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IRS Shrugs Off Watchdog’s Call for More Free Tax Filing Options – Naomi Jagoda, Bloomberg ($). “The IRS said it doesn’t think a free public tax filing system would be a significant improvement for taxpayers, disagreeing with calls by a government watchdog to develop more free options.”
Currently, the IRS partners with private tax software companies that offer free tax prep software to low- and middle-income taxpayers. The Free File program has come under increasing congressional scrutiny following reporting by ProPublica about tax-prep companies’ marketing practices that directed the public to paid products.
A Government Accountability Office report released Thursday outlined several challenges facing the Free File program, including a low usage rate and the departure of two high-profile companies—TurboTax developer Intuit and H&R Block.
IRS Should Develop Additional Options for Taxpayers to File for Free – Government Accountability Office:
GAO is making three recommendations to IRS, including that it add relevant practices from federal guidelines into its next agreement with FFI, and that it identify and develop additional options for free online filing by the time the current Free File agreement expires. IRS agreed with the recommendation to add relevant practices to improve the taxpayer experience into the next FFI agreement. IRS did not agree with the other recommendations, including that it develop additional free filing options. GAO maintains that developing such options would help mitigate risks identified with the Free File program.
GAO: Taxpayer Use of Free File Waned After Intuit’s Exit – Tax Notes ($):
The departure of Intuit Inc. from the Free File program last year may be responsible for what’s shaping up to be a sharp decline in taxpayers’ use of Free File products this year, the April 28 GAO report found. Preliminary IRS data for this year’s filing season, which concluded April 18, suggests that the problem has only gotten worse.
As of April 12, the IRS had received close to 1.83 million Free File returns — nearly a million fewer than the 2.85 million returns it had accepted by the same point in last year’s filing season, according to the GAO. H&R Block exited the agreement in 2020, followed by Intuit, parent company of TurboTax, in 2021, leaving just eight companies participating in the program. Those two companies together had provided around 70 percent of Free File services.
Late Return Filing Doesn’t Bar Discharge of Tax Debt – Chandra Wallace, Tax Notes ($). “Taxpayers who filed late because of difficulties that a federal court described as 'a personal and financial maelstrom' shouldn’t be treated as nonfilers whose tax debt would be non-dischargeable in bankruptcy, the court held.”
While the debtors in In re Golden filed their 2008 federal income tax return approximately 16 months after its extended due date and after the IRS had prepared a substitute return and assessment, their late-filed return nevertheless qualified as a return under section 523(a), making the tax debt dischargeable, Chief Judge Ronald H. Sargis of the bankruptcy court for the Eastern District of California ruled April 27.
Debtors Nicole Golden and Stephen M. Alter filed late because of difficult personal and financial circumstances, including a foreclosure, the deterioration and end of their marriage, and the resulting need to resolve custody of their young children and the running of their family business, according to the opinion.
Previously Taxed Income Rules to Cover Partnership-Basis Issue – Michael Rapoport, Bloomberg ($). “Forthcoming IRS rules on previously taxed income will address the issue of whether U.S. partnerships will see basis adjustments in foreign corporations they own, an IRS attorney said Thursday.”
‘It’s definitely something we’re thinking about,’ said Andrew Gordon, special counsel in the IRS Office of Associate Chief Counsel (International), during a Practising Law Institute conference.
IRS Faces Influx of Criticism on Partner Burdens From PFIC Regs – Andrew Velarde, Tax Notes ($). “Taxpayers are widely objecting to the burden placed on partnerships by the move to an aggregate approach under proposed rules for passive foreign investment companies, but the IRS is tight-lipped on whether relief is coming.”
The regs do, however, acknowledge the administrability concerns with partner-level elections. They request comments on whether entity elections should be permitted. Taxpayers may have waited until the last moment of the comment deadline to offer their thoughts, but they didn't disappoint, with several roundly criticizing the aggregate approach.
‘Extending the aggregate approach to PFIC elections is expected to increase exponentially tax compliance burdens that will reduce efficiencies of domestic partnerships as pooled investment vehicles and increase costs for U.S. investors,’ an April 25 comment letter from the Securities Industry and Financial Markets Association (SIFMA) states. ‘The burdens of complying with and administering the proposed rules significantly outweigh any perceived benefits from a consistent application of aggregate treatment for all purposes of the PFIC regime.’
