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IRS plan to scan your face prompts anger in Congress, confusion among taxpayers – Drew Harwell, Washington Post. “Millions of Americans could soon have to scan their faces to access their Internal Revenue Service tax accounts, one of the government’s biggest expansions yet of facial recognition software into people’s everyday lives.”
For now, taxpayers can still file their returns the old-fashioned way; the IRS began accepting returns for 2021 earnings on Monday, encouraging electronic filing.
But by this summer, anyone wanting to access their records — including details about child tax credits, payment plans or tax transcripts — on the IRS website could be required to record a video of their face with their computer or smartphone, and send it to the private contractor ID.me to confirm their identity.
Treasury Reconsiders IRS’s Use of ID.Me Face Recognition for Web – Jennifer Epstein, Bloomberg ($). “The Treasury Department is reconsidering the Internal Revenue Service’s reliance on facial recognition software ID.me for access to its website, an official said Friday amid scrutiny of the company’s collection of images of tens of millions of Americans’ faces.”
Treasury and the IRS are looking into alternatives to ID.me, the department official said, and the agencies are in the meantime attentive to concerns around the software.
‘The IRS is consistently looking for ways to make the filing process more secure,’ spokeswoman Alexandra LaManna said in a statement to Bloomberg News.
The IRS had previously announced that any taxpayer looking to access an online account on IRS.gov will be required to be verified through ID.me in a process that requires taking a selfie. The website last year began requiring taxpayers to use ID.me to access personalized information about eligibility for expanded child tax credits funded by Biden’s pandemic relief program, the American Rescue Plan, among other services.
Our own Elyse Katz:
The IRS is wildly understaffed, and it could make for a hellish tax season – Juliana Kaplan and Joseph Zeballos-Roig, Insider. “Right now, the IRS is sitting on a mountain of paperwork. That mound contains 6 million unprocessed returns as of mid-December — with some taxpayers still awaiting refunds after nine months, according to Erin Collins, the national taxpayer advocate.”
That's caused a cascade of problems for taxpayers, some of whom are still struggling to get their refunds months or even years later.
‘The burden's shifted to the taxpayers to track down their own refunds or reach out to their practitioners to get representatives to help them,’ Elyse Katz, a public accountant in Arizona, told Insider. ‘Just trying to even get through to the IRS is what's causing the biggest bottleneck.’
How Messy Will This Tax Season Get? - Alexis Leondis, Bloomberg:
Lily Batchelder, assistant secretary for tax policy, U.S. Treasury Department: The IRS is only going to be able to properly serve the American people when its significant resource needs are addressed. So as we enter the filing season, they’re facing enormous challenges related to the pandemic and two years of under-funding by Congress. And these pressures are going to make for a challenging filing season for taxpayers and for the IRS.
This is really entirely about a lack of resources. The die for this filing season was cast a long time ago. The agency hasn’t been equipped with the resources it needs to adequately serve taxpayers in normal times. And we are definitely not in normal times right now.
IRS budget in focus as brutal tax filing season arrives – Laura Weiss, Roll Call. “Anticipation of a fraught tax season is leading Democrats to consider more funding for the IRS to assist and educate taxpayers.”
While Democrats have focused heavily on ramping up enforcement to bring in more tax dollars, another filing period complicated by the COVID-19 pandemic, new tax breaks meant to provide relief from the crisis and a lengthy backlog of unprocessed returns are putting the spotlight on years of stagnant funding for taxpayer services.
Democrats proposed an infusion of $80 billion in extra funding for the IRS over the next decade — including almost $3.2 billion for taxpayer services in the Senate version of their sweeping budget reconciliation bill. But that measure's been held up amid intraparty discord over benefits and programs in the package.
That leaves delayed fiscal 2022 appropriations as likely the fastest and surest way to infuse the department with more cash as lawmakers work across the aisle toward an omnibus spending bill. They're aiming to finish before temporary government funding runs out Feb. 18, though another short-term stopgap bill may be necessary.
Any talk of increased funding for the IRS will likely not help the current filing season. Congress does not act fast. And once the money is approved it takes a while for it to be delivered.
Mostly dead or slightly alive? Democrats don’t yet know if Build Back Better can be revived – Paul Kane, Washington Post. The article questions the status of President Biden’s Build Back Better bill. “Is it all dead? Mostly dead? Slightly alive? Ready to spring back to life?”
Biden and Democrats continue to insist that they are still pushing for the roughly $2 trillion Build Back Better legislation, but no one has laid out a timeline for reconsidering what had been the focal point of their efforts most of last year.
No real talks have resumed ever since Sen. Joe Manchin III (D-W.Va.), the key final vote needed to advance the measure, announced his opposition to the House draft and broke off talks just before Christmas. As reporters hounded him earlier this month, Manchin indicated no new talks had taken place — and soon after the focus shifted to his unwillingness to blow up the Senate’s filibuster rules to pass the voting legislation.
