Tax News & Views SALT Cap Gumdrop Roundup

Tax-Cut Valentine for Married Couples Falls Short in House - Richard Rubin, Wall Street Journal:

The House on Wednesday rejected the smallest proposed change yet to the $10,000 cap on the state and local tax, or SALT, deduction. The bill from Rep. Mike Lawler (R., N.Y.) would double the cap for married couples to $20,000, only for tax year 2023 and only for those making less than $500,000. 

But are we really safe from a change that would change 2023 tax rules for millions of individuals in the middle of 2023 tax filing season? It appears so:

Rule for ‘SALT’ bill goes down, likely sealing its fate - Caitlin Reilly, Roll Call:

It’s unclear whether there’s another pathway forward for the legislation that New York and other blue-state Republicans demanded after the $79 billion family and business tax cut package omitted SALT relief. The House passed the bigger package by overwhelming margins last month.

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Even had the rule been adopted, the bill’s chances on the floor were doubtful. Providing SALT relief tends to appeal most to lawmakers from high-cost, high-tax states, garnering less sympathy from members from low-tax, often redder states.

House Kills SALT Marriage Penalty Bill in Procedural Vote - Cady Stanton, Tax Notes ($). "The rule for H.R. 7160 was attached to that of H. Res. 987, which denounces the Biden administration’s energy policies. That politicized measure was a poison pill for Democrats, including those in high-tax states who themselves support raising the SALT cap."

More coverage:

House blocks bill to expand state and local tax deduction - Jacob Bogage, Washington Post

Vulnerable Republicans from high-tax states strike out again on SALT - Benjamin Guggenheim, Politico

House Blocks Retroactive Bill Which Would Have Doubled The SALT Cap Deduction - Kelly Phillips Erb, Forbes

IRS Commissioner Heads to Capitol Hill

All Eyes on Werfel to Justify IRS’s 1099-K Nonenforcement - Jonathan Curry, Tax Notes ($):

The IRS commissioner is being hauled in front of Congress to defend the IRS’s decisions to kick the can down the road on several recent legislative mandates. Coming up with satisfying answers won’t be easy.

The IRS and Treasury have opted to postpone enforcement of a new tax law provision several times in recent years. Broker reporting requirements for digital asset transactions were, by law, supposed to go into effect in 2023, but the IRS and Treasury have proposed waiting until 2026. Congress also intended the new $600 threshold for information reporting on Form 1099-K to take effect for the 2022 tax year, but the IRS has delayed that twice.

I.R.S. Commissioner Aims to Show Progress Amid Threats of Budget Cuts - Alan Rappeport, New York Times:

For Mr. Werfel, the face-off is an opportunity to explain why even skeptics would benefit from a well-funded I.R.S.

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Inflation Reduction Act of 2022, and that money was expected to help the agency crack down on tax cheats and modernize its antiquated technology. As part of an agreement to raise the debt limit last year, Democrats went along with Republicans’ demands to claw back $20 billion of those funds. And Republican lawmakers have in recent months been eyeing additional cuts amid negotiations related to paying for other policies.

Partisan rift on display with Werfel at W&M today - Laura Weiss, Punchbowl News.

Republicans are expected to raise some familiar oversight issues. For one, after the sentencing of a former IRS contractor for disclosing private taxpayer information, IRS leaks are almost certain to be discussed. Republicans are expected to raise some familiar oversight issues. For one, after the sentencing of a former IRS contractor for disclosing private taxpayer information, IRS leaks are almost certain to be discussed.

The 1099-K issue could also ignite some fireworks. Republicans oppose Democrats’ 2021 change that lowered the tax reporting threshold for online sales and gig work. They’ve objected to the IRS decision to delay the new requirements, arguing it’s an attempt to dodge the implications of Democrats’ new law.

No Gotcha, Gotcha.

FinCEN Head Vows No 'Gotcha' Enforcement Of New Rules - Sarah Jarvis, Law360 Tax Authority ($):

The director of the U.S. Treasury Department's Financial Crimes Enforcement Network said during a Wednesday congressional hearing that the agency is not pursuing "gotcha" enforcement when it comes to companies complying with new rules for reporting their beneficial ownership information.

Andrea Gacki told members of the House Financial Services Committee that FinCEN will look for entities that are willfully evading the requirements of the new rules, as she faced questioning and criticism from representatives on the compliance burdens of the requirements that went into effect with the new year.

These rules, which require many small or inactive entitites to report their beneficial owners to FinCEN, took effect last month.

Related: Corporate Transparency Act Mandates Stricter Federal Disclosures

First Purely Tax Crypto Indictment Signals More On Tap - Kat Lucero, Law360 Tax Authority ($):

"This feels like the beginning of a groundswell," said Andie Kramer, a Chicago-based attorney with her own tax law practice.

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Nevertheless, Chicago-based attorney Kramer said, the latest cryptocurrency indictment should be another wake-up call for people and businesses to conduct thorough due diligence in reporting their digital asset transactions.

"I'm sure that there are going to be people who thought that they were going to be able to just coast and pretend that they didn't know the rules" whowill make adjustments, she said. "I'd be expecting a lot of amended Form 1040 tax returns from just this."

Link: Tax News & Views coverage.

