Tax Update Blog

Tax News & Views Crypto and Coffee Roundup

January 18, 2023 | Blog
By Joe Kristan, CPA

No Loss Deduction for Decline in Crypto Values - Chandra Wallace, Tax Notes ($):

Cryptocurrency that continues to trade on an exchange — even if just for a fraction of a penny per unit — isn’t worthless for purposes of triggering a deductible loss, the IRS advised.

In non-taxpayer-specific advice (ILM 202302011) released January 13, the IRS advised that a taxpayer who continues to hold cryptocurrency despite a significant decline in its value, and has taken no steps to abandon it, hasn’t suffered a loss for which a deduction can be claimed under section 165.

Not a big surprise.

 

Tax season 2023: Smaller refunds, higher audit rates, jarring capital-gains bills - Lynnley Browning, Accounting Today

Many mutual funds started 2022 flush with appreciated assets from the longest bull market in history (since 2009). As markets tumbled last year, many fund managers sold winning holdings in a fund to meet redemptions from nervous investors who wanted their money back. 

The sales produced a capital gains tax bill that was then parceled out to existing fundholders. The ugly upshot is that an investor with a losing mutual fund could still face a tax bill on that same fund. 

Don't worry, there are always crypto losses. Oh, wait...

 

GAO Urges IRS To Put Referral Info In 'Dirty Dozen' Postings - Emlyn Cameron, Law360 Tax Authority. "The Internal Revenue Service should add information on referring promoters of potentially abusive tax schemes back into its news releases for the "Dirty Dozen" list of tax schemes, the U.S. Government Accountability Office said Tuesday."

From the report:

Additionally, one of IRS's key public communication tools for abusive tax schemes, its annual Dirty Dozen list, does not include information on how to report promoters of suspected abusive tax schemes. Adding instructions to the Dirty Dozen list about how to submit information on promoters may allow IRS to better leverage information from the public and increase its ability to identify and stop promoters of abusive tax schemes.

IRS created the Office of Promoter Investigations in 2021 to coordinate IRS's response to promoters of abusive tax schemes. The office works to design, develop, and deliver the major activities that help detect and deter abusive tax schemes and their promoters. Although the office has developed strategic goals to fulfil its mission, it has not yet finalized and communicated outcome-oriented performance goals and measures within IRS. 

 

TIGTA Highlights IRS Hiring Challenges - Alexander Rifaat, Tax Notes ($):

In a report released January 17, TIGTA said that while the IRS hired 4,729 customer service representatives between June 21 and November 7 last year, it also lost 844. Despite those exits, TIGTA noted that the net gain of 3,885 customer service representatives during the period resulted in a 36 percent increase in the total number of customer service employees over November 2021.

Treasury announced January 11 that the IRS had reached its goal — albeit later than the original September 12, 2022, target date — of adding 5,000 additional customer service representatives before the 2023 filing season. However, neither Treasury nor the IRS has provided the total number of customer service representatives accounting for departures.

 

Justices Won't Hear Mo. Challenge To ARPA Tax Cut Limit - Paul Williams, Law360 Tax Authority:

The case was one of six challenges that states nationwide, mostly with Republican attorneys general, have launched against ARPA's offset provision, which its detractors called a tax mandate. The states have generally argued that the restriction was an unconstitutional intrusion on their sovereignty and that they were coerced into accepting the limitation in exchange for receiving billions of federal aid.

Courts have reached varying conclusions on the lawsuit. Some have dismissed the states' challenges for lack of standing, while other courts, including the Sixth Circuit, have blocked the federal government from enforcing the provision against some of the plaintiff states.

It's not clear what effect the ARPA restriction has actually had on state tax policy.

 

California Taxpayer Payment Relief - Jenny McGarry, Eide Bailly. "Individuals and households that reside or have a business in a designated Federal Emergency Management Agency (FEMA) area may qualify for relief from original federal tax deadlines."

