Tax News & Views Business Breaks and Lost Socks Roundup

May 9, 2023

Why Dems could go for more business tax breaks - Benjamin Guggenheim, Politico:

The rules — which took effect last year and require businesses to deduct R&D expenses over five years instead of all at once like they used to — are creating tax bills for small research firms the likes of which they really haven’t seen before.

In many cases, businesses report that they’ve had to lay off employees and take out lines of credit to rustle up the money to pay the IRS without the immediate writeoff.

But proponents of restoring immediate R&D deductions, like Sen. Todd Young (R-Ind.), are still encountering the same old problem that they did last year: Democrats say they won’t go for any business breaks without a restoration of the expanded child tax credit for families that expired at the end of 2021.

More info at Jay Heflin's latest weekly Capitol Hill Recap.


Keep An Eye On These Tax Proposals, Despite Congressional Gridlock - Marie Sapirie, Tax Notes via Forbes. "Congress is under pressure to pass a debt limit bill soon, but whether and what tax provisions might be attached to it are questions that may not be answered until the bill is nearly up for a vote. This is how Congress works now. Unlike last year’s budget bill, any tax changes will probably arrive before the flight to your summer holiday destination departs."

Biden, McCarthy to Meet Over Debt Drama as Markets Grow Anxious - Josh Wingrove sand Erik Wasson, Bloomberg ($). "Tuesday’s meeting bringing them face to face marks a key milestone but expectations for a breakthrough are low. McCarthy insists on spending cuts and deficit reduction in exchange for raising the debt limit, while Biden wants it increased as a condition for any fiscal talks."

Democrats’ Debt-Limit Dream Scenarios Unlikely to Gain Traction - Jack Fitzpatrick, Bloomberg ($). "Biden has demanded a clean debt-limit increase, and Senate Majority Leader Chuck Schumer (D-N.Y.) has teed up a process to consider such a measure without requiring it to go through a committee. But the bill would need 60 votes to end debate in the Senate, and it’s not even clear Schumer could rally a majority around the bill."


IRS to Tweak Schedule K-1 Reporting of Recourse Debt - Kristen Parillo, Tax Notes ($).

The single line item on Schedules K-1 that partnerships use to report a partner’s share of recourse liabilities will be split so that deficit restoration obligations and guaranteed payments can be separately identified, according to an IRS attorney.


According to Mikolashek, the reason for revising the form to separately report a partner’s share of recourse liabilities subject to deficit restoration obligations or guaranteed payments “is to not only get better information reporting from the IRS’s perspective, but also to do the partners a service so that they are fully aware of this obligation, as the partnership might consider that the partners should have an obligation to pay.”


TurboTax to begin payouts after it ‘cheated’ customers, New York AG says - Dan Rosenzweig-Ziff, Washington Post:

The company was also accused of knowingly misleading customers and blocking its landing page for its IRS Free File Program, a public-private partnership with the IRS, from showing up on search engines such as Google. Because Intuit and other companies agreed to participate in that program, the IRS agreed not to offer its own free electronic tax services. Intuit admitted no wrongdoing in the settlement.


Consumers who are eligible for the payments do not need to file a claim and will be notified by email, James’s office said Thursday. Checks will be sent automatically and will be mailed throughout May.


Your Child Picked a College! Tee Up Your 529 Plan - Laura Saunders, Wall Street Journal. "Withdrawals can also pay for room and board if the student is enrolled at least half time. Students living and eating off campus can use 529 funds for rent and grocery bills as well, up to limits that are often similar to the school’s charges for room and board."

Aug. 15 is new tax deadline for disaster-struck California and Florida counties - Kay Bell, Don't Mess With Taxes. "The FEMA declaration and IRS tax relief specifically covers Broward County households and businesses. If other areas are added later to the disaster area, folks in those locales also will qualify for the same relief."

Tax Court Holds That Virgin Islands Tax Return Did Not Trigger Statute of Limitations - Parker Tax Pro Library. "According to the court, as a U.S. citizen "other than a bona fide resident of the Virgin Islands " under Code Sec. 932(a), the taxpayer was required to file returns with both the United States and the Virgin Islands, and as a result of his failure to do so, the IRS could issue a notice of deficiency at any time under Code Sec. 6501(c)(3)."

Hobby Or Business, Why It Matters To IRS & Your Taxes - Robert Wood, Forbes. "If your activity is a hobby, your expenses are not tax deductible. But if you are running a business (even a very small business), you can write off your expenses. That may cut your costs in half, letting the IRS pay for the other half."


