Tax News & Views Carrot Burrito Compromise Roundup

Beware of Offer in Compromise 'mills' that falsely claim their services are necessary to resolve IRS debt - IRS:

 As part of the annual Dirty Dozen list of tax scams, the Internal Revenue Service today renewed its warning to taxpayers concerning pricey Offer in Compromise (OIC) "mills” that aggressively mislead taxpayers into thinking their tax debts can disappear.

As in past years, companies running OIC mills continue heavily advertising their promises to settle taxpayer debt at steep discounts for pennies on the dollar. While OIC is a legitimate IRS program, many taxpayers do not meet the technical requirements for the tax resolution program, often leaving them facing excessive fees from the promoters for information they could have easily obtained for free by using the IRS's Offer in Compromise Pre-Qualifier tool.

The OIC is a valuable IRS program to help taxpayers who cannot pay their federal tax debts, and some companies offer legitimate services. But the IRS encourages individuals to take a few minutes to assess the information available on IRS.gov to determine if they meet the eligibility criteria for the OIC program and to avoid hiring expensive promoters.

I once worked with a family business where one sibling-owner didn't want to pay for tax planning because you could settle for "pennies on the dollar" anyway. Who ever heard of an ad on sports radio being wrong?

Related: IRS Dispute Resolution and Collections.

New Jersey Tax Preparer Charged in COVID-19 Employment Tax Credit Scheme - U.S. Department of Justice (Defendant name omitted, emphasis added):

A federal grand jury in Newark, New Jersey, returned an indictment today charging a New Jersey tax preparer with fraudulently seeking more than $150 million from the IRS by filing more than 1,600 false tax returns for himself and his clients that claimed COVID-19-related employment tax credits.   

...

Defendant allegedly falsely told his clients that the government was giving out COVID-relief money for businesses and that they were eligible for it simply because they had a business. Defendant allegedly submitted forms to the IRS on behalf of his client’s businesses, often without consulting his clients, that grossly overstated the number of employees and the amount of wages paid to fraudulently claim these COVID-related tax credits. Defendant allegedly submitted similarly false forms for four of his own companies.

According to the indictment, based on these and other misrepresentations, Defendant fraudulently sought more than $150 million in tax refunds on behalf of his companies and numerous other businesses in his clients’ names. 

The IRS allegedly disbursed at least $40 million in tax refunds to Defendant’ clients based on the false tax forms that Defendant filed. Defendant allegedly collected a percentage of the tax refunds the client received from the IRS as a fee. At Defendant’ request, many clients allegedly paid him those fees in cash. Defendant allegedly did not report on his or his businesses’ tax returns some of the income he received from clients as his share of the fraudulent obtained tax refunds. The IRS also allegedly directly mailed Defendant multiple tax refund checks totaling $1,428,592 based on false claims he submitted relating to his businesses.

He probably got a pretty strong hourly rate, anyway.

D.C. doings

House GOP Taxwriters Miffed Over Senate’s Delay of Tax Bill - Cady Stanton and Doug Sword, Tax Notes ($):

House Republican taxwriters are complaining about Senate politics and gridlock thwarting action on a tax bill that found overwhelming support in their chamber, seeming to turn the tables after months of infighting in the House.

Senate Finance Committee ranking member Mike Crapo, R-Idaho, and other members of his caucus have objected to aspects of the House-passed Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), leaving the bill stuck in the Senate for over two months. But the explanation for the holdup isn’t singular and includes frustrations over a lack of original involvement, not enough party consensus, and thoughts that 2025 might be better political timing for the bill.

This is the house-passed bill that would restore full deductions for domestic research expenses and 100% bonus depreciation, as well as loosening restrictions on deducting business interest. Taxpayers facing big tax bills because they can't deduct their research costs might have their own thoughts on political timing. 

Politico Pro reports ($) "It’s not clear at the moment how interested Senate Majority Leader Chuck Schumer (D-N.Y.) is in that bill these days, but the business community is still trying to round up support."

Capitol Hill Recap: Wonk Out!- Jay Heflin, Eide Bailly:

Using current policy, the 37 percent rate would be extended, and therefore no revenue change because the tax law would be the same. In short, extending all TCJA tax cuts in 2025 would not cost the federal government a dime.

