Treasury Releases Guidance on IRA Wage and Apprenticeship Rules - Alexander Rifaat, Tax Notes ($):
In proposed regulations (REG-100908-23) released August 29, Treasury provided details on statutory cure and penalty provisions for taxpayers seeking to use the subsidies.
Under the guidance, penalties for failing to meet or incorrectly report prevailing wages will be waived if a correction in payment is made within 30 days of discovery of the error or the date the increased credit or deduction is claimed.
The Treasury Department and Internal Revenue Service today issued proposed regulations related to the increased tax credit or deduction amounts for clean energy facilities and projects if taxpayers satisfy certain prevailing wage and registered apprenticeship (PWA) requirements.
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The Inflation Reduction Act provides increased credit or deduction amounts that generally apply for taxpayers who satisfy certain PWA requirements regarding the construction, installation, alteration or repair of a qualified facility, qualified property, qualified project, qualified equipment or for certain energy facilities.
Under the tax law, the increased credit or deduction amount is generally equal to the base amount multiplied by five if the taxpayer satisfies the PWA requirements.
Related: Energy Efficiency Incentives and the Inflation Reduction Act.
State SALT Workarounds Cost Feds at Least $10 Billion Annually - Doug Sword, Tax Notes ($):
The federal government is taking in $10 billion to $15 billion less per year because of state workarounds to the $10,000 cap on the federal deduction for state and local taxes, according to the Urban-Brookings Tax Policy Center (TPC).
Losses may actually be as high as $20 billion because of the way the workarounds interact with the tax code, such as by reducing adjusted gross incomes that otherwise would have been too high to be eligible for other tax breaks, the TPC’s John Buhl said in an email August 28.
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.
$4.7B In '21 Pandemic Recovery Credits May Be Unclaimed - David van den Berg, Law360 Tax Authority ($):
Nearly 3 million taxpayers who could have been eligible for $4.7 billion in pandemic recovery credits in 2021 haven't claimed them, the Treasury Inspector General for Tax Administration said in a report released Monday.
TIGTA's report said its review of 17.8 million tax year 2021 returns found that despite IRS outreach efforts, 2.9 million individuals who filed a tax return and were potentially eligible for the payments did not claim them. The credits were issued by the Internal Revenue Service as advance payments known as economic impact payments, but people who didn't get the payment or didn't get the full amount could file a recovery rebate credit claim on their 2020 or 2021 returns, according to the IRS.
But the glass was 98.3 percent full: TIGTA: 98.3 Percent of Taxpayers Received Correct Recovery Credit -Tax Notes ($). "However, 1.7 percent of 17.8 million returns reviewed received an erroneous credit, TIGTA said. Of the 316,425 returns with an incorrect credit, 52,297 received the wrong amount and 264,128 were sent to potentially ineligible dependents, nonresidents, or residents of a U.S. territory, TIGTA said in the report, released August 28."
Link: TIGTA report, Processing of Recovery Rebate Credit Claims During the 2022 Filing Season
Tax Court Criticizes IRS for Filing ‘Reconstructed’ Deficiency Notice - Kristen Parillo, Tax Notes ($):
A Tax Court judge rebuked IRS attorneys for not alerting him sooner that a deficiency notice attached to the agency’s answer was a reconstructed version — a practice the attorneys said became common during the COVID-19 pandemic when there was limited access to administrative files.
The IRS explained to the court:
The reconstruction process “involved accessing records kept in an electronic database and extracting the first page of the incomplete copy of the notice of deficiency attached to the petition, as the Letter 531 version on the database was undated...”
From the opinion ("Respondent" = "IRS," my emphasis.):
Respondent's conduct falls woefully short of our expectations for practitioners who regularly appear before this Court. Respondent's counsel knew that the Answer Notice was the byproduct of an undisclosed reconstruction process. Counsel failed, in respondent's first Status Report, to inform the Court of the reconstruction process. When questioned about the authenticity of the Answer Notice, respondent's counsel admitted he had knowingly submitted a reconstructed document.
We have no confidence that the slipshod-cut-and- paste Status Report Notice presented to the Court was the version of the notice of deficiency actually sent to petitioner. The statutory notice of deficiency is critical to both the adjudicative and settlement processes. Thus, respondent's “common practice” of reconstructing notices of deficiency is particularly disconcerting. Because respondent's reconstruction has created doubt as to whether respondent determined the accuracy-related penalty in the notice of deficiency sent to petitioner, striking the revised Proposed Stipulated Decision is warranted.
Adding this to its backdating and lost document audit problems, the IRS isn't making friends the last few days.
Most Countries Tax Capital Income Less Than Wages, OECD Finds - Lauren Vella, Bloomberg. "Of the 38 member countries in the Organization for Economic Cooperation and Development, only Spain and Colombia place a higher tax rate on capital income than wage income. “In these countries, similar tax rates apply to wage income and long-term capital gains and only minor provisions reduce the tax base,” the report reads. Long-term capital gains income is fully exempt in Luxembourg, Belgium, and Turkey."
Opportunity Zone Investments: The Importance of a Working Capital Safe Harbor Plan - Adam Sweet, Eide Bailly. "Many organizations continue to pursue investments in Opportunity Zones (OZ). Among the numerous requirements to hold a qualified investment, a taxpayer must timely invest eligible capital gains into a Qualified Opportunity Fund (QOF) and then the QOF must make qualified investments."
IRS’s Denial of a Late Safe Harbor Election Is an Odd Misstep - Carolyn Linkov, Eide Bailly via Bloomberg ($). "The key takeaway of PLR 202308010 is the importance of timely made elections. The 9100 late filing relief regulations do provide a safety net for missed elections, but not when used by the IRS to discredit a well-established tax position on which scores of similarly situated taxpayers rely."
