Tax News & Views Moore Gazpacho Roundup

Supreme Court seems inclined to narrowly uphold Trump tax provision - Ann Marimow and Julie Zauzmer Weil, Washington Post:

A majority of the Supreme Court on Tuesday seemed inclined to narrowly uphold a provision of President Donald Trump’s 2017 tax package, an outcome that many experts said would avoid imperiling large swaths of the nation’s tax system.

The justices were considering whether a one-time tax on offshore earnings that helped pay for Trump’s massive tax cut is permitted under the limited powers of taxation that the Constitution grants Congress.

Government May Have Upper Hand in Moore, but Court May Go Narrow - Andrew Velarde, Tax Notes ($). "Charles and Kathleen Moore are seeking a refund of $15,000 in taxes that they paid on undistributed earnings from an Indian controlled foreign corporation of which they were minority owners. They have challenged the section 965 transition tax imposed on a taxpayer’s post-1986 accumulated foreign earnings, arguing that it is a direct tax and therefore unconstitutional because it is not subject to apportionment."

Justices Seem Skeptical of Challenge to Trump-Era Tax Provision - Abbie VanSickle, New York Times: "A majority of the justices appeared skeptical of striking down the tax. Instead, the justices, including the court’s liberal wing and more moderate conservatives, seemed to be searching for a way toward a limited ruling that would not establish a more sweeping precedent."

Court Arguments in Moore Case Ease Concerns Over Ripple Effects - Michael Rapoport, Bloomberg ($). "The Moores contend that 'unrealized' income shouldn’t be taxable under the 16th Amendment, the basis for the US income tax. But other existing taxes also are imposed on unrealized income—such as Subpart F taxes, in which shareholders of US corporations must pay taxes on the passive income of the corporations’ foreign affiliates, even if it isn’t paid to the parent company."

Justices Wary Of Repatriation Tax Review Consequences - Dylan Moroses, Law360 Tax Authority ($):

The government's attorney, Solicitor General Elizabeth Prelogar, said realization has occurred in this case because the corporation the couple invested in earned ordinary income, on which the tax was deferred until Section 965 was enacted under the 2017 Tax Cuts and Jobs Act.

Justice Brett Kavanaugh said the income at issue in the Moore case was clearly realized by the corporation, and added the question should be more related to whether the attribution of the tax to the couple is permissible.

Prelogar said the question of constitutionality "is actually quite easy" for the justices to answer because income has been realized in this case in some fashion.

The case did result in one admission from the government that may affect future tax policy:

Supreme Court Wary of Remaking Income Tax - Jess Bravin and Richard Rubin, Wall Street Journal:

Despite the breadth of her argument, Prelogar conceded that a federal tax on property, in contrast to state or local property taxes, would be an unconstitutional “direct tax” unless each state paid in proportion to its population.

That pointed to an obstacle for measures such as an annual wealth tax proposed by Sen. Elizabeth Warren (D., Mass.). But Prelogar urged the court to avoid ruling on other ways that Democrats have considered raising taxes on the superrich. President Biden and Senate Finance Committee Chairman Ron Wyden (D., Ore.), for instance, have proposed taxes on the unrealized gains of very wealthy people. 

Other coverage:

Supreme Court unlikely to launch preemptive strike on wealth tax proposals - Brian Faler and Josh Gerstein, Politico.

Supreme Court airs caution on limiting congressional tax power - Michael Macagnone, Roll Call.

‘Quadrillion-dollar’ tax case leaves Supreme Court justices exploring narrow resolution - Zach Schonfeld, The Hill.

Hot Takes On Yesterday's Moore v. United States Supreme Court Oral Argument - Paul Caron, TaxProf Blog.

For background on the Transition Tax, see Tax Reform: What Does It Mean for My International Business.

Attention Turns to January, Not Year-End, for Tax Package - Doug Sword and Cady Stanton, Tax Notes ($):

With no expectation of progress on appropriations legislation in December, there’s little chance of Congress moving on a tax package until the new year, according to a managing director in Grant Thornton LLP’s Washington National Tax Office.

...

“Nothing has materially changed over the last 18 months in which they’ve continually failed to get a deal with kind of all the same things in place,” Stamper said of talks centered on the child tax credit and three business tax breaks from the Tax Cuts and Jobs Act. “In fact, it may even be getting harder in that Republicans have made a big deal about deficits again, and we’re talking about a $100 billion package.”

Our Jay Heflin's take:

Leaders could move tax legislation as a stand-alone bill or by adding it to another piece of legislation that is expected to pass Congress before January. They can also force rank-in-file lawmakers in their respective party to support tax provisions the members oppose - that's why they're the leader.

However, things must move quickly to vote on tax legislation before year-end. Lawmakers have roughly two weeks before they leave for the holidays, according to the congressional calendar. They also have several other legislative priorities that out-rank the passage of tax legislation.

Bottom line: Don’t believe what lawmakers say or write in a letter. Believe what they do. Watch this space in regard of them advancing tax legislation by year-end.

Jay will have another D.C. update here at www.ebtaxblog.com tomorrow.

Senate Taxwriters Mull Tweaking the Dials on CTC Expansion - Cady Stanton, Tax Notes ($):

If marathon tax talks between Republicans and Democrats succeed, look for the package to be more complicated than a simple family and business tax cut balancing act.

