Tax News & Views E-File Report Looming Roundup

May 15, 2023

Tax Preparation Firms, Lawmakers Brace for IRS E-File Report - Naomi Jagoda and Chris Cioffi, Bloomberg ($):

The Biden administration’s tax-and-climate law directs the IRS to submit to Congress a report within nine months of the law’s passage—a deadline that arrives Tuesday—on a 'free direct e-file tax return system' that includes a cost analysis, survey results about taxpayers’ opinion, and the opinions of an independent third party.

The IRS tasked the think tank New America and Loyola Law School professor Ariel Jurow Kleiman with providing the independent analysis required for the report; the law gave the agency $15 million to conduct the entire study, though the IRS has said it is not paying New America and Jurow Kleiman.

Deadlines can sometimes be optional. The IRS has missed a few deadlines in the past. We'll see if they meet this one. 

Design, Implementation of Direct E-File Is Key, Economist Says – Lauren Loricchio, Tax Notes ($):

The design and implementation of any government-provided direct electronic return filing system in which the IRS pre-populates tax returns for taxpayers will be critical to its success, according to a government economist.

If the program is well designed and ‘people enjoy using it, you might have high take-up and big reductions in compliance costs,’ Katherine Lim, an economist with the Department of Agriculture’s Economic Research Service, said May 12 at a symposium hosted by the National Tax Association.

But if it’s poorly rolled out ‘and no one uses it and you’re not getting the benefits, you have all the costs,’ said Lim, who was previously an economist at Treasury.

COBOL might need to be phased-out...

Interesting tidbit:

FREE TAX FILING – Benjamin Guggenheim, Politico:

Republican tax writers argue that the IRS shouldn’t be both the filer and enforcer of taxes, pointing to past debacles in which the agency was accused of unfairly targeting conservative groups.

The GOP also says that the report on the filing system expected to be delivered this week was rigged from the start, given that the tapped authors, left-leaning think tank New American and Professor Ariel Jurow Kleiman of Loyola Law School, have advocated for such a system in the past.


Some U.S. Solar Makers Criticize Biden’s Tax Credits as Too Lax on China – Ana Swanson, Alan Rappeport and Ivan Penn, New York Times:

Biden administration rules released on Friday that will determine which companies and manufacturers can benefit from new solar industry tax credits are being criticized by U.S.-based makers of solar products, who say the guidelines do not go far enough to try to lure manufacturing back from China.

The Treasury Department, in guidance issued on Friday, said it would offer a 10 percent additional tax credit for facilities assembling solar panels in the United States, even if they import the silicon wafers used to make those panels from foreign countries.

i.e., China.

Senior administration officials told reporters on Thursday that they were trying to take a balanced approach, one that leaned toward forcing supply chains to return to the United States. But China’s dominance of the global solar industry has created a tricky calculus for the Biden administration, which wants to promote U.S. manufacturing of solar products but also ensure a plentiful supply of low-cost solar panels to reduce carbon emissions.

i.e., China is profiting off the Inflation Reduction Act.  

Guidance Issued on Domestic Content Bonus Credit for Energy Projects – Mary Katherine Browne, Tax Notes ($):

Notice 2023-38, 2023-22 IRB 1, published May 12, provides guidance on the domestic content bonus credit requirements for qualified facilities or energy projects, as well as related recordkeeping and certification requirements. It also provides a safe harbor for the classification of some components in specified facilities, projects, or energy storage technologies.

The Notice is here.


End of the Line for Grantor Trust Basis Guidance, Treasury Says – Jonathan Curry, Tax Notes ($). “Proponents of the view that assets in a grantor trust can get a tax-free basis bump upon the death of the grantor say recent guidance still leaves wiggle room, but an official says Treasury is done dealing ­­­­­with the question.”


Plunging Tax Revenue Accelerates Debt-Ceiling Deadline – Richard Rubin, Wall Street Journal ($):

Wall Street and Washington got jolted this month by government warnings that the U.S. could become unable to pay all its bills as soon as June 1. That crunch came months sooner than expected, raising the specter of a default on federal obligations unless Congress increases the debt ceiling. 

The reason: the expected annual gusher of tax-season payments didn’t flood into the Treasury. When the Congressional Budget Office analyzed tax collections for the current fiscal year through April, the tally fell about $250 billion short of predictions from just a few months ago. 

More on how taxes could play in role in debt ceiling talks is here.


Arrington says he’ll ‘absolutely’ deliver a budget plan - Mica Soellner, Punchbowl News ($): “HouseBudget Committee ChairJodey Arrington(R-Texas) is bullish about his ability to produce a budget resolution — and better yet, one that balances.”

Further down the article:

The goal is to have a path to a balanced [budget],’ Arrington said. ‘What the path is, I can’t presume that on our members. But I can tell you we are making tremendous headway as a committee, so I am confident that we will have a path to balance our budget for the 10-year fiscal framework.’

Here's a big problem for Arrington: The 2017 tax cuts. The individual provisions expire in 2025 and there will be political pressure on Arrington to extend them. However, extending them will likely make it harder to achieve a balanced budget in ten years.


National sales tax becomes focal point for Trump-DeSantis war – Benjamin Guggenheim, Politico:

IT’S BACK: All is fair in love and war, and by fair we specifically mean the 23 percent national sales tax known as the Fair Tax.

