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Justices Revive Law Firm's Day-Late IRS Levy Challenge – Theresa Schliep, Law360 ($). “The U.S. Supreme Court on Thursday found that the U.S. Tax Court had the authority to consider a North Dakota law firm's day-late challenge to an IRS levy, reversing an Eighth Circuit decision that sided with the agency.”
Boechler PC's suit challenging the IRS collection action is not barred by a 30-day deadline under Internal Revenue Code Section 6330(d)(1) for bringing lien and levy challenges in the Tax Court, the justices said in a unanimous opinion. That deadline isn't a jurisdictional bar that needs to be cleared to get in front of the Tax Court, according to the justices.
Congress Didn’t Clear High Bar Needed to Cut Off Tax Relief – Kimberly Strawbridge Robinson, Bloomberg ($). “The Supreme Court set a high standard for when Congress wants to set mandatory deadlines for challenging action by federal agencies.”
Congress must ‘clearly state’ when it wants to set a mandatory deadline, or jurisdictional rule, Justice Amy Coney Barrett wrote for a unanimous court on Thursday.
It’s the latest in a string of cases seeking to sort out which rules are truly 'jurisdictional,' depriving agencies from considering claims, and which are more the flexible “claims processing rules,” which can take into account principles of fairness.
Non-jurisdictional rules like the IRS one at issue here 'promote the orderly progress of litigation but do not bear on a court’s power,' Barrett said.
The case deals with “equitable tolling," which allows courts to excuse a missed deadline.
SCOTUS Blog has the deets:
A tax deadline missed by one day leads to a showdown over equity, jurisdiction – and grammar – Susan Morse, SCOTUS Blog:
The dispute arose after the Internal Revenue Service assessed a $19,250 penalty and issued a notice of intent to levy to a small North Dakota law firm for failing to file employee tax withholding forms. After a hearing, the IRS issued a notice of determination sustaining the proposed levy. Under the Internal Revenue Code, the firm had a 30-day window following the issuance of the notice of determination to file a petition in the U.S. Tax Court to challenge the notice. The deadline was Aug. 28, 2017. The firm mailed its petition on Aug. 29, 2017. The question for the justices is whether the Tax Court may consider equitable tolling for this deadline; or whether the deadline is jurisdictional, which, under applicable precedent, would bar consideration of equitable tolling.
The Court chose equitable tolling.
Borrowing heavily from Oprah: 'You get a tax increase and you get a tax increase!'
Biden Reframes Agenda With a Manchin Spin, Touting Deficit Cuts - Josh Wingrove, Bloomberg ($). “After championing the biggest expansion in federal aid to American families in decades, President Joe Biden is now putting the government’s budget deficit back in the spotlight --a nod to fiscal conservatism that may be needed to pass any more of his agenda.”
In recent speeches, Biden has promoted the rapidly declining shortfall between revenues and public spending -- a result of the U.S. rebound and the phasing out of pandemic aid -- while emphasizing that his long-term economic agenda would speed the deficit’s contraction.
It’s a message the White House plainly hopes particularly resonates with Senator Joe Manchin, the West Virginia Democrat who blocked Biden’s ambitious ‘Build Back Better’ economic legislation in December. Manchin has argued that any revised plan -- including higher corporate taxes, climate-change measures and prescription drug reform -- must cut the deficit.
There is one huge hurdle that has yet to be cleared in advancing Build Back Better. Lawmakers are not on the same page as to whether the bill should include rate increases. Getting consensus on this issue will be instrumental in getting the legislation enacted.
Proposed Expansion of BBA Audit Regime Could Prove Challenging – Kristen Parillo, Tax Notes ($). “Implementing a Biden administration proposal to expand the centralized partnership audit regime to cover adjustments to self-employment and net investment income taxes could be more challenging than it first appears.”
Tax professionals weighed in on whether the proposal would streamline exam proceedings, as Treasury claimed it would in its green book explanation of President Biden’s fiscal 2023 budget plan.
Treasury noted in the green book that the centralized partnership audit regime, enacted under the Bipartisan Budget Act of 2015, applies only to chapter 1 income tax matters. Excluding chapter 2 self-employment taxes and chapter 2A NII taxes from the BBA’s scope means that some taxpayers must file multiple tax returns to meet their filing obligations, while the IRS is often forced to apply dual proceedings to meet its enforcement obligations, it explained.
