Tax News & Views Ides of March Roundup

Senate Democrats seek to maneuver tax deal to the floor - Caitlin Reilly, Roll Call:

Currently, there are not 60 votes to advance this bill, and the prospect for Senate passage is looking unlikely. 

Wyden and Crapo reject tax counteroffers… - Laura Weiss and Jake Sherman, Punchbowl News ($):

Talks between the Senate Finance Committee’s top tax writers are at an impasse, imperiling the Wyden-Smith tax bill.

Chair Ron Wyden (D-Ore.) and ranking member Mike Crapo (R-Idaho) traded offers this week on changes to the bill to get the GOP conference on board, but nothing stuck, according to multiple sources familiar with the negotiations.

This tax bill passed the House with resounding, bipartisan support in January by a 357 to 70 vote. It 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.

Controversy surrounds the Child Tax Credit.

A key problem here is that boosting the child tax credit for families who owe little or no income taxes is what brought Democrats to the table, but Crapo and his allies oppose the bill’s focus on boosting refundability. Neither side seems willing to cross its line on this issue. And some Republicans would rather end the talks and address these tax issues next year.

In a recent hearing, Wyden warned that if this tax bill does not pass Congress this year then the tax measures in it will not be a part of the 2025 tax negotiations. That means R&D expensing for domestic firms, expanding the 163(j)-interest deduction, and upping Bonus Depreciation to 100% would not be included in the debate.

Wyden quote: “This set of policies isn’t going to be on the table in 2025 if this bill stalls out.”

Regarding the business tax relief in the bill, there is widespread, bipartisan support for it in the Senate – or at least there used to be:

Finance Republicans Have Problem With Tax Bill’s Retroactivity – Doug Sword and Cady Stanton, Tax Notes ($):

Add retroactivity to the list of concerns that some Senate Republicans have with the $79 billion tax package.

Besides creating a backward set of incentives for rewarding businesses for investments made up to two years ago, some senators worry about the image of windfall refund checks, possibly in the form of billions of dollars for companies under the House-passed tax bill. Microsoft, for example, has the potential to see an estimated $6.49 billion potential benefit from the retroactive repeal.

The problem with the legislation, Senate Republicans say, is that it would reinstate full research and development expensing and more liberal net interest expensing for both the 2022 and 2023 tax years. Another provision would reverse 2023’s reduction of bonus depreciation to 80 percent back to the 100 percent write-off it was in 2022.

Bottom Line:

Tax Deal Vibes – Not Good – Bernie Becker, Politico Pro:

Democrats aren’t sounding optimistic over their chances of reaching a deal with Sen. Mike Crapo, the Senate GOP’s top tax writer, on that big tax package.

An aide to Senate Finance Chair Ron Wyden (D-Ore.) told Pro Tax that Crapo (R-Idaho) presented them earlier this week with a list of proposed changes that Democrats considered completely unacceptable, including changes to the child credit that would have killed support on their side for the bill.

In fact, the aide predicted that even if Senate Democrats did accept Crapo’s proposals, the revised bill would face real trouble getting through the House again.

We All Want Simpler Taxes. Here’s Why That’s So Complicated – Laura Saunders, Wall Street Journal ($):

The trouble is, hard problems seldom have easy answers. And U.S. income-tax complexity isn’t just a hard problem, it’s a mind-boggling one with no silver bullet. 

There are many reasons for this. The tax code reflects the intricacies of modern financial and social life, and it’s also a mishmash of competing policy interests that shift over time and often interact in unexpected ways.

Need help surfing your way through your tax return? 

Let us help you relieve your tax headache – Eide Bailly:

Federal, state, local, and international tax burdens and responsibilities consume time and cash flow. Whether you’re an individual, a business, a nonprofit, or handling a trust or estate, proper planning and guidance from a well-versed professional can make managing taxes less painful.

Eide Bailly has the depth of tax resources to help you gain peace of mind. Plus, our professionals are supported by the National Tax Office, allowing clients to dig into specialized tax situations.

IRS Morsels

IRS Fixes Glitch Involving E-File Materials and EO Return – Fred Stokeld, Tax Notes ($):

An IRS error affecting the agency’s modernized e-file (MeF) style sheets and the information return filed by tax-exempt organizations has been resolved.

MeF style sheets were inadvertently posted online for the tax year 2021 Form 990, “Return of Organization Exempt from Income Tax,” and some associated schedules were labeled as MeF style sheets for tax year 2022, according to the March 14 edition of the IRS’s EO Update newsletter.

The agency said the problem has been corrected, and the 2022 MeF style sheets for Form 990 and associated schedules have been posted on IRS.gov.

