Tax News & Views Sees a Self-employment Shadow Roundup

February 2, 2023

Choctaw Citizens Can't Escape Okla. Income Tax, Judge Says - Caleb Symons, Law360 Tax Authority ($):

A federal judge said two Choctaw Nation citizens cannot recover thousands of dollars in state income tax simply because they live in Indian Country, slamming the door on a lawsuit that threatened to upend an entire system of civil regulation in Oklahoma.


The lawsuit stemmed from the Supreme Court's ruling in McGirt v. Oklahoma, a 2020 case that led to the recognition of six Indigenous reservations in eastern Oklahoma, including an expansive territory that is home to the Choctaw Nation. That development meant the city of McAlester, Oklahoma, where the (Plaintiffs) live, is squarely within Indian Country.


Next Steps in SECA Compliance Campaign May Not Be Immediate - Kristen Parillo, Tax Notes ($):

The IRS has said the campaign is intended to address its compliance concern that some individual partners, including service partners in service partnerships organized as state-law limited liability partnerships, limited partnerships, and limited liability companies, have inappropriately claimed that they qualify as limited partners not subject to SECA tax.

At issue is section 1402(a)(13), a provision enacted in 1977 stating that a limited partner’s distributive share of partnership income or loss generally isn’t subject to SECA taxes. The exclusion doesn’t apply to guaranteed payments for services rendered to the partnership. Because the statute doesn’t define the term “limited partner,” the question of who it covers grew more complicated with the introduction of new types of state-law entities.

Related: Profits Interests: Granting “Free” Equity in a Partnership.


Treasury Welcomes Clear Guidance on Pillar Two Global Minimum Tax, Tax Credit Protections - U.S. Department of the Treasury:

Today, the OECD/G20 Inclusive Framework released a package of technical and administrative guidance that achieves clarity on the global minimum tax on multinational corporations known as Pillar Two, and provides critical protections for important tax incentives, including green tax credit incentives established in the Inflation Reduction Act. The guidance was agreed by consensus of all 142 countries and jurisdictions in the OECD/G20 Inclusive Framework and forms part of the common approach under which countries that adopt the rules agree to implement them.  Pillar Two provides for a global minimum tax on the earnings of large multinational businesses, leveling the playing field for U.S. businesses and ending the race to the bottom in corporate income tax rates.

"Pillar Two" is an international agreement to ensure multinational corporations are taxed at at least 15%, somewhere. "Pillar One" would expand rights of market nations to tax corporations who have no presence, other than sales, in a country. Alex Parker offers good background in his post "The OECD Tax Agreement: A Global Shift, or a Shifty Promise?"


Stock Buyback Excise Tax Guidance A Mixed Bag For SPACs - Olga Bogush and Evgeny Magidenko, Law360 Tax Authority ($). "Therefore, it would seem that, if (1) a SPAC redeems its stock in anticipation of the closing of a de-SPAC transaction; (2) the transaction does not close, and (3) the SPAC instead liquidates during the year in which the redemption occurs, distributions in connection with such a redemption may be exempt from the excise tax. However, there is some ambiguity in the drafting of this exception."


Watchdog Sounds Alarm On $5.4 Billion Of Potentially Fraudulent Pandemic Loans - Kelly Phillips Erb, Forbes. "The SSA revealed that 221,427 of the SSNs used on applications in the analysis were either not issued by SSA or that identifying information in SSA’s records did not match the information provided by the applicant, suggesting potential identity fraud. SSNs that have not been issued and cannot be attached to an individual may indicate so-called synthetic identities—a combination of real and fictitious information like a fake SSN with a real name."


Lack of Direction on Spending Could Pose Issues for IRS - Lauren Loricchio, Tax Notes ($):

Speaking during a February 1 webcast hosted by Tax AnalystsNina Olson of the Center for Taxpayer Rights said that what is missing from the IRS's latest plan for transformation is the legislative history and hearings of its last major transformation under the IRS Restructuring and Reform Act of 1998.

Olson explained that the bipartisan legislation in 1998 was preceded by a bipartisan commission that traveled the country and held hearings with stakeholders, including taxpayers, practitioners, and IRS employees, to create a set of recommendations, which Congress then held hearings on.

The Inflation Reduction Act, like so much legislation in recent years, was thrown together behind closed doors without committee hearings, on a partisan basis. 1998 seems so long ago.