IRS Has ‘Absolute’ Discretion on BBA Zero-Adjustment Rule – Kristen Parillo, Tax Notes ($). “The IRS has broad discretion in deciding whether to exclude adjustments from the calculation of partnership imputed underpayments, according to an agency attorney.”
A decision to apply the zero-adjustment rule under reg. section 301.6225-1(b)(4) is based on the facts and circumstances of a given case, Jennifer M. Black of the IRS Office of Associate Chief Counsel (Procedure and Administration) said April 28.
During a virtual conference hosted by the Practising Law Institute, Black was asked how the IRS handles interrelated or duplicative adjustments under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015.
Describing a hypothetical situation in which the IRS recharacterized a partner’s transfer of property as a disguised sale, Kate Kraus of Allen Matkins Leck Gamble Mallory & Natsis LLP said the agency could adjust at least six lines of the partnership’s return to reflect the recharacterization.
Dismal polls have Dems split over how hard to push Biden agenda – Alexander Bolton, The Hill. “Democrats are divided over how hard to push President Biden’s agenda in the months remaining until Election Day, uncertain about how much risk to take on at a time when Biden’s approval rating is stuck just above 40 percent.”
Democratic lawmakers are growing increasingly pessimistic about scoring a big legislative victory and are split over whether it makes sense to force so-called messaging votes on the Senate floor to draw contrasts with Republicans on key issues, such as expanded access to child care, programs to fight climate change and prescription drug reform.
Some say those votes have value, while others wonder if they need to worry more about saving their imperiled Senate majority. Right now, political handicappers expect Republicans to flip the House.
This raises questions about whether Senate Majority Leader Charles Schumer (D-N.Y.) will bring any version of Biden’s Build Back Better agenda up for a vote before November.
Translation: Some Democrats fear passing a Build Back Better plan that increases taxes shortly before voters head to the polls will hurt their re-election chances. They might have a point.
Meanwhile, Senator Manchin provides yet another reason for why he won't support a Build Back Better bill:
Manchin Rejects Biden’s EV Tax Credit as ‘Ludicrous’ – Ari Natter and Keith Laing, Bloomberg ($). “Democratic Senator Joe Manchin pushed back on a Biden administration proposal to expand the popular tax credit for electric-vehicle purchases, calling the idea “ludicrous” and adding a new obstacle to White House plans for fighting climate change.”
‘There is a waiting list for EVs right now, with the fuel prices, but they still want us to throw a $5,000, or $7,000 or $12,000 credit for us to buy electric vehicles,’ Manchin, a West Virginia Democrat, said during a Senate budget hearing Thursday.
‘When we can’t produce enough product for the people that want it and we’re still going to pay them to take it -- it’s absolutely ludicrous in my mind,’ he said.
Lawmakers seek tax break for car dealers facing supply troubles – Laura Weiss, Roll Call. “A bipartisan contingent of lawmakers is pressing to give car dealerships relief from bigger tax bills they could face due to global microchip shortages that have pinched the supply of new vehicles.”
Rep. Dan Kildee, D-Mich., is leading the charge to deliver relief to dealerships and working to attach his bill with Rep. Jodey C. Arrington, R-Texas, to a bigger package that can get it to President Joe Biden’s desk in the coming months.
Kildee, a member of the tax-writing Ways and Means Committee and House Democrats’ whip team, said in an interview that he hopes it will be added to a package aimed at boosting U.S. semiconductor manufacturing and competitiveness with China. That measure is in conference negotiations to resolve differences between House- and Senate-passed bills.
Brown Introduces Bill That Would Give Tax Breaks to Auto Dealers - Maria Luiza Rabello, Bloomberg ($):
Legislation aimed at helping the auto industry recover from inventory shortfalls, due to supply chain issues, has bipartisan support, according to statement from Senator Sherrod Brown’s office.
Research and Development - Butch Maier, Bloomberg ($). “Sen. Maggie Hassan (D-N.H.) authored guidance to conferees on a bill (H.R. 4521) to boost competition with China, suggesting they include a research and development tax credit for small businesses and renew immediate expensing of R&D costs.”
R&D expensing reverted to a five-year schedule at the beginning of this year, expiring to help offset costs of corporate and individual tax cuts passed as part of the 2017 tax law.
