Tax News & Views Tax Chief Grilled Roundup

April 21, 2023

IRS Head Grilled by Senators on Wealthy Audits, Agency Resources - Chris Cioffi and Samantha Handler, Bloomberg ($):

Senate Finance Committee members sought to tease out more details from IRS Commissioner Danny Werfel on how the agency plans to spend $80 billion in 10-year funding in a briefing Thursday.

The new head of the tax collecting agency promised lawmakers more details during a Wednesday Finance hearing on his agency’s plan to spend the money it got in last year’s tax-and-climate law. He began making good on that Thursday with senators who drilled down further into the strategic plan during the virtual meeting.

To repeat, this meeting happened after the April 19th hearing. Here is what was discussed at yesterday's meeting:

Werfel was quizzed on topics that included the audits of complex filings of high-net-worth people or companies, and how many people may be required to conduct those types of audits, Young said. The hope was to start getting a better understanding of how the IRS proposes hiring people to perform audits, how the agency arrived at the number of people it believes it will ultimately need to conduct the work.

During Wednesday’s hearing, Werfel asked Congress to regulate tax preparers:

IRS Tax Chief urges Lawmakers to Regulate Tax Pros – Jay Heflin, Eide Bailly:

The proposal would amend Title 31, U.S. Code (Money and Finance) to provide the Secretary with explicit authority to regulate all paid preparers of Federal tax returns, including by establishing mandatory minimum competency standards. The proposal would be effective on the date of enactment.


IRS Compliance Restructuring Plan Faces Steep Road to Reality – Jonathan Curry, Tax Notes ($):

Deja Vu

The IRS set a fiscal 2024 deadline to conduct an enterprise wide review of its organizational structure and to propose changes, but observers were quick to point out that the IRS already has a reorganizational plan to centralize its compliance function it could lean on.

About halfway into the 254-page Taxpayer First Act report, issued in January 2021, is a section describing the IRS’s vision to consolidate its enforcement mechanisms in one place: a new Compliance Division. That division would be headed by a new assistant commissioner of compliance and include five functions: compliance, whistleblower, criminal investigation, exam, and collection.

To quote Homer Simpson, "Doh!"


IRS Doubles Down on Stance in Conservation Easement Safe Harbor - Lauren Vella, Bloomberg ($):

The agency on April 10 released Notice 2023-30, which laid out specific language to include in new or existing deeds that would protect landowners’ deductions, should the easement be extinguished or impacted by boundary line adjustments. But the language mirrors a controversial Treasury regulation regarding easement extinguishments that’s been the subject of several legal challenges.

The Notice is here.


Payments From Charitable Annuity Trust Are Taxable Distributions - Aysha Bagchi, Bloomberg ($):

The taxpayers—six individuals who share the surname, “Gerhardt"—argued that they could receive most of the sales proceeds from properties they contributed into the trusts tax-free. The arrangement involved contributing real estate and other property to the trusts, which then sold the property and used most of the proceeds to buy five-year annuities, naming the Gerhardts as the annuity payment recipients.

Charitable remainder annuity trusts are exempt from income tax and may sell appreciated property without paying taxes under tax code Section 664(c). Nonetheless, that sales income is relevant to determining the character of the distributions to the Gerhardts under Section 664(b), which lays out how distributions from such trusts should be considered, the court concluded.


CPA Group Calls on IRS, Treasury to Issue Crypto Loss Guidance - Lauren Vella, Bloomberg ($). “In a comment letter addressed to IRS Commissioner Danny Werfel, AICPA asked the agency to provide clarifying guidance on digital asset losses to ensure ‘greater certainty to taxpayers and their preparers in confidently and properly complying with their overall reporting requirements.’”


CPA Owes $5.5M Penalties Over Meal Deductions, Court Told – Anna Scott Farrell, Law360 Tax Authority ($):

An accountant who has tangled with the government for decades over whether mariners can deduct free meals should pay $5.5 million in penalties for helping sailors illegally claim thousands of the deductions, the government told a California federal court.

Martin Kapp, a certified public accountant who was told by the Internal Revenue Service 20 years ago he was being investigated on suspicion of promoting an illegal tax shelter, should pay the penalties for helping mariners take the deductions for tax years 2004 through 2006, the government said Wednesday in seeking a judgment against him.


Tax Court Case Goes Up in Smoke for Whistleblower – Mary Katherine Browne, Tax Notes ($). “The Tax Court rejected a whistleblower’s petition for review of a whistleblower award stemming from allegedly unreported judgment awards, finding that the IRS didn’t proceed with any administrative or judicial action based on the claims.”