How the IRS Might Spend Its Billions to Improve Taxpayer Services - Marie Sapirie, Tax Notes Opinions:

Several items on the NTA’s (National Taxpayer Advocate) list of 13 priority recommendations to improve the experience of taxpayers were directed at making it easier for taxpayers to interact with the IRS online. Online accounts with functionality comparable to that of private financial institutions could function as a sort of self-checkout line for taxpayers. This is a top priority, because the ability of taxpayers and tax professionals to accomplish standard transactions such as filing tax returns, making payments, and receiving tax notices “usually will eliminate the need for visiting, calling, or sending correspondence,” the report states. One way in which these accounts may differ from those at financial institutions is that practitioners would need to have the ability to access their client’s information as well as their own.

Until online accounts offer the ability to upload documents, the IRS should expand the use of its documentation upload tool, which allows users to take pictures of their documents and upload the images. According to the IRS, in addition to being expedient for the taxpayer, the tool offers “near-instant confirmation" that the IRS received the document. The development of the documentation upload tool shows that the IRS is already taking its cues from retail banking in its modernization efforts.


Taxpayers should avoid these common mistakes when they file their tax return - IRS. "Filing too early. While taxpayers should not file late, they also should not file prematurely. They should wait to file until they're certain they've received all their tax reporting documents, or they risk making a mistake that may lead to a processing delay."


Indiana Bill Would Create Passthrough SALT Cap Workaround - Emily Hollingsworth, Tax Notes ($):

S.B. 2 would create an optional passthrough entity tax that would allow S corporations and partnerships to elect to pay tax at the entity level, with an offsetting individual income tax credit for the partners. The tax would be retroactive to January 1, 2022.

The bill, created as a workaround to the $10,000 SALT deduction cap under the federal Tax Cuts and Jobs Act, was introduced by Sen. Scott Baldwin (R) January 9. It was amended and unanimously passed by the Senate Tax and Fiscal Policy Committee January 31.

IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.


Online Gambling and Cryptocurrency Addresses for 2023 - Russ Fox, Taxable Talk:

If you have one or more foreign financial accounts and you have $10,000 aggregate in those account(s) at any time during 2019, you must file the Report of Foreign Bank and Financial Accounts (the “FBAR”). This is Form 114 from FINCEN. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.) You also should consider filing an FBAR if you have $10,000 or more in a non-US Cryptocurrency Exchange.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Russ does the tax world a huge favor here by listing the addresses needed to properly report offshore gambling accounts. 


Open a bank account to get your tax refund sooner - Kay Bell, Don't Mess With Taxes. "Whichever account route you choose, set it up before your file. That way all you have to do is enter the account and routing information on your Form 1040 and wait for your refund to be deposited, usually much sooner than snail mailed U.S. Treasury checks." 

Cryptocurrency Deduction Cannot be Valued Using a Cryptocurrency Exchange - Parker Tax Pro Library. "The Office of Chief Counsel advised that, when a taxpayer donates cryptocurrency for which a charitable contribution deduction of more than $5,000 is claimed, a qualified appraisal is required under Code Sec. 170(f)(11)(C) in order to obtain a charitable contribution deduction."

FBAR Penalties – US v. Molyneux and the Big Fat Money Grab - Virginia La Torre Jeker, Virginia - US Tax Talk. "Now that the US Supreme Court has denied review in Toth, I believe the IRS will be emboldened to keep on hitting taxpayers with the highest possible FBAR penalties."

Related: Eide Bailly Penalty Help.


The Effects Of Using New Tax Revenue To Shore Up Medicare’s Finances - Gordon Mermin and Bowen Garrett, TaxVox. "Due to increasing costs per enrollee and the aging of the population, Medicare’s Hospital Insurance (HI) trust fund is expected to be depleted in about five years. Over the next 20 years, total annual Medicare spending, including payments for physician services and prescription drugs, is projected to increase by about two percentage points of Gross Domestic Product (GDP), or roughly $500 billion in today’s dollars."


Newport News commercial fisherman pleads guilty to tax evasion - IRS (Defendant name omitted):

According to court documents, Defendant, from approximately January 2017 through December 2020, Defendant worked and earned income as an independent contractor for various commercial fishing companies in the Hampton Roads region and elsewhere. He was paid over $500,000 for his work during this time. Defendant failed to file U.S. Individual income tax returns for tax years 2012 through 2020. He was levied by the Internal Revenue Service (IRS), but took steps to evade his income taxes, including working under a stolen identity and dealing heavily in cash. For the years 2012 through 2020, Defendant owed a tax debt of over $170,000.

Defendant pleaded guilty to evasion of income taxed and is scheduled to be sentenced on June 24. He faces a maximum penalty of five years in prison. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.

There's something fishy about this tax planning. Given the IRS levies, there's a good chance that thie taxpayer was being issued 1099s. The IRS notices those, especially if no return is filed at all. Don't be an easy catch - file timely and completely. 


Once again it's Groundhog Day. Like your tax return, take as much time as you need to do it right, so you only have to do it once. 

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