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Tax News & Views Border Jam with Alfredo Roundup

By Joe Kristan
February 7, 2024
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Key Takeaways

  • Senate backlog delays tax bill further into filing season.
  • IRS says each $ of funding is worth $6 of revenue.
  • New IRS tech touted as big revenue booster.
  • 1099-K FAQ.
  • GAO examines private tax debt collectors.
  • Why to file even if you don't have to.
  • Criminal forfeiture of IRS taxable to prisoner.
  • $25 to settle a $107,410 tax bill?
  • Fettucine Alfredo Day.

Senate Border Traffic Jam Pushes Tax Bill Back Weeks, at Least - Doug Sword and Cady Stanton, Tax Notes ($):

There were those who thought the 357-70 January 31 vote advancing the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) was so overwhelming that it might propel the Senate to take quick action on the tax package. Instead, both chambers are locked in a border security debate made more contentious by the proposed impeachment of Homeland Security Secretary Alejandro Mayorkas, a Senate immigration overhaul, and emergency funding for Ukraine and Israel.

...

Delaying action until the week of February 12 isn’t an option for the larger tax bill because the Senate is on a two-week break beginning that day. It now appears that the earliest the Senate could turn to the tax package is upon its return. But Congress will likely still be focused on border security then, plus on averting or dealing with a pair of partial government shutdowns that will occur March 1 and March 8 without at least a temporary spending agreement becoming law.

These delays threaten to push consideration of a tax bill affecting 2023 taxes perilously close to the March 15 due date for 2023 partnership and S corporation returns, and perhaps past the March 1 filing date for farmers who haven't paid estimated taxes.

 

Senate GOP Slows Tax Bill’s Pace, Seeking Finance Panel Markup - Chris Cioffi, Bloomberg ($): "If the tax bill doesn’t get a vote this week, it will have to wait until after a two-week recess scheduled to end the week of Feb. 26—a week before Congress again hits the first of two government funding expiration dates."

 

IRS increases its estimate of how much it can collect with more funding.

IRS Says Tax Enforcement Pays for Itself—and Then Some - Richard Rubin, Wall Street Journal:

The Internal Revenue Service boosted its estimates of its own value, projecting that Congress’s recent expansion of the agency will generate $561 billion in tax revenue, higher than earlier Biden administration forecasts. 

The updated figures from the IRS and Treasury Department reflect new research on how audits can deter tax cheating for many years. The agencies now project that the average return on investment for enforcement spending is about $6 for every $1 instead of $5 for every $1. And they also now include the effect of modernized technology that should help the IRS detect tax dodging and encourage voluntary compliance by making the system smoother. 

IRS’s Expansive New Scoring Method Sends IRA Revenue Soaring - Jonathan Curry, Tax Notes ($):

The agency’s traditional methods of estimating the effects of increased enforcement funding forecast a $211 billion boost in revenue over the next 10 years. However, a new IRS report found that that number could quadruple to $851 billion when the revenue effects of the agency’s broader transformation efforts are factored in and the investments are maintained beyond the Inflation Reduction Act’s expiration date at the end of fiscal 2031 — thanks in large part to enhanced technology and IT systems.

...

But the biggest contributor to the spike in additional revenue — $301 billion — would be IT modernization. That broad category encompasses improvements in audit selection, collection planning, customer service efficiency, IT infrastructure, and more. 

IRS Predicts $100 Billion Hit From Enforcement Funding Clawback - Erin Slowey, Bloomberg:

Along with the estimate of the impact of the intended funding cut, Treasury and the IRS released an analysis of the revenue impact of the IRS funds if they were maintained as originally enacted in the 2022 law and were subsequently extended and sustained through 2034.

As enacted, the tax-and-climate law would raise $561 billion from fiscal years 2024 through 2034, the analysis said. If the funding were extended and maintained after it is exhausted, however, the IRS could collect as much at $851 billion from fiscal years 2024 through 2034, making a stronger argument for the benefits of having a fully funded IRS.

