Tax News & Views Napping Through the Deadline Roundup

What's in a deadline? - Bernie Becker, Politico ($). This article advances the depressing thought that the House-passed bill to restore domestic research deductions and 100% bonus depreciation may end up being passed after the 2023 tax season ends:

Now, Wyden and other supporters in the Senate say they hope to have the bill enacted by the close of filing season. And even then, some backers are noting that April 15 wouldn’t be a functional deadline for the tax bill, which gives the IRS authority to automatically send larger child credit benefits to recipients if and when it is passed.

“Folks who are looking for ‘April 15, this vanishes’ — that’s just not true. The reality is, I don't think the clock is running out,” Andrew Grossman, the chief tax counsel for Democrats at the House Ways and Means Committee, said at a Federal Bar Association event this month, as reported by Tax Notes.

Our Jay Heflin reported last week that the bill may never get through the Senate:

No matter the issue, the tax bill is stalled. And there are serious concerns that it won’t pass Congress – ever.

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.

Legislative Outlook: The prospect for passage seems to be dimming. However, there is a saying on Capitol Hill: “All bills are DOA until they pass.”

The tax bill has definitely fulfilled the ‘DOA’ part of the saying. Many are now waiting to see if it can fulfil the ‘passage’ part of the maxim.

State of the State of the Union tax proposals

Questions Remain on Biden’s Billionaire Minimum Income Tax Plan - Alexander Rifaat, Tax Notes ($).

Tax policy observers point out that despite Biden pushing for a minimum tax on billionaires since he began running for president, the proposal has gone nowhere.

“The 25 percent minimum income tax on high-net-worth individuals has not been fully worked out, and I’m not sure it’s workable the way it’s been presented before,” Kyle Pomerleau of the American Enterprise Institute told Tax Notes. Biden’s March 2023 budget proposal, which called for the 25 percent rate to apply to anyone earning more than $100 million, failed to make any headway with congressional Republicans during negotiations.

Details Due on Biden Budget Tax Hikes, IRS Funds - Naomi Jagoda, Bloomberg ($):

President Joe Biden’s 2025 budget plan being released Monday will flesh out the ideas for tax hikes on wealthy individuals and corporations that he laid out in his State of the Union address last week.

...

These ideas are likely dead on arrival this year, given that Republicans control the House and Congress has little bandwidth or appetite to tackle major legislation ahead of November’s elections. But they will be part of Biden’s re-election campaign platform and could be a topic of discussion in 2025, when much of the Republicans’ 2017 tax law is set to expire.

Biden Budget Will Underscore Divide With Republicans and Trump - Jim Tankersley, New York Times. "The new spending and tax increases included in the fiscal 2025 budget stand almost no chance of becoming law this year, given that Republicans control the House and roundly oppose Mr. Biden’s fiscal agenda. Last week, House Republicans passed a budget proposal outlining their priorities, which are far afield from what Democrats have called for."

IRA direct pay

Direct Pay Regs Would Lift Major Barrier For Energy Projects - Kat Lucero, Law360 Tax Authority ($):

Proposed rules released Tuesday by Treasury would allow exceptions to restrictions that largely prevent partnerships from taking advantage of direct payments, a new way to monetize tax credits provided under the 2022 climate law called the Inflation Reduction Act. The regulations propose to exclude some joint ownership arrangements from the partnership prohibition by allowing them to opt out of those restrictions under Internal Revenue Code Section 761.

That would allow many tax-exempt entities to partner with businesses that are more experienced in developing infrastructure projects such as solar energy developments, practitioners told Law360.

Across the pond

'Non-Dom' Tax Reforms Should Keep UK Lawyers Busy - Marialuisa Taddia, Law360 Tax Authority ($). "Setting out his election-year spring Budget in the House of Commons on Wednesday, Chancellor Jeremy Hunt said that new arrivals to the U.K. will be exempt from paying tax on foreign income and capital gains for the first four years of their residency in Britain. Those who continue to live in the country after that will pay the same tax as other residents. The measures take effect in April 2025."

Spring Budget 2024 – Revolutionary shifts for non-doms big changes ahead - Alice Pearson, Mercer & Hole. "From 6 April 2025, regardless of where an individual is domiciled, anyone who has been tax resident in the UK for more than four years will pay tax on their newly arising worldwide income and capital gains, as is the case for all other UK residents."

State update

States Should Steer Clear of Worldwide Combined Reporting, COST Says - Benjamin Valdez, Tax Notes ($):

The report, authored by Doug Lindholm and Marilyn Wethekam of COST and the State Tax Research Institute, a COST affiliate, said that recent proposals on the state level to implement mandatory worldwide unitary combined reporting would run counter to federal and international tax reform efforts and come with a host of other implementation issues.

The reporting method, which would require multinational corporations to apportion income from all sources to a state where they do business, is seen by proponents as a way to curb tax evasion. Minnesota and New Hampshire are among recent states to attempt adopting the policy — both efforts were unsuccessful.

College Athlete Image Deals Create Tax Pitfalls for Students - Timothy Gustafson and Baird Fogel, Bloomberg ($). "States are particularly attuned to situations where high-profile, high-net-worth individuals who have been longtime residents claim to have changed their state of residency. High-profile athletes with NIL deals are likely to face similar scrutiny."

