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Tax News & Views Tax Bill Teeters Roundup

Jay Heflin
January 26, 2024
Upside Down Dog

Key Takeaways

  • The criticisms keep coming for the tax bill
  • Child Tax Credit takes the heat
  • Poor results from IRS hiring
  • ERTC outreach
  • Direct File isn’t for everyone
  • Cheesesteak catastrophe
  • AI and tax prep
  • Work is Fun!

GOP leaders face conservative, moderate pushback on bipartisan tax deal – Emily Brooks, The Hill:

A bipartisan deal that would reduce business taxes while expanding the child tax credit has set up a political dilemma for Speaker Mike Johnson (R-La.) as he weighs whether to bypass objections from within his own ranks to bring it to the floor as soon as next week.

This bill, among other things, would allow for domestic R&D expensing (not foreign), expand the 163 (j)-interest deduction, up Bonus Depreciation to 100%, and enlarge the Child Tax Credit. It would also seek limits on the Employee Retention Tax Credit. What’s missing? A fix for the SALT-cap, which is creating a problem:

[S]wing-district Republicans from blue states who have long pushed to increase the state and local tax (SALT) credit have expressed frustration that their top priority — which is also opposed by many Republicans who argue it incentivizes high state taxes — was not included in the bill.

Johnson and Ways and Means Committee Chair Jason Smith(R-Mo.) held a call with half a dozen SALT Caucus members Thursday night to discuss their concerns.

A source familiar with the call said there was “lots of yelling,” mostly directed at Smith, with Johnson “trying and failing to keep the peace.”

Here’s the thing: Speaker Johnson promised swing-district Republicans that the next tax bill would include a SALT-cap fix. The aforementioned bill is the next tax bill, and no SALT remedy was included.

The call ended with the bill expected to come up under a fast-track process next week, with most of the SALT Caucus members on the call expected to vote against it if so. 

Um, maybe not.

Capitol Hill Recap: Will Words Translate Into Action on Tax Bill Vote – Jay Heflin, Eide Bailly:

The congressional idiom that best describes the current state of the tax bill is “Don’t believe what lawmakers say, believe what they do.”

Lawmakers in both political parties and in both chambers of Congress have multiple issues with the tax legislation that was approved last week by the House Ways and Means Committee… But words don’t always translate into action on Capitol Hill… Lawmaker complaints about the bill may not translate into opposition for the bill.

The original target for enacting this tax bill was before January 29th, the start of tax season – which begins Monday. That is not going to happen. Now, lawmakers seek enactment by mid-February, assuming the House even votes on the bill:

Tax Bill Forces GOP’s Johnson To Choose Corporations or Politics - Erik Wasson, Billy House, and Samantha Handler, Bloomberg ($):

House Speaker Mike Johnson is hesitating scheduling a vote for a $78 billion tax deal as he weighs opposition from within his own party, the latest indication of the growing divide between Republicans and the business interests the GOP once unflinchingly championed.

The package of business breaks and an expanded child tax credit is under attack from former Vice President Mike Pence and other conservatives concerned the deal hands President Joe Biden an important election-year victory.

They’re joined by moderates from New York and other high-tax states who want any agreement to raise the state and local tax deduction cap that is a key to their political survival in Biden-friendly districts. Johnson was set to talk by phone Thursday evening to a group of those moderates, multiple sources said.

Assuming the bill passes the House, Senate action on the bill could be very time-consuming and would likely put the mid-February target in jeopardy of being reached:.

Senate wants its say on the Smith-Wyden tax deal - Jake Sherman and Laura Weiss, Punchbowl News ($):

The Senate is looking to pump the brakes on the bicameral, bipartisan bill that tax writers unveiled earlier this month.

Senate Republicans— and even one key Democrat — told us they want to hold a committee markup on the bill. That would slow down the nearly $80 billion package.

Backers of the deal want to get it done quickly and believe they need it to pass in February to avoid trouble during tax filing season. A markup could slow the process down or kill it altogether.

Much of the fuss over the tax bill involves the Child Tax Credit. Some lawmakers like it. Some lawmakers hate it. Some lawmakers are ok with it.

