Tax News & Views Leaked Data Notification Roundup

IRS To Notify Victims Whose Tax Data Was Leaked – Anna Scott Farrell, Law360 Tax Authority ($):

The Internal Revenue Service will notify thousands of the country's wealthiest people that an agency contractor leaked their data to the media, the government told a D.C. federal court Wednesday.

The government has so far identified at least 152 high-net-worth individuals whose tax information federal prosecutors said was published by the media after being stolen by Charles Littlejohn, who was charged Friday with one count of unlawfully disclosing tax return information, according to the filing. There are thousands more high-net-worth individuals whose returns prosecutors said Littlejohn disclosed whose private information has not been published, the government said.

Friday’s Roundup included articles on this subject. The Roundup is here, scroll down to view the articles.

IRS Watchdog Finds Flaws With Survey on Direct File Interest – Erin Slowey, Bloomberg ($):

An IRS survey potentially inflated taxpayer interest in an agency online tax-filing tool, the Treasury Inspector General for Tax Administration said in a report released on Wednesday.

Further down the article:

The IRS updated Congress in May on taxpayer feedback, third party opinions, and the cost of developing the tool. The May report included IRS survey results that showed 72% of taxpayers are interested in an IRS-provided tool.

But the IRS did not provide a “no opinion” option for a taxpayer to not state a preference in the survey. The survey also may have led taxpayers to believe filing state tax returns would be an immediate feature of the tool, TIGTA said.

The report is here.

IRS Fight Against Pandemic Tax-Credit Scams Won’t Be Simple or Fast – Richard Rubin, Wall Street Journal:

The Internal Revenue Service has labeled promoters of a popular pandemic-era tax credit as unscrupulous scammers. The agency’s task ahead: Turning that tough talk into victories in court. 

Tax lawyers say they expect several busy years defending tax-credit consulting firms and employers as the IRS tries to claw back some of the $230 billion it paid in employee-retention credits, or ERC refunds. The enforcement push, including criminal prosecutions, won’t be quick or easy for the IRS. 

IRS Spent $2.1 Billion in IRA Funds in First Year, Reports Show – Lauren Loricchio, Tax Notes ($):

The IRS had used about $2.1 billion of its Inflation Reduction Act funds a year after President Biden signed the act into law, agency reports show.

Monthly reports obtained by Tax Notes through a Freedom of Information Act request show that as of the end of August, the IRS had spent about six times the amount of funding for taxpayer services as it had for enforcement.

Software Questions Remain After Research Amortization Guidance – Nathan Richman, Tax Notes ($):

Tax professionals predict more questions and controversy arising from proposed research amortization guidance on the reach of the software development rule.

Notice 2023-63, 2023-39 IRB 919, released September 8, provides the first substantive guidance on the change to section 174, which was included in the Tax Cuts and Jobs Act to pay for other tax cuts.

Further down the article:

One question is what happens after a piece of software has been placed into service with the initial costs capitalized if there are further expenses down the road…

Pascrell Criticizes GOP Probe - Samantha Handler, Bloomberg ($) (Scroll down):

Ways and Means Democrat Bill Pascrell of New Jersey blasted committee Chair Jason Smith (R-Mo.) and the oversight subcommittee Chair David Schweikert (R-Ariz.) in a Wednesday letter over their efforts seeking more information on the political activity of tax-exempt organizations.

Pascrell said that he, like the Republicans, is concerned about the role tax-exempt groups play in influencing politics. But he took issue with the fact that the Republicans have highlighted examples of organizations supporting Democratic causes and haven’t also mentioned examples involving Republican causes.

The letter is here.

IRS eyes partnerships in tax evasion crackdown – Tobias Burns, The Hill:

The strategy of undervaluing and overvaluing business assets to keep money away from the IRS is increasingly a cause for concern for the agency.

Tax experts arepreparing for a wave of intensified enforcement against large partnerships as the IRS gets ready to fight back.

