Hold Off on Filing Your Return, IRS Tells Millions of Taxpayers - Ashlea Ebeling, Wall Street Journal:
California sent out more than 16 million special Middle Class Tax Refund payments, worth $9 billion, to help counter inflation and high gas prices last year. It is still unclear if those payments should be treated as taxable federal income, as taxpayers are starting to file their 2022 tax returns.
The IRS said in a Friday statement it will provide guidance this week on the tax status of California’s and other states’ payments. Meanwhile, it is advising those who received these payments to await further instructions.
Link: IRS statement.
IRS wait-to-file signal to millions of taxpayers creates filing season 'chaos' - Lynnley Browning, Financial Planning. "The Internal Revenue Service regularly encourages Americans to file their federal tax returns as soon as possible, a nudge toward quicker refunds, avoiding identity theft and sidestepping processing delays. But just two weeks after the tax agency began accepting returns for the 2023 filing season, it quietly walked back its advice for millions of taxpayers in California, Virginia and other states."
State relief recipients awaiting IRS decision on potential federal tax cost - Kay Bell, Don't Mess With Taxes. "The payments were distributed in California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, New Jersey, New Mexico, New York, Pennsylvania, South Carolina, and Virginia."
Biden Calls For Tax On Wealthy In State Of The Union - Asha Glover, Law360 Tax Authority.
Biden repeated his call for Congress to pass his so-called billionaire tax, which would require households with more than $100 million to pay at least a 20% tax rate on their full income. The Billionaire Minimum Income Tax Act was introduced in the House of Representatives in July.
According to a fact sheet released by the White House ahead of Biden's speech, the minimum tax would ensure that the wealthiest Americans — who pay an average tax rate of about 8% — no longer pay a lower tax rate than average Americans.
In addition, the president called on Congress to quadruple the tax on corporate stock buybacks. Congress passed a 1% stock buyback excise tax last year in the Inflation Reduction Act.
Fact-checking President Biden’s 2023 State of the Union address - Glenn Kessler, Washington Post:
According to IRS data on the top 0.001% — 1,475 taxpayers with at least $77 million in adjusted gross income in 2020 — the average tax rate was 23.7 percent. The top 1 percent of taxpayers (income of at least $548,000) paid nearly 26 percent.
As for less-wealthy Americans, few, such as schoolteachers or firefighters, pay even the lowest rate of 10 percent because of deductions, exemptions and the like. According to the Tax Policy Center, about 60 percent of all tax returns are filed by those with income under $50,000 — and about half of those pay no income tax at all; 22 percent paid an effective tax rate of less than 5 percent and another 22 percent paid less than 10 percent.
Child Tax Credit, Maybe, But House GOP Pans Other Biden Tax Plans - Doug Sword, Tax Notes ($):
House Ways and Means Committee Republicans hope to move a tax package through their committee this year, but it won’t include President Biden’s proposed billionaire’s tax or his expansion of the stock buyback excise tax.
The child tax credit, though, might be another matter, both Republicans and Democrats said in the hours before Biden’s State of the Union address February 7. Efforts to couple some reworked version of the popular family tax benefit with a restoration of corporate tax preferences eliminated by the Tax Cuts and Jobs Act collapsed at the end of 2022 but are still the most promising basis of a major bipartisan tax bill in 2023.
The work requirements the GOP remain an important obstacle to any agreement.
Biden in SOTU to Repeat Call for Tax Increases on Earnings over $400,000 - Jay Heflin, Eide Bailly. "Republicans control the House and are highly unlikely to support any tax increase proposed by Biden or any other Democrat."
IRS Modernization Plans Have Faced Setbacks, Report Finds - Lauren Lorricchio, Tax Notes ($):
David Hinchman, acting director of the GAO’s Information Technology and Cybersecurity team, said during a GAO podcast that all the plans put forth by the IRS included descriptions of the work and project milestones, which is “exactly what we wanted to see.”
“And 12 of these plans were geared towards new capabilities that [the] IRS wants to build out. But the remaining nine plans were very much geared towards replacing legacy systems. And of those nine plans, only three included the details we expected to see about disposing of legacy systems,” Hinchman said.
“This raises questions for us about whether [the] IRS has really thought through what they plan to do with these legacy systems that they want to replace,” Hinchman said.
Link: GAO Report
AICPA sends 61 proposals to Congress for tax fixes - AICPA. "Our focus in this Compendium is on 61 proposals that are changes to provisions in the Internal Revenue Code that need attention, recommendations that are technical in nature and recommendations that perhaps can be readily addressed"
A few notable items include:
- Allowing tax refunds from partnership audit adjustments.
- Repealing termination of S elections with excess net investment income.
- Repeal the LIFO conformity rule
- Repeal the inclusion of "syndicates" in the definition of "tax shelters."
Link: AICPA letter.
