Tax News & Views Org Chart Monkey Delivery Roundup

IRS Announces Four New Top Roles in Org Chart Reshuffling - Jonathan Curry, Tax Notes ($):

The IRS announced a new plan for its leadership structure that consolidates the two existing deputy commissioner roles into one, which will be filled by current Deputy Commissioner for Services and Enforcement Douglas O’Donnell.

Along with that consolidation comes creation: The agency is establishing four new IRS chief positions that will report to O’Donnell. Those chiefs will be Kenneth Corbin as chief of taxpayer service, Heather Maloy as chief taxpayer compliance officer, newcomer Rajiv Uppal as chief information officer, and Melanie Krause as chief operating officer. The restructuring plan, announced December 13, won’t take effect until early 2024, according to the agency.

IRS Shuffles Leadership Roles in Revamp With Fresh Funds - Erin Slowey, Bloomberg ($):

The new structure gives heightened importance to these positions and will provide more flexibility, Werfel said in a press call. This structure is similar to how the Treasury Department and other government offices are organized. It also echos recommendations made in the Taxpayer First Act Report to Congress in January 2021.

...

While Nina Olson, the Executive Director at the Center for Taxpayer Rights agrees with having a single deputy commissioner, she does “worry about the separation of service and compliance into two component organizations,” she said in an email.

“In the past that has led to employees with very different mindsets and cultures,” Olson said. “So we’ll need to see how this plays out.”

IRS Announces Plans To Shake Up Leadership Roles - Kelly Phillips Erb, Forbes ($). "The reorganization doesn’t require any changes to the agency’s budgetary appropriations—meaning that the agency doesn’t need more money. Because of that, the IRS doesn’t need to seek out Congressional approval to make the changes, though Werfel noted the agency has started the process of notifying Congress (which is required)."

 

Supreme Court Will Hear Challenge to IRS Estate Tax Valuation - Chandra Wallace, Tax Notes ($):

In an unusual midweek order list released December 13, the Supreme Court granted review in a handful of cases, including this challenge to an Eighth Circuit decision in Connelly v. United States that sided with the IRS, treating the life insurance proceeds as increasing the fair market value of the company and thus the value of the deceased shareholder’s estate.

That decision created a potential split with other circuits, including the Eleventh Circuit, which ruled in Estate of Blount v. Commissioner, 428 F.3d 1338 (2005), that a closely held company’s obligation to redeem shares offsets the life insurance proceeds used in that redemption. Only proceeds over and above the amount used to fund the redemption, if any, would be treated as increasing the company’s value, that court ruled. 

Supreme Court to Resolve Split Over Estate Tax Valuation - Kimberly Strawbridge Robinson, Bloomberg ($):

The petition was filed by Thomas A. Connelly, the executor of the estate of Michael P. Connelly, who is fighting a $1 million tax deficiency assessed on the estate by the IRS after it determined that Crown C Corp., a St. Louis building materials company the Connellys owned, failed to report life insurance proceeds it received after Michael’s death in 2013.

In particular, the justices agreed to resolve whether a life insurance policy intended to fund the company’s repurchase of the dead owner’s stock should be considered in the valuation of the stock.

This will have important effects on planning for transition of family businesses. 

Related: Eide Bailly Wealth Transition Services. 

 

IRS Must Justify $24 Billion Tax Bill It Sent to Bankrupt FTX - Steven Church and James Nani, Bloomberg ($):

US tax officials must justify a $24 billion tax bill that threatens to wipe out recoveries for victims of the fraud-tainted crypto firm FTX Trading Ltd. under a ruling made by a bankruptcy judge Wednesday.

US Bankruptcy Judge John Dorsey sided with FTX when he scheduled a hearing for early next year to decide how much the company may owe the Internal Revenue Service in unpaid taxes. The company had argued for a quicker-than-normal process to estimate the $24 billion claim.

The collapse of FTX shows that over its life, it wasn't profitable. If any income taxes are owed (at the expense of creditors defrauded by FTX), it shows the flaws of a tax system with harsh limits on loss carrybacks and carryforwards. 

 

Taxwriters Grapple With Foreign Influence on EOs and Politics - Fred Stokeld, Tax Notes ($). "House taxwriters clashed at a hearing on political activities of tax-exempt organizations, with Republicans alleging that overseas money is being sent to U.S. nonprofits to influence elections, and Democrats arguing that the IRS needs more resources to enforce laws governing political activity by nonprofits."