The legislation basically expands the credit so over time more people qualify for its refundability. Family size would also impact the size of the credit received by families.

The New Child Tax Credit Proposal Versus Old Concerns About Work Incentives – Nikhita Airi and John Buhl, Tax Policy Center:

The bill would also phase the credit in faster for families with more than one eligible child: at a 30-percent rate for two children, 45-percent for three, and so on. By contrast, the current credit phases in at the same rate for all households regardless of size. As a result, some low-income families’ CTC benefits don’t reflect the increased costs of raising multiple children.

benefits of the 2024 child tax credit reform proposal by family size and income

 

IRS Hiring Surge Led to More Return Processing Errors, GAO Finds – Jonathan Curry, Tax Notes ($):

The IRS’s big push to staff up its processing centers at the peak of the COVID-19 pandemic likely contributed to a spike in return processing slip-ups, according to the Government Accountability Office.

With just days until the 2024 filing season commences, a GAO report released January 25 offers a postmortem on the IRS’s performance during last year’s filing season. On the whole, its performance improved dramatically over the previous few years, but it still fell short on some performance targets and has room to improve, the GAO said.

Ouch:

The GAO attributed part of the new hires’ generally high error rate to the IRS’s big hiring push in its submission processing function in 2022 and beyond, though the watchdog noted that the defect rate was already rising before then.

Double ouch:

The types of errors have “remained generally consistent across the past 3 years,” according to the GAO, which suggests that IRS management isn’t effectively addressing the most common processing issues. Training and improvement efforts are handled separately by each of the agency’s three processing centers, and one result of that is the IRS is missing opportunities to share best practices for reducing error rates.

The GAO report is here.

Meanwhile, at another oversight agency:

TIGTA Uncovers Issues With IRS Oversight of Technology Contracts – Lauren Loricchio, Tax Notes ($):

The IRS has been falling short in its oversight and management of cloud services contracts, according to a new Treasury Inspector General for Tax Administration report.

In an audit released January 25, TIGTA found that the IRS Office of the Chief Procurement Officer lacks a process for tracking the contracts, which makes them hard to find.

The report is here.

 

IRS continues work on Employee Retention Credit; new IRS CI education sessions come as agency urges businesses to review VDP, withdrawal program for questionable claims – IRS:

The Internal Revenue Service renewed calls [Thursday] for businesses to review their eligibility for the Employee Retention Credit as the agency’s law enforcement arm, Criminal Investigation (CI), begins a series of educational sessions for tax professionals…

In the latest effort, CI special agents will host a series of educational sessions geared specifically to tax professionals about ERC at its field offices across the country. The sessions will take place in February and are part of a nationwide initiative to ensure that tax professionals have the latest information about ERC claims and understand ERC eligibility criteria.

Related:

Hundreds of Covid-Era Tax Credit Promoters Are Under IRS Review – Erin Slowey, Bloomberg ($):

The IRS has nine open investigations and 123 civil cases under review concerning promoters of the pandemic-era tax break that allowed thousands of businesses to keep employees on their payrolls.

Separately, IRS’s Criminal Investigations Unit has started 352 probes—about 50 more since the last update in October—with more than $2.9 billion in potentially fraudulent employee retention credits for 2020-2023. Of these investigations, 18 have resulted in federal charges and 11 convictions.

 

IRS set to launch its free tax filing pilot program. Here’s how it will work – Katie Lobosco, CNN:

When tax filing season opens on January 29, some taxpayers will have the option of filing their 2023 federal tax returns with a brand new, government-run system.

Known as Direct File, the free program will be open on a very limited basis – at first, to federal and state government employees in 12 stateswith certain tax situations.

The Internal Revenue Service’s plan is to phase in more taxpayers through February and March to include some private sector workers in those 12 states.

The participating States are:

Direct File will be open to some federal and state workersin 12 states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

Can the IRS’s New Free Tax-Filing Tool Replace TurboTax? We Tried It Out – Richard Rubin and Ashlea Ebeling, Wall Street Journal ($):

Direct File does the job for the most basic of basic tax returns and mostly uses plain language, with links to IRS details. It could be useful for a recent graduate working a first job in New York or for Florida retirees living mainly on Social Security benefits. And it has the potential to scale up to include more complex returns if this year’s pilot program goes well. 

