Second quarter payments! Tomorrow is the due date for second quarter estimated taxes for individuals and calendar-year C corporations. If you are a corporation, you need to act today to set up your payment on EFTPS, the electronic federal tax payment system.
While it is electronic, it is also archaic. EFTPS still requires you to queue up your payments the day before they are made.
Taxpayers not using EFTPS have other options, including the unwise paper filing option. From the IRS:
An electronic payment is the fastest, easiest and most secure way for individuals to make an estimated tax payment. Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account. Taxpayers can also pay using a debit card, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit card, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.
Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment. Payment by check or money order made payable to the "United States Treasury" is also an option. Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes.
The "Tax Deadline Simplification Act" introduced in Congress last month would make the quarterly payments actually, well, quarterly: "This legislation sets the estimated tax installment deadlines to 15 days after the end of each quarter, moving the deadlines to January 15th, April 15th, July 15th, and October 15th." So crazy, it just might work.
Ways to pay estimated taxes - Kay Bell, Don't Mess With Taxes. "You can now make tax payments through your taxpayer online account. This includes balance-due amounts and estimated tax payments. Once you pay, you can see your payment history and other tax records in your account. Access to and/or more on creating an account is at IRS.gov's Your Online Account page."
Ways & Means GOP Votes to Advance Tax Package - Doug Sword and Cady Stanton, Tax Notes ($):
The committee advanced all three bills, which contain 11 business tax provisions, including their marquee measures to restore full research and development expensing, bonus depreciation, and net interest expensing from the Tax Cuts and Jobs Act. All three bills passed on party lines.
The business provisions also include an assortment of smaller provisions, such as a measure scored at $1.35 billion allowing U.S. companies to ignore a pair of Treasury regulations regarding foreign tax credits and an $11.7 billion proposal to shorten the holding period and expand to S corporations an exclusion from income gains on qualified small business stock sales.
GOP’s New Tax Package Proposal: Markup’s Key Themes Explained - Samantha Handler and Chris Cioffi, Bloomberg ($):
No changes to the state-and-local tax deduction cap were included in the package, which could lead to a revolt from Republicans from high-tax states. A dozen Republicans voted against the 2017 tax law, citing the $10,000 limit as part of their opposition.
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Left out of the package was any mention of the Child Tax Credit—a major Democratic priority with some Republican support. While the GOP is expected to advance the package of bills out of committee with only the GOP majority, Democrats will push for some version of the expanded credit in any ultimate tax deal.
House Tax Writers Approve a Trio of Tax Bills Expected to Fail in the Senate - Jay Heflin, Eide Bailly. Jay provides more details on the bills. He is not optimistic about passage:
Upon its passage, the bill is expected to travel to the Senate where it is not expected to pass. In fact, the upper chamber may not even vote on the legislation.
While Senators in both political parties support the business tax proposals in the House bill, many of them have threatened to withhold that support unless the bill expands the Child Tax Credit.
Several of these Senators want to add an expansion of the Child Tax Credit to the House bill. The measure would be similar to what was enacted in the American Rescue Plan. That provision costs roughly $1 trillion over ten years. There is talk that these Senators could support something that costs less, but their exact ask is not publicly known.
Even if a Child Tax Credit is added to the bill, passage from the Senate is unlikely. For every Senator willing to support a Child Tax Credit being added to the bill there will likely be a greater number of Senators who oppose the legislation if it includes the Credit.
Some tax bill might pass late this year, and some elements of these bills might be part of it, but Jay's final word seems right: "The current assumption by lawmakers and tax staffers is that the legislation will become a 'messaging bill.' Lawmakers use such bills to highlight their policy positions in re-election campaigns."
California Legislature Reaches Budget Agreement - Paul Jones, Tax Notes ($):
The budget agreement excludes the proposal by the Senate to increase the flat 8.84 percent corporate income tax rate to 10.99 percent for income over $1.5 million. Revenue from the proposal would have been used to drop the rate for corporate income below $1.5 million to 6.63 percent — to give smaller companies a tax cut — and provide tax relief and additional financial support for lower-income residents. Gov. Gavin Newsom (D) opposed that proposal.
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Tax provisions in the legislative agreement include two backed by Newsom. He called for extending the film tax credit program and authorizing partial refundability of credits awarded to qualifying productions. The agreement supports that proposal, but the final language will be negotiated. The Legislature also agrees with Newsom’s proposal to subject incomplete non-grantor trusts to state income tax, with the final legislative language also to be negotiated.