 

Tax Season Is Coming, and These Firms Can’t Find Enough Accountants in the U.S. - Lindsay Ellis, Wall Street Journal. "Large firms such as KPMG LLP and PricewaterhouseCoopers LLP have long hired international accountants to support client work. Now, with tax season poised to kick off, small and midsize accounting outfits that serve family businesses, individuals and smaller companies say they are offshoring jobs as local recruiting pipelines dry up and accountants leave the profession in droves."

Prepare for the Biggest Tax Leadership Turnover Ever - Tony Santiago, Tax Notes ($):

According to the U.S. Census Bureau,1 by 2030, all baby boomers will have reached the traditional retirement age of 65. Not everyone will wait that long to leave the workforce. In tax, these senior workers often hold higher-level management positions, leaving our profession faced with a crisis. Simply said, we are about to experience the largest tax leadership turnover in our nation’s history.

Statistics compiled by TaxTalent — a tax career development community and curator of the world’s most extensive database of corporate in-house tax professionals — indicate that this exodus will soon result in a sizable shortfall of tax professionals across the board, adding to an already highly competitive tax hiring market.

 

IRS Issues Applicable Federal Rates (AFR) for February 2023 - Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during February 2023 is 3.29%"

The short-term AFR for February 2023 is 4.47%. The rate for February 2022 was .59%.

 

Arizona Corporate Tax Cut Bill Advances in House - Paul Jones, Tax Notes ($). "The bill’s passage out of the first two committees this early in the session doesn’t guarantee it a speedy path through the legislature. Garrick Taylor, a spokesman for the Arizona Chamber of Commerce and Industry, said the legislation 'has a long way to go,' noting that even if the Legislature passes it, newly sworn-in Gov. Katie Hobbs — a Democrat who doesn’t share former Republican Gov. Doug Ducey’s enthusiasm for large tax cuts — 'may have other ideas.'"

Colo. Gov. Renews Call To End Income Tax - Sanjay Talwani, Law360 Tax Authority. "In his State of the State address, Polis, a Democrat, said that with a state budget surplus and a strong economy, Colorado lawmakers should consider further cuts to the state's flat income tax rate, now 4.4% after voter passage of Proposition 121 in November lowered the rate from 4.55%."

EU Seeks to Counter U.S. Clean-Tech Subsidies With New Funding - Kim Mackrael and Jenny Strasburg, Wall Street Journal. "The European Union plans to push back against the clean-tech tax breaks in the U.S. Inflation Reduction Act by easing its subsidy rules and creating a new pot of money to help member states with limited fiscal firepower compete."

 

Answers to these filing checklist questions could make a big tax difference - Kay Bell, Don't Mess With Taxes. "If you use a tax professional to help you file, you're probably familiar with these questions. But just in case you do your own taxes, or you want a refresher, here goes this year's tax filing checklist."

IRS Issues Standard Mileage Rates for 2023; Business Use Increases 3 Cents Per Mile - Parker Tax Pro Library. "65.5 cents per mile driven for business use (up from 62.5 cents per mile for the last 6 months of 2022 and 58.5 cents for the first 6 months of 2022)"

Treaty Tie-Breaker: Oh the Pitfalls Beware! - Virginia La Torre Jeker, Virginia - US Tax Talk. "The United States is unique in its approach to taxing individuals who are US citizens or lawful permanent residents (green card holders).  Such individuals are taxed on worldwide income regardless of where they may reside.  On account of this taxation approach, US citizens and green card holders who live outside of America may be subject to income tax in the US and in the foreign country of residence at the same time."

 

Billionaires in blue states face coordinated wealth-tax bills - Julie Zauzmer Weil, Washington Post. "Some of the state bills resemble the “wealth tax” that Sen. Elizabeth Warren (D-Mass.) pitched during her 2020 presidential candidacy. It’s a form of taxation never before attempted in the United States, in which very wealthy people would have to pay taxes annually on assets that they own, rather than just their income that year. Other bills focus on raising money from more conventional forms of taxation, including capital gains taxes and estate taxes."