Biden Economic Agenda on Hold as More Americans Hit Hardships – Mike Dorning and Erik Wasson, Bloomberg ($). “American families are feeling the financial squeeze of soaring inflation and a persistent pandemic as fractious Democrats return to Washington this week no closer to a deal on a tax and spending bill party leaders hoped would by now provide relief.”
Senators expect informal conversations to resume this week on Biden’s Build Back Better package, which was stymied in December after West Virginia Democrat Joe Manchin said he opposed it, according to a person familiar with the situation. With Republicans uniformly opposed and the Senate divided 50-50, Democrats need Manchin’s vote.
Senate Democratic vote-counter Dick Durbin of Illinois said on ABC’s 'This Week' Sunday that he is urging Manchin and another holdout, Arizona Senator Kyrsten Sinema, to make a deal, while admitting he hasn’t had any signal from them that they will.
Democrats Put Build Back Better in Joe Manchin’s Court – Andrew Duehren, Wall Street Journal ($). “Democrats are increasingly willing to accept whatever child-care, healthcare and climate package that Sen. Joe Manchin (D., W.Va.) would support as they return to Washington this week, hoping to salvage elements of the party’s economic agenda after months of failed negotiations.”
Party lawmakers have started to change their attitude toward the package as they grapple with the possibility of failing to convert their narrow control of Congress into progress on major party goals. Some have moved away from insisting that the package include particular priorities, instead advocating for the party to notch a result with Mr. Manchin ahead of the midterm elections.
In other words, the emphasis has gone from passing life-changing provisions to passing something - anything. Slap "Build Back Better" on the title page and call it a win. But it remains unclear if even this will happen.
Some Democrats expect it could be weeks or possibly months before he would agree to a package...
It’s Expensive Being Green – Lee Shepard, Tax Notes ($):
Our subject for today is the inability of renewable energy sources to replace fossil fuels, and the wishful thinking underlying the extension and introduction of subsidies for the former in the Build Back Better Act.
The harms from anthropogenic climate change are overstated, as is the potential for renewable energy sources to replace cheap and available fossil fuels. A lot of climate change advocacy involves wishful thinking that the entire energy infrastructure can be replaced by renewables. That cannot be done because of physical limits. There’s also the dicey matter of storage; renewable energy can’t be stored for more than a few hours.
‘Eliminating unpopular energy sources or technologies, like nuclear or carbon capture, from the conversation is short-sighted. Renewable electricity generation alone won’t get us there — this is an all-technologies-on-deck problem,’ Samantha Gross of the Brookings Institution wrote. ‘I fear that magical thinking and purity tests are taking hold in parts of the left end of the American political spectrum, while parts of the political right are guilty of outright denialism around the climate problem.’
Crypto volatility hits banks, celebs and everyday investors – Chris Mills Rodrigo and Sylvan Lane, The Hill. “With tax filing season underway, many investors in the red are bracing for massive tax bills on winnings they may no longer have.”
‘One of the main misconceptions of crypto is that people think that it's anonymous, so, therefore, regulators have no way of knowing what you're doing in the crypto space. But that's not reality,’ said Shehan Chandrasekera, a certified public accountant and head of tax strategy at CoinTracker.io, a cryptocurrency tax compliance software company.
Amy Schneider Faces $630,000 Tax Bill for Record ‘Jeopardy’ Win - Paulina Cachero, Bloomberg ($). “Amy Schneider ended a record-breaking 40-day winning streak on “Jeopardy,” taking home a whopping $1,382,800. Now she faces another challenge: figuring out her taxes.”
Schneider could owe more than $630,000 in state and federal levies for her Jeopardy run alone, according to Scott Haislet, a California CPA and tax attorney. Given she will get a million-dollar paycheck, the Internal Revenue Service could collect up to 37% of her “Jeopardy” earnings over $523,600. And her home state of California could take 12.3% of the cash reward over $625,369, Haislet says.
California collects an additional 1% to go towards mental health services on incomes of more than $1 million in a single year.
The estimate doesn’t include the taxes Schneider owes working as an engineering manager — her full-time job — or any other statutory deductions.
IRS Outlines Changes for Pre-Approved 403(b) Retirement Plans - Sara Hansard, Bloomberg ($). “The issued a list of changes for retirement plans of tax-exempt organizations Friday.”
Notice 2022-08 lays out the 2022 cumulative list of changes for Section 403(b) retirement plans that are pre-approved. Employers that adopt 403(b) pre-approved plans generally have assurance that the plans comply with the Internal Revenue Code to meet its tax-advantaged status.
