Tax News & Views Direct Pay Narrowed Roundup

June 30, 2023

Publication note: Eide Bailly offices are closed July 3rd, 4th and 5th for the Nation’s Birthday. We will be back on schedule on Thursday, July 6th. Enjoy the holiday!


IRS Energy Direct Pay Rules Take Some Projects ‘Off the Table’ - Erin Slowey, Bloomberg ($):

An avenue for tax-exempt organizations to secure a refund for clean energy tax credits was curbed in recent Treasury rules—an unexpected outcome for some in the industry...

To be eligible for direct pay, an entity is required to own the project.

'If they have to own it directly, they need to be taking on all of the operational risk,' said Anne Loomis, a partner at Troutman Pepper. 'I think for some tax-exempt entities, that’s not a risk that they’re able to take on.'

Further down the article:

In a mixed partnership between tax-exempt entities and taxable entities, the partnership owns the project, and the tax attributes flow up: The exempt organizations can receive direct pay for a portion of the credit, and the taxable partner can either receive its portion of the tax credit or sell it.


Stock Buyback Excise Tax Reporting, Payments Not Required Yet - Erin Slowey, Bloomberg ($). “Companies will not be required to report or make payments on the new stock buyback tax prior to the date specified in upcoming proposed rules, according to an announcement Thursday.”

The announcement is here


IRS Issues Guidance With Replacement for Interbank Offer Rate - Michael Rapoport, Bloomberg ($). “The IRS issued additional guidance on the transition from interbank offer rates to other reference rates, providing a replacement rate for taxpayers to use to determine their interest expense allocable to effectively connected income.”

The document is here


High Court Repatriation Tax Case May Have SALT Implications – Paul Williams, Law360 Tax Authority ($):

The U.S. Supreme Court's agreement to hear a couple's constitutional challenge to the federal repatriation tax could affect state tax systems in several ways, including raising technical questions about refunds if the tax is struck down or shaping state lawmakers' efforts to pass taxes imposed on wealth.

While the case brought by Charles and Kathleen Moore centers on whether the one-time mandatory transition tax on deferred earnings held abroad is constitutional, a ruling on the tax's validity would have ripple effects on states that conform to the provision that imposes it, Internal Revenue Code Section 965.

Capitol Hill Recap: Lawmaker Sounds-Off on Impending High Court Tax Case – Jay Heflin, Eide Bailly:

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.


Tax Court Sets Fire to Claim of Settlement Proceeds Exemption – Caitlin Mullaney, Tax Notes ($):

The Tax Court held that the settlement proceeds a female firefighter received from a work-related harassment lawsuit must be treated as taxable income.

In a June 29 bench opinion in Montes v. Commissioner, Judge Mark V. Holmes found that he had to look no further than Suzanne Montes’s settlement agreement to determine that the settlement payment of over $382,000 wasn’t covered by the section 104 exclusion for settlement proceeds.


Mississippi Doctor Loses Bid to Undo Conviction for Tax Evasion - Holly Barker, Bloomberg ($):

A Mississippi physician lost an appeal challenging his conviction for tax evasion, after the Fifth Circuit rejected arguments that he couldn’t have possibly been evading taxes while figuring out how to pay them.

Kevin Crandell argued that submitting a false Form 433-A, used by the IRS to create payment plans for people who owe back taxes, can’t support a conviction for tax evasion as a matter of law, and that the evidence didn’t otherwise show that he willfully evaded his taxes.


Conservation Easement Donor’s Tax Deduction Restricted to Costs - Aysha Bagchi, Bloomberg ($):

A partnership that donated a conservation easement may only deduct its adjusted basis in the easement, not the easement’s fair market value, the US Tax Court ruled Thursday.

Glade Creek Partners LLC, a partnership for federal tax purposes, claimed a $17.5 million deduction for donating an easement on undeveloped real estate within a failed residential development. The US Court of Appeals for the Eleventh Circuit previously affirmed the Tax Court’s ruling that the easement’s fair market value was about $8.9 million.