Need to spend those pre-tax health dollars? Food and exercise may qualify. - Anahad O'Connor and Maureen O'Hagan, Washington Post. "Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs) allow you to set aside money on a pretax basis to pay for “qualified medical expenses,” including medical, dental, prescription and vision bills. But many people don’t realize they may be eligible to spend the funds on a range of other options, including certain meal kits, gym memberships, protein powders, supplements, fitness trackers and even saunas."

Saunas? Jee!

 

Home office and other business expenses denied - Xiaoge Jiang, The Tax Adviser. While not mentioning TikTok, the article covers a tactic hyped on social media platforms: renting a home office to a C corporation:

To prove entitlement to such a deduction, a taxpayer must provide evidence, such as a rental agreement, that shows there was a rental payment related to the corporation’s business operation. In this case, [the corporation] could not provide any rental agreement to show there were payments for business use. Also, the corporation could not produce any evidence that it expended any funds maintaining [corporate owner's] alleged home office. Thus, the court found that GCF could not deduct the home office expenses.

Not everything you hear about taxes on social media is necessarily true.

 

Easing inflation gives True Loves a relative price break this year on 12 Days of Christmas gifts - Kay Bell, Don't Mess With Taxes. "So what is the dollar damage to shoppers who give their true loves all of the classic carol's gifts? Overall, the 12 gifts that compose the PNC CPI increased to $46,729.86 this year."

Functional Analysis Determines Limited Partner Status for Self-Employment Tax Purposes - Parker Tax Pro Library. "The Tax Court held that the limited partner exception of Code Sec. 1402(a)(13), which excludes from net earnings from self-employment the distributive share of any item of income or loss of a 'limited partner, as such,' does not apply to a partner who is limited in name only." 

Four Lucrative Tax Deductions That Seniors Often Overlook - Lori Ioannou, Wall Street Journal. "Seniors who give money to charity to lower their taxable income often make a mistake. They withdraw a large sum from their bank account or a traditional IRA and then write a check to the nonprofit or organization of their choice. As a result, they are missing a valuable tax deduction."

How Recent Reforms to Retirement Saving Will Impact Taxpayers in 2024 and Beyond - Alex Durante, Tax Policy Blog. "Beginning in 2024, employers may offer a new type of 401(k), the starter 401(k), where workers will be automatically enrolled at a contribution rate between 3 and 10 percent. They may opt out of the plan or increase their contributions up to that maximum amount of 10 percent. Each year the employer must increase their contribution by 1 percent until it reaches the ceiling, which will rise to 15 percent beginning in 2026. However, yearly contributions may not exceed $6,000, while catch-up contributions up to $1,000 are permitted for workers over 50."

 

Tis the Season! Giving / Getting Gifts from a Foreign Entity? - Virginia La Torre Jeker, US Tax Talk. 
"The US recipient must timely report the gift on Form 3520 (see Part IV), if required. In the case of gifts from foreign corporations or partnerships (or any foreign persons that you know, or have reason to know are related to such foreign corporations or foreign partnerships), reporting is required at a very low threshold. For purported gifts from foreign corporations or foreign partnerships, the US recipient is required to report the receipt of such purported gifts if the aggregate amount received from all entities exceeds: US$17,339 for 2022; US$18,567 for 2023 and US$19,570 for 2024."

The penalties for failure to report gifts on Form 3520 can be horrendous.

 

A former White House scientist was scammed out of $655,000. Then came the IRS. - Michael Larris, Washington Post:

The doctorate daughter of a plumber from Queens had made a life advising the federal government on stem cells, new energy technologies and the effects of biological weapons. Despite a history of meticulousness, Sharples wasvictimized by a global network of online criminals, including a man with a gentle Indian accent who helped make off with much of her life savings.

It's a sad story:

The article says this was a "tech support scam." Many of us have seen things like this pop up on my devices or in emails. 

The worst part of this is the IRS says that she is taxable on the retirement plan withdrawals that the scammers stole from her. That doesn't seem like good tax policy.

 

Tax Fraud Penalties Upheld for Man Who Planned to Poison His Wife - Nathan Richman, Tax Notes ($). "A man who previously pleaded guilty to filing false tax claims, possessing a neurotoxin as a weapon, and fraudulently obtaining a $20 million life insurance policy on his wife is on the hook for tax fraud penalties."

It seems like an odd punishment under the circumstances, but it is on top of, not instead of, charges related to wife-poisoning. The taxpayer also filed returns using fake W-2s to generate refunds from fake withholding. Fraud penalties are upheld.

Link: T.C. Memo. 2023-148

 

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