Key Takeaways
- Five years of entity taxes, five years without IRS guidance.
- Entity tax accrual deduction timing uncertainty.
- Taxability of PTET refunds.
- IRS criminal division chief Ficco announces that he is still there.
- Administration races to block tariff refunds ahead of Supreme Court decision.
- Donate now, or wait?
- National Cat Herders Day.
Legislative Update! The next Eide Bailly Quarterly Legislative Update webinar is slated for tomorrow, December 16, at Noon Central Time. Our Alex Parker will cover the (in)action in Congress and what we can expect when the calendar turns. Register here!
Is Further Guidance on SALT Cap Workarounds a Pipe Dream? - Kristen Parillo, Tax Notes ($):
Many taxpayers and advisers welcomed Notice 2020-75, 2020-49 IRB 1453, which essentially endorsed PTET workarounds. But when proposed regs failed to materialize in the ensuing years, some observers speculated that the government was waiting out the clock in hopes that the SALT cap would simply expire as scheduled at the end of 2025.
After the IRS issued Notice 2020-75, many states adopted pass-through entity taxes as a workaround to the federal $10,000 cap on state and local tax (SALT) deductions. The notice authorizes “optional taxes,” allowing partnerships and S corporations to elect to pay state income tax at the entity level. When this election is made, owners typically receive a credit on their state returns mirroring the entity-level tax, preventing double taxation. Under Notice 2020-75, these optional taxes are fully deductible for federal purposes and are not subject to the SALT cap.
“There are a lot of practitioners out there who may be missing the application of this Maines case — that if you get a refund of a refundable state income tax credit, the Tax Court has ruled that it is an accession to wealth and has to be picked up as income in the year of receipt,” Spengler said.
This gets missed for two reasons. First, some tax preparers rely on the worksheet for tax refunds provided in tax return instructions; the worksheet has not been revised since the issuance of Notice 2020-75 and only takes taxes deducted as itemized deductions into account. Second, most states don't issue 1099s for tax refunds unless the taxpayer itemizes. Remember, income is taxable, whether or not a 1099 is issued for it.
Related: IRS Blesses Entity Level SALT Cap Workarounds.
Congress Down to the Wire Without an ACA Deal
Capitol Hill Recap: Time on Health Tax Credits Running Out - Alex Parker, Eide Bailly:
On Thursday, the Senate held two votes on competing proposals, including one from Democrats to extend for three years enhanced premium tax credits for healthcare plans purchased through the Affordable Care Act state exchanges. That vote was promised by the Senate Republican leadership as part of an agreement re-open the government after the shutdown earlier this fall.
Senators also voted on a Republican measure that would have expanded tax-favored health savings accounts, as an alternative to extending the ACA credit enhancement. Neither bill received the 60 votes necessary to proceed to passage.
It is now only a matter of days until the credits expire, and premiums in the exchanges are expected to increase, in some cases substantially.
Johnson’s health bill hits snag with GOP moderate drama - Jake Sherman, John Bresnahan, Laura Weiss and Andrew Desiderio, Punchbowl News:
...
But the main focus will be the House. Speaker Mike Johnson and House GOP leaders will move forward with the Lower Health Care Premiums for All Americans Act, their response to the Dec. 31 expiration of the enhanced Obamacare premium tax credits.
Johnson is now facing a rebellion among moderates, which could blow up his health care bill. More on that in a moment.
The Big Picture. With just 17 days until the Obamacare tax credits expire, we can say definitively that Congress — and the country — is going over the Obamacare cliff. Even if the House passes something, the Senate isn’t going to move anything by the deadline.
IRS Tax Crime Head Staying on For Now; Disclosure Program Announced
Guy Ficco Will Remain IRS Criminal Tax Chief Into 2026 - Nathan Richman, Tax Notes ($):
The December 11 email, viewed by Tax Notes, was sent to CI employees as well as IRS CEO Frank Bisignano, Treasury Assistant Secretary for Tax Policy Kenneth Kies, and acting IRS Chief Tax Compliance Officer Jarod Koopman.
...
