Tax News & Views Tax for Breakfast Roundup

Larger Priorities and Slow Discussions Leave Tax Bill in Limbo - Doug Sword and Cady Stanton, Tax Notes ($):

The $79 billion tax package that flew through the House in January appears wedged between seemingly stalled negotiations and a Senate leader with a fuller agenda in mind.

At a press conference March 6, Senate Majority Leader Charles E. Schumer, D-N.Y., said that following the conclusion of fiscal 2024 funding bills and a resolution of the foreign aid supplemental bill that passed the Senate February 13, the chamber will turn its attention to bills on insulin pricing, cannabis banking, rail safety, and executive-compensation-related banking regulations.

Not among those priorities listed was the tax bill.

GOP Ponders a Wait-Until-2025 Tax Bill Strategy - Naomi Jagoda, Bloomberg ($):

Some Senate Republican critics of the House-passed bipartisan tax bill say it may be better to wait until 2025 to act on taxes because the GOP may have more negotiating power.

While the bill passed with widespread support in the House, GOP senators have taken issue with portions of the legislation, particularly those related to the child tax credit. Some Republicans think they’ll have a better shot at getting a bill to their liking next year, given that the party has a shot at regaining control of the White House and Senate in November’s elections.

Senate finance leaders squabble over tax package proposals - Brian Faler, Politico. "The back-and-forth suggests an agreement to end what's become a protracted dispute over the legislation — which passed the House with overwhelming support in January — is not imminent. It would expand the child tax credit as well as a trio of business tax breaks, among other changes."

U.S. Must Fix R&D Treatment to Compete with China - Alex Muresianu, Tax Policy Blog. "Thanks to an ill-considered provision of the Tax Cuts and Jobs Act, U.S. companies are not able to deduct the full value of their R&D investments. Instead, they are required to amortize (spread deductions out) over the course of five years for domestic R&D and 15 years for foreign R&D."

State of the Union Address and taxes

Biden Pushes More Corporate-Tax Hikes to Draw Contrast With Trump - Andrew Restuccia, Andrew Duehren, and Richard Rubin, Wall Street Journal:

President Biden is expected to propose raising taxes on large companies in his State of the Union address Thursday, taking aim at executive compensation as he lays out a campaign-year message that contrasts with that of rival Donald Trump and his tax agenda.

Biden’s plan reprises many corporate-tax ideas he has pitched since the 2020 campaign and failed to get through Congress even when Democrats were in charge, such as raising the corporate tax rate to 28% and boosting taxes on U.S. companies’ foreign profits. He is set to offer some new ideas on top of those as he runs for a second term. 

Biden: Ban deductions for firms paying executives more than $1 million - Jeff Stein, Washington Post. "White House officials say Biden will also revive his call to heavily tax billionaires at a rate of at least 25 percent after a similar proposal was defeated earlier in his term."

The proposals are outlined in a White House Fact Sheet. The items listed include:

-Raising the corporate tax rate to 28% and the corporate minimum tax to 21%.
-Expanding the current $1 million cap on corporation compensation - perhaps to closely-held corporations as well.
-Increasing the current 1% tax on public company stock redemptions to 4%.
-"Cracking down on corporate jet loopholes."
-25% minimum tax on billionaires
-Extending the 3.8% Medicare tax to non-passive income.

Our Jay Heflin will have more detailed coverage of these proposals, and their (not great) prospects for passage, in this week's Capital Hill Recap.

Fraud Prevention Tops GOP Taxwriters’ Budget Wish List - Cady Stanton and Doug Sword, Tax Notes ($). "The House Ways and Means Committee adopted its fiscal 2025 budget views on a party-line, 25-16, vote with a letter focusing on rooting out fraud and abuse in various programs including ERC, COVID-19 pandemic-era unemployment programs, health care and Social Security."

The limits of flex accounts

Beware of companies misrepresenting nutrition, wellness and general health expenses as medical care for FSAs, HSAs, HRAs and MSAs - IRS:

Amid concerns about people being misled, the Internal Revenue Service today reminded taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law.

...

Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.

For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the 'doctor's note', the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.

The IRS reminds administrators that reimbursing bad claims can wreck the plan even for qualifying claims:

FSAs and other health spending plans that pay for, or reimburse, non-medical expenses are not qualified plans. If the plan is not qualified, all payments made to taxpayers under the plan, even reimbursements for actual medical expenses, are includible in income.

Blogs and bits

Don't fall for Form 1099-K myths this tax filing season - Kay Bell, Don't Mess With Taxes. Myth #3: "If you don't get a Form 1099-K, they don't have to report income. Very wrong, and potentially costly if the IRS finds you didn't include all your income on your tax return. Federal tax law says all income is taxable unless it is specifically excluded by law. Taxpayers should report any profits from selling goods or services, regardless of if they receive a Form 1099-K or any other tax statement."

