Tax News & Views Puerto Rico Egg Roll Roundup

IRS Launches Last-Minute Audits Aimed at Puerto Rico Tax Abuses - Michael Bologna and Chris Cioffi, Bloomberg ($):

The agency, the official said, plans to deploy a team of additional agents and open audits of individuals claiming tax benefits under a Puerto Rico tax perk known as Act 22. The program entices wealthy people to the island with promises of total, or near total, tax exemptions on their income.

The IRS’s effort responds to an anonymous letter from a field agent in Miami blasting the agency for failing to police a brazen pattern of tax evasion under Act 22 that costs the US treasury billions of dollars annually. The IRS’s response to the fraud is “woefully unproductive” and is considered “a clown show” by Americans claiming immunity from US taxes, the letter stated. The allegations were first reported by the New York Times on May 28.

From the New York Times story:

In addition to the roughly two dozen audits of people taking advantage of the Puerto Rican tax break, the I.R.S. has said its criminal division identified about 100 people who may have committed tax evasion. The division is focusing on so-called promoters of potential crimes.

The creation of the tax benefit was part of a decades-long effort by Puerto Rico — and the U.S. federal government — to refashion the island as an offshore tax haven. (Since the 1950s, for example, American citizens who move to Puerto Rico have been exempt from federal taxes on income and capital gains earned in the territory.) The goal was to entice wealthy Americans and big corporations to move there and to accelerate the island’s economic growth.

IRS Seeks to Procure Artificial Intelligence Tools - Lauren Loricchio, Tax Notes ($):

The agency plans to partner with industry in its AI endeavors, officials said June 5 during a virtual IRA industry day event.

The agency wants to hone in on its data and analytics so it can identify taxpayers that are at high risk of noncompliance, said Mabeline Baldwin, transformation lead for expanded enforcement in the IRS Transformation and Strategy Office.

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Slides for the presentation explain that the IRS is using AI and advanced analytics to help choose complex partnerships for audit as part of efforts to scrutinize complex partnerships, large corporations, and high-income, high-wealth individuals.

Taxpayer Advocate: ID theft victims have long refund waits.

Identity Theft Victims Are Waiting Nearly Two Years to Receive Their Tax Refunds - Erin Collins, NTA Blog:

Taxpayers should brace themselves for delays. Long delays. After receiving an IRS notice confirming the agency has received the victim’s paper return with the required Form 14039, the taxpayer may not hear from the IRS again for many, many months. Taxpayers should know it is taking the IRS about 22 months, on average, to work Identity Theft Victim Assistance (IDTVA) cases.

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The most significant impact on taxpayers who experience these protracted IDTVA processing times is the delay in receiving their refunds – particularly low-income taxpayers. Specifically, in FY 2023, about 69 percent of IDTVA taxpayers had an adjusted gross income at or below 250 percent of the Federal Poverty Level, and taxpayers experienced economic burden in about 57 percent of TAS identity theft case receipts. For taxpayers who qualify for refundable tax credits like the Earned Income Tax Credit (which can be worth nearly $8,000), delays of this magnitude can leave them unable to pay their basic living expenses.

Rich or poor, identity theft is a bureaucratic nightmare. Be careful with your confidential tax data. Use your preparer's secure document upload portal, and never transmit tax documents as unsecured email attachments.

Other IRS news: Clean Vehicle Credit Update; WV, KY storm deadline relief.

Treasury, IRS update procedures for qualified manufacturers, dealers and sellers of certain qualified clean vehicles under the Inflation Reduction Act - IRS. "The Department of the Treasury and Internal Revenue Service issued Revenue Procedure 2024-26 today for the submission of information by qualified manufacturers of new clean vehicles and dealers and sellers of new clean vehicles and previously-owned clean vehicles."

IRS Issues New Info on Seller Reports for Clean Vehicle Credits - Mary Katherine Browne, Tax Notes:

To receive a clean vehicle credit, taxpayers must submit seller reports through the online portal that contain identifying information of the seller and taxpayer, the VIN, the battery capacity of the vehicle, the date and price of the sale, and the maximum credit under section 30D or section 25E allowable to the taxpayer. Reports are signed under penalty of perjury.

