Tax News & Views Punctuates the Wealthy Roundup

How much are the super rich paying? - Bernie Becker, Politico:

But the Joint Committee on Taxation’s recent finding that the richest people in America pay fairly robust amounts of taxes could easily play a key role in next year’s big tax debate.

...

So with all that, it’s understandable why Democrats would think that JCT’s finding that the 16,000 richest families in America pay an effective tax rate of around 34 percent is damaging to their case.

In fact, key Democratic senators criticized JCT far more sharply than is the norm for congressional tax writers, with Finance Chair Ron Wyden (D-Ore.) — who has his own proposal aimed at the held assets of the very rich — calling the report full of “junk math.”

You can download the report here.

California Veto

Newsom Vetoes Tax Credit For Buyers Of Manufacturing Gear - Maria Koklanaris, Law360 Tax Authority ($):

A California bill that would have provided purchasers of manufacturing equipment with state tax credits equal to the amount of nonexempt sales and use taxes paid on the purchase of equipment was vetoed by Gov. Gavin Newsom.

Despite unanimous support in the Legislature, Newsom, a Democrat, on Friday vetoed A.B. 52, sponsored by Assembly member Tim Grayson, D-Concord. In his veto message, the governor said he agreed with what the bill would do. However, he said California has already passed its budget, and he said such a bill should be part of the budget process, not a standalone measure.

Service: It's In Our Name

Some Former IRS Contractors Not Purged From Systems - Jack McLoone, Law360 Tax Authority ($). "An analysis of over 1,800 former Internal Revenue Service contractors who were incorrectly listed as active found a number of them still possessed network permissions, IRS hardware or identification cards giving them access to agency facilities, the Treasury Inspector General for Tax Administration said Monday."

The leaker of the tax returns of Donald Trump and hundreds of high-income taxpayers was an IRS contractor. It seems like something they should be more careful of.

3 IRS Divisions Not Heeding Customer Surveys, TIGTA Says - Jack McLoone, Law360 Tax Authority ($). "The Internal Revenue Service's Wage and Investment, Small Business/Self-Employed and Tax Exempt and Government Entities divisions are generally not using the results of their customer service surveys to make improvements to their operations, the Treasury Inspector General for Tax Administration said Monday."

Links: TIGTA Contractor Report; TIGTA Survey Report

Tax on the Campaign Trail

Here’s How Harris’s Standard Business Deduction Could Work - Kathleen Delaney Thomas, Tax Notes (not paywalled):

For example, a standard business deduction might be set at 60 percent of gross receipts. This would mean that if a small business owner grossed $100,000 for the year, they would simply deduct $60,000 and report $40,000 of net income on their tax return.

The standard business deduction would work like the regular standard deduction. The regular standard deduction is a fixed amount that any taxpayer can claim on their tax return instead of itemizing their deductions. Similarly, a standard business deduction would be a fixed amount that small business owners would claim instead of deducting their business expenses.

One issue: taxpayers won't know if they are better off using the standard deduction if they don't keep good records in the first place. Also, there are many good non-tax reasons to maintain good financial records - such as knowing whether you are actually making money in the first place.

Trump Dangles So Many Tax Breaks Even Some Advisers Are Confused - Gregory Korte, Nancy Cook, and Jarrell Dillard, Bloomberg:

And he’s not done yet: Trump will make a speech on Tuesday in Georgia to outline his vision to use tax breaks and other incentives to bolster US manufacturing.

The former president has thrown out such a wide range of tax proposals that even his own advisers are unsure about which ones he intends to enact if elected. Some of the pronouncements have come as surprises and caused angst among allies.

The Trump tax flip-flop that could help Republicans win the House - Ally Mutnick and Sarah Ferris, Politico. "But now the former president, who’s responsible for the policy in the first place, is flipping the script."

How Trump Could Upend Taxation in America - Andrew Duehren, New York Times:

“Whether he knows it or not, or intends it or not, it’s a shift from taxing income to taxing consumption in some fashion,” said Michael Graetz, a tax scholar at Columbia Law School, who has argued that the United States should adopt a consumption tax. He still takes issue with Mr. Trump’s proposals.

“If you wanted to do a consumption tax, you’d be hard pressed to find an economist who’s not working for the Trump campaign who would say you should start with tariffs,” he said.

Private placement life insurance report

Inside How Private Placement Life Insurance Slips Through the Cracks - Lauren Loricchio, Sarah Paez, Kiarra Strocko, and Chandra Wallace, Tax Notes (not paywalled):

Private placement life insurance (PPLI) policies that push the boundaries of what is acceptable under IRS rules elude the agency’s auditors due in part to gaps in training and silos within the agency, a Tax Notes investigation has found.

...

The Justice Department has prosecuted cases involving life insurance wrappers in partnership with the IRS Criminal Investigation division in which PPLI is used for tax evasion. However, the issue with PPLI “boils down to investor control,” which isn’t an issue that CI would address, said Kevin F. Sweeney of Chamberlain, Hrdlicka, White, Williams & Aughtry.