Manchin Praises GOP’s McCarthy, Slams Biden on Debt Ceiling Bill - Laura Litvan, Bloomberg ($). “Democratic Senator Joe Manchin commended House Speaker Kevin McCarthy for putting forward a plan to cut federal spending tied to a boost in the nation’s debt limit, and said President Joe Biden is engaging in a 'deficiency of leadership' by refusing to negotiate with House Republicans on a compromise.”

This bill modifies energy tax incentives in the Inflation Reduction Act (IRA):

The plan would also rescind unspent Covid-19 funds, ease regulations on energy projects and end some tax breaks for clean-energy projects including electric vehicles. McCarthy says he intends to put the plan before the full House next week.

Inside Baseball alert: There is (or at least there used to be) a “No Tax Increase” pledge that several Republicans signed. It stated that signers would not vote for legislation that raises taxes. McCarthy’s debt limit bill likely increases taxes because it replaces larger tax breaks in the IRA with smaller tax breaks that were law before the IRA. The House is expected to vote on this measure next week. It will be interesting to see if the “No Tax Increase” pledge still holds sway.

Case in point: 

Grassley Questions Debt Bill’s Rollback of Biodiesel Credits – Doug Sword, Tax Notes ($):

Senate Finance Committee member Chuck Grassley, R-Iowa, has long championed biodiesel fuel tax credits, so he was unsurprisingly unhappy when the House Republican debt limit bill included a retroactive rollback of several related tax credits.

The Limit, Save, Grow Act of 2023 would nix the two-year extension of the $1-a-gallon biodiesel tax credit and biodiesel mixture credit that was in the Inflation Reduction Act (IRA, P.L. 117-169), which means the credits would be treated as if they expired December 31, 2022. Many biodiesel producers pay excise taxes and claim tax credits monthly, so they could have to refund the credits to the government.


Multistate Sales Tax Group Talks Better Buyer Data, Tax Triggers - Angélica Serrano-Román, Bloomberg ($):

The Streamlined Sales Tax Governing Board—which administers a pact among 24 states to simplify sales tax codes—said it will discuss a plan during its semi-annual meeting in late May to add to the guidelines on transaction sourcing when information is limited to just five-digit ZIP codes and includes partial customer information. The draft proposal isn’t up for a formal vote, but the details will be a “large topic of discussion,” said Craig Johnson, the board’s executive director.


Los Angeles Delays ‘Mansion Tax’ Spending Amid Legal Fight - Laura Curtis, Bloomberg ($):

Mayor Karen Bass revealed in her 2023-24 budget plans that the city intends to allocate just $150 million of the funds raised by Proposition ULA, a ballot initiative that took effect this month to fund the construction of more affordable housing.

The decision will prevent the city from taking a loss if a lawsuit succeeds in reversing the tax, according to budget documents released this week. The city anticipates it would qualify for $150 million in federal reimbursements to make up the amount.


Oregon DOR Announces April 21 Extended Individual Income Tax Payment Date – Bloomberg ($). “The Oregon Department of Revenue (DOR) April 19 announced that taxpayers affected by a vendor internet service outage can make payments through April 21, for individual income tax purposes.”


Small EU States Set to Delay Minimum Tax, Official Says - Stephen Gardner, Bloomberg ($):

‘At least five to six’ countries will postpone minimum tax implementation, which is permitted for countries where there are fewer than 12 parent companies of groups subject to the minimum tax, said Ioanna Mitroyanni, a deputy head of unit in the commission’s taxation directorate.

Eligible countries have until Dec. 31 to notify the commission if they want to opt-out, but the commission is pushing for earlier notification because of the potential impacts on other EU countries, Mitroyanni said.


From the “This will never become law” file:

Senate Bill Would Create 'Fair Share' Tax On High Earners – Jarred Serre, Law360 Tax Authority ($):

A so-called fair share tax would be imposed on people with adjusted gross incomes of $1 million or more under a bill introduced in the U.S. Senate.

S. 1173, introduced Tuesday by Sen. Sheldon Whitehouse, D-R.I., would establish the tax, which would also be imposed on married individuals filing separately with adjusted gross incomes of $500,000.

The “S” before the bill number is instrumental here. Tax legislation must start in the House, so a tax bill number must begin with “H.R.” Right now, Republicans control the House and it is highly unlikely that they will follow Whitehouse’s lead.


Happy National Chocolate-Covered Cashews Day! Does it get any better than this? Nope!

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