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IRS Warns Against Scammers, Emphasizes Unemployment Fraud – Bloomberg. “The IRS on Thursday reminded taxpayers to be wary of impersonation scams and other schemes this tax season.”
An agency news release warned people to watch out for signs of potential unemployment fraud this year especially, as states have been seeing more fraudulent claims filed by organized crime rings.
Tax Season Is Here, But IRS Isn’t Yet ‘Back to Normal’ (Podcast) - David Schultz, Bloomberg ($):
The tax filing season that just kicked off is the third that is being affected by the coronavirus pandemic. Kelly Phillips Erb, Bloomberg Tax editor and host of the Tax Girl podcast, says we haven’t yet returned to the way things worked pre-pandemic.
IRS Reshuffles Staff to Clear ‘Unprecedented’ Backlog – Jonathan Curry, Tax Notes ($). “The IRS has launched an emergency effort to clear its deepbacklog of unprocessed mail and amended tax returns by temporarily reassigning 1,200 of its employees.”
The backlog is at the root of a cascade of problems for both taxpayers and the IRS. Tax professionals have reported widespread issues with the agency’s system sending automated notices yet not processing taxpayer responses. That in turn requires tax professionals to call the already overwhelmed IRS phone lines for assistance, which isn’t often readily obtained.
The 2022 filing season began January 24, but the IRS’s accounts management function ‘is still facing unprecedented inventory levels,’ IRS Commissioner Charles Rettig said in a February 2 internal email to employees. ‘This is an all-hands-on-deck situation,’ he said. ‘The bottom line is we need this help.’
Taxpayer Advocate Hopes IRS Will Suspend More Collection Notices - Naomi Jagoda, Bloomberg ($). “National Taxpayer Advocate Erin Collins said Thursday that she is hopeful that the IRS will announce the suspension of additional collection notices in the near future.”
‘We’ve seen some announcements come out, but I think we’ll see others in the near future because I think the IRS realizes that if they’re not current on their correspondence and not current on their tax returns, we’re just creating more frustrations, and indirectly more work for IRS,’ Collins said at a virtual conference hosted by the American Bar Association’s Tax Section.
Fast-Track Process Not Limited to Isolated Issues, Simple Deals – Chandra Wallace, Tax Notes ($). “Any corporate letter ruling request, no matter how complex the transaction or issues involved, may qualify for fast-track processing under a recently announced pilot program, an IRS official clarified.”
Some tax professionals are under the impression the fast-track program might be available only for relatively simple, straightforward ruling requests or simple transactions, ‘but that’s not true,’ Robert Wellen, IRS associate chief counsel (corporate), said February 3 at the American Bar Association Section of Taxation virtual meeting. ‘This program is available for any [letter ruling] request in our jurisdiction.’
IRS: Hyundai, BMW, Rivian Vehicles Added to Plug-In Credit List (IRC §30D) – Bloomberg:
Hyundai, BMW, and Rivian vehicles added to list of eligible vehicles for the I.R.C. §30D plug-in electric drive motor vehicle credit, the IRS provided Feb. 3. The 2022 Hyundai Ioniq 5 Battery Electric Vehicle, the 2022 BMW i4 eDrive40 Gran Coupe, 2022 BMW i4 M50 Gran Coupe, 2022 BMW iX xDrive50, 2022 Rivian R1S, and 2022 Rivian EDV 700 qualify, the IRS noted. The credit amount is $7,500 for each vehicle.
Build Back Better Clouds Path for Rolling Back R&D Amortization – Doug Sword, Tax Notes ($). “Perhaps the most bipartisan tax provision in play these days is restoring 100 percent research and development expensing, but the measure is locked into that most partisan of bills, the Build Back Better Act (H.R. 5376).”
For nearly 70 years, companies could fully write off their R&D spending, but that ended January 1. R&D costs now must be amortized over five years, or 20 percent per year.
Backers of rolling back the switch say there is an effort to get their provision into the omnibus spending bill being negotiated on Capitol Hill. In a year without a giant tax bill, tax tweaks could find their way into the bargaining over the omnibus, which is written after Republicans and Democrats annually fail to pass the 12 individual spending bills on time.
But there’s a catch to getting the R&D measure into an omnibus, because it is already in the stalled Build Back Better Act. Adding the rollback to another bill would suggest Democrats are giving up on their signature package. The bill has been in legislative limbo since December 2021, when it became clear that Democrats didn’t have the votes to get the latest version through the Senate. There are questions about whether it can be successfully relaunched at all.
