Tax News & Views Scams and Sundaes Roundup

IRS Flags New Energy Credit Transfer Scam - Benjamin Valdez, Tax Notes ($):

The scam, targeting individuals who file Form 1040, involves unscrupulous return preparers persuading taxpayers to claim energy tax credits under the IRA’s transferability provisions that they aren’t eligible for, the IRS announced in a July 3 release.

According to the IRS, the false claims are seeking to offset income tax from wages, Social Security income, or retirement. Energy tax credits purchased under the IRA can only be used to offset income from passive activity, which most taxpayers don’t have.

From the IRS press release:

The IRS continues to warn taxpayers about other scams it continues to see that are misleading taxpayers into filing inappropriate claims for other tax credits. The IRS has warned taxpayers not to fall for scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes. Fueled by misleading social media advice and promoters, the IRS has seen thousands of dubious claims come in earlier this year where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

"Passive" income is income from a business in which a taxpayer does not "materially participate." Material participation is normally based on the time a taxpayer spends on a business. Interest, dividends, and capital gains are not "passive income" for this purpose.

Maybe it's not the apology

IRS apology in Trump-related case reveals agency’s shoddy tax security - Joe Davidson, Washington Post:

When Charles P. Rettig was IRS commissioner two years ago, he downplayed the notion that the tax data was stolen from the agency. He told the Senate Finance Committee there was no indication “that it was actually stolen from the IRS.” Now, after being pressed to do the right thing, the apology from the IRS “acknowledges that it failed to prevent Mr. Littlejohn’s criminal conduct and unlawful disclosure of Mr. Griffin’s confidential data.”

...

In February, TIGTA reported security shortcomings, including “procedures to systemically remove” access to IRS programs for people who no longer require it “were not always working as intended.” The inspector general also discovered 19 contractors who “retained their access to one or more sensitive systems” after unfavorable reports in their most recent background investigations.

Tax Bill: Still Just Resting.

Clearing Tax Bill Could Yield Child Tax Credit Checks in October - Doug Sword and Katy Stanton, Tax Notes ($):

Politicians and pundits have declared the House-passed tax package dead in the Senate, but others note the Democratic leader still has solid political reasons to bring the bill to the floor in either July or September even if it is unlikely to pass.

...

Ways and Means Committee member Ron Estes, R-Kan., said he believes there is wide support among Senate Republicans for the policies in the bill, if not its timing. But Senate Republicans who would otherwise join nearly 80 percent of House Republicans in voting for the bill may follow their leadership and block it. So, if Schumer does brings it to the floor, his aim will be to blame Senate Republicans for killing it, Estes said.

“Right now, that’s the only reason you can envision for bringing it to the floor,” Estes said.

This is the bill passed by the House of Representatives in January that would restore 100% bonus depreciation and restore full deductions for domestic research costs.

The Hidden July Deadline

IRS reminder to disaster victims in three states: July 15 filing and payment deadline nears; others face due dates later this summer - IRS:

The July 15 deadline applies to taxpayers affected by disaster declarations in three states. These include:

-The Wrangell Cooperative Association of Alaska Tribal Nation.
-Eight counties in Maine: Cumberland, Hancock, Knox, Lincoln, Sagadahoc, Waldo, Washington and York.
-Four counties in Rhode Island: Kent, Newport, Providence and Washington.

The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.

Across the Borders

Canada Enacts Digital-Services Tax Amid Risks of U.S. Trade Retaliation - Paul Vieira, Wall Street Journal:

A notice published late Wednesday indicated that the cabinet, led by Prime Minister Justin Trudeau, ordered the digital-services tax to be implemented June 28, or last Friday.

As a result, a 3% levy will apply to revenue from companies that provide digital services to Canadian users, or sell Canadian user data, and is retroactive to sales dating back to 2022.

Netflix, U.S. Companies Ask Canada Appeal Court to Stop Proposed Tax on Streaming Revenue - Paul Vieira, Wall Street Journal. "The Motion Picture Association-Canada said the order last month from the Canadian Radio-television and Telecommunications Commission exceeds the broadcast regulator’s authority and fails to recognize the billions of dollars the companies spend in Canada each year."

