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No Tax Title in Omnibus, Not Even a Little One - Doug Sword and Lauren Loricchio, Tax Notes ($):
While the $1.72 trillion package appropriators released December 20 has a giant bipartisan retirement bill with more than 90 provisions, including a fully refundable savers credit, Democrats pushing for renewal of an expanded child tax credit and Republicans hoping to roll back the tightening of a trio of corporate tax breaks were disappointed.
While there was no major tax title for those expensive tax credits, there wasn’t even a tax title for the traditional smaller tax extenders that Congress tends to renew year after year. That includes extenders that expired December 31, 2021, such as the three-year amortization period for racehorses, a tax credit for coal production at American Indian facilities, and the mine rescue team training credit.
Related: Understanding How R&D Capitalization Works
New R&E Capitalization A Costly Change For Companies - Nancy Dollar, Law360 Tax Authority ($):
Companies face the loss of a major tax break on research and experimental costs incurred this year, absent congressional action. Since 1954, Internal Revenue Code Section 174 has allowed taxpayers to immediately deduct R&E costs. However, effective Jan. 1, the Tax Cuts and Jobs Act amended Section 174 to eliminate the deduction of R&E costs.
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Instead, costs for R&E activities in the U.S. now must be capitalized and amortized over five years — over 15 years in the case of foreign research expenditures — beginning at the midpoint of the tax year the expenditures are paid or incurred.
Related: New IRS guidance provides simplified accounting method change to capitalize research costs
Hagerty, Manchin propose $10,000 threshold for Venmo, PayPal tax reporting change — up from $600 - Kate Dore, CNBC.
Sen. Bill Hagerty, R-Tenn., will file an amendment to the $1.7 trillion spending package, to increase the threshold for Form 1099-K, according to Sen. Joe Manchin, D-W.Va., the proposal’s lead co-sponsor.
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Before 2022, taxpayers received 1099-Ks with more than 200 transactions worth an aggregate above $20,000. But the American Rescue Plan Act of 2021 dropped the threshold to just $600. Currently, even a single transaction of more than $600 may trigger the form.
Whether the amendment can make it into the giant Omnibus at this late hour is uncertain. Update: another reporter suggests the linked piece may be inaccurate. Watch for updates.
Congress Clamps Down on Land-Conservation Tax Deals - Richard Rubin, Wall Street Journal:
The legislation would deny deductions in cases in which the claimed break exceeds 2.5 times the investment. That is the level at which the IRS has been requiring taxpayers and promoters to disclose the deals on tax returns. That disclosure requirement at 2.5 times the investment made it easy for the IRS to identify transactions and audit participants—but that was just the beginning of a lengthy process. The legislation would let the IRS simply reject claimed deductions.
There are exceptions for investments in which the property has been held for more than three years before the donation; there are also exceptions for family partnerships and historic structures. The changes also would impose stiffer penalties for noncompliance.
The new rules will be effective for donations made after the bill is signed into law.
Updated Easement Proposal Lands in Omnibus Bill - Kristen Parillo, Tax Notes ($). "Another addition calls for Treasury to publish safe harbor deed language for extinguishment clauses and boundary line adjustments within 120 days of the date of the bill’s enactment. Donors would be permitted to correct defective deed language regarding those provisions during the 90-day period following the publication of Treasury’s safe harbor guidance."
The Good, The Bad And The Ugly In The Secure 2.0 Retirement Savings Bill - Howard Gleckman, Forbes.
The good...
Revise the Savers Credit for low- and moderate-income people. It would transform the current non-refundable tax credit into a more manageable direct matching federal contribution to a retirement account. The government would match 50% of contributions up to $2,000, phasing out between $20,500 and $35,500 for single filers ($41,000 and $71,000 for couples filing jointly).
Require employers to include long-term part-time workers in 401(k) plans. This has been a significant gap in many existing plans.
Retirement Saver's Credit set to become Saver's Match in year-end catch-all bill - Kay Bell, Don't Mess With Taxes. "Among the provisions that stood out to me was the Act's Section 103. It repeals one of the most overlooked individual tax breaks, the Saver's Credit, and restructures it into a government matching contribution of up to $1,000 a year for low- and middle- income workers who save through their workplace 401(k) or personal IRAs."