The 2022 cumulative list will assist providers of pre-approved plans applying to the IRS for opinion letters for the second remedial amendment cycle under the 403(b) pre-approved plan program, the agency said in a release.
Early-Stage Corporate Decisions Create Later-Stage Consequences – James Shearin and Timothy Ronan, Bloomberg ($). “Tax considerations often drive the formation of closely held businesses. One challenge when advising clients who want to start businesses, or investors who contemplate backing them, is getting them to consider worst-case scenarios. What if the business doesn’t succeed? What if it does, but the founding partners have a falling out?”
Launching the company and realizing the return on investment is always a priority, but the what-if questions need to be considered. The decisions of which type of business to choose and which requirements will be imposed on those who manage that investment are critical. The recent case of Benjamin v. Island Management, LLC, illustrates the importance of these decisions.
Municipal Groups Float Guidelines Modernizing Local Tax Systems – Michael Bologna, Bloomberg ($):
A consortium of seven municipal planning organizations Thursday tried to create some space between local tax collectors and the hostility expressed by Twain under the second phase of an ambitious initiative called Rethinking Local Government Revenue Systems.
The initiative acknowledges that local revenue-raising systems are inconsistent with modern economic reality, creating inefficiencies and unfairness. For instance, sales taxes are good at raising revenue on sales of goods but not services, a fast-growing segment of the overall economy. And local governments effectively tax real property, but they are ineffective at taxing other asset classes, which are surging as a percentage of overall family wealth.
State Sales Tax Hauls Rising at Faster Pace Than Pre-Pandemic - Yuri Nagano, Bloomberg. “Many states saw double-digit growth in their general sales taxes last fall, rising at a faster pace than even before the pandemic, according to government data.”
Georgia, Maryland, and Nevada were among the top-growing states that have a sales tax, seeing as much as 40 percentage growth in general sales tax revenue in the Sept.-Nov. 2021 period compared to the same three months in 2020, based on a Bloomberg Tax analysis of U.S. Census Bureau data. Comparisons from the same period in 2019 showed similarly strong growth.
Reasons for the boost vary from state to state, according to state sales tax experts. In general, remote sales tax changes triggered by the U.S. Supreme Court’s landmark 2018 decision in South Dakota v. Wayfair has been a key driver, they said. The ruling allows states to impose tax collection duties on remote retailers based on economic activity in a state.
Utah Senate approves $160 million income tax cut. The House is expected to cut even more – Katie McKellar, Desert News. “Utah lawmakers are moving swiftly to cut Utah’s income tax rate.”
One of the Utah Legislature’s first orders of business — after clamping down on local COVID-19 restrictions in the first days of the session — has been to advance a bill to reduce Utah’s income tax rate from 4.95% to 4.85%.
The Senate on Friday voted 22-5 to approve SB59, which would use the full $160 million lawmakers have already set aside for a 2022 tax cut.
It now goes to the House, where lawmakers are expected to add to the tax cut package. Under consideration is an additional $40 million to possibly increase Utah’s Social Security tax credit and to create an earned income tax credit focused on reducing the income tax rate even more, specifically for lower income Utahns.
Taxes Rising In Alaska And Hawaii: SALT In Review – David Brunori, Law360 ($). “From a call for an income tax in Alaska to proposals for even higher taxes in Hawaii, here are my thoughts on noteworthy state and local tax news.”
Alaska is one of nine states without personal income taxes. I suspect most Alaskans like it that way. The people I know from up there certainly do. The state does not have a sales tax, either. If you ever watch the television show "Living Alaska," you know that people move there to live in the country and to escape state taxes in the Lower 48. If you like the cold, and bears, and water, and majestic surroundings, Alaska is paradise.
I think Hawaii has gotten away with high taxes because emigrating to the mainland is not an easy or cheap endeavor. So those poor folks are stuck living on tropical islands. But Hawaiian politicians want more. A bill there, H.B. 1505, would create a new top income tax bracket — a whopping 13% for income over $500,000. The current top rate is a whopping 11% for those earning over $400,000.
Iowa Republicans proposed tax cut plans – Caroline Reevie, 9ABC. “Gov. Reynolds, Iowa House Republicans, and Iowa Senate Republicans, have all released their proposed tax cut plans. All of which propose lowering income taxes.”
The 3 plans slightly vary but they all agree on eliminating retirement taxes. Retirement taxes include being taxed on a pension and 401k earnings. The state already does not tax social security benefits.
‘My father moved to Florida because of that. So he didn’t have to pay taxes. I know he would have stayed here in Iowa if he didn’t have to pay taxes. So that’s why I think it’s it’s great that we’re doing this,’ said Rep. Steven Bradley (R), District 58.
W.Va. Gov. Proposes Builder Tax Credit During State Of State – Asha Glover, Law360 ($). “West Virginia's Republican governor proposed a tax credit to incentivize builders to construct homes, while committing to a flat budget during his sixth State of the State address.”
