Tax News & Views Fax and Intuition Roundup

May 10, 2023

IRS Working to Phase Out Faxing - Lauren Loricchio, Tax Notes ($):

At the American Bar Association Section of Taxation meeting, Bridget Roberts, acting IRS transformation and strategy officer, was asked when practitioners would no longer need fax machines to communicate electronically with the IRS.

“The goal is within the next five years that you’ll be able to say goodbye to your fax machine,” Roberts said May 5.

Next thing you know, they'll stop taking telegrams.


IRS Proposes Exception To Life Insurance Settlement Rules - Kat Lucero, Law360 Tax Authority ($):

The tax-free transfer of certain life insurance contracts would not be subject to 2019 reporting rules for life settlement transactions, including policy sales and payments of death benefits, under proposed rules released by the Internal Revenue Service on Tuesday.


The U.S. Department of the Treasury and the IRS would continue to treat other attributes of such transfers, known as Section 1035 exchanges, as applying to the new contracts acquired so that "the new contract is treated the same as the old contract," the proposed rules said.

Link: Notice of proposed rulemaking.


No debt deal, but Biden, Hill leaders agree to meet again - Aidan Quigley, Roll Call.

“Everybody in this meeting reiterated the positions they were at; I didn’t see any new movement,” McCarthy said leaving the meeting. The speaker said the House remains the only chamber to have passed a bill dealing with the debt limit but that he understands Republicans may have to give some ground to get a deal.


The House-passed bill includes infrastructure project permitting changes and other provisions from a separate energy package that chamber had previously passed, along with repealing more than $500 billion in clean energy tax credits, a requirement that Congress approve any major administrative rule-makings and more.


R&D Expensing raised during Trade Hearing - Jay Heflin, Eide Bailly. "Rep. Ron Estes (R-Kan.) warned that without R&D expensing in the U.S. companies could be lured to relocate in China, where an increasing amount of R&D costs can be deducted for tax purposes."


Kansas Omnibus Taxation Bill Sent to Governor - Emily Hollingsworth, Tax Notes ($):

Kansas lawmakers have approved an omnibus tax bill that would clarify provisions in the elective passthrough entity tax, allow net operating loss deduction carryforwards, and create a property tax exemption for businesses in direct competition with government entities.


The bill would clarify provisions in the 2022 SALT Parity Act (H.B. 2239) on what constitutes taxable income for purposes of the passthrough entity tax election and would allow entity owners to claim an offsetting individual income tax credit. S.B. 8’s passthrough entity provisions, initially introduced as H.B. 2465, would apply retroactively to tax year 2022.

Kansas Governor Kelly vetoed an earlier tax cut bill. She will have 10 days to decide whether to sign this one.


Maryland Supreme Court reverses ruling on digital ad tax - Brian Witte, AP via Washington Post. "In an order, Justice Matthew Fader, the chief justice of the Supreme Court of Maryland, sent the case back to Anne Arundel County Circuit Court with directions to dismiss. He said the plaintiffs failed to exhaust administrative remedies through the state’s tax court — Reasons will be stated in a later opinion. The four-page order does not make any ruling on the constitutionality of the law."

Oklahoma Governor Signs Two Senate Tax Bills Despite Veto Threat - Emily Hollingsworth, Tax Notes ($). "Despite threatening to veto Senate bills because of an impasse over his education and tax credit plan, Oklahoma Gov. Kevin Stitt (R) approved Senate legislation extending a tax exemption for rolling stock and changing the calculation of a revenue transfer."


What Is a W-4 and How Do I Fill Mine Out? - E Napoletano, BusySide From WSJ. "For instance, if you owed more taxes or got a smaller refund than expected, you can use your W-4 to increase the amount of money that gets withheld from your paycheck. But if you overpaid and got a larger refund than expected—which some view as a bad financial move—you can instead use the form to decrease your withholding and increase your take-home pay."


IRS to resume sending suspended tax notices - Kay Bell, Don't Mess With Taxes:

IRS Deputy Commissioner for Collection and Operations Support Darren Guillot, who was part of an American Bar Association tax conference panel in Washington, D.C., last week, said that approximately 5-to-8 million CP14 Notices, should start going out by the "end of May" to early June, according to a according to a Thomson Reuters report.

The CP14, which is subtitled "Balance Due $5 or More, No Math Error," is the first and most common notice sent to taxpayers. It advises the taxpayer that there is a tax due, states the amount of tax, including interest and penalties, and requests payment within 21 days.

