Tax News & Views Unhealthy ERC, Healthy Snacks Roundup

By Joe Kristan
October 4, 2023

Key Takeaways

  • ERC enforcement: preparers vs. credit recipients.
  • Supremes let taxpayer-friendly tax foreclosure case stand
  • Shutdown averted, so what about taxes?
  • Climate law guidance big on Treasury annual plan
  • IRS Tax Pro accounts - help on the way for preparers?
  • Friction behind the scenes in Hunter Biden tax investigation.
  • Iowa tax preparer draws 12 year federal sentence

Will the IRS Lean on Fraud of the Preparer in ERC Enforcement? - Nathan Richman and Lauren Loricchio, Tax Notes ($). While the IRS generally has two years to file suit to recover erroneous refunds, it gets five years to do so "if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact." The article discusses whether this extends to fraud by the preparer, rather than the taxpayer - a likely issue with Employee Retention Credit fraud. The Tax Court says yes, but the Federal Circuit Court of Appeals has said no. 

The article discusses a non-ERC case involving a sketchy preparer named Howell and taxayers named Finnegan who made the mistake of hiring him:

In 2013 the IRS found the Finnegans’ returns from 1994 to 2001 deficient and applied penalties and interest despite its delay of over 10 years.

Recent concerns about fraud related to the employee retention credit could land taxpayers in a similar situation to the Finnegans, who have spent years and thousands of dollars in legal fees fighting the deficiency notice. In addition to back taxes, the IRS is seeking penalties and interest.

Not a good result.

Related: IRS Puts Temporary Hold On New ERC Claim


Supreme Court Declines Review of Tax Foreclosure Takings Case - Richard Tzul, Bloomberg ($). "The plaintiff, Michigan resident Marion Sinclair, argued in a brief that Oakland County should have compensated her with the value of her home minus the tax debt after foreclosure. The justices’ denial will leave in place a December 2022 ruling from the Sixth Circuit in favor of Sinclair holding that a taking occurs when the government possesses property worth more than its tax delinquency."


Congress Averts Shutdown for Now, Returns to Appropriations - Cady Stanton, Tax Notes ($):

The possibility of an end-of-year tax package centered on the extension of three expired business tax provisions from the Tax Cuts and Jobs Act — research and development expensing, net interest expensing, and bonus depreciation — recently received an optimistic diagnosis from House Ways and Means Committee Chair Jason Smith, R-Mo. However, that bill was stalled earlier this summer even before attention turned to a shutdown by Republican detractors in the chamber pushing for an increase in the state and local tax deduction cap.

And President Biden’s IRS chief counsel nominee Marjorie Rollinson, who had a confirmation hearing in front of the Senate Finance Committee September 28, may have to wait for a markup on her nomination before seeing a vote in the full Senate should she pass through committee.

Related: Capitol Hill Recap: Should It Stay or Should It Go


Tax-and-Climate Law Guidance Dominates IRS, Treasury Annual Plan - Erin Slowey, Bloomberg ($):

The Priority Guidance Plan details 237 projects that the agencies plan to prioritize from July 1,2023 through June 30, 2024. The plan doesn’t give a specific timeline on when the regulations will be released and many projects that were on last year’s plan were repeated.

Guidance on the Democrats’ Inflation Reduction Act passed last year continues to be a large part of the plan, including the corporate alternative minimum tax, 1% stock buyback excise tax, and the energy provisions.


New Tax Pro Account Features Are a ‘Step in the Right Direction’ - Jonathan Curry, Tax Notes ($):

Originally, Tax Pro Accounts had been limited to managing powers of attorney and tax information authorizations for clients. That time-consuming process had entailed sending in the request to the IRS by mail or fax, and then waiting — sometimes for weeks — for the agency to process the request, according to Kubey. “I hadn’t used it because it wasn’t really functional,” she added.

Tax professionals can now send power of attorney authorization requests directly to a taxpayer’s individual IRS online account, and once the taxpayer approves it, the IRS’s system will be immediately updated, the agency said.

This will make it much easier for tax pros to help taxpayers who have online IRS accounts - and it may lead tax pros to push taxpayers to open such accounts. Just being able to confirm whether a taxpayer actually made estimated tax payments ("I did whatever you told me") would prevent thousands of IRS notices.


Why Treasury’s tax powers may be in GOP crosshairs - Benjamin Guggenheim, Politico. "Conservatives, however, have of late been increasingly critical of Treasury’s latitude to interpret tax provisions. And that in turn has spawned interesting new legal and political challenges to Treasury’s rule-making authority, made all the more threatening by the Supreme Court’s rightward shift."


Enforcement Of International Tax Reporting Is Heating Up - Daniel Silva and Agustin Ceballos, Law360 Tax Authority ($):

It may come as a surprise to taxpayers, but FBAR filing obligations, regulations and enforcement are all part of America's AML regime — commonly known as the Bank Secrecy Act. This is the same body of laws that requires financial institutions to file suspicious activity reports on customers and transactions, and for individuals to submit currency and monetary instrument reports on cash imports and exports in excess of $10,000.

With tax havens expected to cost governments approximately $4.7 trillion over the next decade, the U.S. is showing every sign that it remains committed to enforcing these laws and collecting associated penalties — whether through civil litigation, forfeitures, criminal prosecutions or a combination of all three.

