Tax News & Views PBJ and Scammer Roundup

IRS warns taxpayers to stay away from ‘helpful’ scammers offering to set up an Online Account - IRS:

An IRS Online Account allows taxpayers access to the information about their tax account. They can log in and get the latest on their payment history, current balance, see copies of select IRS notices and more. It is a useful and easy to use tool that scammers target.

The third-party helper scam begins with swindlers posing as a "helpful" third party who offers to help create a taxpayer's IRS Online Account at IRS.gov. Third parties make these offers to steal a taxpayer's personal information. While they may make it seem like a complicated task needing their assistance, taxpayers can and should establish their own Online Account through IRS.gov.

These scammers often ask for the taxpayer's personal information including address, Social Security number or Individual Taxpayer Identification number (ITIN) and photo identification. They can sell the information or use the sensitive details to file fraudulent tax returns, obtain loans and open credit accounts.

It's not hard to set up an online account. Most taxpayers can do it themselves without help. If you want help, talk to your tax pro or a trusted relative.

Still working around after all these years.

Federal Court Finds SALT Workaround Regs Reasonable - Andrea Muse, Tax Notes ($):

A federal district court has rejected a multistate challenge to the IRS’s regulations on charitable contribution workarounds to the federal cap on the state and local tax deduction.

When the 2017 tax act limited itemized deductions for state and local taxes to $10,000, a few states floated an idea where taxpayers could "contribute" amounts to a state and then get dollar-for-dollar state tax credit - in other words, changing the deduction for state and local taxes to a charitable deduction. 

Gardephe granted the federal government’s motion for summary judgment, however, after concluding that nothing in IRC section 170, which allows a deduction of any charitable contribution made within the tax year, suggests “that Congress intended charitable contributions made to state or local government sponsored funds — in exchange for tax credits — would be exempt from the standard rule that the amount of a federal charitable contribution is reduced by the amount of the benefit received.”

States’ Challenges to Federal SALT Deduction Cap Thrown Out - John Woolley, Bloomberg ($):

The decision is a major blow to any state attempts for residents donate to charity and earn equivalent credits on their state and local taxes, while also deducting the donation from their federal income tax. Under the upheld Treasury rule, those federal deductions are limited by the amount of credits they generate for state and local taxes—negating much of the tax benefit.

A different method used by states to counteract the SALT deduction cap—allowing pass-through businesses, instead of their individual owners, to pay income tax and owners to get a state credit for their share of the amount paid—is likely unaffected by the ruling.

More than likely.

But what is often left out of the discussion is that the TCJA was both a tax-cutting and base-broadening bill. The tax overhaul was scored (JCX-67-17) as costing $1.5 trillion over 10 years, but that included $5.5 trillion in tax cuts and $4 trillion in base broadeners, also known as pay-fors or budget offsets. By comparison, the Inflation Reduction Act was scored (JCX-18-22) as raising $362 billion in new revenues but costing $271 billion in tax incentives, although cost estimates on those incentives have since nearly tripled.

If groups are successful in lobbying for the expiration of those base broadeners — the biggest being the $10,000 SALT deduction limitation and the diluted mortgage interest deduction — that would balloon the cost estimate, according to Arnold Ventures’ George Callas, former senior tax counsel to the House Ways and Means Committee and House Speaker Paul Ryan.

A Million Simulations, One Verdict for US – Debt Danger Ahead - Bhargavi Sakthivel, Maeva Cousin, and David Wilcox, Bloomberg ($). "In the end, it may take a crisis — perhaps a disorderly rout in the Treasuries market triggered by sovereign US credit-rating downgrades, or a panic over the depletion of the Medicare or Social Security trust funds — to force action."

Tax life abroad

The Dizzying Tax Challenges for U.S. Citizens or Residents Living Abroad - Erin Collins, NTA Blog:

If you are a U.S. citizen or resident living abroad, you are generally required to file income tax returns and pay estimated taxes in the same way as taxpayers residing in the United States. You may still be able to claim various tax benefits, but the eligibility rules can be complex. Some of these available benefits include the ability to exclude certain income earned overseas, to exclude (or deduct if self-employed) some of your foreign housing expenses, and to claim the foreign tax credit if you paid income taxes to a foreign country and are subject to U.S. tax on that same income. Other tax benefits that you may be able to claim include but are not limited to the Earned Income Tax Credit, education credits, the Child Tax Credit, and the Child and Dependent Care Credit. For more information, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and the IRS website for U.S. Citizens and Residents Abroad.

In addition to intricate rules for the taxation of income of U.S. taxpayers abroad, the United States has bilateral income tax treaties with 66 countries. If you live in one of these countries, you should determine if there are treaty benefits relevant to you.

Related: Eide Bailly Global Mobility Services.

