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IRS Leader’s Looming Exit Leaves Hole at Tax Agency as Expansion Begins – Richard Rubin, Wall Street Journal ($):
With less than three weeks left in Charles Rettig’s term as Internal Revenue Service commissioner, President Biden hasn’t picked anyone to replace him, leaving the tax agency without a leader to spearhead the $80 billion agency expansion that Democrats just pushed through Congress.
The delay in choosing and confirming Mr. Rettig’s replacement nearly certainly means an interim IRS commissioner after Nov. 12. That acting commissioner might be reluctant to make binding decisions that affect the agency’s long-term future.
Leaderless IRS Threatens Credibility Crisis in Key Months Ahead – Jonathan Curry, Tax Notes ($):
The absence of a confirmed commissioner overseeing the IRS next month couldn’t come at a worse time for the agency, observers say.
The IRS is reeling from a series of brutally challenging filing seasons with high expectations for how it will perform in the next one. At the same time, it’s making critical decisions now that will lay the foundation for how it plans to transform itself in the years ahead, thanks to the nearly $80 billion in extra money it received in the Inflation Reduction Act (P.L. 117-169). And that’s all about to happen without a confirmed leader at the helm.
Lawmakers are scheduled to return to Washington after the election on November 14th. Rettig is scheduled to step down on November 12th. Seems an interim chief is likely. It also remains unclear how much of a priority Congress will make knighting a new commissioner. They’re legislative plate is pretty full and the outcome of the election could postpone this decision until next year.
Prior Eide Bailly coverage of Rettig is here, here, here, and here.
It doesn't appear likely that Rettig will stay beyond his term:
The Tax Angle: Rettig's Retirement, Treasury Nominees – Stephen Cooper, Law360 Tax Authority ($):
In an interview with Law360, the nation's top tax collector said he'd like to trade his green eyeshades for a hammer and nails, possibly following a trail blazed by former President Jimmy Carter.
Instead of working in public relations or lobbying or returning to a big law firm, as other former Internal Revenue Service commissioners have done, Rettig said he wants to spend his post-retirement years in activities that offer him the same sense of satisfaction as when the IRS helped Americans during the pandemic.
"My ideal thing would be [to work at] some community social organization. I'll probably do something like Habitat for Humanity. Go pound nails," Rettig said, noting that during his time as chief, he led the agency to expand its outreach to thousands of organizations and public schools.
IRS Increases 401(k) Limit to $22,500 - Bailey Finney, Eide Bailly:
The IRS has released (Notice 2022-55) the updated 401(k) contribution limits for 2023. The maximum amount individuals will be able to contribute to their plans is $22,500. The amount was previously $20,500 in 2021 and $19,500 in 2020. The limit applies to those who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan. The catch-up contribution limit remains at $7,500 for individuals over 50 years old.
IRS unveils record contribution levels for 401(k) plans to meet inflation – Karl Evers-Hillstrom, The Hill:
The IRS on Friday raised contribution limits for tax-advantaged retirement accounts to adjust for soaring inflation.
In 2023, individuals will be able to contribute $22,500 to their 401(k), 403(b) and related retirement accounts, up from $20,500 this year. Those who are 50 and older can give $30,000, a year-over-year increase of $7,500.
The IRS also increased the contribution limit for individual retirement accounts (IRAs) and Roth IRAs. Individuals will be able to put $6,500 toward those accounts next year, an increase of $500.
To contribute to a Roth IRA, an individuals’ adjusted gross income must be below $153,000, up from $144,000 this year. The income limit for joint filers rose from $214,000 to $228,000.
IRS to Make Largest Increase Ever to 401(k) Contribution Limit – Ashlea Ebeling, Wall Street Journal ($):
For workers at companies that allow special after-tax contributions, and self-employed folks who have individual 401(k)s or SEP retirement plans, there is a total $66,000 plan contribution limit for 2023, up $5,000 from this year. That includes employee and employer contributions. With catch-up contributions on top, older savers can contribute up to $73,500 in 2023 to these plans.
The IRS release is here.
The tax agency recently adjusted tax brackets for inflation. Eide Bailly coverage on it is here.
Rettig Stands by Backlog Pledge – Jonathan Curry, Tax Notes ($). “Outgoing IRS Commissioner Charles Rettig isn’t backing down from his promise to see that the IRS clears its mountain of paper by the next filing season.”
