Tax News & Views Chases Absinthe-minded Non-filers Roundup

It's March 5. Did you know that's a deadline for many trusts? From Jane Ditelberg of the Northern Trust Institute (footnotes omitted):

The Internal Revenue Code permits estates and certain trusts to elect to treat income distributions, as well as principal distributions that will carry out taxable income, made to beneficiaries on or before March 5, 2024, as having been made on December 31, 2023 for income tax purposes. This election is referred to as the 65-day distribution election.

Contact Eide Bailly's Wealth Transition Services team to learn more.

Beneficial ownership rules set back in Federal court

U.S. Court Declares Corporate Transparency Act Unconstitutional - Amanda Athanasiou and Andrew Velarde, Tax Notes ($):

A federal court in Alabama has delivered a stunning blow to the Corporate Transparency Act (CTA), declaring the law designed to combat tax fraud through beneficial ownership disclosure unconstitutional and blocking the government from enforcing it.

The CTA exceeds the power of Congress, the U.S. District Court for the Northern District of Alabama said in a March 1 opinion in National Small Business United v. Yellen, granting summary judgment to a small business advocacy group. The decision rejects the government’s arguments that the CTA is a sanctioned exercise of congressional taxing power and commerce clause authority.

Ruling That Corporate Transparency Act Is Unconstitutional Could Benefit 65,000 Businesses - Or More - Kelly Phillips Erb, Forbes ($). "In 2021, Congress passed the Corporate Transparency Act—or CTA—as part of the National Defense Authorization Act for Fiscal Year 2021. The law requires certain companies to file reports that identify a company's beneficial owners with the Financial Crimes Enforcement Network—called FinCEN."

Corporate Disclosure Ruling Irks Lawmakers - Chris Cioffi, Bloomberg ($). "Treasury is expected to appeal the case and seek a stay, in hopes of barring the ruling from going into effect. And Democratic lawmakers who helped get the legislation across the finish line say they hope the higher court will reverse the Alabama judge."

Corporate Transparency Act Ruled Unconstitutional; Appeal Certain - Russ Fox, Taxable Talk. "As of today, only the one company (and possibly the Northern District of Alabama) are impacted by this decision.  However, it’s a certainty that the decision will be appealed to the 11th Circuit Court of Appeals."

I expect the appeals court to overturn the ruling, but I didn't expect this decision, so who knows.

Related: Corporate Transparency Act Mandates Stricter Federal Disclosures.

IRS goes after high-income non-filers; embraces AI.

Thousands of millionaires haven’t filed tax returns for years, IRS says - Julie Zauzmer Weill, Washington Post:

IRS launches new effort aimed at high-income non-filers; 125,000 cases focused on high earners, including millionaires, who failed to file tax returns with financial activity topping $100 billion - IRS:

These are all cases where IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income in these ranges but failed to file a tax return. Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that didn’t allow these cases to be worked. With new Inflation Reduction Act funding available, the IRS now has the capacity to do this core tax administration work.

...

This week, the IRS will begin mailing these compliance alerts for failure to file a tax return, formally known as the CP59 notice. About 20,000 to 40,000 letters will go out each week, beginning with the filers in the highest-income categories. The IRS noted that some of these non-filers have multiple years included in the case count so the number of taxpayers receiving letters will be smaller than the actual number of notices going out.

People receiving these letters should take immediate action to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures. People in this category should also consult with a trusted tax professional so they can quickly file their late tax returns and pay delinquent tax, interest and penalties. The failure-to-file penalty amounts to 5% of the amount owed every month – up to 25% of the tax bill. There is also special non-filer information on IRS.gov that can assist them.

Related: Eide Bailly IRS Dispute Resolution and Collection Services

IRS Turning To Experts, AI For Complex Returns, Werfel Says - Stephen Cooper, Law360 Tax Authority ($). "The IRS is using tax experts and AI technology to precisely examine corporate structures, pricing and international movement of money by large, complicated organizations, Werfel said in wide-ranging remarks at the Federal Bar Association's Tax Law Conference in Washington, D.C. "

IRS ERC Audits Are Going Through Changes as They Get Older - Nathan Richman, Tax Notes ($):

During the height of the COVID-19 pandemic, the IRS’s approach to reviewing and paying ERC claims was fairly liberal, but “at this point, being this far from the date in which these employees were to be retained, the Service is taking a much more conservative approach,” John J. McInelly, an IRS official overseeing the ERC initiative, said March 4 at a Federal Bar Association conference.

Documentation is the key to evaluating potential and existing ERC claims, McInelly said, noting that the IRS has processed 3.6 million claims with hundreds of thousands still awaiting review and hundreds of thousands more filed since the processing moratorium began in September 2023.

Related: IRS Puts Temporary Hold On New ERC Claims

Blogs and Bits

5 tax moves to make in March 2024 - Kay Bell, Don't Mess With Taxes. "If you have an IRA, Roth or traditional, and didn't max out your contributions last year, do so now."

We’re Paying for Our Daughter’s Wedding. Is It a Taxable Gift? - Laura Saunders, Wall Street Journal ($). "My husband and I each plan to give our adult children $14,000 this year. My daughter may marry this year, and we would like to pay for much of the wedding. Could paying for the caterer or another wedding supplier count as a taxable gift if we pay the vendor directly?"

