Tax News & Views Electric Vehicle Rebate Noodles Roundup

IRS to Allow EV Tax Credit Transferability at Point of Sale - Alexander Rifaat and Mary Katherine Browne, Tax Notes ($):

In proposed regs (REG-113064-23) unveiled October 6, starting January 2024 qualified taxpayers will be able to transfer the section 30D and section 25E tax credits, worth up to $7,000 for the purchase of a new electric vehicle and $4,500 for a used electric vehicle, respectively, directly to the car dealer at the point of sale.

“For the first time, the Inflation Reduction Act allows consumers to reduce the up-front cost of a clean vehicle, expanding consumer choices and helping car dealers expand their businesses. The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim the credits they are eligible for,” Laurel Blatchford, chief implementation officer for the Inflation Reduction Act, said in a statement.

Uncle Sam's instant rebate.

Treasury lays out rules for instant EV rebate - James Bikales, Politico:

The new guidance lays out how dealers can effectively reduce the price for an electric vehicle for consumers by as much as $7,500 at the time of the purchase, rather than requiring the buyers to wait until they file their annual federal taxes to claim the credit.

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With the EV tax credit, Treasury said it expects to refund dealers within 72 hours of a sale. Dealers will use a new IRS website, called Energy Credits Online, to confirm a vehicle is eligible for credit and submit a “time of sale” report to begin the payment process.

Related: What You Need to Know About the Clean Vehicle Credit.

IRS Fact Sheet

Beauty Is in the Eye of Auditors for Art Donations, IRS Warns - Chandra Wallace, Tax Notes ($):

The IRS has recovered more than $5 million in additional tax from auditing questionable art donations, and is pursuing multiple abusive art donation promoter investigations and taxpayer audits, according to an agency warning to taxpayers.

In an October 5 release (IR-2023-185), the IRS describes a scheme in which promoters target high-net-worth taxpayers and convince them to purchase art — promising “values of art that are too good to be true” — and to donate the art after holding it for a year or more before claiming a donation deduction for an inflated value.

IRS warns taxpayers of improper art donation deduction promotions; highlights common red flags - IRS:

There are ways for taxpayers to properly claim donations of art. But some unscrupulous promoters may use direct solicitation to promise values of art that are too good to be true. These promoters persuade taxpayers, usually high-income taxpayers, to purchase the art, wait to donate the art and then take an incorrect deduction for the art donated. As part of a larger effort to increase compliance work on high-income individuals and corporations, and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.

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Promoters encourage taxpayers to buy various types of art, often at a "discounted" price. This price may also include additional services from the promoter, such as storage, shipping and arranging the appraisal and donation of the art. The promotor promises the art is worth significantly more than the purchase price.

These schemes are designed to encourage purchasers to donate the art after waiting at least one year and to claim a tax deduction for an inflated fair market value, which is substantially more than they paid for the artwork. Promoters may suggest taxpayers donate art annually and allow them to buy a quantity of art that guarantees a specific deductible amount. Promoters may even arrange for certain charities to take the donations.

The notice explains the requirements for charitable donation of artworks, including contemporaneous acknowledgment of the donation and the need for an independent qualified appraisal. The IRS can assert penalties of up to 40% of understated tax resulting from "gross valuation misstatements."

Years ago, when someone proposed a tax credit for artwork donations, I mused about someone setting up a Museum of Deductible Art to spur "charitable" donations, contingent on finding a friendly appraiser who would split fees. It looks like somebody beat me to it.

States Weigh IRS Call for Free Direct File Feedback, Integration - Erin Slowey, Bloomberg ($):

Two states have explicitly said they’ll take part in an IRS-run free online tax filing tool pilot program that’s expected to kick off in time for the 2024 filing season, even though a report this week said the pilot won’t immediately support state tax return filing.

California and Washington—which doesn’t have a state income tax—confirmed they will be participating in the pilot program, though officials from those states declined to comment further on the tool’s rollout ahead of an IRS announcement. Nebraska and Massachusetts officials told Bloomberg Tax they expressed interest in the pilot but are waiting for the IRS’s selection of states.

It will be hard for an IRS-run system to catch on without also providing state filing. But if they can get California returns - perhaps the most complicated state returns out there - to work, they may be on to something.

Capitol Hill Recap: BOOM! - Jay Heflin, Eide Bailly. "Given the partisan vitriol and that Congress is politically divided, most expect lawmakers to wrestle with spending issues for the rest of the year, leaving no time to pursue a tax bill that would allow for R&D expensing, expand the 163(j)-interest deduction, and up Bonus Depreciation to 100%."

Treasury Proposes Rules Aimed At Repatriation Transactions - Natalie Olivo, Law360 Tax Authority ($). " Under these transactions, the subsidiary purchases stock in its parent in exchange for property and then exchanges that stock for the stock of a target company, according to Treasury, which said some of these transactions exploit exceptions to the final rules.

