Tax News & Views Shutdown Zone Roundup

Jay Heflin
February 26, 2024

Key Takeaways

  • Lawmakers focus on spending, will taxes enter the picture
  • Ledd replacement program is not income
  • EO filing extension for disasters
  • Crackdown on jet use may not be a money raiser
  • Court actions
  • The pros and cons for legalizing weed

Welcome to shutdown week... - Jake Sherman, John Bresnahan and Andrew Desiderio, Punchbowl News ($):

The Senate is back today from the Presidents Day recess with the House returning Wednesday.

Also welcome back to another “Looming Government Shutdown” week because, yes, nearly five months into FY 2024, Congress still hasn’t approved any of the annual spending bills. A partial government shutdown will occur at midnight Friday if lawmakers don’t act, with a full government shutdown possible on March 8.

What does funding the Federal government have to do with tax legislation, you ask? Possibly everything. Funding the Federal government is (or should be) lawmakers’ top priority. The tax bill that passed the House last month, but has yet to pass the Senate, could be attached to spending legislation, thereby ensuring the enactment of the tax bill.

Here’s the problem: There might not be enough support to attach the tax bill to spending legislation. In fact, if the tax bill is attached it could be a “poison pill” and cause the spending legislation to not pass Congress, thereby causing a partial shutdown of the Federal government.

What to look for: Congress must pass spending legislation by March 1st. It then must pass another spending bill by March 8th. Tax folks in D.C. are watching to see if the House-passed tax bill gets attached to either spending measure. If it doesn't, enactment of the tax bill could be in trouble.

Also, irrespective of the tax discussion, spending talks are not going well:

'Chaotic' US Congress faces whirlwind of shutdown, impeachment, border fights – David Morgan, Reuters:

The U.S. Congress lurches into a new week of political chaos on Monday, as lawmakers struggle to avoid a partial government shutdown in just five days, while pushing for an election-year trial of President Joe Biden's top border official.

The Republican-controlled House of Representatives is also grasping for a way forward on vital U.S. aid to Ukraine, Israel and Taiwan, and plans to hear closed-door testimony from Biden's son, Hunter Biden, in an impeachment probe that has failed so far to turn up evidence of wrongdoing by the president.


IRS Corner

Replacement of Lead Service Lines under Certain Governmental Programs – IRS:

The Department of the Treasury (Treasury Department) and Internal Revenue Service (IRS) have considered the Federal income tax treatment of the lead service line replacement programs described above.

In both scenarios, the public water system controls all or virtually all aspects of the replacement work. While there are factual variations, the Treasury Department and the IRS have determined that these variations do not warrant a different outcome under the Federal tax laws. Accordingly, the replacement of lead service lines under the programs described above does not result in income to the residential property owners under § 61 of the Internal Revenue Code.


IRS Filing Extension Available for EOs in Disaster Areas – Fred Stokeld, Tax Notes ($):

Calendar-year tax-exempt organizations located in federally declared disaster areas may receive more time to file their IRS information returns.

The due date for filing Form 990 series returns is May 15.

However, calendar-year exempt organizations in federally declared disaster areas have until June 17 to file, the IRS said in the February 22 edition of its EO Update.


Corporate Jet Industry Pushes Back on IRS Audit Campaign - Erin Schilling and Erin Slowey, Bloomberg ($). “Most companies that use jets in business spend a lot to make sure they comply with the tax code, making the IRS’s warning shot last week about stepped-up auditing of their use unlikely to touch most of those traveling on corporate aircraft, tax practitioners said.”


Court Side

'Empire' Star Owes Income Tax After Threatening DOJ Atty – Anna Scott Farrell, Law360 Tax Authority ($):

"Empire" actor Terrence Howard owes more than $900,000 in federal income taxes under a default judgment by a Pennsylvania federal judge that follows a monthslong search by the government to notify the actor of the suit, during which he threatened a government attorney.

