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A Look into the Tax Department of the Future - Michael Bernard, CPA Practice Advisor:
Tax professionals perform a vastly different job than they did even a decade ago and, in the future, the shift in duties will be even more significant. As the focus on collecting data and reporting becomes more efficient due to digitization and automation, the next generation of tax pros need to be more knowledgeable and innovative, taking on new strategic tasks.
Ideally, this means tearing down siloed tax departments. With automation taking over data management and other repetitive processes, tax experts will be able to focus on advisory roles that can be better integrated into a company’s overall strategy.
Our own Elyse Katz talks refund delays:
Refund Delays Test Tax Community’s Patience – Jonathan Curry, Tax Notes ($). “Long, unexplained delays in the issuance of taxpayers’ tax refunds have left everyone involved — taxpayers, tax professionals, and even the IRS itself — scrambling to untangle the mess.”
Tax professionals who spoke with Tax Notes reported seeing a multitude of their clients’ refunds from the prior filing season delayed. Those setbacks can last for months, while some situations remain unresolved even longer.
'There’s really no true rhyme or reason for it,' Elyse Katz of Eide Bailly LLP said. The delayed refunds that she has seen are from tax returns that were filed electronically and on time — just as the IRS has instructed to reduce the chances of complications. There’s no issue with the returns, as evidenced by the lack of any IRS correspondence, and the issue is one that’s plagued her clients across the country, she said.
'They’re just perfectly normal returns,' according to Katz. After dealing with this dozens of times, Katz said she’s honed her response.
Katz explained that when she has called the IRS about these accounts, representatives have told her that there was an “erroneous hold” on them, and that all they need to do is manually release the hold — and then four to six weeks later the refund finally goes out.
'I’ve personally called on probably 100 of these,' Katz said.
Don’t file a paper return, call the IRS on a Wednesday, and other advice to get through a turbulent 2022 tax season – Michelle Singletary, Washington Post. “The new tax season has begun, and if you’re among the unlucky millions still waiting for your 2020 federal return to be processed, your frustration level will probably just escalate.”
Some taxpayers have already been complaining about conflicting directions from the IRS. Three days after the season began, the agency stopped sending certain notices because they were leaving filers confused and angry — or both.
High Number of IRS Math Error Notices Seen Likely to Continue - Aysha Bagchi, Bloomberg ($). “The IRS sent nearly 12 times as many math error notices in 2021 than in 2020, according to an agency attorney adviser who said he expects the number of notices to remain high in 2022.”
Such notices are authorized under tax code Section 6213(b) to inform taxpayers of a tax assessment based on a mathematical or clerical error on a tax return. Taxpayers then have 60 days to ask for an assessment to be abated.
The agency sent more than 14.5 million math error notices for calendar year 2021, including nearly 12 million concerning recovery rebate credits, Joshua Beck, an attorney adviser at the IRS Taxpayer Advocate Service, said Friday at a virtual conference of the American Bar Association’s Tax Section.
IRS Plans Two Batches of Tax Pro Account Updates – Nathan Richman, Tax Notes ($). “The summer of 2022 and the third quarter of fiscal 2023 could each see a new tranche of functions for the Tax Pro Accounts the IRS launched last year, according to the agency’s ethics chief.
In July 2021 the IRS launched its new online account system, but while tax professionals had been waiting years for an integrated IRS account, some saw many limitations to the agency’s first offering.
That update will allow users to view and print their power of attorney (POA) documents and tax information authorizations (TIAs) once they’ve been approved, according to Fisk. The IRS will also implement a pagination system allowing a search function, she said. ‘Some of us have lots of POAs and TIAs, so we can search by name to find our clients in our long list,’ [Sharyn Fisk, director, IRS Office of Professional Responsibility] said.
IRS CCA: Work Opportunity Tax Credit Unavailable to Marijuana Retailer (IRC §51) – Bloomberg ($):
Employer prohibited under I.R.C. §280E from entitlement to the §51 work opportunity tax credit (WOTC) for wages paid or incurred in carrying on a business of trafficking in marijuana, the Chief Counsel’s Office advised. Employer operates a business that is engaged in the trade or business of trafficking marijuana, a Schedule I controlled substance under the Controlled Substances Act. Employer has hired and paid wages to individuals from one or more of the targeted groups provided under §51, and is otherwise eligible for the WOTC but for the possible application of §280E, the Chief Counsel’s Office outlined in the facts. Being in the business of selling a Schedule I controlled substance, §280E prohibits Employer from entitlement to the §51 WOTC for wages paid or incurred in carrying on a business of trafficking in marijuana, the Chief Counsel’s Office provided.
Ex-Official Confirms IRS Ignores Some Reasonable Cause Statements – Andrew Velarde, Tax Notes ($). “A former IRS official confirmed what practitioners have suspected for some time: The agency is initially failing to read reasonable cause statements that might excuse some international information reporting penalties.”
