Tax News & Views Partnerships Beware Roundup

November 7, 2023

Key Takeaways

  • IRS partnership audits approaching
  • Energy tax credit portal nearly done
  • EV tax credits
  • OSHA and the ERC
  • Lawmakers eye AI for tax cheats
  • Cyber challenges abroad
  • Game changer for Mary Jane
  • Nachos!

Partnership Audits Are Coming — Perhaps to a Law Firm Near You – Marie Sapirie, Tax Notes ($):

The IRS is understandably a bit tired of being publicly slagged for its low audit rates of large partnerships. So in September, it fired a shot across the bow to inform critics that it was about to open examinations of 75 of the largest partnerships with an average of more than $10 billion in assets apiece, including hedge funds, real estate investment partnerships, publicly traded partnerships, and large law firms. The IRS knows who reads its news releases; the inclusion of the latter category was intended to get your attention. Further, a huge stack of compliance letters was slated to go out in early October to partnerships with more than $10 million in assets who didn’t explain the difference between their end-of-year balances and their beginning balances for the following year.

The IRS grandly called the campaign the start of “a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws.” (IR-2023-166.) More details will come in the weeks and months ahead, according to the release. Readers might expect one of those details to be confirmation that the IRS opened the exams and sent out the compliance letters on time — a victory lap of sorts — but it didn’t respond to a request to confirm that by press time.

IR-2023-166 is here.


IRS Registry for Monetizing Energy Tax Credits Nears Completion - Erin Slowey, Bloomberg ($):

A new IRS portal for clean energy companies and tax-exempt entities that want to monetize their tax credits is almost complete, an official said Friday.

The IRS is testing the portal and it is “almost done,” said Richard Blumenreich, a special counsel at the IRS Office of Chief Counsel, adding that the IRS website could update later this month with more details about the portal, as the testing continues. He was speaking at the UNC Tax Summit.


Thinking of Buying an Electric Car? The Tax Credits and Benefits to Know – Perri Ormont Blumberg, Wall Street Journal:

EVs assembled in North America are eligible for federal tax credits, depending on your income. The income limits are $150,000 for individuals and $300,000 for married couples filing jointly, though it is possible to use your modified adjusted gross income from the year before as well. 

The maximum federal credit, if the vehicle meets all the requirements, is $7,500. There are limitations for the EV as well: The maximum cost of the car is set at $55,000 for sedans and $80,000 for trucks and SUVs. 

Starting in January, EV buyers can get up to $7,500 off the purchase right at the dealership instead of claiming it on their tax returns at the end of the year.

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IRS Spells Out Criteria for Covid-19 Employee Retention Credit - Sara Hansard, Bloomberg ($):

Employers must have orders from the Occupational Safety and Health Administration to close to prevent spreading Covid-19 to qualify for a pandemic tax credit, rather than relying on guidance, the IRS said in a memo released Friday.

“Generally, communications from OSHA are not considered ‘orders from an appropriate government authority that limit commerce, travel, or group meetings’” due to Covid-19, the Internal Revenue Service’s Office of Chief Counsel said in the memo, which was dated Oct. 18. The memo was released in response to an inquiry from an unidentified employer into whether businesses can rely on OSHA guidance on mitigating and preventing the spread of Covid-19 in the workplace to be eligible for the employee retention credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Employers were eligible for the credit if their business was fully or partially suspended “due to orders from an appropriate government authority limiting commerce, travel, or group meetings” due to Covid-19, the memo said. The law provided a credit of 50% of qualified wages against employment taxes after March 12, 2020, and before Jan. 1, 2021.

The memo is here.

Employee Retention Credit Notice Likely Lacks the Force of Law - Leo Unzeitig and Jaime Vasquez, Tax Notes ($):

The only thing the IRS and taxpayers seem to be struggling with more than the employee retention credit might be the Administrative Procedure Act. With IRS guidance on ERCs often coming in the form of notices, we can consider Notice 2021-20, 2021-11 IRB 922, in the context of the tax law’s shifting legal landscape and determine whether it has the “force and effect” of law, and what level of deference, if any, a court might give it.

