would go into a registry that would then be available to federal agencies and law-enforcement officials at other levels of government, senior Treasury officials said. The registry will not be public.

What is a 'beneficial owner' you ask?

Final Transparency Regs Modify Company Applicant Rules – Andrew Velarde, Tax Notes ($):

A beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of the company.

Compliance cost issues:

Treasury Rule Forces Companies to Disclose Beneficial Owners - Michael Rapoport, Bloomberg ($):

The new filings 'will have obvious increased compliance burdens on companies,' said Ian Herbert, an attorney with Miller & Chevalier. ‘There will be some increased costs that come with creating that database.’

Some companies aren’t yet aware of the need for increased disclosure. ‘Most companies don’t have a clue as to the additional disclosures and paperwork this act will require,’ said Bruce Ely, a tax partner with Bradley Arant Boult Cummings LLP in Birmingham, Ala.

The federal government does not have a good track record when it comes to projecting compliance costs. Complying with Section 404 in the Sarbanes Oxley Act wasn't supposed to break the bank. But it did for several companies. 


The initial prediction by the SEC was an average cost of $91,000 for public companies complying with Section 404(a)...


FEI [Financial Executives International] found [in a 2005 study] that the average first year expenditure [for complying with Section 404] was $4.36 million, including $1.34 million in internal costs; $1.30 million in audit fees and $1.72 million in external costs (consulting and software).

Cost expectations for complying with beneficial owner regs:

Final Transparency Regs Offer Businesses a Few Breaks – Andrew Velarde, Tax Notes ($). “Long-awaited Treasury final rules on beneficial ownership reporting largely track with earlier proposed regs but include several changes to provisions, including those regarding company applicants and the timing of reports, that could be welcomed by businesses.”

Further down the article:

The senior Treasury official said the government expects most reporting companies to have simple management and ownership structures with only one or two beneficial owners. The rules should cost those companies only about $85 each to prepare and submit an initial beneficial ownership report. The official compared that with the state formation fee for LLCs, which ranges from $40 to $500. Given the large number of reporting companies, even at only $85 each, the aggregate cost will be $21.7 billion in the first year, the preamble notes.

‘For these [simple] companies, we believe that the reporting requirements will be straightforward and less burdensome than for businesses with more complex structures,’ the official said.


Don’t Want Biden’s Student Loan Forgiveness? You Can Opt Out - Ella Ceron, Bloomberg ($). “Any student debt holders who, for whatever reason, don’t want their student loans automatically forgiven can opt out of the Biden administration’s plan, the Justice Department confirmed in a legal filing on Wednesday.”

Biden administration scales back student loan forgiveness plan as states sue – Katie Lobosco, CNN:

The Biden administration scaled back eligibility for its student loan forgiveness plan Thursday, the same day six Republican-led states sued President Joe Biden in an effort to block his student loan forgiveness plan from taking effect.

Borrowers whose federal student loans are guaranteed by the government but held by private lenders will now be excluded from receiving debt relief. Around 770,000 people will be affected by the change, according to an administration official.


Trouble With Telework? Lawmakers Target IRS’s Home Offices – Jonathan Curry, Tax Notes ($):

Some lawmakers want to see butts in seats at the IRS’s offices, but advocates for the agency say that would be enormously counterproductive.

Over the past year, several Republican legislators — and a few Democrats — have made it clear that it’s not enough for federal agency employees to return to work: They need to return to the office.

House Ways and Means Committee ranking member Kevin Brady, R-Texas, pinned some of the blame for the IRS’s abysmal levels of phone service and its paper processing backlog on agency employees not being in the office. ‘I think it’s incumbent on all the agencies to get their people back in and up their game,’ he recently told Tax Notes.


Final ‘Family Glitch’ Fix Regulations on the Horizon – Caitlin Mullaney, Tax Notes ($). “The IRS hopes to issue final regulations that would provide employees and their families greater access to Affordable Care Act premium tax credits soon, according to an agency official.”


Florida Victims of Hurricane Ian Qualify for Tax Relief – Bloomberg ($). “The IRS announced Thursday that victims of Hurricane Ian in Florida have until Feb. 15, 2023 to file federal individual and business tax returns and make tax payments.”


Cannabis Tax Revenue Is Down In Some States—And Maybe That’s Okay– Richard Auxier, Tax Policy Center. “After years of growth, some states saw cannabis tax collections decline for the first time in fiscal year 2022. But, while politicians occasionally promote marijuana taxes merely as a cash cow for state and local governments, the real story is more complicated. And those revenue declines may even suggest policy success.”