Members of both parties want to reinstate the measure, although the most likely vehicle—the major tax and spending legislation Democrats hoped to pass along party lines before the end of last year—has stalled. Senate Democrats hope to restart the bill in coming days, with an eye toward passage before midterm campaigning fully heats up.
If this measure were to pass, it would only suggest (not require) that lawmakers negotiating the underlying legislation add an R&D fix to the bill. This is a nonbinding thing.
Retirement Bill Update - Butch Maier, Bloomberg ($). “Sen. Rob Portman (R-Ohio) said a retirement bill (S. 1770) he sponsored with Sen. Ben Cardin (D-Md.) likely will be marked up by the Senate Finance Committee in May."
‘We’re excited about it,’ Portman said.
The House passed its own retirement bill (H.R. 2954) at the end of March. That legislative package would allow small employers to offer retirement plans while enabling older workers to contribute a larger amount to their retirement as catch-up, among other provisions.
Democrats Seek Window to Modify College Endowment Tax – Benjamin Guggenheim, Tax Notes ($). “Senate Democrats are interested in modifying the college endowment excise tax so that it phases out based on how much student aid a university provides, according to a Senate Finance Committee adviser.”
Christopher Arneson, the committee’s senior tax policy adviser, said Democrats are seeking opportunities to enact a provision that would modify the college endowment excise tax created under the Tax Cuts and Jobs Act. Arneson spoke April 28 on a panel at the Georgetown Law Executive & Continuing Legal Education program.
A provision was included in a marked-up version of the Build Back Better Act (H.R. 5376) that would have fully phased out the excise tax for universities that give qualified aid equal to at least 33 percent of their undergraduate tuition and fees.
However, the House Ways and Means Committee pulled the provision from the bill that went to the floor to meet revenue targets, according to Andrew Grossman, Democratic chief tax counsel for the Ways and Means Committee.
Bankers Groups Press Senate Leaders on Pot Banking Bill – Wesley Elmore, Tax Notes ($). “The American Bankers Association and associations representing bankers in each of the 50 states are urging Senate leaders to support passage of cannabis banking provisions as part of a wide-ranging manufacturing bill being negotiated.”
In an April 28 letter, the groups said the Secure and Fair Enforcement (SAFE) Banking Act (H.R.1996) is ‘urgently needed’ to allow banks to handle proceeds from state-legal cannabis businesses and their service providers.
The groups want to see the SAFE Banking Act included in a conference agreement on the Senate-passed United States Innovation and Competition Act and the House-passed America COMPETES Act of 2022 (H.R. 4521). The House bill included the provisions of the SAFE Banking Act, while the Senate bill didn’t.
To cut gas costs, Democrats to focus on oil company ‘price gouging’ – Mike Lillis, The Hill. “Democratic leaders in both chambers on Thursday took aim at the nation’s largest oil companies, accusing the industry of adopting ‘price gouging’ tactics that have led directly to the spike in gas prices around the country.”
Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles Schumer (D-N.Y.) vowed to move swiftly in the coming weeks to vote on legislation empowering the government, at both the state and federal level, to put new curbs on the industry for the purpose of reducing costs at the pump.
Since oil companies are reporting enormous profits, the Democrats argue, they can easily afford to pass the gains on to consumers instead of shareholders — particularly amid Russia’s invasion of Ukraine, which has only exacerbated the volatility of global fuel markets.
‘They are hoarding the windfall while keeping prices high for people at the pump,’ Pelosi said during a press briefing in the Capitol. ‘In this time of war — in any time — there is no excuse for big oil companies to profiteer, to price-gouge or exploit families.’
Gasoline Price Gouging Bill to Get Senate Vote, Schumer Says - Ari Natter, Bloomberg ($). “The Senate will vote on legislation that would beef up the Federal Trade Commission’s authority to go after gasoline price manipulation, Senate Majority Leader Chuck Schumer said Thursday, as Democrats seek to tame sky-high gasoline prices that jeopardize their chances of keeping control of Congress after the November election.”
The bill would require the support of at least 10 Republicans in the evenly divided Senate, an unlikely prospect considering GOP lawmakers blame high fuel prices on Democratic policies. Schumer said moving the legislation to the floor would force Republicans to choose sides between big oil or consumers.
California Expects Record $68 Billion Surplus From Tax Surge - Romy Varghese, Bloomberg ($). “California has an unprecedented $68 billion that it can use for any purpose in the next fiscal year, according to state Senate Democrats, a surplus that presents both opportunities and conflicts for Governor Gavin Newsom in his budget release next month.”