Related: Eide Bailly International Tax Services


What Are Capital Gains Taxes? - Anna-Louise Jackson, Buy Side From WSJ:

If you sell an investment for more money than you paid to buy it, then you’ve realized a capital gain. You can generate capital gains from the profitable sale of stocks, bonds, cryptocurrency, real estate, cars, art, and other types of assets. You will likely owe taxes on the profit you made from these transactions, though the rate varies depending on a few factors.


You must pay federal taxes on any capital gains, but the IRS rewards saving and long-term investment decisions by offering different tax treatments for short- versus long-term capital gains, notes JR Gondeck, a Boca Raton, Fla.-based partner at The Lerner Group, a wealth-management firm. “The government doesn’t want to incentivize speculation.”


Saltwater seeping into the Mississippi leads to tax relief for some Louisianans - Kay Bell, Don't Mess With Taxes. "The prospects are so severe, the Federal Emergency Management Agency (FEMA) declared major disasters in Jefferson, Orleans, Plaquemines, and St. Bernard parishes. The Internal Revenue Service followed with an announcement of tax relief for individuals and businesses in those locations... These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments."

Guilty Pleas In Multimillion-Dollar Paycheck Protection Program Fraud Conspiracy - Kelly Phillips Erb, Forbes. "As with the ERC program, the lure of free money has proved irresistible to many—including those who have intentionally taken advantage of the programs when they were not eligible."

IRS Provides Guidance on New Energy Efficient Home Credit - Parker Tax Pro Library. "Under Code Sec. 45L(a)(1) an eligible contractor is allowed a credit (i.e., the new energy efficient home credit or the Section 45L credit) for the tax year equal to the applicable amount for each qualified new energy efficient home that is constructed by the eligible contractor and acquired by a person from the eligible contractor for use as a residence during the tax year."

Related: Energy-Efficient Home Builders Benefit From the Extension of Section 45L.


Investing in a US Partnership? – A Bevy of Tax Issues for the Foreign Investor - Virginia La Torre Jeker, US Tax Talk. "If the US  partnership has taxable income that is considered effectively connected with the conduct of a trade or business within the United States ('effectively connected income', or 'ECI') that is allocable to a foreign partner, US tax law mandates that the partnership report and pay to the US Internal Revenue Service (IRS) a withholding tax under IRC Section 1446 . "

Taxation of Capital Income Is Not Race Neutral - Janet Holtzblatt, Laura Kawano, and Robert McClelland, TaxVox. "In our new report, we find that the current tax treatment of capital income favors White families over Black families for three key reasons. First, certain types of capital income are effectively taxed at lower rates than many other forms of income, such as wages and salaries. Second, Black families on average have substantially less wealth than White families and thus have fewer opportunities to take advantage of those lower rates and many other tax preferences. Third, even among those with similar incomes and wealth, Black families are at a disadvantage because their asset portfolios are less skewed toward tax-preferred assets."


Backroom battles between IRS agents, prosecutors in Hunter Biden tax case - Devlin Barrett and Jacqueline Alemany, Washington Post. "But internal records, transcripts and interviews by The Washington Post tell a more complex story of an investigation hobbled by a growing sense of distrust between an IRS agent and a prosecutor, a relationship that began souring during the Trump administration. Along the way, Justice Department officials repeatedly insisted on senior level sign-off for investigative steps. Those approvals from the Justice Department’s tax division often came slowly if at all, raising suspicions among agents that prosecutors had little appetite for moving forward."

'Rush Hour' Star Agrees To Pay IRS $3.5M In Settlement - Kat Lucero, Law360 Tax Authority. "'Rush Hour' star Chris Tucker agreed to pay the IRS over $3.5 million to settle a lawsuit that claimed he had owed nearly $9.7 million in taxes dating back to 2002, the U.S. government told a Nevada federal court Monday."


Ottumwa Man and Woman Sentenced for Defrauding the Internal Revenue Service, Iowa Workforce Development, and Numerous Citizens - US Attorney, Southern District of Iowa (Defendant names omitted):

On September 29, 2023, Male Defendant, 47, of Ottumwa, was sentenced to twelve years in prison after pleading guilty to forty-nine fraud- and tax-related charges. Female Defendant, 21, of Ottumwa, was sentenced to nine years in prison after a jury convicted her of sixteen fraud-related charges. In all, Defendants' fraud resulted in nearly $4 million in losses to the Internal Revenue Service, Iowa Workforce Development, and numerous Iowa citizens.


Without their customers’ knowledge or approval, Defendants included fraudulent items on their customers’ federal tax returns, like false claims for residential energy credits, business-expense deductions, or moving-expense deductions for members of the United States Armed Forces. The effect of Defendants including fraudulent items on the tax documents was to increase the refunds their clients received and increase Defendants’ customer base. In all, from 2018 to 2022, Defendants caused over 1600 tax returns to be filed from their residence. Those returns claimed over $3.5 million in fraudulent residential energy credits.

It is estimated that from 2018 to 2022, Defendants received over $200,000 in cash fees from their customers. In addition, on their customers’ returns, Defendants sometimes directed that portions of the fraudulent refunds be sent to financial institution accounts accessible to Defendants. As a result, Defendants obtained nearly $50,000 in fraudulent tax refunds.

The case underlines the tax compliance problems faced by immigrants: "At sentencing, Chief United States District Court Judge Stephanie M. Rose described Defendants’ fraud as being elaborate and extensive, involving layers of subterfuge, and victimizing hundreds of vulnerable immigrants and refugees with little education and limited English fluency."

12 and 9 year sentences are severe for tax charges, and under federal sentencing rules they will need to serve nearly all of the time.


But I'll take a cookie too. Today is National Fruit at Work Day!

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