Tax News & Views Covid, Credits, and Conformity Roundup

I'm Back. Thanks to Adam Sweet, the Eide Bailly National Tax Office team, and my Monday/Friday co-poster Dan McNeil for running the show while I was on sabbatical. It was a great break, mostly spent at home, but with trips to Minnesota's beautiful North Shore and to the woods of Southwest Wisconsin to spice it up. I could have done without the blizzard driving between the Twin Cities and Duluth, but we stayed on the road and made it.

Thanks to Eide Bailly for the wonderful sabbatical program. Cutting off e-mail, network and phone access does wonders for getting away from it all. Having a great team back in the office and firm-wide to cover my client responsibilities provides the needed peace of mind. Thanks to my colleagues for making it possible by covering my client load.

 

COVID Relief Bill Seeks Individual, International Tax Changes - Jad Chamseddine, Tax Notes:

The bill also would extend the employee retention credit that was implemented by the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136). The measure has helped companies keep employees on the payroll during the pandemic. The credit was further improved upon by Congress allowing it to be used by companies that also received Paycheck Protection Program funding. 

Democrats are also pursuing their goal to make the child tax credit fully refundable for 2021, and are calling for an increase in the amount to $3,000 per child. The earned income tax credit would also be expanded for 2021 and the age to claim the credit reduced from 25 to 19. 

The bill would also repeal a provision allowing allocation of interest expense on a worldwide basis.

 

New Form Explains How Self-Employed Can Get COVID Tax Credits - Eric Yauch, Tax Notes. "Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals,” released February 8 along with instructions, shows self-employed workers how to get the tax relief. The credits are meant to aid workers who can’t work themselves because of COVID-19 or who take time off to care for a family member."

IRS Sending Erroneous Notices With Erroneous Content - Russ Fox, Taxable Talk. "The IRS sent many CP21C notices telling individuals that their Economic Impact (Stimulus) payments were offset to your 2007 tax account. Yikes!"

 

Lesson From The Tax Court: When A Hotel Becomes A Tax Home - Bryan Camp, TaxProf Blog:

In this case, the taxpayer performed legal services in Minnesota and in the Washington D.C. area.  The taxpayer’s principal residence was in Minnesota.  When in D.C., he mostly stayed in a suburban hotel.  The IRS and Tax Court decided that the taxpayer ought to have lived in the D.C. area because that is where he made most of his money and spent most of his work time.  It was thus his tax home for §162 purposes.

That makes his expenses in D.C, and his cost of traveling there, non-deductible personal expenses - a long commute, rather than business travel.

 

Iowa DOR Updates Guidance on State's IRC Conformity - Tax Notes:

Iowa has not conformed with any of these federal tax changes to the extent they apply to a tax year beginning prior to January 1, 2020. Iowa generally conforms with these federal tax changes to the extent they affect Iowa income taxes for tax years beginning on or after January 1, 2020.

Direct link to Iowa guidance here.

Iowa's Tax Treatment of COVID Relief - Kristine Tidgren, Ag Docket. "Because Iowa generally has rolling conformity with federal tax law beginning with tax years 2020, the nonconformity guidance specifically applies to taxpayers with tax years that began in 2019. Legislation has been introduced to provide these taxpayers the same treatment as those with tax years beginning on or after January 1, 2020.

 

Alabama House Passes Major Tax Bill - Lauren Loricchio, Tax Notes. "The Alabama House of Representatives has passed a tax bill that would adopt single-sales-factor apportionment, eliminate the state’s “throwback rule,” exempt federal COVID-19 tax relief from state taxation, and decouple from some business tax changes in the federal Tax Cuts and Jobs Act."

Deferral and Exclusion of Long-Term Capital Gains for Investments in Wisconsin Businesses (Wisconsin Department of Revenue). Wisconsin provides a of capital gain income if capital gains are reinvested within 180 days in a "qualified Wisconsin business." Also: "For taxable years that begin on or after January 1, 2016, Wisconsin law (sec. 71.05(25), Wis. Stats.) provides for a capital gain exclusion when an investment is held for at least five years in a 'qualified Wisconsin business.'"

 

C Corporate Tax Planning; Management Fees and Reasonable Compensation - A Roadmap of What Not to Do - Roger McEowen, Agricultural Law and Taxation Blog. "There was no correlation between management fees paid and services rendered. In total, the shareholders received management fees exceeding $1 million every year for the years in issue. The management fees were simply paid after-the-fact in an attempt to zero-out the petitioner’s taxable income."

Mann Case Sets Precedent For Building Material Reuse Tax Charitable Valuation - Peter Reilly, Forbes ($). "The Fourth Circuit sustained a district court decision that entirely denied any charitable deduction to Lawrence and Linda Mann for material from the tear-down of a Bethesda, Maryland house that went to Second Chance a not-for-profit organization."

Holding Transferees Liable Without a Transferee Assessment - Marilyn Ames, Procedurally Taxing. "In yet another case involving an intermediary transaction tax shelter, the Eleventh Circuit Court of Appeals reaches back to a 1933 Supreme Court case to show how broad the government’s powers to reach transferees of a taxpayer’s assets are." This case involved a "midco" transaction, where corporations try to avoid tax on an asset sale by running the sale through another formerly-unrelated company with unused tax losses. The IRS has had success in challenging these transactions and collecting corporation tax on the asset sale from former shareholders who received the sale proceeds. 

 

Renouncing American Citizenship Hits All-Time Record - Robert Wood, Forbes ($). "Common reasons for renouncing can be family, tax and legal complications for people who generally live outside the United States."

Sen. Romney’s Child Tax Reform Proposal Aims to Expand the Social Safety Net and Simplify Tax Credits - Erica York and Garrett Watson, Tax Policy Blog. "Romney’s plan would simplify the tax code by eliminating the complexity of the current CTC and EITC while expanding overall benefits for lower-income families. But there would still be some complications. The new child allowance would continue to rely on the IRS to reconcile payments for higher earners above the phaseout threshold. Combined with other changes in the plan, some households would see their marginal tax rates rise."

Ideas for States for Pandemic Tax and Budget Policies - Annette Nellen, 21st Century Taxation. "Some struggling businesses with tax obligations might prefer to give up unused assets than have outstanding bills that pile up interest and penalties or use cash that is needed for other purposes. A system to take non-cash payments such as buildings and equipment no longer needed, should be in place."

 

Um, celebrate? Today is National Toothache Day! Maybe not the best day for me to return here?