Tax News & Views IRS Rebound Roundup

May 2, 2023

A better tax season for just about everyone – Roger Russell, Accounting Today. “The 2023 filing season might go down in history as one of the best ever, according to not only IRS managers, but to tax professionals and advisors as well.”

'The Internal Revenue Service is celebrating the strongest tax season in a very, very long time,’ said executive director Chad Hooper of the Professional Managers Association (a national membership association of IRS managers). 

‘Wait times are down, service levels are up, and return processing is only getting faster,’ he explained. ‘This season is a clear demonstration of how an agency can turn itself around with investment and attention from Congress. After nearly a decade of budget cuts, a global pandemic and many years of disruptive mid-season tax changes, this tax season shows what the IRS can achieve with the resources and space to do its job.’

Word is that return processing remains a work in progress. The IRS took workers who were processing tax returns and had them answer phones. This meant that calls were being answered at the cost of processing tax returns. Backlog on tax returns remains an issue. 


Housing Nonprofits Push Congress to Ease Investor Tax Credit Fights - Samantha Handler, Bloomberg ($):

Recent high-profile court decisions favoring nonprofits in disputes over who can buy Low-Income Housing Tax Credit properties after all the tax credits have been collected aren’t enough to fix the problem, affordable housing advocates say.

Nonprofits are pushing Congress for a legislative fix to clarify the law on whether the organizations running the housing have the right to buy the property at a low price. Advocates hope the housing tax package a bipartisan Senate duo is crafting—expected to be compiled sometime this spring—is a chance to limit future lawsuits on the issue.

This issue could become tied to allowing R&D expensing, expanding 163(j), and upping Bonus Depreciation to 100%, which are referred to as the 'Big Three' by congressional staffers.

Some lawmakers want to include the LIHTC with the Big Three to get them through Congress and signed into law. Others don’t. They insist that the Child Tax Credit should be included with the Big Three. Until this argument is settled, it is unlikely that the Big Three become law.  

Put this in the longshot category:

If Debt Limit Bill Moves, R&D and Other Tax Provisions May Follow – Doug Sword, Tax Notes ($):

Now that the House has sent a debt limit bill with tax provisions to the Senate, chances for a clean bill appear to have fallen while the likelihood of a tax title attaching to the legislation may be rising.

‘It certainly opens up for some tax possibilities,’ said Rep. Warren Davidson, R-Ohio, a key member of the influential House Freedom Caucus. ‘There are things that are pretty commonsense reforms that unfortunately expire or are expiring, like fully expensing R&D.’

Davidson was referring to the ‘Big Three’ business tax provisions weakened by the Tax Cuts and Jobs Act that Republicans unsuccessfully tried to roll back to their full values during late 2022 negotiations — research and development expensing, bonus depreciation, and net interest expensing.

Every lawmaker I have spoken to said that without a bipartisan, bicameral agreement on how to handle the Child Tax Credit there is no path forward for the Big Three. That being said, never say never. Lawmakers can be finicky.


Biden Sets High-Stakes Debt-Limit Meeting as Deadline Nears - Steven Dennis and Erik Wasson, Bloomberg ($):

President Joe Biden invited top congressional leaders for a May 9 meeting on the debt limit as the US barrels closer to a potential default that the Treasury Department warned Monday could come sooner than anticipated.

The proposed meeting is the first sign of progress in what has become a high-stakes game of chicken in Washington, with nothing short of the full faith and credit of the US hanging in the balance. The White House has said it would not negotiate with Republicans over extending the debt ceiling, while House Speaker Kevin McCarthy has vowed not to extend the limit without corresponding cuts to the federal budget.

FYI: The House-passed debt ceiling bill repeals several energy tax credits in the Inflation Reduction Act. This bill will not pass the Senate or become law.

Important to note: The political parties fight over upping the debt ceiling every time it has to be increased. Both parties take positions that they say are ‘immovable.’ Then, as the date to act gets closer, they find common ground and increase the debt ceiling. They always reach an agreement in the eleventh hour. Why? Because not reaching an agreement and allowing the federal government to default on its debt is not an option.

The lawmakers have to reach an agreement by June 1, according to the Treasury Department, or the U.S. defaults on its debt.  


Supreme Court Declines Challenge to IRS Transition Tax Rules - Aysha Bagchi, Bloomberg ($). “The US Supreme Court declined to hear a business owner’s argument that he should be able to challenge the Treasury Department’s implementation of a major tax on corporate shareholders’ foreign earnings.”


