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Hill Outlook - Patrick Ambrosio, Bloomberg ($):
House Ways & Means Committee staffers appeared at the ABA conference Friday, but were hesitant to predict whether tax legislation will pass this Congress.
‘The end of the year feels far off right now. It’s hard to speculate too much about what will happen,’ said Daniel Winnick, tax counsel for Ways & Means Democrats.
Currently, the best chance for passing tax legislation is after the election and before lawmakers go home for the holidays. But things could change. Congress is a fickle beast that requires constant monitoring. Case in point: Build Back Better was originally pandemic-related. Then it was about tackling inflation. Now its about housing:
President Biden Announces New Actions to Ease the Burden of Housing Costs – White House:
Today, President Biden is releasing a Housing Supply Action Plan to ease the burden of housing costs over time, by boosting the supply of quality housing in every community… The President continues to urge Congress to pass investments in housing production and preservation. One independent analysis of proposals in the House of Representatives-passed reconciliation bill found that the housing-related proposals would finance close to 1 million affordable homes.
FYI: The 'House of Representatives-passed reconciliation bill' is the Build Back Better plan. It includes tax breaks and tax increases, and has been stalled in the Senate for roughly six months.
Neal, Brady Want Assurance No One Hurt by IRS’s Doc Destruction – Doug Sword, Tax Notes ($). “House Ways and Means Committee leadership says the IRS needs to convince them that no taxpayers were harmed by the destruction of an estimated 30 million information returns.”
‘How do we know that?’ committee ranking member Kevin Brady, R-Texas, asked when told of a May 12 IRS statement made to Tax Notes that ‘no negative taxpayer consequences’ resulted from the document destruction.
Brady said he has asked the agency for a briefing on the issue. Committee Chair Richard E. Neal, D-Mass., suggested that the IRS could brief his and Brady’s staffs jointly.
Eide Bailly predicted on Friday that the IRS declaring no one was hurt by trashing millions of documents would come back to haunt them. What's surprising is the speed at which the condemnation came from lawmakers.
GOP Hot to Make Section 199A Permanent, Tax Counsel Says – Benjamin Guggenheim, Tax Notes ($). “Republicans on the House Ways and Means Committee are determined to make the qualified business deduction under section 199A permanent, while Democrats have conflicting views of the provision, according to the parties’ tax counsels.”
Asked at the American Bar Association Section of Taxation meeting May 13 about whether Republicans would like to make the provision permanent as part of a larger push to extend the Tax Cuts and Jobs Act, Elle A. Collins, minority tax counsel for the Ways and Means Committee, was unequivocal.
‘For sure,’ Collins said, adding that it was House Republicans who made section 199A a strong priority during negotiations around the TCJA.
Eide Bailly recently reported about the pass-thru deduction. The article is here.
Congress Weighs More Funding for Opportunity Zones – Marie Sapirie, Tax Notes ($). “Increasing the benefits to local communities from the Opportunity Zone program is the objective of a bipartisan, bicameral proposed plan to offer grants to states to help implement the program. In adding more carrots to the program, the proposal also attempts to clarify its intended community benefits by further increasing economic opportunities for residents.”
The state and community dynamism fund proposed in the recent Opportunity Zones Transparency, Extension, and Improvement Act (S. 4065) would set aside $1 billion for states to allocate in support of public and private investment and existing small business and community economic development programs. The benefits wouldn’t be limited to Opportunity Zones, but would be available to states to use in any low-income community. The basic idea of the dynamism fund is to bolster the effectiveness of existing Opportunity Zone benefits through increased local planning and support for projects with a clear community benefit, without changing the terms of the program. The bill includes changes to sections 1400Z-1 and -2, as previously discussed.
IRS Working to Boost Partnership Audits, Officials Say – Naomi Jagoda, Bloomberg ($). “The IRS is working to increase examinations of partnerships, agency officials said Friday.”
‘We are working very diligently to increase our partnership coverage,’ Holly Paz, deputy commissioner of the IRS’s Large Business and International Division, said at a conference hosted by the American Bar Association’s Tax Section. ‘This will be a multiyear effort. It’s not something that will change just within this year.’
Paz said her division hired about 40 people with partnership expertise about a year ago and is trying to bring in additional employees with experience in this area. Training on partnerships for existing employees will also be held this summer, she said.
Final Regs Clarify Stock Ownership Rules for U.S. Partnerships – Carrie Brandon Elliot, Tax Notes ($):
Published on January 25, T.D. 9960 provides guidance on stock ownership thresholds to U.S. partnerships in new reg. section 1.958-1(d). The regs affect U.S. persons that own stock of foreign corporations through U.S. partnerships, and U.S. partnerships that are U.S. shareholders of foreign corporations.
The new regs accompany section 958, which provides rules for determining stock ownership thresholds of foreign corporations that affect the operation of several code provisions, including the subpart F regime in section 951 and the global intangible low-taxed income regime in section 951A.
IRS Moves to Automate Payment Plan Setup, Reduce Phone Waits – Naomi Jagoda, Bloomberg ($). “The IRS expects that taxpayers will soon be able to use automated tools on the agency’s phone lines to get copies of their transcripts and set up payment plans, an agency official said Friday at a conference hosted by the American Bar Association’s Tax Section.”
Under the technology, which is expected to go live by the end of June, taxpayers will be able to handle these tasks without waiting on hold on the phone, said Darren Guillot, deputy commissioner for collection and operations support in the IRS’s Small Business/Self Employed Division.
