Tax News & Views Rulings and Straws Roundup

IRS Expands Scope of Corporate Transaction Letter Rulings - Chandra Wallace, Tax Notes ($):

As promised, new annual procedural guidance for obtaining corporate letter rulings opens the door for rulings on corporate transactions and related issues the IRS has refused to rule on for many years — including section 332 liquidations, section 351 transfers, and acquisitive reorganizations.

IRS Associate Chief Counsel (Corporate) Mark Schneider announced in October 2023 that he intended to “significantly broaden” the scope of letter rulings his office would issue, putting other corporate transaction rulings on the same footing as section 355 rulings, which he said the office already would “rule on soup to nuts.”

Links: Rev. Proc. 2024-1 and Rev. Proc. 2024-3.

Treasury Begins Accepting Companies’ Owner-Disclosure Reports - Michael Rapoport, Bloomberg ($).

The Treasury Department said it has begun accepting companies’ reports disclosing their ownership information under new requirements that took effect at the start of 2024.

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Tens of millions of companies must now report the identities and other information about their “beneficial owners,” or anyone who owns at least 25% of the company or exercises significant control over it, to Treasury’s Financial Crimes Enforcement Network, or FinCEN.

FinCEN Announces Opening of Website to Accept Beneficial Ownership Reports - Ed Zollars, Current Federal Tax Developments. "FinCEN offers direct links for report submission and acquiring a FinCEN identifier on their dedicated Business Ownership Information webpage, accessible at https://www.fincen.gov/boi. Although the report filing portal became operational on January 1, 2024, a technical glitch related to certificate configuration temporarily hindered access to the FinCEN identifier page on the afternoon of the same day."

BOI Reporting from Start to Finish - Thomas Gorczynski, Tom Talks Taxes. "This morning, FinCEN opened its BOI E-Filing System. I will take you step-by-step on how I filed the BOI Report (BOIR) for Gorczynski & Associates, LLC. I recommend reading my original article on the BOI reporting requirement for background."

A Look Ahead: The Limited Partner Exception Post-Soroban: It Ain’t Over Yet - Kristen Parillo, Tax Notes ($):

Enacted in 1977, section 1402(a)(13) generally excludes a limited partner’s distributive share of partnership income or loss from the SECA tax. The exclusion doesn’t apply to guaranteed payments that a limited partner receives for services rendered to the partnership. Because the statute doesn’t define limited partner, the proper scope of the exemption has become the subject of a protracted legal — and at times political — debate.

While courts have previously addressed the application of section 1402(a)(13) to owners of various types of passthrough entities, including limited liability partnerships and limited liability companies, Soroban is the first published opinion to address the provision in the context of a state law limited partnership. In its precedential opinion, the Tax Court agreed with the IRS that state law classifications aren’t controlling and that a functional analysis is required to determine whether a partner in a state law limited partnership is a limited partner for purposes of section 1402(a)(13).

The Tax Whiz With the Strangest Hustle on Wall Street - Ben Foldy, Wall Street Journal:

Lee invests in tax receivable agreements, increasingly common arrangements that put cash into the pockets of early investors in companies. Not many investors know how they work, and a surprising number of people don’t even know they have them.

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TRAs are mostly used to unlock tax advantages when businesses structured as partnerships or limited-liability companies go public. The pre-initial-public-offering investors maintain an interest in the original operating company while the new shareholders own stock in a new publicly traded entity, which then holds shares in the operating company.

When the original investors sell, their stakes in the operating company become new shares in the publicly traded holding company. This triggers the creation of the tax asset, which can reduce the company’s tax bill.

A Look Ahead: New Look Possible for Both Taxwriting Committees in 2025 - Cady Stanton and Doug Sword, Tax Notes ($). "In 2024 Republicans are again favored to take the Senate with more than twice as many Democrat-held seats on the ballot compared with Republican-held seats. Manchin’s seat is certain to flip, and seven Democrats face potentially tough races, while no Republicans are projected to have to break a sweat to win reelection, according to the Cook Political Report."

How Long Does It Take to Get a Tax Refund? - E. Napoletano, Buy Side from WSJ: "How you file your tax return greatly impacts how quickly your refund arrives. The IRS states that most electronically-filed refunds are issued in 21 calendar days or less; however, refunds for paper returns could take at least another week or more, depending on whether you want a mailed check or direct deposit."

Fewer Clean Vehicles Qualify for Federal Tax Credit in 2024 - Annette Nellen, 21st Century Taxation:

The §30D Clean Vehicle Credit that was greatly modified for 2023 through 2032 by the Inflation Reduction Act of 2022 has increasingly strict qualifications each year. Per the IRS and Dept. of Energy list of qualifying vehicles, there is a drop for 2024. For clean vehicles purchased from April 18, 2023 through December 31, 2023, 27 vehicles qualified an eligible buyer for a $7,500 credit and 16 for a $3,750 credit.

As of today (1/1/24), the list for 2024 includes just 10 vehicles for the $7,500 credit and 9 for the $3,750 credit. The drop is due to a combination of no longer meeting the higher critical minerals or battery component requirement or involving parts of assembly by a "foreign entity of concern" such as China.

New Year's tax and financial resolutions - Kay Bell, Don't Mess With Taxes. "4. Increase your retirement savings. If your retirement is a long way away, now is the perfect time to start savings for it. The power of compounding and reinvested earnings will help create a nice nest egg by the time you say goodbye to the 9-to-5 grind."