Reconsidering the IRS’s Approach to Supervisory Review - Erin Collins, NTA Blog:
In hopes of bringing additional certainty to this area, the IRS has proposed regulations, for which public comments were open until July 10, 2023. The next step in this regulatory process will be a public hearing to be held on September 11, 2023.
TAS has encouraged the IRS and Congress to draw a clear line in the sand to clarify the issue, but our recommendation of where to draw the line is different than the IRS’s approach. The proposed regulations succeed in providing clarity, but it would be nice if they did so in a way that helps taxpayers rather than harming them.
With hurricane season heating up, it's time to prepare - Kay Bell, Don't Mess With Taxes. "Remember, though, that electrical issues could limit your access, especially immediately after the storm. So have a paper copy of your insurance policy and contact information handy so you can reach out for that help as soon as it's safe to do so."
Proposed Regulations on Digital Asset Information Return Reporting Issued by IRS, First Reports Would Be Issued Early in 2026, Covering 2025 - Ed Zollars, Current Federal Tax Developments. "The IRS has released proposed regulations to implement information reporting requirements for digital assets by brokers and certain other parties involved in arranging sales and/or exchanges of these assets. Originally introduced by the Infrastructure Investment and Jobs Act of 2021 and scheduled to take effect in 2023, the proposed regulations postpone the reporting obligations to cover transactions occurring in 2025. The IRS and customers will receive a newly announced Form 1099-DA in early 2026."
Trust's Filing of Form 843 Did Not Qualify as a Valid Informal Refund Claim - Parker Tax Pro Library. "The court found that under Reg. Sec. 301.6402-3(a)(4) the trust was required to file a refund claim on an amended Form 1041 and the Form 843 did not constitute a valid informal claim for a refund because, although it put the IRS on notice that a refund was being requested, the trust never remedied the filing defect by filing an amended Form 1041."
Modernize 1970s Definition of "Tax Shelter" to Help Small Businesses - Annette Nellen, 21st Century Taxation. "Today, a small business might be formed as an LLC with financing provided by some owners who will not be involved in running the business. If over 35% of losses are allocated to limited entrepreneurs (inactive owners), the entity is a tax shelter even though it is running a real business (and might just have start-up losses or some bad years)."
This can have painful consequences under a number of rules - including eliminating the ability to use cash-basis accounting and subjecting the taxpayer to Sec. 163(j) interest deduction limits, even if the taxpayer is tiny.
Trump’s $300 Billion Tax Hike Would Threaten U.S. Businesses and Consumers - Erica York, Tax Policy Blog. "Former President Donald Trump’s proposed 10 percent tariff would raise taxes on American consumers by more than $300 billion a year—a tax increase rivaling the ones proposed by President Biden. If implemented, the significant trade tax hike would trigger retaliatory tax increases on U.S. exports."
State Policymakers Should Understand the Odds Before Subsidizing 'Free Bets' - Richard Auxier, TaxVox. "Typically, a state offers a tax incentive to keep a business from moving to another state. But sports gambling companies want to operate everywhere."
Joe the Plumber, who questioned Obama’s tax proposals during the 2008 campaign, has died at 49 - John Seewer, Associated Press via The Hill. "He went from toiling as a plumber in suburban Toledo, Ohio, to life as a media sensation when he asked Obama about his tax plan during a campaign stop."
Years of IRS inaction leave workers vulnerable to shady tax preparers - Julie Zauzmer Weill, Washington Post:
The IRS and the Taxpayer Advocate want the IRS to license tax preparers. Before adding to the cost and paperwork of honest preparers, they might want to use the tools they already have to push back against the bad ones.The lies are often simple — dependents who do not exist, income that was never earned. The goal is to maximize the tax refund, which increases the preparer’s fee.
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Even when taxpayers do complain, neither the IRS nor federal prosecutors have prioritized prosecution of unscrupulous tax preparers, leaving low-income families on the hook.
Lubbock man sentenced to 15 years in prison for 4 million dollar PPP fraud - IRS (Defendant name omitted):
I hope it was a nice wedding.In the nonprofit’s application, he falsely claimed the organization employed 33 individuals (in actuality, it employed fewer than five), and in the application submitted on behalf of the fictitious entity, he falsely claimed the company employed 24 individuals (in actuality, the company did not exist). For each entity, he provided fabricated lists of employees, some of which did not exist and others of which were clients of the rehabilitation company, along with fabricated IRS forms. Nevertheless, he qualified for a $326,770 loan for the entity and a $523,00 loan for the nonprofit. He redrew a loan for the non-existent entity the following year for a total of $653,540.
Each entity sought – and received – forgiveness on the principal and interest on each of the small business PPP loans. Yet very little, if any, of the money was used for payroll or business expenses. Instead, Mr. Defendant and a woman with whom he had a relationship... spent nearly $3.5 million on home renovations, vacations, clothing, cosmetic surgery, college tuition, cars, wedding expenses, and equipment for an unrelated business venture.
Tax Exiles - John Phelan, Econlog:
In 1974, a Labour government hiked the top rate on ‘earned’ income to 83% for a top rate of 98%, the highest permanent rate since the war.
Rod Stewart fumed...He left for California in 1975 – his first subsequent LP was titled Atlantic Crossing – infuriating Elton John. “Round at his place one evening,” Stewart wrote in his autobiography:
I told him I was thinking of quitting Britain, and he called me a traitor and put on Elgar’s “Pomp and Circumstance Marches” at a volume so high that we couldn’t talk over it.
Things were different then, when California was a tax haven.
People sometimes move because of tax rates. While people move, or stay put, for many reasons, taxes can be part of the decision. Taxes aren't everything, but they are surely a thing.
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