Tax News & Views Foreign Gift Penalties and Pasta Roundup

End of Foreign Gift Reporting Penalty

IRS Hears Concerns from TAS and Practitioners, Makes Favorable Changes to Foreign Gifts and Inheritance Filing Penalties - National Taxpayer Advocate Blog:

The IRS changes are great news for taxpayers, and I am pleased to see the IRS moving in the right direction. Stopping the automatic penalty assessment for individuals who are late reporting the gift or inheritance they received from a foreign individual is a great step forward. Reading the reasonable cause statements before assessing the penalty for other taxpayers filing the Form 3520 or 3520-A is another step in the right direction. The IRS changes will alleviate taxpayer burden in these areas and help ensure that penalties are only assessed when warranted.

IRS Announces Sweeping Changes to Form 3520 and 3520-A Penalty Rules - Matthew Roberts, Forbes:

The IRS’ announcement is welcome news to many taxpayers and tax professionals who have long complained that the agency’s prior practice of automatically assessing penalties for late-filed IRS Forms 3520 and 3520-A was unfair, particularly given the large penalties involved. The hope by many, including the NTA as mentioned in her blog, is that the IRS will expand this type of relief to other systemically assessed penalties (e.g., IRS Forms 5472 and 5471).

IRS To End Automatic Foreign Gift Reporting Penalty - Craig Clough, Law 360 Tax Authority ($). "Internal Revenue Service Commissioner Danny Werfel told the UCLA Tax Controversy Conference audience on Thursday that the agency will no longer automatically assess penalties for the late reporting of large foreign gifts, with the announcement eliciting applause from the audience of several hundred tax attorneys and tax professionals."

IRS Credit Guidance

Advanced Manufacturing Production Credit

Treasury, IRS issue final regulations for the Advanced Manufacturing Production Credit - IRS:

The Department of the Treasury and the Internal Revenue Service today issued final regulations to provide guidance for the Advanced Manufacturing Production Credit established by the Inflation Reduction Act of 2022 (IRA).

The Advanced Manufacturing Production Credit provides a tax credit for the production and sale of statutorily specified eligible components to unrelated persons. Such eligible components include solar and wind energy components, inverters, qualifying battery components and 50 applicable critical minerals. The eligible components must be produced in the United States or a territory of the United States.

Manufacturing Credit Regs Include Industry-Friendly Tweaks - Mary Katherine Browne & Alexander Rifaat, Tax Notes ($):

The final regs will allow the inclusion of costs for direct and indirect material, extractions production, and acquisition of raw materials in the calculations for the credit.

During a February 22 public hearing on the section 45X proposed regulations, members of the industry pushed for those costs, saying that direct and indirect materials must be considered part of the cost of production for the tax credit because raw materials make up more than 60 percent of production costs.

Energy Efficient Home Improvement Credit

Treasury and IRS issue guidance for the Energy Efficient Home Improvement Credit - IRS:

The Department of the Treasury and the Internal Revenue Service today issued Revenue Procedure 2024-31 PDF and proposed regulations to provide guidance for the Energy Efficient Home Improvement Credit. The revenue procedure provides procedures and requirements that a manufacturer of specified property must follow to be treated as a qualified manufacturer (QM).

Home Improvement Credit Fleshed Out in New Guidance - Mary Katherine Browne - Tax Notes ($):

TCJA

How 2026 Tax Brackets Would Change if the TCJA Expires - Erica York, Tax Foundation:

American taxpayers are scheduled to see tax hikes when the temporary tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) sunset after 2025. The Congressional Budget Office (CBO) has published projections of what the tax system could look like in 2026 if the TCJA’s changes go away as scheduled. From a smaller standard deduction to higher tax rates and narrower tax brackets, we estimate that 62 percent of filers would experience a tax increase if the TCJA expires.

Werfel Says Agency Is Gearing Up to Weigh In on TCJA Expiration - Benjamin Valdez, Tax Notes ($):

Werfel, speaking October 24 at the UCLA Tax Controversy Institute, called the upcoming expiration of the TCJA “a big moment” for the agency as it prepares to address which aspects of the law are more administrable, costly, or prone to fraud and error.

