Tax News & Bitcoin, Tax Bills, and Benjamins Roundup

No Need to Report Crypto Transactions Until Planned Regs Issued - Mary Katherine Browne, Tax Notes ($):

Treasury and the IRS announced that businesses won’t be required to report some cryptocurrency and other digital asset transactions until the government releases proper regulations.

The guidance (Announcement 2024-4) issued January 16 affecting cryptocurrency transactions that fall under the amended section 6050I may address industry fears over how a failure to comply with the reporting requirements can result in felony charges.

Section 6050I, amended by the Infrastructure Investment and Jobs Act in November 2022, now states that digital assets valued at $10,000 or more can be considered cash. Therefore, any person engaging in a trade or business that receives more than $10,000 in cryptocurrency must file a Form 8300. Failure to do so can result in not only civil consequences but also felony charges.

From Announcement 2024-4 (emphasis added):

The Treasury Department and the IRS intend to implement section 80603(b)(3) of the Infrastructure Act by publishing regulations specifically addressing the application of section 6050I to digital assets and by providing forms and instructions for reporting that address the inclusion of digital assets. Accordingly, until the Treasury Department and the IRS publish regulations under section 6050I to implement section 80603(b)(3) of the Infrastructure Act, persons engaged in a trade or business who, in the course of that trade or business, receive digital assets or digital assets and other cash in one transaction (or two or more related transactions) will not be required to include those digital assets when determining whether cash received has a value in excess of the $10,000 reporting threshold for purposes of determining if reporting is required under section 6050I with respect to those transactions. Persons engaged in a trade or business who, in the course of that trade or business, receive cash (other than digital assets) in excess of $10,000 in one transaction (or two or more related transactions) must continue to file an information return under section 6050I with respect to that cash received.

Nothing in this announcement affects the income tax obligations of persons engaged in a trade or business who receive digital assets and persons who use digital assets to make any payments in the types of transactions described above.

IRS Officially Announces Delay in Reporting Cryptocurrency Transactions on Form 8300 - Russ Fox, Taxable Talk. "The IRS officially announced today that businesses do not have to report the receipt of digital assets on Form 8300 until the Treasury and the IRS issue regulations implementing the new law."

Bipartisan Tax Deal Would Provide Boost to Businesses, Families - Richard Rubin, Wall Street Journal:

Top U.S. lawmakers unveiled a bipartisan tax agreement that would revive expired breaks for businesses and increase the child tax credit for low-income families, and they are aiming to push the $78 billion in tax breaks through Congress in the next few weeks. 

The deal comes from Sen. Ron Wyden (D., Ore.) and Rep. Jason Smith (R., Mo.), ideological opponents who found common ground after months of talks. They have a tough task ahead, given skepticism about aspects of the deal in both parties and a tight deadline before tax season starts.

Their proposal would retroactively reverse several business-tax changes that had been set in motion by Republicans in the 2017 tax law and took effect over the past few years. Companies with interest costs, capital expenses and research spending would all benefit.  

Tax Deal Would Bring ERC Claims to Earlier End and Curb Abuses - Lauren Loricchio, Tax Notes ($):

A tax package announced by congressional taxwriters would bring an early end to the employee retention credit and expand IRS enforcement tools for reining in its abuse.

The tax framework announced January 16 by Senate Finance Committee Chair Ron Wyden, D-Ore., and House Ways and Means Committee Chair Jason Smith, R-Mo., would cut off all ERC claims after January 31, 2024 — a change that the lawmakers said would save more than $70 billion to help pay for other parts of deal. Under current law, 2020 claims for the ERC can be filed until April 15, 2024, and 2021 claims can be filed until April 15, 2025.

A Pandemic-Era Tax Break Is Unraveling, and the Lawsuits Are Flying - Ruth Simon, Wall Street Journal. "Colonial Wholesale Distributing, the Florida company, is one of at least four customers that have sued ERC Specialists, which promised to help taxpayers 'file lightning fast' for the tax break. The legal battles go both ways: Inrecent months, ERC Specialists filed lawsuits against more than 40 of its customers, seeking to collect unpaid fees."

Related: IRS Puts Temporary Hold On New ERC Claims.

Inside the bipartisan tax deal - Aris Folley and Taylor Giorno, The Hill:

The deal also has provisions on increasing the low-income housing tax credit and a carve-out to protect Taiwanese companies from double taxation following an effort by the U.S. to reshore segments of the high-end semiconductor industry, much of which is based there. 

Additionally, the proposal boosts the amount in capital expenditures that small businesses can immediately write off to $1.29 million from $1 million, along with increasing the reporting threshold for subcontractor work to $1,000 from $600. 

