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Biden Nods to Need to Break Up Tax-and-Spending Plan for Passage - Erik Wasson, Bloomberg ($). “President Joe Biden said his $2 trillion economic agenda will have to be broken up so that a scaled back version can pass Congress in the face of resistance in his own party that’s stalled the expansive package.”
‘It is clear to me that we are probably going to have to break it up,’ Biden said Wednesday at a White House press conference. Democrats will have to ‘get as much as we can now and come back and fight for the rest later.’
...Passing some version of the tax and spending bill in the coming weeks would give Biden a key achievement to tout when he makes his first State of the Union address to Congress on March 1. But getting the 50 votes needed for the bill to clear the Senate under special budget rules could involve jettisoning popular aspects of the bill like renewing an expanded child tax credit that expired in December.
Not all Democrats support breaking up the bill, namely Speaker Nancy Pelosi (D-Calif.).
One day after President Joe Biden suggested divvying up his stalled social spending bill into 'chunks' to help get past Senate roadblocks, Speaker Nancy Pelosi offered a course correction of sorts.
‘Chunks is an interesting word,’ Pelosi told reporters Friday. She explained that she envisions the package as still a single bill, though possibly narrowed in scope in a bid to pick up support from Sen. Joe Manchin (D-W.Va.). ‘What the president calls chunks, I hope, would be a major bill going forward. It may be more limited, but it is still significant.’
'This is a reconciliation bill. When people say, let's divide it up, they don't understand the process,' Pelosi said.
Punchbowl News ($) explanation:
[T]his is Pelosi saying that she wants to fight for the Child Tax Credit and other health care provisions. Pelosi seems to believe Democrats and the White House should still push the 'one-bill' strategy.
Because, of course, anything that doesn’t end up in the reconciliation bill will likely never get into law.
Senator Manchin is a key player in bill discussions, and they're starting at square one:
Manchin: Biden spending plan talks would start 'from scratch' – Jordian Carney, The Hill. “Sen. Joe Manchin (D-W.Va.) said Thursday that talks over President Biden's sweeping climate and social spending package would be ‘starting from scratch,’ throwing cold water on hopes of a quick revival.”
‘We're going to start with a clean sheet of paper and start over,’ Manchin told reporters, adding he doesn't have talks scheduled with the White House.
The threat of a scaled-back bill has prompted Democrats to take defensive positions on their pet provisions:
SALT Fight Threatens Biden Bill as Democrats Demand Higher Cap - Laura Davison, Bloomberg ($). “Several House Democrats promise to sink President Joe Biden’s economic agenda if a scaled-back version now being considered eliminates an expansion of the federal deduction for state and local taxes.”
Their demands, critical in a chamber where Democrats can afford only four defections, add to the long list of hurdles the party must clear as lawmakers rewrite Biden’s centerpiece legislation to push it through the evenly divided Senate.
Representative Tom Suozzi, a New York Democrat who has led efforts to expand the tax break, said Wednesday that a group of House Democrats is keeping the 'No SALT, No Deal' pledge it coined last year, and won’t support any of Biden’s tax plans unless the bill also expands the $10,000 cap on the federal write-off.
Democrats ‘not ready to throw in the towel’ on child tax credit - Lindsey McPherson and Laura Weiss, Roll Call. “Top Democratic tax writers remained optimistic Thursday about restoring a more generous version of the child tax credit that sent monthly checks to families after President Joe Biden admitted he’s “not sure” he can get the votes to pass it.”
House Ways and Means Chairman Richard E. Neal, D-Mass., told reporters he's 'not ready to throw in the towel' on renewing the expired child tax credit expansion from 2021 that allowed families to get monthly checks of up to $300 per child and he doesn't believe Biden is either.
‘We're gonna fight like hell for it,’ Senate Finance Chair Ron Wyden, D-Ore., added. ‘It's particularly important right now because it's a tangible benefit at a time when families have extra expenses as a result of omicron.’
White House Optimistic EV Credits Will Remain in Reworked BBB - Keith Laing, Law360 ($). “White House National Climate Advisor Gina McCarthy expressed confidence on Thursday that tax credits for electric cars would survive in a reworked Build Back Better climate and social spending bill after President Joe Biden signaled willingness to accept “chunks” of the stalled legislation.”
