Tax News & Views Supreme Court Exempt Donut Roundup

SCOTUS Rules for Wisconsin Catholic Charity in Tax Exemption Case - Christopher Jardine, Tax Notes ($):

Wisconsin’s denial of an unemployment tax exemption to the Catholic Charities Bureau (CCB) violates the First Amendment, the U.S. Supreme Court has held.

In its unanimous June 5 decision in Catholic Charities Bureau Inc. v. Wisconsin Labor and Industry Review Commission, the Court reversed a Wisconsin Supreme Court decision finding that the CCB’s subsidiaries must pay unemployment taxes because the subsidiaries are not operated primarily for religious purposes, finding instead that the state’s interpretation of the exemption statute discriminates between religions and does not survive strict scrutiny.

“It is fundamental to our constitutional order that the government maintain ‘neutrality between religion and religion.’ There may be hard calls to make in policing that rule, but this is not one,” the Court said (quoting Epperson v. Arkansas).

Justices Fault Wis. For Denying Tax Break To Charities - Maria Koklanaris, Law360 Tax Authority ($):

In the opinion, Justice Sotomayor said Wisconsin has granted exemptions to other religious entities that are providing charitable services in a similar way to the Catholic charities. She said Wisconsin granted those exemptions because the work was done directly by the church or by ministers, not by a separate church-controlled nonprofit, as the Catholic charities are. However, she wrote, that does not pass muster, and even suggested this should have been obvious.

Justices Back Catholic Groups’ Religious Tax Exemption Claim - Lydia Wheeler and Kimberly Strawbridge Robinson, Bloomberg ($):

The US Supreme Court said the Wisconsin Supreme Court wrongly denied Catholic-affiliated charities a religious exemption from having to pay into the state’s unemployment tax program.

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The state high court said they’re not operated primarily for religious purposes within the meaning of the state law because they neither proselytized nor limited their services to Catholics.

Big Beautiful Bill Begets Breakup

Trump-Musk feud deepens while Senate eyes bill tweaks - Naomi Jagoda, Bloomberg ($):

The war of words between the president and the billionaire got more heated Thursday, with the president threatening to terminate Musk’s contracts and subsidies.

Musk’s campaign to sink the tax-and-spending bill—which he ramped up days after leaving his role in the Trump administration—comes as his biggest business, Tesla, could be hurt financially by the measure.

Big Beautiful Bargaining

Trump Said to Be Open to Lowering SALT Cap in GOP Tax Bill - Erik Wasson, Bloomberg via MSN:

Trump signaled his position in a meeting with Senate Finance Committee Republicans on Wednesday, and the comments added momentum to Senate GOP efforts to enact a lower SALT cap.

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After the White House meeting Wednesday, Senate Finance Committee Chair Mike Crapo lamented about the cost of the House bill’s SALT cap.

“There’s not a single Republican senator from New York, New Jersey or California, so there’s not a strong sentiment in the Republican conference to do $350 billion for states that the other states subsidize,” Crapo told reporters.

Johnson Says He’s Fighting to Keep $40,000 SALT Cap in Trump Bill - Erik Wasson, Annmarie Hordern and Lisa Abramowicz, Bloomberg via MSN:

House Speaker Mike Johnson said he is fighting to maintain the new $40,000 cap on state and local deductions in the draft tax bill now before the Senate, where Republicans are seeking to enact a less generous break.

“I am certainly trying to hold to that number,” Johnson said on Bloomberg TV on Thursday. “I hope they tolerate it.”

Trump not convinced on making biz tax breaks permanent, tax writer says - Brian Faler, Politico:

President Donald Trump is not sold on making a trio of business tax breaks permanent, a Senate Republican tax writer said Thursday — a potential blow to a top GOP priority for the massive domestic policy package the party wants to advance next month.

While the article doesn't spell out the trio, they are full equipment expensing via bonus depreciation, current deduction for research costs, and relaxed caps on deductions of business interest.

Sen. Ron Johnson of Wisconsin, who was among the Senate Finance Committee Republicans to meet with Trump at the White House Wednesday, said the president told lawmakers it could be better for economic growth to make the provisions temporary, because that would provide a more immediate incentive for businesses to take advantage of them.

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That route would be tantamount to sacrilege to many congressional Republicans — not to mention to the business community, which contends that the predictability that would come along with making the provisions permanent is critical to the economy. Senate Majority Leader John Thune, Finance Committee Chair Mike Crapo (R-Idaho) and others have called it one of their biggest priorities for inclusion in the megabill.

Big Beautiful Budget Buster?

CBO Puts Cost of Tax Bill at Nearly $3 Trillion - Doug Sword, Tax Notes ($):

A reconciliation bill front-loaded with expensive business tax breaks will add $551 billion in interest costs over 10 years, raising the price tag on the House-passed version of the bill to $2.97 trillion, according to a Congressional Budget Office estimate.

The congressional scorekeeper had estimated June 4 that the House version would add $2.42 trillion to the debt over 10 years, as $3.7 trillion in tax cuts would only be partly offset by $1.3 trillion in spending cuts. The June 5 estimate of interest costs is in a letter the agency sent to Senate Budget Committee ranking member Jeff Merkley, D-Ore.

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The bill would fall $1.8 trillion short of covering its costs through 2029, according to the CBO, but the shortfall would total only about one third that amount during the second five years.

That's because the bill would only temporarily extend its most important business tax breaks, as noted in the previous item.

Deficit Politics Returns in Debate Over Trump Tax Cuts - Tony Romm, New York Times:

The federal government’s publicly held debt is already at its highest level since World War II, measuring at about 100 percent of the size of the economy. It is set to grow at a rate that most economists believe would be unsustainable.