Tax collectors ‘gasping for air’ to keep up with filing season – David Lerman, Roll Call. “Anyone waiting on a delayed tax refund from the IRS may not want to look to Congress for a speedy solution.”
A House Oversight and Reform subcommittee hearing Thursday laid bare the partisan divide over whether a funding boost would fix a beleaguered tax agency suffering from staffing shortfalls and outdated technology.
Government Operations Subcommittee Chairman Gerald E. Connolly, D-Va., said it was time to reverse ‘decades of starvation of the IRS by the Congress’ that he said has hamstrung the timely processing of tax returns. ‘And today, as we head into this year’s tax season, the IRS often finds itself gasping for air,’ Connelly said in opening the hearing.
But Republicans made clear they would not support a major funding boost without greater scrutiny of the IRS. They said the agency suffers from poor management on technology projects and can’t always be trusted to protect confidential tax information, citing the leak of tax documents last year to ProPublica, which disclosed taxes paid by some of the country’s wealthiest filers.
‘Republicans are not willing to simply give the IRS more money on a long-term basis without any accountability,’ said Georgia Rep. Jody B. Hice, the panel’s ranking member.
Trust Still Broken at IRS, Leaving Rettig in Messaging Muddle – Naomi Jagoda and David Hood, Bloomberg ($):
[P]ublic embarrassments and messaging missteps have tarnished the IRS’s image. A Gallup Poll conducted in September found just 37% of Americans thought the IRS was doing an excellent or good job, down from 50% in a poll conducted in April 2019. Even among Democrats, only half said that the agency was doing an excellent or good job.
Any blunder the IRS makes can contribute to mistrust in the agency, at a time when some people in the U.S. are generally skeptical of government. That lack of trust adds political obstacles as the IRS seeks more funding from Congress, particularly for enforcement.
Longstanding Funding Shortfalls Fuel Public Perception of IRS (Opinion)– Former IRS Commissioner Charles Rossotti, Bloomberg ($):
The American public deserves a tax agency that is honest and fair, provides quality service to the vast majority of honest taxpayer, and is effective in collecting taxes from the minority who don’t pay what they owe. For scores of years, the IRS has proven it is capable of fulfilling its broad and complex mandate if it is provided the long-term commitment of direction and resources needed to rebuild and to update its methods, technology, and workforce.
Congress has the opportunity to pass legislation this year that would appropriately provide this essential commitment.
If election projections are correct, Republicans could control at least one chamber in Congress next year. If this happens, increased IRS funding will likely go nowhere.
Broken IRS Vexed by Problems Money Alone Won’t Solve (Podcast) – David Hood and Naomi Jagoda, Bloomberg ($). “As millions of Americans completed their annual tradition of filing taxes earlier this week, they again connected with a sprawling government agency besieged by issues that money alone can’t solve. The IRS is still working through a backlog of unprocessed tax returns and can’t keep up with a flood of phone calls from taxpayers looking for help.”
Bloomberg Tax took a deep dive into the IRS’s longstanding structural deficiencies, from an over-reliance on paper documents and outdated technology to a less-than-stellar public perception. We asked current and former government officials, agency watchdogs, and tax professionals to offer their strategy for fixing the IRS.
When it comes to the IRS, a GOP Congress will likely focus on the following, instead of funding:
Groups Renew Call for IRS Officials’ Testimony in Targeting Case – Fred Stokeld, Tax Notes ($). “Conservative nonprofits that sued the IRS over allegations of viewpoint discrimination by the agency are renewing their efforts to disclose the testimony of two IRS defendants in the case.”
In a petition for writ of mandamus filed April 19, the petitioners in NorCal Tea Party Patriots v. IRS asked the Sixth Circuit to direct the U.S. District Court for the Southern District of Ohio to unseal the deposition transcripts of Lois Lerner, former director of exempt organizations at the IRS, and Holly Paz, Lerner’s deputy, as well as related filings.
Lerner and Paz, the petition says, were 'key IRS officials' in the 2013 IRS targeting scandal, in which the agency was accused of delaying the processing of conservative organizations’ applications for tax-exempt status.
Throw in the supposed IRS leaks to ProPublica, and you've got a series of congressional hearings.
May 16 is filing deadline for many tax-exempt organizations – IRS: "The Internal Revenue Service today reminded tax-exempt organizations that many have a filing deadline of May 16, 2022. Those that operate on a calendar-year (CY) basis have certain annual information and tax returns they file with the IRS."
