Tax News & Views The Art of the Cherry Cheesecake Roundup

Art Deduction Scams Targeted in IRS Crackdown on Rich Tax Cheats - Erin Schilling, Bloomberg:

People who donate art can deduct its value from their taxes. But the IRS cautioned in its dirty dozen list that “promoters” sell people discounted art, promise it’s worth more, then encourage them to donate it after holding it for a year. Taxpayers then deduct the inflated valuation from their tax bill.

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Tax professionals are advising their clients about how to prevent the IRS from challenging their art donations and slapping them with high penalties. In particular, they’re warning taxpayers against taking the advice of promoters who make lofty promises.

Once when state lawmakers proposed a tax credit for artists donating their work to charity, I made a sarcastic proposal for a Museum of Deductible Art, based on silly appraisals. My snark, someone else's business model.

Missed the April tax-filing deadline? File quickly to avoid penalties and interest; those owed a refund also shouldn’t forget to file - IRS

Taxpayers who still owe taxes should file their tax return and pay any taxes owed quickly to reduce penalties and interest. Until the balance is paid in full, interest and penalties accrue on taxes owed.

Even if a taxpayer can't afford to immediately pay the full amount of taxes owed, they should still file a tax return and pay as much as possible. This reduces interest and penalties on the outstanding amount and may help avoid a possible late-filing penalty.

There are options for taxpayers who owe the IRS but cannot afford to pay. For more information see the penalties page on IRS.gov.

Taxpayers may qualify for penalty relief if they have filed and paid timely for the past three years and meet other important requirements, including paying or arranging to pay any tax due. For more information, see the first-time penalty abatement page on IRS.gov.

Related: IRS Collection Issues

One night in Iowa

Iowa Lawmakers Approve Accelerated Flat Income Tax - Emily Hollingsworth, Tax Notes ($):

Under S.F. 2442, the state's graduated income tax brackets would be replaced with a 3.8 percent flat income tax for tax years beginning on or after January 1, 2025. Under current law, the flat tax will take effect for tax year 2026 and after at a rate of 3.9 percent.

S.F. 2442 cleared the Senate on a 39-7 vote and the House on a 68-24 vote on April 19, one day before the session adjourned.

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The measure would also allow for the deduction of expenses allocable to investments in an investment subsidiary for purposes of the franchise tax.

In a separate measures, the General Assembly approved a restoration of the exclusions for capital gain income on the sale of breeding livestock (HF 2649), retroactive to 2023. An extension of the retired farmer lease income exclusion to pass-through income (HF 2666) and a proposal to revive the Iowa Film Tax Credit (HF 2662) both cleared the Iowa House, but died without coming to a vote in the Iowa Senate.

Crypto, weed, and tax refunds

IRS Releases Draft Of New Crypto Tax Form Used To Report Transactions - Kelly Phillips Erb, Forbes ($).

Under the proposed regulations, brokers, including digital asset trading platforms, digital asset payment processors and certain digital asset hosted wallet providers, would be required to report sales or exchanges of digital assets on or after January 1, 2025, on the form. In certain circumstances, brokers would also be required to include gain or loss and basis information for sales that occur on or after January 1, 2026—much like the 2008 requirement that brokers report the cost basis of certain securities to the IRS when a sale occurred.

The proposed regulations would also require real estate reporting persons (title companies, closing attorneys, mortgage lenders, and real estate brokers) who are treated as brokers, to report the disposition of digital assets paid as consideration by purchasers in real estate transactions that close on or after January 1, 2025. These reporting persons would also be required to include the fair market value of digital assets paid to sellers in real estate transactions that close on or after January 1, 2025, on Form 1099-S, Proceeds From Real Estate Transactions. (Form 1099-S is an existing tax reporting form.)

Weed Industry Is ‘Begging’ for Federal Taxes—Just Not Too Much - Samantha Handler, Bloomberg ($):

Cannabis companies and lobbyists expect the Biden administration to reclassify cannabis as a Schedule III substance in the coming months, which could pave the way for legalization. Cannabis is currently a Schedule I substance, so it’s not taxed at the federal level and business owners can’t take advantage of deductions and other tax breaks available to other companies.

With schedule changes and possible legalization in the years ahead, some groups want to get ahead of the conversation around what a federal cannabis tax would look like.

In some states, high legal cannabis taxes have preserved the old black market.

