Tax News & Views Tax Deal and Haggis Roundup

Hopes for Senate Markup of Tax Deal Complicated by Timing - Cady Stanton and Doug Sword, Tax Notes ($):

Senate Finance Committee Republicans, led by ranking member Mike Crapo, R-Idaho, are seeking to change the details of a tax deal that has received resounding support in the House Ways and Means Committee. The desire for a chance to amend the bill was echoed by one Democratic taxwriter who said he would like to see the bill marked up but admits that isn’t realistic.

While getting the bill done in both chambers by the start of filing season on January 29 has become a fantasy, completing the legislation soon after is becoming a herculean task as well.

The Senate has a scheduled two-week recess starting February 12, leaving it only a week to pass the tax deal should the House get it across the full-floor finish line by the end of January. Adding a markup with changes before a full Senate vote and then sending the new bill back to the House would stretch the timeline even further.

HILL TAX BRIEF: Push and Pull Dogs Tax Bill as House Vote Looms - Kim Dixon, Bloomberg ($):

With the amended text of the $78 billion business and child tax bill out for lobbyists and others to pore over—and the bill is listed as an item that “may be considered” next week on the House floor—backers say the legislation is gaining momentum. Others say it could be a slog.

...

But the measure still faces steep obstacles, including Republican moderates who want changes to the state and local tax deduction cap. Opening up the bill to amendments, though, risks killing the bill. And other Republicans think the child tax credit is too generous, or that it might help President Joe Biden in his re-election campaign.

The article quotes Mike Crapo, ranking GOP member of the Senate Finance Committee, as saying he expects "dozens, if not hundreds" of amendments to be filed.

Playbook: Conservatives take aim at tax deal - Rachel Bade, Ryan Lizza, and Eugene Daniels, Politico. "The crux of their concerns is a worry that undocumented immigrants who are in the country illegally and bore children in the U.S. will receive the CTC benefit."

Watch for Jay Heflin's Capitol Hill Roundup later today for more on the tax deal.

So if you are waiting for an Employee Retention Credit refund, don't hold your breath.

Related: IRS Puts Temporary Hold On New ERC Claims.

IRS Aims at Sports Teams in Latest Push on Wealthy Taxpayers - Caleb Harshberger, Bloomberg ($):

The IRS Large Business and International division recently announced the campaign, saying it plans to look into whether the income and deductions of sports-related partnerships with large losses are reported in compliance with the tax code. The agency hasn’t named specific teams in this latest push on partnership audits.

Not everyone believes that auditing sports teams will be lucrative for the IRS. The article quotes a law firm partner:

“Not sure the system is being gamed. You buy goodwill, you get to amortize the cost over say 15 years and if the end result is a loss; so be it,” he wrote in a note to an unnamed client and shared with Bloomberg Tax. “This is the law. If the IRS wants to change it, they need an act of Congress.”

The difficulties the IRS has had in a single transaction involving a sports team - the sale of the Chicago Cubs by the Chicago Tribune - shows that just auditing something doesn't automatically result in a big tax collection. 

Amazon Owes $12.5M In Sales Tax, SC Appeals Court Rules - Maria Koklanaris, Law360 Tax Authority ($):

In an opinion issued nearly a year after the panel heard oral arguments in the case, Judge Jerry Vinson affirmed the South Carolina Administrative Law Court's decision, which in September 2019 affirmed the roughly $12.5 million tax assessment from the South Carolina Department of Revenue. The administrative law judge found Amazon was in the "business of selling" as defined under the state sales and use tax act and therefore was responsible for tax on third-party sales by merchants on its marketplace.

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"We find the ALC did not err in determining Amazon Services was engaged in the business of selling tangible personal property at retail and was therefore responsible for collecting and remitting sales tax on sales of tangible personal property owned by third parties occurring on the marketplace," Judge Vinson wrote.

