Tax News & Views Tax Bill Passes House and Dark Chocolate Roundup

House Passes Tax Cuts for Businesses, Low-Income Families - Richard Rubin, Wall Street Journal:

The 357-70 vote late Wednesday pleased many business groups, antiabortion conservatives and progressive antipoverty advocates. 

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The $78 billion Smith-Wyden agreement would revive several tax provisions that had been curtailed by Republicans’ 2017 tax law. It would let businesses deduct domestic research costs immediately instead of over five years, reversing a change that has been hitting the cash flow of companies such as Lockheed Martin and causing pain at smaller businesses. The bill would also expand deductions for equipment purchases and interest costs. 

It would expand the child tax credit, giving more money to low-income families that don’t pay income taxes, particularly those with multiple children. Although the tax-filing season has already started, the Internal Revenue Service could send families additional refunds for tax year 2023 within weeks if the bill becomes law. 

Key provisions of the bill:

• Restoration of full expensing of domestic research costs, retroactive (by election) to 2022. This expires after 2025.
• Restoration of 100% bonus depreciation, retroactive to 2023, but expiring after 2025.
• Restoration of pre-2022 base for limits to business interest (generally, EBITDA), with elective retroactive application. The base flips back to taxable income after 2025.
• An enhanced child tax credit
• The end of the Employee Retention Tax Credit for claims filed after January 31, 2024.

Link: HR  7024

Big House Tax Vote Could Lead Senate to Skip Usual 'Razzmatazz' - Cady Stanton and Doug Sword, Tax Notes: ($):

The tax package arrives in the Senate facing steadfast demands from Republicans for the opportunity to change its details, possibly slowing down its progress through the chamber. Congress has already blown past an initial deadline to have the bill done by the start of filing season, and the Senate begins a two-week recess February 12, leaving only a week to get the bill done before the end of February.

But the strength of the bipartisan vote could at least lead to the Senate voting on procedural matters and perhaps on passage during the week of February 5. However, if the package gets hung up as stand-alone legislation, there is likely to be at least one spending-related bill that could turn into a tax vehicle in late February.

The tax bill is about to hit a Senate roadblock - Laura Weiss, Jake Sherman, and Andrew Desiderio, Punchbowl News. 

The House passed a bipartisan tax package to expand the child tax credit and revive business tax breaks, putting up an eye-popping 357-70 tally Wednesday night. Bipartisanship — it’s not dead!

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But now watch what happens. This popular bipartisan tax bill is going to get caught up in a Senate legislative logjam over the next few weeks...

Keep in mind: After next week, the Senate is scheduled to leave town for two weeks during the Presidents’ Day recess. In fact, the House and Senate will be in session at the same time for just three days this month, according to the current schedule.

Jay Heflin will have more on the bill's prospects in his Capitol Hill Roundup later today.

House to Vote on SALT Cap After New York Republican Pressure - Samantha Handler and Erik Wasson, Bloomberg:

The New Yorkers received a commitment from House leadership for a vote on legislation that would raise the $10,000 cap for married filers to $20,000, the sources said. New York Republicans had been demanding a SALT cap provision be included in the $78 billion tax package scheduled for a vote Wednesday evening, but were unsuccessful.

The bill likely faces a difficult path to passage without being part of a larger tax package. Timing of the vote, the years the legislation would cover, and how the bill would be offset are details still being worked out, a third person familiar with discussions said. When the vote will come to the floor depends on New Yorkers getting conference buy-in for the bill, the source said.

Prospect for passage of a SALT cap increase are seen as bleak.

The child tax credit may expand. Here’s what it means for you. - Jeff Stein, Washington Pos:

Tax Enforcement Update

Tax Court Cases Stall as IRS Enforcement Grows, Vacancies Linger - Chris Cioffi, Bloomberg ($):

Vacancies on the US Tax Court doubled in the last year, leaving the court with fewer confirmed judges and no picks by President Joe Biden to handle a bevy of cases expected to grow as the IRS amps up enforcement.

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The overall number of cases filed at the court in fiscal 2023 was lower than the previous two years, but an influx of conservation easement donation and small captive insurance cases are leading to lengthy trials. And as the IRS invests billions of new funding to modernize and amp up enforcement on high-wealth taxpayers, even more complex cases could be headed to the court, creating a backlog.

As Promised, IRS Is Coming For Crypto Tax Evaders - Carlos Ortiz, Nicholas Mowbray, And Kayley Sullivan, Baker Hostetler via Law360 Tax Authority ($):

As discussed more below, the recent multiyear prison sentence imposed on a cryptocurrency founder for tax evasion is the latest message sent to taxpayers that these agencies are committed to rooting out and holding accountable those abusing cryptocurrency and digital assets for tax evasion, and it demonstrates prosecutors' willingness to use imprisonment as a tool to address tax compliance issues in this industry.

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Those who think that the government may lack the technology and capabilities to keep up with often-complicated digital asset transactions may soon find themselves similarly facing a prison term.