Investor control — a term that means a taxpayer exercises too much control over the assets in the policy’s segregated account — can be a problem for PPLI policies, making them ineligible for tax benefits that are attractive to high-net-worth individuals and families.

Blogs and Bits

Offer in Compromise tax debt deals are real, but beware aggressive OIC promoters - Kay Bell, Don't Mess With Taxes. "Unscrupulous OIC mills use aggressive marketing to make false claims of guaranteed settlements for pennies-on-the-dollar, according to the IRS."

TAS is Taking Steps to Better Serve Taxpayers - Erin Collins, NTA Blog. "Although TAS ultimately serves most taxpayers well, we are not starting to work cases and we are not returning telephone calls as quickly as we would like. Part of my job is to highlight areas where the IRS is not meeting expectations, so it’s only fair that I be transparent in acknowledging where TAS is falling short."

Eleventh Circuit: FBAR Penalties Violated Eighth Amendment's Excessive Fines Clause - Parker Tax Pro Library. "The Eleventh Circuit held that penalties of $100,000 imposed on a taxpayer for each of the three years at issue for willfully failing to report his interest in foreign bank accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) were excessive fines under the Eighth Amendment."

An Overview of the Assessment Statute of Limitations - Thomas Gorczynski, Tom Talks Taxes. "The assessment statute of limitations (ASOL) helps to provide finality to a tax period; once it has closed, it prevents the IRS from assessing additional tax for that period. Many practitioners do not realize that this also prohibits the IRS from assessing tax in response to a taxpayer’s amended tax return."

Harris And Trump Both Pledge Tax Changes, And 2025 Is A Perfect Storm - Robert Wood, Forbes. "There are factors at play that practically guarantee tax changes next year, a kind of perfect storm. For one thing, the Trump tax cuts passed in 2017 are scheduled to expire at the end of 2025. That means many tax changes, even if Congress does not take action. Top tax rates will climb, the estate tax exemption will drop precipitously, and there are many other tax changes coming. Of course, the election means much more is at play."

Employee Retention Credits are the New Orange

Inmate and others indicted for committing more than $550 million in tax fraud - IRS (Defendant names removed, emphasis added):

A federal grand jury returned an indictment today charging Mr. A, Step-parent, Mom A, and Girlfriend A with conspiracy to commit tax fraud, U.S. Attorney Phillip A. Talbert announced.

Mr. A is currently serving a 50-year to life sentence at the Kern Valley State Prison (KVSP) in Delano, California, for a gang-related murder that he committed in the Los Angeles area in 2010. Step-parent is married to Mom A, who is Mr. A’s mother, and they live in Waldorf, Maryland. Girlfriend A is one of Mr. A’s girlfriends and lives in Hawthorne, California. The defendants were previously arrested in February 2024 on a federal criminal complaint.

...

The defendants’ tax fraud scheme exploited the IRS Employee Retention Credit (ERC). The ERC was enacted during the COVID-19 pandemic to encourage businesses to retain their employees by giving the businesses thousands of dollars in refundable tax credits per employee retained from March 2020 through December 2021. The amount of the ERC was determined by the number of employees the businesses had and the wages paid to those employees. The credit was claimed and paid out based on payroll tax returns that were filed quarterly.

The defendants filed fraudulent payroll tax returns for fabricated, existing, and defunct businesses that misrepresented the number of employees the businesses had, and the wages paid to those employees to increase the amount of the ERC that the businesses received to claim large tax refunds. They obtained the information for the businesses through various means, including from their family members, friends, acquaintances, and, at times, engaging in identity theft. They also solicited businesses to let them apply for the ERC on their behalf in exchange for exorbitant commissions.

Altogether, from January 2022 through July 2023, the defendants filed hundreds of fraudulent payroll tax returns claiming over $550 million in tax refunds. The refunds were sought on behalf of over 100 businesses and several million dollars was actually paid out. The money was used for personal expenditures, including jewelry and trips to Disney World and Las Vegas. For the Las Vegas trip, Mr. A paid to have attendees driven to Las Vegas from Los Angeles, party for the night at a luxury penthouse, and fly back to Los Angeles on a private jet.

There is a lot to unpack here. For starters, we can't ignore the sterling tax credentials of Mr. A, "currently serving a 50-year to life sentence" for murder. Not only did these ERC devotees allegedly scam the ERC on their own behalf, but they also allegedly operated as an ERC mill. And it worked, to the extent they got the IRS to send them some unspecified millions.

It's inspiring to see a family business do well. But maybe not this one.

What day is it?

It. Is. National Punctuation Day. "'Let’s eat, Grandma!' or 'Let’s eat Grandma!' — it’s clear that punctuation saves lives."

Tax News & Views Punctuates the Wealthy Roundup

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Joe B. Kristan, CPA