Tax News & Views Pasta-in-Compromise Roundup

Bigger IRS Role Urged to Protect Taxpayers From OIC ‘Mills’ - Lauren Loricchio, Tax Notes ($):

The advertisements proclaim you can settle IRS tax debt for “pennies on the dollar.”

While taxpayers can resolve tax debt for less than the full amount owed through the IRS’s offer in compromise program, settling tax debt for pennies on the dollar is unlikely.

Lawyers say some tax resolution companies use aggressive sales tactics to lure consumers with promises of settling tax debt at dubiously small amounts. Better messaging and guidance from the IRS could help address some of the issues consumers face when settling tax debt with the agency, according to some tax professionals.

The article has some awful stories, including a taxpayer who paid an offer-in-compromise outfit $8,000 to settle a $10,000 tax debt. Believe it or not, just because it's on sports talk radio or late night TV doesn't mean it works.

IRS tax settlements are a real thing, but they aren't available to everyone. The IRS isn't going to compromise a tax debt if they think they can get the whole thing through liens and levies.

Tax veterans see protracted standoff over expiring breaks - Caitlin Reilly, Roll Call:

While 2025 is being hailed as “Tax Super Bowl” — or, in some corners, “Tax Armageddon” — the growing possibility of divided government in Washington next year has some predicting the tax fight could stretch into 2026 and beyond.

Deep ideological differences could make striking a long-term agreement on major expiring tax provisions difficult if control of the House, Senate and White House is split among Democrats and Republicans next year. That raises the odds of a short-term extension, although even that comes with challenges, leading some to speculate Congress could slip past the Dec. 31, 2025, deadline.

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If Congress doesn’t act to replace or extend expiring provisions from the 2017 tax law by the end of next year, households of all incomes would see their taxes increase. They wouldn’t have to file returns reflecting higher tax bills until early 2027, but millions would likely feel the pain sooner, when employers update their paycheck withholding in early 2026 to reflect the changes.

AICPA Highlights Little-Known Crypto Safe Harbor Guidance - Mary Katherine Browne, Tax Notes ($):

The government needs to bring more awareness and clarity to its guidance for taxpayers on allocating basis in digital assets before the 2025 deadline, according to the American Institute of CPAs.

“The January 1, 2025 deadline for making a reasonable allocation of unused basis of digital assets is fast approaching, and taxpayers and tax practitioners need additional guidance to clarify the scope and application of Rev. Proc. 2024-28,” the AICPA said in an October 14 letter.

Related: Rev. Proc. 2024-28

Tax and Politics

Tax History: Punctilious Presidents and Their Voluntary Tax Overpayments - Joseph Thorndike, Tax Notes ($):

It’s been 12 long years since presidential candidate Mitt Romney caved to relentless political pressure and released his 2011 tax return. It was the final chapter in Romney’s long agony over his personal tax disclosure. But it was also a high point in punctilious taxpaying by U.S. presidents and presidential candidates. (Prior coverage: Tax Notes, Oct. 1, 2012, p. 21.)

This year, former President Trump has continued to ignore the erstwhile tradition of voluntary tax disclosure by sitting presidents and presidential candidates. For nearly 40 years, all White House aspirants and occupants made their tax returns available for public inspection. But that bipartisan tradition lies in tatters, the victim, primarily, of Trump’s refusal to participate. But it was also damaged by Democratic lawmakers and their insistence on a forced disclosure of Trump’s returns. Voluntary disclosure worked only because it was bipartisan; today, it has become yet another victim of America’s political polarization.

International Terminal

Eide Bailly's International Tax Team and our affiliates at HLB, the Global Advisory and Accounting Network stand ready to help with your worldwide tax planning and compliance needs.

Italy and France Seek to Hike, Broaden Digital Service Taxes - Lauren Vella and Shaun Courtney, Bloomberg ($):

Italy and France proposed changes to their digital services taxes in their budget processes, potentially increasing the burden on digital companies amid a stalled project at the OECD that would eliminate the use of the levy.

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The moves will most likely anger the US government—especially congressional lawmakers—who say DSTs unfairly target US companies. The levies impact tech giants like Google Inc. , Amazon.com Inc., Meta Platforms Inc., Apple Inc., and Microsoft Corp., with the shorthand name for France’s tax — GAFAM — being named after the companies and Facebook, Meta’s flagship platform.

Canadian Businesses Blame Tax Policies for Chilling Investments - James Munson, Bloomberg ($). "The survey found 32% of executives were considering moving their investments or businesses to jurisdictions with better tax conditions, including the US. It also showed that 82% of businesses surveyed were expanding or pursuing acquisitions outside of Canada."

Reeves expected to focus rise in capital gains tax on share sales - current progress 0%
George Parker and Sam Fleming, Financial Times:

Chancellor Rachel Reeves is likely to target her expected increase in UK capital gains tax on the sale of shares, rather than second homes, according to former Treasury officials. They said the 24 per cent CGT rate for property sales was already set at a level deemed to maximise revenues for the Treasury.

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The Times reported the 20 per cent rate could rise by “several percentage points”, raising a sum in the low billions of pounds.