Retirement Industry Lauds Inclusion of SECURE 2.0 in Omnibus - Caitlin Mullaney and Erin McManus, Tax Notes ($). "Other top proposed retirement provisions include an expansion of retirement plan automatic enrollment, increased catch-up limits for ages 60-63, greater access to emergency expense withdrawal options, and an enhancement of section 403(b) plans."
Kansas Governor Announces Tax Relief Plan - Emily Hollingsworth, Tax Notes ($). "Kelly's Axing Your Taxes plan, announced December 19, would immediately end the state sales tax on items like groceries and diapers, create an annual four-day back-to-school sales tax holiday, and ensure that retirees earning less than $100,000 wouldn’t have their Social Security income wholly subject to state income tax. The governor said the measures would save taxpayers roughly $500 million over the next three years."
Trump return release roundup:
Ways and Means Votes to Release Trump Tax Information - Doug Sword and Alexander Rifaat, Tax Notes ($):
After a closed December 20 meeting to study the confidential tax material, the committee voted along party lines, 24 to 16, to release a committee report, including all supporting materials. Committee Chair Richard E. Neal, D-Mass., said the tax returns would be released as soon as personal information such as Social Security numbers and banking information can be redacted, which he said could take several days.
The report discusses the IRS’s presidential audit program during the Trump administration, finding that only one mandatory audit of Trump’s returns was started during his administration and that the program “was otherwise dormant, at best.”
House Panel Votes to Release Donald Trump’s Tax Returns - Richard Rubin, Wall Street Journal. "The committee released reports and some documents that revealed details about Mr. Trump’s tax returns and audits on Tuesday, showing that he and his wife, Melania Trump, reported negative adjusted gross income in four of the six years from 2015 through 2020. The Trumps paid some form of federal taxes every year, but reported income-tax liability of $750 or less in three of the six years. A full set of tax documents is expected to become public in subsequent days."
House Panel Votes To Make Trump's Tax Returns Public - Stephen Cooper, Law360 Tax Authority ($). "The report quotes an internal IRS memo that stated: 'With over 400 flow-thru returns reported on the Form 1040, it is not possible to obtain the resources available to examine all potential issues.'"
House Democrats move to release Trump taxes - Laura Weiss, Roll Call. "A report from Chairman Richard E. Neal, D-Mass., said that the IRS process for auditing presidents’ tax returns needs an overhaul. It said the agency only launched one mandatory examination while Trump was in office and completed no audits. An accompanying report from the nonpartisan Joint Committee on Taxation detailed data on Trump’s reported tax information and identified areas it believed warranted deeper review."
Despite Mandate, I.R.S. Delayed Auditing Tr ump in Office, House Panel Finds - New York Times. "The House Ways and Means Committee voted to release six years of Mr. Trump’s tax returns, and members revealed that the I.R.S. failed to follow its own policy because it did not audit Mr. Trump during his first two years in office."
Jet Costs, Sketchy Deductions Among Red Flags in Trump Taxes - Samantha Handler, Chris Cioffi, and Laura Davison, Bloomberg ($). "Among the items the report says should merit scrutiny are tens of millions of dollars in deductions claimed by Trump and his companies, including for business expenses incurred while president and $126.5 million in write-offs over five years tied to sales from an entity that didn’t appear to be selling anything."
House committee votes to make public Trump’s tax returns - Michael Kranish, Jonathan O'Connell, Amy B Wang, Azi Paybarah, and Marianna Sotomayor, Wahsington Post. "Committee members raised concerns about a wide array of credits and deductions the Trumps claimed on their taxes, including those for charitable contributions, debts, business expenses and conservation easements on his golf courses and other properties, including the Seven Springs estate in New York."
