Tax News & Views Giving Tax Information Tuesday Roundup

Your guide to Congress's lame duck session - Theodoric Meyer, Leigh Ann Caldwell, and Toby Raji, Washington Post.

• Extending tax breaks: Tax extenders — which prevent certain tax breaks from expiring on the books — are traditional lame-duck fare. One of the big ones up for extension this year is known as research-and-development amortization. The 2018 Republican tax law required companies to amortize their expenses over five years as a way to help pay for the costs of the bill’s tax cuts — starting Jan. 1, 2022. Much of corporate America is pushing to delay this change until 2026 (when it can presumably be delayed again).

• Other K Street priorities: There are only so many must-pass bills to which lobbyists can try to attach their clients’ priorities, so each one is an opportunity. The Coalition for 1099-K Fairness, for instance— members include Airbnb, eBay and Etsy — is pressing for Congress to change a provision in the $1.9 trillion stimulus bill that Biden signed last year. The bill would send a 1099-K tax form to people who have sold as little as $600 of goods online in a year, down from a previous threshold of $20,000 and 200 sales. 

Related: Senate Tax Chief Sees Retirement Legislation Passing in the Lame Duck

Time to get down to business - Bernie Becker, Politico:

Democrats and Republicans have had some initial conversations about where taxes stand in fuller year-end discussions, according to people on the Hill.

But there’s a lot that remains in flux. Democrats still need to figure out what improvements to the Child Tax Credit are at the top of their list in negotiations with Republicans, in case there can be some larger deal that would also involve expanded tax incentives for businesses.

That’s far from all, either: In the end, taxes are likely but a supporting player in the year-end drama, so the broader bipartisan talks over a more ambitious government funding measure and other items will certainly influence what can get done on taxes.

The Facebook Pixel and Unauthorized Use and Disclosure of Tax Return and Tax Return Information - Nina Olson, Procedurally Taxing:

Last week The Markup, an online investigative journalism site, published a report about the presence of a Facebook (or Meta) pixel on various tax software websites that discloses taxpayer identity and financial information, gathered in the course of preparing and filing tax returns online, to Facebook.  The data includes “not only information like names and email addresses but often even more detailed information, including data on users’ income, filing status, refund amounts, and dependents’ college scholarship amounts.” For example, “[o]nce a tax return was filled out on taxact.com, information including an individual’s adjusted gross income, federal refund amount, and number of dependents was sent to Meta via the Meta Pixel.”  According to The Markup, the H&R Block program sent data regarding health savings account and dependent college tuition grants and expenses.

I note at the outset that the implications of this investigative report are far-reaching.  Not only do tens of millions of US taxpayers use online tax preparation software each year to file their returns, but the IRS itself directs taxpayers, via Free File, to online software products implicated in the investigation.  Further, the IRS provides Tax Slayer, one of the software packages embedding the pixel, to Volunteer Income Tax Assistance (VITA) sites.  These latter two tax preparation services – Free File and VITA – are directed toward low income, elderly, and disabled taxpayers.

If true, this appears to be a massive breach of taxpayer privacy. (Nina Olson, currently the Executive Director for the Center for Taxpayer Rights, served as National Taxpayer Advocate from 2001 to 2019.)

IRS Successfully Foiled Cyberattack in May - Alexander Rifaat, Tax Notes ($). "In a report released November 28, TIGTA concluded that the agency took appropriate steps in handling the unsuccessful attempt and removed the affected computer from the network."

$1 Billion FTX Loan Raises Questions, Practitioners Say - Lauren Loricchio, Tax Notes ($):

Year-End Considerations for 2022 PTET Election - John Gupta and Melissa Menter, Eide Bailly:

Regardless of the PTE’s accounting method, there are two additional reasons why PTEs should make all 2022 PTET payments before year-end. First, nearly all state PTETs have estimated payment provisions with penalties for underpayment. Second, while possibly not the intent, a plain reading of IRS Notice 2020-75 suggests payments are required to be made during the election year to qualify for deduction, no matter the method of accounting.

While most 2022 elections are made on returns when filed in 2023, PTEs must effectively decide whether they intend to make elections immediately. Time should be allowed for obtaining owner consent, determining qualification status, analyzing federal and state tax issues, and calculating an accurate estimate of 2002 PTET liability.

Pass-through entity taxes, or PTETs, are taxes paid by partnerships and S corporations to work around the $10,000 individual cap on state and local tax itemized deductions. Paying taxes at the entity level makes them effectively deductible by reducing income passing through to the owners on their K-1s. 

Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround.

Get Big Tax Breaks for 2022 by Acting Now - Laura Saunders, Wall Street Journal. "It has been a brutal year for markets, but investors holding securities in taxable accounts have a bit of good news. They can sell losers, book a capital loss, and use that to offset current or future capital gains on winners, plus up to $3,000 of ordinary income like wages per year."

Giving Thanks, Giving Tuesday (November 29): Tax Benefits and Charitable Contributions - Erin Collins, NTA Blog. "Like any other deduction claimed on a tax return, a taxpayer should keep contemporaneous documentation to substantiate the donation. Taxpayers need to keep records that demonstrate the amount donated, the date, and the name of the recipient. Depending on the amount and type of donation, taxpayers must satisfy very specific requirements to be entitled to a deduction for a charitable contribution, per IRC § 170. For donations of $250 or more, taxpayers must have a written acknowledgement from the receiving organization before they file their tax returns. The document must contain the amount of cash or a description of the property donated, a statement that the organization did not provide any goods or services in exchange, or if there were, there must be a good-faith estimate of the value of those goods and services, per IRC § 170(f)(8). Donations of property may also require a taxpayer to have an appraisal."

