Tax News & Views Drive-Thru Roundup

IRS & Policy News

House Delays Vote On FY25 IRS Budget Legislation - Stephen K. Cooper, Law360($). "The House delayed an expected vote Tuesday on the Internal Revenue Service's budget for fiscal 2025, casting doubt on whether GOP lawmakers will meet their goal of passing the funding bill before Congress' annual August recess begins next week."

IRS Notice Signals Direction On Corp. AMT Regs, Official Says - Natalie Olivo, Law360($). "An Internal Revenue Service notice regarding the U.S. corporate alternative minimum tax can be read as a signal about how the agency will more broadly address the measure's potential for counting offshore income twice, an IRS official said Tuesday.

IRS Stands by Its Corporate AMT Double-Counting Fix - Chandra Wallace, Tax Notes($). "Taxpayers should expect proposed regulations implementing the corporate alternative minimum tax to take an approach to controlled foreign corporation distributions that is consistent with Notice 2024-10, an IRS official said."

Menendez to Resign From Senate, Opening Seat on Taxwriting Panel - Cady Stanton, Tax Notes($). "Senate Finance Committee member Robert Menendez, D-N.J., said he will resign from the Senate after his conviction on bribery charges, leaving a vacancy on the chamber’s taxwriting committee four months before the 2024 elections.

Harris Tasked With Securing Biden’s Tax Policy Legacy - Alexander Rifaat, Tax Notes($):

Vice President and presidential hopeful Kamala Harris is set to assume the mantle as chief promoter of the several tax policy changes enacted during President Biden’s administration.

It remains to be seen what deviations Harris might make to tax proposals originally floated by Biden before he dropped out of the race and endorsed his deputy on July 21 — although there are a few indications — but many policy observers expect her to tout the tax provisions in the Inflation Reduction Act and CHIPS and Science Act of 2022 as the campaign heats up.

Dems and Republicans in Both Chambers Gird for Chevron Challenge - Doug Sword, Tax Notes($). "Senate Finance Committee Democrats moved to codify the stricken Chevron doctrine, while a House Republican chair says Congress needs more resources if it’s to wield the power surrendered by the precedent’s demise."

Lawmakers Ponder Options to Address EOs Tied to Antisemitism - Cady Stanton, Tax Notes($). "Members of the House Ways and Means Oversight Subcommittee discussed the association of certain EOs with the rise of antisemitism on college campuses at a July 23 hearing, seeking ways to leverage their taxwriting and oversight powers to clamp down on groups funding or associated with antisemitic incidents at schools."

Be Our Guest, Court Tells IRS in Jeopardy Assessment Row - Andrew Velarde, Tax Notes($):

The IRS’s jeopardy assessment against an estate’s heir was reasonable given behavior and spending habits that depleted assets, including throwing a Beauty and the Beast-themed wedding, as the IRS sought payment from the estate.
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Bypassing normal assessment and collection procedures, jeopardy assessments under section 6861 are used by the IRS when tax collection would be endangered if normal assessment and collection measures were used. The district court examined whether the jeopardy assessment was reasonable based on evidence of unlawful activity, insufficiency of assets to satisfy the tax, whether the assets had been dissipated, and whether Geiger made it harder to locate the assets.

Frustrated with Tipping? No Tax on Tips Could Make It Worse - Alex Muresianu, Tax Foundation:

Former President Donald Trump has proposed making all tip income tax-exempt. In the wake of this proposal, bills to exempt tip income have cropped up in both the House and Senate. Both the former president and the idea’s congressional advocates argue it will lower costs for working-class Americans. But it’s a poorly targeted change, with the potential for unintended consequences for both consumers and the federal budget.

The Senate bill, introduced by Sen. Ted Cruz (R-TX) and titled the “No Tax on Tips Act,” would create a 100 percent above-the-line deduction for cash tip income, with cash in this context referring to payments in physical currency, debit or credit card payment, or checks. Non-cash tips (like a ticket, a coupon, or some other item of value) would presumably remain taxable. Additionally, both cash and non-cash tips would remain taxable under the payroll tax. Rep. Byron Donalds (R-FL) has introduced a companion bill in the House. However, a different House bill, introduced by Rep. Thomas Massie (R-KY) and Matt Gaetz (R-FL) and titled the “Tax-Free Tips Act of 2024,” would exempt tips from both income and payroll taxes.

