Tax News & Views Busy Bee Nonfilers Roundup

Tax Relief Bill for Disaster Victims Set for House Vote - Doug Sword, Tax Notes ($):

The tax relief measure was added to a list of bills to be considered the week of May 20 after proponents obtained enough signatures to discharge a rule for its consideration on the House floor. The Federal Disaster Tax Relief Act (H.R. 5863) would provide tax relief to victims of California wildfires, Florida hurricanes, and the East Palestine, Ohio, train derailment. It is scheduled to be considered under suspension of the rules, which requires a two-thirds vote for passage.

The disaster relief was part of the tax bill passed by the House this year that also restored current deductions for research costs. So what does this mean for the House-passed bill?

“It does undermine it, except that the perception – at least the word on the street – is it’s dead in the Senate anyway,” Ways and Means member Donald S. Beyer Jr., D-Va., another signatory of the petition, said of the broader tax package.

A Global Tax on Billionaires? Janet Yellen Says ‘No’ - Andrew Duehren, Wall Street Journal:

The U.S. opposes a proposed global wealth tax on billionaires, Treasury secretary Janet Yellen said, rejecting an idea floated by Brazil, France and other nations to tip the economic scales away from the megarich.

It is Brazil’s turn to lead the Group of 20 major economies this year and the country has called on the group to develop a coordinated approach for taxing ultrawealthy individuals who can move their money into low-tax jurisdictions. The goal is to mirror a global minimum tax on corporations, which roughly 140 countries signed up for in 2021 but has since run into roadblocks in the U.S. and elsewhere.

Non-filers and the tax gap

Wealthy Taxpayers Prep Years-Late Returns Ahead of IRS Crackdown - Erin Schilling, Bloomberg ($):

The IRS said in February it’s going after rich taxpayers who haven’t been filing their returns, an announcement hailed as a sign the agency was getting back on track after pandemic delays and decades of underfunding.

Now tax professionals are fielding an increasing number of calls from wealthy clients who haven’t received notice from the IRS but want to file in case they get collection letters.

...

The IRS is first targeting 125,000 cases of individual taxpayers with income of more than $400,000 who didn’t file returns between 2017 and 2021. The agency expects to get hundreds of millions of dollars from those efforts.

Better Calculations May Aid With Addressing Tax Gap, Group Says - Cady Stanton, Tax Notes ($):

The IRS could better understand and ameliorate the tax gap if it applied context to its data and expanded transparency and accountability measures, according to a new report from the National Taxpayers Union Foundation.

...

Quantifying the gap is a challenging undertaking grounded in audit data that requires extrapolation to estimate unpaid taxes the IRS isn’t aware of. The latest IRS estimates through tax year 2021 found that the net tax gap, or the gap after late payments and enforcement efforts, was $625 billion.

In 2021, tax revenues were about $4 trillion, so about 15 percent of revenues went uncollected, by this measure.

From the NTUF report:

The United States compares favorably to other countries in terms of the size of its tax gap. As the IRS itself has said, “In general, the tax gap estimates dating back decades consistently show the United States enjoys a relatively high and stable voluntary tax compliance rate.” Indeed, studies on the topic, while in danger of comparing apples to oranges, have consistently shown that the American tax gap as a percentage of GDP is lower than its European and Organization for Economic Cooperation and Development counterparts.

Energy credit news

Treasury Provides Extra Relief For Bonus Energy Tax Credits - Kat Lucero, Law360 Tax Authortiy ($):

The U.S. Treasury Department provided additional safe harbors Thursday that clean energy project developers can use to qualify for bonus tax credits for domestically sourcing their steel and aluminum parts in response to the Biden administration's new trade restrictions on solar products from China.

In Notice 2024-41, Treasury said developers would have the option of relying on government-provided cost percentages to determine a project's eligibility for bonus credits for meeting the domestic content requirements rather than obtaining cost information from manufacturers.

IRS Increases Capacity Limitation for Low-Income Bonus Credit - Mary Katherine Browne, Tax Notes ($):

Additional environmental justice solar and wind capacity limitation for the low-income communities bonus credit program will be made available for taxpayers, according to the IRS.

In Announcement 2024-25, released May 17, the IRS said that 324.785 megawatts of unallocated capacity limitation has been carried over from the 2023 low-income communities bonus credit program year to the 2024 program year

Home Distillers Tell Feds Ban Fails Under Spirit Of The Law - Spencer Brewer, Law360 Tax Authority ($):

Hobby Distillers had sued the U.S. Alcohol and Tobacco Tax and Trade Bureau late last year over the home-distilling ban. The government fired back that the commerce clause gave it the ability to ban homemade liquor, but U.S. District Judge Mark Pittman had asked the parties to explain how the ban affected federal tax revenue from liquor.

