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Erroneous Covid Claims Reach $1 Billion in IRS Opt-In Program - Erin Slowey, Bloomberg ($):

The IRS has seen about $1 billion in incorrect employee retention credit claims just from its voluntary disclosure program alone as it continues to process applications in that program, an IRS official said Saturday.

Many businesses that wrongly claimed the ERC credit had the option to take part in the IRS’s voluntary disclosure program and pay back 80% of the credit without having to pay interest or penalties. In exchange, the taxpayers turn over information on the preparer that helped them file their return.

The article notes that the "program closed March 22 and businesses are waiting hear if their application was accepted."

IRS Jump-Starting Collection Notices for All Taxpayers – Benjamin Valdez, Tax Notes ($):

The IRS is well on its way to restarting collection notices after a pandemic-related pause, including the issuance of notices to wealthy nonfilers.

According to Frederick Schindler, director of collections at the IRS Small Business/Self-Employed Division, an initiative announced by the agency in February to send out compliance alerts to high-income nonfilers signals the beginning of a return to normal for a core administrative function of the agency that was put on hold during the COVID-19 pandemic: reminding taxpayers that they owe.

Capital-Gains Tax Hits More Home Sellers – Veronica Dagher, Wall Street Journal ($):

Selling a home is now so profitable that many more Americans are getting hit with an unexpected tax bill.

Roughly 8% of 2023 home sales brought windfalls over the $500,000 limit for couples to be exempt from capital-gains taxes, more than double the share in 2019, according to CoreLogic, a real-estate data firm.

More sellers are on the hook for taxes because of the huge run up in property values since the pandemic. While home prices surged, the limit on how much profit is exempt from taxes, meanwhile, isn’t indexed for inflation.

Fixing this problem through legislation (which is how it's fixed) would be tough. Upping the exemption would be considered a gift to the wealthy.

Somewhat related:

How Capital Gains Are Taxed and How That Might Change: QuickTake - Laura Davison, Bloomberg ($). “Capital gains taxes are the price of making a good investment. They’re levied on profitable stock trades and real estate deals and can also apply to sales of businesses, pieces of art, collectible cars, gold or other assets. President Joe Biden has long vied to increase the capital gains rate, a goal that’s not likely to be realized before the November elections but will be a key topic of debate next year when former President Donald Trump’s tax cuts expire and Congress faces a major fight that could result in numerous tax changes.”

Treasury Reaffirms Research Amortization Adoption Flexibility – Nathan Richman, Tax Notes ($):

New language in the automatic accounting method change list for research amortization-related changes was meant to clarify the audit protection requirement rather than restrict its availability, according to a Treasury official.

Rev. Proc. 2024-23, 2024-23 IRB 1, released April 30 as the latest list of automatic tax accounting method changes, tweaked the description of audit protection for taxpayers changing their section 174 methods in response to the shift to amortization.

Reclassifying Marijuana Could Unlock Billions in Tax Savings for Cannabis Companies – Jennifer Maloney and Richard Rubin, Wall Street Journal ($):

Many U.S. cannabis businesses could become profitable for the first time if the Biden administration follows through on its plan to reclassify marijuana as a less dangerous drug.

That is because the change could lift a heavy income-tax burden: Section 280E of the federal tax code currently bars cannabis businesses from claiming deductions on many basic business expenses. That rule often results in an effective tax rate of 70% or more, wiping out most licensed marijuana retailers’ earnings.

“It’s an absolute game-changer,” said Boris Jordan, executive chairman of Curaleaf Holdings, which operates 145 dispensaries and 19 cultivation sites across the U.S. “It’s something we’ve been waiting for, for the better part of 10 years.”

Hill Happenings

After the FAA scramble, what’s left for economic policy? - Brendan Pedersen and Laura Weiss, Punchbowl News ($):

Senate Finance Committee Chair Ron Wyden (D-Ore.) said he’s working “to push open every possible door” for the bill.

Wyden plans to file the House-passed version of the tax bill as an FAA amendment, a Wyden aide confirmed.

But that will draw GOP objections, and it’s unlikely Wyden would hold up any time agreement on FAA to get the amendment vote. So this appears to be more of a Hail Mary from Wyden, who’s still working to keep his bill on the radar.

Dems, GOP Favor Extending Pass-Through Break, Staff Says – Asha Glover, Law360 Tax Authority ($):

Democrats and Republicans are both interested in extending the 2017 tax law's pass-through deduction, which expires at the end of 2025, though Democrats would like to limit its availability to upper-income earners, a pair of congressional staffers said Friday.

Senate Finance Committee Chairman Ron Wyden, D-Ore., is interested in simplifying the deduction under Internal Revenue Code Section 199A, including by making the provision only available to taxpayers with less than $400,000 in pass-through income, Finance Committee tax counsel Kim Arndt said. Wyden's office has heard from constituents and stakeholders that Congress should preserve the 20% deduction on qualified income from pass-through businesses, Arndt said at the American Bar Association tax section's May meeting in Washington, D.C.

The outcome of the 2024 elections will have a tremendous impact on how 199A is extended.