Taxpayers should report digital asset transactions, gig economy income, foreign source income and assets - IRS:

Taxpayers are required to report all income earned from the gig economy on a tax return, even if the income is:

-From temporary, part-time or side work.

-Paid through digital assets like cryptocurrency, as well as cash, goods or property.

-Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

Taxpayers can visit the gig economy tax center for more information on the gig economy.

Why increase the 1099 filing threshold (why increase the tax gap)? - Annette Nellen, 21st Century Taxation. "Over the years there have been proposals to increase the filing threshold under IRC §6041 for 1099-MISC and 1099-NEC which has been $600 since 1954. But, as I've posted about before (see for example my 6/11/23 post), increasing the threshold at which an issuer needs to issue one of these forms results in more individuals not reporting their income."

Tax Refunds Creep Towards $100 Billion As Tax Filing Season Marches On - Kelly Phillips Erb, Forbes ($). "While the number of returns submitted wasn’t overwhelming, neither is the speed of processing. The data shows that the IRS has processed 44,073,000 individual income tax returns as of February 23, 2024, as compared to 45,722,0000 by February 24, 2023. That's a decrease of just 3.6%."

Corporate Transparency Act – Unconstitutional, But Keep Reporting! - Virginia La Torre Jeker, US Tax Talk. "In a nutshell, per FinCEN, in order to be covered by the court’s holding, one had to be a member of the National Small Business Association as of March 1, 2024.  What this means is that non-exempt 'reporting companies' that are not plaintiffs in this case are not impacted by the decision and per FinCEN remain obliged to meet the beneficial ownership reporting and other requirements of the CTA. This would include the 90-day reporting deadline for entities formed in 2024."

Related: Corporate Transparency Act Mandates Stricter Federal Disclosures 

International Tax Corner

A Primer On The OECD’s Global Minimum Tax And How It Could Affect The US - Thomas Brosy, TaxVox. "Following release of the Organisation for Economic Co-operation and Development’s (OECD’s) model global minimum tax rules in December 2021, European Union member states and many other large economies like Australia, Japan, and the UK now have adopted a global minimum tax of 15 percent."

Goal Is Still For A Mandatory Amount B, Treasury Official Says - Natalie Olivo, Law360 Tax Authority ($):

U.S. Could Lose Billions Under OECD Pillar 1 Tax Rules, JCT Says - Stephanie Soong, Tax Notes ($):

Revised profit allocation rules under pillar 1 of the OECD’s two-pillar global tax reform plan could have cost the United States as much as $4.4 billion in 2021, according to caveated estimates from the Joint Committee on Taxation.

In a March 5 report (JCX-7-24), the JCT estimated that if pillar 1 amount A rules had been in effect in 2021, the United States would have lost $1.4 billion in federal tax receipts that year. 

Estimating the OECD Min Tax's Indirect Effects - Alex Parker, Things of Caesar. "One question that’s lingering over the entire debate is to what extent companies will respond to the new minimum tax by shifting, or declining to shift, income from the low-tax jurisdictions where it would otherwise be targeted by the minimum tax. In other words, will the minimum tax, also known as Pillar Two, mainly function as a revenue-raiser, or as a disincentive?"

Related: Eide Bailly International Business Structuring.

Department of This Doesn't Work

Chipley “sovereign citizen” convicted at trial of $3.4 million tax fraud scheme, filing a false lien, and absconding while on bond - IRS (Defendant name omitted, emphasis added). 

According to evidence presented at trial, in 2008 and 2009, Defendant operated a website called commercialredemption.com on which she promoted the use of IRS form 1099-OID to commit tax fraud. Defendant identified as a so-called “sovereign citizen” and perpetuated the false premise that the U.S Treasury maintains secret accounts attributed to every U.S. citizen that can be drawn on by filing a series of bogus documents with the U.S. Treasury and other government entities.

If that were true, I definitely would have mentioned it here.

As part of this fraud scheme, Defendant also promoted the use of IRS form 1099-OID to fraudulently report to the IRS debts – including mortgages, student loans, credit card debts, and court judgments – as income, along with 100% withholdings of that “income” in informational returns in order to overcome the IRS’s internal controls and induce the IRS to issue refunds that were not owed. The proper use of the 1099-OID form is for companies such as brokers to report to the IRS income received by the purchaser of a discounted security. Defendant personally created and submitted to the IRS 1099-OID forms that were fraudulent on their face.

After submitting the fraudulent 1099-OID forms, Defendant’s co-conspirators would prepare and submit fraudulent returns seeking massive refunds, in one case exceeding half a million dollars on a single return. All of these refunds were based on non-existent 1099-OID “income” and withholdings. The conspiracy resulted in the submission of at least 22 returns requesting fraudulent refunds totaling at least $3.4 million from the IRS.

The case has a backstory where the defendant cut off her GPS ankle monitor and spent 8 1/2 years as a fugitive. This reduces the chances she will be freed pending sentencing. 

What day is it?

Because "froot" is healthy. It's National Cereal Day!