New Recruiting Tools to Aid IRS in Compliance Crackdown - Kristen Parillo, Tax Notes ($):

Speaking January 23 at the University of Southern California Gould School of Law Tax Institute, Eric Cirelli of the IRS Large Business and International Division described how the agency is staffing up to implement its plan to expand enforcement for high-income and high-wealth individuals, as outlined in the IRS’s April 2023 strategic operating plan for using its Inflation Reduction Act funding.

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For agents focusing on partnership issues under LB&I’s high-wealth and high-income program, the IRS is developing “a master’s level, kind of like a tax LLM-type course” for them, Cirelli said.

Trump’s Golf-Course Tax Break Could Reach $323 Million - Richard Rubin, Wall Street Journal. "Trump’s company donated the development rights for Doral’s Blue Monster golf course to the City of Doral in December 2022, and the city council voted unanimously to accept it with a resolution that praised the “scenic view over an iconic landscape.” Under the binding contract, the golf course can remain operational but Trump and any future owner face restrictions, including a prohibition on new buildings above 25 feet in height or exceeding a total of 10,000 square feet."

Why More People Owe the IRS Money, in Three Charts - Ashlea Ebeling, Wall Street Journal. "The rise in the gig economy is another factor. Gig workers have to pay taxes throughout the year in quarterly estimates. If they don’t, they’ll get a surprise balance due at tax time, and possibly an underpayment penalty too."

IRS redesigning tax notices so they're more intelligible - Kay Bell, Don't Mess With Taxes. "And adding insult to possible tax injury, the IRS acknowledges its letters don't always clearly and concisely communicate the next steps a taxpayer must take to resolve a tax matter."

IRS Warns That Crypto Income And Gains Must Be Reported On Tax Returns - Robert Wood, Forbes. "The IRS has issued a reminder that taxpayers must answer a digital asset question on 2023 tax returns, as well as report all digital asset related income when they file their 2023 federal income tax return. 

IRS Updates Guidance on Availability of Exemptions from E-Filing Requirements - Parker Tax Pro Library. "Under this authority, the IRS issued final regulations in February 2023 (T.D. 9972) (Updated Electronic Filing Regulations) that require any person who must file at least 10 returns during a calendar year to file the returns electronically (electronic filing requirement)."

Tax Bill Impacts Filing Season - Kristine Tidgren, Ag Docket. "Taxpayers who would be impacted by these changes should wait to file until it is known whether this bill will become law. Farmers planning to file their returns and pay their taxes by March 1 to avoid estimated tax penalties (which will be higher this year because of inflation adjustments) will face difficulty, even if the bill does not pass, because of uncertainty so close to the deadline. If the bill does pass, necessary software changes and recalculations may make the March 1 deadline impossible for impacted filers."

From Filing Dates To Refunds, What You Need To Know About Tax Filing Season - Kelly Phillips Erb, Forbes ($). "Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.) recently announced a bipartisan tax proposal that would restore bonus depreciation, put an early end to the Employee Retention Credit (ERC), and expand the Child Tax Credit (CTC). Some of the proposed changes would apply to 2023 and affect the tax filing season, resulting in the IRS and software companies needing to update forms and programs. If the changes happen too late in the season, taxpayers may need to file amended returns."

The Real World: When Foreigners Die Owning US Assets – Estate Tax, Federal Transfer Certificate and Related Troubles - Virginia La Torre Jeker, US Tax Talk. "For non-US individuals one of the most often overlooked US tax issues is the US estate tax. Foreign persons often believe because they have never set foot on US soil and do not have a green card, that they will be shielded from all US tax. Nothing could be further from the truth."

Related: Eide Bailly Foreign Trust & Estate Tax Compliance & Planning

Why Is Congress Giving Business Retroactive Tax Breaks? - Howard Gleckman, TaxVox. "The bill generally would bring these subsidies back through 2025. But it also would grant firms tax breaks for decisions they already made—in some cases as far back as 2022. The goal of tax subsidies should be to encourage businesses to engage in activities that benefit the overall economy. But paying firms for decisions they made years ago won’t do that. Rather, it does little more than provide a financial windfall for the shareholders of the firms lucky enough to take advantage of the tax reductions."

