Tax News & Views Credits Cookies and Cheesecake Roundup

IRS Finalizes Direct-Pay Regs for Clean Energy Credits - Mary Katherine Browne, Tax Notes ($).:

Enacted as part of the Inflation Reduction Act, section 6417 allows tax-exempt and government entities to claim the equivalent amount of some tax credits in the form of a refund payment. The payments are available for energy generation and carbon capture credits, some clean vehicle credits, and manufacturing credits. Businesses can transfer all or a portion of any of the energy credits.

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The final regs keep most of the partnership and S corporation rules that were included in the proposed regs. The guidance confirms that a partnership or S corporation — but not a partnership’s members — is eligible to make an elective payment election only regarding a section 45V credit, section 45Q credit, or section 45X credit.

Treasury Finalizes Direct Pay Rules For Energy Tax Credits - Kat Lucero, Law360 Tax Authority ($):

The final rules allow tax-exempt entities, which previously could not access refundable tax credits without filing federal tax returns, to receive direct payment of credits incentivizing energy projects, such as solar, wind and clean hydrogen. Under the final rules, entities eligible for direct payments include all levels of government agencies and their instrumentalities, tribal governments and subdivisions, nonprofit groups, the Tennessee Valley Authority, schools and electric cooperatives.

Treasury, however, is still examining how to handle chaining situations, in which an entity uses the same energy project to capitalize on both direct payments and the tax credit transferability mechanism that were created by the Inflation Reduction Act in 2022 . The process involves an entity buying credits from a clean energy developer for a discount under Internal Revenue Code Section 6418  and then electing a direct cash payment from the government equal to the full value of the credits under IRC Section 6417 .

Related: How the Inflation Reduction Act is Boosting Energy Efficiency Incentives

Congress happenings

Tax Deal Doesn’t Have Support to Skirt Filibuster, Crapo Says - Doug Sword and Cady Stanton, Tax Notes ($):

Senate Finance Committee ranking member Mike Crapo, R-Idaho, who has been gauging Senate Republicans’ support for the bill and their desires for tweaks to the legislation, said March 5 that he doesn’t believe enough members like the legislation as it stands to get it to the floor and avoid a filibuster.

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It takes 60 votes in the Senate for legislation to bypass a filibuster and make it to the floor. If all 48 Democrats and the three independents who caucus with them support the bill — a big "if" — then nine Republican votes would be needed to begin debate on the bill. Several Republicans have publicly said they would support the bill.

Sen. Crapo is referring to the tax bill passed earlier this year by the House of Representatives. That bill would restore immediate deductions for domestic research costs, restore 100% bonus depreciation, and ease limits on business interest, all through 2025. It would also provide for an enhanced child tax credit.

Related: Capitol Hill Recap: Tax Bill Stuck in the Senate.

Employers Push Bill Easing Obamacare IRS Reporting Requirements - Sara Hansard, Bloomberg ($):

Including the Employer Reporting Improvement Act (H.R. 3801) in the appropriations package was a top lobbying priority for health insurance brokers that met in Washington in late February. The measure was approved by the House of Representatives on a unanimous voice vote in June 2023, and it has bipartisan support in the Senate.

The legislation, titled the Employer Reporting Act, is particularly important for smaller firms, some of which have had to defend themselves against erroneous Internal Revenue Service notices claiming they owe millions of dollars in penalties for not providing health coverage to their employees required by the Affordable Care Act.

Related: Key Considerations in Affordable Care Act Compliance

Other IRS and Treasury news.

Treasury, IRS issue guidance for the elective payment of advanced manufacturing investment credit - IRS:

The Internal Revenue Service (IRS) today issued final regulations that provide guidance for the entities choosing the elective payment for the advanced manufacturing investment credit, established by the CHIPS Act of 2022.

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This credit will incentivize the manufacturing of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and there is the ability for taxpayers to make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

Four Takeaways from Daniel Werfel's House Oversight Hearing - Debbie Jennings, National Taxpayers Union Foundation. "Commissioner Werfel made it clear throughout the hearing that the IRS is focusing its efforts on increasing audits with the help of the IRA’s $45 billion for enforcement, amounting to nearly 57 percent of the total additional funding provided by the law. Werfel said that the IRS is specifically targeting those with complex returns for audits, including high-income earners, corporations, and partnerships."

Five signs your tax preparer may be a fraud - Michelle Singletary, Washington Post:

District Court in ND Alabama Holds the Corporate Transparency Act Unconstitutional - Jack Townsend, Federal Tax Procedure:

Indeed my cute initial analysis (I do not offer a detailed analysis here) is:

This opinion is dumb, stupid.

I will be back to discuss it later when I have given more complete analysis. I will hold open the possibility that my initial reaction above is itself dumb, stupid. (That will not be the first time.) But for now, until further analysis drives me to a different conclusion, I stick to the dumb, stupid characterization.

