Tax News & Views Banana Distribution Roundup

Joe Kristan
April 17, 2024

Key Takeaways

  • Minimum distribution relief extended.
  • IRA casts uncharitable eye on NIL collectives.
  • IRS rules on work-life benefits non-taxable.
  • Clean vehicle credit update.
  • Commissioner, Senators spar.
  • Canada hikes capital gain rates.
  • National Banana Day.

More Relief Provided From Required Minimum Distribution Changes - Caitlin Mullaney, Tax Notes ($):

The IRS has provided another round of transition relief from required minimum distribution (RMD) rule changes as anticipation of the long-awaited final regulations mounts.

In Notice 2024-35, 2024-19 IRB 1, released April 16, the IRS said that both taxpayers and defined contribution plans that fail to make a section 401(a)(9) RMD in 2024 that would be required under the proposed regulations (REG-105954-20) will be treated as compliant with the new rules and won’t be subject to any applicable excise tax because of the failure.

The article notes:

Retirement groups have repeatedly expressed concern regarding application of the proposed regs’ new 10-year rule. Under the proposed regs, beneficiaries would be required to follow both the 10-year rule and the “at least as rapidly” rule, under which beneficiaries would be required to take RMDs for the first nine years if RMDs had commenced before the plan participant died.

IRS Gives Another Breather To Taxpayers Who Have Inherited IRAs - Kelly Phillips Erb, Forbes ($):

The rules can be tricky, but generally, the 10-year RMD rule requires that all assets in the inherited IRA must be fully withdrawn by the end of the 10th year following the original IRA owner's death (in the case of a minor child beneficiary, once they reach the age of majority, the 10-year RMD rule kicks in). That sounds easy—but it created some confusion. Some beneficiaries interpreted the language to mean they could wait until the end of the 10-year window to make a complete withdrawal—meaning that they didn't have to make regular withdrawals every year for 10 years. After all, that was consistent with the old five-year rule for certain inherited IRAs.


As a result, in that 2022 notice, the IRS offered transitional relief. Specifically, if a taxpayer did not take a specified RMD in 2021 or 2022 related to an inherited IRA, the IRS agreed not to impose an extra (excise) tax or penalty on that amount in 2022. And, taxpayers who had paid the tax for a missed (related) RMD could request a refund.


IRS looks at NILs, work-life benefits, clean vehicle credits.

NIL Groups Feel Tightening IRS Scrutiny on Tax-Exempt Status - Erin Slowey, Bloomberg:

The IRS has started revoking and not granting the 501(c)(3) status for some of these college-athlete collective groups that aren’t operating for tax-exempt purposes, IRS Commissioner Danny Werfel said during a hearing at the Senate Finance Committee Tuesday.

The agency disrupted the NIL industry last summer after it issued informal guidance that said many organizations created to fund name, image, and likeness deals for college student-athletes won’t be considered tax-exempt. These collectives have received millions in donations from boosters who expect their gifts to be tax deductible.

If bolstering my university's offensive line isn't a charitable purpose, we have lost our way as a nation.

Work-Life Referral Services Deemed a Nontaxable Benefit - Caitlin Mullaney, Tax Notes ($):

The value of work-life referral services provided to employees is excludable from gross income and employment taxes as de minimis fringe benefits, the IRS has clarified.

fact sheet and FAQ released April 16 explains that de minimis fringe benefits have a value and frequency so small that it would be impractical to account for them and that employees use work-life referral services only when they face one of the challenges the programs are designed to address.

IRS Details Reporting Requirements for Clean Vehicle Tax Credits - Caleb Harshberger, Bloomberg ($):

 The information includes how taxpayers are to report vehicle identification numbers to the IRS and what vehicle information dealers have to report and when.

 The FAQs also clarify that dealers aren’t required to verify a purchaser’s income for a credit transfer or advance payment and aren’t required to repay the advance payment if the purchaser exceeds the income limits.

 Dealers do have to disclose applicable income limits to the buyer, who then must attest that they qualify for the credit, according to the filing.


IRS Commissioner visits Congress; more Senate impatience.

