Tax News & Views Money Hunt Roundup

Editor’s note: This is Jay Heflin’s last roundup. He is taking a job in the lobbying world. We thank Jay for his contributions at Eide Bailly and look forward to him fixing the tax law.

Accounting Firms Weigh Their Options in Search of Capital – Alexander Rifaat, Tax Notes($):

As the accounting world struggles to adapt to an increasingly complex industry environment, many firms are forgoing traditional structure in pursuit of financially lucrative — and tax friendly — business models.

To attract talent, combat rising debt, and make the necessary investments in technology to remain competitive, several midmarket accounting firms have struck private equity deals or undergone significant restructuring in recent months for a much-needed injection of cash.

Agency Updates

IRS Finalizes Guidance on Partnerships’ Conservation Easements - Lauren Vella, Bloomberg($):

The IRS on Monday issued final guidance on an amendment to the US tax code limiting partnerships’ ability to take a tax deduction for charitable contributions of conservation easements.

The IRS released proposed rules in November on disallowing tax deductions for qualified conservation contributions made by partnerships or S corporations.

The guidance is here.

IRS Spent $5.7 Billion in Tax-and-Climate Law Cash, Report Shows - Owen Racer, Bloomberg($):

The IRS has spent 10%, or $5.7 billion, of its supplemental funding from the Democrats’ 2022 tax-and-climate law, with employee compensation still receiving the most, the Treasury Inspector General for Tax Administration said in its quarterly report.

Nearly $2.5 billion has been spent on IRS employee pay and benefits, with about an additional $2 billion going toward contractor advisory and assistance services, according to the report released Tuesday.

The report is here.

IRS releases revised draft Form 6765, Credit for Increasing Research Activities, following public comment – IRS:

The Internal Revenue Service today announced the release of draft Form 6765, Credit for Increasing Research Activities, also known as the Research Credit.

The IRS received helpful comments from various external stakeholders that have informed several revisions the IRS is making to reduce taxpayer burden. The feedback and changes will alleviate taxpayer burden, provide taxpayers with a consistent and predefined format and improve the information received for tax administration.

Exceptions to penalty on early retirement plan distributions outlined - Martha Waggoner, The Tax Advisor:

The IRS issued guidance on exceptions to the Sec. 72(t)(1) additional 10% tax on early distributions from retirement plans for emergency personal expense distributions and for domestic abuse victim distributions, which were added by the SECURE 2.0 Act (Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328).

The provisions of the act became effective Jan. 1. However, Notice 2024-55, issued Thursday, notes it is optional for a plan to permit emergency personal expense distributions and domestic abuse victim distributions.

Capitol Hill Stuff

Corporations face reversal of fortune as 2025 tax debate heats up – Brian Faler, Politico:

Corporations were among the biggest winners when Republicans pushed through sweeping tax cuts in 2017, getting a whopping 14-percentage point cut in their tax rate.

But with lawmakers facing intense pressure to extend trillions in tax cuts next year that mostly benefit individual Americans, both Republicans and Democrats see corporations as a potential piggy bank to cover the huge hit to the budget.

The individual tax cuts enacted in the Tax Cuts and Jobs Act are temporary and expire at the end of 2025. The 21% corporate income tax rate is permanent, at least for now.

The Tax Angle: More GOP TCJA Teams, Nonprofit Hospitals – Stephen Cooper, Law360 Tax Authority($):

From a look at efforts by the Republicans on the Senate Finance Committee to prepare for next year's expiration of the 2017 tax overhaul law to a new call for nonprofit hospitals to provide more charity care, here's a peek into a reporter's notebook on a few of the week's developing tax stories…

Republicans on the Senate Finance Committee are apparently looking into this matter.

The Committee for a Responsible Federal Budget released a scathing report Wednesday criticizing the nation's roughly 3,000 nonprofit hospitals for not providing enough charity care and community benefits to warrant maintaining their tax-exempt status with the Internal Revenue Service.

Hospitals designated as Section 501(c)(3) nonprofit organizations will cost the federal government $260 billion over a decade in lost revenue, largely from forgone corporate tax revenue, issuance of tax-exempt bonds and tax-deductible charitable contributions from donors, the CRFB said in the report.

Democrats’ Wealth Tax Dreams Look Dim After Supreme Court Ruling - Samantha Handler, Bloomberg($):

The high court ruled in Moore v. United States that the levy on foreign earnings, implemented in the 2017 tax law, is constitutional. Some conservatives had hoped the justices would strike down other hypothetical taxes on unrealized income. Such a broad ruling would have upended much of the tax code, as some like former House Speaker Paul Ryan (R-Wis.) had warned.

That didn’t happen, but proposals like Senate Finance Chair Ron Wyden’s (D-Ore.) billionaire tax and Sen. Elizabeth Warren’s (D-Mass.) wealth tax idea may not be out of the woods yet.

While the majority’s decision didn’t directly address the issue of whether taxing unrealized gains, such as a wealth tax, would be unconstitutional, some justices indicated they wouldn’t be inclined to uphold those types of taxes if the question came before the court. That might spell trouble for Democrats, who are pushing those kinds of proposals to pay for other tax breaks.

Enacting a wealth tax in the current Congress was never going to happen. The only way a wealth tax becomes law is if Democrats control Congress and the White House AND all Democrats support a wealth tax. That last part is iffy.

Parties Unite on Canada DST - Chris Cioffi, Bloomberg($) (Scroll down):

Members of Congress are condemning the Canadian decision to go through with passage of a digital services tax as part of a raft of more than a dozen tax measures. The distaste for DSTs has been a rare place of bipartisanship for the lawmakers, who argue they unfairly target US companies. Lawmakers on both sides of the aisle have been united in pushing back, though they’ve been less united about what to do instead.