 

Other IRS News: 1099-K FAQs, Private Tax Debt Collection

Taxpayers Who Use Venmo, CashApp Get Updated Guidance From IRS - Erin Slowey, Bloomberg:

The FAQ was overhauled with over 45 additional or updated questions that cover a range of issues, from what taxpayers should do if they receive a 1099-K form to who is responsible for reporting third-party transactions.

Taxpayers and the e-commerce companies got some relief this tax filing season when the IRS in Novemberagain delayed the requirement for these platforms to send a copy of the 1099-K information return to taxpayers who have over $600 in business transactions. This requirement initially was designed to capture taxes from gig workers.

From the updated FAQ:

Q2. Are all the payments reported on my Form 1099-K taxable? (added Feb. 06, 2024)
A2. Not necessarily. Just because a payment is reported on a Form 1099-K does not mean it is taxable. Also, just because a payment is not reported on a Form 1099-K does not mean it is not taxable. How you report Form 1099-K payment amounts on your tax return depends on the type of payments you received. More information is available to help taxpayers determine what their tax obligations are in connection with their Form 1099-K at Understanding your Form 1099-K:

• If you sold a used personal item
For example, a taxpayer who sells a used personal item for less than they paid for it may receive a Form 1099-K, but the sale proceeds do not increase their taxable income because they didn’t make a profit, or gain. The IRS has guidance for how taxpayers can report this kind of payment on their tax returns.

• If you sold goods, rented property or provided services
Whether you are in the trade or business of selling/renting property or providing services may determine the amount of the proceeds that are taxable. See Publication 535, Business Expenses.

• If you received a gift or received a reimbursement for a shared cost
Payments of gifts and reimbursements for shared costs are not payments for goods or services and therefore are not reportable on Form 1099-K.

 

IRS Private Debt Collection Raises Equity Concerns, GAO Says - Alexander Rifaat, Tax Notes:

In a report released February 6, the GAO found that most of the revenue brought in from the PDC program, through which the IRS contracts its debt collection services to private firms, came from taxpayers that owed less than $5,000 in back taxes — ranging from 66 percent to 79 percent of the annual total between 2017 and 2023.

The study also concluded that during roughly the same period, the agency’s special compliance personnel program fund, which draws a considerable portion of its funding from the taxes collected under the PDC program, saw its revenue skyrocket. In fiscal 2022 alone the fund collected $1.14 billion in back taxes while operating costs were around $59 million.

 

Blogs and bits

8 reasons to file a federal tax return, even if the IRS doesn't require it - Kay Bell, Don't Mess With Taxes. "6. You got medical insurance via the marketplace. In this case, you could get help paying for your Affordable Care Act coverage from the Premium Tax Credit, or PTC. Most Obamacare, as the program still is called by many, policy purchasers get their PTC amount in advance to pay their premium costs upfront. But you still need to reconcile that PTC payment with your final, actual qualifying amount by filing a tax return, and Form 8962 to claim the credit. And if you didn't get the PTC in advance and qualify for the help, you can get reimbursed for the premiums you paid yourself by, you got it, filing a tax return."

The IRS Is Cleaning Up Its Act. It’s Also Cracking Down on You. - Karen Hube, Barrons. "But taxpayers at any income level could be finding IRS notices in the mail. After suspending collection notices for underpaid taxes in early 2022 as part of pandemic relief, the IRS resumed sending notices this month."

Microcaptive Insurance Arrangement Fails to Pass Muster in Tax Court - Parker Tax Pro Library. "The court found that the affiliated captive insurance company and other entities were not operated as insurance companies because insurance transactions were completed after the fact rather than prospectively and underwriting was disproportionately influenced by meeting target premiums near the $1.2 million limit under Code Sec. 831(b) for the years at issue, regardless of the coverage being provided."

Related: Recent Developments in Micro-Captive Insurance—A Reportable Transaction.