These returns are:
- Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF)
- Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
- Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts)
- Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code
States Forecast Weaker Revenue Growth Ahead of Growing Uncertainties – Lucy Dadayan, Tax Policy Center:
For the first half of the fiscal year 2022, most states were experiencing strong revenue growth despite—or possibly because of—inflation, but now the outlook is fuzzier. States are finalizing their fiscal year 2023 budgets, with many governors initially proposing tax cuts, expansions in spending programs, or both.
However, current forecasts for the end of fiscal year 2022 and fiscal 2023 are alarmingly weak. In fiscal year 2023, personal income tax revenues are expected to increase by only 0.4 percent, while corporate income tax revenues are expected to decrease by 8.6 percent. and sales tax revenue growth is only expected to be 1.9 percent. As a result, total tax revenues are expected to increase by just 0.1 percent.
Multistate Audits Snag $93 Million in Corporate Tax Assessments – Michael Bologna, Bloomberg ($). “The Multistate Tax Commission’s joint audit program has proposed net assessments of $93.1 million in corporate income tax audits during the first three quarters of fiscal year 2022, the commission said Thursday.”
Assessments and audit activity have been robust compared to 2021, when $25.3 million was assessed for the same period last year. Auditors with the intergovernmental tax agency also proposed net operating loss and tax credit reductions of $2.3 million. In addition, the commission said sales tax audits resulted in net assessments of $3.4 million during the first three quarters of 2022.
NFT Boom Raises Pressure For States to Move Quickly on Tax Rules – Michael Bologna, Bloomberg ($). “State revenue agencies need to “dig in” on the tax treatment of nonfungible tokens, or NFTs, in response to surging sales and the total lack of guidance so far, a Multistate Tax Commission attorney said Thursday.”
Richard Cram, director of the intergovernmental tax agency’s national nexus program, gave a presentation on the exploding market for NFTs, unique digital assets that serve as certificates of authenticity for digital works of art, music, tickets, and collectibles. While few people had even heard of NFTs prior to 2021, Cram said monthly global trading volume crossed $5 billion in January.
California SALT Cap Workaround Booms as Fix Hopes Fade – Laura Mahoney and Donna Borak, Bloomberg ($). “California’s record-breaking tax revenues are due in part to higher-than-expected participation in the state’s workaround to the federal $10,000 cap on state and local tax deductions.”
As of the end of March, pass-through businesses like partnerships have paid $14.5 billion in the elective tax that helps individual members get around the cap, according to California Franchise Tax Board preliminary numbers. The agency continues to process and validate payments, which are creating a temporary revenue boost that will dissipate as individuals who are members of the businesses claim the matching tax credit.
Workarounds like California’s—New York, New Jersey, and about 20 other states have them, too—are proving popular as Congress stalls on proposals to repeal or increase the cap and the U.S. Supreme Court has shut the door on state legal challenges.
Florida Bill to End Disney’s Special Tax District Heads to Gov. DeSantis for Signature – Arian Campo-Flores and Robbie Whelan, Wall Street Journal ($). “Florida lawmakers gave final approval to a bill that would end a special tax district that allows Walt Disney Co. to govern the land housing its theme parks, escalating a weekslong dispute with Disney over its public opposition to a Florida bill that limits classroom instruction on gender and sexuality. The measure now goes to Republican Gov. Ron DeSantis, who has made clear he would sign it.”
The GOP-led House passed the tax district bill 70-38 on Thursday, a day after the Senate approved it 23-16. Mr. DeSantis called for lawmakers to take up the measure in a special session he convened this week, after sparring with Disney for weeks over the classroom instruction bill, which Mr. DeSantis signed into law last month.
Netflix, NVIDIA Win Slice of $120 Million in California Grants – Laura Mahoney, Bloomberg ($). “Applied Materials Inc., Netflix Inc., Intuitive Surgical Inc., and NVIDIA Corp., are the biggest winners of one-time, multi-million-dollar California grants intended to spur job creation and investment.”
The California Competes Committee approved $120 million in grants Thursday aimed at companies with little to no state tax liability that promise to make major capital investments or create at least 500 new jobs in high-need areas. Their low state tax liabilities may be because they are small businesses, startups, or have generated significant research and development credits or net operating losses, according to the committee.
