Tax News & Views Stakes and Stalemate Roundup

August 1, 2023

Staking Rewards Must Be Included in Income, IRS Says - Mary Katherine Browne, Tax Notes ($):

Cryptocurrency staking rewards must be included in a taxpayer’s gross income for the tax year in which the taxpayer gains control and dominion over the rewards, according to the IRS.

In Rev. Rul. 2023-14, 2023-33 IRB 1, released July 31, the IRS clarifies that taxpayers using cash methods of accounting must include the fair market value of validation rewards for staking cryptocurrency native to a proof-of-stake blockchain as part of their gross income.

IRS Says Rewards From Crypto Staking Are Gross Income - Kat Lucero, Law360 Tax Authority ($). "The reason for this treatment is that gross income means all income from whatever source derived, including gains from dealings in property — and cryptocurrency, which is convertible virtual currency, is treated as property for federal income tax purposes, according to the agency."

Crypto Stakers’ Rewards Count as Gross Income, IRS Says - Michael Rapoport and Lauren Vella, Bloomberg ($). "The ruling addresses an issue that has come up in a case currently before a federal appeals court, in which a couple are arguing that they should be allowed to refuse an IRS tax refund so that the court can rule on the legal issue of when and whether staking rewards should count as income."

Some cryptocurrency fans had taken the IRS's reluctance to litigate staking cases as an indication that staking rewards were not taxable. That's not how the IRS sees it.

IRS Holds That Cryptocurrency Received for Staking is Taxable - Ed Zollars, Current Federal Tax Developments. "The ruling provides background on how cryptocurrencies utilize blockchain technology and outlines the methods used to validate transactions before their addition to the distributed ledger."


Here’s another question: What happened to the House Republicans’ tax-cut package? - Punchbowl News:

We canvassed the House GOP leadership and committee on Monday, and it’s clear the legislation has no pathway to final passage at the moment. Without any Democratic support, there are significant concerns that House Republicans can’t muster 218 votes to pass the legislation — which isn’t going anywhere in the Democratic-run Senate anyway.

The biggest drawback — Ways and Means Committee Chair Jason Smith’s (R-Mo.) proposal doesn’t do anything to address SALT, the state and local tax deduction that Republicans capped under former President Donald Trump until 2025. The New York delegation and other Northeasterners have told Republican leaders they oppose the bill for that reason.


Oregon Enacts Extended SALT Cap Workaround, New CAT Exemptions - Paul Jones, Tax Notes ($). "H.B. 2083, approved by Kotek July 27, extends until the end of 2025 the state's elective passthrough entity tax, which allows for passthroughs to pay state income tax at the entity level and for owners to claim a tax credit for their share of the taxes paid. That allows owners to benefit from a full federal deduction for the state taxes paid, avoiding the Tax Cuts and Jobs Act‘s $10,000 state and local tax deduction cap. While the SALT cap is set to expire at the end of 2025, Oregon's workaround was scheduled to sunset at the end of 2023."


Minnesota DOR Updates Passthrough Entity Tax Guidance - Emily Hollingsworth, Tax Notes ($):

Designed as a workaround to the federal $10,000 limit on the state and local tax deduction under the Tax Cuts and Jobs Act, the passthrough tax allows qualifying entities — partnerships, S corporations, and limited liability companies taxed as S corporations or partnerships — to opt to pay state income tax at the entity level. The tax is calculated by multiplying the passthrough's taxable income by Minnesota's top individual income tax rate (9.85 percent at present) according to the guidance. Entity owners are allowed a credit for their share of the taxes paid.


“Qualified entities may elect to pay PTE tax if their qualifying owners who, as a group, control more than 50 percent of the portion of the entity owned by qualifying owners choose to elect it. Ownership is determined by the owner's capital account percentage unless the entity's agreement specifies how ownership is calculated," the guidance says.


Fun with Tax Policy! The Center for a Responsible Federal Budget has a new online game, Build Your Own Child Tax Credit. It allows you to design your own child tax credit and see how much it will cost tthe Treasury, using different assumptions.

No prizes, other than the psychic thrill of increasing the child credit and the national debt.