Estate Planning News

IRS Memo on Grantor Trusts Opened ‘Pandora’s Box of Worries’ - Kristen Parillo, Tax Notes ($): "Released December 29, 2023, the IRS concluded in the memo that modifying a grantor trust, with the beneficiaries’ consent, to add a tax reimbursement clause — that is, giving the trustee discretionary power to reimburse the grantor for any income tax liability attributable to the trust — constitutes a taxable gift by the beneficiaries to the grantor. According to the IRS, the addition of a discretionary power to distribute income and principal to the grantor is a relinquishment of a portion of the beneficiaries’ interest in the trust."

Link: ILM 202352018

Related: Eide Bailly Wealth Transition Services.

US Estate Tax – What is “Situs”? Location of Assets Makes a World of Difference - Virginia La Torre Jeker, US Tax Talk. "If it is determined that the foreign national decedent was not domiciled in the US, the estate tax analysis shifts to the situs or location of the decedent’s assets. Foreigners not domiciled in the US are generally subject to US estate tax only on their assets “situated in the United States” at death."

Related: Key Considerations in Estate Planning for International Households

International Tax Corner

A New Global Tax Is About to Raise Billions. The U.S. Is Missing Out.- Richard Rubin, Jennifer Williams, and Paul Hannon, Wall Street Journal:

U.S. companies that enjoyed single-digit tax rates in some foreign countries now must pay at least 15% in each. But even though Treasury officials were crucial in forging the international accord and President Biden has pushed to implement it, Congress hasn’t changed U.S. tax law to conform to it. Republicans generally oppose the global deal, contending that Biden administration negotiators gave away too much of the U.S. tax base.

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American companies are facing higher tax bills even though the U.S. hasn’t changed its rules. That is because the deal allows countries to make global companies operating in their jurisdictions pay at least 15% there. So Switzerland can make U.S. and Japanese companies pay 15% tax on their Swiss operations. 

In many cases, American companies have already maxed out U.S. foreign tax credits. So paying more abroad won’t reduce their U.S. taxes. Instead, they effectively will pay taxes in two countries on the same income. 

Related: Eide Bailly International Business Structuring.

Remote Control - Alex Parker, Things of Caesar. "My main point earlier was how remote workers can skew the anti-abuse rules that estimate taxable income through factors like payroll–including the OECD’s Pillar Two global minimum tax. But there are also the traditional transfer pricing rules that attempt to identify and price actual intangible assets. In many cases, the location of a remote worker can be key in determining where the intangible was produced, which in turn determines how much of the income associated with it belongs in the remote worker’s jurisdiction."

Key Considerations for Global Expansion - Gabe Schreiber and Shannon Smith, Eide Bailly:

It is important to determine whether your activity will cause a taxable presence for the company in another country. The answer will vary by country and whether the U.S. has a treaty with that country. The standard activity threshold which triggers taxation can be low. If doing business in a jurisdiction that has a tax treaty with the U.S., the threshold for taxation may be increased. However, this is quickly changing in a digitally based economy.

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Choosing the right structure for your organization is an essential component of international tax planning and can directly impact your business. For instance, a U.S. LLC may be viewed as a corporation in many other countries and create unexpected tax consequences.

Blogs and Bits

Disaster area deadline for 2022 taxes is Feb. 15 in 8 states and 2 U.S. territories - Kay Bell, Don't Mess With Taxes. 

But taxpayers in eight states and two U.S. territories are facing a Feb. 15 filing deadline for their 2022 taxes. The reason for the delay, however, is not one any of us would want.

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The catastrophes where taxpayers are facing a tax deadline in just more than two weeks are those hit between Aug. 8 and Oct. 9, 2023, by Hurricane Idalia, Hurricane Lee, Tropical Storm Bolaven, the wildfires in Hawaii, the seawater intrusion in Louisiana, and storms and flooding in Illinois.

How Not To Handle an IRS Investigation - Taxpayer Convicted of Tax Fraud - Ronald Marini, The Tax Times. "Don't Be Cute With The IRS During an IRS Audit!"

District Court: Zero Returns Aren’t a Valid Return or Refund Claim- Leslie Book, Procedurally Taxing via Tax Notes. "The recent case of Denning v. Treasury, No. 3:23-cv-00149 (D. Nev. 2024), highlights a longstanding issue in tax procedure: When is a document purporting to be a return a return? Or for that matter, when is an amended return a valid refund claim? Drilling down deeper, Denning implicates the so-called zero return issue. If a wage-earning taxpayer signs a Form 1040 or 1040X under penalties of perjury but essentially puts zeros where the Form 1040 or 1040X asks the taxpayer to disclose their income, is that enough to trigger a court finding that the return is not a valid return or claim for refund?"

Tax Foundation Discussion on the Harms of Retaliatory Tax and Trade Policies - Erica York and Daniel Bunn, Tax Policy Blog. "Historical evidence and recent studies have shown that retaliatory tax and trade proposals raise prices and reduce the quantity of goods and services available to U.S. businesses and consumers, resulting in lower incomes, reduced employment, and lower economic output. "

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