Tax News & Views Big Beautiful Strawberry Rhubarb Roundup

IRS reminder: the second quarter estimated tax payment deadline is June 16 - IRS:

Who needs to pay estimated tax?

- Taxpayers including sole proprietors, partners and S corporation shareholders who expect to have a tax liability of at least $1,000 for the year.

- Corporations that expect to owe tax of $500 or more. See Publication 542, Corporations.

- Individuals earning income from gig work, freelance work or from sales of goods and services, even if they receive a Form 1099-K. Recipients of Form 1099-K, Payment Card and Third Party Network Transactions PDF must use it with other tax records to report income.

How to pay

Electronic payment is the most secure, fastest and easiest way to pay. Taxpayers can use:

- The IRS Online Account, Direct Pay with a checking or savings account, credit/debit card or digital wallet. Payment processors may charge a fee if paying with a credit/debit card.

- The Electronic Federal Tax Payment System (EFTPS).
- A check or money order made payable to the “United States Treasury” along with Form 1040-ES.

- The IRS2Go app.

Corporations must use electronic funds transfer, usually EFTPS, to make all federal tax deposits including installment payments of estimated tax.

Where things stand in Congress

How the Senate can meet its July 4 reconciliation deadline - Andrew Desiderio, Laura Weiss and Jake Sherman, Punchbowl News:

Let’s run through what needs to happen — and when — in order for Senate Republicans to pass a bill by the week of June 23. We’ll also discuss the obstacles they’ll face along the way.

This week: GOP senators would need to have the Finance Committee’s legislative text in hand by next Monday. That means the thorniest issues including SALT, Medicaid, clean-energy credits and key business tax breaks need to be hashed out this week.

Republican leaders want to avoid a game of whack-a-mole whereby solving one issue just creates more problems. This is especially true for SALT.

Problems proliferate in Senate for Trump’s ‘big, beautiful bill’ - Alexander Bolton, The Hill:

Some Republican senators are barraging leadership with concerns about spending cuts for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), while budget hawks are demanding more deficit reduction and railing against a House compromise to lift the cap on state and local tax (SALT) deductions.

The latest headache for Thune and other Senate negotiators is a proposal being pushed by fiscal conservatives to root out more than $200 billion in what they’re calling waste, fraud and abuse in Medicare — a controversial prospect, given the program’s popularity.

There are also differences in opinion between senators and the Trump White House about making permanent corporate tax cuts, such as 100 percent bonus depreciation for short-term investments and immediate expensing for research and development.

Mike Johnson downplays Musk's influence and says Republicans will pass Trump's tax and budget bill - Bill Barrow, Associated Press:

With an uncharacteristically feistiness, Speaker Mike Johnson took clear sides Sunday in President Donald Trump’s breakup with mega-billionaire Elon Musk.

The Republican House leader and staunch Trump ally said Musk’s criticism of the GOP’s massive tax and budget policy bill will not derail the measure, and he downplayed Musk’s influence over the GOP-controlled Congress.

Senate Republicans Plan to Release Major Revisions to Trump’s Tax Bill - Erik Wasson, Bloomberg via MSN: "Senate Republicans want to scale back the $350 billion cost of increasing the cap from $10,000 to $40,000 for those making less than $500,000. House Speaker Mike Johnson and a group of Republican members from high-tax states have warned that any diminishing of the SALT cap would doom the measure when it comes back to the House for a final vote. At the same time, so-called pass-through businesses in the service sector are pushing to remove a provision in the House bill that limits their ability to claim SALT deductions."

Will it Grow Things?

Republicans and Economists at Odds Over Whether Megabill Will Spur Growth Boom - Richard Rubin, Wall Street Journal:

Broadly, economists across the political spectrum discount elected officials’ predictions.

Tax Foundation: The conservative-leaning group estimates that the bill would boost long-term GDP by 0.8%, generating enough revenue to cover about one-third of its costs. That is compared with doing nothing and letting tax cuts expire Dec. 31. The gain is like adding an average of 0.1 percentage point to the annual growth rate; reaching 3% would require much larger changes, Watson said.

...

Joint Committee on Taxation: The nonpartisan congressional scorekeeper projected that the bill’s tax components would produce short-run growth through increased labor supply and capital stock. That would be counteracted by rising budget deficits, with a net effect of taking 1.83% annual growth to 1.86%. JCT estimates that the bill’s tax provisions would cover less than 3% of their costs with revenue from economic growth.

Byrd is the Word

Capitol Hill Recap: Byrd-Watching - Alex Parker, Eide Bailly. "The Byrd Rule not only determines what provisions get through, but often how those provisions work. As the House of Representatives waits to see how the Senate will revise their recently passed version of the tax bill, changes to adhere to Byrd Rule restrictions are expected to be some of the biggest deviations."

Tax Bill’s Retaliatory Tax Won’t Sink Ship, Parliamentarian Rules - Jonathan Curry, Tax Notes ($):

Sources told Tax Notes that Senate Parliamentarian Elizabeth MacDonough concluded that section 899 doesn’t trigger the Senate Byrd rule’s “fatal to privilege” determination, which could have caused the entire tax portion of the reconciliation bill to lose its special status. That would have nullified the political advantages of using the budget reconciliation process to need only 51 votes in the Senate or necessitated the passage of a new House bill without the provision. However, more challenges to the provision under the Byrd rule could still arise.

Concerns had been raised that section 899 would run afoul of the Byrd rule in several ways. The rule prohibits including extraneous provisions in a budget reconciliation bill. That includes provisions outside the jurisdiction of the congressional committees that received budget reconciliation instructions. Critics argued that because the proposed retaliatory tax could override existing tax treaties, the Senate Foreign Relations Committee had jurisdiction in addition to the Senate Finance Committee.