Time Limitation Doesn’t Apply in Virgin Islands Tax Challenge - Jeffery Leon, Bloomberg ($). “The estate of a taxpayer challenging a $4.8 million deficiency for failure to file US tax returns while residing in the Virgin Islands was unable to persuade the US Tax Court that the deficiency was blocked by time limits.”


California Denial of Credit for Out-of-State Income Taxes Upheld - Aysha Bagchi, Bloomberg ($). “The California Office of Tax Appeals ruled that a California couple improperly claimed an income tax credit for taxes they paid in Massachusetts on gains made from selling a membership interest in a company,”


Ranking Individual Income Taxes on the 2023 State Business Tax Climate Index – Janelle Fritts, Tax Foundation:

This week’s map examines states’ rankings on the individual income tax component of our 2023 State Business Tax Climate Index. The individual income tax is important to businesses because states tax sole proprietorships, partnerships, and, in most cases, limited liability companies (LLCs) and S corporations under the individual income tax code.

Best & Worst State Income Tax Codes: 2023 State Income Tax Rankings of Individual Income Taxes 2023 State Business Tax Climate Index


NY Budget Deal OKs Tax Agency Appeals Of Tribunal Losses – Paul Williams, Law360 Tax Authority ($). “A budget agreement that New York Gov. Kathy Hochul reached with legislative leaders would allow the state tax agency to appeal adverse rulings from the state Tax Appeals Tribunal and extend an expiring corporate tax rate increase for three years.”


Maine cities, towns face historic tax increases as costs rise relentlessly - Gillian Graham, Portland Press Herald:

As the Westbrook municipal budget took shape, one thing was clear: Everything was going to cost more.

To compensate, city leaders proposed a ‘status quo’ budget with no new positions or programs and cuts to investments in streets, sidewalks and public safety purchases. They suggested transferring $1 million from the undesignated fund balance to help offset unavoidable costs.

But with school spending up by $3.2 million, residents could still see an 8.8% tax increase, the largest in the city's history.


‘We’re just elated’: Anti-vaping advocates win nine-year battle to tax vape products similar to tobacco -  Daryl Huff, Hawaii News Now. “Anti-vaping advocates won a nine-year battle to tax vape products like tobacco — with a 70% surcharge. McKinley High School special education teacher Laverne Moore said she fought for it for her students.”

IRS To Screen APA Requests, Offer Preliminary Reviews – Matthew Guerry, Law360 Tax Authority ($). “The Internal Revenue Service will screen requests for advance pricing agreements under an optional preliminary review process outlined in employee guidance the agency published Monday.”


Americans Along Canadian Border Fume Over Ottawa’s Housing Tax – Paul Vieira, Wall Street Journal ($):

Americans who own property and vacation homes in Canada are furious over Ottawa’s plan to tax real estate that is not occupied year-round.

Some Americans are considering selling their Canadian property. One member of Congress, representing western New York state, is pushing the Biden administration to file a trade complaint under the terms of the U.S.-Mexico-Canada trade treaty, or at least to persuade Canada to carve out an exemption for Americans.


From the “Grabbing the Spotlight, Once Again” file:

Manchin Seeks to Repeal Parts of Inflation Law on Debt Concerns - Kevin Crowley, Bloomberg ($):

Senator Joe Manchin said he would push to repeal parts of the Inflation Reduction Act that he claims could raise the national debt.

He wants to get rid of the clean energy tax credits because they cost more than expected.

The Congressional Budget Office estimates that the cost of some energy-related tax credits has ballooned to $570 billion from $270 billion due to how the administration is enacting the bill, Manchin said.

‘I’m just so tired of all of us as Americans are getting games played,’ he said.

Democrats (including President Biden) moved heaven and earth to get Manchin to support the Inflation Reduction Act that includes a ton of tax credits for renewable energy. Their effort worked.

A snippet of Manchin’s statement shortly before the Inflation Reduction Act was signed into law (dated July 27, 2022):

'I support a plan that will advance a realistic energy and climate policy that lowers prices today and strategically invests in the long game… The Inflation Reduction Act of 2022 invests in the technologies needed for all fuel types – from hydrogen, nuclear, renewables, fossil fuels and energy storage – to be produced and used in the cleanest way possible. It is truly all of the above…'

The timing for his mind-change is curious. In July 2022 he wasn’t up for re-election. Now he is, and in a very red state. Could his position change be political? Naaaah!


Happy National Teacher Appreciation Day! These folks take a lot of heat from their students (and the students’ parents). Let’s give them their due. Salute!

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