The court determined Thursday that Glade Creek couldn’t deduct that full $8.9 million, but only its adjusted basis in the property—which roughly refers to the costs of purchasing and improving property.


American States Once Awash in Cash Now Face Reversal of Fortunes - Amanda Albright and Eliyahu Kamisher, Bloomberg ($):

Thanks to the booming tech industry and federal money during the pandemic, California was spending record amounts and still ran a surplus — almost $100 billion last year. That’s when Newsom, a rising star in the Democratic party, sent checks of up to $1,050 to millions of residents. The Los Angeles Times in an editorial declared him the luckiest governor in state history.

Now, following the tech bust and the end of Covid funding, the surplus has been replaced with a $32 billion deficit, forcing lawmakers to trim the state’s lofty climate change program, delay funding and increase internal borrowing.


NYC Property Tax System Cushions Near-Term Blow to Revenue - Martin Braun, Bloomberg ($):

New York City ’s property tax system helps explain why a “doomsday” scenario for the Manhattan office market would only result in a modest shortfall in real estate tax revenue — at least in the near term.

A recent worst-case analysis by New York City Comptroller Brad Lander found that a decline of about 40% in the market value of office properties over six years would result in $1.1 billion less tax revenue for fiscal 2027, the last year of the city’s current financial plan. That represents just 3% of the projected property tax levy.


Wisconsin Lawmakers Move Tax Cut Bill as Governor Threatens Veto - Michael Bologna, Bloomberg ($). “A Republican-backed budget plan offering $3.5 billion in income tax cuts is streaking through the Wisconsin Legislature, but the state’s Democratic governor has raised the threat of a full or partial veto when the measure arrives on his desk.”


La. To Drop Corporate Tax 'Throwout' Rule – Maria Koklanaris, Law360 Tax Authority ($). “A bill signed by Louisiana's governor repeals the state's so-called throwout rule for corporate income tax apportionment purposes, removing a requirement for companies to exclude, or throw out, receipts from sales made into states where the company isn't taxable.”


Pillar 2 Could Raise Taxes on Multinationals in U.S., CRS Says – Jane Gravelle and Mark Keightley,  Tax Notes ($):

In response to concerns about multinational corporations shifting profits to low-tax countries, the Organisation for Economic Co-operation and Development (OECD) and the G20, through an inclusive framework of 141 countries, developed a proposed global minimum tax (GLoBE) of 15%. The United States had considered tax policy changes to conform domestic rules more closely with GLoBE, but these changes were not adopted. On December 15, 2022, the European Union (composed of 27 countries) adopted the Pillar 2 minimum tax; several other countries are also adopting the tax.

Further down the article:

GLoBE could increase taxes on multinationals' operations in the United States, even absent U.S. action with respect to the GLoBE proposal. Other countries could impose taxes on U.S. earnings of multinational firms triggered by a low U.S. effective tax rate through the UTPR or IIR. Thus, GLoBE could reduce the benefit of domestic tax incentives such as tax credits. Major tax credits include the research credit, the low-income housing tax credit, and credits for renewable energy.


From the “Pipe Dream” file:

DeSantis suggests he would eliminate several federal agencies, including IRS – Julia Manchester, The Hill:

Republican presidential candidate Ron DeSantis suggested that he would eliminate a number of government agencies during an interview on Wednesday. 

‘Are you in favor of eliminating any agencies? I know conservatives in the past have talked about closing the Department of Education, would you do that?’ Fox News’s Martha MacCallum asked the Florida governor on ‘The Story.’ 

DeSantis responded with a list of federal departments he would eliminate: ‘We would do Education, we would do Commerce, we’d do Energy, and we would do IRS.’

Wow! A politician claiming to get rid of the IRS! It's never been proclaimed before (yes it has). And it's great news (except it’s not). The responsibilities at the tax agency have expanded over the past few decades. The first thing that voters would probably notice if the IRS was cancelled is that they aren’t receiving the checks they depend upon to live.

The idea of ending the IRS is fantasy. 

And don’t even get me started about the Fair Tax…


Twofer! It’s International Asteroid Day and National Meteor Watch Day! Today is looking up (pun intended).

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