Tax News & Views Types Up a Spending Deal Roundup

Congressional Negotiators Reach Agreement on $1.6 Trillion Government Spending Level for 2024 - Katy Stech Ferek and Siobhan Hughes, Wall Street Journal: 

Congressional leaders reached a bipartisan deal on Sunday setting a roughly $1.6 trillion federal spending level for the year, but the pact drew quick criticism from some conservatives and it remained unclear whether lawmakers would be able to quickly pass legislation averting a government shutdown.

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Among other things, the deal would cut $20 billion in funds for the Internal Revenue Service, which got an influx of $80 billion in Biden’s signature Inflation Reduction Act in large part to audit wealthy people and corporations. Those $20 billion in savings were also included in a handshake agreement between Biden and McCarthy that were part of a side deal reached to pass last year’s debt deal. It is the sort of arrangement that infuriated spending hawks last year and explains why the $704 billion in nondefense spending amounts to a net spending level instead of a gross spending level.

Punchbowl News reports on how the IRS is affected ("Johnson" is House Speaker Mike Johnson):

Johnson was able to score two policy victories of note — both of which we scooped last week. Congress will accelerate a $10 billion IRS funding cut from FY2025 to FY2024. The new agreement also rescinds $6.1 billion in Covid-relief funds.

Overall spending comes in at $1.659 trillion. There’s $773 billion for non-defense discretionary spending and $886 billion for defense.

In sum, Johnson was able to secure $16 billion in additional savings for FY2024. But he got very little else. He’s already facing sharp criticism from the right.

Congressional Leaders Reach Spending Deal To Avoid Government Shutdown - Kelly Phillips Erb, Forbes. "The House Freedom Caucus has already signaled they won't support the agreement, tweeting, 'It's even worse than we thought. Don't believe the spin. Once you break through typical Washington math, the true total programmatic spending level is $1.658 trillion — not $1.59 trillion. This is total failure.'"

Eide Bailly's Washington expert Jay Heflin says that the spending agreement doesn't mean a tax bill will pass: 

As for passing the Big Three/CTC, which will take bipartisan support in an election year, Politico doesn’t think it will happen: “Ask yourself: Is this an environment where big bipartisan bills can get done?”

Car Dealers Get Extension To Report EV Tax Credit Eligibility - Kat Lucero Law360 Tax Authority ($):

Brief Extension Granted to Clean Vehicle Dealers and Sellers to Submit Time-of-Sale Reports - Ed Zollars, Current Federal Tax Developments. "However, the IRS advises that dealers and sellers should utilize this extension only if they encounter difficulties in successfully submitting the report."

Link: IRS press release.

EAs Press IRS to Come Clean on Further Penalty Relief - Jonathan Curry, Tax Notes ($):

The IRS’s penalty waiver for taxpayers who didn’t pay up during the COVID-19 pandemic provides welcome relief, but the agency should be upfront about whether any similar relief for failing to file is coming, according to the National Association of Enrolled Agents.

For now, the IRS is addressing only penalties for failure to pay, NAEA President Cynthia Leachmoore observed in a January 4 letter to IRS Commissioner Daniel Werfel. She requested clarification on the agency’s intent for failure-to-file penalties, along with an assortment of other interactions the penalty waiver has with the tax code.

Related: Eide Bailly IRS Penalties Help.

Three Tax Storylines to Watch as Congress Returns in 2024 - Chris Cioffi, Bloomberg ($):

The package would likely involve an expanded child tax credit as well as retroactive renewal for 2023 of an expired research and development break, a more robust deduction for some kinds of interest and expanded “bonus” depreciation of investments like equipment.

Current deduction of research expense, a relaxation of the Section 163(j) limits on business interest expense, and bonus depreciation are the "big three" tax provisions that are the center of tax debate in Congress.

Stumbling blocks remain on issues like whether the child tax credit should have work requirements, if the package should be paid for—potentially through limits on other tax breaks—or if a cap on the state and local tax deduction should be raised.

And even if a deal were to come together, where the legislation rides remains an unanswered question.

Stepping Back From the Waters Edge - Eide Bailly. Our most recent weekly roundup of state tax news covers a collapse of an effort to impose worldwide combined reporting in New Hampshire and developments in California, Iowa, Washington and other states. 

A New Provision Of An Old Law Is Confusing Crypto Investors - Amber Gray-Fenner, Forbes:

IRC Section 6050I(d) notes that “cash” includes foreign currency and “certain monetary instruments.” The Infrastructure Investments and Jobs Act of 2021 extended the definition of cash to include digital assets as they are defined in IRC Section 6045(g)(3)(D)...

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The purpose of Form 8300 is to report large cash transactions in an effort to prevent money laundering. For example, a car dealership must use Form 8300 to report transactions in which customers pay over $10,000 in cash for a car. In other words, if you want to walk into your local car dealership with a suitcase full of cash and trade that for a new G-wagon, expect some extra paperwork.