‘I committed, the [Treasury] secretary committed, and I will hold with the commitment to say that we’ll be caught up by the end of the year,’ Rettig affirmed during livestreamed remarks at the October 21 Freeman Law International Tax Symposium. ‘December 31 — that will be current,’ he emphasized.
There were 5.1 million individual tax returns that awaited processing as of October 14th, according to the article. It further reports that in the week prior there were 5.3 million individual returns in the queue – so 200,000 returns were processed over this time period. However, that is slow progress compared to other weeks:
That overall reduction in the individual returns backlog was less than in previous weeks. Recently, the processing pace had been averaging roughly 500,000 returns each week. The slowdown may be explained at least in part by the October 17 deadline for filing individual tax returns on extension, which could have led to a surge in returns filed.
There are roughly ten weeks left in 2022. Hitting the year-end target could be a nail-biter.
Rettig Expects New Tax Gap Estimates in Next Few Weeks - Naomi Jagoda, Bloomberg ($):
IRS Commissioner Chuck Rettig said Friday that he expects new estimates of the tax gap—the difference between taxes owed and taxes paid—to be released in the next couple of weeks.
The new estimate will be for 2014-2016, and the IRS is also expected to release a projection of the tax gap for 2017-2019, Rettig said at a virtual conference hosted by Freeman Law.
Rettig made waves last year saying that the annual Tax Gap was $1 trillion. Others questioned is his math. We'll soon find out who is correct.
Comparing The Fiscal Costs Of Tax Breaks For Children Versus Businesses – Elaine Maag and Thornton Matheson, Tax Policy Center:
[B]usinesses would like to repeal—or at least roll back—the new requirement to capitalize research and development (R&D) expenditures, which could boost economic growth. Child advocates would like to see legislators instead invest in children by making the child tax credit (CTC) fully refundable.
Whether or not the debate over the CTC and R&D gets resolved could determine if there is a year-end tax bill.
GOP Asks IRS to Preserve Documents on Destruction of Tax Forms - Naomi Jagoda, Bloomberg ($). “Top Republicans on the House Ways and Means Committee are asking the IRS to preserve documents and communications relating to the agency’s decision to destroy 30 million paper-filed information returns in March 2021.”
‘The decision to destroy information returns diligently prepared by millions of American taxpayers is ripe for congressional oversight,’ ranking member Kevin Brady (R-Texas) and Rep. Tom Rice (R-S.C.), the top Republican on the panel’s oversight subcommittee, wrote in the letter.
If Republicans win the majority in either chamber of Congress one of their priorities is expected to be oversight hearings. For the tax committees, that is likely to equate to hearings on how IRS data got leaked to news organizations, why did the tax agency destroy tax documents, and how to cancel the $80 billion funding to the IRS.
House GOP's 2023 forecast: Fiscal warfare – Caitlin Emma, Politico:
As the GOP prepares to take back the House, its right flank is raring to gut spending, upend the federal safety net and make Trump-era tax cuts permanent — ambitions that threaten to give leadership a two-year headache.
Further down the article:
But tight Senate margins and a Democratic president would make it impossible for GOP leaders to deliver on the party’s most hardline fiscal wishes, at least with President Joe Biden still in office.
Assuming that Democrats will automatically kill any piece of legislation that extends part or all of the 2017 tax cuts might be premature. President Obama ran for office on the promise to end the Bush tax cuts. Within two years of taking office, he extended all of them for two years. Biden was Vice President at the time and is known for being more pragmatic than partisan. I would put the fate of the 2017 tax cuts in the ‘wait and see’ column. These tax cuts expire in 2026. Between then and now are two election cycles - which includes a presidential bid.
Speaking of the 2017 tax bill:
GOP wants to push to extend Trump tax cuts after midterm elections – Jeff Stein, Washington Post:
Republicans plan to push to extend key parts of President Donald Trump’s tax cuts if they take control of Congress in this fall’s elections, aiming to force President Biden to codify trillions of dollars worth of lower taxes touted by his predecessor.
With Democrats likely to lose control of the House of Representatives and possibly the Senate, Republicans are preparing to advance legislation that would make permanent the GOP’s 2017 changes to the tax rates paid by individuals. Republican officials will also push for scrapping some of the law’s specific tax increases on corporations that were designed to offset the cost of their enormous overall cut to the corporate tax rate.
Efforts are already underway to extend the pass-thru deduction that is currently set to expire in 2026.
