Tax News & Views Cookies and Credits Roundup

IRS Moratorium Jolts Employee Retention Credit Industry - Lauren Loricchio and Nathan Richman, Tax Notes:

Innovation Refunds LLC said in a blog post that it stopped its paid lead-generation advertising and cut back new business development. The company had laid off 155 employees as of October 25, according to its CEO, Howard Makler.

The IRS efforts to get people to withdraw shaky ERC claims hasn't caught fire yet, it appears: 

The moratorium has addressed the IRS’s concerns about overly aggressive or fraudulent claims while removing much of promoters’ incentives to promote the transactions, according to James Creech of Baker Tilly US LLP. The contingency fees, especially when paid upfront, were the reason most ERC claim purveyors were in the business, and now they have to wait months or longer to collect those fees, he noted.

...

The option to withdraw an ERC claim already submitted to the IRS hasn’t been attracting much taxpayer interest, at least in part because the claims the IRS might want withdrawn are mostly sold to taxpayers, Creech said. “It's hard to overstate the emotional anchor that comes from somebody saying you qualify for hundreds of thousands of dollars,” he said. Taxpayers want to believe they qualify, he said.

How can I not qualify? The guy on the radio says I do!

Urgency Mounts to Avert 1099-K EBay, PayPal Tax Form Chaos - Erin Slowey and Samantha Handler, Bloomberg:

A law that significantly expands the scope of who needs to receive 1099-K forms is set to affect millions of unsuspecting taxpayers in January, absent legislative action or new guidance. Companies are lobbying Congress to change the law, while preparing for the flood of questions if it doesn’t. The IRS is leaning on these companies to help them implement the policy ahead of the filing season.

What chaos awaits? Read on, if you dare:

Under the 1099-K requirements, Rover, a site that connects pet owners with sitters and walkers, must report the gross payments the platform processed, even if there was a cancellation. Pet sitters will likely receive forms that say they’ve earned a substantially higher number than what they actually have, and will need to figure out from there how to correctly fulfill their tax reporting obligations, said Charlie Wickers, Rover’s chief financial officer.

Schedule C taxpayers will have to track income and expenses. Chaos.

UPDATE: IRS Delays Tax Rule for Online Sellers—Again - Ashlea Ebeling and Richard Rubin, Wall Street Journal:

For the second straight year, the IRS postponed enforcement of a law that requires those e-commerce and payment platforms to send the agency information about many users who receive more than $600 in revenue a year. 

Speaking out on a would-be tax deal - Bernie Becker, Politico:

For better or worse, it’s quite possible that these particular tax talks could spill into a third separate year, even as it seems like an uphill climb that much will come of them.

The most recent stopgap spending bill kicked the next appropriations talks into 2024, taking away the most obvious broader vehicle for a tax bill in December.

It’s perhaps not ideal to potentially talk about cutting taxes for 2023 next year, after the latest filing season has started. But people in both parties don’t expect that conversations over a tax agreement will to come to an end if a deal isn’t cut by the end of this year.

Related: Capitol Hill Recap: Shutdown Avoided, Tax Bill Needs a Ride

Wis. Gov. Vetoes 'Unserious' GOP Income Tax Cut Plan - Michael Nunes, Law360 Tax Authority ($). "Wisconsin's governor vetoed an omnibus bill Monday that included a Republican-backed plan to slash the tax rate for the state's third-highest income bracket from 5.3% to 4.4%, days after the Legislature concluded its special session."

Reynolds preparing tax cut plan for 2024 Iowa Legislature - O. Kay Henderson, Radio Iowa. "A year ago, Reynolds said her goal was to completely eliminate the state income tax by early 2027. Reynolds told reporters this she’s meeting with legislators and business leaders — and her staff is analyzing a variety of data points, but the governor isn’t ready to reveal details. 'We’re visiting with the respective parties that we need to and, most importantly, economists to make sure that we’re in a good place to be able to sustain it,' Reynolds said."

IRS announces underpayment, overpayment rates for 2024 First Quarter - Bailey Finney, Eide Bailly:

The IRS has announced (Rev. Rul. 2023-22) the interest rates for taxpayer underpayments and overpayments for the first quarter of 2024:

• 8% for overpayments [7% in the case of a corporation];
• 5.5% for the portion of a corporate overpayment exceeding $10,000;
• 8% for underpayments; and
• 10% for large corporate underpayments. 

The overpayment/underpayment rate for the first quarter of 2022 was 3%.

What You Need to Know About IRS Tax Changes for 2024 - Paulina Cachero, Bloomberg ($). "If you plan to transfer wealth to the next generation, gifts of up to $18,000 will be tax free in 2024, up from $17,000 in 2023, and the lifetime estate tax exemption will be $13.6 million, up from the $12.9 million."

UK Tax Cuts Still in Sight at Autumn Budget Despite Higher Borrowing in October - Ed Frankl, Wall Street Journal. "Indeed, with a general election drawing nearer, the Chancellor won’t be able to resist the temptation to unveil a pre-election splash, Capital Economics’ deputy chief U.K. economist Ruth Gregory said in a research note."

