Tax News & Views California Deadline and Pasta Holiday Roundup

By Joe Kristan
October 18, 2023

Key Takeaways

  • IRS, in last-minute move, gives most Californians an extra month to file for 2022.
  • California goes along with federal last-minute deadline extension.
  • IRS rep: we are only going after a few abusive ESOPs.
  • IRS automated collection freeze not expected to thaw.
  • Treasury considers opening energy credit markets to individuals.
  • Delayed guidance short-circuits EV plant investment.
  • Netflix beats Illinois franchise fee.
  • Tax deadline extension for taxpayers affected by attacks in Israel
  • Deficit swells despite revenue increase
  • IRS leaker - how he did it, how much time he may serve.
  • Pasta holiday. 

For California storm victims, IRS postpones tax-filing and tax-payment deadline to Nov. 16 - IRS. "As a result, most individuals and businesses in California will now have until Nov. 16 to file their 2022 returns and pay any tax due. Fifty-five of California's 58 counties—all except Lassen, Modoc and Shasta counties—qualify. IRS relief is based on three different FEMA disaster declarations covering severe winter storms, flooding, landslides, and mudslides over a period of several months."

California Extends Due Date For California State Tax Returns - Kelly Phillips Erb, Forbes. "Earlier today, the IRS announced that various tax filing and payment deadlines for most taxpayers in California were being further postponed to Nov. 16, 2023... Now, the California Franchise Tax Board confirmed that most Californians have until November 16, 2023, to file and pay their tax year 2022 state taxes to avoid penalties." 


IRS Quells Unease on Employee Stock Ownership Crackdown - Austin Ramsey, Bloomberg ($):

An agency official Monday said tax regulators don’t intend to launch a wholesale audit of employee stock ownership plans, but will target only high-income employers that dodge paying taxable income by loaning it to their worker participants.

A notice (IR-2023-144) published in August led to concerns that the IRS was zeroing in on all employee-owned companies, Laura Warshawsky, a deputy associate chief counsel at the IRS, said at a virtual conference hosted by the American Bar Association’s tax section.


IRS’s Automated Collection Notice Freeze Likely to Continue - Jonathan Curry, Tax Notes ($):

IRS leaders have indicated that automated collection notices are likely to remain paused until sometime in 2024, according to the National Association of Enrolled Agents.

That would be yet another delay after multiple postponements and would worsen already dire consequences for voluntary tax compliance, the NAEA wrote in a letter to the IRS dated October 11 that urged the IRS to immediately restart automated collection notices.

Related: IRS Collection Issues


Treasury Floats Allowing Individuals to Buy Energy Tax Credits - Erin Slowey, Bloomberg ($). "Companies can now sell their energy tax credits to a third party one time, after passage of the Inflation Reduction Act last year. That market, which is just starting to take shape, largely excludes individuals—a restriction that some tax professionals say should change so more money would flow to companies."

Related: Energy Efficiency Incentives and the Inflation Reduction Act.


Concern Grows Over the Missing Definition in the EV Tax Credit - Marie Sapirie, Tax Notes ($):

There is turmoil in the electric vehicle world, much of it driven by the tax credits in the Inflation Reduction ActHyundai is in a hurry to complete its plant in Georgia. Ford paused construction on its $3.5 billion battery plant in Michigan. And Sen. Joe Manchin III, D-W.Va., is prepping his amicus brief in opposition to the Biden administration’s interpretation of sections 30D and 45W ahead of the release of the final regulations. Why aren’t those final regulations out yet? That’s the key question, and it remains unanswered, even as Treasury and the IRS release other guidance related to the section 30D credit.


On September 8 Ford wrote to Energy Secretary Jennifer Granholm and Treasury Secretary Janet Yellen. The automaker argued, “Our national strategy must account for China’s current dominance in critical mineral processing and battery manufacturing and associated technology.” That means not interpreting the definition of foreign entity of concern “too broadly,” according to Ford, which wants it to be interpreted in a way that “advances, not jeopardizes, our national security objectives and climate goals.” Specifically, the company wants to be able to “employ intellectual property from companies based in China.”


IRS to Expand Scope of Corporate Letter Rulings - Chandra Wallace, Tax Notes ($). "'We are looking to put the bulk of subchapter C transactions — 351 transfers, acquisitive reorganizations, 332 liquidations — we want to put those rulings on the same footing as our section 355 rulings, which, as you all know, we will rule on soup to nuts,' Mark Schneider said October 16 at the American Bar Association Virtual Fall Tax Meeting."


Yellen Concerns on Global Treaty Spark Questions on Digital Taxes - Lauren Vella and Michael Rapoport, Bloomberg ($):

In remarks made on her trip to Luxembourg, Yellen said the US would be unable to sign a multilateral treaty—which is part of a larger global tax deal brokered by the OECD on global tax rules—by the end of 2023 due to unresolved issues.


Business groups welcomed the delay, but also expressed concerns about a looming deadline to extend the moratorium on digital taxes, which hinges on countries’ progress in moving forward with the treaty, called the multilateral convention.

Related: Eide Bailly International Business Structuring.


Netflix Doesn’t Owe Illinois’s Local Franchise Fees, Seventh Circuit Says - Cameron Browne, Tax Notes ($). "Netflix Inc.Disney Platform Distribution Inc., and other streaming companies are not subject to Illinois’s statutory provisions that require cable companies to pay local franchise fees to the state municipalities, according to the Seventh Circuit." 


