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Programming note: Eide Bailly offices are closed January 3 for the New Year holiday. The Roundup will be back January 4. Happy New Year!
Paying for last-minute deductions. If you are a cash-basis taxpayer, you have until midnight tonight to spend some cash to get a deduction this year. How you do it matters.
– A credit card is as good as cash. Better, even, because if you incur a business expense before the end of the year, you have your credit card statement to prove it.
– If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2021 to be a deductible 2021 expense. If it’s a big check, maybe you should spend a little extra to send it Certified Mail so you can document the postmark.
– If you receive a check in the mail, it’s taxable the day you receive it, even if you don’t deposit it.
– There is no “close is good enough” rule for cash basis taxpayers. Just because you could have paid a bill or made a contribution doesn’t get you a deduction if you didn’t pay it before year-end.
– Don’t overdo it. If you prepay expenses more than a year out, you don’t get the deduction until the year to which the payment applies.
– If you are making a gift to a loved one to qualify for the $15,000 annual gift tax exclusion, having the check in the mail isn’t good enough. A check has to be cashed for the gift to count against this year’s exclusion.
IRS Finalizes Rules to Prevent Tax Hit From IBOR Transition - Mary Katherine Browne, Tax Notes ($):
Taxpayers won’t be required to recognize gains or losses attributed to the phaseout of the use of interbank offered rates (IBORs).
The final rules (T.D. 9961), released December 30, finalize the framework set out in the October 2019 proposed regulations (REG-118784). The rules state that replacing IBOR reference rates with qualified rates in debt instruments or derivatives won’t be treated as a realization event if the fair market value of the modified instrument or contract is substantially equivalent to its FMV before the change was made.
Good news for owners of LIBOR-linked assets.
Senate budget bill would boost energy credits, trim tax increases - Laura Weiss, Roll Call:
Other changes are likely to emerge in the bargaining over the next iteration of the expansive budget bill if Democrats hope to win Manchin's approval. For example, they may have to trim bonus electric vehicle credits that would benefit carmakers that employ unionized labor, a boon for Detroit-based General Motors Co. but not for firms like Tokyo-based Toyota Motor Corp. that want to expand their EV-related manufacturing in states such as West Virginia.
It's still unclear what will happen with the House's "SALT" cap changes, which would net revenue over 10 years but offer a big benefit to wealthier households during the next several years.
A Look Ahead: Tax Uncertainty Adds to Businesses’ Woes - Jonathan Curry, Tax Notes ($):
“If you look back at 2017, there was a pretty good sense that something was going to happen, and a lot of the discussion was around what,” said Ken Kuykendall of PwC. “This time through, there’s the what and the when, but also the whether.”
Lynda K. Walker of The Tax Council told Tax Notes that businesses had worked for a long time to secure a more competitive corporate tax rate, and with the passage of the 2017 tax overhaul, “they felt like they had finally crossed that finish line.” But now, with taxes poised to go back up, “the whiplash of it all has made it very important for people and very much a concern,” she said.
Taxation of Crypto Margin Trading - Jason Freeman, Freeman Law. "If a taxpayer borrows capital to acquire a cryptocurrency, the amount of such borrowed capital is included in the taxpayer’s adjusted basis in the currency (along with any capital the taxpayer invested himself)."
Related: The Infrastructure Act and Cryptocurrency Transactions.
California wildfire filings, COVID-deferred payroll taxes due Jan. 3, 2022 - Kay Bell, Don't Mess With Taxes. "And in mid-November, the Internal Revenue Service announced that some wildfire victims in parts of the Golden State wildfire have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. The extension applies to wildfire-affected individual and business taxpayers in Lassen, Nevada, Placer, Plumas, Tehama, and Trinity counties."
Eleventh Circuit Holds IRS Regulation on Judicial Extinguishment Formula for Conservation Easement Deductions Invalid - Ed Zollars, Current Federal Tax Developments. "Advisers must take care to note that the decision, at least for now, only impacts taxpayers whose appeals would be heard by the Eleventh Circuit Court of Appeals which covers the states of Alabama, Florida and Georgia. Outside of that Circuit, the Tax Court would be expected to continue to follow its own published opinion in Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020) which upheld the validity of the regulation until and unless the Tax Court decides to abandon reliance on that ruling."
11th Cir. Invalidates Proportionate Sharing Regulations As Procedurally Arbitrary and Capricious for Failing to Address a Significant Comment - Jack Townsend, Federal Tax Procedure. "It is not clear to me whether the opinion as written is a final disposition on the issue of the validity of the interpretation. The Hewitt court seems only to have held that the regulation was invalid because it failed the procedural regularity test. The Court never engaged with the issue of whether the interpretation (as opposed to the regulation) was a valid interpretation of the governing statute, § 170(h)(5)(A). There is thus the possibility that the IRS could or should still prevail if the interpretation is the best interpretation of the statute."