Corporate Income Tax Rates Decreased Globally Over Last 20 Years - Lauren Vella, Bloomberg ($). "28.2% in 2000 to 21.1% in 2023, according to the report. Twenty-seven of the 141 countries covered in the report had corporate tax rates equal to or above 30% in 2023. Malta and Colombia reported the highest corporate tax rates, both at 35%."

The U.S. corporation tax rate is 21%, excluding state taxes.

IRS warns of butchers seeking willing pigs - Kay Bell, Don't Mess With Taxes. "These targets, whom the fraudsters call pigs, are convinced to invest in cryptocurrency trading platforms. But when the victims attempt to cash out, the criminals butcher the pigs by seizing their funds."

It’s Benefits Season. Can You Use Your HSA Or FSA For Alternative Medicine? - Kelly Phillips Erb, Forbes. "She didn't start out to tie HSA and FSA funds to products in the store. Like many other parts of the business, it happened organically. The company noticed that customers—primarily women—wanted to use funds to pay. The company reports that most new customers are using HSAs and FSAs, and about 20% of their orders now use the accounts."

Exchange of Variable Contracts Results in $71 Million Short-Term Capital Gain - Parker Tax Pro Library. "On remand from the Second Circuit, the Tax Court held that when a taxpayer exchanged a set of variable prepaid forward contracts (VPFCs) for a second set of VPFCs, the first set of VPFCs was closed and the taxpayer's obligations with respect to that first set terminated for purposes of Code Sec. 1234A. As a result, the court found that the taxpayer realized over $71 million of short-term capital gain from the exchange of the VPFCs."

Zaxby’s Cofounder Sues U.S. For $166 Million Conservation Deduction - Peter Reilly, Forbes. "For the most part syndicated conservation easement transactions don't work without abusive appraisals since they are sold to people who in December realize they will have a big balance due. Once you get rid of those actors though you are still left with the valuation problem and people with a lot of capital and some patience will be able to exploit the system."

What’s Next for Tax Competition? - Daniel Bunn, Tax Policy Blog. "The recent agreement on a global minimum tax and other changes to tax rules around the world have called into question the future of tax competition. And though tax competition might be changing, it isn’t going away, so the Tax Foundation’s International Tax Competitiveness Index still has lessons to offer."

America’s top one percent has not been seeing a rising income share - Tyler Cowen, Marginal Revolution. "More concretely, looking at pre-tax income, the share of the top 1% has gone up only 2.6 percentage points since the early 1960s. For after-tax income, top income shares haven’t changed much at all."

Shakira strikes last-minute deal in Spanish tax fraud case - Anne Branigin, Washington Post:

Ames Man Sentenced for False Presentation and Preparation of Federal Tax Returns - US Department of Justice (Defendant name removed, emphasis added):

An Ames man was sentenced today to 18 months in prison for preparing, presenting, and making false tax returns.

According to public court documents, Defendant, 41... prepared and filed hundreds of federal individual income tax returns on behalf of individual taxpayers, from approximately 2011 to 2022. On a 2019 tax return, Defendant, on behalf of an individual, falsely reported business losses and qualified education expenses. As part of his plea agreement, Defendant agreed to not prepare, file, or assist in any way with the preparation of federal or state tax returns for any third parties. Further, in at least 2016, Defendant falsely reported business losses and qualified education expenses on his own tax return. Defendant’s false returns resulted in a combined tax loss exceeding $400,000.

The indictment is a catalog of things that should warn you away from a tax preparer:

Defendant prepared the Taxpayers' returns but did not explain the contents of the return to the Taxpayers, review the returns with the Taxpayers, or provide copies of the returns to the Taxpayers before Defendant electronically filed the returns with the IRS. Instead, Defendant would typically simply inform the Taxpayer of the amount of their anticipated refund...

Defendant left blank the section of the tax return where the paid preparer's name and contact information was supposed to be provided to the IRS...

Defendant included a Schedule C for some of the Taxpayers despite the Taxpayers not operating a business and the Taxpayers providing Defendant with no information that would lead Defendant to believe they operated a business or engaged in a profession as a sole proprietor or that they incurred expenses in relation to the business or professional endeavor. In the Schedules C, Defendant purported that the Taxpayers earned zero income from their purported business but incurred large expenses for their business. The result was a large net loss that fraudulently reduced the Taxpayers' tax liabilities and fraudulently inflated the Taxpayers' refunds...

Defendant included false information on Forms 8863 for some of the Taxpayers. Specifically, Defendant often falsely reported on the Form 8863 that the Taxpayer and/or some of the Taxpayer's dependents were students who were enrolled during the year at educational institutions in programs leading toward postsecondary degrees or credentials and that they incurred qualified education expenses that year. The result of this false information was to fraudulently increase the American opportunity credit for the Taxpayer.

This man's clients probably thought they had the best preparer in town, until the IRS wanted those refunds back.

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