Tax News & Views Grants Review Roundup

June 27, 2023

Supreme Court to Hear Case That Could Block Democrats’ Plans to Tax the Rich - Richard Rubin, Wall Street Journal:

The Supreme Court said Monday that it will hear arguments in a tax law case that could yield billions of dollars for large corporations, block Democrats’ proposals to tax wealthy Americans and upend longstanding chunks of the tax code.


The case stems from a one-time tax on accumulated foreign profits that Congress created in 2017 in the tax law signed by then-President Donald Trump. That tax applied to 30 years of profits that U.S.-based companies held overseas and hadn’t repatriated. It also applied to individuals who owned at least 10% of foreign companies. 

Galvanizing International Tax Case Accepted by Supreme Court - Aysha Bagchi, Bloomberg ($). "The tax under internal revenue code Section 965 was designed to ensure that foreign earnings didn’t permanently escape US taxation as the country transitioned to a new international tax regime. It treated foreign corporate earnings of US shareholders from 1987 to 2017 as if they had been repatriated back to the US."
In asking that the Court not grant certiorari, the government warned that the transition tax follows in the footsteps of the subpart F regime, which has been held constitutional by multiple circuit courts and requires taxes to be paid by U.S. shareholders on their pro rata share of income, even if it isn't distributed. It also argued that there are other similarities between the transition tax and other long-standing income taxes. Comparisons have been drawn to mark-to-market taxes.
The government argued that even if realization is a requirement for an income tax under the 16th Amendment, the transition tax applies to gains realized by corporations, and there is no constitutional ban on Congress disregarding a corporation and taxing shareholder income. The government has also argued that even if the transition tax were to be viewed as something besides an income tax, it would be best understood as an excise tax, and thus it would still be constitutional.
Justices To Review Constitutionality Of Repatriation Tax - Dylan Moroses, Law360 Tax Authority ($). "The Moores argued the tax was unconstitutional because it was applied to earnings they never received. They said it is a direct tax that violates the U.S. Constitution's apportionment clause, which requires that such taxes be apportioned among the states in proportion to their population. The 16th Amendment, though, carves out an exception for income taxes."
Many observers were surprised that the Supreme Court chose to hear the case. David Herzig, a former tax professor who now works for a big firm, tweeted "This really is a huge deal that SCOTUS took a case that did not have a circuit split about a tax question that is a political hot button right now. Get ready for a case which may decide whether wealth taxes are constitutional."
Other coverage:

Supreme Court to decide case on congressional taxing power - Ryan Tarinelli, Roll Call.

Justices take up cases on veterans’ education benefits and 16th Amendment - Amy Howe, SCOTUSblog.

Supreme Court Will Hear Case Targeting Tax On Unrealized Gains - Kelly Phillips Erb, Forbes.

The Supreme Court Takes Up a Wealth Tax; You May Need to File a Protective Claim for Refund - Russ Fox, Taxable Talk.

Moore v. U.S. and protective refund claims - Thomas Gorczynski, Tom Talks Taxes.


IRS Unveils Draft Schedule K-1 With New Recourse Debt Reporting - Kristen Parillo, Tax Notes ($):

The IRS has published for public comment a draft 2023 Schedule K-1 that would require partnerships to provide more detail on whether a partner’s share of recourse liabilities is subject to guarantees or other partner obligations.

The draft Schedule K-1 (Form 1065) was posted on the IRS website June 14, followed by a draft Form 1065, “U.S. Return of Partnership Income,” posted June 23. A draft Schedule K-2, “Partners’ Distributive Share Items – International,” was posted June 14, with a draft Schedule K-3, “Partners’ Share of Income, Deductions, Credits, etc. — International,” posted June 21.


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.


Tips if the IRS audits your business' ERC claim - Kay Bell, Don't Mess With Taxes. "The IRS has received so many fraudulent claims that it added fraudulent ERC filings to its latest annual Dirty Dozen list of tax scams."

Taxpayer's Issues With Electronic Filing of Tax Court Petition Not Sufficient Cause to Excuse Filing Made 11 Seconds Late - Ed Zollars, Current Federal Tax Developments. "The Court highlights that Mr. Sanders, by procrastinating until the eleventh hour, must accept the repercussions of the issues that hindered him from completing the filing process in time for the petition to be received by the system before midnight."

Missing Tax Court Deadline By A New York Minute - Peter Reilly, Forbes. "They had some good arguments. The one I thought was best was that the Court should look at the time that Mr. Sanders logged in for the upload session which was 11:57 rather than the time when the session was completed three minutes or so later. It was as if he handed the petition to a clerk before the deadline, but the clerk did not stamp it as received until after the deadline."