Wealth Tax Proposals Are Back as States Take Aim at Investment - Jared Walczak, Tax Policy Blog. "The constant across all seven states, or wherever such taxes are proposed: wealth taxes are economically destructive, their base is almost impossible to measure accurately, and they create perverse incentives and promote costly avoidance strategies. Very few taxpayers would remit wealth taxes—but many more would pay the price."

Balancing The Federal Budget In 10 Years Without Raising Taxes Is….Impossible - Howard Gleckman, TaxVox. "How could House Republicans get to balance? They could slash popular entitlements such as Social Security, Medicare, and Medicaid. Alternatively, if they protect those programs, they’d have to eliminate nearly all other domestic spending. And that would cancel programs dear to their voters, such as farm subsidies, western water projects, border security, and the air traffic control system."

 

Taxpayer’s Disability Exemption Argument Fails in Tax Court - Caitlin Mullaney, Tax Notes ($). "A taxpayer’s disability didn’t make an early withdrawal from his retirement savings account exempt from inclusion in his gross income and additional taxation, the Tax Court has held."

The tax law allows "disabled" taxpayers to withdraw amounts from retirement accounts before age 59 1/2 without the 10% early withdrawal penalty. The court held the taxpayer's diabetes didn't qualify him as disabled. From the Tax Court opinion (taxpayer name omitted):

Taxpayer admittedly received a distribution from his 401(k) plan account in 2017. He nonetheless asserts in this Court that this distribution should be excluded from his gross income because of his diabetes. In support of this contention Taxpayer relies on a website that (in his view) speaks to these matters.

As an initial matter, the website Taxpayer relies on addresses the applicability of the early withdrawal penalty in cases of disability, which is a distinct subject from whether the distribution counts as income for those suffering from disability. More significantly, the website does not constitute legal authority, and nothing in the Internal Revenue Code, Treasury Regulations, or relevant caselaw supports Taxpayer's interpretation. The retirement distribution income accordingly must be included in his 2017 gross income. See I.R.C. §§61(a), 402(a).

So we can't count on random websites for return positions. Pity, that. But what does it take to be disabled?

A taxpayer is considered disabled if, at the time of the disbursement, he is “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” 

...

Although Treasury Regulation § 1.72-17A(f)(2) identifies diabetes as an impairment that “would ordinarily be considered as preventing substantial gainful activity,” it clarifies that “[a]ny impairment, whether of lesser or greater severity, must be evaluated in terms of whether it does in fact prevent the individual from engaging in his customary or any comparable substantial gainful activity.” Taxpayer was diagnosed with diabetes in 2015 but was able to work as a software engineer for two years, including the year that he received the distribution from his 401(k) plan account, effectively treating his diabetes with a mix of insulin shots and other medications.

The moral? If you aren't too disabled to work, you aren't disabled enough to take an early distribution.

 

Former CEO of Los Angeles-based anti-poverty nonprofit agrees to plead guilty to embezzling and misusing funds and tax offense - IRS (Defendant name omitted):

According to his plea agreement, from 1996 until he was fired in September 2019, Defendant was the president and CEO of Youth Policy Institute Inc. (YPI), a Hollywood-based nonprofit agency that worked to eradicate poverty in some of the highest needs neighborhoods in Los Angeles with a comprehensive approach addressing education, youth development, safety, job training, and health and wellness. In these roles, Defendant had check-signing authority over YPI's bank accounts and was the personal guarantor of YPI's credit card.

From January 2015 to February 2019, Defendant caused at least $71,533 of YPI funds to be spent on unauthorized expenditures, including Defendant's personal property tax bill that exceeded $14,000, more than $6,000 for a family dinner at a New York City restaurant, nearly $11,000 for a family member's tutoring, and nearly $2,000 on a home computer and software.

Donors often trust charity directors. Trust instead to proper accounting controls. 

Related: How to Prevent Fraud in Your Nonprofit

 

Don't smoke 'em if you got 'em. Today is Weedless Wednesday. Those needing help to get through that might want to observe National Gourmet Coffee Day


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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.