Tax News & Views Legible ERC and Tax Bill Roundup

Tax Attorneys Highlight Limits on ERC Voluntary Disclosure - Nathan Richman, Tax Notes ($):

The ERC-specific voluntary disclosure program announced in December 2023 has raised many questions, Anthony Box of Gray Reed & McGraw LLP said January 20 at the American Bar Association Section of Taxation meeting.

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The ERC voluntary disclosure program includes many provisions similar to those of the general program, like applying only to taxpayers that come in before the IRS finds them. The two programs also deviate in some ways, most notably that ERC disclosures only require repayment of 80 percent of the credit while the general voluntary disclosure program requires full repayment and usually adds a civil fraud penalty.

Box noted that the ERC voluntary disclosure program also requires taxpayers to sign closing agreements and provide lots of information in their applications. However, there are still questions like whether the IRS would start criminally investigating a disclosure after accepting it or whether such an investigation would result in denial of the disclosure, he said.

Related: Eide Bailly Dispute Resolution and Collection Services.

Worker Credit Audit Plan Shows Extent Of Fraud, Tax Pros Say - Stephen Cooper, Law360 Tax Authority ($):

The tax break bill approved Friday by a U.S. House panel would allow six additional years to audit claims for the employee retention credit, which shows the extent of fraud in the program and the need for the IRS to recoup revenues, tax practitioners said.

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"There is going to be more emphasis on audits across the board, especially with the fact that the ERC, which was kind of pinned to $80 billion, roughly at the beginning when it was first passed, now has claims exceeding $240 billion at this point," he said.

Johnson still mulling tax deal amid GOP gripes - Laura Weiss and Jake Sherman, Punchbowl News:

Speaker Mike Johnson hasn’t made up his mind about whether to support the bipartisan tax package approved by a key committee last week.

The reason? Grumbling from some of his members about the deal, according to sources familiar with the situation.

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The snag? Plenty of Republicans like the $10,000 cap and would even cut SALT deductions off entirely. The deduction’s popularity looms largest in high-cost-of-living, suburban areas in New York, New Jersey and California. It’s been tough for both sides of the aisle to avoid member revolts on SALT.

The deal is done. Now to pass it. - Bernie Becker, Politico:

SO NOW WHAT HAPPENS? In short, this deal has no shortage of obstacles — some of them very procedural, like figuring out whether the agreement would need to ride on a broader vehicle or if it can be enacted as a standalone bill.

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But there are still some questions about the substance of this bill as well, perhaps none bigger than the question of whether enough Democratic lawmakers will believe that the expanded child credit in the agreement is generous enough.

Details and Analysis of the Tax Relief for American Families and Workers Act of 2024 - Alex Durante, Huaqun Li, William McBride, Alex Muresianu, Erica York, and Garrett Watson, Tax Policy Blog:

While the package is far from ideal, it represents a step in the right direction by taking a fiscally responsible approach to improving cost recovery. Most importantly, it addresses a major competitive disadvantage in our current treatment of research and development (R&D), returning to the international norm of allowing companies to fully and immediately deduct R&D expenses, including salaries for scientists and researchers. Similarly, it allows companies to fully and immediately deduct investment in equipment and other short-lived assets. However, it only extends these provisions temporarily through 2025, creating uncertainty for taxpayers and dampening the policies’ otherwise strong pro-growth incentives.

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But economic gains are only to be had if companies can expect expensing to be available permanently, as companies make investment decisions on long time horizons and the economy adjusts to prices and incentives that can be expected to exist in the long run. The temporary extensions of R&D expensing and bonus depreciation through 2025 may shift investment plans forward (something we do not include in our modeling) but leave long-run incentives unchanged. Only to the extent taxpayers expect the policies to be extended beyond 2025 will they have any lasting economic effects.

Bipartisan Tax Framework: Low-Income, Wealthy Households Benefit Most - John Buhl, TaxVox:

The legislation would also make the low-income housing tax credit more generous and expand the CTC by accelerating the credit phase-in for large families, making more of the CTC refundable, and indexing the CTC to inflation. The CTC and business tax changes all offer retroactive tax relief, so our model results include tax year 2023. The provisions would also be in effect for tax years 2024 and 2025, after which these policy changes and other large pieces of the TCJA are set to expire.

If the bill is enacted, households in the lowest income quintile (incomes up to $29,800) would see gains in after-tax income averaging 0.3 percent ($60) in 2023. Average tax cuts for households in the bottom two quintiles would increase by 2025.

Affordable Housing Gets Boost in Congressional Tax Reform Deal - David Dudley and Nicole Flatow, Bloomberg. "The proposed bipartisan tax overhaul would give a boost to the Low-Income Housing Tax Credit program. Created in 1986, the LIHTC has been an effective way of incentivizing developers to pursue projects for lower-income tenants, financing the development of 3.7 million affordable rental homes and benefiting an estimated 8 million low-income households. In 2018, Congress temporarily raised the amount of tax credits allocated to each state by 12.5%, but that expansion expired in 2021; the current tax deal seeks to restore the increase."

Guidance Banning ‘Hoffman’ CRATs Is Imminent - Jonathan Curry, Tax Notes ($):

Regulations that would deem a specific transaction involving charitable remainder annuity trusts (CRATs) a listed transaction are just around the corner, according to a Treasury official.

