Tax News & Views Chaos and Cake Roundup

By Joe Kristan
October 11, 2023

Key Takeaways

  • House turmoil clouds prospects for tax bill this year.
  • Speaker candidate Jordan a longtime IRS critic.
  • IRS boosting AI efforts. 
  • Rise and fall of an ERC mill.
  • Short exemption application for non-profits panned.
  • 410(k): How much to defer?
  • IRS leaker set to plead guilty this week
  • Elder scammers posed as "tech support."

Publication note: Software problems led to a delay in Friday's roundup and cancellation of last week's SALT roundup. Friday's post is now up. We will catch up on state and local things this coming Friday. We apologize for the problems.

House Chaos Makes Predictions Tough for Year-End Tax Package - Cady Stanton, Tax Notes ($):

Even absent the recent chaos, the political makeup of each chamber and the White House has meant that the compromise necessary for progress has become more challenging, according to Rohit Kumar of PwC.


Two of the major determining factors for the prognosis on the package — a possible vehicle for tax provisions and how tax breaks will be paid for given growing concern about the federal deficit — won’t be clear until later in the year, according to Kumar, but they also don’t need to be determined early to be successful.

The pivotal piece, which shouldn’t be affected by the House chaos and funding deadline, is the behind-the-scenes work of committee staff trying to square the demands of Republicans and Democrats, such as the push and pull over research and development business expensing and the child tax credit, Kumar said.

Candidate for House Speaker a Longtime IRS Critic - Fred Stokeld, Tax Notes ($):

Jordan in 2015 strongly backed efforts to impeach IRS Commissioner John Koskinen over allegations that Koskinen had undermined congressional investigations into the Tea Party affair.

Jordan accused Koskinen of misleading lawmakers with promises of providing the House Oversight and Government Reform Committee with all the e-mails, communications, and records of Lerner, even though 422 backup tapes potentially containing many Lerner e-mails had been destroyed.


IRS Is Boosting Its AI Efforts. Lawmakers Cautiously Applaud. - Chris Cioffi, Bloomberg ($):

IRS use of computers to help select taxpayers for audits dates back decades. But as IRS Commissioner Danny Werfel described on a September call with reporters announcing the audits of large partnerships, the new funding helped IRS get better at using computers to screen complex tax filings of wealthy taxpayers and large businesses.

“Artificial intelligence and the types of predictive modeling can be a huge tool for us in catching up,” Werfel said. “Because, again, we can start to see patterns and trends, and activity that we can link with tax evasion that we couldn’t previously, and that will improve the overall efficiency of our efforts.”

But it's not just enforcement. "That kind of technology has been of special interest to House Ways and Means Oversight Subcommittee Chair David Schweikert (R-Ariz.), who, like many Republicans, has pressed Werfel for answers about the agency’s much-maligned customer service."


The Stunning Boom and Bust of a Tax-Refund King - Ruth Simon, Wall Street Journal:

Innovation Refunds doesn’t collect money upfront from clients; instead, it typically receives 25% of the refund amount as a “success fee.” In December 2022, it celebrated reaching $2 billion in ERC claims that year, a tally that has since surged.


The company struck deals with community banks, credit unions and other partners who received as much as 8% of Innovation Refunds’ fee for referrals. Banking associations and other trade groups earned a commission of as much as 2% on referrals made by their members. 

A fascinating look at one of the businesses that popped up to ride the Congresses employee retention credit cash gusher. Come for ERC mill insights, stay for the emotion-burning ceremony for laid-off Des Moines staff.

Related: IRS Puts Temporary Hold On New ERC Claims


Scrutiny Of Nonprofits Prompts Push To Ax Short Application - David van den Berg, Law360 Tax Authority ($):

The IRS launched Form 1023-EZ, the streamlined application for exempt status under Internal Revenue Code Section 501(c)(3)in 2014. According to a 2022 article on the IRS' website, the agency developed and rolled out the form to respond to a backlog of exemption applications. To file the form, organizations must meet eligibility standards including having annual gross receipts of $50,000 or less in any of the preceding three years.


The Treasury Inspector General for Tax Administration said in a 2022 report that the form doesn't require applicants to provide enough detail for the agency to decide whether a would-be charity is worthy of exemption. The watchdog also said that it submitted Form 1023-EZ exemption applications for five phony organizations and that the agency approved Section 501(c)(3) status for four of them.

Related: How to Protect your Tax-Exempt Status.


