Minnesota Eyes Other Taxes After Pulling Back From Worldwide Plan - Michael Bologna, Bloomberg ($):
The Minnesota Legislature is examining alternative tax strategies sealing up revenue gaps in its 2024-25 biennial budget after the Senate appeared to suddenly abandon a plan to tax the income of foreign subsidiaries of multinational corporations.
Lawmakers are working with the Department of Revenue to quickly identify options for replacing revenue that would have resulted under mandatory worldwide combined reporting for the calculation of corporate income taxes, according to Sen. Ann Rest (D), chair of the Senate Taxes Committee. The worldwide reporting plan had seemed on track to becoming law, as it was featured in omnibus tax bills passed in both the House and Senate.
Background: What the heck is ‘worldwide combined reporting’ and why do DFLers think it can raise hundreds of millions? - Peter Callaghan, Minnpost.
The Faulty Revenue Estimate Behind Minnesota’s Consideration of Worldwide Combined Reporting - Jared Walczak, Tax Policy Blog. "Because Minnesota was not able to generate its own revenue estimate, state revenue estimators turned to a 2019 study by the liberal Institute for Taxation and Economic Policy (ITEP). Unfortunately, the ITEP research is fundamentally flawed, because the study neglects corporate tax apportionment in estimating revenue. This is not a small error; its omission makes the entire analysis unusable."
Tax Court Decision on Profits Interest Isn’t Full Story - Kristen Parillo, Tax Notes ($):
The IRS had contended that Rev. Proc. 93-27 was inapplicable because the relevant services must be provided “to or for the benefit of the partnership,” and in this case ES NPA received an interest in a partnership in exchange for services it provided to a different partnership. The court disagreed, saying it found the IRS’s “reading of this revenue procedure and views of the transaction at issue to be unreasonably narrow.”
The evidence supported a finding that ES NPA provided services to or for the benefit of the future partnership within the meaning of the revenue procedure, the court said, adding that “it is of no material consequence” that ES NPA’s ownership interest was held indirectly.
This case adds flexibility to partnership compensation planning. Many partnership employees dislike one tax consequence of becoming partners: they no longer receive W-2s, so they have to start making quarterly estimated payments to replace withholding. This case may indicate a way around that issue.
Couple’s Research Credit Case Survives Summary Judgment Motion - Mary Katherine Browne, Tax Notes ($). "The Tax Court rejected all four of the government’s arguments that a couple wasn’t entitled to claim research credits for their corporation for failing to meet one of the thresholds for qualified research expenses."
Link: T.C. Memo. 2023-57
Regulatory Implementation of Tax Laws Comes Under Fire - Chandra Wallace, Tax Notes ($):
“The Court has been chipping away at Chevron — either by ignoring it and just saying what the statute means or inventing one-off ancillary doctrines like the ‘major questions’ doctrine announced in West Virginia v. Environmental Protection Agency,” Jasper L. Cummings, Jr., of Alston & Bird LLP told Tax Notes.
Cummings said he believes the effect of eliminating Chevron deference on federal tax regulations — at least on relatively recent and future regulations — is likely to be small, because Treasury has already begun adapting to a hostile environment for regulations.
Brazil Transfer Pricing Measure Passes Senate, Nears Enactment - Isabel Gottleib, Bloomberg ($):
Under the new rules, Brazil will adopt the internationally accepted arm’s length standard, which dictates that related parties should value their transactions as similar unrelated parties would.
The move could ease a major concern for US multinationals operating in Brazil: the loss of their US foreign tax credits for taxes paid in Brazil. Rules issued by the US Treasury in 2021 narrowed the scope of foreign taxes that would be eligible for a US credit.
Victor Kampel, a partner at Mello Torres in Brazil, said in an email that the president’s approval should come soon, and the Brazilian tax authorities will issue “operating and interpretive regulations to allow taxpayers to fill the gaps of the new law and decide whether they will adopt the new rules in 2023 (early adopters) or in 2024.”
Congress Mulls Treaty-Like Tax Benefits for Taiwan - Chris Cioffi, Bloomberg ($). "Legislation introduced last week would allow President Joe Biden to sign a tax agreement with Taiwan, giving him the ability to stop double-taxing businesses that operate in each place despite the risk of angering China."
Milwaukee County says 'no' to tax money for MLB park upgrades - Kay Bell, Don't Mess With Taxes. "Stadium tax subsidy supporters characterize the money as an investment in the community that creates jobs, both during the building process and once the facility opens. Those opposed to taxpayers helping build arenas et al say the tax subsidies are a bad economic idea — the phrase corporate welfare gets tossed around a lot. Rich owners, they demand, should 'pay for their own damn stadiums.'"
