Tax News & Views Tax Bill Turmoil Roundup

It’s not looking good for the tax deal - Laura Weiss, Punchbowl News ($):

The bipartisan, bicameral tax deal is in trouble. Big trouble…

For those who are just tuning in, this article is about the current tax bill that passed the House last month and has stalled in the Senate. The legislation includes R&D expensing for domestic firms, expanding the 163(j)-interest deduction, upping Bonus Depreciation to 100%, modifying the Child Tax Credit, and other provisions. Lawmakers want to attach the bill to a larger piece of legislation instead of passing it as a stand-alone bill. However a stand-alone bill is still an option.

At this point, the odds of the tax deal hammered out by Finance Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.) getting anywhere near a government funding bill are remote, at best. And it’s not clear what the next best vehicle – if any – is for the agreement.

Tax Deal Stalls in Senate, Imperiling Breaks for Businesses and Families – Richard Rubin, Wall Street Journal ($):

A bipartisan tax bill soared out of the House earlier this year, backed by a surprisingly broad coalition that included antitax activists, liberal groups, antiabortion advocates and businesses. But it landed with a decided thud among Senate Republicans, and the path ahead is murky at best. 

That “thud” you hear is the Child Tax Credit.

Senate Republicans’ complaints boil down to this: House Republicans cut the deal without them and gave away too much to Democrats on the child tax credit. The biggest disagreement stems from a provision that would let families qualify for a credit for a year when they don’t earn income by looking back to the prior year’s income. 

Our recent Capitol Hill Recap discussed the Child Tax Credit situation, which is here.

End of Filing Season Likely Not a Hard Deadline for Tax Deal – Cady Stanton, Tax Notes ($):

Congressional taxwriters are aiming to get the House-passed tax bill enacted into law by the end of the filing season, but it’s unlikely that missing that target will kill the bill.

Because the IRS has indicated that it can administer the changes in the bill — particularly its expansion of the child tax credit — based on taxpayers’ filings, the end of filing season is probably not a “drop-dead date” to enact the bill, according to Andrew Grossman, Democratic chief tax counsel for the House Ways and Means Committee.

The fact that the end of tax season is unlikely to be a deadline to pass the tax bill is not good news. Lawmakers work to meet deadlines. If there is no deadline, sometimes the work doesn't get done. 

IRS/Tax Latest

Filing Season Wait Times Drop With Better Tech, IRS Chief Says - Chris Cioffi, Bloomberg ($). “Overall IRS call volumes are down this filing season and taxpayer wait times are hovering around two minutes, IRS Commissioner Danny Werfel said Friday.”

IRS to Roll Out Direct-File Pilot March 12 – Alexander Rifaat, Tax Notes ($):

Eligible taxpayers in the 12 states initially chosen by the IRS to participate in the agency’s direct-file pilot program will be able to access the service beginning March 12.

A Treasury spokesperson confirmed the update in a tweet March 1 and said the week of March 4 will be the final testing period for the program.

IRS Free File program sees early increase in use; filings up nearly 10% - IRS:

The Internal Revenue Service’s Free File Guided Tax Software service has seen a year-over-year increase of nearly 10% so far this filing season, according to new statistics released today.

Through Feb. 24, 943,000 taxpayers had filed tax returns this tax season through IRS Free File, a 9.7% increase from last year’s comparable period when 860,000 tax returns were filed.

IRS Working to Simplify BBA Filing Process – Caitlin Mullaney, Tax Notes ($):

The IRS has outlined an approach to simplify the process of filing administrative adjustment requests (AARs) for partnerships, according to an agency official…

Asked when the simplification effort might be implemented, [Maria ] Dolan [of the IRS Large Business and International Division] said that it’s “probably going to be an iterative approach” rather than on a specific date “because there are so many other impacted forms and systems when it comes to this simplification.”

Never mind the myths; know the facts about receiving a Form 1099-K in 2024 – IRS:

To help taxpayers with filing, the Internal Revenue Service today debunked some common myths to help taxpayers understand what to do with Form 1099-K.

Following feedback from partners and to help avoid taxpayer confusion, the IRS announced in Nov. 2023, that the reporting threshold for Form 1099-K, Payment Card and Third Party Network Transactions, would not change for 2023. The reporting threshold requirements remain over $20,000 in payments and over 200 transactions.

IRS Prop. Reg.: Election to Treat Clean Hydrogen Production Facilities as Energy Property Correction (IRC §45V) – Bloomberg. “Correction to REG-117631-23 (Dec. 26, 2023), containing proposed regulations relating to the credit for production of clean hydrogen (clean hydrogen production credit) and the energy credit, as established and amended respectively by the Inflation Reduction Act of 2022, the IRS released. Public hearing on proposed regulations scheduled for Mar. 25, 2024.”