 

Policy and Opinion

Proposed “Junk Fee” Rule Would Create Inadvertent Tax Headaches - Jared Walczak, Tax Policy Blog. "Sellers in some states could soon be simultaneously required and prohibited from publishing sales tax-inclusive prices, and they might be unable to list any prices at all before ascertaining a potential purchaser’s address. This is clearly not an outcome anyone intends, and it should be easy to fix, but it’s a likely consequence of one particular provision of the Biden administration’s proposal to ban so-called 'junk fees.'"

The Case Against Raiding Private Savings To Prop up Social Security - Adam Michel, Liberty Taxed. "The balance of the evidence suggests that raiding Americans’ private retirement savings to prop up Social Security would significantly reduce private retirement savings and slow capital accumulation necessary to sustain a growing economy."

 

Tax in the Courts: Jail no excuse, micro-pennies on the dollar

Tax Court: Criminal Forfeiture of IRA Is a Taxable Distribution - Chandra Wallace, Tax Notes:

A jailed taxpayer must pay income tax on an involuntary IRA distribution forfeited to the federal government, as well as penalties for failure to file and pay, the Tax Court ruled.

The petitioner “constructively received” the income distributed from his IRA and must therefore pay the taxes owing on it for the 2017 tax year, the Tax Court ruled in a February 6 opinion in Hubbard v. Commissioner. The IRS assessed that tax deficiency at $165,353.

The Tax Court seems to ask a lot of a guy in jail:

Petitioner knew of a general duty to file his tax return as he stated in his declaration that he had “habitually” done so in previous years. He was also aware of the forfeiture that was part of the judgment in his criminal case. Nonetheless, petitioner asserts that he did not know that he had to file a tax return because he did not receive the Form 1099-R. Nonreceipt of tax information forms, such as a Form 1099, does not excuse a taxpayer from his or her duty to report income.

Crime sure doesn't pay, except maybe for the tax man.

Pennies on the Dollar. Anybody who has spent much time watching late-night TV or listening to sports radio has heard pitches for outfits promising to settle outstanding federal tax liabilities for a pittance. An opinion released yesterday by the Tax Court shows that it's not necessarily easy.

The taxpayer had gotten behind on paying taxes to the tune of $107,410 - amounts reported as owing on timely-filed returns, but never paid. The taxpayer despaired of paying so much, so he offered to settle up with the IRS for all of $25. That, buy the way, is much less than a penny on the dollar.

The IRS office in compromise people eventually determined that the taxpayer, an attorney who wasn't working, was good for at least $23,155 - more if he would just go out and get a job. 

The taxpayer said the IRS "abused its discretion" by not taking the $25. The Tax Court disagreed (taxpayer  name omitted):

Taxpayer would like to be treated as a permanently unemployed taxpayer under the IRM with zero monthly earnings; however, SO Raygosa did not accept this unreasonable position. Instead, she treated Taxpayer as having the potential to be employed again with nearly the same income as he had when he worked with the Arkansas Public Defenders Commission. We acknowledge that the COIC unit and SO Raygosa likely did not correctly follow the guidance in IRM 5.8.5.20 when calculating Taxpayer's future income. However, we find this potential error by SO Raygosa to be harmless in this case.

Even if Taxpayer cannot secure work with the same wages as his previous employment, he could surely be re-employed at some point in the future, considering his education. Therefore, it is not unreasonable to conclude that Taxpayer has the potential to pay more than the nominal amount of $25 towards his total unpaid tax liabilities. In sum, we conclude that SO Raygosa acted appropriately and within her discretion in determining Taxpayer's RCP.

In this case, even unemployment didn't get the taxpayer the less-than-pennies on the dollar result he sought. Offers in Compromise to settle tax debt are a thing, but not an easy thing.

Related: IRS Collection Issues

 

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About the Author(s)

Joe Kristan

Joe B. Kristan, CPA

Partner
After 38 years centered on tax consulting for closely held businesses and their owners, Joe is joining Eide Bailly's National Tax Office. Joe's responsibilities include communication, process improvement and training. He is a principal contributor to the Eide Bailly Tax News and Views blog, providing daily updates on tax reform and other tax news. Joe is a Certified Public Accountant and a member of the AICPA Tax Section and Iowa Society of Public Accountants.