February 22, 2023
IRS Delays Lowered Mandatory E-File Threshold Until 2024 - David Van Den Berg, Law360 Tax Authority ($):
The IRS will delay until 2024 a requirement that businesses electronically file certain information returns and other returns if they file 10 or more returns, down from the current threshold of 250, under final rules released Tuesday by the agency and the U.S. Treasury Department.
The lowered mandatory e-filing threshold of 10 returns enacted in the Taxpayer First Act will take effect for returns filed starting Jan. 1, 2024, under the final rules released by the Internal Revenue Service and Treasury.
Final E-Filing Regs Reject Blanket Exception for Foreigners - Kristen Parillo, Tax Notes ($). "Treasury and the IRS addressed stakeholder concerns that changes to the application process for the IRS’s Filing Information Returns Electronically (FIRE) system would make it difficult for qualified intermediaries and foreign filers to comply with the proposed regs’ new e-filing obligations."
Kentucky Governor Signs Income Tax Reduction Bill - Matthew Pertz, Tax Notes ($). "H.B. 1, which will cut the state’s individual income tax rate to 4 percent, was signed into law February 17. The bill accelerates a rate reduction that started with H.B. 8 in 2022. For 2023 the individual rate will be 4.5 percent, and for 2024 and after it will be 4 percent."
IRS Ordered To Calculate Refunds For Preparer ID Fees - Theresa Schliep, Law360 Tax Authority ($). "In the opinion, Judge Lamberth said not all activities used to justify the PTIN fees were indeed necessary to running the program. Those include charging to do certain checks to determine if a person is incarcerated, as 'facilitating other agencies' operations is not reasonably related to the private benefit of protecting return preparers' identities.'"
Manufacturing Chief: Revive R&D Expensing so U.S. can Compete with China - Jay Heflin, Eide Bailly:
During today’s speech, Timmons said the current tax structure is hurting innovation in the U.S.
“It’s millions in additional tax,” he said. “That means less machinery, less research… Companies used to get bigger deductions for things like research and development, or for buying new machines that make jobs safer and the air cleaner.”
The push to make R&D expensing current law has been full throttle since early last year when the capitalization rules took effect. Those efforts have so far been unsuccessful largely because most congressional Democrats have vowed to oppose an R&D fix unless rules governing the Child Tax Credit are expanded to what they were in 2021.
Don’t Forget These Tax Changes as You Prepare Your 2022 Returns - Tom Herman, Wall Street Journal:
I’ve read that the IRS is facing major backlogs in processing returns from prior years. Should I delay filing for 2022 if I think my return for 2021 or some previous year hasn’t yet been processed?
No, says the IRS’s Mr. Smith. “If you have a return for 2021 or any other year that is still being processed, you should absolutely not wait to file your 2022 return,” he says, “especially if you have everything in order and are ready to do so.” Mr. Smith adds that “each year’s return is processed separately. So what may or may not happen for 2021, or any other year, has no bearing on what will happen on a 2022 return.”
IRS Issues Final Rules on Treatment of Consolidated Groups - Michael Rapoport, Bloomberg ($). " Some companies had been taking the position that changing where the ownership of a CFC’s stock is located within the entities of a consolidated group can reduce that pro rata share, and that is not the case, the IRS has said."
Related: Eide Bailly International Tax.
Got more than wage income? Here's how to report it. - Kay Bell, Don't Mess With Taxes. "Business income or (loss) (line 3) If you worked as a freelancer or contractor, either full-time or various gig jobs, you'll report that income here. The amount will come from what you enter on your Schedule C. To make sure that you pay the appropriate tax due, and not more than you should, be sure you keep good records of your earnings, including amounts which weren't enough to trigger a 1099-NEC. The same advice applies to business expenses, such business miles driven and home office costs. All those amounts go on Schedule C."
Filed taxes before the IRS ruling on state relief payments? What to do now - Jeremy Turner, The Hill. "'My advice would be don’t do anything drastic just yet,' tax attorney Adam Brewer told Nexstar. 'Wait to see if the IRS provides some guidance here because we’ve really kind of been chasing our tail on this whole issue.'"