IRS Taxes Personal Injury Settlements, Here’s How - Robert Wood, Forbes. "Tax language in settlement agreements does not bind the IRS, but it can be surprising how much wording in settlement agreements can matter."

What about Expanding the Qualified Joint Venture Election? - Annette Nellen, 21st Century Taxation. "IRC Section 761(f) allows a married couple to elect to treat a business they jointly own and operate as a “qualified joint venture” rather than as a partnership. The couple files two matching Schedules C rather than a Form 1065 partnership return... The qualified joint venture option should be expanded to make it available to equal owners of any business (perhaps limited to two to four equal owners)."


Debt Limit Deal Continues Misallocation Of Budget Dollars - Eugene Steuerle and Nikhita Airi, TaxVox. 
"This budget agreement failed to touch the major items of spending growth, health and Social Security. Both remain on an unsustainable path. Instead, it simply cut discretionary spending items, both defense and non-defense, that have already been cut significantly as a share of national income over the past few decades..."

Understanding SALT - Adam Michel, Liberty Taxed. "As the 2025 expiration of the 2017 tax cuts draws closer, members of Congress need to remember that a simpler tax code with lower tax rates must also limit or repeal special interest provisions, such as the SALT deduction. It’s much harder to cut tax rates without broadening the tax base."

Fraudulent Failure to File - Keith Fogg, Procedurally Taxing. "Petitioner conceded that he had earned income during the years at issue and that allows the IRS to clear the first hurdle.  Because the IRS shows that the amount of the earned income was substantial and occurred over a period of years creating a pattern, the Court found the pattern of non-filing while receiving substantial income to be strong evidence of fraud."


Did Hunter Biden Get a Sweetheart Deal? Prosecutors Weigh In - Byron Tau, Ryan Barber, and Sadie Gurman, Wall Street Journal. "To bring more serious felony charges against Hunter Biden, as some critics say the Justice Department should have considered, federal prosecutors would have required compelling evidence that showed the younger Biden took deliberate steps to evade taxes or fraudulently lower his tax bill beyond failing to pay. His defense lawyers also could have pointed to his well-documented addiction to argue that a drug-induced fog kept him from paying his taxes, complicating the department’s ability to prove that he acted with intent to violate the law. And some suggested that even a misdemeanor was serious—for Hunter Biden or anyone else."

Cleaving open the Pandora’s box on taxpayer privacy - Benjamin Guggenheim, Tax Notes ($):

Allegations of political interference in the Hunter Biden tax case by two IRS whistleblowers rippled through conservative media as well as a wide range of other outlets over the weekend, giving Republicans a potent issue to hammer the Biden administration with heading into the 2024 election.


However, besides the content of the allegations, which our Ben Schreckinger explored in much greater detail here, there’s an entirely different story that could be written about the developments from Thursday — centering on how both Republicans and Democrats seem increasingly willing to disregard statutory protections and norms surrounding taxpayer privacy to further their respective political agendas.

Specifically, the Republican-controlled House Ways and Means Committee was only able to release the trove of documents to the public by invoking Chair Jason Smith‘s unique authority under section 6103 of the tax code to request and review private taxpayer information.

If you or I do it, we face fines and jail time. 


Central Valley man sentenced to over 6 years in prison for $9 million cow manure Ponzi scheme - IRS (defendant name omitted):

Defendant, of Porterville, and Sheridan, Montana, was sentenced today to six years and nine months in prison for running a multimillion-dollar fraud scheme where he purported to turn cow manure into green energy, U.S. Attorney Phillip A. Talbert announced.

According to court records, from March 2014 through December 2019, Defendant stole $8,750,000 from investors by claiming to build anaerobic digesters on dairies in Fresno, Kern, Kings, and Tulare Counties, as well as other counties in California and Idaho. Anaerobic digesters are large machines that use microorganisms to break down biodegradable material and turn it into methane. The methane can then be sold on the open market as green energy. The methane also produces Renewable Energy Credits (REC), which represent the property right to the reduction in greenhouse gas emissions achieved through green energy creation. RECs are commonly purchased by companies to meet green energy regulatory, contractual, and initiative requirements or commitments. Defendant's investors were supposed to receive 66% of all net profits as well as tax incentives.


Upon his arrest, Defendant told officers that they had the wrong man. He also claimed to have been in the Navy and recalled how he once saved several soldiers during a fire by blocking the flames with his body so that they could escape. Defendant has since admitted that these were both lies meant to curry favor with law enforcement.

Literally a B.S. scheme.


Better together? Today is both National Onion Day and National Ice Cream Cake Day!

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