That trajectory — and the extent to which the nation can afford to remain on its current path — is complicating the White House’s efforts to nail down support for Mr. Trump’s domestic policy bill, which includes the tax cuts. The proposal is expected to add $2.4 trillion to the debt over the next decade, according to an estimate from the nonpartisan Congressional Budget Office.

But that price tag does not include an additional $551 billion in costs that the United States would have to incur to sustain that level of borrowing, congressional scorekeepers predicted on Thursday, as they warned that debt held by the public would total nearly 124 percent of the nation’s gross domestic product by 2034 if the bill were to become law.

Solving 899 Problems?

Reconciliation News - Jake Sherman, John Bresnahan, Mica Soellner and Laura Weiss, Punchbowl News:

Major trade groups for international companies with operations in the United States are pressing Thune and Senate Finance Committee Chair Mike Crapo to drop “Section 899” from the reconciliation bill in a new letter.

The regime could raise taxes for foreign companies with U.S. operations by as much as 20% if their home countries charge “unfair foreign taxes.” It hits back at the global minimum tax deal the Biden administration negotiated.

The message comes after the tax cleared a key procedural hurdle. The Senate parliamentarian ruled that it falls under the Senate Finance Committee’s jurisdiction, which means it’s in line with Republicans’ reconciliation instructions.

Clients Worried Over US ‘Revenge Tax,’ Investment Executive Says - Somesh Jha, Bloomberg ($):

A US-based investment management company is receiving persistent queries from clients concerned about the impact of a Republican tax bill that proposes a so-called “revenge tax” on foreign investors.

“The way it’s currently drafted could have huge implications and there’s a lot of uncertainty to what it actually impacts,” Patrick Reidy, head of Europe and Asia operations and product taxes at the US-based Capital Group said Thursday.

For more background on the Sec. 899 "revenge tax," read our Alex Parker's recent posts "Tax News & Views International Weekly: Retaliatory Fears" and "Tax News & Views International Weekly: Retaliation on Auto-Pilot."

The Colonel Battles a Tax Bill

Yum Brands Contests $6 Billion Subpart F Inclusion in Tax Court - Amanda Athanasiou, Tax Notes ($):

Fast-food multinational Yum Brands accused the IRS of erroneously increasing its income by a $6 billion subpart F inclusion, in a Tax Court petition contesting a $2.1 billion tax underpayment asserted by the agency.

The company is on the hook for almost $2 billion in interest and penalties in addition to its alleged tax deficiencies, which stem from a brand realignment restructuring it announced in 2013. Following an audit of the company’s 2013–2015 tax years, the IRS erroneously deemed distributions from lower-tier Luxembourg controlled foreign corporations, resulting in section 301(c)(3) gain to higher-tier CFCs and ultimately the contested $6 billion subpart F inclusion, the company said in its June 4 petition in Yum! Brands v. Commissioner.

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Yum Brands describes itself as the largest restaurant company in the world, counting Habit Burger & Grill, KFC, Pizza Hut, and Taco Bell as its iconic brands. Its petition says it had restaurants in over 125 jurisdictions by the end of 2013. Over half of its more than 40,000 restaurants were outside the United States.

Tariffs

Rising prices, war rooms and layoffs: The cost of Trump’s tariffs is coming - Taylor Telford, Washington Post:

Months of trade policy whiplash and ensuing rounds of legal challenges have created uncertainty at every stage of the supply chain, according to interviews with a half-dozen business leaders. It’s draining resources and creating logistical headaches for wholesalers, distributors and retailers during their most critical business period: June is the busiest time of year for freight, partly because companies are moving much of their inventory for back-to-school and holiday shopping.

Instead, when they’re normally focused on prepping for their most crucial business periods, import-dependent companies are slashing budgets, halting investments and looking for ways to avoid the steepest duties. Others are watching their inventories dwindle, unsure whether they’ll be able to keep shelves fully stocked. Many are cutting staff and other facets of their operations to stay afloat.

Musk predicts Trump’s tariffs will cause recession amid growing spat with president - Tobias Burns, The Hill. "'The Trump Tariffs will cause a recession in the second half of this year,' he wrote on his social media website, X."

Tariffs prompt record plunge in US imports - Natalie Sherman, BBC News. "The retreat reflects the abrupt hit to trade, after firms had rushed products into the country earlier this year to try to get ahead of new taxes on imports Trump had promised."

Blogs and Bits

Illinois budget includes new per-wager sports betting tax - Kay Bell, Don't Mess With Taxes. "The 2025 budget's tax, which will go into effect July 1, will add 25 cents for every bet for a licensee’s first 20 million bets, and 50 cents per bet thereafter."

Employees Or Independent Contractors? How To Classify Workers - Kelly Phillips Erb, Forbes. "The Internal Revenue Service (IRS) says that the general rule is that an individual is considered an independent contractor if the person paying for the work has the right to control or direct only the result of the work, not the manner in which it is done."

One Big Beautiful Bill Act’s EITC Precertification Requirement Could Delay Refunds - Janet Holtzblatt, TaxVox. "The House-passed One Big Beautiful Bill Act (OBBBA) resurrects 'precertification' for the Earned Income Tax Credit (EITC), a practice tested and rejected over 20 years ago. It would require people to provide third-party documentation to the IRS that proves EITC eligibility, either before claiming it or upon filing their Form 1040."

House Tax and Spending Bill Continues Income Tax Carveout for Credit Unions - William McBride, Tax Policy Blog. "While the House bill does not repeal the credit union exemption it does expand application of an existing excise tax on executive compensation within tax-exempt organizations, including credit unions."

What day is it?

It's both the 81st anniversary of the 1944 Normandy Invasion - D-Day. It's also National Donut Day, a different sort of "D" day.

Tax News & Views Supreme Court Exempt Donut Roundup

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Joe B. Kristan, CPA