6 tax donation deduction tips for Giving Tuesday - Kay Bell, Don't Mess With Taxes. "3. The non-itemizing claim option expired: OK, I hear some of y'all wondering about the option to claim some cash donations directly on Form 1040. That option, which allowed a single taxpayer to claim up to $300 in charitable gifts, and married filing jointly filers to claim $600, expired at the end of 2021."

Gifts Can Be Taxed, Even On Holidays - Robert Wood, Forbes. "Despite the charity on both sides, the charity the two Thanksgiving gentlemen exchange isn’t tax deductible. The IRS says business gifts you make in the course of your trade or business are deductible up to $25 per person. Is that dollar amount reasonable today? Hardly, but the limit just hasn’t kept pace and is not keyed to inflation."

ETFs May Be Attractive Options During Tax-Loss Harvesting Season - Holly Framsted, Bloomberg. "While tax loss harvesting may require temporary divestment from a client’s portfolio, it isn’t necessarily a time to abandon high-conviction portfolio allocations."

IRS Provides Procedure for Certain Large Businesses to File Qualified Amended Returns - Parker Tax Pro Library. "The IRS issued a procedure for certain large corporations and partnerships whose tax returns for four of the last five years are (or were) under examination to file a qualified amended return and avoid the imposition of accuracy-related penalties..."

Operating Agreement Revision That Contained §704(b) Language Terminated LLC S Corporation Status - Ed Zollars, Current Federal Tax Developments. "Some taxpayers may prefer to use a limited liability company (LLC) as the underlying legal entity in which to form what is intended to be, for tax purposes, an S corporation. It may be due to quirks in state law (as is true in my home state of Arizona) or some other reason.  But what is too often overlooked is that the LLC’s operating agreement must not create a situation where there is deemed to be multiple classes of “stock” outstanding, or the LLC will not qualify as an S corporation."

Foreign Assets — How Can the IRS Enforce Tax Collection Overseas? (Part II) - Virginia La Torre Jeker, Virginia - US Tax Talk. "The IRS can issue a levy notice to any bank that is within the US.  Thus, if a taxpayer has an account with a foreign bank, but that bank has a branch in the US, the IRS can simply issue a levy notice to the US office. This means the IRS may possibly reach the overseas bank account.  Even without a branch in the US, the foreign bank account is not immune from seizure by the US government."

Related: Eide Bailly IRS Dispute Resolution & Collections

CBO Data: After-Tax, After-Transfer Income Inequality Has Been Flat Since 2000 - Paul Caron, TaxProf Blog, quoting Timothy Taylor, Macalester College: "Of course, nothing in these numbers is an argument that the US should not do more (or less) to redistribute. But the factual claim that after-tax, after-transfer income inequality has been rising substantially over time is often overstated—and is not true for the last two decades."

EU “Fiscal Fairness” - Sean Bray, Tax Policy Blog. "Rather, 'Fiscal Fairness' acknowledges that fiscal contributions to society such as jobs created or capital investment are just as socially valuable, if not more, than the number of taxes applied to an entity or the tax rate of the highest tax bracket. It means that policymakers can believe in social and economic fairness while also believing that fairness is best achieved through principled, pro-growth tax policies rather than simple government redistribution."

Jury Entitled to Reject ‘Sex Cult’ Leader’s Recuperation Defense - Nathan Richman, Tax Notes. "One of the ways [Defendant] ensnared his victims involved accusing them of poisoning him and claiming they owed him restitution. After a brief discussion with a lawyer, he concluded that he could fit all of the profits extorted and extracted from those victims into section 104(a)(2)’s exclusion for payments received on account of physical injury or sickness."

NJ Scammer Who Stole $565K In Refunds Gets 13 Years - Anna Scott Farrell, Law360 Tax Authority ($). "A New Jersey woman who helped file more than 3,300 false tax returns and recruited mail carriers to steal $565,000 in refund checks from assigned mailboxes was sentenced to more than 13 years in prison, the U.S. Department of Justice announced Monday."

From the Department of Justice press release (defendant name omitted):

The investigation revealed that for the 2013 tax year more than 3,300 SIRF tax returns were filed using the names and Social Security numbers of residents of Puerto Rico and the refunds were directed to be mailed to a small section of Pennsauken, New Jersey.

Henriquez and her conspirators recruited mail carriers from the U.S. Postal Service as part of the scheme to steal the tax refund checks from the mail. The mail carriers were paid for every U.S Treasury check that was stolen. Henriquez and her conspirators recruited and paid “check couriers” to cash the tax refund checks in a variety of ways, including at check cashing businesses in New Jersey, where Henriquez paid the tellers to also participate in the scheme.

So some unknown number of mail carriers and check cashing clerks were in on the scheme. How did the authorities ever get wind of this?

If you have anything left after Black Friday, Small Business Saturday, and Cyber Monday. Today is Giving Tuesday!