On Thursday, U.S. District Judge John F. Murphy granted the government's request for the ruling against Howard of $903,000 following a hearing during which an attorney for the U.S. Department of Justice said authorities investigated voicemail messages Howard left her. Those messages, detailed in court documents, included Howard railing against the injustices of taxation and threatening to "bring [her] down."


Venture Capitalist Strikes Out Suing Attorney, IRS, Prosecutors – Andrew Velarde, Tax Notes ($):

A venture capitalist alleging wrongful conviction for filing false returns has come up far short in his suit against the government, its employees, and his attorney for RICO violations, malicious prosecution, and tortious interference.

In Quiel v. United States, the U.S. District Court for the District of Arizona on February 22 granted motions to dismiss from the government, two prosecutors, and an IRS agent previously connected with a criminal trial against Michael Quiel. It also denied Quiel’s motion for default judgment against his previous attorney, Christopher Rusch, and ordered he show cause why the entire case should not be dismissed.


IRS Properly Levied Ministry Account for Bishop’s Tax Liability - John Woolley, Bloomberg ($):

The IRS’s levy on a bank account owned by a religious organization to satisfy its bishop’s tax debt was upheld by an Arizona federal judge who likened the bishop’s relationship with her ministry to that of Superman and Clark Kent.

Elizabeth and Fredric Gardner exercised “substantial control” over assets owned by the Society of Apostolic Church Ministries, a religious group for which Elizabeth is the bishop and corporation sole, the US District Court for the District of Arizona said. For that reason, the IRS acted lawfully by levying about $73,300 from an SACM bank account over the Gardners’ unpaid liabilities for tax years 2002 through 2004, the court said.


FTC Rips H&R Block's 'Deceptive' Marketing, 'Coercive' Ploys – Bonnie Eslinger, Law360 Tax Authority ($):

The Federal Trade Commission filed an administrative complaint against H&R Block claiming the tax preparation company deceptively marketed some products as "free" and "coerced" people to pay for pricier products, the government agency announced Friday.

In the complaint, FTC staff alleges that H&R Block's online tax filing website pushes some consumers into unnecessary higher-cost products geared for filers with more complicated tax situations.


International Zone

Bahamas Plans To Introduce Domestic Top-Up Tax By May – Jack McLoone, Law360 Tax Authority ($):

The Bahamian government plans to introduce a proposal implementing one of the OECD's corporate global minimum tax mechanisms by May, which could generate more than $140 million a year in new revenue, the country's prime minister said.

The Bahamas would "unlock a new and substantial revenue stream" if it enacts the qualified domestic minimum top-up tax, imposing a 15% minimum tax rate on multinational corporations with an average annual revenue of more than €750 million ($812 million), Prime Minister Philip Edward Davis said in an announcementWednesday. The minimum tax plan is part of the Organization for Economic Cooperation and Development's fight against tax base erosion and profit shifting.


Pillar 2 Taxes Are Eligible for Foreign Tax Credits – Lee Shepard, Tax Notes ($):

Politically, there should be an FTC [foreign tax credit] for all pillar 2 taxes because Treasury botched negotiations with the Europeans. We don’t need to argue the politics. Pillar 2 taxes are eligible for FTC, by law, although claiming credit for them at the U.S. parent level may be technically impossible.

Indeed, Europeans may have shot themselves in the foot by creating QDMTT for low-tax countries, which stand to cut into the European expected revenues. But Treasury went along with — indeed encouraged — BEPS 2.0 as cover for raising corporate rates. That increase never happened, even when the president’s party controlled both congressional chambers. Afterward, Treasury failed to persuade or force the Europeans to accept GILTI as a full offset in their minimum tax plans. That’s inexcusable and could have been stopped with one phone call.


From the "Pot Luck" file

Pot Rescheduling Could Spur Inventory Accounting Change – David van den Berg, Law360 Tax Authority ($). “If cannabis is reclassified to a lower tier under the Controlled Substances Act, it would unlock significant tax benefits for cannabis companies, such as allowing them to take standard business deductions, but they may need to account for their inventories differently to take full advantage.”


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About the Author(s)

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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.