But it’s not a chance for the IRS to push for specific policies, Werfel said, emphasizing that it’s not the IRS’s job to offer input on the cap on the state and local tax deduction or what the tax brackets should look like.

2024 Election

Placing Harris and Trump Tax Plans in Historical Context - Erica York, Nicolo Pastrone, Tax Foundation:

We find Harris’s tax plan would rank as the 15th largest tax increase since 1940 and the 6th largest tax increase outside of wartime over the same period. Trump’s combination of tariffs and tax changes would rank as the 6th largest tax cut since 1940. However, Trump has indicated he would pursue tariff hikes on their own without requiring Congressional approval. If tariffs rise without accompanying tax cuts, they would rank as the 7th largest tax increase since 1940, and the largest tax increase outside of wartime over the same period.

What Happens to Business Owners Above Democrats’ $400,000 Tax Threshold? - Richard Rubin, Wall Street Journal:

“It's a very complicated situation, right?” Harris said during her CNN town hall. “If you're talking about a small business owner, I'm going to bring down, cut taxes for small businesses, right?”

But would she? While campaigning to raise taxes on top earners, Harris has repeatedly talked up her plan to expand the deduction for start-up expenses, letting entrepreneurs write off $50,000 immediately instead of $5,000. And that would save taxpayers $24.5 billion over a decade, according to the Tax Foundation.

Harris Blasts Trump’s Tariff Plan Without Using His ‘Beautiful Word’ - Richard Rubin, Wall Street Journal:

Technically, tariffs aren’t sales taxes. They are paid only on imports, not all goods. And they are paid by importers, not consumers or foreign countries. If Trump wins, receipts wouldn’t include a “tariff” line. But the economic effects of sales taxes and tariffs are similar. Importers would be likely to raise prices to cover the tariff costs and domestic companies could charge more in the absence of cheap imports.

Blogs and Bits

IRS reminder to disaster area taxpayers with extensions: Parts of 8 states need to file 2023 returns by Nov. 1; others have until Feb. 3 or May 1 - IRS. "Now that the Oct. 15 extension deadline has come and gone, the Internal Revenue Service today reminded disaster-area taxpayers who received extensions to file their 2023 returns that, depending upon their location, their returns are due on Nov. 1, 2024, Feb. 3, 2025, or May 1, 2025."

Cut Your 2024 Taxes Before It’s Too Late - Laura Saunders, Wall Street Journal:

In 2022, Congress expanded and extended tax credits for individuals who make a broad range of energy-efficient improvements to their homes.

They are proving popular. About 3.4 million filers claimed more than $8 billion in credits for 2023, according to Treasury Department data. Unlike tax deductions that lower income, a tax credit is typically dollar-for-dollar reduction of tax.

I RS Grants Tax-Exempt Entities Relief From Corp. AMT Filing - Kat Lucero, Law 360 Tax Authority ($). "Tax-exempt entities are not obligated to file the corporate alternative minimum tax form for the 2023 tax year with the Internal Revenue Service, but they should still maintain the document for recordkeeping purposes, the agency announced Wednesday."

Tax Trouble

Five Orlando residents indicted for scheme to facilitate evasion of payroll taxes and workers’ compensation requirements in construction industry - IRS (defendant names omitted):

During the period of the alleged conspiracy, the defendants deposited more than 46,000 payroll checks totaling more than $292 million, of which the defendants kept at least $19 million in fees. No one—neither the contractors nor the work crews nor the defendants or their companies—remitted payroll taxes, such as Social Security and Medicare taxes and federal income tax, to the IRS. According to the IRS, the unpaid taxes on the payroll total at least $52 million.

The defendants also cheated the workers’ compensation insurance companies out of premiums. If the insurance companies had known that the policies were going to be used for more than $292 million in payroll, they would have charged additional premiums totaling at least $28 million.

What Day is it?

It's World Pasta Day, just one week after National Pasta Day!