Tax News & Views Scurvy and Security Roundup

IRS warns entrepreneurs to take precautions on data security; protect their businesses, employees, customers - IRS:

The IRS continues to see instances where small businesses and others face a variety of financial and identity theft related schemes that try to obtain information that can be used to file fake small business tax returns, rob business bank accounts and create stolen identities.

For example, “phishing” and “spearphishing” scams continue to target small businesses as well as tax professionals and individual taxpayers. Small businesses continue to be targets of Form W-2 scams where identity thieves try to trick company leaders into sharing sensitive data.

The IRS cautions against the "W-2 theft" scheme:

While versions of these scams evolve and change over time, in the most common version, a thief poses as a high-ranking company executive who emails payroll employees and asks for a list of employees and their W-2s, which contain sensitive tax and financial data. As these scams become more sophisticated, small businesses may not be aware they’ve been the victim of a tax scam until fraudulent tax returns begin appearing with employees' names.

The piece has good security advise, including tips to spot "phishing" e-mails and making security party of your business culture.

Higher Home Values Mean Higher Taxes. Who’s Paying the Most? - Michael Kolomatsky, New York Times:

IRS rules allow couples to avoid taxation on up to $500,000 in capital gains — or profit, in lay terms — when selling their primary residence. (The threshold for single filers is $250,000.) The costs of improvements to the home can be subtracted from gross capital gains, but if what remains is still over that $500,000 limit, it is taxed up to 20 percent, depending on the owner’s income.

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From 2000 through 2003, only about 1.3 percent of home sales (some 38,000 in all) resulted in capital gains exceeding $500,000, potentially triggering the tax. In 2023, about 8 percent of sales (roughly 230,000) did.

The article has a chart showing that in California, Hawaii and D.C., over 20% of home sales in the fourth quarter of last year were for over $500,000.

IRS News: Spin-offs and art audits.

Spin Letter Ruling Guidelines Get Comprehensive Update - Chandra Wallace, Tax Notes ($):

Long-anticipated guidelines for tax-free spinoffs were issued by Treasury and the IRS, along with a request for public feedback.

Rev. Proc. 2024-24, 2024-21 IRB 1, released May 1, lays out the procedures taxpayers must follow to request IRS letter rulings on transactions under section 355. The guidelines include factual and legal representations and supporting information and analysis that taxpayers are required to submit to the IRS.

Tax advisers had hoped that the government would solicit feedback before issuing the updated revenue procedure.

Under normal tax rules, corporations have taxable income on the unrealized appreciation of any property distributed to shareholders. Section 355 provides a limited exception to this rule, which can enable shareholders with differing goals to split up corporations and go their separate ways. There are a lot of requirements, including subjective ones like "business purpose." These restrictions, and the potentially catastrophic tax cost of a botched spin-off, make Section 355 a popular topic of IRS advance ruling requests.

On the Hill

GOP split could doom bipartisan child tax credit bill - Jacob Bogage, Washington Post:

A bipartisan compromise to expand the child tax credit and restore some corporate tax breaks looks like it may wither under opposition from Senate Republican leadership, dooming the measure even though the House passed it with a huge majority this year.

The Senate’s top Republican tax writer, Mike Crapo (Idaho), opposes the bill, as do other top party officials. Most Democrats back it, and supporters say it’s close to having enough GOP votes to overcome a filibuster but could still be short. With tax season over and elections approaching rapidly, the Senate may not take the bill up at all if lawmakers don’t act soon.

See Jay Heflin's Capitol Hill Recap today for more.

Senate Dems Reintroduce Bill To Tax And Regulate Cannabis - Sam Reisman, Law360 Tax Authority ($):

Senate Democrats on Wednesday reintroduced a cannabis legalization bill that would remove the drug entirely from the ambit of the Controlled Substances Act and impose a tax-and-regulate scheme akin to what is currently in place for alcohol and tobacco.

The reintroduction of the Cannabis Administration and Opportunity Act, which was first unveiled nearly three years ago, comes just one day after the U.S. Department of Justice said it agreed with federal health regulators' assessment that marijuana should be moved from the highly restrictive Schedule I tier to the more loosely controlled Schedule III.

Senators See Rescheduling Move as Kick-Starting Cannabis Reform - Wesley Elmore, Tax Notes ($):

Senate Finance Committee Chair Ron Wyden, D-Ore., joined Senate Majority Leader Charles E. Schumer, D-N.Y., and Sen. Cory A. Booker, D-N.J., in reintroducing their bill, the Cannabis Administration and Opportunity Act, on May 1, just a day after the Justice Department confirmed that it’s circulating a proposal to reclassify marijuana under the Controlled Substances Act (CSA).

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The DEA’s move and the senators’ bill do have one thing in common. Under either, cannabis businesses would no longer face the section 280E prohibition on deducting expenses, putting them on equal footing with other legal businesses. Section 280E applies only to businesses that traffic in substances classified under Schedule I or Schedule II of the CSA.

Pass-Throughs Renew Lobbying Push to Keep a Lucrative Tax Break - Samantha Handler, Bloomberg ($):

The 2017 tax law established the 20% deduction under Section 199A of the tax code on certain pass-through income, which owners of businesses such as partnerships, S corporations, and sole proprietors report on their individual tax returns. As lawmakers in 2017 were considering slashing the corporate rate, a lobbying effort commenced to also get a tax cut for those other business types.