Under current law, extending the 37 percent rate would be compared to 39.6 percent and the U.S. government would receive less revenue. In short, extending all TCJA tax cuts in 2025 would cost the federal government many “dimes”.

I would quit my slot machine habit, but under current policy my casino trips incur no additional cost.

IRS Looks to Analytics, Outside Help on Partnership Audit Effort - Caleb Harshberger, Bloomberg ($):

The agency has reached out to tax experts and other groups as it looks to quickly hire and train auditors and to beef up its systems to go after large complex partnerships, the IRS’s Cliff Scherwinski said this week during an American Bar Association webinar. Scherwinski is director of pass-through entities at IRS’s Large Business and International Division.

The IRS said in January it has zeroed in on 76 of the largest partnerships—hedge funds, real estate investment partnerships, publicly traded partnerships, and large law firms—all of which average over $10 billion in assets each. It also sent compliance warnings to 480 partnerships with over $10 million in assets with discrepancies on balance sheets between end-of-year balances compared to the beginning balances the following year, and it has contacted 1,600 millionaires who owe at least $250,000 in taxes.

The IRS audit rate for partnerships has fallen to very law levels. Partnership tax is hard. It won't be easy to "quickly hire and train" new auditors. Ten first-year auditors do not equal one ten-year audit veteran.

Blogs and bits

Tax relief for those affected by terrorist attacks in Israel is available through Oct. 7 - Kay Bell, Don't Mess With Taxes:

Who qualifies? The IRS notes that the tax relief is available to any individual whose principal residence is in Israel, the West Bank, or Gaza.

The tax relief also extends to any business entity or sole proprietor with a principal place of business is in those locations, known collectively as the covered area.

IRS Dirty Dozen List Advises Taxpayers And Tax Pros To Watch Out For Scammers - Kelly Phillips Erb, Forbes ($). "Specifically, phishing is a form of email sent by scammers impersonating the IRS or other legitimate organizations. The email lures victims by pretending to have something of value—like a phony tax refund—or scaring them into believing that they must act immediately—like suggesting false criminal charges are imminent."

Bozo Tax Tip #7: Anger Your Tax Professional! - Russ Fox, Taxable Talk:

The average tax professional is very stressed out.  Dealing with the IRS has been a disaster for the last few years.  The pandemic hasn’t helped in any way.  Congress (and the IRS) have added new regulations and forms (e.g. Schedules K-2/K-3) that add tremendous busy work with little gain.  My Office Manager recently saw me blow up (and I rarely do that).  I have marked a client that he is getting a “Dear Former Valued Client” at year-end because of what he put me through.  (I’d like to send one to Congress, too, but I can’t do that.)

So do not anger your tax professional…unless you want to find a new one.

International Tax Corner

Pillar Two Windfall Blowing Away? - Alex Parker, Things of Caesar:

The JCT found that any outcome where the world enacts Pillar Two, the U.S. is bound to lose revenue compared to what they would have earned had Pillar Two stayed in the drawing room. If the U.S. elected to do nothing, it could lose $122 billion over 10 years. But if it enacts Pillar Two legislation, it would only lose $56.5 billion. Since we’re now in a world where most countries have already implemented the policy, this means the choice to the U.S. is whether to gain $65.5 billion by enacting Pillar Two in full, against this new baseline.

Interestingly, in the scenario where everyone enacts Pillar Two, most of the new U.S. revenue would come from domestic income, according to JCT. The report states that the difference between the two estimates is largely due to receipts from a qualified domestic minimum top-up tax, the (optional) Pillar Two tax which picks up local income if it is taxed below 15%. This would apply to local subsidiaries of foreign multinational corporations or U.S.-based ones if they had income that qualified.

The OECD describes Piller two as rules "designed to ensure large multinational enterprises (MNEs) pay a minimum level of tax on the income arising in each jurisdiction where they operate."

UK Seeks To Share Country-Level Tax Reports, Official Says - Kevin Pinner, Law360 Tax Authority ($):

The U.K. government wants to allow low-income countries greater access to country-by-country reports of multinational corporations' tax data as a way to help them recover revenue that they're owed, a Cabinet official said Wednesday.

The article quotes Andrew Mitchell,  the U.K.'s minister of state for development and Africa:

Mitchell said the U.K. also is working on capacity building to help tax authorities in developing countries implement the 15% global minimum tax, a policy orchestrated by the Organization for Economic Cooperation and Development that largely depends on country-by-country reports to implement.