Crapo Blasts $104B IRS Request, Asking 'When Is It Going to End?' - Doug Sword, Tax Notes ($):

Mike Crapo, R-Idaho, expressed ire about the $104 billion, 10-year White House spending plan for the IRS, comparing it with a discretionary budget set annually by congressional appropriators at $12.3 billion.


The IRS appears to have given up on annual discretionary appropriations boosts, asking for less than it got in 2022, while switching to a push for $104 billion in new mandatory funding on top of the $80 billion from the IRA. Talking to reporters after the hearing, Werfel disagreed that the agency had changed its funding strategy but acknowledged that efforts to rightsize the annual budget to fit the enlarged agency had been rebuffed. He pointed to vastly improved customer service figures, crediting the 5,000 employees the IRS added to the phone center.


Werfel Touts IRS Customer Service and Direct File Success - Benjamin Valdez, Tax Notes ($):

An immediate project on the table is direct file. Werfel said the IRS isn’t ready to announce its next steps on the pilot program, which allows taxpayers in 12 states to file their tax returns directly through the agency for free, but that a full update that includes cost estimates and participation levels can be expected soon as the agency gains a more complete picture of the filing season.

Also on the horizon is an update on the IRS’s effort to improve its processing power.

“The main system at the IRS — that is the engine for all individual returns — is on the cusp of finally being turned into a modern solution — that is coming after this filing season, and we’ll be able to have more on that,” Werfel said in response to a question from Sen. Maggie Hassan, D-N.H., regarding the agency’s IT modernization efforts.


Impatience over stalled tax deal grows in Senate - Tobias Burns and Aris Folley, The Hill: 

Supporters of a bipartisan tax deal that sailed through the House in January are growing impatient as the measure stalls in the Senate amid Republican opposition to the bill’s expansion of a credit for working families.

The deal, known as the Tax Relief for American Families and Workers Act, pairs an expansion of the child tax credit (CTC), which raised millions of children out of poverty during the pandemic, with established business tax breaks that were canceled to help pay for the 2017 Trump tax cuts.


Sen. Mike Crapo (Idaho), top Republican on the Senate Finance Committee and a key negotiator in talks, told The Hill on Tuesday that negotiations remain “at a standstill,” while accusing Democrats of “trying to just cram the bill down on the floor.”

So, no visible progress.


Oh Canada

Canada Hikes Capital Gains Tax to Raise Billions for Housing - Erik Hertzberg, Bloomberg:

Finance Minister Chrystia Freeland said the government will tax Canadian companies on two-thirds of their capital gains, up from half currently. That change will also apply to individual taxpayers when they have gains over C$250,000 ($181,000) in a year, though people will still be able to sell the homes they live in tax-free. 


The capital-gains inclusion rate hasn’t been this high in decades in Canada. The government expects the hike to generate C$6.9 billion in the current fiscal year, partly because some investors and businesses will rush to sell ahead of a June 25 deadline to avoid the higher tax rate.


Blogs and bits.

Didn't file a tax return on April 15? Make these moves NOW! - Kay Bell, Don't mess With Taxes. "While the IRS won't take your failure to file your return and pay any tax you owe personally, the agency isn't going to overlook your tax rudeness either. And if don't take some tax action soon, it's going to cost you. Possibly big time."

Will Putting Your Tax Return On Extension Increase IRS Audit Risk? - Robert Wood, Forbes. "There are differing views about what prompts an audit, but there is no data suggesting that tax returns filed on extension are more likely to be audited. If anything, I would argue that filing on extension may actually decrease your audit risk. After all, many returns filed right at the deadline are filed in haste, some carelessly."

Tax Court Invalidates Regulation on Disaster-Related Postponements of Filing Deadlines - Parker Tax Pro Library. "The Tax Court held that Code Sec. 7508A(d), which provides for a mandatory 60-day extension of certain tax-related deadlines by reason of a federally declared disaster, is self-executing and automatically postpones all of the acts referenced by Code Sec. 7508A(a), including the filing of a Tax Court petition for the redetermination of a deficiency."


