Tax News & Views Summer's Dogs Day Roundup

Training Could Slow Enforcement Boost From IRS Funding Surge – David van den Berg, Law360 Tax Authority ($):

The IRS is set to receive billions in new funding to catch wealthy tax evaders, but the effects may not be visible for years and enforcement could initially drop as agency workers are pulled away to train new agents.

The Internal Revenue Service will receive $45.6 billion in enforcement funding as part of a nearly $80 billion funding increase included in the Inflation Reduction Act, Democrats' tax, climate and health care bill signed into law Aug. 16 by President Joe Biden.

However, former senior agency officials told Law360 it will take years for the IRS to ramp up enforcement efforts following the funding boost. Hiring a large number of workers will take time, as will training them. Further, existing employees will be involved in training new personnel, and senior agency management will need to put plans in place to avoid significant disruptions to their work, they said.

Training new enforcement agents will, at first, reduce the amount of revenue the IRS takes in.

As you get new funding to hire more auditors, instead of revenue going up it often goes down’ initially, according to former IRS Commissioner Lawrence Gibbs, who is now with Miller & Chevalier Chtd. ‘You're taking experienced agents out of the line working to train new agents and that's an extremely important task.’

CBO Lowers Revenue Estimate for IRS Funding Boost by $23 Billion – Naomi Jagoda, Bloomberg ($). The IRS was originally projected to increase the amount of revenue raised by $203.7 billion over the next ten years due to $80 billion funding increase. That amount is now expected to be $180.4 billion over the same timeframe, according to the Congressional Budget Office, Capitol Hill's official bookkeeper.

What prompted the change? In part, Treasury Secretary Janet Yellen.

CBO said the new estimate reflects changes made to the legislative text since the release of its previous analysis that removed some hiring flexibility for the IRS. The new estimate also takes into account the fact that Treasury Secretary Janet Yellen has directed the IRS to not increase audit rates for taxpayers making less than $400,000, relative to historical levels, the CBO said.

Still, some taxpayers in this income category could get stung.

The scorekeeper estimates that some revenue will be raised from taxpayers with income of less than $400,000, but that ‘the amount will be a small fraction of the total increase.’

Hiring is also an issue:

IRS Revenue Boost From Stronger Enforcement Is Scaled Back in CBO Estimate – Richard Rubin, Wall Street Journal ($):

Income limits on household tax audits and staffing challenges will reduce by $23 billion what the Internal Revenue Service is projected to collect from its expanded enforcement operations, according to the Congressional Budget Office…. That constraint is compounded by a late change in the hiring powers granted to the IRS. Earlier versions of the plan would have given the agency more flexibility to accelerate a hiring process that can take many months and cause candidates to go elsewhere. The final version lacked the changes because of Senate procedural rules, and CBO now projects that the IRS will hire more slowly than had been expected. 

 

Spreading the Word on Penalty Relief Could Spare IRS Headaches – Jonathan Curry, Tax Notes ($). “The agency announced in its August 24 notice (Notice 2022-36, 2022-36 IRB 1) that taxpayers that have already made late-filing penalty payments will be refunded or credited and that taxpayers that have been assessed penalties or were denied penalty abatement will see those actions reversed, all without any action required on the part of taxpayers. For taxpayers that have yet to file their 2019 or 2020 federal income tax returns, the IRS is allowing them to get caught up — penalty-free — if they get their tax returns in by September 30.”

‘This is like the IRS saying, ‘Attention K-Mart shoppers, if you come to the front desk with these 2019, 2020 returns by September 30, we’ll knock off the 25 percent penalty.’ So this should be a huge call to all those people who have, for whatever reason, fallen into that bucket of nonfilers,’ said Robert Kerr of Kerr Consulting LLC.

Sounds good, assuming you know about it.

