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Key Takeaways
- House-passed bill retroactive benefits add work for IRS, preparers and taxpayers.
- Senate reception of House-passed bill uncertain.
- SALT deduction bill would apply to 2023.
- Maine storms trigger tax deadline extensions.
- California wealth tax dead for this year.
- Preparing for preparing your 1040.
- EV Credit and "entities of concern"
- "Ultimate Tax Plan" fail.
- Tax policy and opinion corner.
- Celebrate Frozen Yogurt and Chopsticks.
TCJA Extensions Will Give Taxpayers and Government Lots to Do - Nathan Richman, Tax Notes ($):
Under the TCJA, research and development costs are no longer immediately deductible for tax years beginning after December 31, 2021; section 168(k) bonus depreciation started phasing down from 100 percent for property placed into service after December 31, 2021; and the interest deduction limitation under section 163(j) is no longer increased by depreciation and amortization.
As passed by the House, H.R. 7024 would partially reverse those changes. The bill would allow taxpayers to deduct research expenses for 2022 through 2025, but only for domestic research; delay the tightening of the interest deduction limitation until 2026; and substitute the 80 percent, 60 percent, and 40 percent bonus depreciation for tax years 2023 through 2025 with 100 percent bonus depreciation and then jump straight to 20 percent bonus depreciation for 2026.
The article explains that the IRS will need to tell taxpayers how to undo old returns, or alternatively how to claim the previously disallowed deductions in yet-to-be-filed returns. Issues also arise in separating US research, which is deductible, from foreign research, which will still have to be capitalized and amortized. Finally, the favorable legislation, if ultimately enacted, still would expire after 2025.
Who’d be getting the new increased CTC? - Bernie Becker, Politico. "The Senate is about to work its last several days in Washington before recessing for a couple of weeks — and as you might have noticed, this bipartisan tax bill is not close to its top priority."
Child tax credit expansion: Who gets the money if it passes? - Tyler Wornell, The Hill. "In total, just over 16% of Americans would have a lower tax bill as a result of the changes."
House-passed tax bill heads into Senate GOP buzzsaw - Alexander Bolton, The Hill:
“Most of the problems that have been identified from our standpoint have been on the [child tax credit side],” Senate Republican Whip John Thune (S.D.) said. “There’s a significant expansion of some of the provisions, including delinking the CTC from the work requirement, which gives a lot of our folks heartburn.”
Thune said the bill “should go through the Finance Committee” or there should be an open amendment process on the floor to allow Republicans a chance to change the bill.
Any changes made in the Senate would have to be approved in another vote by the House of Representatives, which would kill the deal. As the Republicans don't control the Senate, they may not be able to prevent passage of the bill, which only would require 10 or so GOP votes. As our Jay Heflin has noted, in the House many more people complained about the bill than voted against it.
A Retroactive Tax Bill: What Can Go Wrong? - Russ Fox, Taxable Talk. "Let’s assume it passes; that would require the IRS to reprogram its computers. The IRS uses the best of 1959 technology, so this would take a month or so. Do we file tax returns for individuals (and businesses) impacted by this? If this passes, impacted individuals (and businesses) who file now might need to amend their returns. The IRS isn’t expedient in processing amended returns, so that’s not a great option."
House considers expanding state tax deduction for some families - Jacob Bogage, Washington Post. "Congress had capped the deduction both for individuals and couples at $10,000 to help pay for President Donald Trump’s 2017 tax cuts. Lawler’s bill, which has support from a phalanx of other Republicans from Democratic-controlled states, would let married couples offset up to $20,000 of income on their federal returns with state and local taxes for the current tax year. The cap would drop back to $10,000 in 2024 until it expires in 2026."
By "current tax year," he means 2023, for returns being prepared in the current filing season.
Other Tax News
Maine 2023 disaster tax relief includes shift to June 17, 2024, filing deadline - Kay Bell, Don't Mess With Taxes. "Most of the Pine Tree State is covered under the FEMA designation, shown below. If you're reading this on a small screen, the affected counties are Androscoggin, Franklin, Hancock, Kennebec, Oxford, Penobscot, Piscataquis, Somerset, Waldo, and Washington Counties."
California Wealth Tax Proposal Dies Again - Paul Jones, Tax Notes ($):
The legislation, A.B. 259, was introduced last year by Assembly member Alex Lee (D) but failed to advance that year. It got renewed attention in January when it was heard by the Assembly Committee on Revenue and Taxation but was then put in the suspense file, essentially ending its prospects. However, the legislation officially died last week after failing to advance out of its house of origin by January 31 of the second year of the state’s two-year session, as required by the state constitution.
...
The tax would have applied to the value of a California resident’s net wealth — including stocks and art but excluding directly held California real estate and out-of-state tangible property. The tax would have been levied at 1.5 percent on the portion of a person's wealth over $1 billion ($500 million for married persons filing separately) for tax years 2024 and 2025. In tax year 2026, the tax would have been levied at 1 percent of a resident’s worldwide net worth over $50 million ($25 million for married taxpayers filing separately), and an additional 0.5 percent tax would have been levied on a resident’s net worth over $1 billion ($500 million for married taxpayers filing separately) for a combined tax of 1.5 percent on wealth in excess of $1 billion.
