Key Takeaways
- No ACA enhanced credit this year.
- Lenders puzzle over car loan reporting.
- Final regs clarify treatment of tribal benefits.
- Tax Court: no jury needed for accuracy penalties.
- Administration digs in on stopping tariff refunds.
- What $100 buys around the country.
- No records, but some nice cars.
- National Chocolate Covered Anything Day.
Legislative Update Today! The next Eide Bailly Quarterly Legislative Update webinar is today, December 16, at Noon Central Time. Our Alex Parker will cover the (in)action in Congress and what we can expect when the calendar turns. Register here!
House GOP’s health care week goes awry - Jake Sherman, Laura Weiss, John Bresnahan and Andrew Desiderio, Punchbowl News:
Instead, the House GOP leadership has facilitated an untimely — and particularly nasty — intraparty brawl, pitting moderates against Republican Party leaders and further strengthening Democrats’ political hand as the Obamacare cliff looms.
Speaker Mike Johnson and his inner circle are pushing moderate Republicans like Reps. Brian Fitzpatrick (Pa.), Mike Lawler (N.Y.), David Valadao (Calif.) and Jen Kiggans (Va.) into the arms of Democrats, as the House Republican leadership refuses to allow the centrists a vote on extending the enhanced Obamacare premium subsidies.
Senators Scramble for Health Subsidy Solution as Time Runs Out - Steven Dennis and Erik Wasson, Bloomberg ($):
The political uncertainty surrounding the future of the Covid-era subsidies complicates matters for millions of consumers facing out-of-pocket costs doubling or more if lawmakers can’t agree on a path forward. The current open enrollment period expires Jan. 15.
With just weeks to go until the subsidies expire, and days until lawmakers are scheduled to leave for the Christmas holiday, there’s little momentum building for a straight extension — and no sign that a compromise could get written into bill form and passed through the House and Senate in time to avoid premiums spiking.
Reporting the Car Loan Deduction
Banks, Credit Unions Grapple With Auto Loan Tax Break Reporting - Erin Slowey, Bloomberg ($):
While lenders are required to report interest for loans that were made starting at the beginning of this year, it is still unclear whether the lender needs to determine the buyer’s eligibility for the car loan interest tax benefit.
If lenders don’t need to make that determination, it could put more of the burden on the car buyer to determine if they qualify for the lucrative break.
Tribal Benefits Get Clarity From Final Rules
Native American Tribal Benefits and Entity Tax Regs Finalized - Trevor Sykes, Tax Notes ($):
The final regs concerning wholly owned tribal business entities (T.D. 10039) provide long-sought guidance establishing that business entities fully owned by tribal governments and organized or incorporated under the relevant tribal laws aren’t recognized as separate entities for federal tax purposes.
The second set of final regs (T.D. 10040) addressed previous calls from tribal leaders and members to fully enact tax-favored treatment of Native American tribal general welfare benefits.
IRS Finalizes Tribal Welfare, Energy Direct Pay Rules - Kat Lucero, Law360 Tax Authority ($):
...
Native American communities have been waiting for the finalized version of the welfare regulations since the enactment of the Tribal General Welfare Exclusion Act of 2014. The law created IRC Section 139Eto exclude such welfare benefits from taxable income if they meet specified requirements, including that they are not lavish or extravagant and do not constitute compensation for services.
The regulations confirmed what prior IRS guidance said on the tax treatment of tribal welfare benefits, including Revenue Procedure 2014-35, which was issued before the 2014 law's enactment. They also expand on prior guidance, including giving tribes deference to interpret ambiguities in Section 139E. This deference is based on feedback from tribes and other stakeholders, according to the IRS.
Watchdog Slams IRS Response to Puerto Rico Tax Dodges
Audit Faults IRS for Slow Progress on Tax Cheats in Puerto Rico - Michael Bologna, Bloomberg ($):
The IRS announced a compliance campaign in 2021 to address concerns that some transplants were evading tax obligations on income that should be sourced to the US. But GAO faulted the agency for procedural failures and for failing to coordinate with Puerto Rico’s tax agency, Departmento de Hacienda de Puerto Rico.
“The IRS campaign was slow to demonstrate results, in part due to the complexity of high-income, high-wealth audits,” GAO auditors wrote. “In addition, IRS did not prioritize this effort and communication gaps between IRS and Hacienda left the campaign without key data on the taxpayer population for more than 4 years.”
No Jury Trial for Tax Accuracy Penalties
Seventh Amendment Inapplicable to Accuracy Penalties, Court Says - Kristen Parillo, Tax Notes ($):
Accuracy-related penalties imposed under section 6662 fall within the public rights exception to the Seventh Amendment right to a jury trial, Tax Court Judge Kathleen Kerrigan wrote in a December 15 division opinion in Riddle Aggregates LLC v. Commissioner.
...
The partnership asserted that the court should hold that the accuracy-related penalties aren’t assessable as a matter of law and redetermine the penalties to be zero. Riddle cited as support the Supreme Court’s 2024 decision in SEC v. Jarkesy, 603 U.S. 109 (2024), which held that the SEC’s imposition of civil penalties for securities fraud in proceedings before an administrative law judge violated the Seventh Amendment because there was no opportunity to demand a jury trial.
Administration Looks to Thwart Tariff Refunds
Trump’s DOJ digs in on tariff refunds - Ari Hawkins, Politico:
In a filing last week, the DOJ opposed a Thursday request from dozens of companies for an injunction to halt tariff processing ahead of a Supreme Court ruling on duties Trump imposed under the 1977 International Emergency Economic Powers Act.