Can a Taxpayer Successfully Sue When IRS Fails to Do What It Should Do - Keith Fogg, Procedurally Taxing. "As the IRS has been buried under millions of unread correspondence due to the pandemic and other issues, it fails to process taxpayer correspondence and thereby ignores taxpayer requests that should lead to the opportunity to go to Tax Court"

Tips for the Foreign Nonresident to Avoid Gift Tax when Gifting to Persons in the USA - Virginia La Torre Jeker, US Tax Talk. "Today’s post examines some methods for the foreign nonresident to avoid the US gift tax. Care must be taken in such gifting transactions since if the IRS cannot collect the gift tax from the foreign donor, it might attempt to collect it from the US recipient."

Exit Tax Explained: A US Expats’ Guide to Expatriation Tax - Olivier Wagner, 1040Abroad. "The exit tax applies primarily to “covered expatriates,” a category that includes people who meet certain thresholds regarding their net worth, taxable income, and tax compliance. If you do not fall under the covered expatriate definition, you will not be subject to the exit tax."

Related: Eide Bailly Global Mobility Services



Comparing the Cost of IRA Energy Tax Credits to Expensing - Adam Michel, Liberty Taxed:

In an updated preliminary score to repeal most of the IRA tax provisions, the JCT now estimates that repealing the tax credits would raise $570 billion, doubling their original estimate. Notably, the score does not include the cost of some of the subsidies for electric vehicles. Goldman estimates the total for all EV credits could cost as much as $390 billion over the decade, which is more than 27 times larger than the originally estimated cost.


The high fiscal cost of industry‐specific tax credits may come at the expense of extending or expanding neutral tax policies that benefit all Americans. Neutral tax policies create broader economic benefits, including for IRA‐targeted industries.


Outgroup Bias and the Unacceptability of Tax Fraud - Leonard Wagenaar, Leonard's Tax Posts. "Based on this interesting research by Rita de la FeriaAllison Harell and others, a clear majority of people (in US and France) considers it completely unacceptable for small businesses to not report cash income, pay employees under the table or mask personal expenses as business expenses (ie tax fraud is unacceptable). But based on the same research, most people would actively consider doing the tax fraud thing too, if they had the chance."


The OECD in the Spotlight - Alex Parker, Things of Caesar. "From how much Republicans criticize the global minimum tax agreement, it might be surprising to learn that the initiative began in the Trump administration, and hasn’t changed policy-wise all that much since then. It grew out of a 2017 request from the G-20 for the OECD to produce new rules on the taxation of the digital economy, as countries across Europe and the rest of the world enacted new digital services taxes targeting online businesses. The U.S. actually took the lead in advocating a two-part agreement that combined a new customer-based taxing regime, along with rules to target intangible income. The latter was based on the U.S. tax on global intangible low-taxed income, and it became the 15% global minimum tax."

Debt Limit Crisis Might Go Badly for the IRS - Joseph Thorndike, Tax Notes Opinions. "That’s some next-level brilliance at work: Take back $71 billion in already-promised IRS funding so you can lose $180 billion in federal tax collections."

Does the Optimal Tax System Exist? - Joost Haddinga, Tax Policy Blog. "In the end, a culturally optimal tax system may be impossible to achieve. But policymakers should not ignore cultural factors when designing and implementing economically optimal policies."


Why Were California Returns Extended Again from May to October? (A Theory) - Russ Fox, Taxable Talk. "President Biden recently formally announced he’s running for reelection.  (It’s been clear for a while he’s running.)  One of his biggest rivals in the Democratic Party is California Governor Gavin Newsom."

‘Real Housewives’ Couple Kim Zolciak And Kroy Biermann Divorcing, Owe $1 Million In Unpaid Taxes - Kelly Phillips Erb, Forbes. "The IRS has filed federal liens against Zolciak-Biermann and her husband, former NFL outside linebacker Kroy Biermann, in excess of $1.1 million."

It's a lot easier to leave a spouse behind than the IRS.


3rd Circ. Upholds Sentence For Intended $325M Tax Schemes - Anna Scott Farrell, Law360 Tax Authority ($), defendant name omitted): 

A Philadelphia man's seven-year prison sentence for helping run tax fraud schemes that involved more than $325 million in bogus claims over a decade was upheld Monday by the Third Circuit, which said it didn't matter that the schemes mostly flopped.

The sentencing guidelines for [Defendant's] tax fraud crimes make plain that a lower court correctly issued Upshur's sentence based on the losses he intended to cause, not simply the actual loss he caused, the three-judge panel said in a precedential opinion. In fact, the lower court could have sentenced [Defendant] to up to 29 years in prison based on his attempt to steal $325 million through tax fraud, the panel said.

It's reassuring that you can still get points for effort. A key quote from the judge at the sentencing hearing: "It must be noted that the defendant was not a very good criminal."

Link: 3rd Circuit Opinion.


A moment of silence, please. It's National Lost Sock Memorial Day

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