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Treasury Touts IRS Service Improvements as Filing Season Starts - Naomi Jagoda, Bloomberg ($):
At the start of the tax filing season, the Treasury Department is highlighting several efforts the IRS has taken to improve customer service using some of the funds it received in the Inflation Reduction Act…
Treasury announced earlier this month that the IRS had hired 5,000 customer-service representatives. Following [Deputy Treasury Secretary Wally] Adeyemo’s prepared remarks, a Treasury official said in a background briefing that the IRS has hired enough people so that if call volume is similar to pre-pandemic levels, the agency would able to exceed Treasury Secretary Janet Yellen’s goal of 85% level of service, just focusing on the calls answered by live telephone assisters.
Fact: More phone calls are being answered by humans. That might not seem like much, but it's progress.
Your tax refund will likely be smaller this year. Here are more things to know – Bill Chappell, NPR. “It's time to file your tax return, and many of us are facing smaller refunds, shrunken tax credits and deductions — right as inflation and higher debt loads are biting into our budgets.”
Subpoena Power Boosts Senate Democrats’ Amgen, Meta Probes - Chris Cioffi, Bloomberg ($):
Companies from Facebook parent Meta to big drugmakers like Amgen could come under stepped up pressure from Senate Democrats this Congress, thanks to midterm gains giving the lawmakers new investigative powers.
Senate Finance Chairman Ron Wyden (D-Ore.) is expected to hold investigatory hearings.
‘Whether it’s tax shelters used by billionaires, Big Pharma’s international tax schemes, or any of our other ongoing investigations, this work helps the Finance Committee expose loopholes and informs our legislative agenda,’ [Wyden] said in a statement to Bloomberg Tax. ‘As committee chairman I take this oversight role extremely seriously, and our efforts are not going away.’
It looks as if both tax-writing committees (Senate Finance and House Ways and Means) will focus on investigations, but different subjects. In the Senate, it’ll be on “tax cheats.” In the House, the focus will be on the IRS, according to a statement by House Ways and Means Chairman Jason Smith (R-Mo.):
‘[T}he new IRS Commissioner should plan to spend a lot of time before our committee answering questions about the leaking of sensitive taxpayer information and an agency with a history of targeting conservative Americans. We will make it clear to every IRS employee that the Ways and Means Committee welcomes whistleblower efforts to uncover corrupt behavior at that agency.’
All investigatory efforts will likely be for naught, because one committee is highly unlikely to accept the findings from the other committee.
Biden’s Climate Tax Credits Rile Industry Over Wage, Labor Rules – Ari Natter and Lin Noueihed, Bloomberg ($):
The historic US climate bill boosted tax credits for clean energy sources ranging from hydrogen to nuclear power , offering subsidies worth hundreds of billions of dollars. But there’s a catch buried in the law: Projects that don’t meet certain new wage and labor requirements only get a fraction of the credit.
In order to get the full value of a 30% investment tax credit for the construction of solar power, fuel cell and other clean energy projects, developers must pay workers at least a wage level set by the US Department of Labor and use a minimum share of labor from workers who are in registered apprenticeship programs.
It is likely that this issue will grab more headlines in the future. Watch this space.
Another issue that will likely grab future headlines:
Finance Chiefs Hope New Congress Will Revisit Tax Rule on R&D Expenses – Jennifer Williams-Alvarez, Wall Street Journal ($):
Companies faced with higher taxes owing to a change in the treatment of research-and-development costs say they could pull back on investment and capital returns to shareholders if the rule isn’t repealed.
Businesses for decades were allowed to deduct certain R&D expenses right on the spot to reduce their taxable income. But under a provision of the 2017 Tax Cuts and Jobs Act that took effect last year, costs associated with R&D activities must now be amortized over many years—five for ones within domestic borders and 15 for those incurred overseas—which means that companies can deduct less straight away, resulting in higher income and therefore higher tax costs.
Balancing The Federal Budget In 10 Years Without Raising Taxes Is….Impossible – Howard Gleckman, Tax Policy Center:
House Republicans say they want to balance the federal budget in 10 years by cutting spending only, and seem to have received a promise from newly-elected House Speaker Kevin McCarthy (R-CA) to bring such a plan to the floor for a vote sometime this year…
Achieving fiscal balance in 10 years through spending cuts only is, well, impossible.
