Tax News & Views Minnesota, Rooster, and Turtle Roundup

May 23, 2023

New Taxes on Tap for Minnesota Corporations, Millionaires - Michael Bologna, Bloomberg ($): 

New revenue would come into state coffers through conformity with the federal approach to taxing the global intangible low-taxed income, or GILTI, of multinational corporations—an anti-base erosion feature of the 2017 federal tax law. The plan to tax GILTI would begin with the 2024 tax year. Corporations could claim a 50% deduction for dividends received. An earlier plan imposing mandatory worldwide combined reporting for the calculation of corporate income taxes was stripped from the compromise tax bill.

High-income taxpayers would pay more to the state under a less generous scheme for claiming standardized and itemized deductions. Deductions would be cut by 10% for joint filers with adjusted gross income over $304,970, and 20% for those earning more than $1 million. Additional revenue would be created through a new tax on the net investment income of individuals, estates, and trusts over $1 million at a rate of 1%.

The bill also includes a 50 cent fee for retail deliveries. It provides for one time refundable credits of $260, plus a $1,570 child tax credit. It exempts Social Security benefits from taxpayers with income under $100,000 for joint filers and $78,000 for single filers; the exemption is clawed back with a stepped phaseout of 10% for each $4,000 that income increases over those amounts. 

Link: HF 1938

Minnesota lawmakers OK raising gas tax, new delivery fee - Alex Derosier, Duluth News Tribune:

An increase to the gas tax and the delivery fee are just some of the tax increases in the transportation bill. There’s also a new Twin Cities metro sales tax of 0.75%, which will apply to the seven-county metro area and go toward transit projects.

The transportation bill also increases motor vehicle registration tax, a move expected to bring in a total of $787 million in the next four years.

The report says the governor is expected to sign the bill. 


IRS announces underpayment, overpayment rates for 2023 Third Quarter - Bailey Finney, Eide Bailly.

The IRS has announced (Rev. Rul. 2023-11) the interest rates for taxpayer underpayments and overpayments for the third quarter of 2023:

• 7% for overpayments [6% in the case of a corporation];
• an additional 4.5% for the portion of a corporate overpayment exceeding $10,000;
• 7% for underpayments; and

For comparison, the individual rate for the third quarter of 2021 was 3%.


Fraud-Laden Pandemic Credit Causes Headaches for Buyers in Deals - Lauren Vella, Bloomberg ($):

ERC fraud became such a problem that this year the IRS put it on its “Dirty Dozen” list of tax scams and prioritized the credit as a red flag for audits. More than a year ago, according to the Treasury inspector general, the IRS’s fraud filters had identified 11,096 returns with more than $2 trillion in credits claims.

That has created the need for hundreds of hours more due diligence work for tax practitioners working on M&A transactions so a buyer isn’t susceptible to an IRS audit or steep penalties. Anxiety and hesitance about these credits have spurred disagreements between parties, questions about a company’s value and ultimately prolonged deals—compounded by insurance companies’ reluctance to underwrite the credit.

Shedding Light on ERC Audits - Chris Corban, Tax School Blog. "Thanks to Twitter users sharing redacted copies of IRS correspondence regarding these audits, credit claimers have a glimpse as to what these examinations entail, and how best to prepare for them in the event that they find themselves subject to one. More notably, this can also help businesses and taxpayers claiming the credit know what information to document and maintain in supporting their claims of the ERC."


IRS Processing Updates Include Up To 20-Week Wait For Amended Tax Returns - Kelly Phillips Erb, Forbes:

As of May 13, 2023, the IRS had 4.2 million unprocessed individual returns—yes, that number is higher than reported just a few weeks ago. That number includes tax year 2022 returns, 2021 returns that need review or correction, and late filed prior year returns.

Of the unprocessed individual returns, 2 million returns require error correction or other special handling, and 2.2 million are paper returns waiting to be reviewed and processed, nearly 3/4 million more than two weeks ago. These returns require special handling by an IRS employee, so in these instances, it will take the IRS more than 21 days to issue any related refund.


Supreme Court upholds exception to notice requirement for third-party summonses - Martha Waggoner, Journal of Accountancy. "The U.S. Supreme Court held unanimously that the IRS does not have to notify third parties named in a summons when it seeks access to records held at institutions such as banks in aid of collection of an assessment."