The Hobby Distillers said Friday that the ban doesn't actually have a bearing on federal tax revenue from liquor because there are other laws on the books that ensure that liquor gets taxed. The government has no issue taxing other alcoholic beverages brewed at home, such as beer and wine, and to imply that making liquor at home would obstruct federal taxation doesn't make sense, it said.

A+ Headline. Bonus points for having the article written by a Brewer.

Blogs and bits

Ohio tornado victims have new Sept. 3 tax filing deadline - Kay Bell, Dont Mess With Taxes. "During the evening of March 14, supercell thunderstorms dropped numerous strong tornadoes across western and central Ohio. By the time things cleared, the deadly twisters also had left trails of destruction across the Buckeye State."

IRS warns about more tax scams - Martha Waggoner, The Tax Adviser. "The IRS issued a consumer alert Tuesday about scams involving the fuel tax credit, the sick and family leave credit, and household employment taxes that it said have led thousands of taxpayers to file inflated refund claims. Instead of getting their refunds, taxpayers are finding that their checks are delayed as the IRS seeks documentation to support claims for these credits and household employment taxes paid."

You Made a Mistake in Your Taxes. Now What? - Tom Herman, Wall Street Journal. "Perhaps they’ve discovered they’re eligible for easily overlooked deductions, credits or other tax breaks. Or they recently received revised documents from financial institutions or partnerships showing different numbers than they were given before they filed. Or they didn’t report taxable income and owe more tax."

Saving For Retirement Through Backdoor Roths - Tom O'Saben and Chris Corban, Tax School Blog. "The backdoor Roth and mega backdoor Roth strategies may be highly beneficial for taxpayers wishing to contribute as much to their retirement as possible but earn too high of an income to do so through traditional means."

IRS Issues Final Regulations on Transfers of Energy Credits Under the Inflation Reduction Act - Parker Tax Pro Library. "The regulations describe rules for the election to transfer eligible credits in a taxable year, including definitions and special rules applicable to partnerships and S corporations and regarding excessive credit transfer or recapture events; in addition, the regulations describe rules related to a required IRS pre-filing registration process."

Are Billionaire Taxes Falling? That Depends On Who You Think Pays Corporate Taxes. - Howard Gleckman, TaxVox. "Nearly all economists agree that the burden of corporate taxes does not fall on businesses themselves. Corporations may remit taxes to the IRS, but the tax ultimately is paid by some mix of workers and owners of capital."

News from the courtrooms

Former IRS revenue officer and his brother among six defendants sentenced to prison in multi-million-dollar COVID-19 fraud scheme - IRS (Defendant names omitted, emphasis added):

According to the defendants' plea agreements and the parties' sentencing memoranda, FM was a tax enforcement officer for the City of Oakland and a former IRS revenue officer who conspired with others between July 2020 and September 2021 to submit fraudulent PPP loan applications and to spend his portion of the more than $3 million in loan funds he and his co-conspirators fraudulently obtained on personal investments and expenses.

...

According to their plea agreements, the defendants each admitted their involvement in a scheme to obtain millions of dollars in PPP loans by submitting fraudulent documents on behalf of companies the defendants falsely certified had dozens of employees and hundreds of thousands of dollars in monthly payroll expenses. In fact, these were shell companies with no legitimate employees and no payroll expenses. The defendants also admitted they did not use the PPP loan funds they fraudulently obtained on legitimate business expenses; rather, they admitted using those funds for personal expenses and investments, to pay their personal credit card bills, and to transfer money to family members.

They apparently went through the trouble of filing false payroll tax returns "to cover up their scheme." It didn't work very well.

Taxpayer Admits No Intention of Paying Outstanding Liability - Erin McManus, Tax Notes ($) (taxpayer name omitted):

Tax Court Judge Tamara Ashford entered on May 15 a decision allowing the IRS to proceed with collection actions for unpaid excise taxes of $109,028 assessed against a taxpayer for engaging in benefit transactions with her private foundation for the 2010-2012 tax years...

Taxpayer formed her organization, Association for Honest Attorneys, in 2010 under the laws of Kansas and, in that year, applied to the IRS for — and was granted — a determination that the organization qualified as a section 501(c)(3) organization exempt from federal income tax.

Taxpayer proceeded to use foundation funds for usual day-to-day household expenses, along with $7,750 paid to St. John’s Military School, but no wages were paid to her, leading to the benefit excise tax assessment under section 4958(a)(1) and (b) as described in T.C. Memo. 2018-2, decided January 9, 2018.

Once you fund a private foundation, it's not your money anymore. Acting as though it is can get expensive.

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Joe B. Kristan, CPA