Brady warns Trump tax return precedent could extend to Supreme Court justices - Zach Schonfeld, The Hill. "House Ways and Means Committee ranking member Kevin Brady (R-Texas) warned Tuesday that Democrats’ potential decision to release former President Trump’s tax returns could set a precedent for lawmakers making public those of Supreme "
Release of Trump Tax Returns Could Herald New Era for Taxpayer Privacy - Alan Rappeport, New York Times. "'If they get revealed, it seems to me they ought to have a pretty good reason for why that’s in the public interest,' said John Koskinen, who served as I.R.S. commissioner in the Obama and Trump administrations. 'It’s a dangerous precedent.'"
IRS asleep at the wheel on Trump audits, House tax writers say - Benjamin Guggenheim, Politico:
The report reveals glaring problems for a program that is supposed to assure Americans that the president is abiding by the law, Joe Thorndike, a longtime tax historian, said.
“We have no other assurance that the president is following the same laws that the rest of us follow when it comes to paying our taxes and being good fiscal citizens,” Thorndike said. “And if the IRS can’t be relied upon to do this to follow their own rules, I think that is extremely disappointing.”
Happy Holidays from the Taxpayer Advocate Service and My Requests for Santa - Erin Collins, NTA Blog:
Hey Santa,
My staff has informed me that you subscribe to the NTA blog. If you are reading this, I want to wish you a happy holiday and put in a request for the 2023 filing season on behalf of taxpayers and practitioners.
The past three filing seasons have been very difficult for taxpayers, practitioners, and IRS employees, and since you possess supernatural abilities – including ascending a chimney with a mere nod of your head – I thought you might be able eto magically stuff the refund checks of the millions who have been waiting for them into their stockings. A very big ask, I know, but for many, there is no present that would bring more joy to this holiday season.
Santa only fulfills reasonable requests.
Section 2032A Election on Estate Return Filed Five Years Late Is Valid - Parker Tax Pro Library. "Code Sec. 2032A, which was added as part of the Tax Reform Act of 1976, provides for a special valuation of certain estate property used for farming or a trade or business that is inherited by certain family members. Under this provision, property is valued on the basis of the property's actual use at the time of the decedent's death, rather than on the basis of its highest and best (or fair market value) use, for federal estate tax purposes, resulting in lower estate taxes."
IRS eases R&D accounting change filing by eliminating Form 3115 requirement for 2022 - Mark Friedlich, Wolters Kluwer Tax & Accounting. "It provides an automatic change in method of accounting procedure for taxpayers to comply with IRC §174 by filing a statement with the taxpayer’s original federal income tax return for the first tax year in which the TCJA’s IRC §174 changes become effective instead of filing Form 3115, Application for Change in Accounting Method."
Basic Rules On Gifting - Kelly Golish, Tax School. "For individual income tax purposes, outright gifts (as distinguished from charitable contributions) are neither deductible by the donor nor taxable to the recipient. Further, for gift tax purposes, the donor does not actually pay gift taxes until accumulated lifetime taxable gifts exceed $12.92 million in 2023 ($12.06 million in 2022). As a general rule, gift tax returns are only required when completed gifts exceed the annual exclusion ($16,000 in 2022 and $17,000 in 2023; double if married) to any one individual during the calendar year. A gift is not completed until the donor loses all control over the property gifted."
Would Americans Make Charitable Donations without Tax Incentives? - Scott Hodge, Tax Policy Blog. "Many non-profit advocates feared that contributions would decline if there were fewer taxpayers able to deduct their charitable donations. However, according to Giving USA data, total individual giving did not drop off much following the TCJA, in both nominal or real terms. Indeed, in real terms, individual giving in 2018 was higher than 2016 levels (pre-TCJA)."
The TCJA Five Years Later: International Tax Issues - David Stewart, Andrew Velarde, and Lafayette Harter III, Tax Notes Opinions. "As we know, the whole process of trying to enact tax legislation based on reconciliation — instructions can be pretty chaotic. It's time pressured, and they too had to satisfy almost every senator — this time in the Republican Party — so that the staffs had their hands full juggling all of those considerations. It's actually pretty amazing that they succeeded enacting legislation with ultimately a 21 percent corporate tax rate. It's not particularly surprising under the circumstances that the statute itself had some real issues when it emerged."
Short day. Happy Winter Solstice and Frank Zappa's birthday, for those who celebrate.