‘I’m not seeing any dispute about the need to continue to make sure that these technologies are affordable and accessible to everyone,’ McCarthy said during a question and answer session at the Washington Auto Show.
‘Let’s be very clear about what the president said and didn’t say,’ McCarthy said. ‘You know Build Back Better has been in negotiations for a long time. We’ve made a lot of progress. We continue to have those discussions. We’re jump starting them again.’
Retirement Revamp Offers Bipartisan Glimmer Before Midterms Hit - Kaustuv Basu, Bloomberg ($). “Retirement issues will likely dominate the House Ways and Means Committee’s agenda ahead of the midterms, with bipartisan hope for legislation on employer-sponsored saving plans and the panel’s top Republican set to depart Congress after 26 years.”
The retirement proposal could be combined with some expired pieces of the Republican-led 2017 tax law to form the foundation of a bipartisan tax package. But the committee’s full 2022 agenda is in limbo while Democrats attempt to advance a tax and spending package using the budget reconciliation process.
Talks on creating a tax extender bill are in their infancy, at best. We're hearing that such legislation could be introduced if Democrats and Republicans can agree on extending the enhanced Child Tax Credit.
House GOP plots policy agenda for 2022 midterm elections — with help from architect of 1994 plan – Jeff Stein and Laura Meckler, Washington Post:
Republicans are expected to focus their new platform on education policies aimed at tapping into parental discontent; countering the rise of China with new economic measures; and 'oversight' of the Biden administration. They are also looking at invoking other traditional GOP goals such as cutting taxes, restricting immigration, criticizing Silicon Valley and repealing environmental rules.
Republicans will also resist Biden’s tax measures, including the global minimum corporate tax negotiated by Treasury Secretary Janet L. Yellen and the 15 percent minimum tax the White House has pushed on large corporations.
Lawmakers Introduce Bill to Strip IOC of Tax-Exempt Status - Norah Mulinda, Bloomberg ($). “House lawmakers Mike Waltz and Jennifer Wexton introduce a bipartisan bill aimed at stripping the International Olympic Committee of its tax-exempt status, according to a statement.”
‘The American taxpayer can no longer subsidize the IOC while it siphons off hundreds of millions of dollars directly to the Chinese Communist Party to help build up Beijing’s infrastructure and flies in the face of 501(c)(4) law,’ Waltz says.
North Carolina Rep. Murphy Fills Open GOP Ways and Means Seat - Kaustuv Basu, Bloomberg ($). “Rep. Greg Murphy (R-N.C.) is joining the House Ways and Means Committee, filling the spot opened when former Rep. Devin Nunes left Congress in December.”
Murphy is a cosponsor of an October 2021 bill (H.R. 5586) aimed at blocking the Biden administration’s proposed bank reporting requirements. The plan to get the IRS more data to better target enforcement of tax laws was intended as part of Democrats’ stalled budget reconciliation package, but it wasn’t included in the version that passed the House.
Can pot banking bill pass with a lame-duck champion? - Brendan Pedersen, American Banker. “Rep. Ed Perlmutter, D-Colo., announced last week that he would not seek reelection in November. A member of the House since 2007, Perlmutter is known in financial policy circles for nearly a decade of advocacy for legislation that would allow regulated financial institutions to work with cannabis firms in states that have legalized the substance.”
And while Perlmutter’s departure is a significant loss for House Democrats, analysts say the years of political groundwork already laid by his office won’t be lost.
‘It takes more than one member to get a bill over the finish line, and there are always potholes on the road,’ said Isaac Boltansky, managing director at BTIG. ‘But my bet is that Perlmutter leaves Congress later this year on a high with the [Secure and Fair Enforcement] Banking Act being signed into law.’
Billions Zapped Away With Tax Cheating Software (Video) - Macarena Carrizosa, Bloomberg ($):
Tax zappers are helping some restaurants and bars skim an estimated $30 billion dollars in sales tax annually. The tax zapping software is installed in cash registers, or other point-of-sale devices, and can help make certain items disappear from a restaurant’s sales receipts. Tax auditors say the businesses that use zappers report less in sales than they actually bring in, cheating governments out of their share of the tax revenue. In this video, Richard Ainsworth, an adjunct professor at New York University School of Law and an authority on tax fraud, explains what tax zappers are, how they work, and how to put an end to them.