Blogs and bits.

Tax-favored retirement savings hit new highs, and there's still time to add to 2023 accounts - Kay Bell, Don't Mess With Taxes. "If you haven't contributed the full $6,500 to your IRA allowed for tax year 2023, do so in the next six weeks or so. If you're age 50 or older, you can add another $1,000 to help you catch up on your savings."

New rules allowing for 529 plan rollovers include significant restrictions - National Association of Tax Professionals. "The SECURE 2.0 Act passed in 2022 changed the law so that, starting in 2024, beneficiaries could roll over up to $35,000 in a 529 account into a Roth IRA if certain conditions were met."

Third Party Payers Are Liable for Improperly Claimed Employee Retention Credits - Parker Tax Pro Library. "The Chief Counsel's Office advised that a third party payer (TPP) that is a Code Sec. 3504 agent, professional employer organization (PEO) subject to Reg. Sec. 31.3504-2, or certified professional employer organization (CPEO) is liable for any underpayment resulting from an improperly claimed employment tax credit that the TPP claimed for a client on the TPP's employment tax return filed under the TPP's employer identification number, where the credit was claimed based on wages paid by the TPP to the client's employees."

If Not Now, When? Is it Time to Consider a Refund Suit to Expedite ERC Processing by the IRS? - Cody Edwards and Charles Telk, Iowa Tax Cafe. "The hope with filing a refund suit is that the IRS will review and approve the employer’s ERC claim prior to litigating the claim. However, it is possible the IRS would deny the ERC claim and require litigation."

Common LLC Questions Answered - Thomas Gorczynksi, Tom Talks Taxes:

What are the income tax consequences of undoing a corporation election for an LLC?

For a single-member LLC, the corporation is deemed to distribute all of its assets and liabilities to its single owner in liquidation of the corporation. See Treas. Reg. §301.7701-3(g)(1)(iii).

For a multi-member LLC, the corporation is deemed to distribute all of its assets and liabilities to its shareholders in liquidation of the corporation, and immediately thereafter, the shareholders contribute all of the distributed assets and liabilities to a newly formed partnership. The partnership contributions will be a §721 tax-deferred exchange. See Treas. Reg. §301.7701-3(g)(1)(ii).

With respect to the corporation liquidation, the shareholders may recognize gain or loss under §331, while the corporation may recognize gain or loss under §336.

Tax on the dock.

Guy Wildenstein, Art Family Patriarch, Found Guilty in Tax Trial - Aurelian Breeden, New York Times. "Guy Wildenstein, the international art dealer, was found guilty in France on Tuesday of massive tax fraud and money laundering, the latest twist after years of legal entanglements that have unraveled the secrecy that once surrounded his powerful family dynasty."

San Diego man sentenced to 41 months for bank, tax fraud schemes - IRS (Defendant name omitted, emphasis added):

According to his plea agreement, beginning as early as July 2014 and continuing through at least April 2020, Defendant admitted that he used the names, social security numbers, and credit of the straw borrowers to obtain loans and lines of credit that primarily benefited Defendant.

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Defendant acknowledged in his plea agreement that he funneled the majority of the loan proceeds through the bank accounts of one of his shell companies to use for his personal benefit. For example, Defendant admitted to using the funds for numerous personal transactions, cash withdrawals, personal living expenses for himself and his family, and to make payments to other credit unions. According to sentencing documents, during six years of the scheme, Defendant supported his lifestyle, which included a penthouse apartment, a Corvette, a Mercedes, and a BMW, solely with the proceeds of his fraudulent schemes. In the midst of the scheme, Defendant sent a message to one of his assistants, stating that “money is raining.”

According to sentencing documents, Defendant recruited many of the straw borrowers from his church. The church members trusted Defendant because he possessed an outward façade of morality and wealth. The straw borrowers believed they were starting a business with Defendant, and willingly gave Defendant 90 percent of the fraudulent loan proceeds as what they thought was their capital contribution.

What happens when the word starts getting out?

After a number of church members had been financially damaged, Defendant began attending another church, continuing the scheme using the name “Al Noble.” 

Not very noble, actually. But what's the tax angle?

In addition to the bank fraud, Defendant also admitted to assisting in the preparation of false tax returns for two taxpayers for the calendar year 2015. The tax return for one of the taxpayers falsely stated that the individual received “Other Income” in the amount of $538,462 and paid federal income taxes of $543,643, thus entitling him to a refund of $376,260. Defendant supplied false Forms 1099 to the taxpayer to support the return and accompanied the taxpayer to the IRS to submit the false return. The Internal Revenue Service issued a refund check to the taxpayer for $376,260, which was ultimately returned to the IRS.

The moral? Money doesn't rain. And don't trust someone just because he has nice cars.

What day is it?

So much for the diet today. It's both National Oreo Day and National White Chocolate Cheesecake Day.