How Seven Think Tanks Would Use Tax Revenues To Help Reduce Budget Deficits - Howard Gleckman, Tax Policy Center. "Ask seven public policy think tanks how to get the federal budget on a “strong, more sustainable fiscal path” and you’ll inevitably get seven different answers. But when the Peter G. Peterson Foundation queried policy shops from across much of the political spectrum, nearly all agreed on one big thing: They can’t do it without new tax revenues. Then, they broadly disagreed on how to raise the money."

Transfer Pricing

Newell Says IRS Misapplied Pricing Law In $124M Dispute - David Hansen, Law360($):

Newell Brands told the U.S. Tax Court the Internal Revenue Service misapplied transfer pricing law to levy almost $124 million in additional taxes and penalties.

The IRS wrongly determined that transactions between subsidiaries of Newell Brands did not occur at arm's length, the U.S. consumer products company said in a petition filed Friday. The agency miscalculated Newell's tax liability for the 2011-2015 tax years, adding $90.2 million in taxes and $33.7 million in penalties, the company said.

Newell Brands Embroiled in $124 Million Tax Dispute - Alexander F. Peter, Tax Notes($). "A U.S. consumer products company has filed a petition at the Tax Court against a $90 million tax deficiency and a $34 million penalty assessment related to alleged non-arm’s-length sourcing transactions with an Asian subsidiary."

Unreported Income in the Courts

Feds Urge 6th Circ. To Affirm Pharma Owner's Fraud Sentence - Kat Lucero, Law360($). "The Sixth Circuit should affirm a district court's fraud convictions, nearly five-year sentence and $7 million restitution order against an Ohio pharmaceutical salesman who underreported his income to reduce his tax liability in a multimillion-dollar scheme involving bogus insurance billings, the federal government said."

Farm Owner Must Boost Taxable Income, 8th Circ. Told- Anna Scott Farrell, Law360($):

An Arkansas company that leases farmland must raise its reported income by $230,000 because it failed to get permission from the IRS to change its accounting method, the U.S. told the Eighth Circuit on Tuesday in asking it to uphold a U.S. Tax Court ruling.

The Tax Court correctly found that Conmac Investments Inc. had changed its accounting method without the required consent of the Internal Revenue Service, resulting in the agency nixing certain deductions and increasing the company's reported income for 2013 and 2014, the government said in a brief.

Partnership Taxation

5-Hour Energy Partner Owes No Tax On Sale, DC Circ. Says - Anna Scott Farrell, Law360($):

The D.C. Circuit found Tuesday that a Canadian citizen's $6.5 million in gains from her sale of a U.S. partnership interest in a company that sold 5-hour Energy drinks was not federally taxable as inventory income, reversing a U.S. Tax Court ruling.
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"The short of it is that Section 751(a) does not of its own force render Rawat's inventory gain taxable because it does not change the fact that she sold a partnership interest, not inventory," Judge Srinivasan said in the opinion for the panel.

D.C. Circuit Reverses IRS Win on Foreign Partner’s Hot Asset Gain - Kristen A. Parillo, Tax Notes($):

A foreign partner’s gain from the sale of her U.S. partnership interest attributable to inventory is foreign-source income under the subchapter K hot asset rules, the D.C. Circuit held.

In its July 23 opinion in Rawat v. Commissioner, the D.C. Circuit rejected the IRS’s position that section 751(a) required it to treat Indu Rawat’s inventory gain as income from a deemed sale of the partnership’s inventory, thereby subjecting Rawat — a nonresident alien — to U.S. tax because of sourcing rules applicable to sales of inventory property.

Digital Assets

The Sky Isn’t Falling After IRS Finalizes Crypto Tax Reporting Rules - Kelly Phillips Erb, Forbes:

Earlier this summer, the U.S. Department of the Treasury and the IRS released final regulations on reporting requirements for sales, exchanges, transfers, and payment processing involving digital assets. Supplemental transitional relief and guidance were issued in the form of Notice 2024-56, Notice-2024-57, and Revenue Procedure 2024-28.

This is not a new tax—owners of digital assets have always been subject to tax on the sale or exchange of digital assets. However, under the Infrastructure Investment and Jobs Act (IIJA), reporting requirements similar to those that already apply to traditional financial services are now in place to help taxpayers file accurate returns and pay taxes.

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