Wyden Staff Working on Partnership Reform – Caitlin Mullaney, Tax Notes ($):

An updated partnership reform proposal is being worked on and is top of mind, according to a Senate Finance Committee staffer.

The Senate Finance Committee is working through comments received on the previous subchapter K reform discussion draft introduced by committee Chair Ron Wyden, D-Ore., with plans to introduce a new version, according to Kimberly Arndt, Democratic tax counsel for the committee.

No Climate Law Corrections Bill Expected, Senate Staffer Says – Kat Lucero, Law360 Tax Authority ($). “Congress is unlikely to pass a so-called technical corrections bill that would change noncontroversial and revenue-neutral tax provisions in the 2022 climate law known as the Inflation Reduction Act, a Senate Finance Committee Democratic staffer said Friday.”

Court Side

IRS Can Assess Foreign Info Disclosure Penalty, DC Circ. Says – Anna Scott Farrell, Law360 Tax Authority ($):

The D.C. Circuit on Friday overturned a major U.S. Tax Court ruling that had struck down the Internal Revenue Service's authority to assess and administratively collect penalties from taxpayers for failing to file an information return on their interests in a foreign corporation.

A three-judge appellate panel found that the Tax Court had wrongly stripped the agency of its power to automatically assess $500,000 in penalties against businessman Alon Farhy, who for eight years failed to report his ownership of Belizean corporations as required by Internal Revenue Code Section 6038(a).

IRS Chief Counsel Confident Culp Can Be Reversed – Mary Katherine Browne, Tax Notes ($):

The government has a solid case to reverse the Third Circuit’s holding that the deadline for deficiency case petitions can be equitably tolled if the Supreme Court decides to take up the case, an IRS chief counsel attorney said.

“I think we have very strong arguments that the Third Circuit got that wrong,” Paul Butler, IRS associate chief counsel (procedure and administration), said May 3 at the American Bar Association Section of Taxation meeting. “We think it’s incredibly important administratively, and I would suspect that the Tax Court probably thinks the same way,” he added.

International Zone

US Trade Position Seen Contradicting Stance In Pillar 1 Talks – Dylan Moroses, Law360 Tax Authority ($):

The U.S. trade representative's withdrawal of support for digital trade proposals has caused tax policy observers to worry that the U.S. position on trade is undermining that of U.S. Treasury Department officials negotiating a taxing rights overhaul at the OECD known as Pillar One.

The USTR's office pulled its support in the fall for proposals on cross-border data flows and other issues pending before the World Trade Organization's Joint Initiative on E-commerce — a move USTR Katherine Tai has defended as necessary in light of the growth of artificial intelligence applications. However, U.S. business groups said the decision could allow countries to impose trade rules that encourage companies to locate jobs, intellectual property and facilities overseas.

Canadian Digital Tax May Cost U.S. Firms $2 Billion Annually – Stephanie Soong, Tax Notes ($):

Canada’s digital services tax might cause U.S. companies to lose up to $2.3 billion annually, and if the United States doesn’t push back, the “global contagion” of DSTs will spread, a tech industry group said.

The Computer & Communications Industry Association (CCIA) published a research report May 1 examining the potential effect of Canada’s proposed 3 percent DST on U.S. business interests. The report notes that DSTs “tend to gerrymander quantitative thresholds and covered activities in order to target leading U.S. digital services providers with tax liabilities while excluding many of their domestic competitors, using DSTs as de facto tariffs.” (Emphasis in original.)

The report is here.

Foreign Trust Reporting Rules Coming Soon, IRS Official Says – Natalie Olivo, Law360 Tax Authority ($). “The upcoming rules will cover several statutory disclosure requirements regarding transactions with foreign trusts, including the receipt of large gifts, according to Daniel McCall, IRS deputy associate chief counsel for international. The agency expects to file the regulations Tuesday in the Federal Register, which would be published the following day, he said, speaking at the American Bar Association tax section's May meeting in Washington, D.C.”

From the “Truth v. Fiction” file

The Trump-Biden battle over the 2017 tax cut – Glenn Kessler, Washington Post:

“Donald Trump was very proud of his $2 trillion tax cut that overwhelmingly benefited the wealthy and biggest corporations and exploded the federal debt. That tax cut is going to expire. If I’m reelected, it’s going to stay expired.”
— President Biden, in a social media post, April 23

“Biden has just declared that if he gets four more years, he will drench the middle class in the largest tax increases in the history of our country, vowing repeatedly that he will ensure that the Trump tax cuts, the biggest tax cuts in history …. he wants them to expire.”
— Donald Trump, in a campaign rally, Waukesha, Wis., May 1

This is about the individual tax cuts from the 2017 tax reform bill that are scheduled to expire at the end of 2025. The quotes are accurate, but what was said isn’t.

Biden and Trump are talking past each other. Trump ignores the fact that Biden has consistently said he will not raise taxes on people making less than $400,000 and pretends Biden will hike taxes on every American. Biden dances past the fact that the Trump tax cut, even if it was tilted toward the wealthy, reduced taxes for all income groups — which is why he has committed, at great revenue loss, to preserve those tax cuts.

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