‘The IRS is not analyzing reasonable cause when it is attached to a late filing. No IRS person at Ogden [Utah] reviews reasonable cause on the front end. They simply see if it’s late. If it is perceived late, it’s penalized, even if you have a beautiful reasonable cause statement attached,’ said Daniel N. Price, formerly of the IRS Office of Chief Counsel (Small Business/Self-Employed) and now in private practice.
IRS Planning Second FAQ Batch on Research Credit Refund Policy - Naomi Jagoda, Bloomberg ($). “The IRS is aiming to release more frequently asked questions soon about research credit refund claims, an agency official said Friday.”
‘A second round of FAQs are currently in process, and the IRS hopes to have them released in the not too distant future,’ said Paul Curtis, director of examination in the Southwest area in the IRS’s Small Business and Self-Employed Division. Curtis spoke at a virtual conference hosted by the American Bar Association’s Tax Section.
Manchin on Reconciliation - Patrick Ambrosio, Bloomberg ($):
Sen. Joe Manchin (D-W.Va.) said Sunday that he sees a government funding package as a higher priority than the stalled reconciliation bill.
The government is currently operating under a continuing resolution that runs until Feb. 18.
‘We have to get a budget bill first,’ Manchin said an appearance on CNN’s ‘State of the Union.’
And an agreement on the funding bill seems distant at this point, according to Punchbowl News:
House and Senate appropriators from both parties negotiated throughout the weekend on a 'topline number' for the FY 2022 spending bills. But the two sides didn’t come to an agreement, according to a half-dozen sources close to the situation.
Transition Rules Key to Wyden’s Partnership Rewrite – Kristen Parillo, Tax Notes ($). “The drafters of the partnership tax reform plan released by Senate Finance Committee Chair Ron Wyden, D-Ore., know that thorough transition rules would be needed for the debt allocation rules if the plan were enacted.”
‘Throughout this entire discussion draft, that is something at a staff level that I fully acknowledge we need help on — transition rules, effective dates, and the like,’ said Sarah Schaefer, Democratic senior tax policy adviser for the Senate Finance Committee.
Speaking February 4 at the American Bar Association Section of Taxation virtual meeting, Schaefer explained the thinking behind some of the provisions in Wyden’s September 2021 discussion draft, which calls for sweeping reforms of the partnership tax rules.
According to Mike Hauswirth of PwC, the draft’s proposed changes to section 752 ‘could have the most significant and far-reaching effects.’
Tax Pros Raise Alarm on Potential Precedent of Credit Changes – Mary Katherine Browne, Tax Notes ($). “Some tax professionals are asserting that changing the requirements for claiming research credit refunds through IRS field advisories sets an uneasy precedent that could circumvent procedures put in place to protect taxpayers."
Robert Kovacev of Norton Rose Fulbright said February 4 that he is concerned that if the new requirements for section 41 research credit claims can be issued in a chief counsel memo, ‘why couldn’t any other new requirements for refund claims or any of a number of types of returns or other issues be done just by the expedient of a legal memo?’
Taxwriter Questions More Universities About Coaches' Salaries – Fred Stokeld, Tax Notes ($). “A House taxwriter is continuing to ask whether universities that pay enormous amounts to their athletics coaches are abusing their tax-exempt status.”
House Ways and Means Oversight Subcommittee Chair Bill Pascrell Jr., D-N.J., who in recent months has written to several schools about their coaches’ compensation, is now seeking answers about how the 'exorbitant college coaching deals' at Rutgers University and Stanford University further the educational purposes for which the schools receive exemption.
For those who are unfamiliar with Rep. Pascrell, he's a loud talker (some might say "yeller"). It would not be surprising for him to hold a hearing on this subject where he would talk very loudly at witnesses.
Opportunity Zone Inquiry Puts Spotlight On Jobs, Community - Andrew McIntyre, Law360 ($). “An investigation into the 4-year-old opportunity zone program, which allows deferral of capital gains taxes for investment in projects in underserved communities, could fuel more debate about whether it should track job creation, whether it's benefiting low-income communities and whether new census tract lines are needed, experts say.”
Senate Finance Committee Chair Ron Wyden, D-Ore., recently launched an investigation into the program, which was signed into law as part of President Donald Trump's late 2017 tax overhaul. Wyden is seeking more transparency about how funds are being invested, and his critiques suggest he believes the program currently benefits the wealthy and funds luxury projects.
Judge Weighs Constitutionality of Washington Capital Gains Tax – Laura Mahoney, Bloomberg ($). “Attorneys for farmers and business owners in Washington state urged a trial court judge Friday to rule a new excise tax on capital gains is unconstitutional on its face.”
