Tax News & Views Tax Moves Roundup

The tax bill is out. And House GOP leadership is in a tough spot. - Jake Sherman and Laura Weiss, Punchbowl News ($):

At about 8 p.m.Tuesday night, the House Republican leadership posted the much-anticipated tax bill negotiated by House Ways and Means Committee Chair Jason Smith (R-Mo.) and Senate Finance Committee Chair Ron Wyden(D-Ore.)…

What you need to know:The plan, as of now, is for the House Republicans to put the bill on the floor next week under suspension of the rules, a fast-track procedure that requires a two-thirds majority for passage. That’s why the House GOP leadership noticed the bill late Tuesday night; they need to give five days for bills considered as part of the suspension calendar.

This bill passed the chamber’s tax-writing committee with overwhelming bipartisan support – and yet it still has problems.

Bill to extend small-business tax breaks faces tough path, even with bipartisan backing – Mark Schoeff Jr., Investment News:

Legislation that would renew expired small-business tax breaks and bolster the child tax credit faces a difficult legislative path, even with initial support on both sides of the aisle.

A separate bill introduced late last week that would end the estate tax has almost no hope of enactment this year but serves as a marker for tax reform efforts in 2025…

Supporters of the bill have to overcome legislative obstacles that make its final passage uncertain, said Marc Gerson, a partner at Miller & Chevalier. For instance, the bill would have to pass on the House floor, where some Democrats might push for a bigger child tax credit and some Republicans might demand a provision lifting the deduction limits on state and local taxes.

Senate GOP Seeks Tweaks After Tax Bill Sails Through House Panel - Samantha Handler, Bloomberg ($):

Senate Republicans’ gripes with the $78 billion bipartisan tax package bubbled over Tuesday, with the lawmakers debating ways to change bill… Part of the question for senators now is how they may be able to make any adjustments to the bill. Some said there are still chances for changes to come from the House—if the legislation were to go through regular order—and others continued to push for a markup in the Senate Finance Committee or amendments on the Senate floor.

The bill is not expected to go through “regular order” in the House. Members, in both chambers, would like to see further modifications to the Child Tax Credit and include some sort of fix for the SALT-cap. The bill’s “payfor” (clamping down on the Employee Retention Tax Credit) is also an issue for some lawmakers.

[Senator Thom] Tillis (R-N.C.) told reporters he sees using changes to the ERC as a “fake pay-for.” The Joint Committee on Taxation found that the crackdown on the fraud-ridden ERC would offset nearly all of the package.

Senate Finance Chairman Wyden thinks if the legislation gets lots of support from House lawmakers then maybe Senators will calm down and support it. He might not be wrong about this.

Last week, the House Ways and Means Committee vetted the bill. During the event, several lawmakers expressed criticisms about the tax bill. The condemnation was bipartisan and sometimes passionate. After grousing about the bill, lawmakers overwhelmingly supported it: 40 ayes to 3 nos. In other words, bipartisan condemnation of the bill turned into the legislation passing the committee with overwhelming bipartisan support.  The same thing could happen in the Senate if there is huge support in the House.

Also, the Ways and Means vote got noticed in the Senate: 

House and Senate Are Different Beasts on Tax Deal Process – Cady Stanton, Tax Notes ($):

A strong 40-3 vote in the House Ways and Means Committee that advanced the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) January 19 caught the attention of members of the Senate Finance Committee the week of January 22 as Republican members continue to state their desire for a markup on the deal for their panel.

Finance Committee Chair Ron Wyden, D-Ore., called the bipartisan vote “nothing to scoff at,” and Finance Committee member Todd Young, R-Ind., said the tally makes the deal’s prospects stronger in the Senate.

What’s in the deal:

Tax Bill Advances from House Committee, But Fate Unclear – Jay Heflin, Eide Bailly:

The House Ways and Means Committee on January 19th approved tax legislation, but its fate moving forward is unclear.  

Today's vote was 40-3 and support for passage was bipartisan. The bill proposes to do the following:

• Full expensing of domestic (not foreign) research and development costs for tax years 2022 thru 2025
• Up Bonus Depreciation to 100% for property placed in service in 2022 thru 2025
• Expand the 163(j)-interest deduction (from EBIT to EBITDA) for certain transactions from 2022 thru 2025
• Increase the maximum amount a taxpayer may expense under Section 179
• Increase the threshold for 1099 (NEC and MISC.) reporting, from $600 to $1,000
• Increase the State housing credit ceiling for calendar years 2023, 2024, and 2025
• Prevent double taxation regarding certain transactions between the U.S. and Taiwan
• Extend the rules for treatment of certain disaster-related personal casualty losses
• Disaster relief for East Palestine
• Increase the Child Tax Credit

The bill's text is here. 

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 Foundation:

Because the changes to R&D expensing, bonus depreciation, the net interest limitation, and the child tax credit are temporary, they do not have a lasting impact on investment or work decisions by businesses or individuals. As such, we find the policies would have no impact on the long-run economy, including economic output, the capital stock, wages, or employment. In the following section, we discuss the economic impact of the provisions if they were made permanent.

Table 1. Long-Run Economic Effects of the Tax Relief for American Families and Workers Act of 2024

Source: Tax Foundation General Equilibrium Model, January 2024.

IRS Simplifying Tax Notices? Why Yes, Nearly 200 of Them. – Erin Slowey, Bloomberg ($):

The IRS will overhaul up to 90% of its notices by the 2025 filing season, representing about 150 million of the most common notices sent to individual taxpayers.

The changes include adding simplified language, reducing the number of pages and updating fonts. The rolling review of up to 200 notices will concentrate on those that propose adjustments to income, correct mistakes on returns, and remind taxpayers what they owe.

