Tax News & Views Transferable Credit Rules and Penguin Roundup

IRS releases final guidance on transfers of certain credits under the Inflation Reduction Act - IRS:

The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors act (CHIPs) enable taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer provisions.

For tax years beginning after Dec. 31, 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments.

The unrelated taxpayers are then allowed to claim the transferred credits on their tax returns. The cash payments are not included in gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers.

Shutting down ERC fraud and other IRS news

Pandemic Relief Fraud Scheme Shut Down, TIGTA Says - Benjamin Valdez, Tax Notes ($):

The IRS and the Treasury Inspector General for Tax Administration foiled an attempt to falsely claim potentially $3.5 billion in pandemic relief credits. The scheme
involved individuals obtaining employer identification numbers to file business tax returns and falsely claim employee retention credits and sick and family leave credits, TIGTA announced in an April 24 release. The watchdog flagged the scam and alerted the IRS, which was able to block similar claims and stop potentially $3.5 billion in false credits.

Well over $250 billion has been paid out in the ERC program, which was slated originally to cost under $80 billion. The House-passed bill to stop the program has stalled out in the Senate. It's a safe bet that much of the amount paid, and more of the claims not being processed as a result of the IRS ERC moratorium, is fraudulent.

Wealthy Taxpayers Alerted to Leaked Data Years After IRS Breach - Erin Schilling, Bloomberg ($):

Four tax lawyers said they have seen letters from the IRS that went to clients this week and last week notifying them that their tax return information was compromised by Charles Littlejohn, who was sentenced in January to five years in prison for the breach. Bloomberg Tax received a copy of the letter, dated April 12.

It’s unclear who exactly, beyond Trump and other billionaires referenced in news articles that first reported the leaked returns, was affected by the breach until now. Littlejohn admitted to taking tax information from thousands of wealthy Americans between 2018 and 2020. The breach was the largest at the IRS in recent history. The notification letters could precede a flood of lawsuits against the government from wealthy taxpayers who didn’t initially realize their information was part of the leak.

IRS Independent Office of Appeals forms Alternative Dispute Resolution Program Management Office - IRS:

The Internal Revenue Service Independent Office of Appeals today announced the formation of a new Alternative Dispute Resolution Program Management Office. This office will collaborate with the IRS Business Operating Divisions to help taxpayers resolve tax disputes earlier and more efficiently.

“This new office will revitalize existing programs and pilot new initiatives as part of IRS transformation efforts in alignment with the IRS Strategic Operating Plan,” said IRS Commissioner Daniel Werfel. “We’re committed to providing taxpayers who wish to resolve their issues without litigation a choice of early resolution options, and the Alternative Dispute Resolution Program Management Office will ensure taxpayers are aware of those options.”

For years, the IRS has offered ADR at various stages of the tax administrative process. While ADR can be a quicker, more collaborative and cost-effective approach to case resolution, use of the programs has declined in recent years.

By increasing awareness, changing and revitalizing existing programs and piloting new approaches, the IRS hopes to make its ADR programs, such as Fast Track Settlement, Fast Track Mediation, Rapid Appeals Process and Post-Appeals Mediation more attractive and accessible for all eligible parties.

IRS Forms Alternative Dispute Resolution Office - Benjamin Valdez, Tax Notes:

“I think a dedicated unit that is focused on piloting different approaches and also expanding access—to different populations—would be a very good thing,” Nina Olson of the Center for Taxpayer Rights told Tax Notes.

Olson, a former national taxpayer advocate and member of Tax Analysts’ board of directors, added that she hopes the office will reach out to tax professionals, including low-income taxpayer clinics, to field suggestions and get a better sense of why participation in ADR programs has dipped.

IRS Crypto Draft Form Gives Insight on Future Audit Priorities - Caleb Harshberger, Bloomberg ($):

The draft form 1099-DA, published Friday, shows crypto brokers how they will have to report the digital asset deals on their platform. The form was created for brokers to meet reporting requirements laid out last August in proposed regulations requiring exchanges and other digital assets go-betweens to report to the IRS on the transactions done on their platforms and the identities of their customers. The agency can use the data crypto brokers report as it works to determine which taxpayers and brokers to examine.

...

Information in the draft form—such as how an asset was bought, the asset’s basis, and what types of brokers or wallets were used—would all help IRS agents track down noncompliance as well as collect and track data on the space more broadly to pick out red flags and other trends.

IRS Suffers Another Defeat Related To Civil Penalties In Tax Court - Kelly Phillips Erb, Forbes ($). "The taxpayer made several arguments, but the most interesting was that the international information return penalties were unconstitutional. Specifically, the taxpayer contended that the penalties imposed under sections 6038(b) and 6677 violated the Eighth Amendment’s excessive fines clause."