Nonresident Alien May Have Ordinary Income on Sale of Interest in U.S. Partnership - Parker Tax Pro Library. "In rejecting a motion for summary judgment, the Tax Court held that the proceeds received by a nonresident alien from the sale of her interest in a U.S. partnership attributable to inventory items held for future sale in the United States was excepted from the general rule in Code Sec. 741 that the sale of a partnership interest is treated as the sale of a capital asset."
IRS reclassification of some crossover vehicles may make them eligible for new clean vehicle credit - Wolters Kluwer Tax & Accounting. "People who bought certain electric vehicles earlier this year might have thought they were priced out of the new clean vehicle credit. However, a revised definition for “sports utility vehicles” effectively increases the price ceiling for several models."
IRA of 2022 allows tax-exempt organizations claim energy tax credits - National Association of Tax Professionals. "Prior to the enactment of the IRA of 2022, energy-related tax credits could only be used by exempt organizations to offset taxable income, leaving them unable to claim the credits unless they partnered with a for-profit entity."
Related: Energy Efficiency Incentives and the Inflation Reduction Act.
Should You ‘Disclose’ On Your Taxes & Will IRS Audit? - Robert Wood, Forbes. "Ironically, though, disclosure can actually reduce risk in some cases."
Alleged Monthlong Trip to Mexico To Celebrate Día De Los Muertos Not Enough To Get Extra Sixty Days To File A Petition - Leslie Book, Procedurally Taxing. "In Shead v Commissioner, the Tax Court, by order, dismissed a petition as untimely when the taxpayer failed to prove he was out of the country at the time the IRS mailed the notice of deficiency. For the reasons discussed below, Keith and I believe that the Court failed to give the petitioner a real opportunity to prove that he was out of the country."
More global tax tensions, you say? - Bernie Becker, Roll Call:
Bruno Le Maire, the French finance minister, said Monday that the EU should look to press ahead with a digital services tax because of the implementation challenges facing Pillar One — in the U.S. and elsewhere, like India and Saudi Arabia.
“We will plead for an unblocking of the situation on Pillar One of digital taxation. The chances of success are slim,” Le Maire said, via our Giorgio Leali.
"Pillar 1" would allow countries to tax corporations who sell into a country but have no physical presence there.
Efforts to Combat Inflation’s Impact on the Tax Code Should Remain a Priority in 2023 - Garrett Watson, Tax Policy Blog. "One area where inflation hits taxpayers is the tax treatment of capital gains. When an asset is sold for a net gain, part of that gain is often from the rise in value due to inflation. This part of the asset’s gain should be exempt from capital gains tax by adjusting the basis to factor in the increase in the price level. However, indexing capital gains for inflation would be a complicated project and should be done in concert with a broader effort to index the tax code for inflation comprehensively."
Federal jury convicts Boise tax return preparer of filing false tax returns - IRS (Defendant name omitted):
During the trial, the jury heard evidence that Defendant worked as a paid tax return preparer in Boise. For tax returns filed for tax years 2014, 2015, and 2016, Defendant counseled his clients to include ineligible dependents on their tax returns to increase tax refunds. The ineligible dependents resulted in dependency exemptions and refundable tax credits for Defendant's clients, including the child tax credit, additional child tax credit, and earned income credit. The ineligible dependents resulted in significant refunds in many cases where Defendant's clients would have otherwise owed taxes.
It's realistic to assume the IRS is taking back those "significant refunds." The biggest refund doesn't indicate the best preparer.
Fast-Driving Attorney Goes Off-Track in Tax Court - Eide Bailly Tax News & Views:
What lessons can we take from this?
First, just having your business name on a car doesn't convert it to a fully-deductible business use vehicle, regardless of what you might have seen on Tik-Tok.
More universally - you don't get a second chance to file by the deadline. By all means extend if you need time, but when the extended tax deadline looms, file the best you can -- but file. If you get better information later, you can amend, but you can't file on-time retroactively. Of course, keeping good records as you go makes things go much... faster.
Other coverage: Uneasy Rider (Taishoff Law).
Today's the real day. It's Washington's Birthday! You can celebrate the original President today, instead of the Monday holiday that drags in so many presidents best forgotten. Or, you can just observe National Margarita Day. Or both.
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.