The federal government spends way more than it receives:
Money In: $56.4 trillion between 2023 and 2032, according to the Congressional Budget Office.
Money Out (over the same period): $72.2 trillion, according to the same group.
How the money is spent, according to the article:
If spending was cut to be equal to revenue, that would likely mean entitlements would take a hit. Also, increasing taxes to be even with current spending levels would likely put our economy in a tailspin. There have been calls for taxing people a third way (VAT, National Sales Tax, etc.), but nothing has be decided on that front.
This article appeared in the January 18th Roundup. I am reposting it because this subject is a big one - and the political will to address it is currently lacking.
Understanding Revenue Implications For State Pass-Through-Entity Taxes – Lucy Dadayan and John Buhl, Tax Policy Center:
Here’s how it works: Under federal tax rules, the $10,000 cap applies to all individual filers, including business owners who report their earnings as pass-through income. However, C corporations, who pay taxes at the entity level, have no cap on their SALT deductions.
So, many states have enacted laws allowing pass-through businesses to pay taxes at the entity level in lieu of on their owners’ or shareholders’ individual income tax returns. All the business does is change how it files its taxes, and then business owners or shareholders can take the full SALT deduction against these earnings.
Covid Aid Curb on States Unconstitutional, 11th Circuit Says - Aysha Bagchi, Bloomberg ($):
A federal restriction on states’ use of pandemic relief funds to offset state tax cuts is unconstitutional, an appeals court ruled Friday.
A three-judge panel of the US Court of Appeals for the Eleventh Circuit agreed with more than a dozen suing states that the offset provision violated the US Constitution’s spending clause, because the states couldn’t ascertain the condition imposed on the funds. The spending clause authorizes Congress to tax, spend, and place restrictions on federal funding.
The offset provision was created under the American Rescue Plan Act of 2021, which allocated $195.3 billion to all 50 states and the District of Columbia for various specified purposes, but prohibited using the funds to directly or indirectly offset a revenue reduction resulting from a tax cut.
Fourth Circuit Reverses ACA Payment as Tax Determination – Caitlin Mullaney, Tax Notes ($). “A federal appeals court determined that shared responsibility payments (SRPs) established under the Affordable Care Act are a tax for bankruptcy purposes, reversing a lower court’s decision.”
Despite the Hype, Moving States for Lower Taxes is Exaggerated - Michael Bologna and Laura Mahoney, Bloomberg ($). When it comes to state taxes, people don’t vote with their feet, according to the article:
As these [state tax] proposals take shape in the coming weeks, count on politicians invoking visions of beleaguered residents of high-tax jurisdictions flocking to their shores, yearning to breathe free. But will taxpayers actually vote with their feet?
Probably not, said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities. In an upcoming analysis of Census Bureau and Internal Revenue Service data, Mazerov will argue posturing around interstate tax migration is “grossly exaggerated.” The key data examining shifts in US population show two dynamics: a declining number of Americans are moving across state lines, and very few Americans migrate for tax reasons.
Subpart F Cash Pooling Campaign No Longer Active – Andrew Velarde, Tax Notes ($):
One of the IRS Large Business and International Division’s longer-running compliance campaigns, which targeted controlled foreign corporation loans to parents, is no longer active.
The IRS announced the change in status to its section 956 campaign by adding it to the list of campaigns not currently active on its campaign webpage on January 20. The campaign was first announced in November 2017 as part of the second batch of compliance initiatives undertaken by LB&I as it moved toward a more issue-based approach to examinations.
From the “Bully!” file:
The Great Tax Scandal of 1898: When Teddy Roosevelt Paid No Taxes – Joseph Thorndike, Tax Notes ($):
Donald Trump is not the first political figure to be embarrassed by his personal tax history. In 1898, Theodore Roosevelt found himself publicly shamed for failing to pay New York personal property taxes. Still worse, the scandal erupted as Roosevelt was launching his campaign for New York governor, nearly ending the bid before it began.
Roosevelt described his tax controversy as ‘a peculiarly ugly business,’ reflecting on his character in ways he found intolerable. ‘I hated to have any combination of incidents make me look for a moment as if I were doing something shifty,’ he wrote to his friend Henry Cabot Lodge.
And the scandal did exactly that; ‘it exposed him to the charge of tax dodging,’ wrote historian G. Wallace Chessman, ‘a most embarrassing thing for a reformer and a moralist.’
It appears Teddy was “Bully” on not paying taxes.