If you recall, the proposal, which would get rid of federal income, payroll and estate taxes and replace them with a 23 percent tax on all things bought and sold, reared its head earlier this year after Speaker Kevin McCarthy promised GOP renegades a committee vote on the idea — much to the chagrin of mainstream fiscal conservatives who see the Fair Tax as a major political liability for Republicans.

Now former President Donald Trump and Florida Gov. Ron DeSantis are trading jabs over their past support for the tax.

The “Fair Tax” has been around for decades. It’s never been enacted because lawmakers don’t want to support a bill that would add a 23 percent tax onto everything.


Portland Mayor Ted Wheeler says he will seek 1-year freeze on nearly all city tax, fee, utility rate increases – Shane Dixon Kavanaugh, The Oregonian/Oregon Live:

Portland Mayor Ted Wheeler said Thursday that he intends to seek a one-year freeze on nearly all planned or proposed city increases in taxes, fees and utility rates, a decision that could upend next year’s budget and lead to cuts or reductions across municipal services.

The one exception might be an increase in customers’ water bills, necessary to pay the debt for the city’s new federally mandated water treatment plant, he said. Wheeler hopes to dial back that rate increase but can’t cancel it as the city must pay its debts, he said.


Marketplace Laws Mean Cash For States, Headaches For Biz – Maria Koklanaris, Law360 Tax Authority ($):

Marketplace facilitator laws that states adopted at breathtaking pace after the Supreme Court's Wayfair decision have given them a key new revenue stream, but business is dealing with complications stemming from an absence of uniformity over basic issues, such as how to define a marketplace.


Newsom Says California Tax Hikes Unneeded Despite Bigger Deficit - Laura Mahoney, Bloomberg ($):

California Gov. Gavin Newsom (D) is holding the line against tax increases, despite a projected budget deficit that has grown to $31.5 billion and pressure from legislative leaders in his own party.

The Democrat is instead proposing to use more delayed or reduced spending, internal funding shifts, and reserve funds to close the deficit, which is $9.3 billion more than he projected in January.


Digital Ad Tax Status No Clearer After Maryland High Court Ruling - Michael Bologna, Bloomberg ($):

Worldwide Reporting: Minnesota was poised to become the first state in decades to tax the income of foreign subsidiaries of multinational corporations last week, but a key Senate lawmaker torpedoed the idea early in the week. Lawmakers then started scrambling to make up the lost revenue, examining options that could include a new tax on business profits from intangible assets held by offshore subsidiaries, and a phase-out of itemized deductions available to high-income taxpayers.


Colo. Boosts Anti-Carbon Tax Breaks, Cuts Oil And Gas Credit – Sanjay Talwani, Law360 Tax Authority ($). “Colorado is reducing a tax credit for oil and gas producers and enhancing credits for electric vehicle purchases and other clean energy efforts under legislation signed into law by Democratic Gov. Jared Polis.”


OECD Sees Global Tax Convention Completed by End of July - Isabel Gottlieb, Bloomberg ($):

Governments are on track to complete by the end of July a multilateral treaty that would implement a large remaining piece of the OECD-led global tax deal, the organization’s new tax head said.

After that, countries would sign and then ratify the document known as the multilateral convention to bring into force the portion of the deal known as Amount A of Pillar One, the part of the 2021 global tax deal that reallocates a portion of the largest multinationals’ profits to market jurisdictions.


From the “Political Game is Afoot” file:

California Republican leads push on bigger standard deduction – Laura Weiss, Roll Call: (Bolded added)

Rep. Michelle Steel is leading Republicans on a new bill that would preserve a bigger standard deduction at tax time.

The California Republican’s measure comes as her party is ramping up for a push to keep its signature 2017 overhaul of the tax code in place after 2025, when many provisions are set to revert to prior law.

In a unique twist, Steel singles out the standard deduction for preserving in her bill, though she backs making many of the provisions of the 2017 law permanent, according to a statement. Her bill follows a variety of Republican proposals that would save particular pieces or the whole of provisions set to expire, including the larger standard deduction.

Here is how the game is played:

  • Republicans want to extend beyond their current expiration date the tax measures in the 2017 tax reform bill.
  • Democrats will say they oppose this extension because it would benefit the wealthy.
    • However, several Democrats have publicly stated that they want to extend the 2017 tax cuts for lower and middle-income taxpayers.
  • Republicans put forward a bill that includes tax cuts for the rich (couched as helping small business owners, which is mostly accurate) as well as those provisions benefiting lower and middle-income taxpayers (hence highlighting the bigger standard deduction provision). 
  • If Democrats oppose the bill, they become vulnerable to political ads saying they opposed legislation giving tax breaks to lower and middle-income taxpayers as well as small business owners, i.e., employers.
  • Running these ads require lawmakers to explain why they opposed the bill – and in politics, when you’re explaining you’re losing.

This game was played in 2010 and helped extend the Bush tax cuts for two years.


Happy International Kangaroo Care Awareness Day!

Colloquially, these animals are called "roos.” And the way mom roos take care of their “joeys” (i.e., babies) is what this day is about:

National Day Calendar:

The term ‘kangaroo care’ got its name from the type of care a kangaroo mother provides their infant. A kangaroo mother has a little pouch on the front if its body. This little pouch acts as a second womb. When a joey, or baby kangaroo, is inside the pouch, it stays warm and protected. In addition, the pouch also offers a cozy environment in which to grow. Just like a mother kangaroo, a human mother can offer the same security.

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