Tax News & Views Tax Talk Roundup

Biden Tax Plan’s Twin Challenges: Keeping His $400,000 Pledge and Paying for It – Richard Rubin, Wall Street Journal:

President Biden wants to extend expiring tax cuts for almost all American families while fully paying for those extensions with new taxes on companies and high-income households, a top administration official said, previewing a multitrillion-dollar push that could face stiff resistance in Congress.

Biden wants to see that no taxpayer earning $400,000 a year or less will see a tax increase in 2026. The individual tax cuts in the Tax Cuts and Jobs Act (TCJA) expire at the end of 2025. It appears that the president would extend those tax cut for taxpayers in the aforementioned income range and let the rest expire. This is a controversial position.

Tax policy is a core difference between the parties heading into the fall election, and there are trillions of dollars at stake on the outcome, with the House, Senate and White House all up for grabs.

In a speech Friday, White House economic adviser Lael Brainard…said all extensions of expiring tax cuts should be paired with tax increases to avoid increasing budget deficits, ticking off possible sources such as a higher corporate tax rate and taxes on wealthy individuals’ unrealized capital gains.”

Oddly, there is bipartisan support for increasing the corporate income tax rate to, maybe, 25%. Taxing unrealized capital gains (called a “wealth tax”) will be much harder to get through Congress.

The fallout if TCJA tax cuts expire at the end of 2025:

If the tax cuts expire, about 62% of households would pay more, 9% would pay less and the rest would be largely unaffected, according to the Tax Foundation, which favors a simpler tax code with lower rates.

Biden's plan is very expensive (bolded added):

Biden Looks to Raise Tax Revenue When Trump Cuts Expire Next Year – Jim Tankersley, New York Times:

Mr. Biden has said repeatedly that he wants to extend only the individual cuts for households earning less than $400,000 a year. He would allow other cuts to expire. The Committee for a Responsible Federal Budget in Washington, a group dedicated to reducing deficits and the nation’s growing debt load, calculates that Mr. Biden’s extension of those provisions would most likely cost $1.5 trillion to $2.5 trillion over a decade, but possibly as much as $4 trillion, depending on which provisions the president chooses to extend.

More on the tax increases:

Biden To Seek Tax Hikes On Wealthy In 2025, Adviser Says – Asha Glover, Law360 Tax Authority ($). “Biden also wants to ensure corporations are paying their fair share of taxes, Brainard said. His 2025 proposed budget would increase the corporate tax rate to 28% from 21% and increase the stock buybacks tax to 4% from 1%. The president additionally believes lawmakers should extend the Inflation Reduction Act's investment in the Internal Revenue Service to avoid a taxpayer service cliff in 2026 and implement international tax reform…”

How to handle the expiration of the TCJA tax cuts is expected to be a huge debate in Congress next year.

Trump Pledges Across-the-Board Tax Cuts If He Returns to Office - Ranjeetha Pakiam, Laura Davison and Hadriana Lowenkron, Bloomberg ($):

Donald Trump pledged to double down on tax cuts if he wins a second term as president, drawing a distinction with President Joe Biden who has called for tax hikes on businesses and the richest Americans.

“Instead of a Biden tax hike, I’ll give you a Trump middle class, upper class, lower class, business class big tax cut,” Trump said at a rally Saturday in Wildwood on the New Jersey shore.

Trump May Owe $100 Million From Double-Dip Tax Breaks, Audit Shows – Russ Buettner and Paul Kiel, New York Times ($). “Former President Donald J. Trump used a dubious accounting maneuver to claim improper tax breaks from his troubled Chicago tower, according to an Internal Revenue Service inquiry uncovered by The New York Times and ProPublica. Losing a yearslong audit battle over the claim could mean a tax bill of more than $100 million.”

Regarding the current House-passed tax bill that has stalled in the Senate:

Why a vote on the Wyden-Smith tax bill isn’t so simple - Laura Weiss, Punchbowl News ($):

The Senate math on the Wyden-Smith tax bill is far from neat.

Allies ofthe legislation to expand the child tax credit and revive some business tax breaks have been hoping Senate Majority Leader Chuck Schumer would put it on the floor even though it almost certainly lacks the votes to pass. The pitch is that it could either force Senate GOP opposition to crack, or at least be a nice show vote for Democrats.

Bottom line: It is not clear if a vote on the bill would muster enough support to pass since Senators in both political parties have issues with the bill.

Also, the bill failing to pass the chamber could more of a politically liability than not voting on it.

The tone has notably shifted lately both on the Hill and downtown when it comes to the Wyden-Smith bill. Hopes aren’t what they were a couple of months ago. The bill looks dead.

