Tax News & Views Don't Let Data Security be Toast Roundup

By Joe Kristan
November 28, 2023

Key Takeaways

  • Tax Security Awareness Week.
  • 179D punch list.
  • Part-timer retirement plan rules proposed.
  • Regs. clean up partner related-party rules.
  • Minnesota gets away with secret tax rule change.
  • Nebraska consumption tax referendum pushed.
  • Post-it note documents tax fraud scheme.
  • National French Toast Day.

IRS, Security Summit partners launch 2023 National Tax Security Awareness Week focusing on holiday scams, protecting personal information as tax season nears - IRS:

The IRS is warning taxpayers to be on the lookout for a surge of tax scams as identity thieves continue pounding out a barrage of email and text messages promising tax refunds or offers to help 'fix' tax problems.

The latest email schemes touch on a variety of topics, but many center around promises about a third round of Economic Impact Payments. The IRS continues seeing complaints daily about this scam, which has an embedded URL link that takes people to a phishing website to steal sensitive taxpayer information.

The IRS also commonly receives reports of emails urging people to "Claim your tax refund online," and text messages that something was wrong with the person's tax return. These scams are riddled with spelling errors and awkward phrasing, but they consistently try to entice people to click on a link.

The IRS also has specific tips for protecting personal and business devices, including:

  • Make sure anti-virus software for computers has a feature to stop malware, and that there is a firewall enabled that can prevent intrusions.
  • Use strong and unique passwords for online accounts.
  • Use multi-factor authentication whenever possible. It helps prevent thieves from easily hacking accounts. 


A Punch List for the Commercial Buildings Energy Deduction - Marie Sapirie, Tax Notes ($). "Like many other IRA provisions, the section 179D amendments added prevailing wage and apprenticeship requirements to the full deduction. Now there is a base deduction of 50 cents per square foot and a 5x multiplier for meeting the prevailing wage and apprenticeship rules, which can result in a deduction of $2.50 to $5 per square foot. Applying those rules might create unique challenges. The Real Estate Roundtable recently submitted a comment letter to Treasury explaining that 'the net financial impact of [prevailing wage/registered apprenticeship] compliance alone can exceed the net present value of the maximum available 179D ‘bonus’ at $5 per square foot.'"

Related: Incentivizing Energy Efficiency: How 179D Provides Significant Tax Savings.


IRS Proposes Rules On Part-Time Worker Retirement Plans - Anna Scott Farrell, Law360 Tax Authority ($):

Employees would not be considered long-term, part-time employees for purposes of qualifying to participate in retirement plans that include cash or deferred arrangements until they worked two or three years as required by laws known as the Secure Act and Secure 2.0 under guidelines proposed by the IRS


"Under this proposed regulation, an employee would not be a long-term, part-time employee unless the employee becomes eligible to participate in a qualified [cash or deferred arrangement, or CODA] solely by reason of having completed the applicable number of consecutive 12-month periods," the Internal Revenue Service said in the proposal.

Timing of Long-Term Part-Time Employee Benefits Regs Brings Worry - Brett Ferguson and Caitlin Mullaney, Tax Notes ($):

Sarah J. Touzalin of Seyfarth Shaw LLP told Tax Notes, “We weren’t really expecting relief or any kind of an administrative delay for this provision. However, based on the proposed rules, the question we have now is whether anything needs to be done by the end of 2023.”

Touzalin wondered whether employers would need to amend their safe harbor plans before the beginning of the 2024 plan year to clearly exclude long-term part-time employees from the safe harbor provisions. Under the hours-based service condition in the proposed regs, safe harbor plans could be introducing a whole new class of eligible employees and employers must decide whether to include the group and adapt the plan or exclude the new groups and potentially accept the top-heavy requirements.


IRS Still Has Millions Of Returns To Process As Next Tax Season Approaches - Kelly Phillips Erb, Forbes:

The agency says that it has processed all paper and electronic individual returns received before October 2023. Additionally, the agency claims it is opening mail within normal time frames. This means, they say, that all individual returns received for the tax year 2021 or earlier have been processed—if those returns had no errors or did not require further review.