Important Considerations as You Select Your Return Preparer This Filing Season - Erin Collins, NTA Blog. " Circular 230 provides regulations governing practice before the IRS by attorneys, CPAs, enrolled agents, and others who are subject to IRS oversight. For example, Circular 230 requires credentialed preparers to exercise due diligence to accurately prepare tax returns, prohibits them from charging unconscionable fees, imposes restrictions to prevent fraudulent advertising, subjects them to tax preparation standards, and requires them to possess the appropriate level of knowledge and skill to perform the preparation services. Each of the different credentials have minimum competency standards and credentialed preparers are required to adhere to the practice obligations under Circular 230."

Time is running out: IRS encourages eligible non-filers in 2020 to claim their Recovery Rebate Credit before May 17 deadline - IRS. "The Recovery Rebate Credit is a refundable credit for individuals who did not receive one or more Economic Impact Payments, also known as stimulus payments, distributed in 2020 and 2021. Eligible taxpayers must file a tax return first to claim a Recovery Rebate Credit, even if their income from a job, business or other source was minimal or non-existent."

TurboTax and H&R Block now use AI for tax advice. It’s awful. - Geoffrey Fowler, Washington Post. "H&R Block’s AI gave unhelpful answers to more than 30 percent of the questions. It did well on 529 plans and mortgage deductions, but confidently recommended an incorrect filing status and erroneously described IRS guidance on cryptocurrency.

Tax Policy Corner

Trump’s Tax Cut Fueled Investment but Did Not Pay for Itself, Study Finds - Jim Tankersley, New York Times ($):

The corporate tax cuts that President Donald J. Trump signed into law in 2017 have boosted investment in the U.S. economy and delivered a modest pay bump for workers, according to the most rigorous and detailed study yet of the law’s effects.

Those benefits are less than Republicans promised, though, and they have come at a high cost to the federal budget. The corporate tax cuts came nowhere close to paying for themselves, as conservatives insisted they would. Instead, they are adding more than $100 billion a year to America’s $34 trillion-and-growing national debt, according to the quartet of researchers from Princeton University, the University of Chicago, Harvard University and the Treasury Department.

Credit Unions Strike Back at Banks, Defend Tax Exemption - Fred Stokeld, Tax Notes ($). "The bankers argued that credit unions had received exempt status because they were established to provide basic financial services to individuals in need, but now they acquire banks, issue subordinated debt, and offer nationwide membership."

Tax in the courtroom

Iowan Distillery Fights $6.94 Million Tax Lien Over Permit Issue - John Woolley, Bloomberg ($):

An Iowan distillery sued the federal government to discharge a tax lien worth more than $6.94 million because a Treasury Department bureau allegedly failed to rescind it after acknowledging the amount owed was incorrectly calculated.

There is no reasonable dispute that the $6.94 million lien was wrongfully imposed because the Alcohol and Tobacco Tax Trade Bureau issued JDSO Inc. a corrected notice and demand of taxes for only about $974,600 last month, the distillery said in a complaint filed Mar. 1. JDSO, which does business as Red Boot Distillery, said the error came from TTB’s mistaken belief that JDSO lacked the required Distilled Spirits Plant and Bonded Winery Permit to claim a tax credit.

Taxpayer Constructively Received Early IRA Distribution Due to Criminal Forfeiture - Parker Tax Pro Library. "The court found that the taxpayer constructively received the income because, by forfeiting the funds in his IRA, he realized the benefits of them and therefore had to recognize the funds as gross income to the same extent as if he had physically received them."

Dual resident doctor sentenced to 52 months in federal prison for tax evasion - IRS (Defendant name omitted):

United States Attorney Ronald C. Gathe, Jr., announced that U.S. District Judge Brian A. Jackson sentenced Defendant, of Baton Rouge, Louisiana, and Clive, Iowa, to 52 months in federal prison following her conviction for tax evasion. In addition to the term of imprisonment, the Court imposed a fine of $200,000 and ordered Defendant to serve one year of supervised release.

On October 31, 2023, after a seven-day trial before U.S. District Judge Brian A. Jackson, the jury unanimously convicted Defendant of tax evasion. Defendant, a physician, owned and operated an urgent care clinic known as Stat Care Clinics, L.L.C. d/b/a Central Stat Care. As the evidence at trial demonstrated, for tax years 2007 through 2017, Defendant owed significant taxes totaling approximately $1.6 million, excluding interest and penalties. For more than a decade, the IRS notified Defendant that she owed taxes multiple times and through various means.

Defendant undertook various steps to evade the payment of her outstanding tax liability, including preparing and filing a false IRS form, underreporting income, inaccurately detailing her assets, and concealing cash in a safe instead of depositing it in the bank. While owing a substantial tax debt, Defendant purchased millions of dollars of real estate and personal property in the names of nominees. These assets included a personal residence, boats, airplanes, and thousands of acres of farmland and hunting land.

As a wise man has said, sometimes it's better to just pay the taxes. 

What day is it?

Great together? It's National Cheese Doodle Day and National Absinthe Day.