Tax policy and politics

Americans Are Still Paying for the Trump-Biden Tariffs - Erica York, Tax Policy Blog ($): "Reelecting President Trump would clearly entail billions more in added annual tax costs from higher tariffs, which would invite significantly worse economic distortions and losses than the initial trade war. At the same time, it remains unclear how reelecting President Biden would alter the course of the trade war. The Biden administration has still not published the findings of its statutory review of the Section 301 tariffs on China, though it is expected to retain most of the tariffs. Unfortunately, when it comes to the trade war tariffs, it seems both candidates support higher taxes on American consumers and the increased economic distortions that follow."


Tax debt shadows Steve Garvey as he runs for Senate - Christopher Cadelago, Politico:

Steve Garvey, the Republican Senate candidate in California, struggled to pay his taxes following his Major League Baseball career while serving as an entrepreneur and pitchman for alternative health remedies.

Garvey and his businesses were named in more than 40 tax liens, federal and state, totaling about $3.85 million over the last four decades, according to documents at recorders offices, largely in Los Angeles and Riverside counties.

The article says the tax issues have been dogging the ex-Dodger for decades. The IRS has a long memory. 


Courting tax trouble

Ohio Financial Planner Sentenced to Prison for Promoting an Illegal Charitable Contribution Tax Shelter - U.S. Department of Justice (Defendant name omitted, emphasis added):

A financial planner from Cleveland was sentenced to 20 months in prison for conspiring to defraud the United States by promoting an illegal tax shelter scheme involving false charitable deductions.

According to court documents and statements made in court, Defendant was the president and chief executive officer of Associated Concepts Agency Inc. He promoted a fraudulent tax shelter known as the “Ultimate Tax Plan” or the “Advanced Legacy Plan” that was organized, marketed and sold by his co-conspirator....

They marketed the scheme as a way for high-income clients to reduce their taxes by claiming deductions for charitable donations that the organizers knew were fraudulent. In particular, Defendant and others promoted the scheme as a way for clients to receive the deduction without relinquishing ownership or control over the assets the clients purported to have donated. Defendant continued to sell the scheme despite being warned by several attorneys that the scheme was illegal.

We mentioned the 8-year sentence the financial planner's business associate received last week. The plan involved claiming charitable contributions where no money actually went to charity. Yesterday's roundup covered a trial involving a "gain elimination plan" using allegedly-fraudulent charitable deductions. 

If you want a charitable deduction, it can't still be your money.


Tax Court Rejects Couple’s Claim That Closing Agreement Signatures Were Forged - Tax Notes ($). "The Tax Court held that a married couple signed an IRS closing agreement waiving their right to claim the foreign earned income exclusion provided by section 911 regarding wages earned at a joint military base in Australia."

This is a strange case, and it went badly for the taxpayers. From the opinion: 

Petitioners have offered no plausible explanation as to who “forged” their signatures on the Closing Agreement, or why anyone at Raytheon would have done this. Mr. Christensen, who witnessed Taxpayer's signature on the Declaration, was the Raytheon employee responsible through February 2016 for the entire closing agreement process. He testified — firmly and credibly — that he would never have forged a signature on any document, much less a document that he was tasked with submitting to the IRS. If petitioners had really declined to sign the Agreement, Raytheon's obvious response — as stated in the Declaration and Handbook — would have been to withhold Australian tax from Taxpayer's wages. The notion that a Raytheon employee would instead forge petitioners' signatures on a closing agreement is wholly implausible; that person would have everything to lose, and nothing to gain, by doing this. Petitioners offer nothing but conspiracy theories in support of a contrary conclusion.

The moral? What you sign, you might not be able to unsign.


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About the Author(s)

Joe Kristan

Joe B. Kristan, CPA

After 38 years centered on tax consulting for closely held businesses and their owners, Joe is joining Eide Bailly's National Tax Office. Joe's responsibilities include communication, process improvement and training. He is a principal contributor to the Eide Bailly Tax News and Views blog, providing daily updates on tax reform and other tax news. Joe is a Certified Public Accountant and a member of the AICPA Tax Section and Iowa Society of Public Accountants.

Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.