February 9, 2023
IRS Commissioner Nominee Set for February 15 Senate Hearing - Cady Stanton, Tax Notes ($):
At the hearing, announced February 8, Werfel will likely face questions on the IRS’s plans for spending about $80 billion in additional funding it received as part of the Inflation Reduction Act (P.L. 117-169) last year. He could also be asked to address a June 2021 ProPublica report that revealed private taxpayer information for some of the country’s wealthiest people.
Werfel, currently a managing director and partner at the Boston Consulting Group, could face ongoing scrutiny in the role if confirmed if the new House Ways and Means Committee leadership is any indication. In his opening statement as chair on January 9, Rep. Jason Smith, R-Mo., said he plans to prioritize IRS oversight.
New ‘SALT’ caucus rejuvenates efforts to relieve deduction cap - Laura Weiss, Roll Call:
A bipartisan group of House members relaunched a "SALT" caucus on Wednesday as lawmakers on both sides of the aisle prepare for another fight over scrapping a $10,000 limit on deducting state and local taxes.
Still, as House Democrats found during their two years of control in Washington, forcing SALT relief into a tax package runs into obstacles from both Democrats and Republicans who argue relief is a giveaway to the wealthy. Caucus members at the press conference argued the cap is an unfair double tax that exacerbates high costs for middle-class families.
IRS to release report on free online tax-filing system in May - Tobias Burns, The Hill:
The Inflation Reduction Act, a sweeping economic reform bill signed by President Biden last year, ordered the IRS to conduct a study on how Americans could file their taxes online through a federal website or program without cost.
Manchin 'raising hell' over White House handling of marquee Dem bill - Burgess Everett, Politico:
"Success" doesn't seem to be defined in terms of climate change here.
And if you ask Manchin, things have not gone well since that huddle. That’s because the West Virginia Democrat is livid about how his party’s president and his administration are rolling out a party-line bill that served as a crowning achievement for both men — and he’s particularly peeved at a delay in new guidelines on who gets the law’s generous electric vehicle tax credits.
In addition to lobbying the president at the previously unreported Jan. 3 sitdown, Manchin has introduced a bill that would halt the credits until Treasury Secretary Janet Yellen implements strict requirements for electric-vehicle battery sourcing. As Manchin sees it, using the credit to boost U.S.-manufactured rather than overseas-made vehicles is essential to making the law succeed.
Kan. Senate Bill Seeks Flat Tax Rate - Jaqueline McCool, Law360 Tax Authority ($). "S.B. 169, introduced Tuesday by the Committee on Assessment and Taxation, would impose a flat income tax rate of 4.75% on income over $5,225 for individual filers and income over $10,450 for joint filers. Currently, income up to $15,000 is taxed at 3.1%, income over $15,000 and up to $30,000 is taxed at 5.25% and income over $30,000 is taxed at 5.7%."
Brazil's Lower House To Create Tax Revision Working Group - Kevin Pinner, Law 360 Tax Authority. "Under a plan tabled in December, two consumption taxes would replace the current system, marked by dozens of state-level taxes on the circulation of goods and services and thousands of municipal-level taxes on the provision of services, according to a Jan. 27 blog post by the Senate's news agency."
Background here: "Brazil has one of the world’s most complex tax systems. According to the World Bank while a typical business spends 234 hours to fulfill its tax obligations, a Brazilian company faces 1,500 hours."
Buying Real Estate in Coastal Mexico: Tax Implications in the U.S. & Mexico - Stephanie Urebe, Freeman Law. "A Form 3520 may be required with respect to foreign trusts. However, in Rev. Rul. 2013-14, the IRS ruled that Mexican Trusts used merely to hold title to property are not considered 'trusts' for purposes of Form 3520. Accordingly, such fideicomisos may fall within Rev. Rul. 2013-14. However, the Revenue Ruling does not apply to all types of fideicomisos, nor does it apply to all fideicomisos that are used to hold real estate. Its application is limited to three different types of fideicomisos in which the real estate is 'occasionally leased.'"
Related: Eide Bailly Foreign Trust and Estate Planning.
Forgo fraud this tax season: IRS-CI issues tips to protect your wallet, identity - IRS.
- Choose a tax preparer wisely. Look for a preparer who is available year-round.
- Ask your tax preparer for their IRS Preparer Tax Identification Number (PTIN). All paid preparers are required to have one.
- Don't use a ghost preparer. They won't sign a tax return they prepare for you.
- Don't fall victim to tax preparers' promises of large refunds. If it's too good to be true, it probably is. All taxpayers must pay their fair share of taxes.
- Don't sign a blank tax return. Taxpayers are ultimately responsible for what appears on tax returns filed with the IRS.
- Make sure you receive your refund. Your refund should be deposited into your bank account, not your tax preparer's.
- The IRS will not call you threatening legal action. If you receive a call like this, hang up, it's a scam!
- Don't respond to or click links in text messages, emails or social media posts claiming to be the IRS. They may contain malware that could compromise your personal information.