By the numbers, as of Nov. 11, 2023, the agency had 953,000 unprocessed individual returns (Forms 1040). These include tax years 2022 and 2021 returns that need review or correction and late filed prior year returns.


Related-Party Rules for Partnerships to Get Needed Cleanup - Kristen Parillo, Tax Notes ($):

Section 267 — which addresses losses, expenses, and interest in transactions between related taxpayers — is designed to prevent related persons from using different methods of accounting to mismatch the timing of deductions, losses, and inclusions.

Section 267(a) provides a rule disallowing loss deductions resulting from sales or exchanges of property, directly or indirectly, between related persons, as well as a matching rule for interest and expense deductions and the associated income. Section 267(b) defines a related person, but partnerships weren’t included when the provision was originally enacted in 1939.


Minnesota Supreme Court Upholds Tax on Sale of Goodwill - Andrea Muse, Tax Notes ($):

The gain on the sale of goodwill as part of the sale of an S corporation is apportionable business income and subject to Minnesota tax, the state supreme court has held.

The court said November 22 in Cities Management Inc. v. Commissioner of Revenue that the gain from the sale, including the sale of goodwill, is income from a unitary business and may be constitutionally apportioned to Minnesota as business income.

The decision includes a blistering dissent that says Minnesota changed the rules without telling anyone:

But what is perhaps most troubling about this conduct is the Commissioner's lack of transparency. For more than 10 years after the Nadler opinion was issued, the Commissioner did not make public the Department of Revenue's position on the interpretation of section 290.17. Public notice of the Commissioner's disagreement was not provided until July 2017 when the Department issued Revenue Notice 17-02. In this revenue notice, the Commissioner publicly advised taxpayers for the first time that "the department does not administer the income allocation provisions in [section 290.17] using the Minnesota Tax Court's reasoning in Nadler v. Commissioner." Minn. Dep't of Revenue Notice No. 17-02 (July 3, 2017).

This revenue notice was, of course, no use to CMI; the business was sold and the 2015 tax return was filed relying on Nadler before the Commissioner issued the revenue notice...

Given the outrageous conduct of the Commissioner, I would instead announce an equitable rule that the Commissioner is bound by tax court decisions that are not appealed unless the Department of Revenue provides public notice of its disagreement with the tax court opinion.


This lawsuit could disrupt the U.S. tax system. Key facts are in dispute. - Ann Marimow and Julie Zauzmer Weil, Washington Post. "An unusual political coalition has come together to defend the offshore-earnings tax, from the Biden administration to conservatives including former House speaker Paul D. Ryan. Not because they favor a wealth tax, but because they worry a ruling against one little-known provision could undermine vast swaths of existing taxes on investments, partnerships and foreign income, which together raise billions or even trillions in revenue."

Supreme Court to consider ‘quadrillion-dollar question’ in major tax case - Tobias Burns and Zack Schonfeld, The Hill. "At issue in Moore v. United States is the question of whether the federal government can tax certain types of 'unrealized' gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth."


‘EPIC’ Question for Nebraska: Choose a Consumption Tax System? - Michael Bologna, Tax Notes ($). "Nebraska state Sen. Steve Erdman (R) and several other lawmakers this week unveiled an epic proposal, which also goes by the name “EPIC,” for Eliminate All Property Income Inheritance and Corporate Taxes. As the name suggests, the plan would rescind the state’s primary tax structures and replace them with a simple 7.5% consumption tax on all services and new goods, with the exception of groceries. Erdman insists the tax trade would be revenue neutral."


5 tax turkeys to avoid this Thanksgiving and beyond - Kay Bell, Don't Mess With Taxes. "A few relatively easy tax moves in these areas could help make your tax life easier."

FinCEN Issues Alert with 10 Red Flags Financial Institutions Can Use to Identify Reportable Suspicious Transactions Related to ERC Fraud - Ed Zollars, Current Federal Tax Developments. "Even if a business is operational, there are instances where the owner, fully aware of their ineligibility for the ERC, may still file for a refund, possibly in the hope that the IRS will issue the refund without conducting a thorough examination of their claim."