Just When You Thought Things Couldn't Get Any Worse - Scott Sumner, Econlog. "The only long run solution is some combination of higher taxes and lower spending.  The longer we wait, the more painful the adjustment.  I don’t see any major candidate addressing these issues, and thus it’s reasonable to assume that things will get much worse before the problems are addressed."

Taxpayer Liable for Return Preparer’s Attempt at Tax Evasion - Caitlin Mullaney, Tax Notes ($):

The indefinite statute of limitations for tax assessments applicable to fraudulent tax returns extends to taxpayers whose return preparers were responsible for providing the false information, the Tax Court held.

In a January 24 memorandum opinion in Murrin v. Commissioner, Judge Patrick J. Urda upheld the court’s decision in Allen v. Commissioner, 128 T.C. 37 (2007), finding that the section 6501(c) extension of the limitations period for assessment for a false or fraudulent return isn’t limited to returns filed directly by taxpayers. “The Code contains no such limitation,” Urda wrote.

This case highlights another danger for taxpayers who use sketchy tax preparers. Even if the taxpayer has no idea that the preparer is committing fraud, the preparer misdeeds keep the statute of limitations - normally three years - open forever.

The taxpayers here used a preparer who used fraudulent entries in preparing their 1993-1999 returns. The fraud enabled the IRS to issue a notice of deficiency on the returns in 2019, 25 years after the 2013 returns were due. Beware of the "aggressive" preparer who "works in the gray areas." Those returns can haunt you for a long time.

Florida attorney pleads guilty in fraudulent charitable contribution tax scheme - IRS (Defendant name omitted, emphasis added.):

A Florida attorney pleaded guilty today to conspiracy to defraud the United States and tax evasion arising out of his promotion of an illegal tax shelter scheme involving false charitable deductions.

According to court documents, from at least 2013 through 2021, Defendant, of Davie, organized and sold the Ultimate Tax Plan, an illegal tax shelter designed to assist high-income individuals in reducing their taxes. Defendant marketed the scheme as a way for clients to reduce their taxes by claiming deductions for charitable donations that he knew were fraudulent. Defendant prepared boilerplate transaction paperwork for his clients which made it appear that they had donated valuable property to charities Defendant controlled. In fact, the clients retained complete control over the donated assets. Defendant illegally advised that clients could access their donated assets for their own personal use through tax-free loans and execute an “exit strategy” to buy back their donations at a significantly discounted rate. In some instances, Defendant backdated documents so that clients could claim these purported donations on their prior years’ tax returns.

... In April 2019, a federal district court permanently enjoined him from organizing, promoting, marketing or selling the Ultimate Tax Plan.

Defendant earned more than $10 million from selling the Ultimate Tax Plan. He used that income to purchase a multimillion-dollar estate and a luxury vehicle collection that included Lamborghinis, Rolls Royces, Mercedes Benzes, a Bentley and a Ferrari.

While this is working out badly for the defendant, you can be sure it's also working out badly for the clients whose tax "savings" paid for those nice cars. Expect the IRS to be working through the "high-income individuals" on his client list. And, considering the case outlined in the previous item, they can take their sweet time about it. 

The moral? The tax results here were too good to be true. Don't expect something like that to actually work. 

Thanks, I brought a sandwich. Tonight is Burns Night. "Burns Night honors the iconic Scottish poet Robert Burns, who wrote the New Year’s Eve anthem Auld Lang Syne. Many Scots host a Burns supper on January 25, the poet’s birthday, although they can be held throughout the year. Some of the suppers can be grand affairs; others less formal. The events will often feature a bagpiper or traditional Scottish music, and the Scottish pudding, Haggis, is served."