Bipartisan House Pair Introduces New Tax Return Extension Bill - Samantha Handler, Bloomberg ($). "Their bill would allow taxpayers to make a payment of 125% of their prior year’s tax liability to qualify for the six-month extension; current law requires taxpayers requesting a six-month extension to also make a payment based on their current year’s estimated tax liability."

It's good to see lawmakers considering making extensions easier. It would be much better to make them unnecessary. The April 15 deadline was set in 1954. That was before qualified dividends, REITs, publicly-traded partnerships, hedge funds, Sec. 199A, passive losses, S corporations, at-risk rules, among dozens of other tax innovations, existed. The sole purpose of extensions now seems to be to create expensive penalties for paperwork foot-faults. 

A real bold, and wise, move would be to just extend due dates out to August or September for pass-through filers and October for individuals and corporations. Taxpayers expecting refunds woudl still file early. If revenue delay is the issue, it could be dealt with by charging interest for taxes paid after April 15. 


Estate Planning Now and for the 2026 “Double Exemption” Sunset - Leah Mitchell and Devin Hecht, Eide Bailly:

However, unless additional action is taken by Congress, the Double Exemption provisions of the Tax Cuts and Jobs Act of 2017 are going to “sunset” on December 31, 2025, and the estate and gift tax exemption will essentially be cut in half, resulting in an exemption for 2026 somewhere between $6 million and $7 million, depending on inflation.


For taxpayers with an estimated estate value that is near or over the anticipated exemption for 2026, the time to explore planning opportunities is now. Estate planning professionals will be working with taxpayers over the next two years to determine what planning strategies could be implemented to help reduce estate tax exposure after the sunset.



House, Senate bills look to increase 1099-K reporting level - Kay Bell, Don't Mess With Taxes. "ARPA dramatically reduced the income level at which third-party, e-commerce payment platforms — such as eBay, PayPal, Etsy, CashApp, and Venmo, — must issue 1099-K forms to sellers who got money through them. It was set to drop from $20,000 to $600 beginning in 2023."

IRS Releases 2024 Inflation Adjusted Numbers for HSAs and Excepted Benefit HRAs - Ed Zollars, Current Federal Tax Developments. "In terms of Health Savings Accounts (HSAs), the annual contribution limit for an individual with self-only coverage under a high deductible health plan has increased from $3,850 in 2023 to $4,150 in 2024. This represents an increase of $300. For individuals with family coverage, the annual contribution limit has gone up from $7,750 in 2023 to $8,300 in 2024, an increase of $550."


Supreme Court Finds For Government in Polselli Summons Litigation - Leslie Book, Procedurally Taxing. "Why is notice important? Under the statutory scheme set out in Section 7609, the entitlement to notice is the ticket to a waiver of the government’s sovereign immunity. Without the right to notice, there is no clear path to a federal district court. The opinion brings into sharp relief how the government’s power to gather information that may help it collect taxes trumps a third party’s privacy interest in sensitive and personal information."

District Court Tosses Interesting Likely Frivolous Tax Argument Out On Standing - Peter Reilly, Forbes. "Brian's Section 83 argument is stupider than many, but at least it is new."

Tax Pledge Zombies Roam Capitol Hill - Robert Goulder, Tax Notes Opinions. "Make no mistake: The repeal of a tax break (even one created by the opposing party) qualifies as a tax increase. Normally, the GOP is averse to tax hikes. It self-identifies as the party of tax cutters, which has proven an effective form of branding. Over the years, many Republican elected officials have gone so far as to sign a pledge that obliges them to never raise taxes. That’s no tax hike ever — full stop. Zero exceptions and zero tolerance for those who dare to violate the pledge."


QDMTTs, CFCs, and Potential Complications - Alex Parker, Things of Caesar:

As I wrote back in March, the qualified domestic minimum top-up tax is looking to be the most crucial part of the Organization for Economic Cooperation and Development’s new 15% global minimum tax. It’s the teeth of the new system, the one that companies will most often come into contact with. (Leaving the income inclusion rule and the under-taxed profits rule as the jaw muscles, to stretch this metaphor as far as it will go.)

Unfortunately, it’s a bit of a mouthful, and there’s no catchy acronym yet like GILTI (“guilty”) or CAMT (“camtee”). Apparently one joke that’s beginning to catch on with practitioners is that QDMTT should be pronounced “Q-Dammit!”