Indeed. And the beginning of the year is the time to start. Many people wait until the last possible day to add to their IRAs. Doing so on the earliest possible day locks in your savings and gives you an extra 15 1/2 months of tax-deferred or tax-free earnings.

IRS Provides Penalty Relief for Certain Returns Filed During COVID-19 Pandemic - Parker Tax Pro Library. "The penalty relief is for individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices during the COVID-19 pandemic; the IRS also announced that it will resume issuing such notices in 2024 for tax years 2021 and earlier, thereby resuming the normal notice process for these years."

Flexible Spending Accounts: How They Work And Who Benefits - Renu Zaretsky, TaxVox:

FSAs have been around since 1978. Policymakers wanted to ease the financial burden of rising healthcare costs on families, and FSAs (which reduce taxable income and overall tax liability) can encourage employees to plan and budget for annual medical expenses. Those expenses don’t include the vitamins, healthy food, or gym memberships that we choose to purchase.

Should they? Should tax policy encourage and reward my family’s healthier choices by expanding the use of FSAs? Some companies—intermediaries between consumers, FSA providers, and health and wellness industries—think the answer is yes.

Improving the Tax System for Independent Contractors: Quarterly 1099s - Kathleen Delaney Thomas, Tax Notes ($, footnotes omitted):

Given the high compliance burden the tax system imposes on independent contractors, it is not surprising that a significant portion of unpaid taxes in the United States (that is, the tax gap) is attributable to this group. Noncompliance subjects those taxpayers to potential penalties and interest and causes the government to collect less tax revenue

There is a simple and feasible way that Congress could ease the burden for these workers and improve tax compliance: Independent contractors should receive Forms 1099 each quarter. At the end of every quarter, third-party payers who are obligated to issue a Form 1099-K should also be required to send taxpayers a quarterly tax statement, what this article calls a “Form 1099-ES.” Along with the new form, taxpayers should be given a simple formula — a fixed percentage of the amount reported on the Form 1099-ES — to calculate their estimated taxes.

I am not sure how "simple and feasible" it would be to switch to quarterly 1099s, but the goal of simplifying taxes for the gig economy is a worthy one.

Methane Fee to Take Effect in 2024: A Mini Carbon Price - Alex Muresianu, Tax Policy Blog. "While a broad-based carbon tax is still only an idea in the United States, some incremental attempts at carbon pricing are more imminent. At the beginning of 2024, a fee on certain methane emissions took effect. While insignificant on its own, it is the first U.S. federal-level effort to price greenhouse gas emissions to combat climate change."

Livestock is not subject to the tax.

IRS Reverses Course on Grantor Trust Tax Reimbursement Clauses - Kristen Parillo, Tax Notes ($):

The IRS’s conclusion in ILM 202352018, dated November 28, 2023, and released December 29, will likely come as a big surprise to most tax professionals who work in the estate and gift tax space, Justin Miller of Evercore Wealth Management LLC told Tax Notes.

That’s because the new memo essentially revokes the position the IRS took in a 2016 letter ruling (LTR 201647001), Miller said. In that ruling, the IRS concluded that modifying a grantor trust to add a tax reimbursement clause — that is, giving the trustee discretionary power to reimburse the grantor for paying income tax on the income earned by the trust — was “administrative in nature” and wouldn’t cause the trust property to be included in either the grantor’s or the beneficiaries’ gross estates.

Grantor trusts are often used in estate planning. A common version removes assets in the trust from the trust founder's taxable estate at death, while leaving the founder taxable on the trust income during life. The taxes paid by the founder, or "grantor," benefit the next generation without being counted as taxable gifts.

Sometimes these trusts are too successful; the grantor pays so much tax on trust income that it becomes a cash flow problem. The 2016 ruling made it possible to solve this problem when it arises. The new guidance says any reimbursement clause for taxes paid by the grantor should be part of the original trust agreement.

Eide Bailly estate planning specialist Ava Archibald comments: “There appears to be a mix of opinions among advisors on whether to include the provisions for a reimbursement of income tax to the grantor when creating a grantor trust. With this Memorandum, advisors may want to carefully consider what assets will be placed in the grantor trust, and if those assets are sold, how the Grantor will be able to pay the income tax. Modifying the trust in the future may not be an option.”

Why TikTok Advice To Report Your Ex To The IRS Doesn’t Always Add Up - Kelly Phillips Erb, Forbes ($). "My feed was abuzz this morning, with readers asking and commenting on a post by a TikTok influencer who claimed that she got revenge by turning in her ex to the IRS for not paying his taxes...The point of the program is to encourage compliance and help the IRS get paid—not to get revenge on your ex. Clearly, that can be a perk. But be smart. Making a bogus claim is not only a waste of resources, it could land you in trouble. And making a claim potentially related to you (like information involving a spouse or business partner) could cause the IRS to take interest in your own taxes—and result in non-payment of any otherwise valid claim, depending on the circumstances."

The 2023 Tax Offender of the Year - Russ Fox, Taxable Talk. "A helpful hint to all: The Producers is a great play (and movie), but (a) don’t try to sell more than 100% of something and (b) conspicuous consumption while committing fraud usually doesn’t end well."

You'll have to follow the link to see who the winner is, but remember, it's a dishonor just to be nominated.

And not just those flimsy paper ones. Today is Drinking Straw Day!

Tax News & Views Rulings and Straws Roundup

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Joe B. Kristan, CPA