February 13, 2023
I.R.S. Decides Most Special State Payments Are Not Taxable - Tara Siegal Bernard, New York Times:
The Internal Revenue Service said on Friday that most taxpayers who received one-time, state-issued payments last year to alleviate the pain of higher inflation would not need to report them as income on their federal income tax returns. But some taxpayers in four states may need to claim the special payments.
Last week, the agency told taxpayers to hold off on filing their returns until it could provide further guidance on how to treat the payments, which affected millions of people in nearly two dozen states.
IRS issues guidance on state tax payments to help taxpayers - IRS:
During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.
In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.
IRS Acquiesces in Action on TurboTax Decision - Bob Kamman, Procedurally Taxing. "Translation: TurboTax and other software companies, along with H&R Block and other major tax preparation companies have been ignoring these payments for the last three weeks. Exclusion was the only practical solution."
The IRS Must Be Proactive in Issuing Timely and Clear Guidance to Resolve Tax Reporting Ambiguities - Erin Collins, NTA Blog. "The impact of the delay in providing timely information and guidance is hard to overstate. Tax software developers had to devote resources to decide how to treat these amounts (knowing the IRS might later take a different view) and program their software accordingly. Taxpayers and tax professionals needed to make decisions before filing returns. For taxpayers who have already filed returns that reported the payments as taxable, they likely will need to file amended returns to exclude the payments if the IRS determines they are not taxable."
IRS: Most states pandemic rebates for 2022 are non-taxable. - Eide Bailly. "The IRS last week had asked taxpayers receiving such payment to hold off filing tax returns while the agency determined how it would tax them. Some states have issued 1099s reporting them to the IRS. The announcement does not specifically address whether those states should amend 1099s, or whether the IRS will just ignore them."
IRS Won’t Extend S Corp Guidance for ‘Double Faults’ - Kristen Parillo, Tax Notes ($):
Taxpayers in this situation can only resolve the issue through the slow and costly private letter ruling process.
Rev. Proc. 2022-19, released in October 2022, provides simplified measures for correcting six procedural missteps in making S corporation elections that the IRS says are resolvable without requesting a letter ruling. While tax professionals welcomed the long-awaited guidance, some have pointed out that the retroactive relief for the sixth procedural misstep — invalid S corporation elections caused by “non-identical governing provisions” — may be unavailable for taxpayers that have a tainted operating agreement and made a disproportionate distribution that wasn’t based on the operating agreement.
The audience member pointed out that each of those violations is treated as a resolvable problem under the revenue procedure, but if a taxpayer has both problems, it will be ineligible for corrective relief.
US Crypto Broker Rules Pending, Treasury Lawyer Says - Dylan Moroses, Law360 Tax Authority ($). "Those rules are now being reviewed by the Office of Information and Regulatory Affairs in the Office of Management and Budget and will be published after following process, Nijenhuis [Erika Nijenhuis, a senior Treasury attorney] said. According to OIRA's website, the rules were received on Jan. 10."
Related: The Infrastructure Act and Cryptocurrency Transactions.
Substantive Research Amortization Guidance a Lagging Priority - Nathan Richman, Tax Notes ($):
The IRS and Treasury are working on substantive guidance for the new requirement from the Tax Cuts and Jobs Act for taxpayers to amortize research costs under section 174. But because it isn’t one of the highest-priority projects, it isn’t clear that taxpayers will have the additional interpretation before the initial filing deadline for 2022 tax returns, Wendy Friese of the Treasury Office of Tax Legislative Counsel said at the February 10 American Bar Association Section of Taxation meeting.
The TCJA, to pay for other tax cuts, changed section 174 to force taxpayers to amortize previously deductible research expenses over five or 15 years. The change took effect for tax years beginning after December 31, 2021, so taxpayers will soon have to file those tax returns.
Biden has big plans for junk fees, a billionaire’s tax and paid leave. But can he actually enact them? - Karl Evers-Hillstrom, The Hill. "But with Republicans in control of the House — and eager to block the president’s wishlist — Biden doesn’t have a pathway to enact many of the economic reforms announced at his State of the Union address, including a four percent tax on stock buybacks, a wealth tax on billionaires and expanded paid leave for workers."
Texas Comptroller Amends Sourcing Rule in Response to Sirius XM Decision - Paul Jones, Tax Notes ($):
The amendments most notably would eliminate a provision adopted by the comptroller in January 2021 that established that services are performed at the location where the "receipts-producing, end-product act or acts” occur, if such acts exist. Texas law sources receipts from sales of services to the location where the services are "performed," and the 2021 rule change thus effectively required receipts to be sourced to where the final action was taken to provide a service to customers, and thus generally to the location of customers, even if the bulk of the cost and work done to provide the service occurred in a different state. But the Sirius ruling shot down the comptroller's application of the "receipts-producing, end-product act" test for determining where a service is performed.