If a seller discovers that information on the report is incorrect, it must notify the IRS of the error through the online portal as promptly as possible. The seller must also notify the taxpayer listed on the report within three calendar days of submitting updated information to the agency and provide the buyer with an updated copy.

If the sale of a clean vehicle is canceled or a buyer returns the vehicle, the seller must rescind the seller report on the online portal.

West Virginia storm victims qualify for tax relief; various deadlines postponed to Nov. 1 and Kentucky storm victims qualify for tax relief; various deadlines postponed to Nov. 1. The West Virginia storm extensions apply to the counties of Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel. The Kentucky relief applies to taxpayers in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

Disguised partnership sale warning from IRS

Coming IRS Disguised Sale Rules to Warn Aggressive Partnerships - Caleb Harshberger, Bloomberg($):

Coming regulations on disguised sales of partnership interests currently in the works at the IRS will include warnings to certain aggressive taxpayers that the IRS can go after them for disguised sales even in the absence of extensive rules, an agency official said Friday.

“At the very least, we want to indicate that there is such a thing as the disguise sale of a partnership interest—even without full blown regs,” Richard Blumenreich, a special counsel at the IRS Office of Associate Chief Counsel, said in an interview following a panel at the NYU Federal Real Estate and Partnership Tax Conference

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Some practitioners have taken the position that a lack of regulations on the matter meant these sorts of transactions are allowable until the IRS has extensive rules in place.

Dangerous thinking.

Disguised Sale Rules May Include Partnership Interests - Kristen Parillo, Tax Notes ($):

Proposed rules on disguised sales of partnership interests could be issued as part of a package of revamped regulations on allocating partnership liabilities for disguised sale purposes, an IRS attorney said.

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Disguised sale issues relate to transactions reported as contributions between partners and partnerships when no gain or loss is reported, such as a property transfer from a partner to a partnership followed by a cash distribution from the partnership to a partner.

Blogs and bits

IRS receives 1 millionth uploaded tax document - Kay Bell, Don't Mess With Taxes. "In the past, the agency’s limited capability to accept these forms digitally or to digitize paper has added time-consuming steps. For decades, the only option available was to have taxpayers or their representatives mail or fax these documents to the tax agency."

US Supreme Court Holds That Liability to Redeem Decedent's Shares Does Not Offset Life Insurance Proceeds When Valuing the Corporation for Estate Tax Purposes - Ed Zollars, Current Federal Tax Developments. "Finally, the Court did not consider the estate’s argument that this decision would make estate planning for closely held corporations much more difficult, noting that the entire issue could have been avoided with a cross-purchase structure, although the Court concedes that a cross-purchase agreement adds certain non-estate tax issues to the transaction."

Tax Breaks: The Art Of Donating What You Love And Getting A Tax Deduction - Kelly Phillips Erb, Forbes. "But it turns out that donating comic books—let alone 80,000 of them—isn't as easy as writing a check to your favorite charity, particularly if you want to maximize your tax benefits."

Partnership Did Not Have To Substantiate Assets In Order to Make Valid BBA Election - Parker Tax Pro Library. "The court rejected the IRS's argument that under Reg. Sec. 301.9100-22(b)(2), the partnership was required to provide proof that it had sufficient assets to pay an imputed tax liability and that its failure to do so invalidated its BBA election."

Henry George: An Exploration of Some Consequences to Taxing Only Land - Paul Forrester, Econlog. "George’s central idea was that a single tax on land values was sufficient to fund the government, and that private appropriation of land’s value was the cause of the persistence of severe poverty even in the richest and most developed cities in the world. Today, Georgist ideas are beginning to receive renewed interest, as housing affordability has become a political issue around the world, making this a good a time to revisit this important text."