Montana DOR Issues Guidance on Elective Passthrough Entity Tax - Emily Hollingsworth, Tax Notes ($):
Under S.B. 554, enacted in May, passthroughs are allowed to elect to pay owners' distributive share of state-source income at the entity level, at a 6.75 percent rate. The annual election is available beginning tax year 2023. In turn, owners may claim a credit to offset the distributive share of the entity tax paid by the entity, skirting the federal $10,000 state and local deduction cap under the Tax Cuts and Jobs Act. Montana is one of roughly three dozen states — most recently Hawaii — that have enacted a SALT cap workaround.
According to the DOR guidance, the election is made annually by a designated representative of the passthrough. DOR spokesperson Jason Slead confirmed to Tax Notes June 13 that the election is made on Montana Form PTE. The election applies “to the distributive share of Montana source income allocable to all owners that are individuals, estates, trusts, and pass-through entities.” The election also allows Montana resident owners "to be assessed on their entire distributive share of income, regardless of apportionment and allocation rules," the guidance says. Passthroughs that are doing business outside the state but have Montana resident owners can also make the election.
From the Montana guidance: "Once made, the election applies to the distributive share of Montana source income allocable to all owners that are individuals, estates, trusts, and pass-through entities. The election is irrevocable and cannot be made after the extended due date of the return. The distributive share of Montana source income allocable to C corporations and tax-exempt entities is not subject to PTET."
IRS Picks Mark Schneider to Be Top Corporate Counsel - Chandra Wallace, Tax Notes ($). "Schneider is a veteran of the office, having worked as deputy associate chief counsel (corporate) under William B. Alexander from 2005 to 2008, and again as special counsel under Robert Wellen in 2020 and 2021."
Taiwan Trade Bill Clears House Panel in United Vote - Chris Cioffi, Bloomberg ($):
The legislation approves and implements a trade agreement signed by the US and Taiwan under the US-Taiwan Initiative on 21st Century Trade earlier this year and “lays the foundation” for future cooperation. That might one day include providing significant treaty-like benefits through the tax code, some backers say.
The lack of a tax treaty between the countries leads to double taxation, which has become an obstacle for US businesses.
The Retirement Tax Break That Will Pay You an Annual Income - Ashlea Ebeling, Wall Street Journal. "Charitable gift annuities offer benefits to both giver and receiver. Small liberal-arts colleges and huge charities such as the American Red Cross and the Salvation Army, are signing up donors for the contracts, including those funded with IRA dollars. They appeal to retirees as a way to make a charitable splash while generating income."
Berlusconi Leaves Behind A Complicated Legacy Involving Politics, Soccer And Tax Fraud - Kelly Phillips Erb, Forbes. "Accusations and scandals followed Berlusconi for years, and nothing seemed to stick—until he was convicted of tax fraud."
IRS Cracks Down on Donations to NIL Collectives, Not Tax Exempt - Rebekah Barton, TaxBuzz. "The NCAA revamped its NIL policy, allowing college athletes to receive compensation for the use of their face, name, or other identifying features for the first time. This led to the development of university collectives, groups that receive donations used to pay student-athletes."
Fourth Circuit Adds Twist to Issue of Proving Mailing of Documents to the IRS - Marilyn Ames, Procedurally Taxing. "The main take-away of this for practitioners should be to always use one of the safe harbor delivery methods set out in Section 7502 and the regulation. The cost of certified mail is so much less than the cost of a trip to the circuit court."
Could A Boost In The Standard Deduction Kill The Mortgage And Charitable Deductions? - Howard Gleckman and Robert McClelland, TaxVox. "The bump in the standard deduction is, however, an opportunity to rethink many itemized deductions. Why even bother with complex tax breaks that under this bill would be of no value to roughly 95 percent of middle-income households and even fewer low-income households?"
Will the IRA Tax Credit Transfers Meet the Same Fate as Safe Harbor Leasing? - Marie Sapirie, Tax Notes Opinions. " It’s not a good idea to get taxpayers into the habit of presenting their affairs to the IRS so that the substance of what they are doing bears little to no relation to the purported form."