Lawmakers Strike Tax Deal, but It Faces Long Election-Year Odds in Congress - Kayla Guo, New York Times. "The deal also faces resistance from many Senate Republicans, and House Democrats have argued that it should do more to expand the child tax credit. Mr. Smith and Mr. Wyden’s top tax-writing counterparts — Representative Richard E. Neal of Massachusetts, the senior Democrat on the Ways and Means Committee, and Senator Michael D. Crapo of Idaho, the senior Republican on the Finance Committee — notably have not endorsed the package."

Senate GOP has issues with tax deal - Punchbowl news:

The top Republican on the Senate Finance Committee is looking for changes to a bipartisan tax deal before throwing his support behind the measure.

Sen. Mike Crapo (R-Idaho) said after briefing panel members Tuesday night that he backs reviving business tax benefits and is open to “an appropriate child tax credit set of provisions,” but has issues with the package as-is. He did not detail the changes he wanted.

SCOTUS Rejects Challenge to Washington Capital Gains Tax - Paul Jones, Tax Notes ($):

The U.S. Supreme Court has declined to hear a challenge to Washington state’s capital gains tax, delighting progressive tax policy advocates and shifting opponents’ focus to a state ballot initiative to repeal the tax.

...

Opponents of the tax, including the Freedom Foundation, sought U.S. Supreme Court review in August 2023, arguing that if the tax is an excise tax, rather than an income tax, it violates the U.S. Constitution — in particular the federal commerce clause — by taxing activity outside of Washington state. They said the tax in some instances could result in duplicative taxation of gains, despite Washington providing a credit against other states’ taxes on gains realized from capital assets in those states. Opponents argued in briefs supporting the cert petition that if allowed to stand, Washington’s excise tax on capital gains could lead to other states seeking to tax activities and transactions outside of their borders.

Werfel Lays Out IRS Priorities in Face of Funding Cut Pressure - Caleb Harshberger, Bloomberg ($):

IRS Commissioner Danny Werfel said he is prioritizing a set of high-impact—and high-visibility—initiatives in the face of continued political headwinds threatening future funding cuts.

Werfel said the agency has planned out its priorities to maximize taxpayer impacts and to showcase what the agency can do when funded properly—and laid out some priorities for the agency if funding was to be further reduced.

That includes investing in improving taxpayer-facing systems and interactions such as the agency’s telephone lines and making big splashes going after larger tax cheats who aren’t paying the taxes they owe.

IRS Issues Proposed Regulations on Bad Debt Deductions for Regulated Financial Companies - Paul Sirek, Eide Bailly. "Alongside providing guidance on a worthless debt deduction, the proposed regulations also provide a new tax method, called the Allowance Charge-off Method, for bad debt of regulated financial companies and members of regulated financial groups (insurance companies and large financial institutions)."

FinCEN Issues More Guidance On Beneficial Ownership Information Reporting - Kelly Phillips Erb, Forbes. "FinCEN clarified that, in addition to companies in the 50 states and the District of Columbia, a company that is created or registered to do business by the filing of a document with a U.S. territory's secretary of state or similar office, and that does not qualify for any exemptions to the reporting requirements, is required to report BOI to FinCEN. U.S. territories are the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and the U.S. Virgin Islands."

Related: Corporate Transparency Act Mandates Stricter Federal Disclosures.

10 most serious taxpayer problems, according to the National Taxpayer Advocate Kay Bell, Don't Mess With Taxes. "7. Online Account Access for Taxpayers and Tax Professionals. IRS digital services remain inadequate, impeding efficient case resolution and forcing millions of taxpayers to call or send correspondence to the tax agency."

IRS Provides Partial Guidance on Pension-Linked Emergency Savings Accounts - Ed Zollars, Current Federal Tax Developments. "The SECURE 2.0 Act of 2022 introduced the option for sponsors of §401(k), §403(b), or government §457(b) defined contribution plans to incorporate a Pension-Linked Emergency Savings Account (PLESA) feature. Notice 2024-22 from the IRS delivers preliminary guidance concerning the anti-abuse rules applicable to these plans."

California Is Taxing Nonresidents Who Sell Stock And LLC Interests - Robert Wood, Forbes. "But if you sell your interest in an S corporation, LLC, or partnership that owns California property, shouldn’t that get you the same treatment as selling Amazon stock? Many taxpayers say yes, but California’s Franchise Tax Board is not happy with what it perceives as an end run. In Legal Ruling 2022-02, the FTB found a way to tax a portion of the taxpayer’s gain from the sale of a partnership conducting business in California."

IRS Modifies Interim Guidance on Amortization of Research Expenditures - Parker Tax Pro Library. "The IRS issued a notice that clarifies and modifies Notice 2023-63, which provided interim guidance on the amortization of specified research or experimental (SRE) expenditures under Code Sec. 174, as amended by the Tax Cuts and Jobs Act, and provided interim guidance that taxpayers may rely on until the publication of proposed regulations. The IRS also issued a procedure that modifies Rev. Proc. 2023-24 to provide updated procedures for obtaining automatic consent to change methods of accounting in reliance on the interim guidance provided in Notice 2023-63, as modified by Notice 2024-12. Notice 2024-12; Rev. Proc. 2024-9."