Filing and Payment Relief for Taxpayers Affected by the Terroristic Action in the State of Israel - Erin Collins, NTA Blog. "On Friday, October 13, 2023, the IRS issued Notice 2023-71, which provides a postponement of the due dates for filing tax returns and making payments. Affected taxpayers will have until October 7, 2024, to file tax returns, make tax payments, and perform certain time-sensitive acts listed in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, 2018-50 I.R.B. 990 (December 10, 2018), that are due to be performed on or after October 7, 2023, and before October 7, 2024."

Follow the link to see which taxpayers are covered. The Taxpayer Advocate notes some taxpayers who are not covered: "This notice does not appear to cover taxpayers who are visiting or are temporarily located in the covered area but whose principal residence, or principal place of business, is located outside the covered area and who are unable to return to the United States due to the October 7, 2023, terrorist attacks and timely meet their federal tax obligations. Reasonable cause penalty relief may be available to them under current IRS policy, including relief from failure to file or pay penalties ."


Tax Gap grows to $688 billion per latest IRS calculations - Kay Bell, Don't Mess With Taxes. "Underreporting reflects an incorrect lower amount of tax due shown on timely filed returns. That amounted to $542 billion in tax year 2021, up from $445 billion in tax years 2017 through 2019."

IRS Updates Wash Sale Rules for Redemptions of Shares in Money Market Funds - Parker Tax Pro Library. "The IRS issued a procedure which describes the circumstances under which the IRS will not treat a redemption of shares in a money market fund (MMF) as part of a wash sale for purposes of Code Sec. 1091."

Foreign asset reporting and Form 8938 explained - Thomson Reuters Tax & Accounting. "Generally, any U.S. person holding an interest in specified foreign financial assets with an aggregate value exceeding $50,000 at the end of the tax year or $75,000 at any time during the tax year is required to report these assets on Form 8938."

Related: Eide Bailly Global Mobility Services


Federal Deficit Grew to $2 Trillion in FY 2023 - William McBride, Tax Policy Blog. "In sum, the federal budget continues on a perilous course. While tax revenue has increased about 28 percent since the pre-pandemic year 2019, spending has increased about 46 percent, and the deficit has more than doubled to $2 trillion." 

Wall Street Journal Editorial Appears To Support Abusive Conservation Tax Shelters - Peter Reilly, Forbes. He quotes a response to a former Senate Finance Committee Investigator: "I was Sen. Charles Grassley’s lead tax investigator in 2020 when he last chaired the Senate Committee on Finance, and I led the committee’s investigation into these transactions. The committee’s report from that investigation found that syndicated conservation-easement transactions 'appear[ed] to be nothing more than retail tax shelters that let taxpayers buy tax deductions at the end of any given year, depending on how much income those taxpayers would like to shelter from the IRS, with no economic risk.' According to that report, the transactions achieved this result through inflated appraisals of undeveloped land, and it went into the details about some of those appraisals, which involved valuations that should have raised an eyebrow, to put it mildly."

Employee Retention Credit Shows Folly of Tax Code Subsidies - Adam Michel, Liberty Taxes. "Since it created the ERTC, Congress has added dozens of new tax credit schemes worth trillions of dollars to incentivize everything from computer chip manufacturing to hydrogen fuels. We cannot predict how each new credit will unravel, but Congress should expect similar types of grift, fraud, ballooning costs, and other unintended consequences."


How Trump, other high earners had their taxes leaked - Brian Faler, Politico:

Littlejohn uploaded the data to a private website, rather than using a flash drive or a conventional remote-storage website, “to avoid IRS protocols designed to detect and prevent large downloads or uploads from IRS devices or systems.” 

He then downloaded the documents from the private website onto a personal computer. Littlejohn stored the data in various places, including his iPod.

Prosecutors Might Not Be Going That Easy on Littlejohn - Nathan Richman and Jonathan Curry, Tax Notes ($):

The plea agreement in United States v. Littlejohn suggests a possible eight to 14 month sentencing range for the former IRS contractor who stole and leaked tax returns filed by former President Trump and many other wealthy individuals. However, the government doesn’t seem satisfied with that result.

“The government hereby provides notice that it expects to seek an upward departure pursuant to Application Note 5 of Section 2H3.1 of the Sentencing Guidelines,” the agreement states. An upward departure is a longer sentence than suggested by the U.S. Sentencing Guidelines Manual.

Joseph Henchman of the National Taxpayers Union Foundation is quoted as saying the single-count plea agreement is "outrageous," especially compared to how the IRS goes after taxpayers. 

I'm also quoted: 

Joe B. Kristan of Eide Bailly LLP described the leaks as an egregious crime that merits severe consequences but admitted that he’s torn about the sentencing. “Keeping a man in a cage for a nonviolent crime is a waste, and a terrible burden for his family,” he said.

At the same time, the IRS and Justice Department should be pursuing a sentence that’s harsh enough to deter future would-be leakers, Kristan said. “If the sentence comes in at, say, 18 months, I’m not sure that sends a strong enough message to IRS contractors and employees who are entrusted with politically sensitive return information,” he said.


Carbs, schmarbs. It's National Pasta Day!

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