Lesson From The Tax Court: Exclusion Rules For Disability Payments - Bryan Camp, TaxProf Blog. "Whether disability payments can be excluded from income under §104(a)(3) depends on whether the insurance was paid for by the taxpayer with after-tax dollars or was instead paid for by the taxpayer's employer."
Serious Warnings for Frivolous Positions - Joseph Cole, Procedurally Taxing. "Frivolous positions at the Tax Court and the frivolous position penalty may unfortunately become more of an issue in the years to come. People are being exposed to more disinformation and charlatanism through social media. Flat earth theories (both literal and figurative) are receiving a surprising level of popular acceptance today. As a recent Procedurally Taxing post pointed out, many taxpayers are relying on social media for tax advice. The Tax Law equivalents of flat earth theories are finding increasing levels of popularity."
Third Circuit Holds That Tax Loss for Tax Crimes Sentencing Calculations is the Intended Loss Rather than Actual Loss - Jack Townsend, Federal Tax Crimes. "The case highlights a possible disconnect between the sentencing for the two types of financial crimes. It is not apparent from the Guidelines why there is a difference, but as the plain text of both Guidelines provisions establishes, there is a difference."
Aussie Openness - Alex Parker, Things of Caesar. "Even if it is watered down or repealed outright, this proposal indicates the seemingly unstoppable move towards greater global tax transparency. It also is another step in the direction of tax enforcement that is ostensibly based on traditional arm’s-length pricing, but will be influenced by a variety of factors that include destination-based and formulary apportionment principles, as well as unpredictable public perceptions and opinions. It’s what I’ve called the “rough justice, soft application” approach–that could ultimately transform the global tax system."
These Problems Won’t Be Solved By Tax Breaks - Jim Maule, Mauled Again. "Today’s Philadelphia Inquirer featured a Spotlight article examining the reception given by the Pennsylvania legislature to Governor Shapiro’s proposal to provide an income tax credit to individuals who are newly hired as police officers, teachers, and nurses... As I’ve often commented, there are problems that tax breaks do not and cannot fix."
Not every problem is a tax problem.
Court OKs IRS Bid For Bank Docs Of Kan. Senator's Church - Theresa Schliep, Law360 Tax Authority ($):
God's Storehouse — founded by Kansas state Sen. Rick Kloos, R-Berryton, and Pennie Kloos — failed to show that the IRS wasn't acting in good faith when it issued the summons, while the IRS has met its initial burden to prove that it pursued the summons in good faith, Judge Crabtree said.
The IRS is probing the tax-exempt status of God's Storehouse, which comprises a thrift store and coffee shop. Kloos founded the organization in 2009 with his wife, Pennie, and opted to self-declare it as a church rather than file a tax-exempt application, according to the order.
IRS agent Kesroy Henry had alerted God's Storehouse that he was concerned the organization was running a thrift store and not a church, that the coffee shop might owe unrelated business income tax and that employment taxes might be owed on wages paid to Rick Kloos, who worked as a pastor at God's Storehouse, according to the order.
Related: How to Protect your Tax-Exempt Status.
Appeals court overturns convictions of two parents in ‘Varsity Blues’ admissions scandal - Susan Svrluga, Washington Post ($). "The U.S. Court of Appeals for the 1st Circuit vacated all of the convictions against Gamal Abdelaziz, and all but one of the convictions against John Wilson. It affirmed Wilson’s conviction for filing a false tax return."
The tax conviction resulted from deducting as a business expens the payment to a "consultant" who secured college admissions to a defendants child.
Link: Appeals court opinion.
An Everson, Washington, man was sentenced today in U.S. District Court in Seattle to two years in prison for failing to pay over taxes, announced U.S. Attorney Nick Brown. Between 2013 and 2019, Defendant owned and operated Heritage General Building Contractors. He had as many as 48 employees over that period and withheld $1,095,388 in Social Security, Medicare, federal income taxes, and unemployment taxes from his employees’ paychecks. Then, instead of paying the money to federal programs as required, he used the money to buy expensive horses, exotic sportscars, and to remodel his multi-million-dollar lavish estate. At the sentencing hearing, U.S. District Judge John C. Coughenour said Defendant “was warned several times that his conduct was illegal.”
According to records filed in the case, several employees confronted Defendant about his failure to pay over the money he had withheld from their paychecks. In 2017, he met with an accountant who told him his tax obligation was significant. Defendant sought to limit his payment to the two former employees who were threatening to sue him if he did not pay. The accountant told him that was not possible. Defendant stopped communicating with the accountant and never paid the taxes owed.
Even as Defendant refused to pay the taxes he owed for his employees, he used their labor, and the money he withheld, to build and remodel his luxurious estate in rural Whatcom County.
Creating disgruntled potential informants is risky way to go about tax crime.