Tax News & Views IRS Erases a Dinosaur Roundup

January 30, 2023

IRS Updates Decades-Old Rules on Real Estate Common Improvements - Nathan Richman, Tax Notes ($):

Under Rev. Proc. 2023-9, a developer contractually or legally required to provide common improvements may use the alternative cost method but must do so on a trade or business level. However, the revenue procedure includes an alternative cost limitation that applies on the project level.

A taxpayer using the accrual method to account for sales from a qualifying project can use the alternative cost method to allocate estimated costs of the common improvements into the bases of units sold without regard to the economic performance rule of section 461(h).

IRS Changes Real Estate Alternative Cost Method Rules - Emlyn Cameron, Law360 Tax Authority ($). "Some real estate developers can use an abridged form when applying to use the alternative cost method when determining the basis of improved units for 2023 and onward, the Internal Revenue Service said in updated rules released Friday."


IRS announces tax relief for victims of severe winter storms, flooding, landslides, and mudslides in California - IRS. "This news release has been updated to include San Benito, San Mateo, Tulare and Ventura counties." Also: "Victims of severe winter storms, flooding, landslides, and mudslides beginning December 27, 2022, now have until May 15, 2023, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today."


EITC rules have changed, so be careful - Michael Cohn, Accounting Today. "On Thursday, National Taxpayer Advocate Erin Collins described some of those changes on her blog, saying that would probably reduce the average refund from last year. The ARPA also included some permanent changes to the EITC rules, she noted."

From the Taxpayer Advocate post

  • Age of the Taxpayers Without Qualifying Children: The special rules that changed the age requirements for taxpayers without qualifying children have expired and do not apply to 2022 returns. For 2022, taxpayers without qualifying children must be at least age 25 and under age 65 at the end of the year to be eligible to claim the credit. In addition, the provisions lowering the minimum age for qualified former foster youth and qualified homeless youth have expired and do not apply to 2022.
  • Maximum Credit Amount Decreases for Taxpayers Without Qualifying Children: The maximum amount of the credit for taxpayers without qualifying children significantly reduces to $560 for 2022 (down from a temporary expansion to $1,502 for 2021). The maximum credit amount for those having three or more qualifying children is $6,935 for 2022, a slight increase from 2021.
  • Maximum Adjusted Gross Income (AGI) Amounts Significantly Reduced for Taxpayers Without Qualifying Children: Taxpayers cannot claim the EITC if their AGI is more than a certain amount. For taxpayers without any qualifying children who file as single, head of household, or as a qualifying surviving spouse, their AGI amount must be less than $16,480 (down from a temporary expansion to $21,430 for 2021). For taxpayers without any qualifying children who file using the married filing jointly filing status, their AGI amount must now be less than $22,610 (down from a temporary expansion to $27,380 for 2021).


No Crypto Abandonment for You, Hodlers! - Lee Sheppard, Tax Notes ($:

The IRS has weighed in on loss recognition by stating in a chief counsel advice memorandum (ILM 202302011) that hodlers cannot abandon their crypto junk without an affirmative act and cannot take a worthlessness deduction for a temporal loss of value. Practical advisers already understood these were not fruitful approaches, but many individual hodlers are unable to transact and are not willing to wait for bankruptcy to sort things out. So the IRS seems to have wanted to act quickly to cut off hodlers wanting to take instant deductions.


The memo posits that there is a trading market for the taxpayer’s cryptoasset somewhere, and that the taxpayer has the ability to trade, sell, exchange, or transfer the units. All unrealistic for the shape this cryptoasset is in unless the trading platform is GTX or Xclaim. If any platform is still willing to transact with the taxpayer, and the taxpayer has the ability to use it, there is no point in the taxpayer taking a worthlessness deduction or trying to abandon the cryptoasset.

"Hodler" is not a typo, but crypto-speak for "holders" of cryptocurrency.

Note her final sentence: "The IRS might have to make another round of Madoff rulings for crypto hodlers to allow loss deduction in the year of discovery."

The "Madoff rulings" provided a streamlined process for Madoff ponzi-scheme victims to claim their losses. Given the scale of crypto losses, the IRS may end up providing safe-harbors for claiming them.  "Hodlers" might want to extend their 2022 returns in case the IRS does so in the coming months.

Related: New Tax Guidance Issued on Cryptocurrency Transactions.


3 Tax Trends Emerging In State Legislative Sessions - Maria Koklanaris, Law360 Tax Authority ($):

One significant trend is a slate of bills that would either create a wealth tax or tax higher earners in some way, with eight states banding together in a kind of pact to create such legislation.

Another trend is a move in the opposite direction, with some states seeing a deluge of bills to continue to cut taxes, as many states did in 2022, or to simplify the tax code with a flat tax. Finally, even though the fate of Maryland's tax on digital advertising is mired in litigation, some states are proposing similar taxes on digital services, including taxes on data collected by big technology companies.


Nebraska Governor Proposes ‘Historic’ Income, Property Tax Cuts - Emily Hollingsworth, Tax Notes ($). "Pillen also called for an additional $1.5 billion in income tax cuts, including by expediting tax cuts approved under L.B. 873 in 2022 by lowering the top individual income and corporate tax rates to 3.99 percent by 2027 and completely exempting Social Security income from state taxes by 2024. A package of bills (L.B. 754, L.B. 806, L.B. 804, and L.B. 641) proposing the changes were introduced earlier this month at the request of the governor."