IRS Introduces Voluntary Disclosure Program for Ineligible ERC Claims - Ashley Aiken, Tax School Blog. "Any employer who claimed the ERC but were  must submit applications by March 22, 2024. The employers must identify the tax preparers or promoters who assisted them in making the erroneous claims. The IRS will review the employers’ applications, and they must repay 80% of the credit they received upon acceptance. Employers who cannot repay 80% can apply for an installment agreement that the IRS may approve on a case-by-case basis."

Don’t Ignore the Long Run When Evaluating Corporate Tax Cuts - Alex Durante, Tax Policy Blog. "We would not expect the windfall component of the corporate rate reduction to lead to higher wages but rather an increase in profits and shareholder returns in the short run. However, we would expect the lower corporate tax rate to incentivize new investment, leading to greater demand for labor, more employment, higher productivity, and higher wages over the long run, which takes several years to unfold."

Lawmakers Keep Targeting Tax Breaks Of Those They Disagree With - Howard Gleckman, TaxVox. "There has been a long sordid history of politicians using the tax code to try to punish critics or political opponents. Presidents Franklin Roosevelt and John Kennedy did it (here and here). In 1971, President Nixon tried to get the IRS to audit those on his infamous enemies list. And former President Trump wanted the IRS to go after his many enemies, according to John Kelly, who had been a White House chief of staff for Trump."

IRS Leaker Sought Job With Aim of Releasing Trump Tax Returns, DOJ Says - Richard Rubin, Wall Street Journal:

In a 15-page court filing, federal prosecutors said Littlejohn applied to Booz Allen Hamilton in 2017 with the “intention of accessing and disclosing tax returns.” 

After being hired, Littlejohn then “weaponized his access to unmasked taxpayer data to further his own personal, political agenda, believing that he was above the law,” prosecutors said.

Tax Shelter Promoters Sentenced to 25 Years and 23 Years in Billion-Dollar Syndicated Conservation Easement Tax Scheme - Ronald Marini, The Tax Times. "An accountant blamed by federal prosecutors for pioneering the use of conservation easements as illegal tax shelters was sentenced to 25 years in prison January 9, 2024 following his conviction on all counts of a $1.3 billion tax fraud scheme that drew the first criminal prosecution of its kind."

DOJ Tax Publicizes Sentencings and Plea Agreements of Syndicated Conservation Easement Enablers; Where Are the Taxpayers - Jack Townsend, Federal Tax Crimes. "If the IRS and DOJ Tax want to discourage abusive tax shelters, it should prosecute the taxpayers involved (or at least enough of them, the more egregious ones, to send the message to the abusive tax shelter taxpayer community that there is risk of a criminal reckoning)."

Mansfield man charged in fraudulent tax return scam - IRS (Defendant Name omitted, emphasis added):

According to the indictment, Defendant owned and operated a virtual tax preparation business with locations in Orlando, Florida, Mansfield, Texas, and Washington, D.C. Starting in 2016, Defendant devised a scheme to falsely create and submit false tax returns on behalf of unsuspecting taxpayers. Taxpayers would seek out Defendant's assistance in filing personal tax returns and Defendant would promise a significantly higher refund than taxpayers could receive from other prepares and on many occasions offered to split the additional refund with taxpayers. In order to achieve these larger refunds, Defendant generated false deductions without the taxpayer's knowledge.

In 2018, an undercover agent, posing as a taxpayer, contacted Defendant for assistance. Defendant refused to meet in person unless a $5,000 retainer was paid but offered to assist the undercover agent virtually. During a recorded telephone conversation, Defendant stated that he could project the amount of the tax refund the undercover agent would likely receive from another firm and then compare that figure with the refund that Defendant would obtain.

According to the indictment, an employee of Defendant's interviewed the agent over the telephone regarding deductions. The employee stated that Defendant would make any decisions regarding what items would be included on the tax filing. The employee did not identify any deductions that would apply to the agent and in the course of the interview, the undercover agent denied any facts that would support deductions. On March 14, 2018, Defendant filed the agent's tax return claiming $29,339 in fraudulent deductions. The IRS issued a refund of $6,007, Defendant received $2,999 for his services and the agent received the remaining amount of $3,008. As Defendant told the taxpayer, he would have received only a $300 deduction had he used another tax preparer.

The IRS secret shopper strikes again. 

The moral? The biggest refund may not be the sign of the best preparer.

Do you have change for a hundred? It's Benjamin Franklin Day!