If Not Congestion Pricing In New York City, Then What? - Lillian Hunter, TaxVox. "Implementing the first congestion pricing plan in the US was always going to be a big political lift. The tolls create big, obvious cost burdens, while their benefits are not immediate, personal nor obvious. Sixty-three percent of New Yorkers oppose the MTA’s congestion pricing toll plan, including majorities of Democrats, Republicans, and independents. Worth noting, however: Congestion pricing was also unpopular in Stockholm before implementation, but more than 70 percent of residents supported it five years later."

New Iowa Form 100A is Ready for Those Claiming 2023 Iowa Capital Gain Deduction for Sale of Breeding or Dairy Livestock - Kristine Tidgren, Ag Docket. "House File 2649, signed by the Governor on May 15, 2024, restores this deduction, allowing taxpayers to exclude capital gain from the sale of certain livestock from the computation of net income for individual income tax purposes. This law, applying to those farmers who earn more than 50 percent of their gross income from farming, applies retroactively to include the 2023 tax year."

Tax Policy Corner

Republicans pitch tax cuts for corporations, the wealthy in 2025 - Jacob Bogage, Washington Post:

Now GOP lawmakers and some of Trump’s economic advisers are considering more corporate tax breaks — which could expand the national debt by roughly $1 trillion over the next decade, according to researchers at Stanford University and MIT — arguing that they would improve the U.S.’s global competitiveness.

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President Biden and congressional Democrats have signaled they’ll draw a sharp contrast with the GOP on taxes in campaigns this year. Biden promises to raise taxes on the wealthiest individuals and corporations, allowing the Trump tax law’s individual rate cuts to expire and pushing for legislation with taxes on businesses to pay for new investments in child and elder care, affordable housing and education.

Campaign reaches tipping point.

Trump proposes ending taxes on tips - Miranda Nazzaro, The Hill. "Former President Trump on Sunday said he would end taxes on tips as the 'first thing' he does in office if reelected, marking his latest push to appeal to voters in the service industry."

‘I’m in the wrong profession’: Bottle girl shares how much she makes in tips - Jack Alban, The Daily Dot:

This could explain the large tips Nina received on two specific tickets while working the cabana area in this particular TikTok. The first bill she shows carries a subtotal of $9,291.55. The patrons left a $1,800 gratuity, bringing their total to $11,091.55.

But the second gratuity that Nina shows off is even heftier: she banks a $3,000 tip for a $10,855.14 order, which came out to a grand total of $13,855.14. Those two gratuities alone came out to $4,800.

When accountants go bad

Two partners of Westchester accounting firm plead guilty to tax fraud conspiracy - IRS (Defendant names omitted, emphasis added):

Defendants were certified public accountants and partners in an accounting firm in Scarsdale, New York, that provided accounting and income and payroll tax services to clients, including nine businesses in the construction industry (the “Clients”). From in or about 2012 through at least on or about April 15, 2018, Defendants agreed with Clients to scheme to: (i) fraudulently reduce the income tax liability of the Clients; (ii) conceal wages paid to employees by the Clients and, thereby, fraudulently reduce the Clients’ payroll tax liability; and (iii) conceal personal income of the Clients. The defendants advised the Clients to participate in a scheme to reduce their federal income and payroll tax liability, pursuant to which the Clients issued checks made payable to a shell company and gave the checks to Defendants, who then caused the checks to be cashed at a check cashing service and returned the cash, minus a fee, to the Clients. Some Clients used the cash to pay employees without reporting the cash wages on their IRS Forms 941, thereby evading both their employer contributions to Social Security and Medicare and their obligation to withhold income tax on those wages, which permitted the employees to evade federal and state income tax.

This is a crime begging to be detected. Every employee who receives cash payments is a potential IRS informant. Sooner or later one of them will be unhappy, and things can get ugly.

What day is it?

It's National Egg Roll Day! Consider a joint celebration of National Herbs and Spices Day.

Tax News & Views Puerto Rico Egg Roll Roundup

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Joe B. Kristan, CPA