Week in Insights: Harvard Study Shows Auditing the Rich Pays Off - Melanie Cohen, Bloomberg ($):
It turns out that while a $1 investment in audits of taxpayers who earn below the US median income yields $5, the same $1 yields $12 when auditing returns in the top 10% income bracket. These figures account for the additional costs inherent in auditing a high-net-worth individual, and the deterrence effects remain consistent across incomes.
This has policy implications for the IRS that can’t be ignored, with a practical impact on tax practitioners and taxpayers. Attentive readers of Bloomberg Tax will know a sea change is coming.
A sea change could happen if it can get through a politically divided Congress, which isn’t likely.
Energy Direct Pay Rules Block Mixed Partnerships, Official Says - Erin Slowey, Bloomberg ($):
A Treasury official Friday affirmed the department’s position that mixed partnerships aren’t eligible to receive refundable payments in lieu of clean energy tax credits.
The Biden administration’s tax-and-climate law allows for tax-exempt and government entities to receive cash instead of a tax credit under Section 6417. Treasury and the IRS on June 14 released proposed rules on direct pay clarifying that a partnership—with some partners that are eligible for direct pay but other partners that aren’t—can’t claim direct pay on behalf of the partners.
Research & Development: An Overview of Sections 41 and 174 – Bloomberg ($). Blurb regarding Section 174:
Tax treatment. For tax years beginning on or after January 1, 2022, businesses must (174(a)(2)):
- Capitalize research or experimental expenditures that are paid or incurred by the taxpayer during the taxable year; AND
- Amortize over a 5-year period for U.S. research (15-years for foreign research)
o Amortization period begins at the midpoint of the taxable year in which the expenses are paid or incurred (i.e. 2022 deduction = (R&D expenditures/5 years) X ½ year)
Section 174 test: the expenditure must –
1. Be incurred in connection with taxpayer’s trade or business; AND
2. Represent a research and development cost in the experimental or laboratory sense
Covid-19 Services Cut From High-Deductible Health Plan Shield - Sara Hansard, Bloomberg ($):
Health insurance plans won’t be able to cover Covid-19 testing and treatments before high-deductible plan annual deductibles are met after plan years ending on or before Dec. 31, 2024, guidance issued Friday by the Internal Revenue Service said.
Notice 2023-37 modifies guidance issued by the Department of Labor in March regarding the May 11 end of the Covid-19 public health emergency and national health emergency. Tax-advantaged health savings accounts must be paired with high-deductible health plans, and normally health plans can’t cover medical claims until annual deductibles are met.
The guidance is here.
Contracting Requirements Still Being Determined for New IRS Funds – Lauren Loricchio, Tax Notes ($). “The IRS doesn’t have a strategy yet for hiring contractors with its additional funding from the Inflation Reduction Act, according to the agency’s chief procurement officer.”
‘We are in the process of identifying all of the contracting requirements,’ Todd Anthony, chief procurement officer for the IRS, told Tax Notes.
Once those requirements are identified, a governance board will help prioritize and sequence them ‘as we try to determine where we’re going to get the quickest return for our money and can show the taxpayer some immediate results,’ Anthony said.
IRS Looks to Upgrade Key Online Portals to Smooth Filing Seasons - Naomi Jagoda, Bloomberg ($):
The IRS is looking for a new contract for technology that allows taxpayers and employees to access agency systems as part of its mission to improve taxpayers’ ability to interact with the agency online.
The agency recently issued a presolicitation notice in which it said it’s seeking vendors to help upgrade the Integrated Enterprise Portals. It expects to issue a solicitation for a contractor about Nov. 15 and award a new contract in the third quarter of 2024. It aims to award a blanket purchase agreement with a projected value of $1.7 billion, according to contracting documents.
IRS to Beyoncé: Pay Your Tax ‘Bills, Bills, Bills’ – Kristen Parillo, Tax Notes ($):
The IRS contends that it made no mistake when it sent pop superstar Beyoncé a tax bill disallowing various business expense deductions and asserting that she owes $2.7 million in tax and penalties.
In its terse June 16 answer in Knowles-Carter v. Commissioner, the IRS categorically denied Beyoncé’s claims that the agency erred in determining that she has tax deficiencies of nearly $2.3 million for 2018 and 2019 and is liable for almost $450,000 in penalties.
Crypto mystery: New tax rules are MIA – Brian Faler, Politico:
The crypto world has been bracing for a tax crackdown from the Treasury Department for more than a year-and-a-half, ever since Congress approved new rules aimed at making it easier for the IRS to determine how much money people make trading virtual currencies.
Since then: silence.
Nonprofits Urge Congress to Pass Charitable Giving Bill – Fred Stokeld, Tax Notes ($):
Giving USA reported June 20 that charitable giving decreased from its highest level in 2021 to $499.33 billion in 2022, a 10.5 percent decline after adjusting for inflation.