IRS Urged to Make Trust Reporting Changes for Retirement Accounts - Andrew Velarde, Tax Notes ($):

A deluge of commentators is asking the IRS and Treasury to offer more relief from the foreign trust reporting requirements outlined in recent regulations, asserting that regular foreign retirement accounts are facing stiff compliance burdens.

...

Democrats Abroad has been running a campaign, and its members submitted many of those relief requests, according to Rebecca Lammers from the organization. She argued that the IRS's treatment of non-U.S. pensions and savings accounts as foreign trusts presents a costly compliance burden for taxpayers who must file forms 3520 and 3520-A because of the classification. Penalties for compliance failures can be substantial.

Lammers, who met with the IRS reg drafters in June, said the agency claims that it doesn’t have the authority to change the definition of a foreign trust to except the retirement plans from reporting. But she was not convinced by this explanation.

What Crypto Investors Should Know About The IRS Tax Regime For 2025 - Sean Stein Smith, Forbes. "The final rule for 1099 reporting for centralized exchanges will apply to transactions beginning January 1, 2025 although many of the most established players such as Coinbase have already begun voluntary compliance."

Blogs & Bits

Resources to help deal with disasters, as Hurricane Beryl heads to Texas - Kay Bell, Don't Mess With Taxes. "Obviously, areas where Hurricane Beryl comes ashore will feel the brunt of the storm. But flooding and spin-off tornadoes likely will hit parts of the Lone Star State further inland. Wherever you are when a hurricane, or any disaster, threatens, your best defense is to be prepared."

Tax Court Rules Texas Ecotourism Ranch is Hobby, Not Business - Jennifer Harrington, Ag Docket. "Between 2005-2020, TI claimed over $15 million in losses stemming from custom farming, hunting, fishing, and ecotourism. The taxpayers argued the farming activities were profitable because they led to an increase in value of the land, but the court found the real estate activities were separate activities."

Tax Breaks: Scammers Aren’t Taking A Break This Summer- Kelly Phillips Erb, Forbes. "The IRS has issued warnings to taxpayers and tax professionals about new scams. With the help of AI, scams are increasingly sophisticated and more convincing to potential victims, and family members often want to help. For those with global financial assets, multinational families, and Americans living abroad, there are significant challenges due to distance and complex U.S. tax laws."

Court Rejects Injunctive Relief for Tax Prep Business Stripped of Its EFINs - Parker Tax Pro Library. "A district court denied a request from a tax preparation business for a preliminary injunction to restore its electronic filing identification numbers (EFINs) which the IRS suspended due to what it believed were fraudulent deductions taken by customers of the business."

The OECD Wants Higher Taxes on Everything - Adam Michel, Liberty Taxed. "However, the long‐run threat of the OECD’s corporate tax project extends beyond corporate taxes. If the Inclusive Framework’s progeny—Pillar One’s redistribution of taxing rights and Pillar Two’s global minimum tax—are seen as successful, it will embolden future efforts, using similar tools, to force global tax increases on personal income, investment wealth, and politically unpopular energy sources."

Grandpa Scam Corner

New Mexico man is the fifth defendant sentenced in a grandparent scam that targeted Kentucky victims and others - IRS:

A New Mexico man was sentenced last week to 1 year and 6 months in federal prison for his role in a sweeping “grandparent scam” that targeted victims in Kentucky and across the United States through Canadian-based call centers.
...

According to court documents, callers would convince senior victims that their grandchild or other family member had an emergency, usually a car accident, and urgently needed money from the victim. Co-conspirators posing as “couriers” would then collect cash from victims at home and others would launder the criminal proceeds, both through traditional banks and cryptocurrency exchanges. The charged wire fraud conspiracy and money laundering conspiracy spanned from August 2020 to May 2021 and impacted hundreds of victims across the United States—including in Kentucky—who lost over $3 million in total.

One year and six months seems light for this, unless fire ants are somehow also involved. And why were there no tax charges? I can't imagine this showed up on a 1040.

What day is it?

It's a day of tough decisions: National Chocolate With Almonds Day and National Ice Cream Sundae Day. But really, you can't go wrong.

Tax News & Views Scams and Sundaes Roundup

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Joe B. Kristan, CPA