Douglas County Superior Court Judge Brian C. Huber said he will issue a ruling soon, possibly in two weeks, following a two-hour hearing on a motion from the plaintiffs to strike down the law, and a counter motion from Washington Attorney General Bob Ferguson (D) to dismiss the lawsuit challenging the tax.
Five States Considering Phase-Out of Tax on Groceries – Michael Bologna, Bloomberg ($):
A progressive think tank is pushing the states to repeal their grocery taxes, and lawmakers in Illinois, Kansas, Mississippi, Utah and Virginia are taking the idea seriously. Meanwhile, New York City’s complicated property tax system came under fire, and a half-dozen states are considering new tax incentives to attract Bitcoin mining operations.
Tax Issues To Watch In The 2022 State Legislative Sessions - Maria Koklanaris, Law360 ($). “With fears of coronavirus-fueled deficits long behind them, state policymakers are focused on how to use the surpluses swelling state coffers, with tax cuts topping most legislators' to-do lists.”
How much will actually be enacted in an election year for most legislators remains to be seen, but among the plans are phasing out personal income taxes, expanding state sales tax bases, offering tax relief to lower-income families and sprinkling in a few different taxes on gross receipts. Some governors also want to get rid of taxes on groceries and retirement income and to freeze gas taxes.
With a couple of exceptions, such as the gross receipts taxes and a now-defunct sweeping California tax package that would have funded single-payer health care, state policymakers mostly are focused on cutting taxes. Thanks to revenue from sources including the federal government, capital gains, higher personal incomes and internet sales, states can also largely do so without shrinking their budgets.
Ore. Tax Court Denies Cannabis Business 2015 Deductions - Michael Nunes, Law360 ($). “The owner of an Oregon cannabis business is not entitled to business deductions for the 2015 tax year because such deductions were not allowed by the state at the time, the state tax court ruled.”
In a decision Thursday, the court decided that James Wakefield is not able to claim the deductions because the state's personal income tax law at that time incorporated Section 280E of the Internal Revenue Code, which prohibits taxpayers in the businesses of trafficking some controlled substances from deducting those expenses.
New York Breaks Record for Most Sports Betting Taxes in a Month - Sam McQuillan, Bloomberg ($). “New York has broken the record for most sports betting taxes generated by a state in a single month.”
The $57.6 million the state made in its first 23 days of online wagers is more than two and half times the previous monthly record held by Pennsylvania at $22.9 million in November 2021, the New York State Gaming Commission confirmed with Bloomberg Tax.
After just three weeks, New York now ranks fifth among states in all-time sports betting tax revenue, ahead of 22 others.
Online Sports Betting Rollout Delayed Over a Year in Some States - Sam McQuillan, Bloomberg ($). “More than a year after voters legalized online sports betting, Louisiana has just begun taking bets. In Maryland, the wait continues."
It’s been 14 months and counting since betting ballot initiatives passed in those two states, and eight months since Florida Gov. Ron DeSantis (R) signed a law legalizing betting. While some in-person betting options are available, a combination of regulatory and legal hurdles has delayed more lucrative online betting—which makes up 86% of wagers in places where both are legal according to the American Gaming Association, the industry lobby.
Meanwhile Arizona, Connecticut, and Wyoming have since legalized betting, launched their markets and begun collecting tax revenue.
Massachusetts Holds Business Privilege Taxes Aren’t Deductible – Michael Bologna, Bloomberg ($). “Massachusetts doubled down on its view that business privilege taxes paid to another state aren’t deductible under the Bay State’s corporate excise tax, despite recently losing a case on the issue in front of the Massachusetts Appeals Court.”
The state Department of Revenue issued Technical Information Release 22-4 on Friday, offering guidance on deductions available to businesses paying the state’s corporate excise tax. As a general rule, ‘taxes imposed on a business as a whole, measured by gross receipts, for the privilege of doing business’ in another state, ‘are not deductible,’ Revenue Commissioner Geoffrey Snyder wrote on behalf of the department.
Marijuana Business Tax Handicap Upheld by Oregon Court – Sam McQuillan, Bloomberg ($). “Marijuana suppliers are not afforded the same typical tax deductions as regular businesses, an Oregon court has ruled.”
The Oregon Tax Court on Thursday upheld two state laws that reapplied to the state tax code a 1980s-era federal tax code section, Sec. 280E, which prohibits typical expense deductions for businesses trafficking controlled substances, after a 2014 ballot measure nullified the application of Sec. 280E. James Wakefield, who legally sells marijuana in Oregon, had sought to effectively restore the text of the ballot measure, which in legalizing recreational marijuana also 'disconnected' the state tax code from Section 280E of the tax code.