The legislation also would have expanded the California False Claims Act to allow qui tam suits against taxpayers that committed fraud. Its most controversial provision was to allow the state to continue taxing a portion of taxpayers’ wealth for four years after they left the state (it also would have phased in taxation of a newcomer’s wealth over four years after they moved into California).
Bulletproof Your Tax Return to Avoid Costly Mistakes and IRS Audits - Ashlea Ebeling, Wall Street Journal:
There is no foolproof recipe for a flawless return, but tax pros say the best way to save yourself grief is not to rush. Make sure not to forget key forms and other documentation. One of the most common mistakes people make is filing returns before they have tax forms on hand, including 1099s for other income such as pay for a gig job or capital gains from investments.
“I always suggest people look at their previous year’s return to look for what they might miss,” said Beth Logan, an enrolled agent in Cheltenham, Pa.
Amen. And don't try to shortcut the process by using, for example, brokerage statements instead of 1099 forms to hurry up you computations. The 1099s have key tax data that is often not on the brokerage statements.
Understanding the Clean Vehicle Credit: Clarifying Foreign Entities of Concern - Jenny McGarry and Trina Pinneau, Eide Bailly. "Restrictions apply to countries that source critical mineral and battery components from an FEOC, which the guidance proposes to be entities owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation. Covered nations are currently China, Russia, North Korea, and Iran.
Blogs and Bits
‘Ultimate Tax Plan’ Lawyer Faces Jail Over Fake Charity Tax Write-Offs - Robert Wood, Forbes. "Meyer marketed the scheme as a way for clients to reduce their taxes by claiming deductions for charitable donations that he knew were fraudulent. Meyer prepared boilerplate transaction paperwork for his clients which made it appear that they had donated valuable property to charities Meyer controlled. In fact, the clients retained complete control over the donated assets."
There’s Still a Way to Double Your Retirement Tax Breaks Before Filing - Laura Saunders, Wall Street Journal. "But here’s an option many filers overlook: a spousal IRA contribution. It can benefit married couples when one partner earns less than the other—or even nothing."
Tax Bill Impacts Filing Season - Kristine Tidgren, Tax School Blog. "Taxpayers who would be impacted by these changes should wait to file until it is known whether this bill will become law. Farmers planning to file their returns and pay their taxes by March 1 to avoid estimated tax penalties (which will be higher this year because of inflation adjustments) will face difficulty, even if the bill does not pass, because of uncertainty so close to the deadline. If the bill does pass, necessary software changes and recalculations may make the March 1 deadline impossible for impacted filers."
Partnerships Get Additional Time to Provide Complete Forms 8308 - Parker Tax Pro Library. "The IRS provided penalty relief to partnerships that fail to furnish Part IV of Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, to the parties to a sale or exchange of an interest in the partnership that occurred during calendar year 2023, in which any money or other property received by a transferor is attributable to unrealized receivables or inventory items (Code Sec. 751 property), by January 31, 2024."
Tax Policy and Opinion Corner
Five Facts to Know about the Bipartisan Tax Deal - Garret Watson and Erica York, Tax Foundation. "If bonus deprecation and R&D were instead made permanent, they would boost growth significantly. Of the 11 major expiring tax cuts within the TCJA, bonus depreciation and R&D deliver the most bang for the buck—together they would lift GDP by 0.5 percent over the long run. Temporary tax policy leaves that economic growth on the table."
Congress May Expand The Low-Income Housing Tax Credit. But Why? - Howard Gleckman, TaxVox. "At every step in this process, money is diverted from the ultimate purpose, which is to build low-income housing. For example, the investors—usually banks or other financial institutions—take a cut. So do the syndicators who match developers and investors. The Government Accountability Office (GAO) estimates their fees average 2 percent to 5 percent of the total investment."
Trump's middle class tax hike - Matthew Yglesias, Slow Boring. "If you buy a banana, that banana is going to be more expensive. If you buy a t-shirt, that t-shirt is going to be more expensive. If you buy an iPhone, that iPhone is going to be more expensive. In exchange, the government will get more revenue. That’s how taxes work, and there’s no magic in using the word 'tariff' as jargon for 'tax on imported stuff.'"
Tax and the Courts
Man Nets Prison Sentence For Evading Taxes While Working Overseas - Kelly Phillips Erb, Forbes ($):
In February 2020, Tignini was interviewed by IRS Criminal Investigation Special Agents. In June of 2021, he used an internet application called pdfFiller to alter his employment contract and payroll documents to make them appear that his former employer was responsible for submitting his tax returns and paying the taxes due...
In 2022, Tignini turned over the newly fraudulent documents that he created to his attorneys to deliver to the Department’s Tax Division and the IRS. Through his attorneys, he also represented that he had not created the altered employment contracts and payroll documents but instead received them from a witness who had allegedly secured them from another anonymous witness. After investigators asked the known witness about the internet application Tignini used to create the phony documents, Tignini attempted to delete the documents from his account.
Another helpful lesson in how not to deal with an audit. The first mistake is in underreporting income. That isn't always enough to bring in the IRS criminal agents. Faking documents and providing them to the IRS, on the other hand, is a great way to turn a failed attempt to pay less tax into jail time - in this case, 41 months.
Related: Eide Bailly IRS Exam Assistance
What day is it?
Great, but maybe not together. It's both National Frozen Yogurt Day and National Chopsticks Day.