IRS Launches Project To Simplify Hundreds Of Notices – David ven den Berg, Law360 Tax Authority ($):

The IRS will also redesign notices sent to business taxpayers and less common notices sent to individual taxpayers for the 2026 tax filing season and later, the agency said. The IRS said it sends business taxpayers over 40 million notices a year.

Internal Revenue Commissioner Daniel Werfel told reporters that the agency needs to do much more to improve notices.

Taxpayers should continue to report all cryptocurrency, digital asset income – IRS:

The Internal Revenue Service today reminded taxpayers that they must again answer a digital asset question and report all digital asset related income when they file their 2023 federal income tax return, as they did for their 2022 federal tax returns.

The question appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, and was revised this year to update wording. The question was also added to these additional forms: Forms 1041, U.S. Income Tax Return for Estates and TrustsPDF; 1065, U.S. Return of Partnership Income; 1120, U.S. Corporation Income Tax Return; and 1120-S, U.S. Income Tax Return for an S Corporation.

Depending on the form, the digital assets question asks this basic question, with appropriate variations tailored for corporate, partnership or estate and trust taxpayers:

At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?

IRS Releases Draft Instructions for Clean Hydrogen Credit Claims - Caleb Harshberger, Bloomberg ($):

The IRS released draft instructions for companies seeking to claim clean hydrogen production tax credits as the Treasury Department works to finalize proposed rules.

The draft instructions for Form 7210 lay out how companies can apply for Section 45V clean hydrogen production credits—established in the 2022 Inflation Reduction Act—and how to calculate credit eligibility of qualified production facilities.

The agency released the draft of Form 7210 in August, before proposed guidance was released.

U.S. Court Refuses to Budge on John Doe Identity Disclosure – Amanda Athanasiou, Tax Notes ($):

A federal court has rejected a renewed request by a John Doe litigant to remain anonymous even to the court and denied what it described as the litigant’s request for special treatment.

If the unnamed plaintiff, who has filed a $14.5 million breach of contract action against Germany, doesn’t indicate their willingness to disclose their name under seal by February 8, the presiding magistrate judge will recommend dismissal of the action, according to a January 22 interim opinion in John Doe v. Germany.

Tax Court Proposes Getting Rid Of Timely Petition Rule – Jared Serre, Law360 Tax Authority ($):

The U.S. Tax Court proposed eliminating a rule that requires the timely filing of a petition, saying that the court finds it "no longer appropriate" to address the topic in its formal rules.

Chief Judge Kathleen Kerrigan on Monday proposed the removal of Rule 13(c) from the court's Rules of Practice and Procedure. The move would strike a rule that says the court's jurisdiction depends on a petition's timely filing, according to the proposal.

Widow May Deduct Flow-Through Losses on Husband’s Company - John Woolley, Bloomberg ($):

A taxpayer and the estate of her deceased husband are entitled to deduct the entire flow-through loss of one of his companies, provided that upcoming calculations show he had an adequate stock basis in that company, the US Tax Court said Tuesday.

Thomas and Ruth Fry deducted more than $3.45 million in flow-through losses in 2013 from his company, CR Maintenance Services Inc., after it had become unprofitable and began accepting transfer payments from his other company, Crown Disposal Inc., to meet its obligations. The IRS notified the Frys in 2020 that it disallowed their deduction because Thomas lacked a sufficient basis in CR Maintenance, and that the couple owed $1.65 million in tax deficiencies, additions, and accuracy-related penalties.

Real Estate Has Tax Transparency Gap, OECD Official Says – Todd Buell, Law360 Tax Authority ($):

There's a need for more tax transparency regarding real estate because investors may be moving to real estate to avoid financial transparency rules, an official at the Organization for Economic Cooperation and Development said Tuesday.

Sarah Perret said at a webcast hearing of the European Parliament's tax subcommittee that countries have made progress over the years in developing ways to track the income and assets that citizens hold in foreign countries. Perret leads the personal and property taxes unit at the tax policy and statistics division of the OECD's Center for Tax Policy and Administration.

Proposed Changes to IRS Foreign Gift Reporting Penalty - Daniel Soto and Michael Romero, Tax Notes ($):

Enacted as part of the Small Business Job Protection Act of 1996, Internal Revenue Code section 6039F imposes a penalty on United States taxpayers who fail to report large gifts received from foreign persons. Under section 6039F, a United States taxpayer who receives foreign gifts with an aggregate value of more than $10,000 during the tax year must report such gifts. To report such gifts, a taxpayer is required to file Form 3520, “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” Form 3520 has the same due date as the taxpayer’s Form 1040, “Individual Income Tax Return,” but is filed separately from the taxpayer’s income tax return.

From the “Harsh Memories” file:

U.S. Rep. Feenstra introduces legislation to repeal the “death tax” – Rep. Feenstra’s office:

The bipartisan legislation, the Death Tax Repeal Act, H.R. 7035, was supported by 161 other members of Congress, Feenstra’s office said, and by 194 organizations across the country. The bill would permanently repeal the tax which impacts small businesses and farms owned and operated by individuals and families…

Feenstra said that more than 99 percent of the country’s 2 million farms and ranches, and more than 95 percent of small businesses would benefit from the legislation and allow multigenerational businesses to continue to support families without taxing the family after the death of a family member.

Lawmakers nearly repealed the estate tax in 2001. Just before the August recess that year lawmakers held a press conference and said that they had the votes to repeal the estate tax. Their plan was to return to Capitol Hill in September and pass legislation repealing the tax. That vote never happened. No one wanted to deal with tax policy after the 9-11 tragedies.  

Happy Beer Can Appreciation Day! As a youngster, collecting beer cans was a passion for many of my friends. They were basically currency for buying each other’s stuff. “I’ll give you three beer cans for that Farrah Fawcett t-shirt.”