Will Artificial Intelligence Be Able to Prepare Our Tax Returns? - Robert Weinberger, TaxVox.

ChatGPT is still a work in progress, missing critical analytical and quantitative skills. It is flummoxed by translating our convoluted tax code, its regulations, and rulings into tailored decisions. It is prone to error and dependent on internet information only available before 2021.

Plus, even with AI, the burden of preparing a tax return will still involve collecting personal information, entering data that may be unavailable in public records, and weighing decisions based on precedent and values.

But as science fiction writer William Gibson once said, “The future has arrived — it’s just not evenly distributed yet.”


The case for a weirder economy - Allison Schrager, Known Unknowns. "If you are going to argue that we need wealth redistribution simply for the sake of redistribution, you need to make a case that inequality is somehow harming the economy. But that last point is made as an article of faith and with the presumption that inequality is a problem that must be resolved, or that life is unfair and family wealth isn’t really owned by anyone. This is not a good direction for us to go down; tax policy should be about raising revenue not social engineering. Intentions matter. Misguided intentions result in bad policies."


Scrap metal reseller pleads guilty to filing a false corporate tax return - IRS (Defendant name omitted):

According to court documents, Defendant owned and operated Houston-based Spartan Metals Inc. (Spartan), a company that bought and resold scrap metal, for more than 30 years. On several occasions between 2014 and 2017, Defendant directed customers to wire payments to his personal bank account rather than to Spartan's business bank account. Defendant intentionally did not record these payments as income in Spartan's QuickBooks records, which he then provided to his accountant, willfully causing the accountant to prepare false corporate tax returns. As a result, Spartan's corporate tax returns underreported more than $2.3 million of gross income for tax years 2014 through 2017.

Not wise. Every customer becomes a potential informant, and eventually everyone has a dissatisfied customer.


Premature Gift Tax Return Is Adequate Disclosure, Tax Court Says - Michael Smith, Tax Notes:

Information contained in a gift tax return and an attached filing start the statute of limitations because the documents provide adequate disclosure to the IRS even though the transfer was not completed until the following year, the Tax Court said.

In a May 22 opinion in Schlapfer v. Commissioner, the Tax Court determined that the IRS could not amend a taxpayer’s gift tax return regardless of whether the gift is treated as either foreign stock or the transfer of a life insurance policy. The court determined that the characterization of the gift was immaterial because the taxpayer substantially complied with the requirements in either case.

The IRS said that the gift occurred in 2007, even though the gift tax return reporting it was filed for 2006. The 2006 return was filed in November 2013, as part of the taxpayer's entry into an offshore voluntary compliance program. The IRS assessed a deficiency in the gift tax return in October 2019 of over $4 million.
From Tax Court Judge Buch's opinion:
The Commissioner determined that the gift transfer was completed in 2007, and his notice is predicated on that determination. However, when the transfer was completed is immaterial. Even if we were to decide that the gift was completed in 2007, Mr. Schlapfer's adequate disclosure of the gift on his 2006 return would suffice to commence the three-year period of limitations upon the filing of that return.

A lot was riding on whether the gift was adequately disclosed. Again from the opinion:

Mr. Schlapfer strictly or substantially complied with Treasury Regulation § 301.6501(c)-1(f)(2)(i), (ii), and (iv) by way of his gift tax return, protective filing, Offshore Entity Statement, and Forms 5471. As a result, he adequately disclosed the gift on his 2006 gift tax return, causing the three-year assessment period to commence on November 20, 2013, when he submitted his disclosure package to the OVDP, and end on November 30, 2017 (three years after that date including extensions). Therefore, we conclude that the period of limitations to assess the gift tax expired before the Commissioner issued the notice of deficiency. 

The moral? Because Form 709 is typically filed without tax due, taxpayers wonder why it is worth the trouble to dot every "i" and cross every "t" when it causes a prep fee to run to 4 or 5 figures. In this case, making the effort to give the IRS all of the information up front prevented the IRS from assessing $4.4 million in tax and an additional $4.3 million in penalties. 

Related: Estate Planning Now and for the 2026 “Double Exemption” Sunset

I like turtles. As we get ready for the coming long weekend, we can today observe both National Drinking With Chickens Day and World Turtle Day. Choose wisely. 

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