Christine Speidel, director of the Federal Tax Clinic at Villanova University Charles Widger School of Law, [said] … ‘I hope and expect the IRS will ask community partners . . . to get the word out about resources for filing in each local community,’ she told Tax Notes, adding that local media and nonprofits could play an important role in promoting the program.

 

AICPA Asks Treasury and IRS for Remote Worker Guidance – Caitlin Mullaney, Tax Notes ($). “Employers creating new policies for remote work arrangements need updated guidance on the taxation of those options, according to the American Institute of CPAs.”

‘The lack of updated guidance has left employers and employees in the untenable position of making decisions regarding employer workplace policies while the rules regarding amounts reported as payments, to or for the benefit of employees, remain uncertain,’ the AICPA said in an August 25 letter to Treasury and the IRS.

 

New EV Tax Credits' Requirements Could Slow Uptake – Asha Glover, Law360 Tax Authority ($):

The requirements for electric vehicle tax credits signed into law under the Inflation Reduction Act likely will cause headaches for both automakers and consumers, which could slow the adoption of electric vehicles that Democratic lawmakers hoped to spur.

The White House has said that the new credits included in Democrats' tax and climate bill signed into law earlier this month will make it easier and cheaper to purchase electric vehicles. However, observers say the complexity the law introduces, and its timelines, attach some caveats to that claim.

For example, the law requires automakers to source EV battery-making materials from certain countries, including Canada and Mexico, to receive the full credit. Currently, most EV battery-making minerals and materials, such as lithium, cobalt and nickel, are sourced from China.

 

Thirteen States May Tax Student Loan Debt Cancelation – Jared Walczak, Tax Foundation:

President Biden’s announcement of student loan debt forgiveness is already raising many questions. How much will it cost? Who will benefit the most? How will it contribute to inflation? Does the president even have the legal authority to implement this loan forgiveness?

Here’s one more question to add to the mix: will states consider student loan debt forgiveness a taxable event? In many states, the answer could be yes.

Further down the article:

States which follow the federal treatment here will likewise exclude debt forgiveness from their own state income tax bases. But, for a variety of reasons, not every state does that.

The Tax Foundation identifies 13 states that could tax student loans that are forgiven at the federal level. They are: Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin.

Student Debt Forgiveness Taxable in More Than a Dozen States – Michael Bologna and Erin Slowey, Bloomberg ($). “John Buhl, a senior communications manager at the Tax Policy Center, anticipates most if not all states will pursue the non-taxable route, especially since they’re sitting on strong revenues now.”

‘There’s going to be a lot of pressure on these states to follow the federal government’s treatment and not have this be included in taxable income because people don’t like surprises at the end of the year,’ he said.

Mark Kantrowitz, publisher of the website www.privateStudentLoans.guru, was quoted in the same article saying that state action on de-taxing student loan forgiveness is iffy.

‘The states would have to pass laws to affirmatively exclude it,’ Kantrowitz said. ‘I’m not sure any of them would do anything. Even in the best of times, it takes the states a while to pass something. For them to pass laws in the next four months doesn’t seem likely.’

A fact sheet on this topic is here.

 

For those of you wondering: The $125,000 and $250,000 caps for individual and joint filers (respectively) is for income earned in 2020 and 2021, according to an unnamed White House staffer who spoke on a press call:

For the purposes of the immediate debt relief, a borrower's income in either the 2020 or 2021 tax year is what's relevant.  So, in other words, if in either 2021 or 2020 their income was below the income caps that have been described, they would be eligible for relief. 

 

Prediction: Student loan forgiveness will become a 'thing.' 

1 big thing: Student-loan snags – Mike Allen, Axios.

Make that a 'whole thing':

• Millions of Americans are in limbo waiting for information on how to take advantage of the plan.
• The Education Department doesn't have income data for most of the 43 million Americans eligible for forgiveness. That means 35 million people — including Pell Grant recipients — will have to attest that they make less than $125,000 per year and apply for relief.