Now, the same players hope to protect their 2017 winnings, and have embarked to persuade new lawmakers on Capitol Hill on why they should keep the tax break. Hurdles include the overall cost, skewed benefits toward the wealthy, and an unclear path forward if Democrats have any control of the federal government after the November elections.

Blogs and bits

Collecting your old unclaimed tax refund and 3 other May tax moves - Kay Bell, Don't Mess With Taxes. "The tax reality is that this coming May 17, 2024, is the last chance for almost a million people to get federal refund money they were due back in 2021."

Treasury FY 2025 Green Book Proposes to Essentially Eliminate Written Supervisory Approval for Penalties - Erin Collins, NTA Blog. "Supervisory review of penalties is an important taxpayer protection and I continue to advocate for requiring it to occur before applicable penalties are communicated to taxpayers in writing. I also believe that all negligence penalties should be presumptively subject to supervisory review. I recommend that Congress reject the proposal to substantially eliminate the supervisory approval requirement, and I urge the IRS to reexamine its policies consistent with Congress’s intent in enacting the requirement and protect taxpayers from actual or perceived abuses."

A Case Study in Tax Credit Fraud and Manipulation, Biofuel Edition - Adam Michel, Liberty Taxed. "In a brazen account of tax fraud, the operators of Washakie Renewable Energy were sentenced to prison in 2023 for a staggering $1 billion biofuel tax credit conspiracy. Over six years, the Internal Revenue Service (IRS) paid out $511 billion in fraudulent tax credits and stopped hundreds of billions more in what the TIGTA report calls 'one of the largest fraud schemes in US history.'"

Would Biden Really Scrap The TCJA? Would That Raise Everyone’s Taxes? - Howard Gleckman, TaxVox. "He’d likely retain many key features such as the TCJA’s higher standard deduction and its repeal of the old personal exemption. But in this year’s State of the Union and previous budget proposals, he also said he’d raise the TCJA’s top individual income tax rate, expand its the Child Tax Credit, raise its corporate and capital gains tax rates, and make dozens of other changes."

International Tax Corner

Measuring Compliance with the OECD's Global Min Tax - Alex Parker, Things of Caesar:

As I’ve said before, 2024 is the year that the Organization for Economic Cooperation and Development’s Pillar Two 15% global minimum tax takes flight. Even if it still needs work.

Countries across the world are enacting and implementing laws to carry it out. Already, some of the taxes are due. Even as the United States continues to stall its own implementation, the system has gone from theoretical to very real.

Canada Moves Ahead With Minimum Tax Implementation in Budget - Danish Mehboob, Bloomberg ($). "The draft law includes several parts of the global minimum tax framework, including a domestic top up tax to ensure a 15% minimum effective corporation tax on local companies, and an income inclusion rule to target foreign groups."

Yellen Says US Pushing To Protect R&D Credit Under Pillar 2 - Dylan Moroses, Law360 Tax Authority ($):

U.S. Treasury Department negotiators are continuing to advocate for more favorable treatment of the country's research and development tax credit under the Pillar Two global minimum tax rules, Treasury Secretary Janet Yellen told the House Ways and Means Committee on Tuesday.

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Currently, the R&D credit and other U.S.-based nonrefundable business credits are generally treated as lowering a company's effective tax rate for Pillar Two purposes.

If the R&D credit lowers a company's effective rate below 15%, the Pillar 2 minimum tax will allow other countries to impose additional taxes up to 15%, erasing the credit benefits to the extent of this "top up" tax.

Death Of The American Abroad: Untangling U.S. Tax Across Borders - Virginia La Torre Jeker, US Tax Talk. "The U.S. estate tax applies to worldwide assets no matter where the U.S. citizen decedent may be domiciled or where his property is located."

Crime Corner

Two Los Angeles men plead guilty to criminal charges for using Instagram to solicit account holders to deposit stolen checks - IRS (Defendant names removed, emphasis added):

According to their plea agreements, from October 2020 to August 2023, Corona, Edeza and other co-conspirators engaged in an elaborate bank fraud scheme using third-party bank accounts and stolen checks. Some co-conspirators stole checks from the U.S. Mail stream, including from post office mail collection boxes located outside post offices.

In case you think you can stay secure by staying off-line.

The conspirators took possession of the stolen checks. They, along with others, then solicited bank account holders through social media to provide their debit cards and bank account information, promising these account holders a cut of any fraudulent funds deposited into their accounts.

To circumvent the fraud protections of the banks and credit unions, Corona, Edeza and others specifically requested bank accounts that had been open for a certain amount of time so they could get access to the stolen funds more quickly.

Bank account holders responded to the social media advertisements and provided members of the conspiracy with the information requested on the ads, including bank account numbers, PIN numbers, debit cards and online banking log-in information.

The amazing part of this is how people apparently thought it was a good idea to provide their bank account information to strangers on Instagram to help them commit theft. Let's just say that is not a recommend online security practice.

What day is it?

Have some citrus, it's International Scurvy Awareness Day!. If your vitamin C needs are covered, then banish your scurvy passwords to honor World Password Day.

Tax News & Views Scurvy and Security Roundup

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Joe B. Kristan, CPA