2024 tax refund: Smart ways to spend your check, according to experts - Jeremy Tanner, The Hill. "The average refund in 2024 was $3,011, according to the IRS, up from $2,878 the year before – but should that money go to paying down debt, investing or maybe a summer vacation?"

Blogs and bits

Checking out the 2023 tax returns of Biden and Harris - Kay Bell, Don't Mess With Taxes. "Adjusted gross income: The President and First Lady Jill Biden made a combined federal adjusted gross income (AGI) of $619,976 in 2023, which is about 7 percent more than they reported in 2022. They paid combined federal income tax of $146,629 this year, for an effective tax rate of almost 23.7 percent."

An Identity Protection Unit Saga: Part 6 - Russ Fox, Taxable Talk. "It turns out that my client’s return needed two special processes run in order to be processed and the refund issued."

IRC §179 Expense vs. Bonus Depreciation - Tax School Blog. "Both §179 and bonus depreciation enable taxpayers to deduct the cost of newly acquired property the year they put the property into service. For assets placed in service in 2023, §179 allows up to 100% of the cost as a current-year deduction, while bonus depreciation only includes 80% of the cost of the property."

Earth Day and Taxes - Annette Nellen, 21st Century Taxation. "How about some individual tax credits to help reduce fossil fuel use? The Inflation Reduction Act of 2022 added a used clean vehicle tax credit and modified credits for new clean vehicles and residential improvements. See this 8/21/22 post for some information on the IRA and track changes to IRC Sections 25C, 25D, 25E, and 30D to learn more about these changes."

How Zero-Sum Thinking May Affect Attitudes About Taxes - Howard Gleckman, TaxVox.

Do you think about the world as “zero-sum,” where resources are limited and my gain is your loss? Or do you believe that resources are plentiful and we all can benefit from one another’s success?

The answer says a lot about how you see taxes, as well as immigration, universal healthcare, affirmative action, and many other policy choices. But new research suggests that the way people think about these questions and their links to policy preferences are more complicated than they may first seem.

Taxes in the courtroom

Tax Court Rejects Another 2000 era B****** Tax Shelter and Imposes Accuracy Related Penalty - Jack Townsend, Federal Tax Procedure. "I note this case because the partnership used the standard shield of the tax professional opinion letters that incentivized taxpayers blessed with significant income to play the audit lottery, which they hoped was cost-free with liability if caught only for tax and interest but no penalty (civil or criminal). Under the scenario without a penalty if caught, it still made sense to play the audit lottery because the upside if not caught was the avoided/evaded tax less the transaction costs (including legal opinions)."

Jury Will Decide On $43 Million Tax Refund Claim By Zaxby’s Cofounder - Peter Reilly, Forbes. "The Townley appraisers argue that gravel mining is the highest and best use. Further in their view there are no comparable sales of land with proven reserves since the information is not publicly available. Hence they value the property, in part, by taking the discounted cash flow from mining for the next twenty years. The appraisers for the government do not agree that the gravel mines are economically feasible."

Pattern of Tax Avoidance Seals $2M Fraud Penalty at Tax Court - Chandra Wallace, Tax Notes ($; taxpayer name omitted):

A business owner who failed to file returns for a decade and refused to cooperate with the IRS — even after four days in jail — is liable for unpaid taxes and penalties, the Tax Court ruled.

In an April 22 memorandum opinion... Judge Joseph Robert Goeke found that the IRS had established petitioner['s]receipt of millions of dollars in unreported income over 11 years. Fraud penalties totaling nearly $2 million were also properly applied because the evidence showed that Taxpayer acted with fraudulent intent, the judge said.

From the opinion (citations and taxpayer name omitted):

Petitioners have not paid tax for any year since 1994. This nearly 20-year pattern of failing to file returns and failing to report income from a successful business is strong evidence of fraud. Mr. Taxpayer had a pattern of tax avoidance and concealment in which he paid workers for the services that they provided to Direct Results and failed to issue to them Forms W-2 or Forms 1099-MISC for their compensation that he now seeks to deduct. His actions could have enabled his workers to avoid reporting and paying tax on their compensation.

Funny how that doesn't work.

What day is it?

It's National Cherry Cheesecake Day! It's also National English Muffin Day. Both are excellent at breakfast.

Tax News & Views The Art of the Cherry Cheesecake Roundup

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Joe B. Kristan, CPA