- Protect your personal and financial information. Never provide this information in response to unsolicited text messages, emails or social media posts claiming to be the IRS.
- Report fraud to law enforcement. Submit Form 3949-A, Information ReferralPDF, if you suspect an individual or a business is committing fraud.
I would add: Never send confidential information, like your social security number or an unencryped attachment, via e-mail. Use your preparer's confidential portal, such as my.eidebailly.com, to provide information to your preparer.
5 tax tips for Free File users - Kay Bell, Don't Mess With Taxes. "These electronic tax forms, which you can find at the Fillable Forms site, are handy if your taxes aren't that complicated, you're comfortable doing your own taxes, and you made too much money to use Free File."
Defense Contractor Can't Exclude Employer-Provided Housing from Income - Parker Tax Pro Library. "The court found that the touchstone of the business-premises test in Code Sec. 119(a)(2), which allows the value of employer-provided housing to be excluded from income, is a lodging's relationship to the business activities of the employer and because the taxpayer did not require immediate access to his employer at all hours and his housing did not in fact provide such access, he failed the business-premises test."
The 1099 Headache - Bret Hersh, Overnight Accountant. "Until a decade ago, there was little consequence for businesses ignoring 1099 rules. They might receive a warning letter or - worst case - a small fine. These days are gone. The penalties for not filing 1099s can now sink a small business."
Will the Federal Government Tax Your State Tax Rebate? - Jared Walczak, Tax Policy Blog:
Potential federal tax liability is just one of many reasons why one-time rebates are economically inferior to permanent rate reductions. States’ revenue gains are a mix of recurring and one-time increases, and there are certainly worse things states can do with the temporary share than to give it back to taxpayers. But there are better options, like reducing unfunded liabilities to avoid future tax increases. Moreover, to the extent that states have recurring revenue gains, permanent tax changes influence future economic decision-making, whereas retroactively applied rebates do little to improve a state’s economic outlook.
Nevertheless, in almost half of states, many residents received a check. The IRS was aware of this fact, and of the federal income tax confusion it would engender. It’s unfair to taxpayers that we’re more than a week into February and still don’t know what millions of them are supposed to put on their federal tax returns. This could have—and should have—been avoided.
Lesson From The Tax Court: The Tax Court Is Not Your Advocate - Bryan Camp, TaxProf Blog. "For today’s purposes, however, I just wanted to alert readers that you simply cannot expect the Tax Court to rescue you from arguments or issues that you may miss."
The Latest: Broker Reporting of Digital Assets and Deducting Crypto Losses - Virginia La Torre Jeker, Virginia - US Tax Talk. "The year 2022 was not very kind to crypto investors and many are looking at deducting losses on their failed investments. The IRS has provided some recent guidance on that issue, also examined today. Spoiler alert – it’s not taxpayer friendly."
Related: The Infrastructure Act and Cryptocurrency Transactions. 2021/11
Migrating Americans Seek Lower Taxes and Greater Freedom - J.D. Tuccille, Reason:
There is plenty to parse here, and a good many competing factors as to why people move from one place to another. Even within rankings of tax burden and freedom, some people will emphasize one tax rate over another, or rule out a state that otherwise ranks well on overall freedom because it does poorly in areas that are important to them. And that's before we get to other important concerns like job opportunities, family, climate, culture, and cost.
That said, all things being equal, it's clear that states that are bossy and sticky-fingered have a tougher time attracting people than those that generally leave people alone to run their own lives and keep a relatively large share of their own money.
Former Durango restaurant owners sentenced on felony tax evasion convictions - IRS (Defendant names omitted):
The United States Attorney's Office for the District of Colorado announces that Defendants, of Durango, Colorado were each sentenced to six months of house arrest, 150 hours of community service, a $25,000 fine, more than $160,000 of restitution, and five years of probation supervision after pleading guilty to tax evasion.
According to the plea agreement, public filings, and evidence presented at the sentencing hearing, the Defendants operated a restaurant called Ken & Sue's on Main Street Durango for twenty-two years. When the Defendants put their restaurant up for sale in February 2020, an investigation was initiated and the Defendants were found to have overstated their business expenses to reduce their tax liability from 2014-2019. During the course of the investigation Defendant stated, "we're masters at," and then Co-Defendant finished the sentence with the word "disguising." The codefendants then proceeded to explain that they hid various personal expenses as business expenses to lessen their tax liability. Based on that information, the IRS executed a search warrant on the premises of the restaurant on August 26, 2020.
IRS Criminal Investigation special agents showed that the defendants intentionally categorized nearly a million dollars of their personal expenses as business expenses, resulting in underpaid taxes of over $160,000.
Another score for the IRS secret shopper program.
The moral? When businesses leave income off their tax returns, it can get awkward when it comes time to sell. Even if the "buyers" aren't from the IRS, they might think that if you are willing to lie to the IRS, you might not be truthful in general.
But I already have a number of them. It's National Develop Alternative Vices Day. "On National Develop Alternative Vices Day, people are encouraged to replace their vices with ones that are less harmful to their bodies and minds."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.