IRS Actively Working on Energy Tax Credit Property Definitions – Naomi Jagoda, Bloomberg ($). “The IRS is “very actively” working on regulations relating to the definition of qualifying energy property for purposes of the energy tax credit under tax code Section 48, an IRS official said Friday.”
Charles Hyde, an attorney in the IRS chief counsel’s office, spoke at a conference hosted by the American Bar Association’s Tax Section. The regulations are a project on the IRS’s current priority guidance plan.
IRS to Re-Propose 2017 Tax Law’s Loss-Acquisition Rules – David Hood, Bloomberg ($). “The IRS will re-propose rules that limit the amount of losses a company can use that it has acquired through a merger, an agency official said.”
Proposed rules under Section 382(h) need a revamp, special counsel in the associate chief counsel’s office Robert Liquerman said. The regulations, proposed in 2019 under the 2017 tax law, haven’t been finalized. Liquerman, speaking at a conference hosted by the American Bar Association’s tax section, said 'there’s a lot of things on the table' as the agency seeks to re-propose.
Processing of IRS Paper Private Letter Rulings Delayed - Erin Slowey, Bloomberg ($). “There is delay in the processing of paper private letter rulings because the counsel is working remotely, an IRS attorney said Friday.”
In response to the pandemic, the IRS issued Revenue Procedure 2020-29, which allowed taxpayers to submit requests for private letter rulings electronically.
The IRS Office of Chief Counsel will transition to in-person work later in the month, John Montague, an attorney at the IRS Office of Chief Counsel, said at a conference hosted by the American Bar Association’s Tax Section.
IRS Micro-Captive Insurance Victory Affirmed by Tenth Circuit – Michael Bologna, Bloomberg ($). “The IRS won another battle against sham micro-captive insurance arrangements on Friday after an appeals court upheld a previous Tax Court ruling that found Reserve Mechanical Corp. didn’t qualify for an exemption available to small insurance companies.”
The U.S. Court of Appeals for the Tenth Circuit affirmed the tax court’s view that Reserve Mechanical, 'was not engaged in the business of insurance.' In this context, the company wasn’t entitled to an exemption and the purported insurance premiums it received must be taxed a rate of 30% under Internal Revenue Code section 881(a).
Treasury Seeks More Data on Trusts to Inform Estate Tax Agenda – David Hood, Bloomberg ($). “The IRS needs more insight into large-money trusts to sculpt its regulatory and legislative approach to them, a Treasury Department official said Friday.”
‘We know there’s a ton of money in trusts, a ton of money in dynastic trusts,’ said Cathy Hughes, a Treasury Department estate and gift tax attorney advisor. ‘It’s very difficult for us to project or analyze the effect of any proposal that we’re thinking about in terms of how it’s going to affect taxpayers and we really need more statistical data. That’s what this is for.’
Agency error means richest Minnesotans owe more in taxes – The Associated Press, WIZM News. “About 45,000 of the richest residents in Minnesota owe the state about $38 million because of a mistake by the state Department of Revenue. Authorities said the Legislature changed the standard income tax deduction during the 2019 session but it wasn’t reflected correctly in the worksheet used by tax preparers in 2019 and 2020.”
The mistake affected taxpayers in the state’s highest income tax bracket, with federal adjusted gross incomes above about $280,000 for single tax filers and about $360,000 for married couples filing jointly, the Star Tribune reported.
House tax committee chair Rep. Paul Marquart, a Democrat from Dilworth, estimated that someone earning $500,000 a year would likely owe an additional $400.
State Tax Treatment of Partnerships? It’s All About Sourcing – Michael Bologna, Bloomberg ($):
This week in state tax news:The Multistate Tax Commission is making steady progress on its project aimed at a model rule on the tax treatment of investment partnerships. Meanwhile, Colorado is close to enacting the first SALT cap workaround law retroactive to 2018. Tax-cutting initiatives saw progress in Colorado, Connecticut, and Kansas.
Nebraska tax collections beat expectations in April – The Associated Press, 1011 Now:
Nebraska collected more tax revenue than projected in April and is still well ahead of expectations for the current fiscal year. The state Department of Revenue reported net April tax receipts of $939 million, which is 66.7% above the official state forecast of $563 million.
US, Allies Identify Potential $1 Billion Crypto Ponzi Scheme – Laura Davison, Bloomberg ($). “International tax officials have identified more than 50 leads to potential crypto tax crimes that may lead to official investigations in the coming weeks, including one case that could be a $1 billion Ponzi scheme.”
Top criminal tax and financial crimes officials from the UK, US, Canada, Australia and the Netherlands, a group known as the J5, met in London this week to share intelligence and data to identify sources of cross-border illegal crypto activity. The officials specifically focused on emerging trends with decentralized finance and nonfungible tokens, or NFTs.
Proposed Regs on Foreign Currency Contracts Nearing Finish Line – Andrew Velarde, Tax Notes ($). “Proposed rules on foreign currency contracts appear to be next on the list of international tax reg projects set to be released by the IRS.”
‘We’ve had a long-standing priority guidance plan item to address clarifications of [section] 1256 and the definition of a [section] 1256 contract,’ Kevin Nichols, Treasury international tax counsel, said during the May 13 American Bar Association Section of Taxation meeting. ‘The IRS has a view on an issue that has been litigated.’
Daniel McCall, IRS deputy associate chief counsel (international-technical), told Tax Notes after the panel that the section 1256 regs are likely only weeks away.
Happy LGBT Elders Day! These people have dealt with a lot. Hats off to them!