Capitol Hill Recap: Lawmaker Sounds-Off on Impending High Court Tax Case

June 29, 2023

A lawmaker blasted the Supreme Court’s June 26th announcement that it will hear arguments on whether taxpayers must pay taxes on income they haven’t received.

What Went Down:

  • The Supreme Court’s decision on taxes could have earth-shattering effects on future tax legislation.
  • Certain lawmakers want the IRS preparing your taxes.
  • House and Senate lawmakers are not in session much.

Let’s Get To It:

The Supremes:

The Supreme Court is expected to hear arguments this fall on the Moore v. United States case.

Long story short, the case stems from a provision in the 2017 tax reform bill. It requires taxpayers to pay U.S. income tax on foreign profits even if those profits are kept overseas.  A couple paid the tax but said they don’t owe it because they never received the income. A lower court determined that they did owe the tax. It’s now up to the Supreme Court to ultimately decide who gets what.

More information about the case is here

If the High Court sides with the couple, that could put the kibosh on several tax proposals that certain lawmakers would like to see become law.

Chief among those proposals is the “wealth tax," which seeks to tax unrealized capital gains on certain assets held by wealthy taxpayers. If the High Court sides with the couple, taxing these sorts of gains would likely not become law.

Some taxpayers could also site the Court’s decision (assuming it sides with the coupbe) when asking for refunds on the taxes they paid for income they have yet to receive. That ask could cost the federal government hundreds of billions of dollars in lost revenue. The statute of limitations will likely play a role in who gets what. 

Senate Finance Chairman Ron Wyden (D-Ore.) thinks the Court siding with the couple would create jackpot profits for corporations and wealthy taxpayers.

“[T]hey’d be handing a massive windfall to multinational corporations and could potentially lock in a right for billionaires to opt out of paying anything remotely close to a fair share in taxes,” Wyden said in prepared remarks.

Republican leaders in Congress have been silent on how the Court should decide the case. The 2017 tax reform bill, which included the measure under scrutiny, passed Congress because of Republican support. A Republican president also signed the bill into law.

Whatever the decision is by the Supreme Court on this case, it is unlikely to prompt congressional action. The Republican-controlled House and Democratically-controlled Senate are not likely to agree on legislation that would support or oppose the Court’s decision.

The Supreme Court’s decision on this issue is expected to be announced in June of next year.

IRS, 1040, and You:

Nearly 100 lawmakers on June 26th urged IRS leaders to get moving on providing a direct file program to taxpayers. This tool is expected to prepare and file tax returns.

The IRS issued a report to Congress on this subject in May. That report, in part, found “that many taxpayers are interested in using a free IRS-provided tool to prepare and file taxes,” according to the IRS press release on the report.

To garner taxpayers’ opinions, the IRS must have polled them. Imagine being in that focus group. If the IRS asks to prepare your taxes, does a “no” reply put you at the front of the audit line?

A Direct File pilot program is expected to be running next year. IRS Commissioner Daniel Werfel reportedly said on June 28th that the agency is making progress on the program.

“IRS Commissioner Daniel Werfel highlighted progress the IRS has made as a result of last year’s Inflation Reduction Act, including better customer service for taxpayers and more research into an IRS free tax-filing tool,” Bloomberg($) reported.

The IRS’s Electronic Tax Administration Advisory Committee issued a report on June 28th to Congress that offered recommendations for how the agency should tackle the Direct File program.

It noted that starting a Direct File program from scratch would be too expensive. The report suggested that the agency keep the existing free file program and improve upon it.

That is not what the lawmakers seemed to have in mind, according to their letter:

The IRS’s effort to guarantee free and simple e-filing services to most American taxpayers through the Free File Program, a partnership with private tax preparation companies, has not been successful throughout its more than two decades in operation.

The letter refers the current Free File Program as a “broken system.”

Creating a Direct File program will not be cheap, according to Senator Mike Crapo (R-Idaho):

According to the [aformentioned IRS] report, the possible yearly cost for a new IRS call center is $208 million, and software development and maintenance is $40.8 million. While I doubt those estimates tell the full story, something 'free' and 'simple' does not have a $208 million annual budget for a call center to solve taxpayer problems and cost over a quarter billion dollars a year to run.  

It has been widely reported that IRS workers are overworked and struggling to meet deadlines (latest missed deadline in Tax Notes($)).  

It will be interesting to see when this pilot program is publicly released.

School's Out Forever:

House and Senate lawmakers recessed for the July 4th holiday on June 23rd. They return from this holiday on July 10th.  Yes, they have over two weeks to celebrate the birth of our nation.

But wait there’s more (or less, depending on how you view it).

The House and Senate will be in session together for a total of 11 days in July.

There is a tax bill that some lawmakers would like to become law this year. However, given the obligations that lawmakers already have (i.e., funding the federal government beyond September 30th), July is the best opportunity to pass this bill from Congress. (Spoiler Alert: It is not expected to pass.)

After July, the lawmakers don’t see much of Capitol for the rest of the fiscal year, which ends on September 30th.  

Upon return from the July 4th recess, lawmakers from both chambers are scheduled to leave Washington on July 28th – and be out of session for the entire month of August.

Senators are scheduled to return to the Capitol on September 5th. House lawmakers are set to arrive on September 12th.  That’s a 37-day holiday from the Capitol for Senators and a 45-day break for House members.

When lawmakers are in session in September, they are expected to argue over funding the federal government into October. This quarrel is expected to last the entire month of September. 

Come October, if Congress fails to pass legislation that funds the federal government beyond September 30th, there will be a partial shutdown of the federal government. If that happens, no lawmaker will be focused on passing tax legislation until the government reopens.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!

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