Still, cannabis tax collections are a cash cow:

state marijuana tax revenue 2022


Missouri Lawmakers Approve Income Tax Cut Bills – Michael Nunes, Law360 Tax Authority ($). “The Missouri House of Representatives in a vote Thursday sent bills to the governor that would lower the top income tax bracket and eliminate the bottom bracket.”


Calif. Will Defer Property Taxes For Some Prop. 19 Claimants – Maria Koklanaris, Law360 Tax Authority ($). “California will defer property taxes for Proposition 19 claimants who have transferred the tax base of their home to a replacement home until the new property can be reassessed under a bill signed by Democratic Gov. Gavin Newsom.”

Calif. Allows Change To Pass-Through Entity Net Payable Tax – Zak Kostro, Law360 Tax Authority ($). “California will increase the net payable tax under the personal income tax for pass-through entity electors by the amount of a pass-through entity tax credit allowed for that year under a bill signed by Gov. Gavin Newsom.”


MoneyGram Millions Have States Duking It Out at Supreme Court – Perry Cooper, Bloomberg ($):

Delaware is butting heads with 30 other states about which are the rightful recipients of potentially hundreds of millions of dollars in unclaimed money sent through Delaware-based MoneyGram, the second-largest money transfer company in the world.

Further down the article:

All states have a tax revenue interest in collecting unclaimed funds from business within their borders, but Delaware is unique. The state has an advantage because numerous businesses in addition to MoneyGram are based there—more than two-thirds of the Fortune 500 have chosen Delaware as their legal home, according to the state’s office of corporate records. The state thus relies more heavily than others on proceeds from unclaimed property—it’s the state’s third-largest single revenue source and accounted for $448.6 million of its $5.4 billion in 2021 revenue.


Arizona Expediting Move to Flat Tax After ‘Record Surplus’ - Brenna Goth, Bloomberg ($):

Arizona will implement a lower flat income tax rate in 2023, ahead of schedule, because it has higher than expected revenues, Gov. Doug Ducey (R) said Thursday.

Ducey ordered Jan. 1 enactment of a 2.5% flat income tax rate that was designed to be phased in over three years based on specific revenue targets, according to a letter to the Arizona Department of Revenue citing a 'record surplus.' A law Ducey signed in 2021, touted as the biggest tax cut in state history, reduced income tax rates that now range from 2.59% to 4.5%.


Democrats Urge Treasury Not to Dilute Corporate AMT Regs – Lauren Loricchio, Tax Notes ($):

Democrats are pressing Treasury Secretary Janet Yellen to develop regulations for the corporate alternative minimum tax so that corporations can’t avoid paying it.

Treasury should stand firm against requests ‘to dilute the regulations in such a way as to undermine the clear intent of the law,’ Senate Finance Committee members Elizabeth Warren, D-Mass., and Michael F. Bennet, D-Colo., along with Rep. Donald S. Beyer Jr., D-Va., and Sen. Angus S. King Jr., I-Maine, said in a September 28 letter to Yellen.


Barrasso Introduces Book Tax Repeal Bill- Alex Clearfield, Bloomberg ($). “Sen. John Barrasso (R-Wyo.) introduced a bill Thursday to repeal the corporate alternative minimum tax established as part of last month’s reconciliation law.”

‘The book minimum tax is another reckless power grab by the Democrats to squeeze hardworking Americans dry,’ Barrasso said in a statement. ‘Policies like this only raise taxes on workers and consumers, resulting in wage cuts and jobs moving overseas. We need to repeal this unfair tax to ensure companies are investing in America, creating more American jobs, and unleashing American energy.’

The bill is here.

This bill will not pass in the current Congress. That being said, repealing tax increases will be a recurring theme in the next Congress if Republicans sweep the elections and gain the majority in both houses. Current projections, however, say Congress will likely be politically divided, with one party expected to be the majority in one chamber and the other party the majority in the other chamber.


From the "Accidental American" file:

Overseas Americans Caught in IRS Net to Appeal Court Loss - Rick Mitchell, Bloomberg ($):

An advocacy group representing dual citizens snared by American tax laws because they were born in the US or to American parents vowed to appeal Thursday after a US court dismissed their lawsuit.

The suit, filed Nov. 8, 2021 by the Association of Accidental Americans and individual plaintiffs, challenged the US Department of State’s suspension and delay of services for US citizens seeking to renounce their citizenship because of the pandemic. By US law, those born on US soil have American citizenship, as do many born to US parents overseas—even if they have no other connection to the country.

The US District Court, District of Columbia on Wednesday rejected the plaintiffs’ argument that the government must allow citizens to renounce their citizenship quickly, although it acknowledged that they do have a right to renounce. The court concluded that the government had not acted unreasonably in delaying renunciation services during the pandemic.


It’s National Voter Registration Day! Get out and VOTE, err, I mean, REGISTER!

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