Tax News & Views Clashing Notice Relief Roundup

IRS to Offer Limited Taxpayer Relief in Response to Backlogs - Fred Stokeld, Tax Notes ($):

The IRS will halt the use of automated notices in cases where a payment has been credited to a taxpayer but no tax return has been processed in an effort to help ease confusion related to a backlog in paper filings.

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"In many situations, the tax return may be part of our current paper tax inventory and simply hasn’t been processed. Stopping these letters — which could have otherwise been sent to thousands of taxpayers  — will help avoid confusion," the agency said in a January 26 statement.

An overdue move.

Lawmakers Urge IRS To Halt Automated Tax Collections - Emlyn Cameron, Law360 Tax Authority ($):

The IRS should put automated collections on hold until at least July 17, offer penalty relief to taxpayers who paid at least 70% of their taxes due for 2020 and 2021, and expedite amended return processing, according to the letter, sent to the U.S. Department of the Treasury.

The letter was signed by 191 members of the House and 25 senators. Sens. Bob Menendez, D-N.J., and Bill Cassidy, R-La., led the effort in the Senate, according to a news release.

LInk: Letter to Secretary Yellen.

The IRS Made Me File A Paper Return. Then Lost It - Howard Gleckman, TaxVox:

What do I do now? The IRS, as only it can, gave me two choices: Either mail a return to the IRS or mail a copy of the return I already filed. Second note to the IRS: These are sort of the same thing. 

Either way, I’m about to add to the agency’s deepening pile of unread mail. For the second time.

Keep in mind that the IRS is starting the current tax season with 9 million unprocessed individual and business returns, another 3 million unprocessed amended returns, and nearly 5 million pieces of correspondence from prior tax years it has not yet addressed. The agency calls this “substantially elevated inventory.” This is something like describing Mt. Everest as a substantially elevated hill.

House Extends Heath Tax Credit in Trade Bill combating China - Jay Heflin, Eide Bailly. "Tucked inside trade legislation aimed making the U.S. more competitive with China is a provision that makes permanent the health coverage tax credit and increases the amount of the qualified health insurance premiums covered by the credit from 72.5% to 80%... The House could vote on this bill as soon as next week, and passage is expected."

The House bill has to be reconciled with a similar Senate bill that does not extend the credit.

IRS Outmatched On Partnership Matters, Rettig Says - Joshua Rosenberg, Law360 Tax Authority ($):

Despite recent gains in hiring, the Internal Revenue Service still can easily find itself outmatched when it comes to complex issues involving partnerships, Commissioner Chuck Rettig said Wednesday.

Even though the IRS has hired employees at its Large Business & International Division, some of whom possess experience as partnership tax attorneys, the agency can be outmatched when facing off against seasoned partnership tax professionals, Rettig said at University of Southern California's Gould School of Law's Tax Institute.

An argument in favor of pass-through taxation?

Americans need convincing on the broad Build Back Better agenda - Sarah Owermohle, Politico:

Democrats trying to salvage parts of the Biden social spending agenda will find a limited number of issues that resonate with voters heading into the midterm elections, according to a POLITICO-Harvard survey that shows significant concern over whether big-ticket items could lead to more inflation.

Respondents think free universal pre-K, paid family and medical leave and lower prescription drug prices would help their families and the country. But only about one in three believe President Joe Biden’s entire Build Back Better Act would help the country, and less than one in four believe it will help their own families, POLITICO’s Adriel Bettelheim writes.

How Industry Pushback Sank the Grantor Trust Changes -- For Now - Jonathan Curry, Tax Notes ($):

The House proposal would have made two fundamental changes to the way grantor trusts are taxed: It would impose gift or estate tax once a grantor trust is terminated, and it would treat sales between a grantor trust and its owner as taxable transactions. The combination of those two changes would have upended many estate tax avoidance techniques, in keeping with policymakers’ desire to raise taxes on the wealthy, but the potential to snag life insurance trusts turned out to be beyond the scope of what they were aiming for.

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The Ways and Means Committee’s approach of including grantor trusts in the deemed owner’s estate is one way of reforming grantor trust taxation, but Treasury could unilaterally pursue another path: treating transactions between a grantor trust and its deemed owner as recognition events. That outcome could be achieved by rescinding Rev. Rul. 85-13, 1985-1 C.B. 184, and issuing regulations adopting the position that a sale to a grantor trust is a taxable event.

Montana DOR Announces Increased Tax Credits for Education Contributions - Montana Department of Revenue via Tax Notes. "House Bill 279, passed during the 67th Montana Legislative Session, increased the allowable tax credit for donations made to qualified education organizations. The Innovative Education Program (IEP) credit is for donations made to public schools. The Student Scholarship Organization (SSO) credit is for donations made to private school scholarship organizations."

