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Tax News & Views Congress Runs Slowly Roundup

Joe Kristan
June 5, 2024
Cross Country Race

Key Takeaways

  • House GOP attacks IRS funding for enforcement, direct file.
  • Will House-passed tax bill come to a "show vote" in Senate?
  • Syndicated conservation easements win Administrative Procedure Act ruling in 11th Circuit.
  • The syndicated easements don't do so well in Tax Court.
  • New York - trading congestion pricing for a business tax?
  • Minnesota pilot's tax returns crash on landing.
  • Global Running Day, National Veggie Burger Day.

IRS Funding Fight Heats Up in Congress - Kim Dixon, Bloomberg ($):

A Republican-led House Appropriations subcommittee is slated to mark up legislation Wednesday that would slash IRS funding.

While the cuts are unlikely to become law as long as Democrats control the Senate and White House, the bill is a reminder of GOP priorities and how Republicans would wield power if they win control of Washington in November.

 

House GOP proposes IRS funding cuts, defunding free tax filing system - Tobias Burns, The Hill:

Republican appropriators in the House are proposing to scale back IRS funding and to do away with the free online tax filing system that the Treasury Department recently made permanent and promised to expand to additional states.

The latest financial services and general government (FSGG) bill from the House Appropriations Committee promises to “[prohibit] funds to be used for the IRS to create a government-run tax preparation software that Congress has not authorized.”

 

Senate’s summer of show votes sparks GOP divisions - Andrew Desiderio, Punchbowl News (my emphasis):

Senate Majority Leader Chuck Schumer is embracing the art of the “show vote” to boost his vulnerable incumbents this summer, a reflection of the steep uphill climb Democrats face as their majority hangs by a thread.

...

That could mean voting on the Wyden-Smith tax bill at some point. Senate Republicans almost uniformly oppose it, as do a few Democrats. But there could be some political advantages for vulnerable Democrats voting on the package, which includes tax benefits for Ohio residents impacted by last year’s train derailment in East Palestine, as well as an expansion of the child tax credit.

Under Senate rules, the tax bill cannot advance without GOP support. It may be possible that some vulnerable Republicans would be unwilling to vote against a bill that would allow current expensing of research costs and full bonus depreciation. If it were enough to pass the bill, though, the vote would probably have happened already. 

 

Syndicated conservation easements: gravel in the gears.

Circuit Court Sets Aside Contentious Conservation Easement Notice - Mary Katherine Browne, Tax Notes ($):

The Eleventh Circuit affirmed a district court’s decision finding that an IRS notice about reporting requirements for conservation easement donations is unlawful because it violated the Administrative Procedure Act.

In a June 4 memorandum opinion in Green Rock LLC v. IRS, Eleventh Circuit Judge William Pryor found that Notice 2017-10, 2017 IRB 544, violated the notice and comment rulemaking requirements under the APA and is therefore unenforceable against taxpayers.

While the syndicated conservation easement promoters may be winning the Administrative Procedure Act battle, they are losing their war in Tax Court. Peter Reilly picks up the story in a new Forbes piece, $187 Million In Charitable Deductions From A $9.5 Million Purchase:

Big Escambia Ventures LLC is the tax matters partner in thirteen partnerships that are currently in Tax Court. Judge Albert Lauber, whom Lew Taishoff calls "Scholar Al", refers to the 13 cases as the Big Escambia Group. The principals purchased the 4,608 acre Big Escambia Tract in Escambia County Alabama for $9.5 million in early 2014... All in, $187,370,000 in charitable contribution deductions were allocated to investors, who had contributed just over $36 million, for property that had changed hands in the same year for $9.5 million in an arms length transaction.

Conservation easement deductions can be perfectly legitimate. In a common Midwest situation, a farmer might grant an "easement" to a conservation organization, promising never to develop a tract. The easement donor can, with proper appraisals and documentation, take a charitable deduction for the amount the promise to not develop the land reduces its value.

The syndications were something else. Peter notes a stunning claim made by easement promoters: that the promise not to develop land can be worth more than the land itself. In the case Peter discusses, the promoters valued the land based on giving up imagined sand and gravel mining opportunities, the claimed value of which the Tax Court found implausible. 

Peter explains how this works out for the now-disappointed investors in these syndicated easement deals :

So imagine someone who sat down with their accountant in December 2014 and decided to put $100,000 into Excelsior Aggregates rather than pay a $200,000 balance due. Their charitable deduction of 438,900 is cut to $17,995. Just the federal tab on that adjustment is $166,678. The 40% gross valuation penalty raises it to $233,349. The interest on that through June 3, 2024 is $133,637. 

The moral? Again, if it seems too good to be true, it probably is.

Related: IRS Offering Potential Settlement for Syndicated Conservation Easements

 

Legislate in haste, repent at leisure.