Record High Tax Receipts Drive Slower Growth in Budget Deficit – Alexander Rifaat, Tax Notes ($). “A surge in tax receipts combined with a drop in pandemic-related spending cut the federal annual deficit by half to $1.37 trillion in fiscal 2022, as President Biden proclaimed the reduction was ‘further proof that we’re rebuilding the economy in a responsible way.’”
Biden’s Student-Loan Forgiveness Program Temporarily Halted by Appeals Court – Andrew Restuccia and Jacob Gershman, Wall Street Journal ($):
A federal appeals court Friday temporarily stopped the Biden administration from moving forward with its plan to forgive up to $20,000 in student-loan debt for millions of Americans.
The Eighth U.S. Circuit Court of Appeals issued the halt in a one-page order that will remain in place for a short period while it considers a request by Republican leaders in six states to block implementation of the program.
The Biden administration has said in court filings that it wouldn’t discharge any student-loan debt before Oct. 23. The appeals court order at least pushes back that start date a few days, though White House officials have said it could take weeks to process the bulk of the applications.
Tax Pros Hope For Broad Privilege Ruling From High Court – Kat Lucero, Law360 Tax Authority ($):
The U.S. Supreme Court agreed this month to review a tax-related case on attorney-client privilege, and practitioners hope the court will use the occasion to take a broad approach toward privilege that acknowledges the importance of tax advice.
The case, known as In re: Grand Jury, will likely have wide-reaching implications for how lawyers manage client communications containing both legal and nonlegal advice.
In the case, an unnamed law firm is challenging a Ninth Circuit decision finding it had to comply with grand jury subpoenas for communications and other materials related to a client's expatriation and tax return preparation. The firm's petition to the Supreme Court, filed in May, argued that the justices should clarify the law concerning when attorney-client privilege protects such mixed-use communications.
Utility Sales Tax Exemptions – Eide Bailly:
Roughly 30 states allow manufacturing and agricultural companies to reduce or entirely exempt sales tax on electricity and natural gas purchases. These states may also exempt residential use areas of nursing homes, retirement homes, hotels, senior living and assisted living facilities. A predominant use study, also known as a utility sales tax exemption, is an evaluation of an organization’s electric and natural gas consumption that can potentially lead to a partial or total state and local sales tax exemption.
We can advise customers if they qualify for such a sales tax exemption, conduct the state-mandated on-site study, compile the comprehensive report and file the proper forms with the state and with the utility companies, as required. In many cases, after completion of the study we can even recoup past years’ overpaid sales tax, as far back as three to ten years depending on the state.
State Tax Ballot Measures to Watch on Election Day 2022 – Jared Walczak, Timothy Vermeer, Adam Hoffer, Janelle Fritts, and Katherine Loughead, Tax Foundation:
On Election Day 2022, most eyes will be on Congress, with polls showing control of both chambers up for grabs. But the action is not limited to Washington, D.C.: across the country, voters will decide important questions through state and local ballot measures. At the state level, 25 measures in 12 states relate to tax policy. And while some of these deal with relatively minor policy details, eight stand out. We summarize each of these tax ballot measures below and link to more extensive discussions of several of them.
Wealthy Californians Face a Tax-the-Rich Onslaught at Ballot Box - John Gittelsohn, Bloomberg ($):
Wealthy Californians are facing the prospect of billions in new taxes, adding to one of the highest US tax burdens in a state that’s already been losing thousands of people every month to lower-cost locales.
Voters in November will decide whether to levy an additional 1.75% tax on income above $2 million to raise money for electric vehicles and wildfire prevention -- a measure that has divided Democrats and drawn opposition from billionaire donors and Governor Gavin Newsom. More locally, Los Angelenos will decide whether to increase taxes on the sale of mansions , while San Francisco is considering fees on second homes used by part-time residents.
Trump Organization Tax-Fraud Trial Set to Begin in New York – Corinne Ramey, Wall Street Journal ($):
The criminal tax-fraud trial of the Trump Organization is set to begin with jury selection Monday, offering a rare look into an opaque company that prosecutors say illegally paid some executives in cars, apartments and cash.
The Manhattan district attorney’s office alleges former President Donald Trump’s family business effectively kept two sets of books. In internal records, the company recorded perks—including Mercedes-Benz cars for Chief Financial Officer Allen Weisselberg and his wife and private-school tuition for his grandchildren—as employee compensation. But Mr. Weisselberg and the company didn’t report the benefits to tax authorities, prosecutors said.
Mr. Trump and his family members weren’t charged, though the indictment alleges that the former president signed some checks for private-school tuition. Mr. Trump isn’t expected to testify in the case.