How to Make Sure Your Second Home Doesn’t Become a Tax Trap – Cheryl Winokur Munk, Wall Street Journal ($):

Having homes in more than one state is becoming increasingly common, especially since the pandemic. But people in this situation need to be careful not to run afoul of state-tax laws.

Often people buy a second home in a lower-tax state, thinking they will live there and save on taxes. But this can be tricky since the higher-tax states don’t want to lose out on income and are likely to seek proof that a homeowner is truly intending to make the new state his or her domicile, a term that refers to the state that is considered a person’s permanent home base.

Expect to See More High-Income Audit Campaigns, Officials Say – Lauren Loricchio, Tax Notes ($):

The tax community should expect to see more campaigns from the IRS Large Business and International Division targeting areas of high-income noncompliance, according to officials.

“We’re not done in terms of outlining these high-risk areas and issues," IRS Commissioner Daniel Werfel told reporters March 1 at a Federal Bar Association conference. “We want to put taxpayers — millionaires and billionaires . . . large corporations, and complex partnerships — on notice that this is an area where we have concern, and therefore we’re ramping up our compliance.”

Court Side

Corporate Transparency Act Is Unconstitutional, Judge Rules - Caleb Harshberger, Bloomberg ($):

A federal court in Alabama has ruled that a law requiring companies to report extensive stakeholder ownership information to the government is unconstitutional.

In his opinion Friday, Judge Liles Burke of the US District Court for the Northern District of Alabama, ruled that the Corporate Transparency Act is unconstitutional in a suit brought by the National Small Business Association against the US Treasury Department.

Burke ruled Congress lacks the powers to require companies to disclose personal stakeholder information to Treasury’s criminal enforcement arm.

FWIW: The Federal government started accepting beneficial ownership information reports in January.  

Partnership Liability and Collection Due Process – Keith Fogg, Tax Notes ($). “Fogg discusses a Seventh Circuit affirmance of a Tax Court case that held that a couple couldn’t escape tax liability from two partnerships because they had notice of the partnership-level proceedings and a prior opportunity to challenge the liabilities.”

Easement Cases To Put IRS-Hired Appraisers Under Scrutiny – Kat Lucero, Law360 Tax Authority ($):

Some partnerships challenging the denial of tax deductions for conservation easement donations are mounting a new attack on the IRS' push to enforce the transactions with claims that the agency's multimillion-dollar contracts with third-party appraisal firms compel them to be biased toward the government. 

In at least four civil cases, real estate partnerships that donated land or historic buildings for conservation purposes have challenged the credibility of expert witnesses whom the Internal Revenue Service has hired for conservation easement litigation. They claim the witnesses have compromised their independence by being compelled to follow the IRS' own methods and facts stipulated in their million-dollar contracts to come up with appraised values in the agency's favor.

IRS Assessment Clock Not Started by Rejected Tax Return Form - John Woolley, Bloomberg ($). “The IRS’s penalty assessment against the sole shareholder of an Indiana medical provider was timely because the shareholder never filed the necessary annual employer tax return to trigger a three-year statute of limitations, a federal court ruled.”

International Zone

House Tax Panel To Prep Members On OECD Pillar 1- Dylan Moroses, Law360 Tax Authority ($):

Neither Republicans nor Democrats on the House Ways and Means Committee have opined much about the OECD profit reallocation plan known as Pillar One, but they will gain valuable information during an upcoming subcommittee meeting, a tax staffer for the panel said Friday.

While committee Republicans have a more defined opposition to Pillar Two of the Organization for Economic Cooperation and Development's corporate tax rewrite, a 15% global minimum tax, the meeting Thursday will provide an opportunity for them to learn more about Pillar One, said Eric Oman, deputy chief tax adviser for Ways and Means Republicans. Oman and other tax staffers spoke during a conference in Washington hosted by the Federal Bar Association.

From the "MAGI Isn't Short for 'Magic'" file:

The Hidden Way Congress Shrinks Your Tax Breaks – Laura Saunders, Wall Street Journal ($):

Plenty of taxpayers are left scratching their heads when Uncle Sam takes more of their income than they expected. 

For example, why can’t a young worker fully deduct a contribution to her traditional IRA when she seems to qualify for it? Why does a retiree owe tax on Social Security payments when his reported income is below the tax thresholds? And why are some retirees smarting from Medicare premium surcharges they thought they sidestepped?

The answer, in these cases and many others, stems from a little-understood feature of the tax code called modified adjusted gross income, or MAGI.

What Day Is It?

It’s National Grammar Day. As a former reporter, a published author and a screenplay writer, I dread this day because me grammar ain’t so good.