Key Takeaways
- Defiant Tax Court says IRS can't assess some international reporting penalties.
- Decision says overturned Farhy decision was decided correctly.
- Disaster tax bill gets support in lame-duck session.
- Tax policy issues in the incoming administration.
- 12 ways Trump could improve the tax code.
- Arizona challenge to rebate tax dismissed.
- IRS underpayment interest rates come down for 2025 first quarter.
- Bad day for Bob's Tax Service.
- National Have a Bad Day Day.
Tax Court Reaffirms Holding in Assessable Penalty Case - Kristen Parillo, Tax Notes ($):
In a November 18 reviewed opinion in Mukhi v. Commissioner, the Tax Court rejected an IRS motion to reverse its holding from an April 8 opinion in Mukhi (162 T.C. No. 8) that the IRS lacks statutory authority to assess penalties under section 6038(b)(1).
Tax Court Won't Reverse On Foreign Reporting Penalties - Anna Scott Farrell, Law360 Tax Authority ($):
The court wasn't bound to reconsider its decision, at all, it said. But it decided to grant the IRS' request given the "unusual circumstances" in which the D.C. Circuit's ruling called into question the basis of its ruling, it said. All but one member of the Tax Court reviewed Monday's decision and only one member, Judge Joseph W. Nega, disagreed with it.
Ben Peeler, Director of Eide Bailly's IRS Controversy practice, comments:
Farhy was the Tax Court case reaching the same result that was overturned by the D.C. Circuit Court of Appeals.
Lame Duck Update
Plan to Attach Disaster Tax Relief to Aid Bill Gains Support - Cady Stanton, Tax Notes ($):
Senate Finance Committee Chair Ron Wyden, D-Ore., said his colleagues have been engaged in conversations about disaster tax relief and that he hopes they will be as eager as he is to address emergency disaster recovery funding in the coming weeks. The Biden administration asked Congress November 18 for nearly $100 billion in emergency funding to help with natural disaster recovery, including funding for 16 federal agencies.
News from the Incoming Administration
How Trump and Republicans could pay for new tax cuts - Tobias Burns, The Hill:
A wholesale repeal of that law’s climate provisions would generate approximately $369 billion. But that’s unlikely because the IRA is popular in many Republican districts across the country.
Tariff Retaliation Threatens American Pockets - Michael Smith, Tax Notes ($):
...
Clausing [Kimberly Clausing, of UCLA Law School], who served as Treasury deputy assistant secretary for tax analysis during the Biden administration, said tariffs will not be able to bring in the required revenue to offset the TCJA. With a 10 percent tariff on all imports (and 50 percent on China), the United States would only receive around $2.7 trillion in revenue over the next 10 years, according to Clausing.
Trump allies eye overhauling Medicaid, food stamps in tax legislation - Jacob Bogage, Jeff Stein, and Dan Diamond, Washington Post:
Among the options under discussion by GOP lawmakers and aides are new work requirements and spending caps for the programs, according to seven people familiar with the talks, many of whom spoke on the condition of anonymity because they were not authorized to speak publicly. Those conversations have included some economic officials on Trump’s transition team, the people said.
12 Ways for Trump to Improve the Tax Code and Make His Tax Cuts Permanent - Adam Michel, Liberty Taxed:
IRS News
IRS Sinks Arizona's Challenge To Federal Tax On Rebates - Paul Williams, Law360 Tax Authority ($). "A federal judge dismissed Arizona's challenge to the Internal Revenue Service's position that rebates the state paid to taxpayers with in 2023 were subject to federal tax, saying the state lacked standing to bring the case."
IRS announces underpayment, overpayment rates for 2025 First Quarter - Bailey Finney, Eide Bailly:
• 7% for overpayments [6% in the case of a corporation];
• 4.5% for the portion of a corporate overpayment exceeding $10,000;
• 7% for underpayments; and
• 9% for large corporate underpayments.
The rates are down 1% from fourth quarter 2024.
IRS to Beef Up Artificial Intelligence Oversight Structure - Benjamin Valdez, Tax Notes ($):
...
In its report, dated November 12, TIGTA advised the IRS to speed up that work, cautioning that AI could “amplify existing biases and concerns related to civil liberties, ethics, and social disparities.” Observers have also urged the IRS to be more transparent in its use of AI, particularly regarding the data it uses to train its algorithms.
Drilling down on Direct File’s popularity - Bernie Becker, Politico:
The IRS found that nine in 10 users called the program either excellent or above average — with a full two-thirds giving it the best possible mark. Only 2 percent called their experience either below average or very poor.
Musk’s ‘DOGE’ commission eyes new app for Americans to file taxes - Jeff Stein, Washington Post. "Still, taxexperts point out that the challenge in creating a mobile app for taxpayers rests not in creating software, but in addressing the complexity of the tax code."
Blogs and Bits
Don’t need your RMD? Give up to $105,000 of it as a QCD - Kay Bell, Don't Mess With Taxes. "However, there are some special considerations with a donated RMD, known as a Qualified Charitable Distribution, or QCD."
Tax Court Requires Adjustment of Basis of a Partnership Interest to Include Consideration of Deductions Claimed in Prior Years Closed to Adjustment That Were in Excess of Basis - Ed Zollars, Current Federal Tax Developments. "In the matter of Surk LLC v. Commissioner, the Tax Court was presented with the question of basis computations related to an interest in a partnership. In a tax year that is now closed for assessment, the taxpayer mistakenly deducted losses that exceeded the limitation set forth in Internal Revenue Code Section 704(d). The central issue is whether the taxpayer should reduce its basis in subsequent years by the amount of those disallowed losses or should compute the basis by treating those losses as if they were never deducted."
No Theft Loss Allowed for Taxpayer's "Bad Business Decisions" - Parker Tax Pro Library. "The Tax Court held that a taxpayer could not deduct as a theft loss under Code Sec. 165 legal fees he incurred after he was named as a defendant in lawsuits brought by investors in a company he managed and invested in, which later turned out to be a Ponzi scheme."
How the Payroll Tax Base Has Changed Over Time - Alex Durante, Tax Policy Blog. "One underappreciated contributor to the decline in how much wage income faces the payroll tax is the rise in employer-provided fringe benefits, the largest of which is health insurance. Employer-provided health insurance is tax deductible, and thus faces neither the income nor payroll tax."
Tax Crime Watch, Bob Edition
St. Louis man sentenced to 46 months for preparing false tax returns - IRS (defendant name omitted, emphasis added):
Defendant pleaded guilty in June to four counts of aiding in the preparation of a fraudulent tax return and admitted preparing at least 34 false tax returns in his home office, Bob’s Tax Service...
Defendant prepared returns for clients that contained false or fraudulent information including medical expenses, charitable contributions, personal property rental expenses, non-business bad debt and other deductions. The government alleged that Defendant caused a total loss to the Internal Revenue Service of an estimated $2.5 million.
The moral? A preparer might always get bigger refunds because he is cheating. It's reasonable to assume that the IRS has the Bob's Tax Service client list and is working through it. They can take their time, as preparer fraud keeps the client's returns open for examination forever.
What day is it?
It's National Have a Bad Day Day. I suppose if you have to have one, you might as well make a holiday out of it.
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