401(k) Contribution Limit Increases to $23,000 for 2024; IRA Limit is $7,000 - Parker Tax Pro Library. "The IRS released the annual cost-of-living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for 2024. The 401(k) contribution limit increases to $23,000, up from $22,500 for 2023, and the annual IRA contribution deduction increases from $6,500 to $7,000. Notice 2023-75."


IRS Announces One-Year Delay in $600 1099-K Requirement - Russ Fox, Taxable Talk. "While the IRS phrased the announcement as resulting from '…feedback from taxpayers, tax professionals and payment processors…,' I strongly believe that the IRS isn’t ready for the tsunami of 1099-K’s that are coming."

IRS Delays Tax Deadlines Set by Congress. It Could Cost $8 Billion. - Richard Rubin, Wall Street Journal. "The most recent IRS decision pushed back new requirements for payment and e-commerce platforms such as Venmo and Ticketmaster... The congressional Joint Committee on Taxation projected that the first two full years would generate about $2 billion when the law was passed by Democrats in 2021. Congress had counted the revenue to help pay for pension-law changes."


‘Paramilitary’ Tax Agents Deployed in Kenya’s Revenue Drive - David Herbling, Bloomberg ($).

President William Ruto’s ambitious plans to boost revenue had come to the Kenyan capital’s main shopping stretch on a late October afternoon. As the agents moved in pairs down bustling 1st Avenue, they registered dozens of shops onto the East African nation’s tax rolls — clothing stores, luggage shops, outlets selling spices and grains — after checking their books and determining average sales figures.


Deploying 1,400 tax collectors — touted by the government as 'paramilitary trained' in order to discourage resistance — is the most aggressive in a long line of controversial steps by Ruto to nearly double the government’s revenue collection to a quarter of gross domestic product by 2030. It follows a raft of new levies on carbon, cars, fuel, income and housing — and aggressive duty collection at the country’s main airport — that the new administration has unleashed as it seeks to fix an economy on the brink of debt distress.

Fortunately, this is not quite the approach the IRS takes.


Sigourney Man Sentenced to Mail Fraud and Defrauding the IRS - US Department of Justice (Defendant name omitted, emphasis added):

A Sigourney man was sentenced today to 33 months in prison for committing fraud by selling grain as organic, which in fact was grown in violation of the United States Department of Agriculture (USDA) National Organic Program (NOP). NOP is a federal regulatory program governing organic agricultural products.

In April 2023, Defendant, 48, pleaded guilty to mail fraud and conspiracy to defraud the United States. According to public court documents, key among Defendant’s NOP violations were the use of treated seed, which is prohibited by NOP. Defendant concealed his NOP violations from the Iowa Department of Agriculture and Land Stewardship (IDALS), the organic certifier. The grain was then sold by Defendant to a number of unwitting purchasers at a total sale price of over $6.5 million.

Defendant also conspired to impede and obstruct the Internal Revenue Service (IRS) in the assessment and collection of income taxes. Between April 2017 and April 2019, Defendant obtained false invoices, backdated checks, and exchanged checks to give the appearance of an expense that was not in fact incurred. In total, Defendant concealed over $1.3 million in income. Restitution was ordered to the IRS in the amount of $408,107 and $25,233.44 to a purchaser of the purported organic crops.

What sort of non-organic tax violations were involved? Well, he had help, and his helper got in trouble. From his helper's plea agreement (again, name omitted): 

Defendant...doing business as Crop Depot, issued an invoice and sent it to M.H. and T.H. dated September 16, 2016, purporting to show a purchase of seed in the amount of $339,691.50. Defendant admits this invoice was entirely false and fictitious and did not represent the exchange of any money, goods, or services. Defendant admits that he maintained a copy of this invoice to which he affixed a post-it note upon which he had written, "Fake Bill for Tax Savings 2016 year."

Accurate recordkeeping is important.


Time for second breakfast. It's National French Toast Day!

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