Tax News & Views Report all Income, Cats Roundup

March 2, 2023

IRS reminder to report all income; gig economy and service industry, digital or foreign assets and sources - IRS:

The Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations on income from the gig economy and service industry, transactions from digital assets, and foreign sources or holding certain foreign assets.


Generally, income earned from the gig economy is taxable and must be reported to the IRS on tax returns.

The IRS also has advice for those who might have somehow made money in cryptocurrency last year:

The IRS reminds taxpayers that there's a question at the top of Forms 1040 and 1040-SR that asks about digital asset transactions. All taxpayers filing these forms must check the box indicating either "yes" or "no."

If an individual disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer, they should check "Yes" and use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses, or Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, in the case of a gift.


If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C).


Biden to trigger tax fight Senate Democrats don’t want - Alexander Bolton, The Hill. "There’s little desire among Democratic lawmakers on Capitol Hill to put vulnerable incumbents such as Sinema, Manchin and Sens. Jon Tester (D-Mt.) and Sherrod Brown (D-Ohio) in a tough political position when there’s no chance of getting tax hikes through the Republican-controlled House."


Senators Eye Housing Bills for Bipartisan Tax Policy Push - Samantha Handler, Bloomberg ($):

A bipartisan group of Senate Finance Committee members—Democrats Ben Cardin of Maryland, Maria Cantwell of Washington, and chairman Ron Wyden of Oregon, along with Republican Todd Young of Indiana—are planning to reintroduce tax legislation to promote production of low-income housing and help facilitate home ownership.


While lawmakers and advocacy groups said they are waiting for a vehicle for the legislation, Cardin said he believes there will be an opportunity, and that the failure to come together on a tax package during last year’s omnibus spending negotiations doesn’t doom the housing bills.

Anything's possible, but not necessarily likely.

House Bill Floats Raising SALT Deduction Limit To $50,000 - Jared Serre, Law360 Tax Authority ($). "H.R. 1260, introduced Tuesday by Rep. George Santos, R-N.Y., would raise the limits from their current levels of $10,000 or $5,000 for married individuals filing separately. "

Given that the bill is proposed by perhaps the least influential and least trusted member of Congress, it just might not be on the fast track to passage. 


Capital-Gains Tax Rates and Tax Brackets - Laura Saunders, Wall Street Journal. "Long-term capital gains are profits on investments held longer than a year. They are taxed at favorable rates of 0, 15% or 20%."


Why There Won't Be a Global Min Tax Treaty - Alex Parker, Things of Caesar:

It’s helpful to remember that Pillar Two was modeled on the U.S. tax on global intangible low-taxed income, which was itself an offshoot of the Subpart F tax on types of passive foreign income like royalties or interest. It’s ultimately an enhanced controlled foreign corporation regime, and those have always been a matter of national law, outside the treaty system.

Controlled foreign corporation rules are applied by a tax authority on the foreign subsidiaries of its own taxpayers. CFC regimes are the crude, blunt instruments of the tax world–and for that reason, they’re highly effective. The first was Subpart F, enacted during the Kennedy administration (a compromise from JFK’s goal of pure worldwide taxation), and they’ve since spread around the world. By directly targeting forms of passive income that are mobile and likely to be involved in tax avoidance, CFC rules sidestep the complex enforcement challenges that flummox other international tax laws.

Related: Eide Bailly International Tax Services.


5 retirement tax moves to make in March - Kay Bell, Don't Mess With Taxes. "5. Make HSA contributions. Health savings accounts, or HSAs, are a triple tax-saving threat. You get a write-off for contributions, tax-free growth in the account, and you don't owe any tax on withdrawals used to pay qualified medical expenses."

IRS Proposed Regulations Provide Clarity and Consistency for Use of Forfeitures in 401(k) Plans - Thomson Reuters Tax & Accounting. "The proposed regulations would require that 401(k) and other defined contribution plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures are incurred. A transition rule would treat forfeitures incurred prior to the 2024 plan year as incurring in the 2024 plan year."

Treaty Tie-Breaker is an FBAR Escape Hatch, Says the Court! - Virginia La Torre Jekier, US Tax Talk. "In a nutshell, the Aroeste court determined that FBAR filing is not required if the individual is entitled to be treated as a resident of a foreign country under a tax treaty."