Maryland AG to Appeal Court Ruling to End New Digital Ad Tax – Michael Bologna, Bloomberg ($). “Maryland’s attorney general will appeal the court decision striking down a tax on digital advertising, despite comments from the state’s chief financial officer recommending that the one-of-a-kind tax be abandoned.”
Business Groups Pile Into Attack on Louisiana’s Sales Tax Code – Michael Bologna and Perry Cooper, Bloomberg ($). “Louisiana has constructed a confusing sales tax compliance system befitting the byzantine tax structures typically associated with Californiaand New York. That was the perspective expressed this week by the National Federation of Independent Business and three other trade associations in a petition for leave to file a friend of the court brief with a federal appeals court.”
'Look-Through' Sourcing Causes Many Disputes, Panelists Say – Maria Koklanaris, Law360 Tax Authority ($):
Sourcing disputes increasingly center on use of so-called look-through methods that source receipts to a secondary market or the states where the service is ultimately used, which may be different from where the service was first purchased, panelists said Friday.
Such sourcing to the location of the so-called customer's customer is part of the rules for the market-based sourcing of service receipts established by the Multistate Tax Commission. Those rules are not binding, even on member states, but some states have adopted them and others are using look-through sourcing even if they haven't adopted the rules. It all adds up to more trips to court as states and businesses disagree over how much states may reach to get a share of the seller's receipts, the panelists said. They spoke at a tax conference hosted by the Paul J. Hartman State and Local Tax Forum, held in Nashville, Tennessee, and online.
Delaware Governor Signs Law Amending Income, Excise Tax Incentive Provisions Regarding Organ, Bone Marrow Donations – Bloomberg ($). “The Delaware Governor Oct. 3 signed a law amending individual income, corporate income, and excise tax provisions to provide tax incentives to resident taxpayers and employers regarding donations of organs and bone marrow for human transplantation.”
Idaho Tax Commission Issues Information on Multiple Tax Relief Granted to Victims of Hurricane Ian – Bloomberg ($). “The Idaho State Tax Commission Oct. 20 issued information on tax relief granted to victims of Hurricane Ian, for individual income, corporate income, trust income, sales and use, and excise tax purposes.”
New Hampshire Governor Announces 30 Percent Payroll Tax Cut Due to Strong Unemployment Trust Fund – Bloomberg ($). “The New Hampshire Governor Oct. 19 announced a 30 percent payroll tax cut for businesses due to the state’s strong unemployment trust fund for corporate income and individual income tax purposes.”
Taxes Make Digital Nomad Status a ‘Myth’ for Most Workers, Firms - Shaun Courtney, Bloomberg ($):
Work-from-anywhere policies and digital nomad visas have created a wealth of opportunities for remote work and shifted immigration and mobility choices from the employer to employee.
But as countries promote their digital nomad visas—28 and counting, according to the OECD—the tax rules have not always caught up, leaving employers, employees, and independent contractors to determine their tax liability.
Further down the article:
Many businesses adopt the same practice, offering employees up to 90 days of international work per year in an effort to avoid tax and visa issues while meeting staffers’ demands for alternative work arrangements… The 90-day threshold can be found at the likes of Airbnb, Shopify, and Wise. That’s well short of the 183-day residency rules in most tax treaties that trigger a host of tax obligations for workers and companies.
From the “Talk is Cheap” file:
She’s Inheriting Millions. She Wants Her Wealth Taxed Away – Emma Bubola, New York Times ($):
By the time her extraordinarily wealthy grandmother died last month, Marlene Engelhorn already knew who she wanted to be the ultimate beneficiary of the enormous inheritance coming her way: the tax man.
‘The dream scenario is I get taxed,’ said Ms. Engelhorn, the co-founder of a group called Tax Me Now…
For more than a year, Ms. Engelhorn has been campaigning for tax policies that would redistribute her eight-figure windfall — and anyone else’s.
During my time as a tax reporter on Capitol Hill, I covered three press conferences where rich people urged the federal government to raise their taxes. At each event, I informed them that they didn't need to change the law to pay more in tax. They could simply overpay their taxes and tell the IRS to keep it. My comment was met with bewilderment from the presenters - they apparently didn't want to over pay their taxes, they simply wanted to talk about increasing taxes on the rich and leave it at that.
During one exchange, after I made my comment the presenter gave me a curious look, then replied "next question."
Happy National Bologna Day! If this cured meat isn’t your thing, it is also National Food Day, which focuses on healthier nourishments. Either way, Mangia!