Blogs and bits

Disaster-stricken residents of 8 states now have June 17 as new Tax Day - Kay Bell, Don't Mess With Taxes:

These individual and business taxpayers in San Diego and Spokane become the eighth in the growing list granted the new mid-June Tax Day due to disasters.

They join those who were ill-treated by Mother Nature in Connecticut, Maine, Michigan, Rhode Island, Tennessee, and West Virginia.

S Corp & Partnership Tax Filing Deadlines March 15 - Chris Corban, Tax School Blog. "If additional time is needed, the S corporation and partnership income tax return filing date may be extended another six months by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. This form may be filed electronically with the IRS, or they may be mailed to an IRS service center."

Avoid the §1239 Landmine - Thomas Gorczynski, Tom Talks Taxes. "When capital gain income turns into ordinary income"

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."

IRS resumes nonfiler enforcement programs, initially targeting 2% of the known population - Jim Buttonow, National Association of Tax Professionals. "Over the next few months, the IRS will target 125,000 nonfilers who have reported income to the IRS over $400,000 for the 2017-2021 tax years. The IRS will send these taxpayers the initial delinquent return inquiry notice CP59 requesting that they file voluntarily. If they do not file, the IRS will proceed to enforcement by assessing the taxpayer the projected tax owed in their “Substitute for Return” (“SFR”) program. SFRs also include failure to file and pay penalties and accrued interest owed. The IRS stated that these notices have already started to be mailed to taxpayers."

Five ways to trigger an IRS audit or notice - Michelle Singletary, Washington Post. "If the deduction is allowed, take it. However, deductions that appear out of line with your income can be a red flag. For instance, if you declare $40,000 in income but also claim $10,000 in charitable contributions, the IRS may investigate your extraordinary generosity."

Tax Policy Corner

Three Lessons for Policymakers Designing a State Child Tax Credit - Nikhita Airi and Richard Auxier, TaxVox. "To help state decisionmakers understand the policy choices involved in designing a new or expanded credit, we used the Tax Policy Center state tax model to analyze 36 versions of a hypothetical child tax credit in four states that currently do not provide one: Illinois, Michigan, Nebraska, and Virginia."

Taxpayers Should Be Prosecuted Along with Enablers of Abusive Tax Shelters - Jack Townsend, Federal Tax Crimes. "My argument has been that the way to discourage abusive tax shelters is to prosecute the taxpayers along with the promoters. This would discourage the tax professional penalty insurance industry and abusive tax shelters generally.

In the courts

Corporate Transparency Act Ruling Attracts Attention As Tax Season Rolls On - Kelly Phillips Erb, Forbes:

On its face, the ruling bars the U.S. Treasury from enforcing the CTA against the named plaintiffs—including the 65,000-member NSBA—but does not enjoin enforcement against others.

...

After the ruling, FinCEN announced that they would only follow the ruling in favor of the NSBA's lawsuit to strike down the CTA specifically for NSBA members. The NSBA expects an appeal, with their lawyer telling me that he expects to win on appeal. The general consensus in the business community is that additional lawsuits will follow—this matter is far from over.

It is a good reminder that not all reporting requirements land on your Form 1040. For example, CTA reports are filed not with the IRS, but with FinCEN. The same applies to Reports of Foreign Bank and Financial Accounts, or FBARs.

Fremont business owner sentenced in scheme to use foreign bank accounts to avoid millions of dollars in income taxes - IRS (Defendant name omitted, emphasis added):

Defendant, 56, of Milpitas, Calif., owned and managed QXQ, Inc. (“QXQ”), a manufacturer of circuit board test fixtures based in Fremont, Calif. QXQ shipped its products to customers in the United States and abroad. According to his plea agreement, Defendant admitted that, since before 2014, QXQ maintained two sets of QuickBooks bookkeeping files. One set of books recorded sales to customers in the United States and all of QXQ’s expenses. The second set of books recorded sales to customers in Asia. Defendant directed QXQ’s customers in Asia to wire their payments to QXQ’s bank accounts in New Zealand. The income and expenses of QXQ were reported on Defendant’s individual Form 1040 tax returns. Defendant admitted that he provided his income tax preparer only with the QuickBooks bookkeeping file that recorded QXQ’s sales to customers in the United States and all of its expenses. Further, Defendant acknowledged he knowingly did not provide his income tax return preparer with, or disclose to the tax preparer the existence of, the bookkeeping file that recorded QXQ’s sales to customers in Asia or the statements from his and QXQ’s foreign bank accounts, which included significant interest. Defendant agreed his actions omitted over $4 million in 2017 income, causing his 2017 federal income taxes to be underreported by $1,783,339.

10 months behind bars, and now he has to pay the taxes anyway, probably with a 75% penalty for civil fraud, plus who-knows-what penalties for failing to report foreign accounts. As a wise man says, sometimes it's better to just pay the taxes.

What day is it?

Do not disturb. While it's National Oatmeal Nut Waffles Day, those sound like a lot of work, so I will opt for National Napping Day.

Tax News & Views Napping Through the Deadline Roundup

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Joe B. Kristan, CPA