Our own Elyse Katz takes on tax refund delays:
Tax Refund Delays Linger As Lawmakers Dispute IRS Funding - Stephen Cooper, Law360 ($). “Bipartisan frustration over IRS delays in sending out last year's tax refunds is boiling over on Capitol Hill, but lawmakers appear too busy blaming each other for the agency's funding woes to reach a workable solution for their constituents.”
Millions of taxpayers have been waiting for two years or more for the Internal Revenue Service to process their electronic and paper tax returns and respond to correspondence ahead of the 2022 tax filing season that opens next week, the national taxpayer advocate said in a Jan. 12 annual report to Congress.
Elyse Katz, a CPA and Eide Bailly LLP's senior manager of tax controversy and procedure, said she spends hours each day on hold with the agency's practitioner priority line to get the IRS to manually release refund checks for e-filed returns that are delayed due to erroneous hold codes.
‘The IRS is very quick to cash a check and very quick to come after you for money, but they're not quick in either releasing your refund or moving things around when it benefits taxpayers,’ said Katz, a former IRS revenue officer. ‘They are quick to levy a bank account, but they won't issue your refund after a year.’
IRS having difficulty processing power of attorney forms – Michael Cohn, Accounting Today. “The tax season that’s due to open when the Internal Revenue Service begins accepting tax returns next Monday is promising to bring a host of challenges. Tax professionals are largely ready to forge ahead to help their clients get through it, but now they may have trouble getting power of attorney forms processed.”
The IRS is still dealing with a backlog of millions of tax returns, including 6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence as of late December, according to National Taxpayer Advocate Erin Collins in her report to Congress last week (see story). On Wednesday, she warned in a blog post of delays with processing Form 2848, Power of Attorney and Declaration or Representative, and Form 8821, Tax Information Authorization.
‘Although the IRS informs taxpayer representatives they should anticipate long processing times, practitioners who have submitted authorizations not processed may still wonder if theirs were lost or misprocessed,’ Collins wrote. ‘These delays impinge on taxpayers’ right to retain representation. This lack of transparency isn’t doing taxpayers or the IRS any favors, and it could be making matters worse.’
Practitioner coalition urges IRS to step up for tax season – Roger Russell, Accounting Today. “A coalition of 11 stakeholders groups from the tax practitioner community are urging the IRS to take action to reduce unnecessary burdens for taxpayers and practitioners during the upcoming filing season. IRS staff are currently processing a meeting request so that the practitioner groups can elaborate on their recommendations and respond directly to any questions the IRS may have.”
The group includes those representing Latino, Black, small business, and low-income taxpayers. In addition to the American Institute of CPAs, the group consists of Latino Tax Pro, the National Association of Black Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals, the National Conference of CPA Practitioners, the National Society of Accountants, the National Society of Black CPAs, the National Society of Tax Professionals, Padgett Business Services, and Prosperity Now.
IRS Hiring to Handle Backlog of Representative Authorizations – Naomi Jagoda, Bloomberg ($). “The IRS is in the process of hiring more than 100 employees for units that process authorizations for taxpayers’ representatives to act for them in agency matters, National Taxpayer Advocate Erin Collins said in a blog post.”
The hiring at the IRS’s three Centralized Authorization File units comes amid pandemic-related backlogs in processing the authorizations. This is one of a number of areas where the IRS has faced processing pileups since the start of the coronavirus spread, Collins said.
House Republicans Urge IRS to Address Backlog – Tax Notes ($):
Millions of tax returns remain outstanding weeks before the new tax filing season begins and the IRS needs to provide a mitigation plan to prevent further tax return backlog, four House committee Republican ranking members said in a January 19 letter to IRS Commissioner Charles Rettig.
POLITICO Pro Q&A: Deputy Treasury Secretary Wally Adeyemo – Laura Davison, Politico. “Tax filing season is fast approaching, and the Treasury Department has warned Americans to brace for challenges as the IRS struggles to cope with existing backlogs and operational problems exacerbated by the pandemic.”
From the Q&A:
Have there been any discussions about delaying the filing deadline to give the agency some more time to work through this?
No, our goal right now is to take every step we can to make sure that people have the time to file.