IRS Updates

An IRS change cut child support for Native moms. Other families may be next. – Julie Zauzmer Weil, Washington Post:

Every year, more than 1 million tax refunds are garnished at the request of state governments and rerouted to custodial parents. Those efforts are a key piece of the nation’s child support pipeline — representing $2 billion, or 6 percent of such payments in 2022. For many families, those seizures are the only source of child support.

But federal law doesn’t allow Native American tribes to collect overdue child support through the tax system, and the IRS has suspended a workaround that formerly allowed some tribes to seize those funds. Meanwhile, a separate concern over states’ data sharing could upend the system more broadly.

Rich Taxpayers In Dark About What IRS Data Was Illegally Leaked – Erin Shilling, Bloomberg ($). “The IRS knows little about what specific taxpayer information former IRS contractor Charles Littlejohn stole when he leaked thousands of tax returns—including that of former President Donald Trump and hundreds of billionaires—to news outlets years ago.”

Court Side

DC Tax Atty Can't Use Ch. 7 To Ditch Depo In $19M Theft Suit – Elizabeth Daley, Law360 Tax Authority ($):

A corporate D.C. tax attorney accused of bilking a former client out of $19 million via a captive insurance scam will be deposed, despite a stay in the Maryland federal case against him and his firm after both filed for bankruptcy.

In his order issued Thursday, U.S. District Judge Peter J. Messitte said that although outdoor furniture companies Cosmo Import & Export LLC and Outdoor Living Inc. could not pursue their case against [the defendant] or his firm, Anolik & Associates PC, he could be deposed. "A creditor may still, in pursuit of vicarious liability claims against a third-party, seek to prove the wrongful conduct of a debtor," he explained.

SECURE 2.0’s Hardship Exemption for Early Retirement Withdrawals - Keith Fogg, Tax Notes ($). “In this post, Fogg discusses a Tax Court summary opinion about the application of the excise tax under section 72(t) to a taxpayer’s early withdrawal from her retirement account.”

Texas Couple Must Sell $2.3M In Assets To Satisfy Tax Claim – Anna Bongardino, Law360 Tax Authority ($):

A disbarred accountant and his wife must sell $2.27 million worth of their assets to satisfy her unpaid federal tax liabilities, a Texas federal judge ruled, handing an early win to the government.

In an opinion and order Thursday, U.S. District Judge Kenneth M. Hoyt granted the federal government's motion for summary judgment in its civil complaint against Huntsville residents [the defendants], finding the couple cannot distance themselves from their "intricately intertwined web of entities" in an attempt to dodge federal tax obligations.

Enter: AI

Tax Professionals Embrace Generative AI Despite Pitfalls – Lauren Loricchio, Tax Notes ($):

Generative artificial intelligence is helping some tax attorneys work more efficiently, but a lack of understanding about how the technology works has landed some lawyers in hot water.

Having already been implemented by businesses in one form or another for decades, generative AI is now being embraced by tax professionals.

Use Of AI For Tax Comment Letters Poses Ethical Quandaries – Stephen Cooper, Law360 Tax Authority ($). “While artificial intelligence can streamline the process of conducting a comprehensive review of complex, IRS-proposed federal tax regulations, tax attorneys must be aware of professional and ethical considerations when using it to help draft comment letters to submit to the agency.”

International Zone

5 Goals Gov'ts Have For The UN Tax Convention – Kevin Pinner, Law360 Tax Authority ($):

Transfer pricing, country-by-country reporting, wealth taxation, the digital economy and the participation of developing countries in negotiations are topics governments at the United Nations said they want to address during the first session on drafting terms of reference for the Framework Convention on International Tax Cooperation.

Governments raised many more priorities between April 26 and Wednesday at a U.N. General Assembly committee tasked with drafting terms of reference, or TOR, for the Framework Convention on International Tax Cooperation, or FCITC, by August. Most framed their comments against the backdrop of two overarching objectives in the resolution that gave rise to this process: "Promotion of inclusive and effective international tax cooperation at the United Nations."

From the “Did I Ask for Your Tax Advice?” file

5 ways to put tax returns to good use in 2024 – Caroline Hicks, WBTV:

Millions of Americans recently got tax returns, many of whom may still be deciding what to do with it.

So far in 2024, the average federal income tax refund is $2,850, an increase of 3.5% from 2023.

The author has suggestions for how to use it:

Pay off credit card debt… Save it… Add it to a retirement plan… Put it toward funding a college education… Invest in your home.

Taking unsolicited advice is never my first choice. And if I ever get a tax refund (it’s been decades since the last one) I would likely blow the money on something fun.

What Day Is It?

Happy National Apple Pie Day! It’s also National Frog Jumping Day! And I would leap frog over someone for a piece of apple pie!