Blogs and bits

8 tips to make first-time tax return filing easier - Kay Bell, Don't Mess With Taxes. "1. Get organized. This is a habit that will serve you well beyond tax season. For this particular task, you definitely need to have all the documents you need to file at hand. The key documents here are your wage and other income statements, such as your Form W-2 (or multiple ones if you had several salary paying jobs last year), and any 1099 forms reporting things as gig earnings."

Innocent Spouse Claim Nixed by Significant Benefit to Taxpayer from Underpayments - Parker Tax Pro Library. "The Tax Court held that a taxpayer was not entitled to equitable relief from joint and several liability under Code Sec. 6015(f) because she significantly benefited from the underpayments of income tax underlying the case. The court found that the unpaid tax liabilities were at least partly attributable to early retirement distributions that were used to make mortgage payments on properties the taxpayer continued to own and that the taxpayer continued spending for a lavish lifestyle despite knowing about the unpaid liabilities."

A Reminder for Charities and Officers in Charities - Russ Fox, Taxable Talk. "It seems quite timely to remind everyone that one of the things charities cannot do is endorse a candidate."

Related: How to Protect your Tax-Exempt Status.

Should Congress Repeal Retirement Savings Tax Subsidies To Shore Up Social Security? - Howard Gleckman, TaxVox. "Remember, today Social Security benefits are paid with income from payroll taxes, plus interest on those bonds. When that income exceeds benefit payments, Social Security payroll taxes effectively help fund other operations of the federal government. When benefits exceed that income, the government either must use general tax revenues (or borrow more) to help pay benefits, or the benefits will have to be reduced. Neither is desirable but that’s what will happen in about a decade."

International Tax Corner

Navigating the Future of International Taxation: A New Report - Adam Michel, Liberty Taxed:

The OECD’s proposal aims to disproportionately burden US firms with tax increases using a Two‐Pillar framework. Pillar One aims to change where some companies pay taxes, selectively moving toward a system based on customer location instead of business activities. Pillar Two includes a series of new rules that enforce a global minimum tax of 15 percent.

The OECD has strayed far from its original mission of reducing international business taxes. Today’s proposals resemble an international tax cartel more focused on extracting revenues from America’s leading firms than fostering a conducive environment for global trade and economic expansion.

IRS Form 8621: Understanding PFIC taxation - Olivier Wagner, 1040Abroad. "A Passive Foreign Investment Company (PFIC) is a foreign corporation that meets either the income or asset test specified by the IRS. Specifically, if 75% or more of the corporation’s gross income is passive income, or if at least 50% of the corporation’s assets produce or are held to produce passive income, it is considered a PFIC. Passive income includes dividends, interest, rents, royalties, and certain other types of income."

Moore Thoughts on Profit-Shifting - Alex Parker, Things of Caesar. "The trend in international taxation, including the Pillar Two minimum tax as well as the GILTI tax, is towards formulaic determinations of physical factors like tangible assets and workforce. Those seem easier to define than concepts like royalties or interest, although certainly they can still raise questions. It’s also somewhat less precise – passive income is at least identified as passive, while the absence of a significant workforce can be due to a lot of factors."

Sixth Circuit Affirms Summary Judgment on FBAR Willful Penalty on Conduct Objectively Reckless - Jack Townsend, Federal Tax Crimes. The post quotes the circuit court opinion: "The undisputed facts show that Kelly knew about his foreign account, undertook considerable efforts to keep it secret, did not consult with any professionals about his tax obligations, and then failed to ensure that the FBARs were submitted after learning he had not met these reporting requirements in the past. Given all of this, Kelly’s failure to satisfy his FBAR requirements for the years 2013, 2014, and 2015 was a willful violation of the Bank Secrecy Act."

Tax Foundation Europe Launches Website and Prepares Brussels Office - Sarah Wilbur, Tax Policy Blog. "The landscape of tax policy is changing—and we at the Tax Foundation are changing with it. As the implementation of the global minimum tax and the digital and green transitions unfold, European policymakers must strive for principled, pro-growth tax policy. This is why our organization is expanding its reach and is excited to announce the launch of Tax Foundation Europe. With a physical presence in Brussels, we can continue to have feet on the ground in the policy stronghold for EU institutions."

Related: Eide Bailly International Tax Services

Tax in the Courts

Ex-IRS Contractor Appeals 5-Year Sentence For Tax Info Leak - Anna Scott Farrell, Law360 Tax Authority ($):

A former IRS contractor sentenced to five years in prison for stealing and leaking former President Donald Trump's tax returns — and those of thousands of other wealthy people — to the media told a D.C. federal court he will appeal his final judgment.

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Littlejohn's punishment for what federal prosecutors said in January was an "unparalleled" crime in the history of the Internal Revenue Service, has been controversial. Prosecutors said Littlejohn deserved the maximum sentence because he planned to steal Trump's returns, and he used specialized technical skills to upload records from IRS servers to a private website while avoiding detection. Also, victims whose tax returns were stolen but not yet made public "have no assurance that their personal information will not be the subject of a news article tomorrow, next week, next month, or even next year," prosecutors said.'

What Day Is It?

What to feed your hippo. Today is both National Gumdrop Day and World Hippo Day.