Link: Proposed regulations. 

The Tax-Free Way to Rent Out Your Home - Laura Saunders, Wall Street Journal:

This benefit is often called the Masters’ exemption because residents of Augusta, Ga., use it to rent their homes to players and fans tax-free during the famed golf tournament. During the tournament, large, lavish homes can rent for thousands, and sometimes tens of thousands, of dollars a night.

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For many homeowners, that’s benefit enough. However, a recent Tax Court decision in the case of Sinopoli v. Commissioner permitted a twist on this strategy: It allowed three business owners to rent their homes to their business for meetings, deduct the rent, and receive the rent tax-free under the Masters exemption. But owners must follow all the rules—and they didn’t.   

Further reading: Topic No. 415, Renting Residential and Vacation Property

W&M members want ERC backlog answers from IRS - Kay Bell, Don't Mess With Taxes. "They want Werfel to provide the committee with the IRS’ plan to resolve the backlog of unprocessed ERC claims, while simultaneously preventing fraud, and ensuring that legitimate claims are paid to eligible businesses in a timely manner."

Maine & Massachusetts Conform to IRS Hurricane Extension - Russ Fox, Taxable Talk. "I called both the Massachusetts Department of Revenue and the Maine Department of Revenue Services.  Both states are conforming to the federal extension.  There is one additional step needed for taxpayers in Massachusetts: You need to write 'STORM' at the top of your Massachusetts return."

IRS Lowers PTIN Fees As Another Court Battle Brews Over Regulating Tax Preparers - Kelly Phillips Erb, Forbes. "In 2024, the cost to renew or obtain a PTIN will be just $19.75 ($11 user fee plus a $8.75 contractor fee). That’s significantly less than last year—in 2023, the cost to renew or obtain a PTIN was $30.75—and far less than the 2010 expense of at least $63 ($50 user fee plus a $14.25 contractor fee for a new application or $13 for renewal)."

No Supervisory Approval Needed for Assessment of Penalties Under Sec. 6721(e) - Parker Tax Pro Library. "The Tax Court held a Code Sec. 6721(e) penalty for failing to file a Form W-2 due to intentional disregard, which is assessed through the IRS's Combined Annual Wage Reporting (CAWR) computer program, is not subject to the Code Sec. 6751(b)(1) supervisory approval requirement."

Never Surrender? - Alex Parker, Things of Caesar. "Is the Biden administration ceding tax authority to the OECD? Perhaps–but there’s a century’s worth of context."

Tax Things Get Ugly for Foreigners When a Foreign Partnership has a US Partner - Virginia La Torre Jeker, US Tax Talk. "Many foreign investors will automatically think that because an income tax treaty is in place between the United States and their country, that they will not owe any US tax.  This is often a big mistake.  The treaty must be examined very carefully to determine the tax results."

Related: Eide Bailly International Business Services

Congress Must Heed Lessons of Previous Deficit Reductions - Adam Michel, Liberty Taxes. "Alesina’s research has one more hopeful conclusion for politicians facing these tough choices. In a review of electoral outcomes following large fiscal adjustments, Alesina and co‐authors find 'no evidence that governments which reduce budget deficits even decisively are systematically voted out of office.' There really is no excuse for continuing to kick the fiscal crisis can further down the road."

I.R.S. Puts Lien on Giuliani’s Palm Beach Condo for $550,000 Tax Debt - Chris Cameron, New York Times. "The property, a lakeside condominium in Palm Beach, sits less than three miles from Mar-a-Lago, Mr. Trump’s private club and residence. Mr. Giuliani and his ex-wife had tried to sell it for $3.3 million in 2019, but never found a buyer, according to The Palm Beach Daily News."

Tax cheat sentenced to prison for failing to pay employee taxes - IRS (Defendant name omitted):

Defendant co-founded Tecademics, LLC in 2016 and founded IQUP, Inc. in 2017. Both Tecademics and IQUP instructed clients in how to manage online businesses and conduct marketing efforts on the internet. In his plea agreement, Defendant admitted that he was responsible for submitting any tax payments to the IRS for both companies. Between 2017 and 2018, Defendant received business tax returns prepared by Tecademics's and IQUP's bookkeeper. Those returns reported employees' wages for each quarter, as well as the portion of the wages withheld by the employer for state and federal taxes. Defendant admitted that he knew that he was required to pay those taxes to the IRS. For the tax periods between January 2017 and April 2018, however, Defendant did not pay the taxes owed by Tecademics and IQUP. In total, Defendant failed to pay $651,478 in taxes to the IRS.

The guy got 18 months in jail, and he still has to pay the taxes, with penalties and interest. Never consider employment taxes something you can "borrow" instead of paying them timely.

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