But most taxpayers can’t use Direct File this year. Say you have gig income or take retirement account distributions or live in Illinois or Oregon (or most other states). Say you have even one dollar of dividend or capital gains income, or you obtained health insurance through the Obamacare marketplace. That is all too complicated for tax year 2023 returns.

 

Philly Cheesesteak Shop Owners Get Prison For Tax Evasion – P.J. D’Annunzio, Law360 Tax Authority ($):

The father-son duo behind the famous Tony Luke's cheesesteak restaurant in South Philadelphia were each sentenced to 20 months in prison Thursday for what prosecutors said was a decadelong tax evasion scheme that included keeping false ledgers and paying employees under the table.

U.S. District Judge Gerald McHugh offered the defendants a degree of leniency, departing from the government's recommendation of sentences ranging from two and half to three years' incarceration. In addition to the prison time and three years' supervised release for both Anthony Lucidonio Sr. and his son Nicholas Lucidonio, both men must continue paying the previously ordered restitution of nearly $1.3 million.

I devoured several cheesesteaks at this restaurant. It's basically the best thing about Philly. I will need a moment to process this news. 

 

DOJ Scores Partial Win in FBAR Penalty Fraudulent Transfer Row – Andrew Velarde, Tax Notes ($):

The government has scored a partial victory against a family over fraudulent asset transfers after the IRS proposed $1.1 million in willful foreign bank account reporting penalties, although it needs support for monetary damages.

Magistrate Judge Daniel C. Irick of the U.S. District Court for the Middle District of Florida recommended that the court grant in part the government’s motion for default judgment in United States v. Shiffman. Irick recommended that the court find that the government has established liability but direct it to renew its motion for default judgment to include support for monetary damages against Lillian Shiffman’s daughters, Mary Jane Facciponti and Joann Sorensen.

 

EU Says 9 Members Late To Enact Global Minimum Tax Rules – Kevin Pinner, Law360 Tax Authority ($):

Nine countries that delayed adoption of the 15% global minimum tax haven't complied with rules saying they must order their multinational companies to require a subsidiary in a country with the tax to file a return for the group, the European Commission said Thursday.

Cyprus, Estonia, Greece, Latvia, Lithuania, Malta, Poland, Portugal and Spain haven't complied with Article 50 of the bloc's directive, which allows delayed enactment of the tax provided governments make companies file those returns, according to a commission spokesperson who asked not to be named. The nine countries must finish implementing the European Union minimum tax directive into their national law within two months or risk the matter being referred to the Court of Justice after a final warning, according to infringement decisions the commission, the EU's executive arm, released Thursday.

 

From the “Help Maybe Not Wanted” file:

Nationwide CPA Shortage May Spark Rise Of AI Accountants – Stephen Cooper, Law360 Tax Authority ($):

The nationwide shortage of certified public accountants, stemming from retirements and a decline in accounting majors enrolled in college, may hasten the integration of artificial intelligence into the profession, but seasoned tax experts are needed to lend their expertise and guide the new technology.

The emerging collaboration between generative AI systems and senior tax professionals has the potential to address the CPA shortage while propelling the industry toward greater efficiency, cost savings and adaptability, according to experts in tax, accounting, law and technology.

Benjamin Alarie, a University of Toronto law professor and creator of Blue J, a legal tech firm that uses AI for tax research, said AI has the potential to make accountants wildly more productive and could even increase their value to clients, but it won't replace human intuition and the ability to pose insightful questions.

 

Happy National Fun At Work Day! How does this play for people who work from home?

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About the Author(s)

Jay Heflin Photo

Jay Heflin

Director of Legislative Affairs
Jay brings more than two decades of experience to his job as Director of Tax Legislative Affairs in Eide Bailly’s Washington D.C. office. Jay provides political intelligence and guidance to the firm on the progress of tax legislation on Capitol Hill. Prior to joining the firm, he was a director at the tax lobbying shop Federal Policy Group, LLC, where he tracked tax legislation in Congress and participated in lobbying efforts to amend tax legislation. Before joining the Federal Policy Group, he was a Congressional reporter for several news organizations where his beat was tax policy.