Related: Why is it Important to Read IRS Notices?


IRS Offers Updates On The Status Of Tax Returns, Refunds And Notices - Kelly Phillips Erb, Forbes. "According to the IRS, all paper and electronic individual returns received before January 2023 have been processed. Additionally, the agency claims it is opening mail within normal time frames. This means, they say, that all returns received for the tax year 2021 or earlier have been processed—if those returns had no errors or did not require further review."

IRS Issues Chief Counsel Advice on Substantiation Rules for Cafeteria Plans and Dependent Care Assistance Programs - Ed Zollars, Current Federal Tax Developments. "A key requirement for health FSAs and dependent care program relates to the requirement for the employee to provide adequate substantiation"

1099-K reporting: the common issues and solutions - National Association of Tax Professionals. "What if an independent contractor receives a Form 1099-K and a Form 1099-NEC, Nonemployee Compensation, for the same income?"


Taxpayer Scores: Farhy Blocks International Reporting Penalties - David Stewart and Andrew Velarde, Tax Notes Opinions. "For years the IRS has been engaging in systemic and summary assessment of international information return penalties after returns are filed late. Practitioners have been complaining about the operation of this system for years, arguing that they can't avail themselves of deficiency procedures and that many of their clients may have reasonable cause to excuse nonfiling."

Related: Tax Court Decision may hamper IRS penalty collection for controlled corporations and partnerships blog 2023/4/3


Tax Court Expands Online Availability of Documents - Keith Fogg, Procedurally Taxing. "The Court is changing decision documents to remove from the signature block of documents signed by petitioners their address and phone number.  This change will make it more difficult for the helpful companies who contact taxpayers with outstanding tax liabilities to scrape DAWSON and contact these petitioners."

If The US Avoids Default, You May Want To Thank Car Dealers, Real Estate Agents, and Local Bankers - Howard Gleckman, TaxVox. "After all, those businesses will be some of the biggest losers if the US defaults, interest rates rise even faster than they have been, and the economy craters. The Goldman survey found three-quarters of Main Street businesses already worry about their ability to access capital. A year ago, only one-quarter were concerned."


Return Preparer Proposal in 118th Congress - Annette Nellen, 21st Century Taxation:

The IRS started their return preparer regulation back around 2009. It was severely limited by the DC Court of Appeals 2014 decision in Loving v IRS, No. 13-5061 which concluded that 31 USC 330 did not provide the IRS or Treasury with the authority to regulate return preparers as preparing a return was not representing a taxpayer before the IRS.

Since then there have been proposals to change 31 USC 330 to give the IRS the authority to regulate return preparers. A current version of such as proposal is H.R. 2702 / S. 1209, Tax Refund Protection Act. While this sounds like something else, it would change 31 USC 330 to allow the IRS and Treasury to "certify the practice of tax return preparers" and require preparers to demonstrate competency to advise and assist person in preparing tax returns, claims for refund or other submissions related to Title 26. 

Disclosure: I was on an Amicus brief opposing the IRS regulation initiative in Loving.


Former IRS employee sentenced to 4.5 years in prison for scheme to defraud IRS and commit identity theft - IRS (defendant name omitted):

Defendant, of Fresno, was sentenced today to four years and six months in prison and ordered to pay $191,597 in restitution following her convictions for preparing and filing false tax returns for other individuals, underreporting her own taxable income on her personal tax returns, and committing wire fraud and aggravated identity theft, U.S. Attorney Phillip A. Talbert announced.

On Jan. 26, 2023, after a three-day trial, a jury found Defendant guilty of 13 felony counts, including three counts of wire fraud, two counts of aggravated identity theft, five counts of preparing and presenting false and fraudulent returns, and three counts of making and subscribing a false and fraudulent tax return.

According to evidence presented at trial, from 2012 through 2016, Defendant, in her role as a tax preparer, put materially false information on customers' tax returns without their knowledge or consent and submitted the returns to the IRS. As part of the scheme, Defendant obtained the identification of multiple individuals and falsely listed these individuals as child care providers on multiple customers' tax returns without their knowledge or consent.

Defendant also underreported her own income related to the payments she received for tax preparation services on her personal tax returns for tax years 2013, 2014, and 2015.

Advocates of preparer licensing say that having the IRS administer competency tests would prevent this sort of thing. Stories like this indicate that regulation might just provide scammers a government license.


I have a bad feeling about this holiday. Today is Trust Your Intuition Day

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