Idaho Tax Commission Issues Information on Free E-Filing of Individual Income Tax Returns – Bloomberg ($):
The Idaho State Tax Commission Feb. 3 issued information on free e-filing of tax returns. The commission is encouraging taxpayers with an adjusted gross income of $73,000 a year or less to visit its free e-file page, which details companies offering free online filing and preparation of both federal and Idaho individual income tax returns. The information includes that: 1) electronic filing is a fast, and easy way to file taxes; 2) taxpayers should look carefully at the free file page to see which offers they qualify for and be sure to use the links on the page, so they don’t have to pay; 3) taxpayers must use the same provider to e-file both federal and state returns; 4) the deadline to file 2021 income taxes is April 18; and 5) taxpayers can check refund status, get tax forms, make payments, and find tax help at the commission’s website.
More Twin Cities suburbs see a local sales tax as a funding fix - Kim Hyattand Shannon Prather, Star Tribune.” A growing number of metro suburbs, struggling with the cost of repairs and upgrades to aging community centers, ice rinks, parks and city buildings, are seeking legislative approval for citywide sales taxes so out-of-town visitors who enjoy those amenities can share in the burden of maintaining them.”
One of the suburbs is Edina, where half a million hockey players, ice skaters and fans use the city's Braemar Arena each year. City officials say it only makes sense for them to help the city's 52,000 residents shoulder the cost of keeping up the regional attraction.
‘It's a prominent place with a prominent history and we want to be good stewards of that history,’ said Edina City Manager Scott Neal.
Yellen Says ‘No Plans to Leave’ With Goals Far From Accomplished - Christopher Condon, Bloomberg ($). “Janet Yellen, President Joe Biden’s surprise pick as Treasury secretary in the wake of his 2020 election victory, says there’s too much unfinished business to think about departing the role after just over a year on the job.”
The biggest win of her tenure -- an historic global agreement on corporate taxes that Yellen engineered through careful international diplomacy -- remains incomplete, with the U.S. Congress yet to endorse it. The administration’s ‘Build Back Better’ package of social investments is also in legislative limbo. Meantime, high inflation is marring assessments of the $1.9 trillion aid bill enacted last March.
‘We still have a huge amount of important work to do,’ Yellen, 75, said last week in a statement to Bloomberg News following a wide-ranging interview marking her first year in office. ‘I have no plans to leave Treasury anytime soon.’
Her prediction about Congress passing Pillar One seems a bit out-there:
[S]he stuck to her view that enough Republicans will eventually support the deal because U.S. companies will ask them to. The international tax landscape, she argued, has so deteriorated, with many countries unilaterally targeting U.S. firms with special levies , that big multinationals will prefer the new regime.
‘You are going to see, I think, a lot of firms talking to their congresspeople and telling them it’s really important to enact Pillar One,’ she said.
Global Tax Pact’s Profit Reallocation Rules Pose Challenges - Isabel Gottlieb, Bloomberg. “Companies could face some hurdles tracking transactions under new draft rules to determine where profits should be reallocated under the global tax deal.”
When possible, companies are generally asked to identify the location of the end consumer, even if they’re selling to another intermediary company.
For companies, that will probably be ‘the biggest challenge,’ said Daniel Bunn, vice president of global projects at the Tax Foundation.
Pillar 1 Won't Force Collection Of New Data, OECD Says - Matt Thompson, Law360 ($). “Multinational enterprises won't be forced to collect disproportionately burdensome data on themselves to determine where they should be taxed under so-called Pillar One rules reallocating taxing rights, the Organization for Economic Cooperation and Development said in releasing draft rules Friday.”
The rules, which are intended to be as easy as possible for businesses to comply with, allow proxies to be used when some transactional information can't be found, according to the Paris-based intergovernmental organization. The draft would implement the first pillar of the OECD's sweeping tax plan, which is intended to reallocate more taxing rights to countries where companies have customers but lack the physical presence allowing taxation under current rules.
3M Case Gives IRS a Chance to Redefine First Security Bank – Ryan Finely, Tax Notes ($). “One of several closely followed transfer pricing cases currently before the Tax Court, 3M Co. v. Commissioner, Dkt. No. 5816-13 (T.C. 2021), is in some respects a dispute over a narrow question of law. The company is contesting a section 482 allocation that reflects what the parties stipulated to have been an arm’s-length royalty from its Brazilian subsidiary on the grounds that payment of the royalty would have violated Brazilian law.”
3M did not satisfy the requirements of reg. section 1.482-1(h)(2), which establishes the conditions that must be satisfied for the IRS to respect the effect of a foreign legal restriction, and the company is now challenging the regulations’ validity under the Administrative Procedure Act (APA) and Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984). Coca-Cola included a substantially similar challenge in its own Tax Court case, but the court reserved ruling on the matter in Coca-Cola Co. v. Commissioner, 155 T.C. 145 (2020), pending the outcome in the 3M case.
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