1854 Shipwrecked Whiskey May Bring Millions — And The IRS Taxes It - Robert Wood, Forbes. "Now, 280 barrels of American whiskey could be salvaged from a 170-year-old shipwreckThe Westmoreland, which sunk in 1854 in Lake Michigan. Forbes calculated that 280 barrels could mean up to 56,000 bottles, and they could be worth an eye-popping $871 million."



Taxing Distributed Profits Makes Business Taxation Simple and Efficient - William McBride, Garrett Watson, and Erica York, Tax Policy Blog. "A bold reform option to transform how U.S. businesses are taxed follows the lead of Estonia, which ranks number one in Tax Foundation’s International Tax Competitiveness Index. Estonia taxes business profits when they are distributed under a flat, simple tax rate of 20 percent for all businesses. Adopting a distributed profits tax is a major pillar of Tax Foundation’s Growth & Opportunity tax reform agenda."

Biden May Propose Using Net Investment Income Tax Revenues to Shore Up Medicare | Tax Policy Center - Howard Gleckman, TaxVox. "Perhaps most important, it would fundamentally shift Medicare Part A from a program funded almost entirely with payroll taxes on wages to one financed with taxes on a much broader income base, at least for high-income households."

Hungary incentives of the day - Tyler Cowen, Marginal Revolution. "Hungary passed a law in 2019 exempting women with four children from income taxes, for life...  Even with a large income tax break, asking women to have four children is rather ambitious. The one-time payments for the first three children are not that different from zero, the main effect only kicks in if you have four. Then there is no substantial further benefit to having five."


Japan’s Alcohol Promotion Is a Risky Tax Gamble - Nana Ama Sarfo, Tax Notes Opinions.  "In July 2022, the NTA devised a novel and controversial solution to this revenue problem: It launched a contest asking young Japanese citizens to submit their best ideas on how the government can boost alcohol consumption."

What could possibly go wrong?


CPA work should pay better. The Tax Court yesterday considered whether to respect the poor financial results reported by a CPA on his Form 1040 Schedule C. From Judge Weiler's opinion (Taxpayer names omitted):

Petitioner filed his joint 2017 Form 1040, U.S. Individual Income Tax Return, with his wife... Petitioner attached a Schedule C to the joint 2017 Form 1040 for his accounting practice and reported gross receipts of $52,807 and cost of goods sold of $52,110, resulting in a total business profit of $697.

That sounds like a lot of work for not much profit. Assuming an hourly rate of $100, the CPA would have netted $1.32 per hour from his practice - hardly worth getting a certification that requires 150 college credit hours.  It's also odd to see all the business expenses lumped into "cost of goods sold," which is generally used to report inventory sales. Not here:

On his 2017 Schedule C petitioner reported various expenses relating to his accounting practice under cost of goods sold of $52,110. Petitioner improperly included all expenses relating to his accounting practice as a single line item under cost of goods sold, which comprised distinct expenses — rent, home office, office supplies, meals, travel, entertainment, licenses, etc.

Is CPA practice that unprofitable? When it comes to deductions, the tax law requires some proof. My emphasis: 

In support of these expenses, petitioner produced bank statements and canceled checks from his USAA checking account, which he used for both personal and business expenditures. Petitioner also introduced numerous documents he prepared, including a voluminous general ledger. While the general ledger does have headings (e.g., date, name, category, etc.) under which the expenses are cataloged, it, and the other documents in the record, provide little to no clarity as to the expenses themselves.

So absent clarity, what could be deducted?

Specifically, petitioner's USAA checking account records indicate expenses of $500, $120, and $1,295, corresponding to a payment made to the Public Company Accounting Oversight Board, a CPA license fee paid to the California Board of Accountancy, and a payment to Drake Software (a provider of tax preparation software), respectively. Accordingly, we conclude that petitioner is entitled to a deduction for each of these three expenses (namely the $500, $120, and $1,295 described above) pursuant to section 162.

Despite this finding petitioner neither testified to, nor produced any documents or receipts into the record that provide, detail or insight into the remainder of the business expenses he reported...Consequently, we sustain respondent's disallowance of petitioner's claimed deductions in excess of the three above-mentioned expenses we find petitioner is entitled to deduct. 

Bad news for the taxpayer, especially as the court said penalties for "substantial understatement" may apply. The good news: CPA practice may be more profitable than it initially appeared. 


Meow. It's International Rescue Cat Day!

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