LG’s Ruling Family Loses Bid to Reduce 50% Inheritance-Tax Bill - Jiyoung Sohn, Wall Street Journal:

On Thursday, a Seoul judge dismissed a lawsuit filed by the LG founding family, who had sought to recoup roughly 1% of the $735 million paid to the government in inheritance taxes following the 2018 death of former chairman Koo Bon-moo.

...

South Korea boasts a 50% inheritance-tax rate, topped only by Japan’s 55% among members of the Organization for Economic Cooperation and Development, according to the Tax Foundation, a Washington-based think tank. By contrast, the U.S. and U.K. have rates of 40%, while the OECD average stands at 15%.

Related: Eide Bailly Foreign Trust & Estate Tax Compliance & Planning.

Transparency Triumph? How the Corporate Transparency Act Impacts Foreign Investors in the USA - Virginia Law Torre Jeker, US Tax Talk. "The CTA requires US entities (including for example, US LLCs, corporations, partnerships), and  certain foreign entities (e.g., that register to do business in a state) to disclose to FinCEN, the identity of their beneficial owners by providing their name, date of birth, unexpired passport or driver’s license number and current address."

Taiwan Issues Tax Relief Guidance In Wake Of Earthquake - Jack McLoone, Law 360Tax Authority ($):

Individuals and businesses impacted by the 7.4-magnitude earthquake that hit Taiwan on Wednesday morning are eligible for tax reductions or exemptions if their property was damaged, the country's National Taxation Bureau said.

Those seeking tax relief should apply within 30 days, the tax authority said in a news release. Businesses can apply for reductions based on property losses as well as the number of days they are forced to be closed in some cases, according to accompanying guidance released by the Taiwan Ministry of Finance. Those who sell goods can request a tax cancellation — or refund — of the taxes owed on those goods as well.

Tax goes to court 

Fuddruckers Owner’s Bookkeeping Sinks $8.3 Million Tax Deduction - John Woolley, Bloomberg ($, taxpayer name omitted):

The former owner of several Fuddruckers restaurant franchises isn’t entitled to more than $8.3 million in tax deductions and must pay penalties for her negligent recordkeeping, a federal appeals court affirmed.

CPA and restaurateur Taxpayer challenged a deficiency notice issued by the IRS in 2018, which disallowed her approximately $4 million net-operating loss carryforward deductions for tax years 2014 and 2015. The IRS said she hadn’t established her loss in prior years, nor had she shown that the loss could be carried over.

From the opinion (emphasis added):

With respect to the Tax Court's ruling that Taxpayer failed to show that any 1999-2000 NOL was still available to carry forward for 2014 or 2015 (rather than having been absorbed in the intervening years), Taxpayer suggests in her appellate brief5 that her challenge is based on her tax returns for the years intervening between 2000 and 2014 and especially her “Detail NOL Carryover Worksheet.” However, as noted above, such evidence is insufficient, being merely a statement of the taxpayer's claims. See Roberts, 62 T.C. at 837. Moreover, the Tax Court found that Taxpayer failed to introduce a complete set of her tax returns from 2001 to 2013, and that the snippets that were introduced were insufficient to determine how much of any 1999-2000 NOL carryforward might have been absorbed before 2014.

This case reminds us that when it comes to retaining tax return information, sometimes the best record retention time is forever - especially with regards to tax returns. If you are carrying forward a net operating loss that you will use years later, the IRS might someday ask you to prove the loss long after the normal statute of limitations for the loss year has expired. 

Salesman Admits Lying To IRS In Tax Preparer's Refund Scam - Jared Serre, Law360 Tax Authority ($). "A timeshare salesman who benefited from a scheme that inflated tax refunds pled guilty to obstruction after lying to Internal Revenue Service agents who sought to collect his 2015 tax refund."

The unfortunate timeshare salesman was the client of "...a barred tax preparer whose "note program" falsified returns in order to inflate refunds for participants."

The alleged scheme is described here. It involved "falsely reporting large amounts of income tax withholdings to the IRS, resulting in tax refunds to which the clients were not otherwise entitled." 

It shows that it's not just promoters who can go behind bars for participating in bad tax schemes. Their clients might face jail time too.

What day is it?

It's National Burrito Day and International Carrot Day. Carrot Burrito time!