Tax News & Views Orange Juice Roundup

Nonprofits Under the Spotlight

Trump Scrutiny of Tax-Exempt Status Leaves Democrats Skittish - Chris Cioffi, Bloomberg Tax ($):

“There is right now some political targeting going on right out in the open on the far right,” said Senate Finance Committee ranking member Ron Wyden (D-Ore.) at a Thursday virtual press event. “The exact kind of IRS weaponization Republicans have been upset about for years is now basically happening in front of their eyes, and I consider it an assault on free speech.”

The Treasury Department announced a plan to change nonprofit reporting requirements, while the IRS pledged to boost enforcement on misuse of federal funds. The Department of Justice also secured a grand jury indictment of GOP foe Southern Poverty Law Center on accusations it funneled millions in donations to extremist groups, a charge critics call politically motivated, and released a 200-page report last week detailing alleged Biden-era targeting of religious nonprofits.

The tax-exempt industry has been on high alert as it seeks to navigate the administration’s increased examination. But this isn’t the first time the IRS has increased its oversight of nonprofit groups.

On the other hand, the former CEO of the Tax Foundation argues one group of nonprofits should have its tax-status revoked.

This $1.3 trillion industry deserves to be taxed - Scott Hodge, The Washington Post:

But if the past is prologue, nothing will come of the hearing. Here is the problem: The hospital sector is unlike any other. More than half of all U.S. hospitals operate as nonprofits, which sounds like a public good. No profit motive, more resources for patients, right? Wrong.

Nonprofit hospitals have grown into a $1.3 trillion industry, generating nearly $45 billion in tax-free “profits” in 2023. Researchers have estimated that the total annual tax benefit flowing to nonprofit hospitals reached $37.4 billion in 2021 — including $11.5 billion in federal income taxes that Uncle Sam simply forgoes. In exchange for this enormous subsidy, nonprofit hospitals are supposed to provide charity care and community benefits, such as subsidized health services or training of medical professionals. Many don’t come close to earning their keep.

Court News

IRS Seeks More Taxes From Amgen, Adding to $10.7 Billion Dispute - Michael Rapoport, Bloomberg Tax ($):

The biotechnology giant said Thursday that the IRS has proposed “significant adjustments” to its tax bills from 2016 to 2018. The approach is similar to Amgen’s existing dispute with the agency in Tax Court over which it could owe taxes, interest and penalties for 2010 to 2015 over what the IRS contends is Amgen’s shifting of US profits to Puerto Rico to enjoy the territory’s lower tax rate.

Amgen said it disagrees with the IRS draft adjustments, and contends the draft calculation methodology is inconsistent with positions the agency and the Tax Court have asserted.

Liberty Global Has Tax Pros Fretting Over Planning Uncertainty - Kristen A. Parillo and Michael Smith, Tax Notes ($):

The Tenth Circuit’s opinion in Liberty Global Inc. v. United States will likely create more uncertainty on where to draw the line between legitimate and abusive tax planning under the codified economic substance doctrine, according to tax professionals.

Because the panel majority’s April 21 decision didn’t provide a clear test for when the doctrine is relevant under section 7701(o), some observers think the decision could create a broad path for the IRS and other courts to invalidate complex transactions that rely on the literal language of tax code provisions.

Amicus Urges Tax Court to Reject IRS Implicit Support View - Alexander F. Peter, Tax Notes ($):

In an amicus curiae brief filed April 30, the Global Business Alliance (GBA) backed Eaton Corp. (Eaton U.S.) in its long-running dispute with the IRS over the financing of its acquisition of Cooper Industries PLC, and whether implicit support should be considered in pricing the interest on certain intragroup loans.

The amicus brief said that the IRS is “effectively rewriting the law without Congress legislating or Treasury and the IRS changing the pertinent Treasury Regulations” (emphasis in original). The IRS issued a generic legal advice memorandum (AM 2023-008) on implicit support years after promulgating the governing regulations and in the middle of the current litigation. The IRS is attempting “to make changes retroactively via a mere litigating position,” which is not permissible, the amicus brief added.

All In the Family

Samsung family pays record 12 trillion won tax, tightens grip on group - Jo He-rim, The Korean Herald:

The owner family of Samsung Group has completed the payment of 12 trillion won ($8 billion) in inheritance taxes over five years, marking the largest such settlement in South Korea’s history while further tightening its control over the conglomerate.

The family’s wealth has more than doubled amid an AI-driven semiconductor rally, allowing it to meet the tax burden without large-scale disposals of core holdings.

NYC Tax on Wealthy

The One Tax the Rich Can’t Escape - Richard Florida, The Atlantic:

There’s a lesson here for cities and states that are considering raising taxes on their wealthiest residents: The specific type of tax matters. The key is to design it around something the rich don’t want to give up—such as their home in the most economically and culturally important city in the world—not something they can easily avoid by simply changing their tax residence.

For a long time, academic research said that the rich don’t move because of taxes. Studies of millionaire migration, going back decades, found that high-income households had lower migration rates than the middle class. The rich were embedded in the places where they had built their careers, their networks, and their lives. The one real exception was a modest flow of New Yorkers moving to Florida late in life.

Treaties in Trouble?

Delusions of Treaty Abuse - Lee A. Sheppard, Tax Notes ($):

Treaties were meant to grease the wheels of cross-border commerce. Their vague drafting is the lowest common denominator of what each side will accept. Treaties based on models include model language that signatories may not completely understand, but they could count on OECD bureaucrats to interpret it for them. Treaties must be interpreted purposefully and according to the ordinary meaning of words. In most European countries, a treaty commitment supersedes national law. With the advent of the BEPS multilateral instrument, many participating countries grafted a principal purpose test onto their existing treaties.

So enchanted were European tax administrators with their new tools that they attempted to apply them retroactively. Taxpayers complained about that, and about how the ink was barely dry on statutory adoption of the BEPS 1.0 recommendations before what became the BEPS 2.0 global minimum tax was being discussed. Some inspired tax administrators even went to court to see whether they could obtain carte blanche to impose a treaty principal purpose test or antiabuse provision whenever they saw fit. This article looks at one such adventure in the United Kingdom that ended badly for HM Revenue & Customs.

Blogs & Bits

Just in time for May beach reading, the Congressional Research Service published a report on the One Big Beautiful Bill Act's new cap on itemized deductions for wealthy taxpayers, and the Joint Committee on Taxation published their annual list of expiring tax provisions.

Yes, Social Security Can Run Budget Deficits - Jessica Riedl, Urban-Brookings Tax Policy Center TaxVox blog. "A common myth holds that this year's shortfall is covered by past payroll taxes sitting in the Social Security trust fund. But the trust fund is not a cash account that can be tapped to pay benefits."

No, Tariffs Are Not Strengthening the Economy - Alex Durante, Tax Foundation. "President Trump’s trade agenda is actually holding back the economy."

Don’t fall for fake IRS letter scam seeking tax-refund related bank data - Kay Bell, Don't Mess With Taxes. "But the IRS’ legitimate account inquiry also has created a problem for other taxpayers. Tax scammers are using the direct deposit request as a way to steal individuals’ financial info."

What day is it?

(Aside from a day to celebrate a certain popular sci-fi franchise that is really about the taxation of trade routes?) It's National Orange Juice Day! The best way to start the day.