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The guidance plan doesn’t refer to the so-called Hoffman CRAT by name, but the estate planning community is confident that those types of transactions are what Treasury and the IRS have in mind. The IRS added those transactions to its “Dirty Dozen” list of tax scams last year, a move that followed the Justice Department taking on promoters of the tax scheme in 2022 and came amid two recent Tax Court cases that both resulted in IRS wins.

Promoters of the transaction argue that capital gains on income derived from the sale of property can be eliminated by selling the property through a CRAT.

We covered a Hoffman CRAT crashing and burning in Tax Court at the end of this post. 

Connecticut taxpayers impacted by storms qualify for tax relief; various deadlines postponed to June 17 - IRS:

The Internal Revenue Service announced today tax relief for individuals and businesses in parts of Connecticut affected by severe storms, flooding and a potential dam breach that began on Jan. 10.

These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

The deadline relief covers, among other things, 2023 pass-thorugh returns due March 15 and 1040s due April 15.

FTC: TurboTax maker deceived customers with ‘free’ services - Nick Robertson, The Hill. "Customers who run small businesses, work as independent contractors or make over a certain income threshold can not use the company’s free service, a distinction that is not clearly established in advertising, the FTC said."

IRS offers guidance on how to answer the tax return digital assets question - Kay Bell, Don't Mess With Taxes. "Don't just ignore the question. The IRS emphasizes that it requires the answer from all taxpayers, not just by those who engaged in a transaction."

When To Expect Your Forms W-2 & 1099 In 2024—And What To Do If They’re Missing - Kelly Phillips Erb, Forbes ($). "Taxpayers are generally on the look out for Form W-2, which due on Jan. 31, 2024. Your tax form is on time if it is properly addressed and mailed on or before the due date. If the normal due date falls on a Saturday, Sunday, or legal holiday (which is not the case in 2024), issuers have until the next business day."

And remember, K-1s can be mailed to taxpayers as late as September 15.

Top Ten Developments in Agricultural Law and Taxation in 2023 – (Part Four): The Employee Retention Credit - Roger McEowen, Agricultural Law and Taxation Blog. "In late 2023, the IRS announced a voluntary disclosure program letting employers who received questionable ERCs pay them back at a discounted rate.  This amnesty program was also part of the agency’s efforts to combat ERC fraud.  Under the program, IRS will provide amnesty if 80 percent of the improperly received ERC is paid back.  Doing so removes the possibility of interest and penalties and provides a greater avenue for businesses to return the improperly received ERC having already lost some of it to a bogus ERC promoter.  Businesses must apply to the voluntary disclosure program by March 22, 2024.  Certain qualifications must be satisfied for a business to participate in the program."

Harper Constitutional Challenges to Coinbase John Doe Summons - Leslie Book, Procedurally Taxing via Tax Notes. "While Harper is right to press some important differences between bank records and crypto records, especially in the context of his Fourth Amendment challenge, the Fifth Amendment procedural due process argument is unlikely to result in a taxpayer-favorable remedy."

The Rich Aren’t Rich Enough to Balance the Federal Budget - Brian Riedl, Wall Street Journal Opinion:

In a study for the Manhattan Institute, I set upper-income tax rates at their revenue-maximizing level, while paring back tax loopholes and fighting tax evasion. As background, the Congressional Budget Office projects that our budget deficits—which currently exceed 7% of gross domestic project—will surpass 10% of GDP over the next three decades. My research shows that the “tax the rich” model would raise at most 2% of GDP in additional revenue over the long term.

If this seems low, it’s because the U.S. tax code is already the most progressive of the 38 Organization for Economic Cooperation and Development member countries. The U.S. taxes the wealthy at European rates, while taxing the middle class at considerably lower rates.

Biden keeps saying billionaires pay 8 percent in taxes. Not really. - Glenn Kessler, Washington Post. "But if you check Treasury Department calculations for what the richest Americans already pay in taxes, you would see that the richest 1 percent pay in excess of 20 percent in income taxes and more than 30 percent in all federal taxes. Even if you drill down to the top 400 wealthiest taxpayers — data that was publicly available on an annual basis until President Donald Trump killed the report — they paid an effective tax rate of 23.1 percent in 2014. These taxpayers — with $127 billion of income — that year paid $29.4 billion in income taxes, or more than 2 percent of all income taxes, the IRS said. That’s more than the bottom 70 percent of taxpayers combined."

Overland Park man sentenced for tax evasion - IRS (Defendant name omitted, emphasis added):

A Kansas man was sentenced one year and one day in prison for lying on federal income tax returns.

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In his 2016 tax returns, Defendant reported to the Internal Revenue Service (IRS) to have paid $458,711 in mortgage interest knowing he had actually paid $4,363 in mortgage interest. That same year he also reported to have paid $10,987 in real estate taxes when the actual amount was $5,663.

During 2017 tax returns, Defendant declared $486,725 in mortgage interest payments when the actual amount was $24,108. He also claimed to have paid $68,980 in real estate taxes when he had paid $10,750.

The defendant didn't think this one through very well. The tax law limits deductions on home mortgage interest to a maximum of $750,000 on loans taken out after December 15, 2017. To pay that much interest would mean you have taken out a home loan at an interest rate of at least 64.89%. Yes, mortgage rates have risen, but not quite that much. Even IRS computers can spot things like that.

Penmanship is a quaint superpower. It's National Handwriting Day!