What we're watching: StudentAid.gov, the government’s financial aid website, experienced significant delays Wednesday and Thursday after it was inundated with people seeking information on loan forgiveness.

Make that a 'whole, entire thing':

The White House doesn't know exactly how many eligible borrowers will actually end up applying for loan forgiveness — or how much it will cost.

• The Education Department hasn't yet released the website where people can apply for loan forgiveness by attesting that they meet the income requirement — and it's still unclear when that will be released, a person familiar with the matter tells Axios.

Then there’s this:

Reality check: Experts caution that the agency may not be equipped to accomplish such a massive undertaking.

 

Minn. Top Court Allows Property Tax Break For Child Care Center – Jaqueline McCool, Law360 Tax Authority ($). “A Minnesota child care center is eligible for a property tax exemption after proving it met the exemption standard by showing it provides comprehensive educational services, the state Supreme Court ruled Wednesday.”

 

Treasury Defends Covid Aid Limits to Fifth Circuit in Texas Case - Perry Cooper, Bloomberg ($):

A trial court ruling blocking the Treasury Department from trying to recover any pandemic relief funds from Texas, Louisiana, or Mississippi if the states use the aid to fund tax cuts “rests on an incorrect reading” of the statute, the agency told an appeals court.

The states challenged the American Rescue Plan Act’s ‘offset provision,’ which says states can’t use the federal money to either directly or indirectly offset a reduction in net tax revenue. A federal trial court in Texas held in April that the provision ‘prohibits tax cuts altogether,’ making it unconstitutionally coercive and in violation of anti-commandeering principles.

‘The Offset Provision does not prohibit States from adopting tax cuts; it simply requires that a State offset revenue losses from tax cuts by using its own revenue sources, including revenue increases from organic growth, rather than Fiscal Recovery Funds,’ Treasury told the US Court of Appeals for the Fifth Circuit in its opening brief challenging the trial court’s ruling.

 

Wyo. Justices Say Gas Producer Can Deduct Some Fees – Jaqueline McCool, Law360 Tax Authority ($). “A Wyoming energy supplier can deduct some pipeline reservation fees from its severance tax liability, the state Supreme Court ruled, upholding in part and reversing in part a Board of Equalization ruling.”

 

Fitch sees ‘modest’ tax headwind from Inflation Reduction Act – Maria Webber Sadovi, CFO Dive:

Dive Brief:

The Inflation Reduction Act’s (IRA) 15% corporate Alternative Minimum Tax (AMT) and 1% excise tax on share repurchases are not expected to 'materially impact' U.S. corporate credit profiles, Fitch Ratings stated in a release Wednesday.

The ratings agency said it anticipates that incremental tax revenue from AMT, which broadly applies to companies with adjusted financial statement income of $1 billion or more, will have a modest negative impact on corporate free cash flow after dividends and that certain credit protection metrics that use after-tax cash flow metrics could be 'modestly' affected. 

'The Congressional Budget Office estimates that the AMT will generate $222 billion in tax revenue over 10 years. However, the AMT may not equate to materially higher cash taxes for some issuers, due to exemptions, tax credits, adjustments to book income and the ability to defer tax expenses,' Fitch wrote.

The Fitch report is here.

 

Eaton Corp. Tax Agreements Improperly Canceled by IRS - Aysha Bagchi, Bloomberg ($). “The IRS inappropriately canceled its tax agreements with Eaton Corp. over cross-border asset shifting and forfeited its ability to assess penalties against the company, a federal appeals court ruled.”

 

Dog lovers! Speak! It’s National Dog Day!

National Day Calendar:

Whether mixed or purebred, embrace the opportunity for all dogs to live a happy, safe, and abuse-free life. They all give us companionship. Additionally, they keep us safe, and they aid those in need. Dogs play. Well, they play many roles in our lives, too! They keep us healthy, both physically and mentally.

My family’s dog, Sammy, is full Havanese and barks like there’s a bit of Castro in him.