Key Takeaways
- Supreme tax action.
- Not a Dance: The TCJA struggle.
- ERTC pause still paused, kind’ve.
- Retirement guidance.
- IRS wins $1 million case.
- Taxpayers miss $1 million refund.
- Oh Canada!
- Wagyu? Yes, please!
The Supreme Court upholds a tax on foreign income over a challenge backed by business interests – Mark Sherman, Associated Press:
The law, passed by a Republican Congress and signed by then-President Donald Trump, includes a provision that applies to companies that are owned by Americans but do their business in foreign countries. It imposes a one-time tax on investors’ shares of profits that have not been passed along to them, to offset other tax benefits.
This provision was part of the Tax Cuts and Jobs Act. It taxed foreign profits as if they were repatriated into the U.S. It was a one-time thing.
But Kavanaugh said the tax the Moores disputed was akin to other taxes, including those on foreign-earned income and partnerships. A ruling for the Moores could have called into question those other provisions of the tax code and threatened losses to the U.S. Treasury of several trillion dollars, Kavanaugh noted, echoing the argument made by the Biden administration.
If the Supreme Court had ruled for the defendants, then ‘Katie bar the door’ on folks challenging other tax policies.
Supreme Court Upholds 2017 Tax on Foreign Investments – Jess Bravin and Richard Rubin, Wall Street Journal ($):
But it was a narrow ruling:
Supreme Court Upholds Trump-Era Tax Provision – Abbie VanSickle and Jim Tankersley, New York Times:
It also opened a window into what could be the next major tax case to come before the court: whether Congress can impose what is effectively a tax on Americans’ wealth, as President Biden and other Democrats have proposed to do in various forms. That question loomed large in the opinions, highlighting the stark divisions among the justices in how they view the notion of a wealth tax.
Certain lawmakers have been pushing to enact a "wealth tax" that would place a levy on unrealized gains. For example, the value of a home appreciates and the owner would pay a tax on the appreciation. How does the owner get the money to pay the tax? Possibly by selling the home.
Supreme Court dodges definitive answer on legality of a ‘wealth tax’ – Michael Macagnone, Roll Call:
But in the majority opinion, Justice Brett M. Kavanaugh dodged the realization issue and wrote multiple times that the court would not wade into whether Congress could tax the accumulated wealth of individuals or unrealized income, such as appreciation in the value of unsold stocks.
“And nothing in this opinion should be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity,” Kavanaugh wrote.
Congress Wins A Battle For Its Taxing Authority, But More Challenges Are On The Horizon - Steven M. Rosenthal, Tax Policy Center. “...Moore will certainly spur new challenges to existing tax rules, especially the tax rules for capital income, many of which are on paper profits (like zero coupon bonds, contingent debt, futures contracts, swaps, and constructive sales). Absent these rules, sophisticated taxpayers could structure their investments to derive economic benefits without the realization events that normally create a tax liability. How would Kavanaugh and his co-authors respond to these new challenges to the tax code?”
Speaking of taxes…
House Republicans shift message on extending 2017 tax cuts – Caitlin Reilly, Roll Call:
Lower tax rates on individuals, relief from the alternative minimum tax, treatment of money U.S. companies make abroad, small-business deductions and other provisions established by 2017 law are set to expire at the end of next year.
The impending tax cliff has prompted lawmakers to start laying the groundwork for 2025, even though no one can predict the outcome of November’s elections.
Supporters for extending tax cuts got a splash of reality earlier this week.
National debt will exceed $50 trillion by 2034, budget watchdog estimates – Jacob Bogage, Washington Post.
The deficit will swell to $1.9 trillion this fiscal year and keep growing until the overall national debt hits $50.7 trillion a decade from now, Congress’s nonpartisan bookkeeper said in its latest report. The group revised its forecast from four months ago, when it projected that the debt would reach $48.3 trillion in 2034, and 116 percent of economic output.
Back when the Bush tax cuts were being debated in Congress, the chief argument for enacting the tax cuts was that the Federal government was running surpluses and that money should be returned to voters. Don't expect a similar argument when lawmakers debate extending expiring tax cuts in the Tax Cuts and Jobs Act.