The figure surpasses the staggering $38 billion lawmakers had at their disposal during the previous budget season, then considered the biggest.
The most-populous U.S. state is benefiting from soaring tax collections from its highest earners, thanks to a progressive tax system that rakes in more revenue when income rises for its wealthiest residents. That group has reaped the benefits of rising stock prices and stable employment even as many lower-income workers lost their jobs in the pandemic.
NYC Property Tax Challenge to Get Hearing at State’s High Court – Donna Borak, Bloomberg ($). “A coalition of homeowners, renters, and rental property owners will take its fight to reform New York City’s property tax system to the state’s highest court, which granted it leave to appeal on Thursday.”
‘We filed this suit because the political will to fix the property tax system cannot overcome years of inertia in the State Legislature or City Council, and court action is the only viable path to reform,’ said Martha Stark of Tax Equity Now New York (TENNY), which filed suit four years ago to force the city to revamp property taxes to ease burdens on low-income and minority neighborhoods.
The order by the New York Court of Appeals means that the case will go before the court likely later this fall. The motion for leave to appeal was granted without limiting it to any particular issue, so it’s possible the entire suit may come before the court, Stark said in a statement.
NFTs Are Booming, But Few States Are Imposing Taxes (Podcast) – Michael Bologna, Bloomberg ($). “Have you noticed digital works of art with names like Cool Cats, CryptoPunks, and Bored Ape Yacht Club while surfing the web or posting a snarky tweet?”
They’re all examples of non-fungible tokens, or NFTs, unique digital assets serving as certificates of authenticity for digital products including works of art, music, and collectibles. NFTs are also a surging new industry, expected to reach global sales of $80 billion by 2025.
Despite this booming market, state revenue agencies haven’t figured out how to tax or even characterize these digital assets. More than 30 states arguably have authority to collect sales tax on NFTs, but none of them have issued guidance on the subject.
La. House OKs Renewed Centralized Sales Tax Referendum - Paul Williams, Law360 ($). “Louisiana voters would have another chance to create a centralized sales tax collection commission under a measure the state House of Representatives unanimously approved.”
The state Legislature's lower chamber approved H.B. 681 on a 96-0 vote Wednesday after making technical changes to have the measure's language more closely match a similar constitutional amendment that lawmakers passed last year but voters rejected. The measure will next move to the state Senate.
EU Panel Presses For Quicker Minimum Tax Implementation - Stephen Gardner, Bloomberg ($). “European Union countries should press ahead more quickly than currently envisaged with implementation of a global minimum tax on company profits, a European Parliament panel said.”
Instead of the December 2023 deadline currently discussed by EU countries for a minimum 15% tax to take effect, EU governments should be ready to start applying the tax by Dec. 31 this year, members of the parliament’s economic and monetary affairs committee said in an opinion adopted Thursday.
Tax Pros Cautious About EU Tax Advisers Regulation - Matt Thompson, Law360 ($). “Following a decade of seemingly endless journalistic revelations of apparent widespread corruption and the use of dubious tax structures, the European Commission announced that it will regulate the selling of professional tax advice, eliciting a cautious response from industry representatives.”
Tax professionals representing various industry groups were reluctant to speak on the record to Law360 about the announcement. But the general consensus among advisers is that the commission needs to think through its proposal thoroughly before introducing legislation that could create new potential loopholes, burden honest professionals and increase the chance of mistakes or malfeasance.
Beware NFT ‘Red Flags,’ Global Tax Agencies Warn Police, Banks – David Hood, Bloomberg ($). “Law enforcement, banks, and taxpayers should be on high alert for ‘red flags’ signaling fraud in the nonfungible token marketplace, according to a new report from the Joint Chiefs of Global Tax Enforcement, commonly known as J5.”
The report describes more than a dozen ‘strong indicators’ of fraud in the NFT marketplace of which investors, police, and banks should be wary, as well as eight ‘moderate indicators’ that could signal fraud. The report, hailed as the ‘first of its kind’ from the global tax enforcement group, comes as the NFT marketplace booms and tax authorities like the IRS seek to accurately tax them.
Happy National Arbor Day! As buds transition to leaves or blooms, now is a great day to enjoy the season getting warmer.