‘If it was moved off Build Back Better onto something else, would that be viewed as a commentary on the status of Build Back Better?’ said Marc J. Gerson, a lobbyist at Miller & Chevalier Chtd. and a former House Ways and Means Committee majority tax counsel.
FWIW: House Ways and Means Ranking Member Kevin Brady (R-Texas) does not think tax provisions will be added to the spending bill. Instead, a year-end tax bill might happen (aka extenders). Of course, he is a part of the minority party so maybe his thoughts should be taken with a grain of salt.
Plus, it is too soon to tell if there will even be an omnibus spending bill.
Retroactive or Not? Effective Dates Under Review in Tax Plan Reboot – Kristen Parillo, Tax Notes ($). “With congressional Democrats eyeing a reboot of their Build Back Better Act, there’s an opportunity to review the effective dates of tax provisions to determine if any should be changed to address retroactivity concerns, according to a Senate Finance Committee staffer. ‘It’s not great tax policy to change a tax code provision for the tax year that the IRS is currently in the middle of filing season for,’ said Sarah Schaefer, Democratic senior tax policy adviser for the Senate Finance Committee.”
Among those flagged for review is the proposal to limit the section 1202 gain exclusion on sales of qualified small business stock, Schaefer said. As drafted, the change would apply to sales occurring on or after September 13, 2021. Provisions that would take effect for tax year 2022 are also being reevaluated because they could affect quarterly estimated tax payments, she said.
Rep. Brady is bullish on retirement legislation passing this year:
Brady Optimistic About Passing Retirement Bill This Year – Caitlin Mullaney, Tax Notes ($). “The top Republican on the House Ways and Means Committee is hopeful that Democrats in the chamber will find an opening for his retirement bill sooner rather than later.”
‘I continue to work with [Ways and Means Committee Chair Richard E. Neal, D-Mass.] on SECURE 2.0 to ready it for House action. I defer to him on the timing of that, but our discussions have been going very well, in my view,’ committee ranking member Kevin Brady, R-Texas, told reporters February 2.
Brady explained that the follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 has a chance of advancing this year, even though it's an election year, because the issue has support from both parties.
‘This bill is more than just the ideas of Chairman Neal and myself. It incorporates ideas of Republicans and Democrats up and down our committee and outside it as well,’ Brady said.
DelBene, Schweikert Introduce Bipartisan Legislation to Expand Use of Virtual Currency – DelBene’s office:
Representatives Suzan DelBene (WA-01) and David Schweikert (AZ-06) introduced the Virtual Currency Tax Fairness Act, a bipartisan bill that would create a workable structure for taxing purchases made with virtual currency, also known as cryptocurrency, further strengthening the legitimacy of virtual currency in our digital economy.
Currently, any gains from virtual currency must be reported as taxable income regardless of the size or purpose of the transaction. This includes purchases as small as buying a cup of coffee. Individuals are required to calculate and report any changes in the currency’s value against the U.S. Dollar from the time they purchased the currency until it is used in the transaction. This makes the everyday use of virtual currency near impossible, discouraging people from using it and inhibiting the growth of our digital economy.
The Virtual Currency Tax Fairness Act would exempt personal transactions made with virtual currency when the gains are $200 or less.
Intuit CEO warns of tax bill shock for Bitcoin, NFT traders – Joe Williams, Accounting Today. “Intuit Inc. chief executive officer Sasan Goodarzi warned that Americans who invested in speculative assets like Bitcoin or nonfungible tokens, and actively traded equities on commission-free websites could be dumbfounded at this year’s tax bill.”
‘We’re gonna see a lot of that throughout tax season, where folks just didn’t understand what they did. And there’s a lot of millennials that really did a lot of trading without knowing what the implications are,’ Goodarzi said in an interview. ‘They are shocked as to how much money they’ve lost or how much they owe because they were in essence gambling with their money.’
Loss Deduction Cap Suspension Likely to End, Senate Aides Say – David Hood, Bloomberg ($). “Excess business loss deduction limits suspended during the pandemic are unlikely to get another extension, top staff members on the Senate Finance Committee said Thursday, because they are a popular lever to pay for policy priorities from both parties.”