Senate Finance Democrats look to raise revenue for 2025 tax cliff – Caitlin Reilly, Roll Call:
Wyden, D-Ore., said he would work with other Democrats on the panel to come up with a “menu” of possible revenue raisers, as preparations heat up for next year’s expiration of many provisions in the 2017 tax law. It’s the same approach Wyden used ahead of what became the 2022 health care and clean energy budget law.
Housing, Child Care Top Dem. Senators' 2025 Tax Deal Goals – Asha Glover, Law360 Tax Authority($):
Wyden, a Democrat from Oregon, said after a closed-door meeting with fellow Democrats on the panel that his party will focus on helping working families during the negotiations to extend the Tax Cuts and Jobs Act 's expiring provisions, including building upon the success of the low-income housing tax credit.
Democrats might not control the Senate in the next Congress, which would make their "menu" less important. Tax Notes ($) published Democrats’ menu, which is here.
Tough tax choices lie ahead.
Capitol Hill Recap: Soaring Deficits and Tax Policy – Jay Heflin, Eide Bailly:
Extend the tax cuts:
Allow them to expire:
If the U.S. economy retracts, then jobs are likely lost, which means that people no longer have salaries and aren’t paying taxes, leading to a revenue decline for the Federal government. So, the $400 billion increase in annual revenue to the Federal government could never materialize.
Agency Updates
IRS to Reject Billions of Dollars in Covid Employer Tax-Credit Claims – Richard Rubin and Ruth Simon, Wall Street Journal ($):
The IRS, following a long review of the employee retention tax credit, plans to maintain a moratorium on processing claims filed since mid-September 2023. The agency, which had said it hoped to resume significant processing of claims in late spring, announced its plans less than an hour before the summer solstice.
There were a lot of fraudulent claims that upped the cost of the provision.
In coming weeks, the IRS plans to deny tens of thousands of claims that had shown the greatest risk of being improper, the agency said. It will continue to analyze an even larger batch of claims that showed an “unacceptable” level of risk. About 60% to 70% of the one million pending claims it reviewed carry unacceptable risk, while 10% to 20% fall into the highest risk category, the agency said.
IRS Details Exceptions to Retirement Plan Distribution Penalty - Naomi Jagoda, Bloomberg ($):
A 2022 law known as the SECURE 2.0 Act added these exceptions to the 10% additional tax.
In Notice 2024-55, the IRS provided definitions and outlined limitations to the exceptions.
Tax Pros Predict Rocky Road for Basis-Shifting Initiative – Kristen Parillo, Tax Notes ($):
“The guidance will almost certainly be subject to a challenge that the IRS lacks the authority to change the result dictated by the relevant statutes,” Lee S. Meyercord of Holland & Knight LLP told Tax Notes.
The details:
Court Side
US Beats $1 Million Negligence Suit Over Restitution Lien Notice - John Woolley, Bloomberg ($):
Dorthea Walton’s husband [...] was sentenced to 55 years in federal prison for his role in organizing a series of daytime smash-and-grab robberies of Southern California jewelry stores. The government recorded a nominee restitution lien against the Waltons’ property related to his almost $1.05 million restitution obligation without notifying Dorthea, the US District Court for the Central District of California said.
International Zone
Canada Lawmakers OK Digital Tax, Advance Min. Tax – Dylan Moroses, Law360 Tax Authority ($):
Canada's DST was approved by the Senate on Wednesday and awaits royal assent to become law. The measure follows through on Canada's promise to enact a DST if there were delays in implementing a global agreement to redistribute taxing rights among countries, known as Pillar One of a plan negotiated at the Organization for Economic Cooperation and Development.
From the “Regrets, I've Had A Few” file
Couple Missed Chance to Challenge $1 Million Income Adjustment - John Woolley, Bloomberg ($):
But the couple “never asked the tax court to disregard or amend the first stipulation of issues,” the US Court of Appeals for the Eleventh Circuit’s unpublished opinion said. “Their own computation brief discussed the same stipulation without asserting it was inaccurately phrased in any way.”
The Kohouts forfeited their opportunity to set aside the stipulated Schedule E adjustment by not raising it in the Tax Court, the appeals court said. That forfeiture is enough to affirm the Tax Court’s order, it said.
What Day Is It?
Oh my, it’s National Wagyu Day! Try it if you get the chance. (It’ll cost ya.)
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