I.R.S. to Begin Trial of Its Own Free Tax-Filing System - Ann Carrns, New York Times:

Last month, the agency published details of its plan to test an in-house filing system, in which taxpayers submit their federal tax returns directly to the agency online at no cost. Residents of 12 states are eligible to participate if they meet certain criteria.

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The direct file pilot will be open to low- and moderate-income taxpayers with simple returns. To be eligible, for instance, filers must take the standard deduction and have income limited to wages reported on Form W-2, Social Security or unemployment as well as interest income of $1,500 or less. Gig workers aren’t eligible. The I.R.S. said in November that it expected “at least several hundred thousand taxpayers” to participate in what it called a “limited” pilot.

How to Lower Your Tax Bill With the Charitable-Donation Deduction - Laura Saunders, Wall Street Journal. "One way is to donate appreciated investments such as shares of stock or cryptocurrency held longer than a year in a taxable account. In this case, the donor can receive a deduction for the asset’s fair market value without owing tax on the appreciation, although conditions apply. For example, crypto investors need a formal appraisal if they want to deduct a donation of more than $5,000 of cryptocurrency."

Taxpayers Should Beware of Red Flags When Getting Tax Advice - Lee Reams Sr., Bloomberg. "Promising a larger refund than other preparers. Accurate tax preparation relies on a thorough understanding of a client’s financial situation and applicable tax laws. If a tax professional promises a significantly larger refund without conducting a comprehensive review of a client’s finances, this should raise suspicions. Tax professionals should always provide realistic refund estimates based on accurate information."

When will you get your federal tax refund? It depends - Kay Bell, Don't Mess With Taxes. "I don't want to dash your hopes, but don't get make any big plans for the money. In fact, IRS Publication 2043 includes this caution: Don't count on getting a refund by a certain date to make major purchases or pay bills. Even though the IRS issues most refunds in less than 21 days, it’s possible their tax return may require additional review and take longer."

The Unfairness of a "Fair Share" - Alex Parker, Things of Caesar. "But really, the central issue is that key question, the difference in taxation between assets and income. It's a fundamental design issue for the tax system. And there are a lot of considerations–the complexity (and constitutionality) of taxing wealth, how to treat reductions in the value of assets (should the rich get a refund?), and whether the system should treat theoretical gains the same as realized gains. This is something that Congress has weighed in on repeatedly, and more often than not it chooses to put assets at an advantage."

Income redistribution through taxes and transfers continues to rise - Tyler Cowen, Marginal Revolution. "The broader historical trends show that the US tax-and-transfer system is getting more progressive, including in recent years. And the US government is increasingly redistributing wealth to the bottom half of the income distribution."

Also: "A good rule for thumb for articles, policy papers, and tweets: if you see the word “gutted” used (but not as a reference to others), the output is likely bad."

The prostitute nudging sex workers to file their taxes - Julie Zauzmer Weil, Washington Post. "'The IRS’s policy is even if you’re doing something that is illegal, simply filing your taxes [won’t] get you arrested or anything like that, Lee said. (The Washington Post is identifying her by her professional name because of the nature of her work.)"

Of course, you should also report all of your income when your business is entirely legal:

Nevada owner of three Mexican restaurants sentenced to prison for tax evasion - IRS (Defendant name omitted, emphasis added):

A Nevada restaurant owner was sentenced today to 37 months in prison for skimming $5 million dollars in cash sales and filing false federal income tax returns with an overall tax loss of $1.6 million dollars over a five-year period.

According to court documents, Defendant owned and operated three Casa Don Juan restaurants in Las Vegas. From 2014 through 2018, Defendant instructed his manager/internal bookkeeper to create false sales numbers for his restaurants that underreported cash sales at the restaurants by approximately $5.1 million. Then, Defendant provided the false sales records to an outside tax return preparer who prepared his federal income tax returns.

In July 2018, during an audit, Defendant instructed his accountant to provide to the IRS false profit and loss statements that matched the figures reported on the tax returns. Defendant also directed his bookkeeper to provide to the IRS false daily cash and sales reports purportedly printed from the restaurants' point-of-sale systems. During interviews with the IRS, Defendant falsely stated to the revenue agent conducting the audit, and later to IRS-Criminal Investigation special agents, that the falsified daily cash reports and point-of-sale records were accurate. In total, Defendant caused a tax loss to the IRS of approximately $1.6 million.

In addition to the prison sentence, United States District Judge Andrew P. Gordon ordered Defendant to serve three years of supervised release and to pay $2,228,943.65 in restitution.

The defendant now has three years to ponder at least two mistakes. First, your preparer can't keep you out of trouble if you don't provide the right numbers. Also, trying to be cute with the IRS is a great way to turn a routine IRS exam into a criminal matter. If you are examined, let your tax team do the talking. 

Related: Eide Bailly IRS Exam Assistance. 

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