California OTA: Nonresident’s Share of Gain Is Apportionable to the State - Andrea Muse, Tax Notes ($):
SOSV LLC (Holdco) was directly owned by three members. The taxpayer in this case, L. Smith, owned an indirect membership interest in the company. The LLC's sole purpose was to hold its 50.5 percent membership interest in Shell Vacations LLC, which was in the business of acquiring, developing, and selling timeshare and vacation interests and vacation club memberships. Shell Vacations conducted business within and outside California, while Holdco had its principal office in Illinois and reported no payroll, expenses, sales, or tangible property at the beginning or ending of the year on its final 2012 California LLC tax return.
But the California Franchise Tax Board concluded that Holdco and Shell Vacations constituted a unitary business and that Holdco’s gain from the sale was thus apportionable business income. The FTB used Holdco’s share of Shell Vacations’ apportionment factors to determine the amount apportioned to California since Holdco had no apportionment factors of its own.
Related: Eide Bailly Sell-Side Advisory Services.
Montana House Passes Tax Rebate Legislation - Emily Hollingsworth, Tax Notes ($). "Under the bill, single, head of household, and separate filers would receive $1,250 or their tax year 2021 individual income tax liability amount, whichever is less. Joint filers would receive the lesser of $2,500 or their tax liability amount for tax year 2021."
When IRS Forms 1099 Are Wrong Or Missing - Robert Wood, Forbes. "What if a 1099 is wrong? Most of the time when you say “my 1099 is wrong” the IRS already has it. So if the issuer of the Form 1099 has already sent it to the IRS, ask for a “corrected” Form 1099. The issuer should prepare a Form 1099 in the correct amount and check a “corrected” box on the form. The corrected form is supposed to cancel out the first one in the IRS system, once you give it time to settle. But what happens if the issuer won’t cooperate, or you can’t convince them that your numbers are right and theirs are wrong? There are some possible workarounds, but sometimes if a Form 1099 is wrong, you may have to disagree on your tax return itself."
More on California Middle Class Tax Refund - Annette Nellen, 21st Century Taxation. "It would be nice if the IRS could help provide relief to those truly in need who received an AB 192 payment, but it seems the general welfare exclusion looks at the entire program, not just to the effect on those with a financial or other need and the payments aren't viewed solely for COVID relief."
New Procedure Allows Real Estate Developers to Use Optional Safe Harbor Method - Parker Tax Pro Library. "The IRS issued a procedure which obsoletes Rev. Proc. 92-29 and provides new tax accounting rules which allow real estate developers to use an alternative cost method for reporting certain common improvement costs."
Tax Policy in Biden’s 2023 State of the Union Address - Erica York and Alex Muresianu, Tax Policy Blog. "Critics of stock buybacks argue that they’re a drain on investment: if a firm uses its earnings to buy back stock, then it is not using those earnings to fund new investment. This perspective, however, is static and misunderstands why firms typically use stock buybacks. As much as 95 percent of the money returned to shareholders from stock buybacks subsequently gets reinvested in other public companies. Ultimately, companies do not initiate buybacks as alternatives to new investments—instead, firms pursue buybacks once they have exhausted their own investment opportunities. Then, shareholders can reallocate the money to other investment opportunities across the economy."
How The Fair Tax Act Of 2023 Might Work - Peter Reilly, Forbes. "I've been through the bill numerous times now and will here try to lay out how I think it might work in practice for different sorts of taxpayers when we ring in the jubilee in 2025."
Does Your Firm Have A Strong Bench? - Amber Gray-Fenner, Forbes. "It’s no secret that people are leaving the tax and accounting industry. They are either retiring or simply choosing another field. It’s also no secret that bringing new talent into the industry is not easy."
Former Bank Teller Going to Federal Prison For Fraud Crimes - Rebekah Barton, TaxBuzz. "A former bank teller has been sentenced to over two years in federal prison on serious fraud charges."
Agoura Hills real estate developer agrees to plead guilty to lying on bankruptcy petition and filing false federal income tax returns - IRS (Defendant name omitted, emphasis added):
According to his plea agreement, in April 2015, Defendant filed a bankruptcy petition in Los Angeles in which he knowingly made false statements. Under penalty of perjury, Defendant stated that he had no income from 2013 until April 2015. In fact, Defendant earned approximately $2,263,221 in income from DTMM Construction Inc., his West Los Angeles-based real estate development company. Defendant caused DTMM, which, according to court documents, stands for "Don't Touch My Money," to be registered in his wife's name but used DTMM to deposit the profits from his own work as a real estate developer and to pay for his and his family's living expenses.
In October 2016, Defendant signed and filed a false federal income tax return for the tax year 2015 that failed to disclose approximately $1,096,175 in additional income. Defendant further admitted that for the tax years 2010 to 2017, he failed to report a total of approximately $6,886,877 of income on his federal tax returns.
The IRS will touch significantly more money than they would have had tax returns been correctly filed. And that's not counting the opportunity cost of the likely prison time to come.
Go fly a kite. Because it's National Kite-Flying Day!