As you know, for most people who are eligible for the second half of the Child Tax Credit, for the EITC [Earned Income Tax Credit], it's critical that they get that money as soon as possible, because it will help smooth out their income.
Our goal was to open filing season as early as possible, and that's what we've done this year.
Here’s What You Need to Know About the Upcoming Tax Season - Kelly Phillips Erb, Bloomberg ($):
Be Patient
I know—you’ve heard that before. But it’s true again this year.
We already know that the IRS isn’t answering the phone. IRS Commissioner Chuck Rettig encourages taxpayers to check IRS.gov rather than calling, saying, 'We have invested in developing new online capacities to make this a quick and easy way for taxpayers to get the information they need.'
Summary of the Latest Federal Income Tax Data, 2022 Update – Erica York, Tax Foundation:
Key Findings
- In 2019, taxpayers filed 148.3 million tax returns, reported earning nearly $11.9 trillion in adjusted gross income, and paid $1.6 trillion in individual income taxes.
- The top 1 percent of taxpayers paid a 25.6 percent average individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.5 percent).
- The share of reported income earned by the top 1 percent of taxpayers fell to 20.1 percent from 20.9 percent in 2018. The top 1 percent’s share of federal individual income taxes paid fell to 38.8 percent from 40.1 percent.
- The top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent.
- The top 1 percent paid a greater share of individual income taxes (38.8 percent) than the bottom 90 percent combined (29.2 percent).
- The Tax Cuts and Jobs Act reduced average tax rates across income groups.
BBA Rules for Correcting Returns Need Streamlining – Kristen Parillo, Tax Notes ($). “Another group of accounting professionals has called on the IRS to create a simplified process for partnerships that want to make ministerial changes to their returns under the centralized audit regime.”
The IRS could tweak the existing administrative adjustment request (AAR) framework and introduce a new form that would allow partnerships to correct ministerial errors, according to a January 19 letter from the Texas Society of CPAs.
The group agreed with a May 2021 comment letter from the American Institute of CPAs that said the AAR process is overly complicated and burdensome, particularly for partnerships that merely want to make changes to administrative or informational items on previously filed returns.
IRS Updates Guidance on Employment Tax Determinations – Michael Rapoport, Bloomberg ($). “The IRS updated its guidance Wednesday about when and how it will issue notices of employment tax determination and the procedure for petitioning for Tax Court review of such determinations.”
The guidance, in Rev. Proc. 2022-13, relates to notices under Section 7436 for determination of employment taxes such as Social Security, railroad retirement, and withholding of federal income. It modifies and supersedes Notice 2002-5, the IRS said.
BTAX OnPoint: Fast-Track Private Letter Ruling Pilot Program – Amber Gorski and Ian Campbell, Bloomberg ($). “The IRS released Rev. Proc. 2022-10 establishing an 18-month pilot program for “fast-track processing” of private letter rulings that are solely or primarily under the Associate Chief Counsel (Corporate). The pilot program is the direct result of several informal comments from taxpayers regarding the time it takes to receive a PLR and should serve to improve service to taxpayers.”
Taxpayers who wish to fast-track their PLR request must first request a pre-submission conference and provide the required information. Next, the taxpayer must draft the PLR request, which means fulfilling normal PLR request requirements, but with additional steps—for example, including the taxpayer’s reasons for seeking fast-track processing. Finally, taxpayers are strongly urged to submit their requests via encrypted email attachment.
Tax Breaks for Crypto Millionaires Stir Outrage in Puerto Rico - Jim Wyss, Bloomberg ($). “Over the past two years, every building but one that Margarita Gandia’s real-estate agency sold in Old San Juan went to a U.S. mainlander or a foreign buyer. Every purchaser cited Puerto Rico ’s generous tax breaks as the reason for the move.”
The influx of outside wealth to Puerto Rico -- particularly those who count their riches in Bitcoin, Ether and other cryptocurrencies -- has hit an all time high. So has frustration with a tax system that many locals say is inflating a real-estate bubble that’s making island life untenable.
‘We used to have a vibrant community here,’ Gandia said of the cobbled streets and Spanish forts of the colonial city, where she’s seen prices double or triple in just a few years. ‘Ever since we let people come in without restrictions, we’re losing big parts of Old San Juan. Local Puerto Ricans can’t afford to live here.’