Blogs and bits

6 tax moves to make this April - Kay Bell, Don't Mess With Taxes. "Tax Day is just 14 days away, and the Internal Revenue Service is waiting on literally millions of returns. If you're among these later filers, don't panic. You still have plenty of time to finish that Form 1040." 

Or extend it, like I will. 

Tax Breaks: Income And Deductions Don’t Always Fit Nicely On Your Tax Return - Kelly Phillips Erb, Forbes. "Some income associated with investments may be from certain entities—like partnerships—that issue something other than a Form 1099."

Bozo Tax Tip #10: Email Your Social Security Number or EIN! - Russ Fox, Taxable Talk. "Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number... A friend told me, 'Well, I’m not emailing my social, I’m just attaching my W-2 to the email.' An attachment is just as likely to be read as an email. Just say no to emailing your social security number."

Tax help for new parents - IRS. "Taxpayers who claim at least one child as their dependent on their tax return may be eligible for the child tax credit. for help figuring out if a child qualifies for this credit, taxpayers can check Does my child/dependent qualify for the child tax credit or the credit for other dependents?"

Proposed Regs Identify Charitable Remainder Annuity Trusts as Listed Transactions - Parker Tax Pro Library. "In these transactions, a grantor creates a trust purporting to qualify as a CRAT under Code Sec. 664. Generally, the grantor funds the trust with property having a FMV in excess of its basis (appreciated property) such as interests in a closely-held business, and/or assets used or produced in a trade or business. The trust then sells the appreciated property and uses some or all of the proceeds from the sale of the contributed property to purchase an annuity."

Charitable Distributions From IRAs - What Can Possibly Go Wrong? - Peter Reilly, Forbes. "If you have a pretty casual attitude toward how you put your material together to give it to your tax preparer, there is a good chance that the exclusion that you are entitled will be missed... If you don't do your own return the most important takeaway is to communicate clearly with your tax preparer- Reilly's Ninth Law of Tax Planning - Tell the preparer what the plan is. Then look for that QCD on line 4, before you give your final blessing to the return."

Tax Policy Corner

What Trump’s 100 Percent Auto Tariff Would Mean For The US Economy - Howard Gleckman, TaxVox. "It could be catastrophic.  At a time when so many worry about inflation, past experience with other goods suggests a tariff likely would drive up the cost of motor vehicles, domestic as well as imports, used cars as well as new. And rather than add jobs, as Trump insists, these tariffs likely would send thousands of US workers to the unemployment line."

Taxes and the Olympics - Annette Nellen, 21st Century Taxation:

On March 1, the Commission on the State of U.S. Olympics & Paralympics issued a report: Passing the Torch - Modernizing Olympic, Paralympic, & Grassroots Sports in America. Per the announcement, this commission was directed by Congress to study recent reforms of the U.S. Olympic and Paralympic Committee to improve the organization's "ability to fulfill its mission."

The word "tax" appears 39 times in the report. Tax law changes suggested:

Page 17 - allow taxpayers to deduct the costs for their children to participate in youth sports.

Page 18 - allow taxpayers serving as volunteer coaches for youth sports to deduct out-of-pocket expenses....

You get the idea. Tax breaks for Olympians.

Well, that all sounds good - doesn't it?  But do these proposals meet any of the principles of good tax policy?  I don't think so.  Let's look at a few key principles regarding the deduction proposals.

Not every problem is a tax problem.

Tax Recidivist Corner

If at first you don't succeed, try, try, again. Well, perhaps sometimes the lesson of failure is to try something else. But one taxpayer tried again (Defendant name omitted, emphasis added):

A federal jury returned guilty verdicts on 3 offenses on March 28, 2024, against Defendant of Pembroke Township, Illinois, for Filing False Federal Income Tax Returns. Sentencing for Defendant has been scheduled for July 17, 2024, at the U.S. Courthouse in Urbana, Illinois.

During two days of testimony, the government presented evidence to establish that, in January of 2017, Defendant filed three federal income tax returns for the tax years 2012, 2013, and 2014, each falsely claiming that he had earned $10 million in annual income from the “[Defendant Name] Estate.” Defendant further falsely claimed that the IRS withheld over $3 million per year from his earnings each year and that he was entitled to refunds totaling over $6.8 million. In contemporaneous filings, Defendant claimed that he had changed his name to Mulumbua Humraukn El Taikem Bey and that he was the Ambassador for the Al Moroccan Empire National Republic, which is not officially recognized by the U.S. State Department. At the time Defendant filed the three false tax returns, he had just been released from federal prison for a prior conviction for filing a false federal tax return in 2005, when he had obtained a $66,282 refund to which he was not entitled.

He went to jail for $66,000, got out, and rolled the dice for $6.8 million. Go big or go home, I guess.

What day is it?

Perhaps the most observed holiday. It's National Peanut Butter and Jelly Day!