Lesson From The Tax Court: The IRS's Substantial Justification Defense To §7430 Fee Awards - Bryan Camp, TaxProf Blog. "Basically, the taxpayer must show that they: (1) exhausted all administrative remedies available to them; (2) did not unreasonably protract the proceedings; and (3) are not worth over $2 million (if they are individuals). §7430(b). Then they must also show the reasonableness of the costs and attorneys fees they want. §7430(c)(1). Whew! It’s a slog."
Also:
I have seen Ms. Castillo’s fact pattern happen all too often: a taxpayer gets slammed with a huge tax, based on wildly inaccurate information returns, and then struggles to find someone in the IRS to actually help them. That is why it frustrates me no end to hear stupid comments like this one from this Congressman: “The IRS should never be weaponized against American taxpayers. Rather, it should be focused on providing quality service to taxpayers. Rescinding the funding for 87,000 new IRS agents is a great first step in that direction, and I was happy to vote ‘yes' on this legislation!" Really? As Bugs Bunny would say: “what a maroon!” Dude, it’s the computer systems that hurt taxpayer service, not IRS employees. The IRS actually needs more employees—and more well-trained employees—to work the cases because no matter how good your computer systems are, even a small percentage error applied to hundreds of millions of taxpayers is still a lot of hurt taxpayers. And they need human help. More IRS employees is what the agency actually needs to provide quality service.
Taxpayer Hits Sour Note in Quest to Protect Cello From IRS Levy - Nathan Richman, Tax Notes ($):
Omar G. Firestone served as the executor of Ghiada M. Firestone’s estate in 2012 when the IRS conducted an audit. In 2013 the IRS concluded that the estate had underpaid its estate tax and asserted a nearly $1.9 million tax liability, including interest and penalties.
In 2019 the government sued Firestone to reduce the estate tax liability to judgment against him. A California federal court entered the $2.5 million judgment against him in 2021. The California case also included real property judicial sale claims against other defendants.
However, in 2014 Firestone formed The Firestone Irrevocable Cello Trust and purportedly transferred the cello to himself, from his role as settlor to his role as trustee.
It must be quite the cello to cause so much trouble. From the court opinion:
Mr. Firestone seemingly tries to claim that someone else — Robert Cauer — is the actual beneficiary of the Trust, asserting in his declaration that the Trust was created "to compensate Mr. Cauer, a Los Angeles string instrument dealer, for the loss of a sales commission when I defaulted on the payments to the cello’s owner. Mr. Firestone also attaches to his motion an unsworn email from Mr. Cauer in which he claims to "certify" that he is the beneficiary of the Trust. Mr. Firestone’s self-interested declaration and Mr. Cauer’s unsworn statement are insufficient to defeat the clear terms of the Trust agreement itself. Mr. Firestone could have included Mr. Cauer as a beneficiary of the Trust agreement but chose not to do so, naming only himself as a beneficiary. He also could have provided legal documentation such as a deed reflecting the transfer of interest to Mr. Cauer but failed to do so.
Bottom line: the cello is fair game for IRS collections. And they're not just fiddling around: "The Court further ORDERS that if the Cello is no longer within the United States, Mr. Firestone SHALL repatriate the Cello."
Related: IRS Collection Issues.
A Las Vegas tax preparer sentenced to prison for filing false tax returns - IRS (Defendant name omitted):
A Las Vegas tax preparer was sentenced yesterday by United States District Judge Richard F. Boulware II to three years in prison, followed by one year of supervised release, for fraudulently preparing and filing over $1.2 million false income tax returns.
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According to court documents, beginning around 2013, Defendant ran her own tax preparation business under the names "Taxes & More" and "Taxs y Mas." She used false or inflated deductions and credits on tax returns filed on behalf of her clients. Additionally, she used her clients' personal identifying information to falsely obtain a larger refund on her own tax returns. In total, Defendant prepared more than 700 tax returns that claimed more than $3 million in refunds from the IRS. She caused more than $1.2 million in tax loss. Furthermore, Defendant inflated her clients' refund requests without their knowledge and stole the excess amount of those refunds. Through this scheme, Defendant diverted over $500,000 of her clients' tax refund payments into her own accounts from 2013 to 2017.
Taxes & More, indeed.
Bleed for a cause. Today is World Blood Donor Day. Given the restrictions on who can donate, those of us who can become more important. Then treat yourself to a relaxing soak to celebrate International Bath Day!
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