August is prime sales tax holiday time - Kay Bell, Don't Mess With Taxes. "Get ready Arkansas, Connecticut, Iowa, Maryland, Massachusetts, Missouri, New Jersey, New Mexico, Ohio, Oklahoma, South Carolina, Texas, and West Virginia shoppers. Your back-to-school tax holidays are coming up in August. And yes, Floridians, your event wraps up this week."

Key court cases on S corporation reasonable compensation - Thomas Gorczynski, Tom Talks Taxes. "Reasonable compensation for an S corporation shareholder/employee is ultimately a facts and circumstances determination. Using so-called “rules of thumb” to determine reasonable compensation amounts is not rooted in the law."

Third Circuit Affirms That Uncashed Checks Had to be Included in Gross Estate - Parker Tax Pro Library. "The court found that under Reg. Sec. 25.2511-2 and applicable state law, the delivery of the checks alone did not complete the gifts because the decedent had the power to revoke them until the time the checks were deposited or cashed."


Reminder on Resources for Tax Answers - Annette Nellen, 21st Century Taxation. "IRS Publications, as well as tax forms and instructions, are not intended to be binding tax law interpretations or rules. They exist to help taxpayers better understand the law and comply with it. However, they might not present all possible rules and scenarios. Binding guidance is the IRC, regulations, and court cases (other than TC Summary Opinions which are not legally treated as precedent)."

Stone Mining Company’s Donation Deduction For Land Sold To Town Disallowed - Peter Reilly, Forbes. "It ends up not being that complicated. When you take a deduction for a bargain sale you have to consider everything that you received not just the cash."


Formula Won? - Alex Parker, Things of Caesar. "The OECD's under-taxed profits rule remains the focus of an angry political debate--but its formulary aspects aren't getting much notice."

A New Solution for Taxing Cryptocurrency Staking - Donald Marron, TaxVox. "A good place to start the puzzle is to ask how we tax similar economic activities. That benchmark is straightforward. Stakers provide a service (validating blockchain transactions) in return for compensation (more tokens). If we want to treat them like other service providers, we should tax them on their net income. Stakers should pay ordinary income taxes on the rewards they receive and get deductions for the expenses they incur."


Revenue Officer’s Pseudonym Didn’t Undermine Fake Lien Charge - Nathan Richman, Tax Notes ($).

What's a worse idea than filing fake liens against an IRS officer trying to collect your back taxes?

Perhaps filing fake liens against the agent's pseudonym. 

From the Tax Notes story (I remove the defendant's name here):

On appeal, Defendant claimed he couldn’t have been convicted of the false lien charge because he used the revenue officer’s pseudonym in his filing. That means he didn’t actually succeed at filing a lien against a person, he claimed.

Rushing and the rest of the [appeals court] panel weren’t persuaded. Not only does the false lien charge only depend on an attempt rather than success, but the pseudonym doesn’t change the revenue officer’s treatment under section 1521. “She is no more fictitious than George Eliot or Mark Twain,” Rushing noted.


Omaha attorney pleads guilty to filing false tax return - IRS (Defendant name omitted):

According to court documents and statements made in court, between 2014 and 2018, Defendant, of Omaha, was the owner and manager of TLN Law, a solo practice law firm. During this time, Defendant filed annual personal tax returns that understated TLN Law's gross receipts by more than $2.8 million. In total, Defendant caused a tax loss to the Internal Revenue Service (IRS) exceeding $250,000.

Defendant is scheduled to be sentenced on November 30, 2023, and faces a maximum penalty of up to three years in prison.

A key bit from the plea agreement:

During the relevant tax years, Defendant managed TLN Law on his own and handled all his personal and business finances without the assistance of professionals. Defendant had the means to hire professionals to assist him as evidenced by his lifestyle during the relevant tax years, yet he self-prepared and self-filed his personal income tax returns.

Knowing what chores to outsource is key to professional success. As I read the federal sentencing guidelines, the likely prison time is 27-33 months, based on the stipulated offence level.


Put me in, coach. It's Play Ball Day! "This day was created by Major League Baseball (M.L.B.) and USA Baseball to encourage the participation of young children in the fields of softball and baseball."

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