ERC audits are in full swing. As always, the issue for both taxpayers and the IRS should boil down to the application of law to facts. For taxpayers, the difficult part is figuring out exactly what the “law” is and how it should apply. There are the statutes, of course, starting with section 2301 of the Coronavirus Aid, Relief, and Economic Security Act, which morphed several times before formally finding its way into section 3134.

ERC Disputes: Mastery of Procedural and Substantive Rules Required - Hale Sheppard, Tax Notes ($) (commentary):

A huge number of taxpayers have claimed employee retention credits in the past few years. Some might understand the dense substantive rules, but not many are likely to have knowledge about procedural nuances. This is problematic because a large percentage of clashes with the IRS ultimately turn on procedural issues.

After seeing repeated announcements by the IRS about its intention to recoup every dollar from improper ERCs, its expanded enforcement budget, and its recent training of personnel to carry out ERC examinations and investigations, astute taxpayers might raise the following questions: Has the IRS created special procedural rules for ERC cases? How long does the IRS generally have to audit ERC claims? Do extended assessment periods apply to claims for certain quarters? What examination techniques will the IRS use? What methods can taxpayers whose ERC claims are rejected or ignored use? Which courts will have jurisdiction over ERC litigation? Can the interplay between employment tax and income tax cause taxpayers to get whipsawed by the IRS? This article, the latest in a series, explores these critical questions and others.


The Tax Angle: AI Enforcement, Clergy Retirements – Stephen Cooper, Law360 Tax Authority ($):

Bipartisan interest in regulating the use of AI by the Internal Revenue Service to collect unpaid federal taxes is starting to take shape on Capitol Hill. While neither of Congress' powerful tax-writing committees has held hearings this year directly addressing the intersection of AI and tax policy, some House lawmakers want to use pending budget legislation to make their preferences known.

Lawmakers have offered AI-related amendments to the fiscal 2024 budget for the U.S. Department of the Treasury and the IRS that the House Rules Committee plans to consider Monday afternoon. However, a uniform approach toward using AI to collect taxes has yet to develop among lawmakers, and the Rules Committee could decide to punt the issue entirely. The panel is not required to allow any amendments by lawmakers to the Treasury and IRS budgets.


IRS investigators go global to tackle cybercrime – Michael Cohn, Accounting Today:

Officials from the Internal Revenue Service's Criminal Investigation division met with tax officials from four other countries this week in an annual "cyber challenge" as they explored ways to cooperate across borders on uncovering tax evasion and money laundering schemes using cryptocurrency and other digital technology.

The Joint Chiefs of Global Tax Enforcement, also known as the J5, includes representatives from the U.S., Canada, the Netherlands, the U.K.  and Australia. The challenge was hosted this year by Canada and focused on data mining and crypto reporting. Using different analytical tools, members from each country are put into teams and tasked with generating leads and finding tax offenders, based on the new data available to them through the challenge. The tax authorities have developed more than 50 leads by working together this week, they told reporters during a press conference Thursday. 


From the “Game Changer” file:

Cannabis Investor Urges Industry To 'Pray For Rescheduling' – Sam Reisman, Law360 Tax Authority ($):

The president of a cannabis financial advisory firm said at a conference Friday that a potential move to redesignate cannabis to a less restrictive tier under federal law would boost the value of any cannabis company and would be a much-needed salve for an industry where investment has all but ground to a halt…

A Schedule III reassignment would not make cannabis federally legal, but it would provide cannabis operators a reprieve from a punitive federal tax policy, known as Section 280E, that forbids entities that sell Schedule I or II substances from taking ordinary business deductions.

This often results in prohibitively high tax liabilities for cannabis operators and has severely impacted the industry's ability to bring in new investors. Removing the 280E penalty "changes the game," [Scott] Greiper [president of Viridian Capital Advisors] said Friday.


It’s National Nachos Day! Need I say more?

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