Starting this month, hundreds of large partnerships will start getting special compliance notices from the IRS. The notice will alert them to discrepancies on their balance sheets that the IRS wants explained.

Treasury and IRS Revisiting Guidance on Limited Partner Exception – Kristen Parillo, Tax Notes ($):

A new project on the limited partner exception to self-employment tax that was added to the Treasury-IRS priority guidance plan suggests the government is ready to resolve a thorny issue that led to a congressional moratorium 26 years ago.

Further down the article:

Section 1402(a)(13), enacted in 1977, generally excludes a limited partner’s distributive share of partnership income or loss from Self-Employment Contributions Act (SECA) tax. The exclusion doesn’t apply to guaranteed payments that a limited partner receives for services rendered to the partnership.

Because there is no statutory or administrative tax definition of limited partner, determining the scope of the section 1402(a)(13) exception became an increasingly contentious issue between the IRS and taxpayers after the states started introducing new types of passthrough entities designed to provide the benefits of a partnership and a corporation.

To Disclose or Not to Disclose (and How and When) – Andrew Roberson and Mary Slonina, Tax Notes ($).

The Internal Revenue Code, Treasury regulations, and Internal Revenue Bulletin guidance contain myriad rules regarding disclosures on federal tax returns. Some disclosures are mandatory while others are voluntary. For example, some corporations are required to disclose their uncertain tax positions. On the other hand, taxpayers seeking to avoid penalties may voluntarily attach forms to their tax returns, disclosing the tax treatment of specific items. Similarly, eligible taxpayers that are part of the IRS large corporate compliance (LCC) program might make some disclosures at the beginning of an IRS audit (sometimes referred to as affirmative disclosures or "walk-ins").

Treasury Issues Rules on ‘Killer B’ Triangular Reorganizations - Michael Rapoport, Bloomberg ($):

The Treasury Department and the IRS proposed regulations aimed at reining in “Killer B” triangular reorganizations involving foreign corporations, which the government says companies have used in the past to avoid taxes.

The regulations (RIN 1545-BM19), under Section 367, were issued Thursday.

The proposed reg is here.

Absence Of Tax From EU Speech Suggests Limited New Policy – Todd Buell, Law360 Tax Authority ($):

The absence of tax from the annual policy speech by the president of the European Commission suggests that tax policy is unlikely to be a key part of the European Union's executive arm's plans for new initiatives in the final year of its term.

The Sept. 13 speech by commission President Ursula von der Leyen, known as the State of the Union address, has in recent years signaled important tax initiatives from the commission, which proposes legislation in the 27-nation group. But tax wasn't mentioned this year, as the war in Ukraine, China, and perhaps proximity to European elections overshadowed it.

From the “Here’s the Skinny” file:

House Turmoil Sends Aftershocks Into Corporate Lobbying Sector - Kate Ackley, Bloomberg ($):

Lobbyists who represent business interests on Capitol Hill are reeling from the removal of a sitting speaker, as they try to assess how the new candidates for the job could shift the legislative agenda.

House Majority Leader Steve Scalise (R-La.) and Judiciary Chairman Jim Jordan (R-Ohio), the two official contenders, are well known among lobbyists. Lobbyists said privately that if their industry had a vote, it would likely go for Scalise over Jordan, even as Jordan’s image is less rabble rouser than in past years. Rep. Patrick McHenry (R-N.C.), who chairs the Financial Services Committee and is serving as a temporary speaker, would be a favorite among lobbyists, but he’s said he does not want the position.

Here is the Skinny: Of the people mentioned in the article running for the Speakership, Rep. Jordan is most likely to side with the far-right members in his party, who pretty-much want to shut down the Federal government. Jordan would likely not seek support from Democrats to pass legislation.

Meanwhile, the Senate is run by Democrats. To wit, the House and Senate will not agree on funding bills and Congress would be in a perpetual fight to keep the Federal government open. Everything else, like passing tax legislation, would have a slim chance for floor time as lawmakers bicker about spending.

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