Senate Finance Committee member Maggie Hassan, D-N.H., said one of the proposals she is working on alongside fellow committee member Todd Young, R-Ind., is a targeted child tax credit (CTC) revision that would phase in the credit at the first dollar of earnings, rather than at the current $2,500 minimum income requirement.

Democrats have insisted on child tax credit enhancements in any package to restore the current deduction for research expenses. 

How to report tax scams and fraud - Kay Bell, Don't Mess With Taxes. "Generally, you need to let the Internal Revenue Service know, as well as the Treasury Inspector General for Tax Administration (TIGTA)."

Is Everyone Forming An LLC But Me? - Renu Zaretsky, TaxVox. "It might not make a substantive difference if I established an LLC. If I did, I might want to hire an accountant, and that cost might outweigh the other benefits. Filing a form incorrectly or incompletely in a given year could result in my owing thousands of dollars to the IRS. This just happened to a friend with an LLC." 

Navigating the Corporate Transparency Act (CTA) and FinCEN's Beneficial Ownership Information (BOI) reporting - Jeremy Wells, Empowering Tax Professionals. "We’re just a few weeks away from the new year. That means, among other things, the advent of the Corporate Transparency Act’s requirement for most corporations and limited liability companies (LLCs) to report their beneficial ownership information (BOI)."

FBAR Penalties: Everything You Need To Know - Kasia Strzelczyk, 1040Abroad. "The FBAR is a critical reporting requirement for U.S. persons holding foreign bank accounts. This requirement is triggered when the total value of an individual’s foreign financial assets exceeds the reporting threshold of $10,000 at any time during the calendar year. It’s crucial to understand that these assets include not just bank accounts, but also other financial assets held overseas. Failing to meet these filing obligations can lead to significant penalties, as detailed in the sections below."

Related: Offshore Voluntary Disclosure.

Proposed Regs Address SECURE 2.0 Act Conservation Contribution Disallowance Rule - Parker Tax Pro Library. "The IRS issued proposed regulations concerning the statutory disallowance rule enacted by the SECURE 2.0 Act of 2022 to disallow a deduction for a qualified conservation contribution made by a partnership or an S corporation after December 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each partner's or S corporation shareholder's relevant basis. The proposed regulations provide guidance regarding this statutory disallowance rule, including definitions, appropriate methods to calculate the relevant basis of a partner or an S corporation shareholder, the three statutory exceptions to the statutory disallowance rule, and related reporting requirements."

Parts of the TCJA Are Expiring Soon—Here’s What That Means for You - Noah Peterson, Tax Policy Blog. "When the TCJA’s individual income tax changes expire, the amount you pay in federal income taxes will likely go up if there is no action from Congress."

Billionaires Income Tax On the Way & Covered Expats are Hit Hardest of All - Virginiia La Torre Jeker, US Tax Talk. "When the Billionaire’s Tax is eventually enacted (trust me, it will be), it will simply become a matter of time until the thresholds drop and more and more taxpayers are caught in the “Billionaire” dragnet."

Why the U.N. Vote on Taxes Matters - Alex Parker, Things of Caesar. "Would a U.N. convention be able to achieve this level of widespread compliance? The only way would be for all countries to sign onto this binding convention, which is quite a task. What reason would compel skeptical countries, including the United States, to join? And how could the U.N. do this while remaining true to its stated values of inclusion and consideration of all countries’ views?"

Questions for supporters of the UN Tax Committee - Leonard Wagenaar, Leonard's Tax Posts. "The question I keep asking over and over again is how will this actually work? What is the strategy? What is the game plan?"

“Money Mule” sentenced to one year in prison for call center scheme that defrauded victims of more than $700,000 - IRS (Defendant name omitted): 

 A SeaTac, Washington, man was sentenced today to one year and one day in prison and three years of supervised release for a money laundering conviction related to his participation in a call center scheme to defraud elderly victims across the country, announced Acting U.S. Attorney Tessa M. Gorman. Defendant was arrested on January 4, 2021. Between August 2020 and January 2021, Defendant played a key role in defrauding 28 victims of more than $700,000. The restitution amount will be determined by U.S. District Judge Robert S. Lasnik at a later date.

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According to multiple victims in the case, they had received a telephone call from someone who claimed to be employed by the Social Security Administration. The caller claimed the victim's Social Security number had been compromised, and the only way to protect the victim's money was to withdraw thousands of dollars in cash from their bank accounts and send it via UPS or FedEx to an "agent" elsewhere in the U.S. for safe-keeping. The callers allegedly demanded the victims send packages containing as much as $30,000 in cash. The scammers used UPS and FedEx so the co-conspirators could track the packages and pick up the packages of cash using the fake identity documents. The investigation revealed the callers were connected to an Indian call center.

Defendant used false driver's licenses in real people's identities to pick up packages of cash sent by victims. Defendant deposited much of the money he picked up in various bank accounts that could be accessed by his co-schemers. He was paid a commission on the money of about seven percent.

This seems to be a twist on the scam where call centers would tell victims that they owed money to the IRS, and that they needed to provide cash or prepaid gift cards to stay out of trouble. Never believe such a caller, and watch out for vulnerable relatives who might be victimized by scammers.

Well, they are both cold. Today is both National Gazpacho Day and Finland's Independence Day!