Maryland Extends Individual Tax Filing Deadline to July 15 – Donna Borak, Bloomberg ($). “Maryland taxpayers will have an extra three months to file their individual state income tax returns, state Comptroller Peter Franchot said Wednesday.”
The filing and payment deadline for the 2021 tax year will be July 15 to help residents facing economic hardships due to the Covid-19 pandemic. Maryland taxpayers do not need to request an extension to receive the three-month grace period.
‘Many people are still struggling to stay above water, so giving taxpayers more time to file and pay will hopefully ease their financial pressure,’ Franchot said during a meeting with agency officials, who agreed to start the state’s filing season Jan. 24.
South Carolina Governor Proposes $177 Million Income Tax Cut – Michael Bologna, Bloomberg ($). “South Carolina taxpayers would see their income tax rates drop a full percentage point over five years under a plan described by Gov. Henry McMaster during his state of the state address Wednesday.”
The proposal, first articulated in the governor’s executive budget for Fiscal Year 2023, would reduce taxes by $177 million next year and $1 billion over five years. McMaster, a Republican seeking reelection in November, lamented that his state has the highest personal income tax rate in the southeast and the 12th highest in the nation.
Treasury Tells 6th Circ. To Reverse 'Tax Mandate' Ruling - Maria Koklanaris, Law360 ($). “Kentucky and Tennessee have not established a concrete controversy in complaining that the coronavirus relief fund's so-called tax mandate prevents them from cutting taxes and a decision on their behalf should be reversed, the federal government told the Sixth Circuit.”
In a brief filed Tuesday, the U.S. Department of the Treasury told the Sixth Circuit that the appeals court should reverse a September ruling by U.S. District Judge Gregory F. Van Tatenhove of the Eastern District Court of Kentucky, Central Division. Judge Van Tatenhove ruled that Treasury may not enforce a provision barring states from using federal coronavirus relief funds to offset revenue reductions such as tax cuts. The decision marked the second time a federal judge has enjoined Treasury from enforcing the state tax cut provision in the American Rescue Plan Act.
SC Gov. Calls For Income Tax Cut In State Of State Address - Maria Koklanaris, Law360 ($). “South Carolina must cut its top state income tax rate to remain competitive with other states in the Southeast, Republican Gov. Henry McMaster said.”
McMaster, in his State of the State address Wednesday, for the fourth year in a row asked the state General Assembly to bring down the top income tax rate from 7% to 6%. He said this could be done gradually over a period of five years and would cost the state $177 million in the first year.
NJ Tax Court Upholds Tax Regs, Rejects Solvay's Refund Bid - Asha Glover, Law360 ($). “The New Jersey Tax Court refused to invalidate regulations requiring proof of sales and use tax paid for manufacturing expenses in chemical giant Solvay's bid for a $155,000 tax credit.”
The decision, published Wednesday, upholds the New Jersey Division of Taxation's denial of the company's refund requests for its replacement part purchases because the company failed to prove it paid sales and use taxes on the purchases. The tax court said the existence of the regulations does not impose unreasonable obligations on taxpayers.
NYC Comptroller Blasts Gov.'s Housing Tax Incentive Reform - Maria Koklanaris, Law360 ($). “Changes to a lucrative tax abatement program in New York City proposed by New York Democratic Gov. Kathy Hochul are minor and do not represent the overhaul the program needs, the city's comptroller said Thursday.”
Democratic New York City Comptroller Brad Lander said the entire tax abatement program, called 421-a, should have been completely scrapped. Instead, he said in the statement, the governor made small changes to the old program, which she said would expire this year, and is now calling it 485-w.
[T]he OECD releases the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
The OECD Transfer Pricing Guidelines provide guidance on the application of the 'arm’s length principle', which represents the international consensus on the valuation, for income tax purposes, of cross-border transactions between associated enterprises. In today’s economy where multinational enterprises play an increasingly prominent role, transfer pricing continues to be high on the agenda of tax administrations and taxpayers alike. Governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdiction and that the tax base reported by MNEs in their country reflects the economic activity undertaken therein and taxpayers need clear guidance on the proper application of the arm’s length principle.
The guidelines are here.
It is National Hug Day and Squirrel Appreciation Day! The logical conclusion: Hug the squirrels that scurry in your yard – assuming you can catch them and they won't bite you.