“We previously made clear to the Administration it has the tools to fight discriminatory taxes on Americans,” Senate Finance Chair Ron Wyden (D-Ore.) and ranking member Mike Crapo (R-Idaho) said in a joint statement. “The Administration said it was prepared to consider all of those tools, and it must now demonstrate the will to use them.”

Friday's Roundup included the news about Canada's decision and is here.

Court Side

Ayahuasca Church Is Not Tax-Exempt, DC Circ. Affirms – Anna Scott Farrell, Law360 Tax Authority($):

An Iowa church that used a psychedelic drug in its rites was correctly denied tax-exempt status, the D.C. Circuit affirmed Friday, saying the church's main purpose is using a federally illegal drug for which it lacked approval for religious use.

The three-judge panel also dismissed the Iowaska Church of Healing's claim under the Religious Freedom Restoration Act that the government was burdening its exercise of religion, saying the church didn't prove it has been appropriately injured by its lack of tax-exempt status to achieve standing to sue.

Owner of Historic Building Challenges Easement Penalty Procedure – Erin McManus, Tax Notes($):

The owner of a Columbia, South Carolina, historical building, boosted by a 2023 decision, is teeing up a challenge to IRS procedures for imposing penalties on conservation easement taxpayers.

The taxpayer filed a petition with the Tax Court June 3 challenging a combined $29.4 million adjustment arising from a disallowed charitable deduction and a $1.06 million loss from rental real estate activities in GSM Main LLC v. Commissioner

IRS Urges 6th Circ. To Back Gold Broker's $3M Tax Bill – Anna Scott Farrell, Law360 Tax Authority($):

The Sixth Circuit should uphold about $3 million in tax liabilities against a self-employed gold and silver broker who failed to file returns for a decade, the IRS argued Friday, calling "frivolous" the man's argument that he isn't subject to federal income taxes.

[The defendant], who is from Tennessee, admitted to earning substantial income from 2009 through 2016, but he intentionally failed to file federal income tax returns, pay taxes or make required estimated tax payments, the Internal Revenue Service said in a brief.

Couple Can't Hide Behind Preparer's Errors, Tax Court Says – Jack McLoone, Law360 Tax Authority($):

A Georgia couple failed to show the U.S. Tax Court that their faulty filing was the result of trusting a competent tax adviser, leading the court to rule Friday that they were correctly assessed an accuracy-related penalty by the Internal Revenue Service.

[The defendants] failed to meet the burden of proof that their tax adviser was competent, Chief Judge Kathleen Kerrigan said in her bench opinion upholding the more than $3,000 penalty. The adviser had failed to sign the return, plus claimed expenses for a business that was no longer operational, Judge Kerrigan said.

Letter to the Editor

The ‘Experts’ Get Section 199A Wrong – Brian Reardon, Tax Notes($):

We like Marty Sullivan. He always has something interesting to say. His latest piece criticizing section 199A is a bit of a disappointment, however.

Marty argues that extending section 199A “will add significantly” to the deficit; however, the deduction was packaged with numerous tax hikes — the state and local tax cap, the excess loss limitation, the interest deduction cap, and others — that target upper-income business owners. Many of these pay-fors stay in the tax code even as section 199A expires, which would result in a significant tax hike on passthrough businesses.

International Zone

UK Businesses Push Back on Tax Crackdown in Election Talks - Danish Mehboob, Bloomberg($):

Political contenders in the UK’s general elections next month should focus more on simplifying the country’s tax system instead of on curbing tax avoidance, according to several company tax officials.

The UK’s political parties released policy manifestos earlier this month outlining their tax plans ahead of general elections July 4. Some offered promises to increase the tax administration’s funding to crack down on tax avoidance and close the tax gap.

What CFOs Are Saying About Pillar 2 – Martin Sullivan, Tax Notes($):

The dense fog around pillar 2 is slowly lifting. To be sure, most multinationals are still uncertain about pillar 2’s effects and aren’t saying much publicly. But as more countries, each at its own pace, consider and enact pillar 2 legislation, some companies are providing quantitative assessments of expected effects — after assessing the politics and performing the complex calculations necessary for obtaining tentative estimates.

IRS Announcement: Partial Suspension of U.S.-Russia Tax Treaty – Bloomberg($):

Notice of partial suspension of the U.S.-Russia tax treaty, the IRS announced. The United States provided formal notice to the Russian Federation on June 17, 2024, to confirm the suspension of the operation of para. 4 of Article 1 and Articles 5-21 and 23 of the Convention between the United States and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed at Washington on June 17, 1992, as well as the operation of its accompanying Protocol, by mutual agreement.

FBAR Violator Is Still in Contempt of Repatriation Orders – Tax Notes($). "A U.S. district court refused to lift an order of contempt for an individual’s failure to comply with prior court orders to repatriate foreign assets to cover penalties for failure to file foreign bank account reports, finding that he failed to show that complying with the orders is impossible and that his current difficulty in complying is self-induced."

From the “Facing the Music” file

Reality Stars’ Tax Evasion Convictions Affirmed by Appeals Court - John Woolley, Bloomberg($):

The stars of the USA Network reality television program “Chrisley Knows Best” failed to convince a federal appeals court on Friday that they’re entitled to a new trial after being found guilty of tax evasion and bank fraud.

A district court in Georgia properly rejected Todd and Julie Chrisley’s request for new trial because the pair’s evidence of wrongdoing by the government is purely speculative, the US Court of Appeals for the Eleventh Circuit said. However, the court did vacate Julie’s sentence so the court could make individualized findings as to the length of her involvement in the tax conspiracy, separate from Todd.

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Tax News & Views Money Hunt Roundup

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