How Much Should I Contribute to My 401(k)? - Tanza Loudenback, BuySide from WSJ:

Employer matching is the closest thing you can get to a freebie in investing. “You don’t want to leave that money on the table,” says certified financial planner Marcy Keckler, who leads advice teams at Ameriprise Financial. To ensure you’re getting the full benefit of a 401(k) match, find out your employer’s matching formula and the maximum they could contribute.

Say your employer offers a 100% match on up to 3% of employee compensation. With a salary of $100,000, for instance, your employer will add $1 to your account for every $1 you save, up to $3,000.


Oct. 16 also is deadline for some self-employed retirement account contributions - Kay Bell, Don't Mess With Taxes. "And if you've put off setting up a self-employed retirement account, but at the last minute decide you want one, for your future financial needs and/or a tax break, a SEP-IRA could be the answer. You can establish one for a tax year as late as the due date, including extensions, of your income tax return for that year."

After Sen. Feinstein’s Death, Family’s Fight Over Assets Likely To Intensify - Kelly Phillips Erb, Forbes. "In her last days, Feinstein’s daughter and step-daughters battled in court over the Senator’s access to assets left by her very rich late husband, Richard C. Blum. It got nasty, with accusations of elder abuse. There are lessons here for all blended families–even those of more modest means."

Donate Art, Take Big Tax Deduction? IRS Issues Stern Warning - Robert Wood, Forbes. "There are ways 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."


Federal Circuit: Court of Federal Claims Misapplied Step Transaction Doctrine - Parker Tax Pro Library. "The Federal Circuit vacated a judgment of the Court of Federal Claims disallowing a partnership's deduction for a loss in connection with its sale of business assets as a loss on the sale of assets to a related party that was disallowed under Code Sec. 707(b)(1). The Federal Circuit found that the Claims Court erroneously applied a hybrid legal standard that improperly conflated the step transaction doctrine and the economic substance doctrine and therefore remanded for a determination under the correct legal standard."

Lesson From The Tax Court: The Designated Payment Rule - Bryan Camp, TaxProf Blog. "In Raymond S. Edwards v. Commissioner, T.C. Summ. Op. 2023-29 (Sept. 27, 2023) (Judge Panuthos), the taxpayer got crosswise with the IRS on unpaid payroll taxes and sent in payments that he specifically designated to cover only the taxes owed for five specified quarters, not the accrued interest and penalties, which he wanted to contest.  But the IRS instead applied the payments to interest and penalties.  Judge Panuthos explains why the IRS must honor a taxpayer’s designation of voluntarily remitted taxes.  Not sure this was more than a pyrrhic victory, but it makes for a good lesson."


To tame the deficit, America needs a national sales tax - Fareed Zakaria, Washington Post. "Fortunately, there is a simple solution staring us in the face — however, both parties refuse to accept it: Adopt a national sales tax, like every other advanced economy in the world. (Most countries call it a value-added tax, or VAT, because it is collected at each stage along the chain of production, rather than just once at the point of final sale.) According to the Congressional Budget Office, a broad 5 percent tax of this kind could raise $3 trillion over the next decade, massively reducing the United States’ fiscal hole. On average, European Union countries get roughly 20 percent of their tax revenue from a VAT; the United States is getting zero."


Former IRS contractor who allegedly leaked Trump’s tax information set to plead guilty - Holmes Lybrand and Hannah Rabinowitz, CNN:

The ex-IRS contractor accused of leaking former President Donald Trump’s tax information to reporters is scheduled to enter into a plea agreement to federal charges, according to the court docket.


Prosecutors have alleged that Littlejohn took tax information from thousands of the nation’s wealthiest people and leaked some of the information to news organizations, including Trump’s tax information. Two unnamed news organizations published information that Littlejohn allegedly leaked, though the outlets are not accused of any wrongdoing.


Five sent to prison in nationwide fraud scheme targeting elderly victims - IRS:

Part of the scheme involved fraudsters contacting victims by phone or via internet sites for computer technical support and directing victims to a particular phone number. Once victims contacted the fraudsters, they were told various stories such as they were communicating with an expert that needed remote access to their computer in order to provide technical support services. The fraudsters then gained access to victims' personal data and bank and credit card information.

Victims typically paid a fee to conspirators for the fake technical support but were later told they were due a refund. Through paying for "technical support" or through the "refund" process, the ring gained access to the victim's bank account(s) and credit cards and manipulated the accounts to make it appear the victim was paid too large a refund due to a typographical error. Victims were then instructed to reimburse the ring by various means.

Be careful out there. 


A cause and a cure? Today is both World Mental Health Day and National Angel Food Cake Day

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