Therefore, nonprofit groups say, it’s imperative that lawmakers pass the Charitable Act, which would restore the non-itemizer charitable deduction and increase the amount taxpayers can deduct to about $4,500 for individuals and $9,000 for joint filers. A temporary non-itemizer deduction adopted in 2020 expired at the end of 2021.
Supreme Court Puts Hot State Sales Tax Controversies on Ice - Michael Bologna, Bloomberg ($):
The Supreme Court declined to intervene in two cases affecting states’ authority to tax out-of-state retailers… In one, the court declined to disturb a North Carolina Supreme Court decision upholding a tax bill on a Wisconsin printer’s sales into the state. Quad Graphics Inc. had objected to a $3.24 million sales tax assessment on transactions involving materials printed and delivered to an out-of-state common carrier that were eventually destined for North Carolina recipients.
The justices also rejected review of the Online Merchants Guild’s challenge to California’s campaign to collect billions in taxes from thousands of out-of-state sellers participating in the Fulfillment by Amazon program for periods prior to the Wayfair ruling.
Apartment Complex Wins Nebraska Supreme Court Appraisal Fight - Richard Tzul, Bloomberg ($). “The Nebraska Supreme Court on Friday sided with an apartment complex containing rent-restricted units in a fight over its real estate tax valuation.”
Utah Dentist’s Tax Evasion Terms of Release Reversed in Part - Lauren Vella, Bloomberg ($):
A federal court Friday reversed in part and affirmed in part conditions imposed by a lower court for supervised release of a Utah dentist sentenced to prison for evading millions of dollars of income taxes.
Judge Robert E. Bacharach and Senior Judges Paul J. Kelly and Mary Beck Briscoe of the US Court of Appeals for the 10th Circuit reversed a Utah district court’s ruling to impose restitution to be paid outside Derald Wilford Geddes’ term of supervised release. The 10th Circuit panel affirmed the lower court’s imposition of mandatory conditions of supervised release, including prohibition of committing another crime and possession of a controlled substance.
N.Y. Ownership-Disclosure Bill Sparks Concern on Business Effect - Michael Rapoport, Bloomberg ($):
Businesses soon will have to tell the US government more about who owns them. New York state wants to take it a step further—and some tax practitioners are concerned about that.
The New York legislature passed a bill this week that not only would force limited liability companies to disclose the identities of their 'beneficial owners'—as they must under new federal rules that take effect in January—but also would make that information publicly available.
Minnesota’s New Tax-and-Spend Policy Is a Precarious Experiment - Mark Haveman, Minnesota Center for Fiscal Excellence:
State Democrats used a historic surplus to enact a package of sweeping progressive policy changes that for Minnesota are unprecedented in scale and scope. State-funded family and medical leave, free college, universal school meals, housing initiatives, and expanded health insurance subsidies are just a few of the new investments that are now law.
The next phase is finding out if this transformation—and the tax policy supporting it—is fiscally responsible and economically sustainable. There are reasons for doubts beyond needing a constitutionally required balanced budget. Some revolve around the tax policy changes implemented this year.
Wisconsin Republicans pass plan to cut income taxes by 15% on average – Scott Bauer and Harm Venhuizen, Associated Press:
Income taxes would be cut across the board by $3.5 billion under a plan passed Thursday by Republicans who control the Wisconsin Legislature’s budget-writing committee, a proposal that Democrats assailed as being skewed to benefit the wealthy.
Under the income tax cut, which is retroactive to Jan. 1, 2023, the average reduction would be 15% for all filers or $573, Republicans said. The state would still go from four to three brackets, with the lowest rate dropping to 3.5% and the highest rate being 6.5%.
No Pandemic Disaster Loss Acceleration for CFCs – Chandra Wallace, Tax Notes ($):
Pandemic-related stock losses in controlled foreign corporations without significant revenue and operations in the United States aren’t eligible for an accelerated disaster loss deduction, the IRS advised.
Losses sustained when stock in wholly owned CFCs became worthless didn’t ‘occur in a federally declared disaster area’ and so don’t qualify as disaster losses under section 165(i), the IRS Office of Chief Counsel concluded in a March 22 legal memorandum (ILM 202325007) released June 23.
From the “Manna from Heaven” file:
Supreme Court set for furious round of decisions in final days of June – Zach Schonfeld, The Hill.
The Supreme Court is set to hand down key decisions this week on student debt relief, affirmative action and federal election laws as it enters the last week of its summer session with 10 cases pending.
Regarding student debt relief:
President Biden’s plan to forgive student debt for more than 40 million borrowers will soon be greenlighted or blocked, depending on how the justices rule.
Biden’s plan would forgive up to $10,000 for borrowers who meet income requirements and up to $20,000 for Pell Grant recipients.
But the debt relief remains on hold until the Supreme Court resolves two lawsuits challenging the plan.
If the High Court decides in favor of the students, happy hour is on them for the next few years.
Ease into Monday, puddin’ style. It’s National Chocolate Pudding Day! I'm rooting. You're rooting. We're all rooting for some pudding!
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