Gov. Jim Justice said Thursday night that he would like to create a "Build West Virginia" initiative that would provide a tax credit to incentivize builders to build new homes to meet the demand brought on by incoming residents. The initiative follows a remote workforce recruitment program launched by the state last year that offers a relocation package that includes $12,000 in cash and a year's worth of free outdoor recreation.
The governor said that any minor increases proposed in his budget would be paid for using the state's $57 million surplus.
Amazon Info Fair Game In 3rd-Party Tax Fight, Pa. Judge Says – Paul Williams, Law360 ($). “The Pennsylvania Department of Revenue must provide certain communication with Amazon regarding tax collection matters to an e-commerce trade group in litigation seeking to block the state from pursuing back sales taxes against certain third-party sellers, a state judge ruled.”
Commonwealth Court Judge Christine Fizzano Cannon granted a motion to compel from the Online Merchants Guild on Thursday that requested a host of communication between the department and Amazon.com Inc. from 2012 through 2020 to be included in discovery in the case. The information's release to the guild is contingent upon a confidentiality agreement and must be provided by Feb. 17, according to the court's order. Amazon is not a party in the case.
Could Pillar 2 Be Enough? – Richard Collier, Oxford University Centre for Business Taxation. “Ongoing discussions on the reform of the international tax system continue to be dominated by the G20/ OECD’s proposed “two-pillar” solution - which includes the introduction of a new allocation of taxing rights to market states (Pillar 1) and a 15% global minimum tax rate (Pillar 2).”
Despite the initial intention to treat the Pillar 1 and Pillar 2 measures as two parts of the same package, there is increasing discussion about the possibility of decoupling Pillar 2 from Pillar 1 and enacting Pillar 2 on an accelerated time scale. That possibility was enhanced by the publication last month of both the Pillar 2 Model Rules (some way ahead of any expected rules on Pillar 1) and the publication by the European Commission of a proposed EU directive to incorporate Pillar 2 into EU law.
Further, some states are known to be keen to prioritise Pillar 2 given the pressure on tax revenues following the covid crisis, coupled with the relatively higher tax yields expected from Pillar 2 compared to Pillar 1. At the same time, there remain formidable challenges to any agreement on the detail of Pillar 1 and its implementation. For example, some challenging questions are raised by the need to identify “paying entities” to deal with the elimination of double tax and the need to deal with the intended “tax certainty” measures relating to the prevention of disputes. There also seems to be some scepticism on whether some countries could even implement Pillar 1 without material delays given domestic law timing issues and constitutional issues. These challenges may have the effect of stalling the Pillar 1 measures or causing them to fail.
Dell CFO Fears Extra Tax If U.S. Acts On Minimum Tax Before OECD – David Hood, Bloomberg ($). “If the U.S. toughens its minimum tax before other countries adopt a global minimum tax, that could set up a double-taxation regime, Dell Technologies Inc. CFO Thomas Sweet said.”
The global tax pact, agreed to by 137 countries, would impose a 15% global minimum tax. The U.S. already has a minimum tax on foreign income of its own, known as GILTI, for global intangible low-taxed income. The current rate is 10.5%, but the Biden administration wants to raise that to 15% as part of its massive tax-and-spend package. The global minimum tax would take effect in 2023, while the Biden package is currently stalled in Congress, and its chances of passage are uncertain.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire – Daniel Bunn, Tax Foundation. “The Build Back Better legislative package includes both tax hikes and tax cuts, which contain two contrasting tax policy narratives. Tax hikes include corporate tax increases on foreign income and a new 15 percent domestic minimum tax, and green energy tax incentives provide a tax cut. Policymakers also sought to protect some pre-existing tax incentives from being negated by the domestic minimum tax and the Base Erosion and Anti-Abuse Tax (BEAT). However, the new global minimum tax casts doubt on the U.S. approach to tax incentives.”
In the coming days, U.S. policymakers may have to choose between changing their approach to tax incentives or allowing U.S. companies to face higher tax bills in other countries. Whether or not Build Back Better passes, some tax benefits at home will just mean a tax increase abroad.
While U.S. legislators have aligned some pieces of Build Back Better to the global minimum tax (albeit with some remaining differences), the tax incentives that are baked into the U.S. tax code would create an opening for foreign jurisdictions to charge higher taxes on U.S. companies.
Happy National Backward Day! !seY !sdrawkcab sgniht llepS (You might need a mirror to decode these sentences.)
But today is more a world view than a spelling exercise.
National Day Calendar:
The day provides an opportunity to reverse our ways, our direction or simply our shirt. Dessert for breakfast, perhaps? There are many ways to celebrate this fun day, so just let your imagination be your guide.