That would be far less than some of the predictions of much bigger CGT increases, but HMRC modelling suggests that a big rise in the levy could lead to less revenues as wealthy individuals changed their behaviour.

France Hits Big Firms, Wealthy to Trim ‘Colossal’ Debt Pile - William Horobin, Ania Nussbaum, and Samy Adghirni, Bloomberg via Yahoo News:

The French government unveiled a budget for next year that aims to deliver a €60.6 billion ($66.2 billion) remedy for its creaking public finances and rebuild investor confidence even as it risks eviction by a hostile parliament.

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One of the president’s signature policies to spur investment was to cut the corporate tax rate to 25% from 33.3%. The temporary measures in the budget bill would see that rise next year to the equivalent of 30% for companies with more than €1 billion of annual revenue and 36% for those with over €3 billion of revenue. The rates would drop to 28% and 30% respectively the following year.

IRS Tax Records, Foreign Assets: When (And What) To Keep Or Toss - Virginia La Torre Jeker, US Tax Talk. "Those with overseas financial interests must pay particular attention for several reasons, including expanded statutes of limitation which can permit an indefinite IRS audit timeline and practical problems in retrieving records from international institutions which can often be more challenging. Careful record retention is critical for all taxpayers, but those with foreign assets are more vulnerable and should take extra care to avoid future headaches."

Trump’s Right, It’s Time to Repeal Worldwide Individual Taxation - Adam Michel, Liberty Taxed. "The United States stands alone in applying the entire domestic tax regime to all citizens, permanent residents, and tax residents regardless of where they live and work."

Americans Abroad Need Compliance Cost Relief - Alan Cole, Tax Policy Blog. Americans Abroad Need Compliance Cost Relief - Alan Cole, Tax Policy Blog. "For most, the burden is not the payment of tax: it is the filing of tax. Most Americans abroad likely owe nothing, or relatively little. However, the rules are different from, and more complicated than, the rules for Americans living in the US. Furthermore, as those rules reflect relatively few people, there are fewer resources—such as software or tax professionals—available to help them file."

Blogs and Bits

Missed the tax filing extension deadline? Penalty and interest charges are growing - Kay Bell, Don't Mess With Taxes:

The late payment penalty is 0.5 percent of your unpaid balance per month or partial month, capped at 25 percent.

The failure-to-file penalty is even steeper. It’s 5 percent of unpaid taxes per month or partial month, up to 25 percent.

IRS Issues Applicable Federal Rates (AFR) for November 2024 - Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during November 2024 is 3.31%"

No Deduction Allowed for S Corp's Payments to Government Agency - Parker Tax Pro Library. "The Office of Chief Counsel was asked whether a taxpayer was permitted to deduct (1) amounts it paid to a government agency under a court order for the taxpayer's violation of law and (2) amounts representing debt issued to the taxpayer's customers that was forgiven by the taxpayer's wholly owned S corporation as required by the court order.

FinCEN Announced That Victims of Hurricane Milton have until May 1, 2025 to File Their 2023 FBARs - Ronald Marini, The Tax Times. "FBAR filings for calendar year 2023 would otherwise be due on or before October 15, 2024."

Tax planning gone badly wrong

2 CPAs Get 20 Months For Roles In $1.3B Tax Shelter Scheme - Rae Ann Varona, Law360 Tax Authority. "Two certified public accountants were each sentenced in Georgia federal court to nearly two years in prison for selling tens of millions of dollars in false tax deductions to their rich clients as part of a $1.3 billion tax fraud scheme, the U.S. Department of Justice announced Wednesday."

From the Department of Justice Press Release (Defendant names omitted, emphasis added):

The scheme entailed the creation of partnerships that would purchase land and land-owning companies and then donate conservation easements over that land or the land itself. Appraisers would value the land and the partnerships would then claim a charitable contribution tax deduction based on the appraised value of the conservation easement, resulting in tax deductions flowing to the wealthy clients who purchased units in the partnership. Many of these clients joined the tax shelters after the donation of the interest in land and after the close of the relevant tax year.

Conservation easements can be a legitimate deduction. These syndicated conservation easement shelters have fared poorly on exam and in the courts.

Defendants both knew that, contrary to law, these syndicated conservation easement tax shelters lacked economic substance and that their wealthy clients participated in these sham investments only to obtain a tax deduction and received only a tax benefit for their participation in the tax shelters. For example, a client who purchased units in a partnership had to “vote” ostensibly on what to do with the partnership’s land. However, Defendants knew that the “vote” held by the partnerships each year was just optics and that the land invariably would be donated largely as a conservation easement. Defendants also knowingly instructed and caused their clients to falsely backdate documents — such as subscription agreements and checks — related to the illegal tax shelters.

In addition to their prison sentences, U.S. District Court Judge Timothy C. Batten Sr. for the Northern District of Georgia ordered Defendant 1 to serve two years of supervised release and to pay $4,878,990.90 in restitution. Judge Batten ordered Defendant 2 to serve three years of supervised release, to perform 120 hours of community service and to pay $2,386,816.04 in restitution.

Backdating documents is a red flag. If a tax "plan" requires it, you need to talk to a different planner.

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Tax News & Views Pasta-in-Compromise Roundup

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Joe B. Kristan, CPA