Tax Cuts Are Here to Stay—And So Are Exploding Budget Deficits - Richard Rubin, Wall Street Journal. A thoughtful and sobering look at the dynamics of federal tax and budget policy:
The reality: Even if Biden is re-elected, most of the 2017 law isn’t going away. In his budget, Biden has already proposed extending Trump’s tax cuts for almost all households, and he has promised to avoid raising taxes on anyone making under $400,000.
This all attests to a rarely appreciated but significant dynamic: Just as both parties agree that Social Security and Medicare, the two biggest federal spending programs, must not be touched, they also agree that income taxes on the overwhelming majority of Americans can go down but never up. That tacit, politically popular consensus keeps tax revenue as a share of the economy flat or declining in the long run while spending’s share rises. It also locks in a permanent budget imbalance that both parties bemoan but neither seems eager to change.
Unless and until the financial markets impose some discipline, it's borrow and spend as far as the eye can see.
Guidance Fills in Some — But Not All — Blanks on Corporate AMT - Chandra Wallace and Andrew Velarde, Tax Notes ($). "The corporate AMT, enacted in August 2022 as part of the Inflation Reduction Act, imposes a minimum 15 percent tax on the adjusted financial statement income (AFSI) of corporations earning $1 billion or more annually. Though it went into effect January 1, the tax has proved difficult to implement because of the need to reconcile differing tax and financial accounting principles. The statutes creating the tax provide broad directives but effectively delegated most of the detailed decisions necessary to levy the tax to the Treasury secretary."
IRS Interim Guidance Details Calculation Of Corp. AMT - Kat Lucero, Law360 Tax Authority ($):
To identify what financial statements to use to assess their AMT liability, corporations should give priority to those that follow generally accepted accounting principles, the agency said in Notice 2023-64. Those statements include Form 10-K, which is filed with the U.S. Securities and Exchange Commission, and an audited statement a company uses for credit purposes and reporting to shareholders, partners and other proprietors, the notice said.
Financial statements following international financial reporting standards — such as documents filed with a foreign government agency equivalent to the SEC — get second priority, while those filed with other federal or state government agencies receive third priority, the notice said.
IRS Issues Additional Book-Income Minimum Tax Guidance - Erin Slowey and Michael Rapoport, Bloomberg ($). "A Treasury official acknowledged that further guidance will be needed to avoid a variety of ways in which income could be double-counted for CAMT purposes under Tuesday’s notice — if a dividend is paid from one company to another and they’re part of the same foreign-parented group but not part of the same US tax consolidated group, for instance."
Link: Notice 2023-64.
IRS Official Expects Foreign Tax Credit Guidance By Year-End - Natalie Olivo, Law360 Tax Authority ($):
The Internal Revenue Service expects to extend the relief period for some aspects of the 2021 final foreign tax credit regulations, said David Berke, special counsel in the IRS Office of Associate Chief Counsel's international group, during a virtual conference hosted by the U.S. branch of the International Fiscal Association. The extension specifically would cover companies with fiscal years that don't match the calendar year and instead end on June 30, 2024, for example, placing them outside the relief period's current window that ends Dec. 31, 2023, he said.
In addition, the IRS and U.S. Department of the Treasury are working on separate guidance that would cover foreign tax credits under a 15% international minimum corporate tax agreement, according to Berke. The guidance for the minimum tax deal, which forms the second pillar of a global corporate tax overhaul, is also anticipated by the end of the year, he said.
Rhetoric Intensifies as Government Shutdown Looms - Alexander Rifaat, Tax Notes ($):
Budget proposals presented by House Republicans violate the debt ceiling agreement reached by President Biden and House Speaker Kevin McCarthy, R-Calif., in June, which outlined the appropriations process for fiscal 2024 and 2025, according to Office of Management and Budget Director Shalanda Young.
Republicans have proposed, among other measures, a near complete recission of the extra funding the IRS received as part of the Inflation Reduction Act. Under the June agreement, Biden and McCarthy had agreed to cut $21.4 billion of the $80 billion in additional funds, with $1.4 billion rescinded immediately and $20 billion clawed back over two years.
The launching of a presidential impeachment inquiry yesterday may not move the parties closer to a budget compromise.
Three things to know about taxes in Oklahoma as Gov. Stitt calls special session - Scott Carter, The Oklahoman:
Governor Kevin Stitt’s call on Tuesday to bring the state Legislature into special session in October addressed several areas – the biggest, however, was taxes.
In his executive order, Stitt called on state lawmakers to “deliver Oklahomans a personal state income tax cut – one that puts the state on a pathway to zero personal state income taxes.”
IRS Agrees to Settlement in Easement Penalty Backdating Case - Erin Slowey, Bloomberg. "The agreement comes after the IRS previously admitted that an employee backdated the approval signature on a penalty form in the Lakepoint Land II, LLC v. Commissioner easement case and misled the Tax Court about it."
Safe harbors and other ways to avoid estimated tax penalties - Kay Bell, Don't Mess With Taxes. "Most of us who must pay estimated taxes calculate that expected bill, divide it by four, and make each of the payments on the 1040-ES due dates. Those are the 15th of April, June, September, and the next January."
An IRS Identity Protection Unit Saga: Part 3 - Russ Fox, Taxable Talk. "Yes, you’re reading this correctly. My client electronically filed his tax return, but the only way it can be processed is paper."