Can the IRS Be Trusted With Your Data? - Stephen Carter, Bloomberg via The Washington Post ($). "In fiscal 2021, the Internal Revenue Service processed 269 million tax forms, each one rich with information that scammers and thieves would love to have. A scathing new report from the U.S. Treasury Department’s Inspector General for Tax Administration calls into question the ability of the IRS to protect this mass of data."
'Commodity Credit Corporation Loans and Elections - Roger McEowen, Agricultural Law and Taxation Blog. "By presumption, every farmer treats CCC loans as loans for tax purposes. Thus, for a farmer on the cash method of accounting, there is no taxable income from the loan until the year in which the commodity is sold or the crop is forfeited to CCC in full satisfaction of the loan. If grain is forfeited to the CCC in satisfaction of the loan, the taxpayer will receive a Form 1099-A from the USDA. The amount of the loan forfeited is reported on line 5b of Schedule F with the same amount entered as taxable income on line 5c."
Tax Tip: In Uncertain Times, Don’t Be Scared of Tax Extensions - Adam Markowitz, Bloomberg. "Most tax professionals don’t want to think about a third consecutive extended tax season. However, with Build Back Better on the horizon and lessons learned from last year’s surprises from the American Rescue Plan Act, the best tools that tax preparers have this year may be Forms 4868 and 7004."
2021 Year in Review – Administrative Matters Part 2 - Keith Fogg, Procedurally Taxing. "On Friday, October 15, 2021, the IRS finally issued guidance addressing the controversial issue of taxpayer reliance on positions the agency announces in FAQs, which are published on its website (IR-2021-202, IRS updates process for frequently asked questions on legislation and addresses reliance concerns. The new guidance accepts two of the three recommendations made by the National Taxpayer Advocate Erin Collins in her July 7, 2020 blogpost. But, unfortunately, the new guidance suffers from the same shortcomings that attended the NTA’s recommendations."
7 Common Sales Tax Filing Mistakes To Avoid - Jennifer Dunn, TaxJar. "2. Not Filing a Return at All – What’s the least that can happen if you fail to file a return? Even if you don’t owe any sales tax, you may be on the hook for a penalty (Florida’s is $50!) or get your sales tax permit revoked. Worst case scenario, you’re on the hook for criminal charges! (Don’t panic! All states are different, but this usually occurs either when you’ve either a.) avoided ever filing for a sales tax permit and collecting and get caught b.) collect sales tax from your buyers without a sales tax permit.)"
Superfund Tax Puts United States on the Right Environmental Track - Nana Ama Sarfo, Tax Notes Opinions. "Importantly, the law considerably expands the category of taxable substances. Under the old regime, excise taxes applied to any substance that consisted of at least 50 percent of a taxable chemical. The threshold has been lowered to 20 percent under IRC section 4672(a)(2)(B)."
Tax Professionals to Follow on Social Media in 2022 - Kelly Phillips Erb, Bloomberg. "Joe Kristan is a partner at Eide Bailly LLP. He regularly tweets out a great round-up of tax articles."
New Year's Resolutions for Our Tax Systems - Annette Nellen, 21st Century Taxation:
3. Prevent budget gimmicks: Starting for tax years beginning after 12/31/21, R&D expenditures are no longer currently deductible as has been the case since 1954. Instead, companies involved in innovation that produces R&D expenditures will have to capitalize these costs and amortize them over 5 years (15 years if it is foreign research). This change was in the TCJA with a delayed effective date to help reach the $1.5 trillion cost limit over 10 years. I don't think anyone expected it would become effective, but it will for calendar year businesses on 1/1/22. While the Build Back Better Act pushes out the effective date four years, it wasn't passed before 1/1/22. These items that are just to help a bill reach a revenue target over a 10 year period should be disallowed.
Don't do this. The new search function of the Tax Court's website has yielded up a number of previously-missed bench opinions, including one making this argument, detected by Wall Street Journal reporter Richard Rubin (taxpayer name omitted):
Taxpayer argues that the Commissioner has not met his burden to establish that he received wage or other taxable payments from AltairStrickland, LLC because he asserts his employer's records are hearsay and do not fall under the business record exception to the rule against hearsay... Respondent in this case has established that the AltairStrickland, LLC's record's, including the 2017 Form W-2 issued to Taxpayer and payroll hours/dollar history, were kept in the course of its regularly conducted business activity, as so certified by the custodian of records for that entity who responded to a subpoena of records issued by Respondent. Consequently, through information returns, supporting documents, and the record, Respondent has established that Taxpayer received the respective payments from his employer during 2017. More importantly, Taxpayer admitted at trial to receiving payments and admitted that AltairStrickland, LLC was his employer.
The taxpayer gave his employer a W-4 claiming 99 exemptions. When he got a W-2 showing his income, he contacted the employer's HR department asking to have it "corrected" to show no wages. The HR department was unconvinced, as were the IRS and the Tax Court.
A toast! New Year's Eve is also National Champagne Day, fittingly enough. Here's to a great 2022!