South Dakota Removes Sales Transaction Threshold for Remote Sellers - Emily Hollingsworth, Tax Notes ($). "S.B. 30, signed by Gov. Kristi Noem (R) February 9, removes the provision requiring remote sellers to collect and remit sales taxes if they’ve made 200 or more sales transactions into the state in a calendar year. Those sellers will still be required to remit the tax if their annual gross revenues from sales into South Dakota exceed $100,000."
Speaking of state tax news, be sure to check out the most recent edition of Eide Bailly State Tax News & Views. Fresh every Friday!
Sell on eBay or Get Paid on Venmo? You Probably Owe the IRS Taxes - Ashlea Ebeling, Wall Street Journal:
The Internal Revenue Service delayed for a year a new law requiring payment processors like Venmo and Cash App and platforms such as eBay, Etsy and Airbnb to send tax forms to users who make more than $600 in revenue.
Even before the rule kicks in for next year’s tax season, however, you have to pay what you owe on that extra money, whether you are sent a 1099-K form or not.
Tax refunds from amended e-filings now can be directly deposited - Kay Bell, Don't Mess With Taxes. "The direct deposit request is the same as with original 1040 filings. Simply select direct deposit on the electronic 1040-X and enter your banking or financial institution information. Then wait for it to show up in your account."
Chiefs, Eagles Both Lost the Super Bowl to Arizona’s Jock Tax - Addison Fontein, Bloomberg. "But while the victory went to Chiefs, both teams ultimately lost—at least 2.5% of their Super Bowl earnings based on Arizona’s personal income tax rates, in addition to the uniformly applied federal tax."
Good, Bad, and Ugly With the IRS - Russ Fox, Taxable Talk. "In calling the Practitioner Priority Service (PPS), I’ve gotten through every time! Twice, there was no wait!"
Leaving California Can Cut Your Taxes, But Be Careful - Robert Wood, Forbes. "High taxes getting you down? California’s 13.3% rate is the same on ordinary income and capital gain, and there have been several proposals to increase the top 13.3% rate as high as 16.8%. Moving sounds easy, but if you aren’t careful how you do it, you could end up saying goodbye California taxes, and hello to a residency audit. California's tough Franchise Tax Board (FTB) monitors the line between residents and non-residents, and can probe how and when you left."
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."
Green Energy and the OECD Tax Pact - Alex Parker, Things of Caesar. "Green energy and low-income housing are certainly worthy goals, unlike a tax haven or real loophole. But there are a lot of worthy goals out there, and if the perception sticks that the U.S. got its own carved out, other countries will surely want to pursue what they perceive as equally justified benefits."
Providing Changemakers the Data they Need to Tackle Racial Inequities in the US Tax Code - Benjamin Page, Tracy Gordon, and Aravind Boddupalli, TaxVox. "Measuring the racial equity impacts of the tax system is challenging. The most complete information on tax liability comes from tax return data, which do not include the race or ethnicity of taxpayers. Investigating the racial implications of tax policy therefore requires matching tax data with supplemental surveys or administrative data sources that include information on the race and ethnicity of an individual or a family."
Woman Used Identities of Dead People to Defraud U.S., Officials Say - Christine Chung, New York Times:
A Chicago woman was sentenced to just over five years in prison after fraudulently obtaining the identities of dozens of dead people, from infants to adults, and using the information to steal more than $45,000 of government funds, according to prosecutors and court records.
The woman... acquired more than 36 death certificates for murder victims in Illinois — ranging from 2 to 22 years old — from 2019 to 2021 by pretending to be related to them, according to court records. She then used personal details, such as dates of birth and Social Security numbers, gleaned from the documents to file for tax refunds and pandemic stimulus payments.
In addition to having to deal with the early and shocking deaths, these families then had to deal with the mess of working through the theft of the murder victims' identities.
These Millionaires Tried Turning a Yacht Into a Tax Break. The IRS Sank Their Plan. - Richard Rubin, Wall Street Journal.
The 116-foot Utopia II wasn’t selling, so the Ridingers and their lawyers hatched an alternative plan: Donate it, and reap a big tax deduction.
To be sure, this is not a major issue in Iowa.
What followed was an odyssey now approaching its eighth year. Audits, lawsuits, a midsea collision. The lesson: Think very, very carefully before you donate your yacht.
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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.