S corp vs C corp vs LLC: What’s the difference, and which one is better for your business? - Thomson Reuters Tax & Accounting. "There is nothing inherently “better” about a C corp, S corp, or LLC—these designations simply describe how a company is taxed and which rules it must obey in order to stay compliant with the Internal Revenue Service (IRS). How one should incorporate really depends on the nature, size, and goals of the business in question."
New IRS Form 1099 Crypto Reporting Rules Bring More Taxes - Robert Wood, Forbes. "The U.S. Treasury Department has proposed new rules meant to make it harder—much harder—for people not to pay tax on their gains when they sell—or when the trade—their crypto. It will be a while before these rules take effect, and it is possible that they will change before that critical effective date. But make no mistake, change is coming to the crypto tax reporting world."
Taxpayer Had to Include COD Income in Year Lender's Time to File a Claim Expired - Parker Tax Pro Library. "The Tax Court held that the owner of a single-member limited liability company treated as a disregarded entity for federal income tax purposes had cancellation of indebtedness (COD) income arising from the discharge of the unpaid balance of a small business line of credit in the year that the lender's time to bring a claim for recovery of the loan under state law expired, rather than the year the taxpayer claimed he abandoned the business."
EITC Audits and Destroyed Information Returns - Leslie Book, Tax Notes Procedurally Taxing. "In thinking about refundable credits, I have come to appreciate that there are no silver bullets when it comes to the successful administration of family-based credits. When highlighting areas where the IRS falls short, the goal should be not to politicize those faults or to lay blame. Rather, the aim is to think more broadly about how the IRS can both minimize the risks of harming taxpayers and become an agency that embraces the reality that its actions are increasingly a part of the frayed safety net under some of our most vulnerable citizens."
Biden’s Climate Law Is Reshaping Private Investment in the United States - Jim Tankersley, New York Times. "The Inflation Reduction Act, which Mr. Biden signed into law in August 2022, includes a wide range of lucrative incentives to encourage domestic manufacturing and speed the nation’s transition away from fossil fuels. That includes expanded tax breaks for advanced battery production, solar-panel installation, electric vehicle purchases and other initiatives. Many of those tax breaks are effectively unlimited, meaning they could eventually cost taxpayers hundreds of billions of dollars — or even top $1 trillion — if they succeed at driving enough new investment."
States Enact Semiconductor Subsidies in the Wake of CHIPS - Erica York and Manish Bhatt, Tax Policy Blog. "Policymakers at all levels of government should avoid the pitfalls of incentives. Instead, they should focus on creating a more efficient, neutral, and structurally sound tax code to the benefit of all types of business investment."
Funding the tax police is very good - Matthew Yglesias, Slow Boring. "If you believe that taxes should be low, the goal is to be like Ireland or New Zealand, where taxes are low but compliance is very high. Or you could be like Denmark, where tax compliance is very high and the taxes are high. But you don’t want to be like Italy where everyone is cheating on their taxes."
Lessons From The 2021 Child Tax Credit Expansion Informing State Policy Debates - Joseph Broadus and Nikhita Airi, TaxVox. "Simplified tax filing helped families who don’t traditionally file taxes claim the credit. The IRS automatically delivered CTC payments to many families based on recent tax information the agency already had. Simplified forms that asked for limited information and were accessible on mobile platforms helped the lowest income families file their returns and claim the credit. This was a major improvement over the standard tax filing process, which is especially important for families who are less engaged with the tax system."
Marijuana Dispensary Owner Convicted Of Evading Federal Tax, Obstructing The IRS - Kelly Phillips Erb, Forbes. "The IRS’ involvement with the cannabis industry has slowly evolved. For years, the agency said little beyond confirming that sales were taxable—most of the transactions were under the radar, so the issue didn’t get much attention. But with decriminalization efforts beginning in many states at the turn of the century, the IRS stepped in with a policy clarification, reaffirming that sales of cannabis were subject to federal tax, but also noting that it would disallow expenses for medical dispensaries."
Artificial turf company owner sentenced for tax evasion - IRS (Defendant name omitted, emphasis added):
The owner of a Newport Beach-based artificial turf company was sentenced to 15 months in federal prison for failing to report nearly $9 million in income his business earned and for attempting to evade the payment of more than $946,000 in federal income taxes.
Defendant owns and operates LLC, which installs artificial turf for residential and commercial customers in Orange and Los Angeles counties.
From 2016 to 2020, LLC generated more than $1.5 million in gross income per year from its business operations, and – not wanting to pay taxes that income – Defendant attempted to conceal that income from the IRS.
To do so, Defendant emailed customers federal tax forms listing false identification information, so, if and when the customers reported to the IRS the payments they had made to him and his company, those payments would not be linked directly to Defendant or LLC for tax purposes.
On three occasions in 2020, Defendant emailed to customers in Los Angeles and Beverly Hills an IRS Form W-9 with false information and a signature in a fictitious identity. Defendant sent similar fraudulent IRS Forms W-9 during the tax years 2016, 2017, 2018 and 2019. Defendant also provided a false IRS Form W-9 to a school in Irvine in August 2016.
While attempting to evade the payment of taxes during this time, Defendant made more than $63,000 in transfers to the Coinbase cryptocurrency exchange from a LLC bank account. Defendant also used more than $500,000 in company funds to make real estate purchases in Nevada and Mexico.
It didn't work:
Prior to today's sentencing hearing, Defendant paid the IRS all the back taxes he owes, plus interest, as well as paying an additional 75% fraud penalty.
The Moral? Pay now, or pay later plus 75%. Oh, and 15 months.