IRS' Signals On Economic Substance Doctrine Draw Scrutiny – Dylan Moroses, Law360 Tax Authority ($):

The Internal Revenue Service's recent legal success asserting a doctrine to invalidate transactions in tax law enforcement matters may embolden the government to broaden that argument's reach, and lawyers are concerned it doesn't properly apply to transfer pricing matters.

With the recent increase to IRS funding and focus on corporate taxpayer enforcement, more tax cases will likely surface involving the economic substance doctrine, said Shannon Retzke Smith, a partner at Withers. Tax lawyers told Law360 that attempts to apply the doctrine to intercompany transactions would overlook well-established transfer pricing laws and regulations.

Tax Time Guide: Escape penalties and interest with electronic payment options on IRS.gov – IRS:

With the April 15 filing deadline approaching, the Internal Revenue Service encourages taxpayers who may find it difficult to gather the necessary documents they need to file or pay the taxes they owe to consider several options offered on IRS.gov to avoid late filing and interest penalties.

This is the last in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. As taxpayers approach the April 15 deadline, those who owe taxes can benefit from knowing their options.

IRS Memo Hints at New Focus on Cannabis Info Reporting Compliance – Nathan Richman, Tax Notes ($):

The memo — addressed to an IRS Bank Security Act (BSA) compliance group manager and written by a chief counsel attorney assigned to the Small Business/Self-Employed Division — responds to a series of questions about cash transaction reporting on Form 8300 in the “legalized substance industry,” but its particular relevance to the marijuana industry becomes apparent quickly.

The questions and answers address an array of subjects including the application of the Fifth Amendment to the business description required on Form 8300, reasonable cause to excuse insufficient filing penalties, whether legalized substance businesses are per se suspicious, and filings involving cash couriers. The memo promises “additional guidance on questions related to cash couriers/armored cars who transport cash between growers/manufacturers and dispensaries/sellers.”

IRS Is Making Progress in Modernization Efforts, Watchdog Finds – Erin Slowey, Bloomberg ($). “The IRS has completed about 33% of its transformation initiatives using the tens of billions in funding from Democrats’ 2022 tax-and-climate law, with more in progress, the Treasury Inspector General for Tax Administration said Thursday.”

Court Side

Court Won’t Reconsider Life Insurance Policy Ownership Decision – Tax Notes ($). “A U.S. district court denied a dentist and his company’s motion to reconsider a decision related to the ownership of a life insurance policy, reiterating its prior holding that the split-dollar regulations applied, so the dentist was required to pay tax on the cash value of the policy and the company could not deduct premiums it paid.”

Partner Liable for Failure to File and Pay Additions to Tax – Tax Notes ($). “The Tax Court held an individual liable for additions to tax for failure to pay estimated tax and fraudulent failure to file, finding that the court had jurisdiction in the partner-level proceeding and that a partnership determination was not required, but it lacked jurisdiction over income tax and self-employment tax deficiencies and section 6651(a)(2) additions to tax.”

International zone

Economists Suggest UN Tackle CFC Rules, Other Tax Policies – Kevin Pinner, Law360 Tax Authority ($):

Governments should look at coordinating globally on controlled foreign corporation rules, economic substance requirements, financial transparency, excess profits taxes, inheritance taxes and wealth taxes in negotiations on the nascent United Nations tax convention, economists said Thursday at a conference in Paris.

Economists from the public sector, academia and advocacy groups gathered at Paris School of Economics for a virtually broadcast conference about how a U.N. framework convention on tax could address inequality in Europe and beyond. The U.N. began drafting the terms of the convention in February and is due to finish that work by August. Member countries are expected to begin negotiations under the convention next year.

From the “Taxes in Days of Yore” file

Strange & Unusual Taxes Throughout History - eFlie:

• In 1705, Russian Emperor Peter the Great placed a tax on beards, hoping to force men to adopt the clean-shaven look that was common in Western Europe.
• The French had a salt tax called the gabelle, which angered many and was one of the contributing factors to the French Revolution…
• King Henry I allowed knights to opt out of their duties fight in wars by paying a tax called “scutage" - essentially, a cowardice tax. At first, the tax wasn't high, but then King John came to power and raised it to a rate of 300%. Some claim that the excessive tax rate was one of the things that contributed to the creation of the Magna Carta, which limited the king’s power.
• Oliver Cromwell placed a tax on Royalists, who were his political opponents, taking one tenth of their property. He then used that money to fund his activities that were aimed against the Royalists.

Our trials and tribulations with the current tax code seems trivial compared to these.

What Day Is It?

It’s the Ides of March. Today is associated with “misfortune and doom,” according to Britannica. It is also the day that Julius Caesar was slain. Cheers to surviving the day!