A report last month suggested that the Trump administration was looking to remove Ficco as CI chief as part of an effort to reorganize the division and ramp up investigations of left-leaning organizations. That effort was to be led by Gary Shapley, deputy chief of CI who has also been detailed to Treasury as a special adviser.
IRS To Revamp Voluntary Disclosure Program - Kat Lucero, Law360 Tax Authority ($):
The U.S. Department of the Treasury and IRS plan to unveil proposed rules in early 2026 that would give the practitioners and other stakeholders a 90-day window to weigh in on the changes, IRS Criminal Investigations Chief Guy Ficco said, speaking at the American Bar Association tax section's conference on tax fraud and controversy in Las Vegas.
Although the chief could not disclose all the details, Ficco told the audience that the core principles of the proposed changes will make the voluntary disclosure program, or VDP, "more consistent for taxpayers, more consistent for the [IRS] and more predictable."
Administration Works to Prevent Tariff Refunds
Trump administration races to finalize tariff payments — and hamstring possible refunds - Ari Hawkins and Doug Palmer, Politico:
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In a bid to preempt that, more than 100 companies are weighing or have already taken legal action to preserve refund rights, including Costco, one of the country’s largest retailers, whose Nov. 28 lawsuit drew national headlines. On Thursday, the Issaquah, Washington-based retailer and dozens of other companies asked the U.S. Court of International Trade, a New York-based federal court that focuses on trade matters, to schedule oral arguments as soon as Monday on their request for an injunction to block CBP from liquidating tariffs they have paid.
Year-end Planning Corner
Don’t Overlook These Little-Known Ways to Cut Your 2025 Taxes - Laura Saunders, Wall Street Journal:
In addition, these heirs have to take annual required minimum distributions (RMDs) from the accounts if the original owner was required to. Because of taxpayer confusion, however, the IRS waived penalties on these payouts if the heirs didn’t take them for 2021 to 2024.
This grace period is now over, so IRA heirs who are required to take RMDs must take them for 2025 by year-end.
Should You Donate to Charity This Year or Wait? It Depends. - Ann Carrns, New York Times:
People who take the standard deduction, however, may be better off waiting until next year. “Timing matters a lot this year,” said Amie Kuntz, chair of the individual and self-employed tax committee at the American Institute of CPAs.
Blogs and Bits
IRS-CI’s new initiatives plus time-honored tax crime cases produced a successful FY25 - Kay Bell, Don't Mess With Taxes:
Of that total, $4.5 billion resulted from tax fraud, marking an increase of 111.8 percent from the prior fiscal year. The other almost $6.1 billion was from other financial crimes that caught the investigative attention of IRS-CI.
How One Couple Lost Their Life Savings To A Fake Federal Investigation - Kelly Phillips Erb, Forbes. "Larry and Barbara Cook thought they were helping government agents. In the end, they found themselves victims of tax and Medicare gotchas, as well as the scammers."
Quite the Skewed Business Subsidy: QSBS Exclusion Is a Poor Way to Encourage Investment - Aleksei Shilov, Tax Policy Blog. "A neutral tax system should neither encourage nor discourage economic decisions. Many of the eligibility criteria for the QSBS exclusion directly influence investor and company behavior in ways that may not reflect the optimal investment decisions."
Related: How to Receive Full Gain Exclusion with Qualified Business Stock (QSBS)
Tax on the Buffet Line
Cheyenne restaurant owner sentenced for filing false tax return - IRS (Defendant name omitted, emphasis added):
According to court documents, Defendant owned and operated China Buffet restaurant in Cheyenne where she was responsible for the restaurant’s day-to-day operations and financial reporting. From at least 2018, Defendant knowingly provided false financial information to her Certified Public Accountant (CPA), fully aware that the CPA would use this information to prepare and file her tax returns. Specifically, for tax years 2018 through 2022, Defendant willfully underreported the restaurant’s gross cash receipts by providing false figures to her CPA. The total underreported amount over the five-year period was $959,693.94, resulting in a tax loss of $293,270 to the IRS and $66,426 to the State of Wyoming.
Hiring a tax preparer doesn't avoid tax problems when you give the preparer bad numbers.
What day is it?
It's National Cat Herders Day, yippie ki yay!
Make a habit of sustained success.