The 2017 tax law created Section 461(l) that limited deductions on excess business losses as a mechanism to pay for tax cuts in the law. The 2020 and 2021 pandemic relief laws temporarily suspended the cap as a way to help struggling business owners. That suspension is scheduled to end in March, a year after the 2021 law was signed.
GOP Criticizes IRS’s Third-Party Selfie Verification System – Laura Davison, Bloomberg ($). “Several Republican senators ask the Internal Revenue Service to respond to a series of concerns the lawmakers have with the agency’s use of the facial recognition software provider ID.me to access online tax accounts.”
‘The IRS has unilaterally decided to allow an outside contractor to stand as the gatekeeper between citizens and necessary government services,’ Senate Finance Committee Republicans say in a letter. ‘The decision millions of Americans are forced to make is to pay the toll of giving up their most personal information, biometric data, to an outside contractor or return to the era of a paper-driven bureaucracy/’
Illinois Revenue Jumps by ‘Torrid’ 37% to $5.3B in January - Shruti Date Singh, Bloomberg ($). “Illinois’s revenue from state sources in January rose 37% from a year ago to $5.3 billion on gains from income and sales taxes, according to a monthly report by the Commission on Government Forecasting and Accountability.”
- Personal income tax collections rose 45% to $3.6 billion in January, according to CGFA
- Corporate income tax revenue more than doubled to $377 million from $155 million a year ago: report
- Sales tax collections for the month rose 15% to $938 million
- YTD in fiscal 2022, which started July 1, revenue from state sources has increased 12% to about $27 billion
N.J. Local Tax Director Correctly Assessed Urban Renewal Value – Donna Borak, Bloomberg ($). “The New Jersey Tax Court affirmed that Lakewood Township’s tax director correctly determined the assessed value of land improvements made by an urban renewal entity.”
New Jersey Tax Court Judge Mala Sundar said the plaintiff, Erez Holdings Urban Renewal LLC, failed to persuade the court that the value of the parking lot to be excluded for purposes of calculating the non-residential development fee should be $3.4 million.
States Should Save Their Surpluses, Not Spend Them - Karl Smith (Opinion), Bloomberg ($). “It’s one of the few silver linings of the pandemic: State governments are awash in money . Many are spending it — on education, construction projects and tax cuts. They would be better off saving it for a rainy day.”
There are two obvious rejoinders to this recommendation, both of which can be best expressed as questions. First: Isn’t it more fiscally responsible to use the money for long-term needs and short-term tax relief? And second: You mean it’s not raining now?
Both questions have the same answer: These are not normal times. That means the fiscally prudent course — Maryland Governor Larry Hogan’s plans for the state’s historic windfall, for example, include a mix of long-term spending on infrastructure and short-term tax relief — is not necessarily the wisest course. And what feels like rain to many consumers — inflation at its highest in almost four decades, and a stubbornly persistent pandemic — looks a lot different from a budgetary perspective.
Mississippi Legalizes Medical Pot After Governor's Signature - Katryna Perera, Law360 ($). “Mississippi has become the 37th state to legalize medical marijuana after Republican Gov. Tate Reeves signed into law on Wednesday the Mississippi Medical Cannabis Act, following the state Legislature's approval of the bill in January.”
The bill, officially known as S.B. 2095, was approved by the Mississippi Senate on a 46-4 vote and a House vote of 103-13, both sufficient to meet the two-thirds majority necessary to overcome a gubernatorial veto.
Ala. House OKs Commercial Fishing Equipment Exemption - Sanjay Talwani, Law360 ($). “The Alabama House unanimously passed a measure Thursday that would exempt commercial fishing vessels and equipment from property taxes and impose a 1.5% privilege tax on those items.”
The House passed H.B. 10, sponsored by Rep. Chip Brown. R-Hollinger's Island, by a vote of 100-0. The bill would give a property tax exemption to vessels and equipment used in commercial seafood fishing and apply the 1.5% privilege tax on the sale of those items and on the cost of vessel storage.
Ala. House OKs Tax Breaks For Farm Loans, Biz Equipment - Sanjay Talwani, Law360 ($). “The Alabama House passed a bill Thursday that would exempt certain farmers and ranchers from state income tax on forgiven American Rescue Plan Act loan amounts and allow a $40,000 state property tax exemption for business equipment.”