...
But the administration did not explain whether — or how — companies not participating in litigation would be able to recover payments if the tariffs are struck down, suggesting it has no plans to ease the refund process.
TPC Shows Who Pays Trump Administration’s Tariffs And Who Could Gain From $2,000 Dividend - Janet Holtzblatt, Robert McClelland, and John Wong, TaxVox:
Trump Says Tariffs Have Brought in $18 Trillion. That's Impossible. - Eric Boehm, Reason, "Logically, getting $18 trillion in tariff revenue in a single year is impossible. The U.S. imported about $3.3 trillion of goods last year. You'd have to tax those imports at nearly 600 percent to get $18 trillion in new tariff revenue. Of course, if you taxed imports at that level, you'd end up with roughly the same amount of imports as tariff revenue: zero."
Hope for Tax Season?
Former Commissioners Cite IRS Staff for 2026 Filing Season Hope - Nathan Richman, Tax Notes ($):
“I think filing season ’26 is going to be seamless, and I’m relying on the people of the IRS to make it happen,” former IRS Commissioner Charles Rettig said December 12 at an American Bar Association Section of Taxation conference in Las Vegas.
...
“If there’s 100 people managing the IRS filing season, they’re all going to do excellent work, and hard work, and they’re resilient, and they’re incredible, and they’re solution oriented. We’re going to have 80 people doing it, and those 80 people are going to kick butt, I know. I just wish there was 100 people,” former IRS Commissioner Daniel Werfel said.
Werfel, who resigned in January, said the IRS isn’t ready to replace 20 percent of its workforce with automation and other technology tools.
$114.97 in Duluth, $100.15 in Boulder, $84.58 in San Francisco.
Purchasing Power: The Real Value of $100 by Metropolitan Area, 2023 - Erica York, Tax Foundation. "One hundred dollars tends to buy the least in large cities in the Northeast, California, and the Pacific Northwest. On the other hand, $100 goes the furthest in rural areas in the Southeast and Midwest."
Blogs and Bits
Tax Breaks: The It Could Happen To Anyone Edition - Kelly Phillips Erb, Forbes. " After the Tax Cuts and Jobs Act (TCJA) of 2017 changed the rules for personal casualty and theft losses, taxpayers who suffered financial losses due to a scam didn’t qualify for a deduction."
We Wish You an Arm’s Length Margin and a Happy Year End - Chad Martin, Eide Bailly. "As we approach that special time of year when we take a step back and reflect on the financial year we’re leaving behind, let’s spare some goodwill toward the year‑end transfer pricing adjustment."
Taxpayer Prevails in Dispute With IRS Over Covid-Related Extension of Refund Deadline - Parker Tax Pro Library. "he Court of Federal Claims held that a taxpayer's lawsuit for a refund of penalties, which was filed more than two years after the IRS denied the taxpayer's requests for abatement, was nonetheless timely filed because the filing deadline was extended by Code Sec. 7508A as in effect for 2019. The court found that under the plain meaning of the 2019 version of the statute, the automatic extension ran from the beginning of the disaster declaration on January 20, 2020, through the end of the declared disaster period (May 11, 2023), and until 60 days after the end of the declared disaster period (July 10, 2023)."
The Disaster Related Extension of Deadlines Act (H.R. 1491) Sent to the President for Signature - Ed Zollars, Current Federal Tax Developments. "Under current law, a significant trap exists for taxpayers filing under disaster relief provisions. While IRC § 7508A allows the Secretary to disregard a period of up to one year for filing returns (a postponement), this postponement is not statutorily defined as an "extension" for purposes of the limitation on credits or refunds."
Shocking: State Taxes Matter to Hockey Players - Russ Fox, Taxable Talk. "Yes, there are other factors that come into play: family, the team you would be playing for (do you like the coach/staff, other players; the chance that you could win a Stanley Cup), and climate (another pro for all the cities noted above except Seattle) are three that immediately come to mind. But the idea that taxes don’t influence decisions is laughable."
Related: Eide Bailly State and Local Tax Services.
The Corporation Bank Account Is Not Your Personal Account
Cash Business With Few Records Nets $9 Million Tax Liability - Chandra Wallace, Tax Notes ($). "The operator of an online business who paid suppliers in cash and failed to report millions of dollars he pocketed from it couldn’t duck the resulting taxes, the Tax Court held."
The Tax Court opinion reads like a case study in bad recordkeeping and bad tax habits. There are no accounting records, to speak of. The taxpayer treated corporate accounts as personal accounts. The taxpayer used corporate accounts to pay business expenses. And the taxpayer tried to claim tax payments as "cost of goods sold" with no substantiation for what was purchased.
Given the lack of records, the IRS reconstructed income using taxpayer bank records. This rarely goes well for taxpayers, and it went badly here (Taxpayer name and IRS examiner name are omitted in favor of "Petitioner" and "Examiner." Emphasis is mine, and I omit citations. "ONY Sales" is the corporation.):
The Tax Court upheld over $9 million in taxes on the taxpayer couple, plus millions more in penalties. But at least they got to use some nice cars:
The moral? If you don't keep good records, the IRS will keep bad ones for you. And you can't deduct the Ferrari and Rolls as "cost of goods sold."
What day is it?
It's National Chocolate Covered Anything Day! It's also Beethoven's Birthday, more or less. Chocolate and Ode to Joy mix well.
Make a habit of sustained success.