Hochul Pushes for Congestion Pricing Delay in Last-Minute Reversal - Dana Rubinstein and Grace Ashford, New York Times:

Gov. Kathy Hochul is quietly maneuvering to delay a plan to toll drivers entering Manhattan’s central business district, just weeks before it is slated to go into effect, according to two people familiar with the discussions.

...

The tolling scheme was designed to reduce traffic congestion in Manhattan and produce $1 billion a year in revenue for the Metropolitan Transportation Authority, which runs the region’s subways, buses and two of its commuter rail systems. That revenue, in turn, would fund the system’s vast capital construction needs.

To fill the $1 billion yearly gap, Ms. Hochul is considering proposing a tax on New York City businesses. Such a tax would require the approval of the Legislature, which is far from assured, especially with just two days left in the legislative session.

I'm sure any billion-dollar business tax designed and passed in two days will work just fine.

 

Blogs and bits

Most taxpayers don't know or are unsure of basic tax concepts - Kay Bell, Don't Mess With Taxes. "On average, more than 61 percent of the National Tax Literacy Poll did not know or were not sure of basic tax concepts related to income tax filing."

Taxpayers' Ranching and Ecotourism Losses Can't Be Used to Offset Other Income - Parker Tax Pro Library. "The Tax Court held that a couple who purchased 15,070 acres of land in South Texas with the intent to improve and sell it, but later decided to conduct ecotourism and farming operations on the land, did not engage in those activities with an intent to make a profit under Code Sec. 183 and therefore could not use losses resulting from the activities to offset taxable income from their real estate investments."

Basic Principles for Entertainment Deduction - Tax School Blog. "Entertainment events that taxpayers host or attend with clients or other business affiliates for purposes of business are no longer deductible. Additionally, costs for using facilities for entertainment, including rent depreciation, lease payments, etc., are also nondeductible."

 

Is IRS Correspondence Broken? - Russ Fox, Taxable Talk. "As a tax professional with quite a few clients, our clients receive IRS notices. Much of this correspondence (not all, but a large portion) has to be responded to. My three most recent cases are making me think there are major issues with the IRS handling mail."

What’s To Become Of The Presidential Election Campaign Fund? - Renu Zaretsky, TaxVox. "I asked a group of my friends whether they checked the box. Only two of us did, and—full disclosure—my spouse and I did not. The fund aims to encourage public financing of elections and limit the influence of big donors, but the share of filers opting in has fallen dramatically since the fund’s establishment in the 1970s. TPC has looked at Federal Election Commission (FEC) data, which shows the share of tax filers checking the box fell from 28 percent in 1976 to 3 percent in 2023."

 

Grounded

Former commercial airline pilot convicted by federal jury of tax crimes - IRS (defendant name omitted, emphasis added):

According to the evidence presented at trial, Defendant, of Minnetonka, was a commercial airline pilot who retired in 2016. In January 2017, Defendant filed a fraudulent tax return for the 2015 tax year, falsely claiming that he was entitled to a $55,365 tax refund. In reality, Defendant owed more than $49,000 in income taxes that year. In March 2017, Defendant filed a fraudulent tax return for the 2016 tax year, falsely claiming that he was entitled to a $123,370 tax refund. In reality, he owed more than $175,000 in taxes that year. The IRS conducted an audit of Defendant’s 2015 and 2016 tax returns and found that Defendant fraudulently received more than $150,000 in tax refunds to which he was not entitled and owed more than $290,000 in taxes, interest, and penalties for those tax years.

According to the evidence presented at trial, Defendant refused to pay his tax debt and took steps to actively evade the IRS’s collection efforts by hiding his income and assets in bank accounts in the name of shell religious non-profits and by liquidating his retirement accounts and converting the funds into cryptocurrency. Defendant also failed to file federal income tax returns for 2017, 2018, and 2019. Defendant owes the United States more than $300,000.

Some lessons here. For example, it's a bad idea to underpay your taxes by $300,000 in a year. It can attract IRS attention, and the financial penalties can be painful. Also, once you have the IRS's attention, it is a really bad idea to try to hide your assets to avoid payment. That may be what turned it from a painful financial matter to a much-worse criminal investigation. 

Don't get cute with the IRS. Get sound professional help and follow the professional advice.

 

What day is it?

Today is Global Running Day and National Veggie Burger Day. Remember, tomorrow is a new day.

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About the Author(s)

Joe Kristan

Joe B. Kristan, CPA

Partner
After 38 years centered on tax consulting for closely held businesses and their owners, Joe is joining Eide Bailly's National Tax Office. Joe's responsibilities include communication, process improvement and training. He is a principal contributor to the Eide Bailly Tax News and Views blog, providing daily updates on tax reform and other tax news. Joe is a Certified Public Accountant and a member of the AICPA Tax Section and Iowa Society of Public Accountants.

Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.