The House passed H.B. 82, sponsored by Rep. Danny Garrett, R-Trussville, by a vote of 99-0. The bill would exempt from state income tax funds from forgiven loans granted under ARPA to farmers and ranchers classified as disadvantaged under the law. It would also allow businesses to exempt $40,000 in business property from property taxation and let local jurisdictions grant that exemption on local property taxes.
Minn. Bills Pitch Personal Income Tax Reductions - Sanjay Talwani, Law360 ($). “Minnesota would lower income tax rates under any of three bills introduced Thursday in the state Senate.”
S.F. 2728, introduced by Sen. Roger Chamberlain, R-Lino Lakes, would eliminate income tax on earners in the lowest personal income tax bracket, currently taxed at a 5.35% rate.
S.F. 2743, introduced by Sen. Jason Isaacson, DFL-Shoreview, would reduce the tax rate on the lowest earners from 5.35% to 4.1%.
S.F. 2758, introduced by Sen. David Osmek, R-Mound, would lower the tax rates on all four of the state's tax brackets to rates ranging from 4% on the lowest incomes to 7% for those in the top bracket, including incomes above $161,720 for individuals and $269,010 for married couples filing jointly.
H.F. 2968, a companion bill to S.F. 2758, was introduced Tuesday in the state House by Rep. Jerry Hertaus, R-Greenfield.
Global Tax Deal Would Undercut U.S. Tax Breaks, Businesses Warn – Richard Rubin, Wall Street Journal ($). “The emerging global minimum-tax agreement would make domestic tax breaks less valuable for some U.S.-based companies, potentially limiting the effectiveness of incentives for research, exports and low-income housing, businesses are warning.”
Their concerns stem from proposed international rules about how nations can use tax breaks to aid companies’ home-country operations, under the global deal that puts a 15% floor under corporate tax rates. To create a level playing field, the rules let other countries impose taxes if multinational companies pay too little at home. U.S. policy makers are still assessing any impact, but companies are starting to raise alarms.
Under proposed rules, large companies could benefit from domestic tax breaks until their rates got down to 15%. Below that threshold, other countries could impose what is known as a 'top-up tax' on those companies and make up the difference.
Breaking news this morning:
First Details on Global Tax Deal’s Reallocation Rules Open for Input - Isabel Gottlieb, Bloomberg ($). “The world’s largest companies got their first look at how their profits could be reallocated under a global deal to overhaul international tax rules.”
The deal—struck last October and backed by nearly 140 countries—would change where a portion of the largest multinationals’ profits are taxed. The OECD, which has led negotiations, asked stakeholders Friday for feedback by Feb. 18 on a draft of rules addressing revenue sourcing—part of the plan known as Pillar One’s Amount A.
The draft is here ($).
EU Business Group Urges Focus on Minimum Tax ‘Backstop’ Rule - Isabel Gottlieb, Bloomberg ($). “The EU should pay more attention to the global minimum tax’s 'backstop' rule, so companies in the bloc aren’t disadvantaged if it isn’t widely adopted elsewhere, a European business lobby argues.”
The 15% global minimum tax—known as Pillar Two of the 2021 OECD-led international tax agreement—will be adopted domestically by any country that wants to. For legal reasons, the European Union must implement the measure among all its member countries through a directive—which it hopes to see done by 2023. That raises concerns that EU businesses could be put at a competitive disadvantage if other countries implement later, or not at all, Business Europe said in a paper.
Court Rulings Slam Door On Int'l Travel For US Tax Debtors - Dylan Moroses, Law360 ($). “Federal courts have upheld the U.S. government's ability to deny or revoke a citizen's passport over a certified tax debt in what some tax advisers have considered a draconian enforcement mechanism: prohibiting international travelto collect unpaid taxes.”
Courts over the past year have uniformly rejected challenges to Internal Revenue Code Section 7345, passed in the Fixing America’s Surface Transportation Act, which effectively allows the Internal Revenue Service to deny citizens with delinquent taxesof more than $50,000 the right to travel outside the country. The IRS can certify a taxpayer's debt over that amount — indexed for inflation to $52,000 — as ‘seriously delinquent’ and transmit that determination to the State Department, which can choose then to revoke or deny a passport.
Happy National Homemade Soup Day! With roughly half the country plagued by ice and snow storms, what better way to spend the day cooped-up at home than making soup! Ok, binge-watching TV and endless naps are also good choices.