Executives converge on Washington to halt Trump’s foreign investment tax - Martin Arnold and Alex Rogers, Financial Times:

The lobbying drive is targeting a provision in Donald Trump’s budget bill, which if approved by Congress would allow the US to impose additional taxes on companies and investors from countries that it deems to have punitive tax policies.

Investors, US companies with foreign owners and international firms with American operations, could all be affected by Section 899 of the bill, which executives fear could cause a drop in corporate investment and a retreat from US assets.

Tax School

Colleges Hope to Stave Off Big Tax Hike by Pledging to Spend More Endowment Cash - Juliet Chung and Richard Rubin, Wall Street Journal:

The current version of President Trump’s tax bill, which passed the House last month, includes a hefty, 21% annual tax on the wealthiest schools’ investment income, up from the current 1.4% rate. The plan could add hundreds of millions of dollars to many schools’ annual tax bills. The White House said recently that the tax increase would create accountability for “woke, elitist universities.”

Now, nearly two dozen schools, including many of the wealthiest, support a requirement to distribute 5% of their endowments’ value annually. Backers of the plan include Harvard, Yale, Princeton, Stanford, Johns Hopkins, Duke and Rice universities, as well as the University of Chicago, according to people familiar with the group.

Tariff Update

Trump’s New Steel Tariffs Look Vulnerable to a Courtroom Challenge - Jonathan Weil, Wall Street Journal. "Increase is piggybacking on seven-year-old findings. Are they too stale?"

China Tariffs Already Mean Fewer, More Expensive Dolls for American Kids - Jon Emont, Wall Street Journal. "Trump’s China tariffs have been hurting low-margin industries such as toy makers, where companies say there are few alternatives to raising prices. As a result, these businesses expect American shoppers to face a smaller assortment of goods this Christmas—and at a higher cost."

Blogs and Bits

TIGTA report details savings from its IRS investigations - Kay Bell, Don't Mess With Taxes. "A TIGTA investigation found 4,519 individual and business tax accounts with overpayments totaling $78.6 million for which overpayments were not applied to outstanding tax debt due to procedural and computer programming errors."

Supreme Court Sides With Catholic Group In Tax Exemption Dispute Over Non-Religious Activities - Kelly Phillips Erb, Forbes. “While the state argued that the exemption was intended to draw stark theological lines, Sotomayor went on to write that the exemption ‘functions at an organizational level, covering both the janitor and the priest in equal measure.’”

Missouri Joins New Jersey in the Hall of Shame for Encouraging Identity Theft - Russ Fox, Taxable Talk.

A client moved from Missouri a few years ago, and began filing returns in his new state (as he should); he filed a part-year return for his final year in Missouri. Missouri thought he remained a resident for the following year and asked our client to email his unmasked tax return to the state (he had mailed a copy via certified mail–which they did receive). We’re not going to email it. As the Missouri Department of Revenue correctly notes,

Only use a secure connection on the Internet
when sending credit card numbers or other
personal information. [emphasis added]

How Does the House-Passed Tax Bill Change the Section 199A Pass-Through Deduction? - Erica York, Tax Foundation. "Unfortunately, the deduction does not live up to its intent of enhancing tax parity, but it does significantly complicate the tax code and add to compliance costs."

When it's not better to ask forgiveness instead of permission.

Farmland Lessor Stuck With Amortization Accounting Method Change - Nathan Richman, Tax Notes ($):

Conmac Investments Inc. owns leases and manages farmland it bought between 2004 and 2013. That land came with Department of Agriculture subsidies called “base acres.”

From 2004 through 2008 Conmac didn’t amortize its base acre rights. After hearing about other taxpayers’ practices, Conmac changed its treatment in 2009 but failed to file a Form 3115, “Application for Change in Accounting Method.”

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The IRS disallowed $93,000 in amortization deductions for the base acres on Conmac’s 2013 and 2014 tax returns and imposed a $142,000 section 481(a) adjustment to reverse the deductions in earlier years as part of reversing the unauthorized change to the taxpayer’s accounting method.

The IRS requires taxpayers who want to change accounting methods to file Form 3115, Application for Change in Accounting Method, before doing so. If you don't, the IRS can correct the cumulative reductions in taxable income that result from the method change at any time, without regards to the statute of limitations. In this case, The IRS was able to add back amortization deductions starting in 2009 to the taxpayer's 2013 taxable income because a 2009 change in method - starting to amortize the base acre rights - was made without filing Form 3115.

An accounting method is changed if it changes when a deduction or income item is recognized for tax purposes. From the court opinion (my emphasis):

Conmac believes that its changes were not an adjustment involving the time for taking the deduction, but only a change in the characterization of whether the deduction was allowable.

This argument is wrong. If Conmac had continued not deducting amortization of the base acres, it would have recovered the original cost at the time of the eventual disposition. By beginning to deduct amortization of the base acres, Conmac changed the time it recovered the original cost by spreading the cost over the years before eventual disposition.

Fortunately, many common accounting method changes can be made using a streamlined process that involves attaching Form 3115 to the tax return for the year of change. The IRS has just updated the list of automatic accounting method changes.

- Understanding Automatic Accounting Method Changes: An Overview of Rev. Proc. 2025-23 - Ed Zollars, Current Federal Tax Developments.

- Eide Bailly Accounting Methods Services.

What day is it?

It's National Strawberry Rhubarb Pie Day! Best with ice cream, of course.

Tax News & Views Big Beautiful Strawberry Rhubarb Roundup

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Joe B. Kristan, CPA