Justices Say Puerto Ricans Not Entitled To SSI Benefits - Carolina Bolado, Law360 ($). “The U.S. Supreme Court ruled Thursday that the Constitution does not require Congress to extend Supplemental Security Income disability benefits to residents of Puerto Rico, ruling that Congress can treat the territories differently for tax and benefits purposes.”
In an 8-1 decision authored by Justice Brett Kavanaugh, the Supreme Court said Congress can distinguish the territories from the states in tax and benefits programs like SSI as long as it has a rational basis for doing so.
‘Waiting Since 1969’: Legal Weed Sales Kick Off in New Jersey - Elise Young, Bloomberg ($):
[T]hanks to a decision from the Cannabis Regulatory Commission that went into effect Thursday, the Garden State is now a haven for legal recreational marijuana on the U.S. East Coast. In the first year of legal weed, the New Jersey cannabis regulatory commission expects 836,000 residents to make purchases, and another 788,000 people to come from out of state.
Staffers and lawmakers in Congress will be watching to see if legalizing marijuana will be a revenue boom for the Garden State. If it does, weed could be a deficit eater at the federal level (I should've worked ‘munchies’ into this sentence).
Muddled goals, broad scope lead to unexpected costs of OECD tax agreement – Alex Parker, MNE Tax. “Last year’s global minimum tax agreement at the Organization for Economic Cooperation and Development and the G-20 coalition—hailed by the White House as an historic accomplishment in the fight against tax avoidance—has revealed a scope much broader than most anticipated, and even the Biden Administration seems to have been taken off-guard by what it could affect.”
Provisions of the agreement, revealed in technical commentary released by the OECD in the past months, could affect everything from green energy incentives to affordable housing credits in the U.S.
Growing domestic opposition to the deal threatens its U.S. implementation, and demonstrates that even after months of negotiations, the project’s participants still have conflicting visions for what the policy is meant to achieve.
On March 22, a coalition of business groups including the U.S. Chamber of Commerce, the Silicon Valley Tax Directors Group and the Business Roundtable penned a letter to U.S. Treasury Secretary Janet Yellen, expressing concern that the OECD’s model rules could target U.S. companies that use tax incentives such as the R&D tax credit and accelerated depreciation.
Polish Rejection Of Minimum Tax Not Payback, Lawmaker Says – Todd Buell, Law360 ($). “Poland's rejection of the European Union's minimum tax directive isn't revenge against the European Commission for its refusal to take a step needed to unlock recovery funds for Poland, but rather based on substantive concerns, a Polish lawmaker said Wednesday.”
Speaking in a webcast meeting of the European Parliament's committee on economic affairs, European Parliament member Andżelika Anna Możdżanowska said Poland's position against the minimum tax is ‘not a revenge.’ Rather, the country has ‘justified reasons to be against this,’ she said.
Stalled EU Minimum Tax Could Spell Complications For Business - Todd Buell, Law360 ($). “A stalled European Union directive on a global minimum tax could make it more arduous for corporations to adapt to new international tax rules, as it could result in a more staggered implementation of the minimum tax around the world.”
Though it is still likely that EU countries will agree to the tax soon, a consensus might not come until near the end of the year if Poland, which is currently blocking the measure, sticks to its word. That could endanger a timely entry into force of the minimum tax and make it more likely that jurisdictions will implement the new rules at different times.
This, in turn, would likely cause headaches for in-scope businesses as they figure out where they must actually pay tax.
‘It seems unavoidable to me that you would have countries adopting these rules on different timelines,’ Daniel Bunn of the Tax Foundation, a Washington, D.C., think tank, told Law360.
Rules Define ‘Related’ Insurance Income Too Broadly, Groups Say – Michael Bologna, Bloomberg ($). “New proposed regulations on domestic partnerships’ foreign income use too broad a brush in defining a particular type of insurance income, insurance-industry trade groups told the IRS Thursday.”
The proposed regulations significantly expand the definition of 'related person insurance income,' or RPII, in an 'inappropriate' way, the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the Reinsurance Association of America said in a comment letter.
Happy National Earth Day! One of the official signs that spring has sprung!
National Day Calendar:
In 1969, the concept of Earth Day was established at a UNESCO Conference in San Francisco. On March 21, 1970, a sanctioned Proclamation was signed by Secretary-General U Thant at the United Nations. A month later, on April 22, 1970, U.S. Senator Gaylord Nelson founded Earth Day.