Montana Governor Proposes Tax Breaks for Individuals, Businesses - Emily Hollingsworth, Tax Notes ($). "Gianforte’s tax items, first outlined in his proposed fiscal 2024–2025 biennium budget, would reduce the top marginal income tax rate from 6.5 percent to 5.9 percent. A bill implementing the measure (S.B. 121) was introduced by Sen. Becky Beard (R) January 4 and passed a second reading on a 34–15 vote January 25."

GOP national sales tax talk backfires, as Dems see political gold - Benjamin Guggenheim, Politico. "Sensing the political peril of the legislation, longtime tax critics from The Wall Street Journal editorial board to Grover Norquist’s Americans for Tax Reform have launched their own offensive against the legislation."

U.K. Prime Minister Fires Top Official Over Tax Probe - Max Colchester, Wall Street Journal. "In the U.K., government ministers must complete a declaration-of-interests form that includes questions about their tax affairs. When Mr. Zahawi became U.K. chancellor of the exchequer, a role that includes overseeing tax collection, he didn’t disclose any tax probe, according to a government report into the matter."

How to File a Tax Extension - E. Napoletano, Buy Side from WSJ ($). "If you need extra time to file your federal tax return beyond the regular April deadline, you’re not alone. For the 2021 tax year, 19 million Americans asked Uncle Sam for a bit more time by filing a tax extension with the Internal Revenue Service."


Your Investment Lost Money Last Year. So Why the Big Tax Bill? - Jeff Sommer, New York Times. "Nearly everyone lost money in the markets last year — yet many people with investments in taxable accounts are just learning that their money-losing holdings are also generating tax bills. It may seem unjust, but under current rules, when a fund manager sells stocks and bonds that have appreciated in value, or when the fund pays out dividends and interest, these tax liabilities are passed along, even if your investment in the fund lost money."

Why do I owe taxes this year? Tax expert explains common reasons - Andy Bink, The Hill. "Though unemployment compensation falling within a certain range wasn’t considered taxable during the pandemic, that is no longer the case."


Don't ignore the Form 1040 digital asset question - Kay Bell, Don't Mess With Taxes. "Careful readers of tax forms will note that this year's 1010 query replaced the term 'virtual currency' on the 2021 return with 'digital asset.'"

Tax Court Holds That Despite Losses, Cattle Ranch Was Operated for Profit - Parker Tax Pro Library. "The court noted that although the ranch sustained losses every year, the couple operated the ranch in a businesslike manner, hired a foreman to oversee its operations, and expected to make a profit on the sale of the property."

IRS increases cooperation with Dept. of Labor on worker misclassification investigations - National Association of Tax Professionals. "While taxpayers are generally responsible for any unpaid tax obligations to the IRS, preparers of employment tax returns or claims for refund may be liable for penalties under §6694."

How To Implement Latest IRS Instructions for Schedules K-2 & K-3 - I Tax School. "As an alternative, S corporations and partnerships can include an attachment to Schedule K-1 advising recipients that no Schedule K-3 will be produced unless the shareholder/partner makes a request."

Attorney Convicted of Trying to Swindle $1.3 Million From IRS - Rebekah Barton, TaxBuzz (Defendant name omitted). "Evidence proved that Defendant used his knowledge of the legal system to help his co-conspirators... obtain a fraudulent federal tax refund check worth $1,352,779."


Can We Really End the Race to the Bottom? - Alex Parker, Things of Caesar. "Sometimes I like to joke, we could solve all of the international tax problems at once by establishing a world government. But until we do, the system is going to have to deal with disparities."

Tax Cheats, Dodgers, Avoiders, And Evaders - Howard Gleckman and Steven Rosenthal, TaxVox. "A good example of this legal and linguistic ambiguity: Former President Trump claimed $916 million in net operating losses in the 1990s, even though his own lawyers told him that his position would not likely stand up under IRS scrutiny. But there is no public evidence that the IRS ever challenged Trump’s  losses."

The Orgy of Nontaxation - Robert Goulder, Tax Notes Opinions. "Sometime during the next two years — we don’t yet know when — the House of Representatives will be hosting a public orgy. House Speaker Kevin McCarthy, R-Calif., has promised to hold a floor vote on the FairTax Act of 2023 (H.R. 25). The promise was one of multiple concessions McCarthy made to the Freedom Caucus to become speaker. As we shall see, the FairTax is nothing if not an exuberant orgy of nontaxation."

As orgies go, this one seems pretty tame.


CPA pleads guilty to conspiring to promote fraudulent tax shelter scheme - IRS (Defendant name omitted):

According to the Information and other court documents and statements made in court, Defendant of Naples, Florida, promoted and sold fraudulent syndicated conservation easement tax shelters that allowed high-income clients to buy tax deductions to illegally shelter their income from taxes. These illegal tax shelters facilitated high-income taxpayers in claiming inflated charitable contribution tax deductions in connection with the donation of a conservation easement over land. Between 2013 and 2019, while working as a CPA, Defendant, along with others, promoted and helped sell such fraudulent syndicated conservation easement tax shelters. To carry out the scheme, the conspirators obtained falsely inflated appraisals in order to achieve the desired amount of tax deductions. Defendant was paid more than $300,000 in commissions for his promotion and sale of the tax shelters. He also was given "free units" he could use to take false deductions for charitable contributions on his own tax returns. As a part of his guilty plea, Defendant admitted his conduct resulted in a loss of nearly $3.5 million.

Conservation easements are legal, and are frequently used by farmers and other landowners to get a tax break for preserving land from development. Syndicated easements can be another matter entirely; these may use inflated appraisals to sell tax benefits to investors. Be careful.

Related: IRS Offering Potential Settlement for Syndicated Conservation Easements.


As long as it doesn't look like me. Today is National Draw a Dinosaur Day!

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