You have options if you can't pay your tax bill in full - Kay Bell, Don't Mess With Taxes. "Even if you can't afford to immediately pay the full amount of taxes you owe, go ahead and file a tax return and pay as much as you can."

Meanwhile in Congress

R&D Cutbacks Spur Small-Biz Push To Renew Tax Breaks - Asha Glover, Law360 Tax Authority ($):

The Tax Relief for American Families and Workers Act of 2024 would renew and extend several provisions of the 2017 Tax Cuts and Jobs Act, including allowing taxpayers to immediately expense domestic research and experimentation costs paid or incurred in 2022 through 2025. Those costs are required to be deducted over multiple years under current law. The bill would also restore 100% bonus depreciation under Internal Revenue Code Section 168(k) and loosen the cap on deductible interest expenses under Section 163(j) .

The bill's path forward is uncertain. It has sat in the Senate for nearly three months after the House passed the proposal in January by an overwhelming majority. Senate Republicans, led by Finance Committee ranking minority member Mike Crapo, R-Idaho, have said they want major changes made to the bill for it to get their support.

Our Jay Heflin has noted the fading prospects for the bill. It may be just resting, but it isn't showing obvious signs of life.

House, Senate GOP Diverge on Tax Concerns Ahead of 2025 Talks - Doug Sword and Cady Stanton, Tax Notes ($):

House and Senate Republicans appear to be drifting apart on key tax policy questions as they head into the biggest and most complex tax negotiations in decades.

Interviews with senior GOP leadership on the Senate Finance Committee show a deep commitment to the traditional idea that extending existing tax policy — particularly pro-growth tax policy — doesn’t have to be paid for.

In the House, where budget hawks hold greater sway, there has been a growing sense that with the national debt approaching $35 trillion, offsets, or pay-fors, for tax provisions must be more than an afterthought.

GOP Reps. Form Work Groups To Address Expiring Tax Law - Stephen Cooper, Law360 Tax Authority ($):

Republican members of the House Ways and Means Committee announced plans Wednesday to form 10 teams to study key provisions of the 2017 tax overhaul, aiming to set priorities for legislative action next year as the law is set to expire.

Reps. Jason Smith, R-Mo., chair of the committee, and Mike Kelly, R-Pa., chair of the tax subcommittee, said the Ways and Means panel's GOP lawmakers will meet in teams to review tax policies that help small businesses, employees, families and workers.

Link: Announcement of team members.

International Tax Corner

Insights For Foreigners: Navigating The U.S. Tax Maze Before Residency - Virginia La Torre Jeker, US Tax Talk:

Under the relevant tax regulations, merely possessing a green card, even if it was never used, can trigger U.S. tax obligations. If an individual meets the green card test for the current year but is not physically present in the U.S. during the current year, then the individual’s RSD is deemed to be January 1 of the following year. This special rule showcases the unforgiving nature of the RSD. “But I never used my green card” and “never set foot in the U.S.” are seemingly irrelevant to the tax man.

IP Migration Patterns - Alex Parker, Thinks of Caesar:

What they’re learning, though, is that it’s hard to stop intangible tax competition without increasing real, tangible tax competition–which shows no signs of slowing down. (Just look at Australia’s new green energy incentives, a response to the enormous incentives in the Inflation Reduction Act.)

Water will always find its way to the lowest point, and if you’re trying to stop it a better use of time is deciding where you want it to go.

How to Improve the Base Erosion and Anti-Abuse Tax - Alan Cole, Tax Policy Blog. "One significant international provision of the 2017 Tax Cuts and Jobs Act (TCJA) was the base erosion and anti-abuse tax (BEAT), so named because it attempts to combat a tax problem known as base erosion. Base erosion is the loss of corporate income tax revenues from global companies due to profit shifting."

Is the global minimum tax “never going to be Respectable”? -Leonard Wagenaar, Leonard's Tax Posts. The author discusses a proposed global billionaire tax:

More likely, the plan will fail to get wide support, particularly from typical billionaire countries such as US, China. Then, countries can consider going unilateral. An earlier draft by the EU Tax Observatory (October 2022) explicitly positioned the tax as “unilateral”. The detour through the G20 would then allow countries and people to get used to idea. So, if it is rejected but not firmly so, it can emerge in another form. So, the question now is not just if this tax should be adopted, but if it is an acceptable policy option for countries to pursue

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Tax News & Views Transferable Credit Rules and Penguin Roundup

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Joe B. Kristan, CPA