Iowa Senate GOP proposes flat 3.6% income tax rate, corporate tax reform - Amanda Rooker, KCCI.

Iowa Senate Republicans revealed their plan to cut taxes Wednesday, with some changes that go farther than Gov. Kim Reynolds' proposal.

The proposal calls for a 3.6% flat individual income tax rate by 2028. That's compared to Reynolds' call for a 4% flat individual income tax rate by 2026. Senate Republicans also want to cut the corporate tax rate by 2%. That would bring the rate down from 9.8% today to a flat 7.8%.

The plan would also eliminate all taxes on retirement income, expand military pay exemption to National Guard members and provide farmers a first-time pension exemption by exempting income from either cash rent or farm crop shares.

IRS Selfie Technology Asks if You’re Ready for Your Close-Up - Kelly Phillips Erb, Bloomberg:

To verify your identity with ID.me for IRS purposes, you’ll need to provide your first and last name, email address, Social Security number, and certain photo ID, including driver’s license, passport, passport card, or state ID.

And here’s what’s causing alarm: The IRS adds that “You’ll also need to take a selfie with a smartphone or a computer with a webcam.”

While you don't need to do this to file a return, "it does mean that you will not be able to access many online services like viewing your balance, creating a payment plan, and accessing your tax records—like your tax transcripts."

When will you get your tax refund? - Kay Bell, Don't Mess With Taxes. "It's a valid question, especially since millions of taxpayers are still awaiting refunds from their 2020 returns. The Internal Revenue Service said that as of as of Dec. 4, 2021, it still had nearly 7 million unprocessed individual returns from the 2020 tax year."

Preparing for Filing Season: New Items on the 2021 Form 1040 - Wolters Kluwer Tax & Accounting. "The 2021 recovery rebate credit was paid out to eligible individuals as an advance payment (EIP) based on 2019 or 2020 tax year information. Eligible individuals who did not qualify for or receive the full amount of the third EIP (including any applicable plus-up payments) may be able to claim the 2021 recovery rebate credit based on their 2021 tax year information."

Tax Advice For First-Time Filers - Amber Gray-Fenner, Forbes. "If you are a young person or college student whose parents may be claiming you as a dependent on their return it is important that you verify that information before electronically filing your return. When entering your basic information in your software, be sure to check the box indicating that another filer will be claiming you as a dependent. What happens if you don’t? It depends on who files first. Usually dependents file first because their returns are simpler. If you file first and don’t check the box, your parents’ return will be rejected by the e-filing system because a return with your SSN has already been filed."

Tennessee Should Build on Success and Improve Corporate Taxes - Janelle Cammenga, Tax Policy Blog. "Businesses in Tennessee face up to three separate layers of taxation: something akin to a typical corporate income tax but which also applies to S Corporations and most LLCs (the Excise Tax), a capital stock tax on businesses’ net worth (the Franchise Tax), and a gross receipts tax (the Business Tax). If the Volunteer State is looking to build off its forward momentum and make the state more attractive to businesses, all three of these taxes are ripe for improvement."

ER Doc Cannot Deduct Condo Costs as Office Expense - Parker Tax Pro Library. "The Tax Court held that an emergency room doctor could not deduct $18,000 of his condominium expenses as office expenses because (1) his office was not a separate structure from his dwelling unit; (2) the doctor did not meet with patients in his office; (3) the only home office meetings the doctor had were with IRS agents; (4) the doctor did not submit any contracts from the hospital showing he did not have office space at the hospital or submit any other documentation that office space was needed for his job; and (5) he could not prove that his home office satisfied the "principal place of business" test in Code Sec. 280A(c)(1)(A)."

Timely US Tax Filings: What are the Rules for Taxpayers in Foreign Countries? - Virginia La Torre Jeker, Virginia - US Tax Talk. "Fortunately, the IRS has had a long-standing policy on accepting foreign postmarks for federal tax returns, refund claims, statements, or other documents. This policy is currently reflected in Revenue Ruling 2002-23, 2002-1, C.B. 811, summarized below.  Significantly, the Revenue Ruling (published in the Internal Revenue Bulletin) is authoritative and can be relied upon as precedent. The Internal Revenue Bulletin is published weekly and was compiled semi-annually into the Cumulative Bulletin (C.B.).  The C.B. ceased publication in 2008."

Foreign Earned Income Exclusion - Jason Freeman, Freeman Law. "U.S. citizens and resident aliens who live abroad are taxed on their worldwide income.  But such taxpayers may qualify for the foreign earned income exclusion, which allows certain taxpayers to exclude up to $112,000 (in 2022) of their foreign earnings from income, as well as to exclude or deduct certain foreign housing costs."

Related: Eide Bailly Global Mobility Services. 

Ditch the Garanimals. Today is National Clashing Clothes Day. Also known as Thursday.